This dispute concerns a question of remuneration adjustment resulting from increased steel prices in a total subcontract where the parties to the case were, respectively, a total and a total subcontractor. The parties' agreement was based on NS 8417 with the addition of special contractual provisions. Among other things, the parties disagreed on the meaning of a provision on index regulation. Incidentally, the case is based on the fact that the general subcontractor received a very late start with the relevant partial delivery, and this was due to circumstances that the general contractor had the risk of.
Background of the case
The parties signed a contract on 10 December 2020 for two buildings and the total subcontractor (TUE) was to provide the steel and concrete support system for both buildings, which were respectively a commercial building and a velodrome.
According to the contract, works on the velodrome were to have started on 2.8.2021 with scheduled completion on 26.11.2021.
TE was delayed due to ground conditions and had to notify TUE several times that its start-up was being postponed. Finally, TUEs could start up with their works on 12.9.2022 - about 13 months later than originally agreed.
Already on 14.4.2021, TUE sent a change order notice demanding compensation adjustment as a result of delayed start-up. This justified by increased costs say rigging and assembly etc. The alert was later updated several times.
In autumn 2021, the start-up date was still unclear, and at the end of November 2021, TUE's supplier of the steel notified that prices would have to be renegotiated. A subsequent email correspondence between the steel supplier and the TUE culminated on 4 January 2022 where it emerged that the steel supplier could no longer supply steel. This was primarily justified by the fact that supplier did not have spare capacity in 2022.
Two days later, the TUE notified TE that it no longer had a contract with the supplier for the steel supply, while also making clear that any new contract would entail large additional costs.
In mid-January 2022, the TUE sent an updated notice that steel and concrete price increases would be calculated separately from other wage and price increases.
Russia invaded Ukraine on 24.2.2022 and 3.3.2022 TUE notified its customers of the possible impact this could have on their deliveries.
The TUE had to procure a new supplier of steel, and an agreement on this was signed with a Polish supplier in May 2022. The agreed price was in line with the market price, which was significantly higher than the previous year.
The works were then started on 12.9.2022 and on 15.12.2022, the TUE had a final overview of the additional costs, which amounted to about 15 million NOK. The original contract sum for the velodrome alone amounted to 18 MNOK.
TE contested TUE's claim for additional compensation.
More on the quotations of the parties
TE stated that all price adjustment should take place according to the index regulation provision of the contract. In that regard, TE argued that the indexation provision was not limited to applying only during the originally agreed construction period, but also had to apply in the event of a temporal offset beyond that.
TE also stated that remuneration adjustment under NS 8417 paragraph 34.1.2 (Failure of the general contractor's benefits, etc.) cannot be claimed instead of or in addition to the agreed index adjustment.
Furthermore, TE stated that there was no causal relationship between the risk posed by TE — namely the displacement of construction time — and the increased incremental costs of steel.
A number of other quotations were also made, but we see no reason to go into these here.
For its part, the TUE stated that NS 8417 paragraph 34.1.2 was the correct justification for the claim for additional expenditure, since these were incurred by the TUE as a result of delays to which TE had the risk.
Furthermore, the TUE stated that indexation is only a price mechanism that regulates the agreed remuneration during the originally planned construction period. It does not apply to extended or staggered construction time. Nor is it agreed that NS 8417 paragraph 34.1.2 shall not apply.
The TUE also stated that the increase in the price of steel was not due to a general increase in wages and prices, but that the TUE had to buy steel from another supplier at market prices.
In TUE's view, there was a clear causal link between the delays that TE had the risk of and the increased costs TUE incurred in steel procurement.
In this regard, the TUE stated that the TEs “Persistent delays and postponements were the sole cause of the additional costs incurred. The progress plans are immaterial. None of the progress plans gave a certain time for start-up. The plans were unrealistic, shifting and ambiguous. (TUE) requested concrete information and notified (TE) on an ongoing basis of the consequences of the delays”.
Assessment of the Court of Appeal
The delay of 13 months prior to TUE's commencement with the velodrome was undisputed and consequently TUE was entitled to additional compensation under NS 8417 paragraph 34.1.2.
Since there were no suitable unit prices, cf. NS 8417 paragraph 34.3, the rules on bill work, cf. NS 8417 paragraph 34.4, cf. 30.1, had to be used.
Regarding TE's claim that only index regulation could be required, the Court of Appeal writes that the provision on index regulation — which was primarily rooted in a meeting record — had to be understood to be limited to the original construction time. In that regard, the Court of Appeal turned to several other sources of law as support for its view, namely 'LB-2021-42691 (Slemdal School) page 63, LB-2022-176713 (Jordal Amfi) item 5.8.3.1 and Nordtvedt et al., NS 8407. Commentary edition (2013) page 375 on a similar provision”.
Like the District Court, the Court of Appeal concluded that a provision on index regulation is not intended to set aside the contract's other provisions on remuneration adjustment. If that were to be the case, this would have to have been expressed in a clear and unambiguous manner.
With regard to TE's claim that there was no causal link between the delays and the price trend of steel, the Court of Appeal concluded that “undoubted (...) causal link between delayed start-up and lapse of (TUE's) contract with” steel supplier. TEs relationships were therefore the reason why (TUE) had to find a new steel supplier. The increased costs as (TUE) thus was inflicted, therefore stands in causation with conditions that (TEA) had the risk of”.
