There are several situations where an employer or main contractor may wish to remove works from a subcontractor and instruct another party to carry them out. However, given that a party to a contract has not only an obligation, but also a right to carry out the contractual scope of works, this has always been a controversial issue. The recent case of Van Oord UK Limited v Dragados UK Limited [2020] CSOH 87 addressed this question.


Dragados UK Limited ("Dragados") was engaged by Aberdeen Harbour Board as main contractor on the Aberdeen Harbour Expansion Project. In turn, Dragados sub-contracted Van Oord UK Limited ("Van Oord") to carry out various works, including the soft dredging of approximately 2.15million cubic metres of the seabed. The sub-contract was an amended NEC3 Option B April 2013 edition (the "Contract"). What Van Oord did not know, until this action reached court, was that Dragados subsequently entered into separate sub-contracts with two other companies (WASA Dredging UK Limited ("WASA") and Canlemar SL ("Canlemar").

During the course of the Contract, Dragados issued a number of Contractor's Instructions to Van Oord to omit works from its scope – these works were later transferred to either WASA or Canlemar. The result of this was that Van Oord was neither obliged nor entitled to carry out the omitted works. In addition, under the Contract, each Contractor's Instruction also constituted a compensation event. Based on Dragados' calculation, each compensation event reduced the bill rate payable for Van Oord's outstanding work. Van Oord contended that these Instructions were issued in breach of Contract and that it was entitled to be paid on the basis of the original unamended bill rate.

Two questions were put before the Court:

Question 1 – Was Dragados entitled to omit the works from the Van Oord Contract?

In short, the answer is no. The Court found that Dragados had acted in breach of contract. It relied on the earlier English case of Abbey Developments Ltd v PP Brickwork Ltd finding that the terms of the Contract were pivotal. The Court held that the key clause was clause 14.3 which set out:

The Contractor [Dragados] may give an instruction to the Subcontractor [Van Oord] which changes the Subcontract Works Information or a Key Date. The Contractor may, in the event that a corresponding instruction is issued by the Project Manager under clause 14.3 of the Main Contract only, also give an instruction to omit (a) any Provisional Sum and/or (b) any other work, even if it is intended that such work will be executed by Others.

The underlined words were the deciding factor. As this clause provided for a specific situation where works could be omitted from the Contract and transferred to another party, the Court held that unless those circumstances arose, Dragados could not do so. Those circumstances hadn’t arisen here, as Dragados could not point to a corresponding instruction under its main contract and so Dragados was in breach of the subcontract in seeking to omit works.

Issue 2 – What did this mean in terms of the sums Van Oord was entitled to be paid?

Dragados argued that if (as was found) it was in breach of contract then the consequences of this should be dealt with by way of the compensation event mechanism provided for in the Contract. This was the appropriate method for assessing a compensation event even if Dragados was in breach of contract. Removal of works from Van Oord's scope unquestionably changed the Subcontract Works Information and the compensation event mechanism would place Van Oord in the position it would have been had the compensation event not occurred.

Van Oord argued that the compensation event mechanism applied only in the situation where a valid instruction changed the Subcontract Works Information, not where Instructions where issued in breach of Contract. If it was applied here, then Van Oord would suffer significant detriment as it would be hit by two losses – the reduction of its scope of works and the decrease in its rates for works yet to be carried out. It argued that there was no need to apply the compensation event mechanism here and the rates could be left unaltered.

The Court sided with Dragados and held that Van Oord had not made out a relevant case for the old rates to apply. It held that Contractor's Instructions issued in breach of the Contract were still covered by the terms of clause 61.1, that the Subcontract Works Information had therefore been changed and that the mechanical calculation fell to be applied. The Court rejected Van Oord's argument that this could not be a correct interpretation as a reduction in rates would leave it worse off, meaning that Dragados would benefit from its own breach. The Court found that this was not self-evident and that a reduction in bill rates could simply reflect the fact that losses would have been incurred in any event.


As always, this decision provides food for thought for all parties.

If you are in Dragados' role, and you want to be able to safely exclude work from a subcontractor's scope, then an express provision to allow you to do so at will should be included in the Contract. Subcontractors will likely be resistant to this, but it will be a commercial decision on each basis whether you wish to include such a clause.

If you are in Van Oord's role, and the employer wishes to include an "exclude at will" clause, then beware of possible unintended consequences. The particular valuation method here left Van Oord operating at reduced rates for remaining work. Address clearly how omissions are to be treated in valuation terms.


Eric Johnstone

Legal Director