Is the contractor entitled to loss of profit if work is omitted?
If the contractor has undertaken under a contract to do a certain amount of work for a stated sum of money, it has the right to do it if it is to be done at all. If the contract provides that the work may be omitted, that allows the architect to instruct that the work is to be omitted. However, it does not permit the work to be given to someone else, because that would not be omitting the work but merely transferring it to another party. Architects sometimes wonder if the problem can be overcome by omitting the work from the contract and not giving the work to another contractor until much later in the contract or even after practical completion has been certified. Such an action is likely to be ineffective before practical completion. Whether it would be effective after practical completion is open to question. The key point might well be the intention of the employer at the time the omission was instructed by the architect.
An American case dealt with a contract that is similar to JCT contracts. The contract provided for the omission of work without invalidating the contract and provided that such omissions should be valued and deducted from the Contract Sum. The American appeal court sensibly held that the word ‘omission’ meant only work not to be done at all. It did not mean that work could be taken from the contractor and given to another contractor. Two English cases have reached similar conclusions.
The position is very straightforward. If the contractor has contracted to do the work, it has the right to do it, and if the work is given to someone else to do, it is a breach of contract entitling the contractor to damages unless both employer and contractor concurred in the action. The damages are calculated on the principle that the contractor is entitled to be put back in the position, so far as money can do it, as if the contract had been properly performed.
Where work is omitted to give to another contractor, damages usually amounts to giving the contractor the profit it would have earned had it carried out the work. Of course, it may be that the contractor would not have earned any profit – it may even have made a loss. In these circumstances the contractor may be grateful that the burden of carrying out loss-making work has been removed. It hardly needs saying that the contractor is entitled to loss of profit only if a profit would have been earned.
Because this is damages for a breach of contract and not loss and/or expense, there is no power for the architect under the contract to certify such sum to the contractor and, when it is agreed, it should be paid directly from the employer to the contractor without an architect’s certificate.