Neutral citation: Costain Ltd v Bechtel Ltd [2005] EWHC 1018 (TCC)

NEC contract topics: Impartiality, role of the NEC Project Manager, assessment and certification of payment, disallowed cost

Form of NEC contract: NEC2 Target Cost

Main areas of law: Contractual interpretation, the implied duty of impartiality and the tort of procuring breach of contract

 

The dispute arose from a contract awarded under the Channel Tunnel Rail Link (CTRL) project concerning the extension and refurbishment of St Pancras Station. The contract, known as C105, was a Target Cost contract based on the NEC 2nd Edition (NEC2), with modifications. It was entered into on 26 April 2002 between Union Railways (North) Ltd (URN) as Employer and a consortium referred to as “CORBER”, consisting of Costain Ltd, O’Rourke Civil Engineering Ltd, Bachy Soletanche Ltd, and EMCOR Drake & Scull Group Plc.

The Project Manager role under the NEC contract was undertaken by Rail Link Engineering (RLE), itself a consortium of which Bechtel Ltd was the dominant partner. Mr Fady Bassily, Bechtel’s executive chairman, also served as RLE’s project director. Under the amended Core Clause 10.1, all parties agreed to “act in the spirit of mutual trust and co-operation and so as not to prevent compliance...with the obligations each is to perform under the Contract.”

The contract operated on a pain/gain share basis. CORBER was to be reimbursed actual costs as defined under clause 11.2(2), less disallowed costs per clause 11.2(15). In February 2005, RLE issued a payment certificate allowing £264.2 million with £1.4 million of disallowed cost. Just two months later, disallowed costs spiked to £5.8 million, prompting suspicion from CORBER regarding the objectivity of the assessments. These concerns escalated following a meeting on 15 April 2005 in which Mr Bassily reportedly advised Bechtel staff to adopt a more rigorous approach to disallowing costs. CORBER interpreted this as a directive to act contrary to RLE’s obligations of impartiality and brought proceedings seeking injunctive relief to restrain Bechtel and Mr Bassily from further action inconsistent with those duties.

 

Several complex legal issues were placed before the court. The first was whether Mr Bassily’s instructions to Bechtel staff at the 15 April meeting constituted an attempt to influence contract administration in Bechtel’s favour and against CORBER’s interest.

The next issue concerned whether the NEC Project Manager was under a legal duty to act impartially when assessing and certifying payments—essentially whether the impartiality obligation implied in traditional construction contracts applied equally under the NEC form.

CORBER also advanced a tort claim, alleging that Bechtel and Mr Bassily had unlawfully procured URN’s breach of the NEC contract. Furthermore, the court was asked to determine whether an interim injunction was an appropriate remedy, particularly in light of the contractual dispute resolution mechanisms already in place.

 

Mr Justice Jackson refused to grant the interim injunctions sought by CORBER. Applying the principles in American Cyanamid v Ethicon [1975] AC 396, the court held that CORBER had not demonstrated that injunctive relief was appropriate. The contractual mechanisms available—namely adjudication and arbitration—were found to provide adequate remedies for any wrongful conduct in the assessment and certification process. However, the judgment did not entirely side with the defendants. Crucially, Jackson J found that CORBER had established serious issues to be tried, including whether RLE, under the NEC contract, had a duty to act impartially in administering payments. Drawing from Sutcliffe v Thackrah [1974] AC 727, the court held it was “at the very least, properly arguable” that the Project Manager was required to act impartially between employer and contractor.

 The defendants contended that the NEC’s detailed provisions obviated the need for impartiality and that the Project Manager’s role was analogous to a client representative. They also pointed to an “entire agreement” to argue against implied terms. Jackson J rejected these arguments, remarking that it would be “a most unusual basis for any building contract to postulate that every doubt shall be resolved in favour of the employer and every discretion shall be exercised against the contractor.”

While no findings were made against URN, Bechtel, or Mr Bassily on the substantive allegations, the judge emphasised that serious questions remained for trial and acknowledged the public and legal significance of clarifying the Project Manager’s role under the NEC contract.

 

This judgment is notable as the first published decision involving the NEC contract and has significant implications for NEC users. The case sheds light on the practical and legal expectations placed upon Project Managers and their duty to act fairly when certifying payments. The court's willingness to accept that impartiality may be implied calls for caution among employers, project managers, and consultants who might otherwise assume a latitude to act in their own interests. The judgment serves as a reminder that the overarching obligation to “act in the spirit of mutual trust and co-operation” is not merely aspirational but may influence the interpretation of more operational clauses. The ruling underlines the risks associated with inconsistent or abrupt changes in cost assessment policy, especially where they depart from previously accepted practices. Project Managers, particularly where acting through consortia, must ensure their administrative conduct remains consistent, transparent, and objectively justifiable under the contract.

 

For the construction industry more broadly, the judgment affirms the importance of clarity in role definition and the careful handling of perceived conflicts of interest.  It reaffirms the duty of impartiality in payment certification. While the immediate relief sought by CORBER was denied, this case stands as a warning against conflating employer interests with the independent duties of the project manager.