The interaction concerned a rehabilitation project with an agreed target sum in phase 2, and a guaranteed maximum price.
The final cost ended up more than 50% higher than the original target sum.
The target sum was revised as the general contractor was able to comply with a number of disputed change order requirements, as well as time-related requirements for rigging and operation, as well as wage and price increases.
It falls too far to account for the ruling in detail. Our purpose in creating this summary is tentatively to illuminate some conditions we believe are learning points for anyone considering undertaking their project interactively.
Background of the case - overall
The case concerns a rehabilitation and redevelopment project in Bergen.
Three buildings erected in 1895, 1916 and 1945 respectively were to be transformed into “Kulturhuset i Bergen”.
The works were to be carried out in conjunction and the contract was based on NS 8407.
For Phase 2, a target sum contract with a guaranteed maximum price was signed. The maximum price was calculated at target sum + 5%.
The interaction contract was signed on 9 July 2019. At this time, the developer had already completed a preliminary project with a different actor than the general contractor, and a framework application had been submitted.
It is clear from the judgment that the parties had agreed that the pre-project phase (Phase 1) would last for only 1 month (1.8 — 1.9.2019). This phase was later extended until 31.3.2020 which was the time when the parties marked transition from Phase 1 to Phase 2.
The parties had also agreed that Phase 2 would be completed on 1 October 2020, which meant a planned execution period of only six months.
As we understand the judgment, the calculation was prepared by a general contractor and the initial calculation amounted to NOK 56.28 million. The latest and current calculation was issued on 18 February 2020 and amounted to NOK 62.76 million. It was this amount that was used as the target sum.
Status after completion
The project was delayed by 16 months.
The final part of the project was completed in January 2022 after parts had been partially handed over as of September 2021.
In the final settlement claim, the general contractor stated a revised target price of NOK 97.17 million, which meant an increase of NOK 34.41 million compared to the originally agreed target price. This represented an increase of 55%.
The developer disputed the claim and asserted a counterclaim of SEK 10.5 million, which included, among other things, daily mulch.
Briefly about the requirements of the parties
The case included, among other things, 37 alteration claims, compensation claims for rigging and operation, wage and price increases, malus and daymulkt.
In addition, the parties disagreed on what was included in the general contractor's contractual obligation, whether the parties had reached an agreement on a deferred day-covered deadline and various other quotations relevant to several of the amendment requirements were made.
Decision of the Court of Appeal
The general contractor was able to comply with most of his requirements.
The Court of Appeal awarded the general contractor approximately NOK 15.5 million in change claims after deduction of about NOK 2.9 million in negative changes.
The general contractor was also granted compliance with its demands for regulation of rigging and operation as a result of extended construction time (NOK 5.1 million), as well as wage and price increases (NOK 3.9 million).
The Court of Appeal also upheld the general contractor's claim that the changes had to entail an up-regulation of the target sum.
Consequently, the target sum was up-regulated to NOK 87 million, and the guaranteed maximum price was adjusted up to NOK 93.1 million.
The actual costs amounted to approximately 98.5 million million.
The difference between the revised target price and the guaranteed maximum price was NOK 6.1 million giving a malus of NOK 3.05 million.
The builder was granted his full claim to full daycare.
The total costs for the Court of Justice and Appeal amounted to NOK 26.4 million.
Of this, the general contractor claimed compensation of NOK 3.7 million in fees for the Court of Appeal and NOK 5.25 million in fees for the District Court.
The general contractor had made a settlement offer several months before the start of the district court case. This settlement offer would have given the builder a better outcome than the Court of Appeal's judgment outcome.
Although neither party won the case fully, the Court of Appeal upheld 2/3 of the claim before the Court of Appeal and ½ of the claim before the District Court.
Our comments
The ruling illustrates that interaction can present significant challenges.
Considering the extent of the changes and time-related requirements, the increase of the target sum, a delay of 16 months in the resulting loss of income and the extensive legal costs, it cannot be doubted that this interaction had significant financial consequences for the parties.
The sentencing preamble goes little way into the underlying causal factors, but it cannot be doubtful that the parties must have conducted their interaction in a way that neither of them may have wished.
When trying to analyze possible learning points, it is good to clarify that one must necessarily base some assumptions that, if one had known the matter in detail, may appear incorrect and at least imprecise.
We're still making an effort.
The project itself was of such a nature that it should be well suited for an interaction.
In any case, interaction would make sense compared to a traditional implementation in a pure turnkey contract.
In this regard, we show that the project concerned a rehabilitation involving three different buildings and where everything was to be joined together into a cultural building. The buildings were old, and erected in three different eras. Maps included in the judgment indicate that the project was carried out in the middle of Bergen and that the construction site was narrow.
The final product should satisfy TEK 17.
The fact that such a project is particularly suitable for interaction is highlighted by many, and we refer to our article “Interaction — moments before decision is made” point 2 that exists here.
A main objective of interaction in such a project is perhaps first of all to utilise the expertise of the executor in phase 1 to survey the nature of the building as best as possible. One wants to reduce the risk of surprises during the execution phase (phase 2).
In such a work, it will be important to review “as built” drawings, open constructions, acquire an overview of what is hidden and which, experientially, can create major challenges in Phase 2.
Seeing the scope of change in this case, what the changes largely concerned and the fact that the works were substantially delayed, this seems to be a reasonably clear indication that something must have failed in Phase 1.
With such a starting point, it is therefore not surprising that the calculation — which was the basis for the target price — was significantly flawed.
Regarding the calculation, we must highlight that the judgment gives the impression that the general contractor was alone in drawing it up.
At the same time, there are a number of points in the judgment that give a relatively strong impression that the builder had lost all confidence in the general contractor.
There may be several reasons why the builder loses confidence, and it is not without reason that it can be explained by the circumstances of the general contractor.
However, we believe that it is best to work towards a relationship based on trust by working together on the calculation. With a good knowledge of the strengths, weaknesses and assumptions of the calculation, it will probably be easier for a builder to understand the cost trend, but it is difficult to say.
Another factor that may have contributed to a loss of trust on the part of the builder is his lack of competence. If one does not have experience in carrying out construction projects and in any case not rehabilitation projects, then one can get incorrect notions of complexity.
If you do not interact, you may have an exaggerated idea of the distribution of risks and responsibilities. Especially if the developer mistakenly believes that interaction is tantamount to the general contractor taking over the builder's risk.
Of course, we do not know if this has been the situation in this interaction, but we think a lot has gone wrong — also in terms of the composition of the builder-organization.
