CASE STUDY
Our client a landowner and investor entered into a development agreement with an agent tasked with managing the development of the site and onward sale to house builders. The development work included obtaining planning, clearing the site of contamination, earthworks and section 106 roadworks/infrastructure works for a large number of houses. The development was completed over 20 years after the start for what should have taken a fraction of that time, during which excessive costs and fees were incurred and a large claim for fees at the end was then disputed set against the loss and damage caused by the non-performance and excessive delay of delivery of the site for onward sale alleged to have been caused by the agent.
As with many development agreements we have seen it was bespoke and badly written despite millions of pounds being at stake. One simple flaw was the total lack of a dispute resolution procedure save mediation. An adjudication clause was not drafted into the agreement, development agreements are not covered by the Construction Act, thus the parties only option was to use lengthy court proceedings. The agents’ obligations under the agreement to manage, report, audit and control costs were all but ignored. If the agreement, as in this case, has no enforcement mechanism to ensure the work is controlled, monitored executed with best endeavours the agent easily ignored their obligations. The procurement of contracts, planning permission, time, scope, quality, or cost control was not done with any diligence nor progress, indeed the agent’s fee arrangement was such that it charged on the costs incurred, thus it suited the agent to spend as much as possible in order to profit and to prolong the whole process promoting more costs to generate their fees. The task for Arbicon was to forensically analyse all the events chronologically questioning the necessity and justification for the time and costs, plus identifying any breaches, adverse actions and issues that could amount to damages, error or deliberate profiteering that might be outside a contract that almost allowed it and where little remedial action by the client took place contemporaneously.
The fees claimed by the agents were several million pounds and the damages were of equal amounts the other way. The first part of the analysis involved identifying adverse events and a retrospective forensic time analysis based the records at hand, which took a long time given the matter went back 20 years. The parties then held a mediation under the contract and as part of the court process, after the first part of Arbicon’s analysis was completed. The Arbicon analysis was without any quantum, which was the next task, but the obvious spectre of significant quantum was there.
The parties settled the matter.
The moral of the story is if you are engaging in a development agreement, it is imperative that the agreement be written properly to enable at least adjudication in the event of dispute and the landowner or non-builder party to have the power work to monitor and control probably using an independent project manager and essentially a Quantity Surveyor. The agreement should also include consequences for non-compliance with managing contracts, prices, time, scope and quality. The fees or remuneration structure also needs special care so that illicit gains are avoided.