When is an Energy from Waste Plant contract not a construction contract?

When is an Energy from Waste Plant contract not a construction contract?

Energy from waste plants have been the subject of their fair share of disputes, one of the most recent being in relation to the development of a gasification plant at the Energy Works Hull facility (Engie Fabricom (UK) Limited v MW High Tech Projects UK Limited [2020] EWHC 1626).

The judgment handed down by the Technology and Construction Court (TCC) last week concluded that the primary activity on the site was power generation rather than waste treatment meaning that the contract fell within an exclusion in the Housing Grants Construction and Regeneration Act 1996 (as amended) (Act) and consequently two adjudicator’s awards in favour of the sub-contractor, Engie Fabricom, could not be enforced.

• The Act introduced a payment regime and statutory right to adjudicate however, this only applies to “construction contracts” (as defined in the Act) meaning certain operations would not be subject to the statutory implied terms. One of the excluded operations is the “assembly, installation or demolition of plant or machinery… on a site where the primary activity is… power generation…”
• MW High Tech Projects (MW) were the main contractor who appointed Engie Fabricom (Fabricom) as sub-contractor to install the plant on the site. The case concerned two adjudicator’s awards which Fabricom sought to enforce and which MW disputed on the basis that the operations under the contract fell within the exclusion in the Act and therefore the adjudicator did not have jurisdiction to make the awards in the first place
• The parties agreed that the activities on the site included both waste treatment and power generation but which of these was the “primary activity” was disputed
• The Sub-Contract stated that the adjudication provisions applied only to the extent (if any) required by the Act
• In reaching the decision a number of factors appear to have been considered such as the pre-treatment of the RDF fuel, the description of the works in the EPC Contract, the performance guarantees focusing on measuring heat and electricity production rather than the diversion of waste, the permit from the Environment Agency, the policy drivers for the plant, the funding model and the nature of the site.

Traditionally the exclusions from the Act have been interpreted narrowly and in an earlier TCC decision it was found that the primary activity of the energy from waste plant which the case concerned was waste disposal and therefore did fall within the ambit of the Act (in Conor Engineering Limited v Les Constructions Industrielle de la Mediterranee [2004] BLR 212). Would the decision have been different in this latest case if the contract had contained guarantees relating to the processing of a certain tonnage of waste? How relevant are the commercial drivers for the construction of the plant which may be different depending on who is procuring the construction of the plant and change over time along with incentives and government policy?

Along with the possibility that a contract to construct an energy from waste facility could be a “hybrid” contract for the purposes of the Act, meaning that the statutory payment regime and right to adjudicate apply to part of the works covered by the Act but not to the part of the works that fall within one of the exclusions in the Act, further ambiguity and risk has been created for an industry which is already prone to disputes. In such circumstances the wording regarding adjudication in the sub-contract, referred to above, does not assist.

Whether this decision is one that turns on its facts, reflects the changing landscape of the industry or is one that will subsequently be overturned remains to be seen but in the absence of further clarity:

• it is important to ensure that if you want to have the right to refer a dispute to adjudication, you must expressly state this in your contract rather than relying on the Act
• carefully consider payment. If you are unsure as to whether the Act applies you may want to make sure your payment provisions and practices comply with the Act in any event to avoiding falling foul of it
• take care to check and amend the payment and dispute resolution provisions if necessary when using standard form contracts such as the IChemE which are used on a variety of different process plant projects and include adjudication wording similar to that in the sub-contract in this case.