Water-tight contracts

Along with greater freedom and independence, schools also now have the huge responsibility of procuring the services of reliable contractors. Schools and colleges need to have their wits about them as Richard Bird explains.

The courts are taking an increasingly dim view of escalating legal costs when insurance companies get involved. And it’s not just whiplash claims – schools and colleges are also finding themselves at the sharp end.

A recent case involved a school where an initial claim of around £19,000 generated costs on the one side of £165,000 (not inclusive of a success fee), and on the other of £60,000.

The case began in 2006 with a wet patch on the floor of a dining hall. When staff investigated, it appeared to be coming from the area of a duct cover. They lifted the cover and a ‘fountain’ shot up from a hole in a copper heating pipe.

On examination, it became clear that the hole had been caused by a nail being driven through the duct cover, which had pierced the pipe. When the duct cover and nail were removed, the fountain ensued.

The school concluded that this must have been caused by a contractor, who, in 2003, had replaced the pipes as part of a £500,000 contract. Once the piece of pipe had been photographed and replaced, the school raised the matter with the contractor.

Denying liability

The school’s solicitor offered to settle for £19,200, inclusive of costs. The contractor made no response. By 2007, the costs of settling had gone up to £25,000 and the contractor denied liability.

The piece of pierced pipe had disappeared and the contractor, who appeared to have forgotten that he replaced the pipework in 2003, argued that the nail had been in position since the original iron pipework had been installed and that subsequent corrosion had allowed the seepage of water.

He dismissed the photograph saying that the nail pictured was not the nail that caused the damage, but the nail used to stop the hole.

When the next offer to settle was made, the claim had risen to £62,000. The damage repair was no more expensive but the costs of correspondence were mounting.

The original pipe was then discovered in a brown envelope in a filing cabinet and even had the nail used to plug the fountain still in it! The school offered to settle for £45,000. The contractor opted to go to trial. The judge awarded the school compensation of £21,075 with an additional £6,045.

The contractor appealed on the costs, but the Appeal Court was not amused. The case had been handled by two firms of insurers which, the court considered “may be expected to approach litigation with professionalism and realistic insight and have the experience to do so”.

The contractor’s decision to go to court on the principle that ‘something will turn up,’ once their initial case had crumbled with the rediscovery of the pipe annoyed them still further.

The conditional fee arrangement (no win: no fee) that one party’s insurers had entered into distorted the situation and, the court implied, had distorted judgement.

The case was ideal for mediation and the court was surprised that the parties had not engaged in mediation to settle the business. As it was, the public would pay not least in higher insurance premiums.

Lessons learned

Once a school or college is engaged in this kind of situation, it is in the hands of its insurers. The institution itself cannot be blamed for following their advice. However, there are a number of lessons to learn generally.

The first is that everything needs to be done to ensure contracts go to a reliable contractor. The second is that the school’s or college’s architect needs to be involved. This is particularly important for schools now that so many are on their own.

Independence may mean that the school does not suffer from a contractor’s assumption that the county council isn’t too bothered about cost, but it loses the protection offered by the fact that a local authority’s custom is worth a great deal and worth keeping.

When a school is a single contractor for relatively small amounts and may not return to the market for some time, then without an architect’s oversight a contractor might put the school low down on the pecking order and be light on supervision.

If something goes wrong, the lowest part of one’s costs may be the actual damage if liability is contested, so insurance needs to cover legal costs. Mediation is favoured by the courts.

Finally, if there is physical evidence, it must not only be collected and photographed, as it was; but also kept in a place where it can be located.

• Richard Bird is ASCL's legal consultant

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