Costly blunder!

The Government has been ordered to pay approximately $472 million plus interest to a private contractor over a botched school construction contract that had an original sum of $49 million when it was inked in 1998.

Justice David Batts, last Friday, entered judgment in favour of Construction Developers Associates Limited, which sued the State after the Ministry of Education terminated the contract near its completion in 2001.

“The award may seem extraordinarily high,” said Batts, adding that, “Jamaica and Jamaicans are subject to the rule of law. This means citizens, the State, and its agents must obey the law. The law of contract requires that contractual obligations be honoured.”

The judge also pointed to a 2002 letter, from the attorney general, which recommended that the amount claimed be placed in escrow.

“I sincerely hope that advice has been heeded,” Batts said in his 16-page judgment.

There is no indication yet whether the ruling will be appealed.

According to the judgment, the contract, dated December 19, 1998, was for the construction of a junior high school in Annotto Bay, St Mary. The construction, which began in February 1999, was to be completed in 12 months but was extended until 2001 for “various reasons”.

Before the contract was terminated, parties had disputes over contractual obligations. Those issues were put before an adjudicator, Dr Lloyd Barnett, who issued rulings on the methodology for calculating certain payments.

However, the ministry refused to honour Barnett’s ruling and indicated that it would refer the matter to arbitration. That process did not take place.

Failed to file a defence

In 2009, the contractor sought the court’s declaration on whether the rulings were final and binding.

The company subsequently won by default after the Government failed to file a defence. The Government later challenged the order and was successful in getting it set aside in the Court of Appeal.

The court sent the matter back to the Supreme Court for a hearing and for the ministry to file an affidavit. However, the Government did not do so, “having been advised that the matter concerned a point of law with no factual issues”, the judgment said.

The Supreme Court upheld Dr Barnett’s orders in November 2014.

Between 2014 and 2019, the ministry and the contractor pursued talks but could not agree on the amount of money owed to the contractor and how interest should be calculated. The contractor filed a claim in 2019 for the court to make the final determination, culminating in Batt’s decision.

Among the Government’s arguments against the contractor was the late submission of the final accounts for payment, the death of the project manager, and the proposed use of compound interest.

The Government also tried, unsuccessfully, to amend its response, arguing that the contractor was aware of the sums outstanding before Barnett’s adjudications, and chose not to pursue the recovery of, when it took court action in 2009.

“It is, therefore, an abuse of the process for the claimant to seek to recover those sums,” it argued, pointing to a legal principle that a matter once litigated cannot be revisited.

Batts rejected that application, saying, among other things, that the case before him was about the amount of money owed to the contractor and was “separate and distinct” from whether Barnett’s decisions were binding.

The contractor submitted its final accounts for payment in November 2018 for $10.6 billion.

However, the Government contended that its contractual obligations ended in 2001 when the contract was terminated. It argued that the project manager had opined that the document should have been submitted but had not been. The Government also argued that the amount was not binding because the project manager, Morris Chin, died before it was submitted.

However, in his judgment, Batts dismissed the Government’s arguments.

He said Morris’ death did not affect the submission of the final accounts because “it is manifest” that the named project manager was “Morris Chin/Rivi Gardner … a reference to the firm bearing that name and hence either or both gentlemen in that firm could act as project manager”.

Batts did not accept the argument that the final account had been submitted late. He also said there was no contractual provision, which renders submission of a final account as a precondition to payment before completion.

“The claimant is entitled to be paid for the work done once certified. It is irrelevant whether a document, known as a final account, was prepared if certificates for payment were already issued,” the judge said.

Batts also said that the terms of the contract supported the use of compound interest to calculate the outstanding sums.

In deciding the award, Batts applied the prevailing rates for commercial loans provided by the Bank of Jamaica. He said when the monthly average lending rates for commercial credit were applied, “the total due is $471,483,972.68 as of March 31, 2024”. Interest is to be paid at 10.24 per cent per annum until the sum is paid in full. The Government is also to pay the contractor’s legal fees.

The judge said the calculation took into consideration two payments of approximately $713,000 and $90 million paid to the contractor in 2016 and 2018, respectively.

Batts acknowledged the contactor’s complaint that it “suffered greatly due to the failure of the State to honour its bargain”.

The contractor was represented by King’s Counsel Denise Kitson and attorneys Kevin Williams and Rachel Kitson, and the attorney general was represented by attorneys Annaliesa Lindsay, Karessiann Gray, and Rochelle Duncan.

tanesha.mundle@gleanerjm.com