England and Wales High Court (Technology and Construction Court) Decisions

IN THE COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Date of Handing Down of Judgment in Open Court: 26 November 2002

 


1. Introduction

1. This action is concerned with the attempts by the defendant, British Broadcasting Corporation ("BBC"), to instal an integrated access control system at 57 different premises across the United Kingdom in 1999 using the claimant, A C Controls Limited ("ACC") as the procurer and installer of the system. The project was not successful, the parties' relationship broke down and ACC now claims the balance of about £930,000 it alleges that it is owed for the work and services it performed. The BBC disputes the entirety of this claim and, indeed, counterclaims nearly £123,000 as the sum that ACC has already allegedly been overpaid. The issues that must be determined to resolve these rival claims may be broken down into three groups: (1) as to the contractual or other basis upon which the work was carried out; (2) whether ACC carried out its work subject to an agreed cap or ceiling on the amount that it was entitled to be paid; (3) whether ACC is entitled to payment for separate items of claim and, if so, how much that entitlement is.
2. The background to the dispute can be recounted briefly. In 1998, the BBC were considering the installation of an integrated access control system. The proposed system was to be a centrally controlled software access system which would both allow access to and from 57 of the BBC's properties and would monitor and record all movements through the controlled doors and barriers. This access would be allowed to anyone in possession of a smart card which would be recognised by the software controlled card readers. The smart card would be fitted with a microchip which could be programmed so as to allow different personnel differing degrees of access around any particular premises. For example, the smart cards issued to newsreaders would give them access to the particularly sensitive newsrooms denied to most other employees. The system would also in time, it was hoped at this initial stage, be linked to other systems such as video imaging, cashless vending and the asset tagging of both hardware and software. This proposed system was described internally as a "retrofit", or retrospective fit, since the doors and barriers that would be controlled were already in place and in use.
3. The proposed system was described in detail in tender documents that were prepared by independent consultants. Hanscombe Limited. These consultants are quantity surveyors who provided valuation and similar services throughout the parties' relationship but the project was managed internally by its own project and technical managers within the Services Group whose General Manager was Mr Andy Eastwood. ACC's response that priced this tender and the BBC's subsequent letter of intent formed the basis of the parties' subsequent relationship but it is in dispute whether or not that relationship was a detailed contractual or a simple contractual relationship. Both parties accept that the relationship was a contractual one. However, ACC contends that the relationship was embodied in a detailed contract which superseded the letter of intent. The BBC on the other hand contends that the letter of intent with its spending cap continued to govern the relationship in the continued absence of agreement on the final details of either the specification of work or the programme. If the BBC's case is accepted that the parties' relationship was governed by the letter of intent and that the work that would be paid for was governed by a spending cap or a limit on value, ACC claims the bulk of its contractual claim in the alternative as money due pursuant to a quantum meruit valuation for work performed at the BBC's request outside the contractual framework imposed by the letter of intent.
4. The tender documents envisaged that the installation work would be undertaken over a nine-month period between March and December 1999 and be completed before the start of the new Millennium having been installed so as to be Year 2000 compliant. The invitation to tender was sent out on 27 November 1998 and ACC's alternative tender was submitted on 5 January 1999. A protracted series of meetings and exchanges followed culminating in the BBC sending ACC a letter of intent which ACC signed on 9 June 1999. This letter was never intended to be the sole contractual basis of the relationship and, indeed it contained a spending cap of £250,000 for a project originally tendered in the sum of £3,118,074.14. However, a formal set of signed contract documents was never subsequently executed. Work was carried out between May and December 1999 and was then, according to ACC, suspended until April 2000 when the BBC terminated the relationship.
5. A considerable part of the claim represents costs and overheads associated with both periods and to costs of additional design services that ACC contends it incurred in the period between 3 August 1999 and January 2000. The other items of claim in dispute involve, in part, valuation disputes and, in part, questions of whether the work or services were performed or entitled ACC to additional payment. The claim, overall, is arrived at by totalling up the value of all items of work carried out and claims being made and subtracting the total of all payments made to date. The negative sum arrived at if the BBC's figures are used in this exercise represents the value of the BBC's counterclaim. Given that all payments were made during the relationship on an on-account basis, the BBC is entitled to recover any overall sum that ACC might be found to have been overpaid.

2. The basis of the parties' relationship

2.1. The background to the letter of intent

6. The BBC is made up of a variety of departments and groups which overlap and which do not operate with a clearcut reporting structure or system of record keeping. Thus, the retrofit project, although a relatively simple one in both conceptual and functional terms, straddled the Facilities Management Group which was part of BBC Resources, the Special Projects Section of the Property Group and the Departments of Applications Management and Security Services.
7. In reality, the access control project was run by a stand alone project steering group that was set up in May 1998 with Mr Andy Eastwood, then the general manager for group services, which formed part of BBC Resources, as project co-ordinator. Mr Eastwood in employment terms was answerable to the Executive Committee of BBC Resources through Mr Rod Lynch, the Chief Executive of BBC Resources but for this project he was reporting to two directors of the BBC, the Director of Finance and the Director of Personnel.
8. On being appointed to be the project co-ordinator, Mr Eastwood arranged for Mr Jeffrey Inns, a project engineer from the special projects or electrical and building services section of the Property Group to be the Project Manager. He also appointed Mr John Allan, a facilities or development manager for group services to provide additional technical and management guidance for the project. Mr Rennie Kraus, who had been working as a project manager involved in security and electrical works, was appointed contract administrator. Mr Grahame Points, an independent consultant who had provided consultancy services to the Department of Applications Management, was retained on an ad hoc basis to provide Information Technology services to this project steering group. There were also appointed to the board Mr David Heywood, Head of Corporate Security, Mr Alan Bridle, a procurement specialist and other representatives from user departments.
9. When the project appeared to be floundering, Mr Paul Birch was recruited by the BBC and appointed in November 1999 as a senior programme manager to bring the project back on track and he effectively became the project director answerable to Mr Eastwood.
10. ACC was established in 1986 by Mr James Patterson, its managing director. Mr Douglas Maclaine was appointed as ACC's Sales Director soon afterwards. ACC is privately owned and is based in Slough, Berkshire with branches in five other locations in the United Kingdom. It specialises in the design, supply, installation and commissioning of fully integrated access control security systems and had developed a commercial relationship with Infographics Corporation, a United States supplier of software and hardware for use in access control systems.
11. Prior to 1999, there were many disparate access control systems in use throughout the BBC's London and regional premises located across the United Kingdom. The decision to try and introduce a nationwide access control system was taken by the BBC's Executive Committee after Mr Lynch, the then Chief Executive of BBC Resources, had concluded in March 1998 that this should be attempted. Mr Lynch's initiative followed the introduction in 1997 of the BBC's new corporate logo and a standard staff identity card across the entire organisation. EU tendering requirements were followed and an advertisement was placed in the OJEC in May 1998 seeking preliminary proposals from companies to undertake this work. At this stage, no design work had been carried out and the user and the BBC's technical and user requirements had not been defined. Mr Inns and Mr Allan undertook research on manufacturers, suppliers and installation companies and 77 enquiries were received in answer to the advertisement. These were whittled down to 23 following the sending out, submission and consideration of pre-qualification questionnaires.
12. ACC saw the OJEC advertisement and replied promptly. It invited the BBC to visit a number of its then clients' sites and in June 1998 Mr Inns and Mr Allan visited a large computer company's premises in Linlithgow in Scotland. In July 1998, the BBC produced a schematic diagram showing all 57 access control stations linked in a Wide Area Network or WAN to one central server.
13. A further round of evaluation reduced the list to nine prospective tenderers including ACC. This company drew the BBC's attention to an access control conference to be held in Dallas, Texas, USA, the ASIS security show, in September 1998 and this was attended by both Mr Inns and Mr Allan who met, at the show, Mr James Patterson and Mr Douglas Maclean, respectively ACC's Managing and Sales Directors. The ACC representatives took the BBC representatives to meet the Infographics people on that company's stand. That company is based in Palo Alto, California and it specialises in the manufacture and supply of access control systems. ACC was then its UK agent and had used Infographics systems in six major and many minor installations over the previous three years. Mr Inns showed the Infographics representatives the schematic drawing that it had already prepared and they confirmed that Infographics could meet the outline specification it embodied. This was in stark contrast to Infographics' major competitor who, when shown the outline drawing by Mr Inns when its stand was also visited, stated that it could not meet that specification.
14. This preliminary work satisfied the BBC that it needed to use Mifare Technology for the smart cards and smart card readers as part of the retrofit access control system it was to introduce. This technology was that on which Infographics and other state of the art access control systems were able to accommodate. The technology was designed by Phillips on an open access system and it describes the way that the chip is to be configured.
15. The tender documents were then prepared for the new hardware and software with associated smartcard readers that the BBC regarded as appropriate for its needs. The tender consisted of instructions to tenderers, a specification of requirements, a form of tender, prequalification questionnaire and the BBC's Terms of Trade for the Purchase of Hire Goods, Facilities and Services and Environmental Services Standard Specifications. The BBC envisaged that there would be three related contracts entered into. Although these could have been entered into with different contractors, it was contemplated that if all went well in the pre-contract negotiations, the same company would enter into all three. It would have been impractical for a second or third contractor to undertake the other two contracts. Moreover, the BBC intended to consider each tenderer's rates for the other two contracts when evaluating the tenders for the retrofit contract.
16. Thus, the first of these contracts would be for the supply and installation of the retrofit system which, because it was to incorporate the MF 1 or Model Form 1 standard conditions of contract published jointly by the Institutes of Electrical and Mechanical Engineers, was always known as the MF/1 contract. The other two contracts were, secondly, one for additional work required at various sites of a similar nature which was known as the MTC or Measured Term Contract and, thirdly, one which was to be a long term maintenance contract to maintain the integrated access system once installed and completed.
17. The tender documents sought two alternative tenders. Tender A was intended to provide for the required facilities without the constraints of the existing installation. In other words, the tenderer was to suggest its own design as to how the system would operate. Tender B was intended to provide a system based on the existing four-door local/zone controller configuration wiring where available with connections to the system via a new dedicated LAN. In other words, the tenderer was to prepare its tender on the basis of the BBC's schematic design using the existing four-door design. The BBC decided, having evaluated the tenders, to adopt Tender B and, indeed, had principally provided for a second Tender A as a means of evaluating the preferred system described in Tender B.
18. The tender documents were prepared by Mr Inns. It was a matter of difference between the parties as to how detailed this tender was and how much additional design work was envisaged as being necessary from the contractor once the contract had been entered into. It is clear, however, that the degree of technical detail that the specification contained is considerable. The proposed timescale for the contract was initially nine months starting in March 1999 and ending before the start of the new millennium. However, during the tender process, the BBC informed tenderers that they were to indicate what if any impact on cost there would be if the contract period was 18 months.
19. The tender document were sent out to four prospective tenderers including ACC who returned its priced tender dated 5 January 1999 with Tender B priced at £3,118,074.14. This was the favoured tender but there was a need for the BBC to discuss the practicality and functionality of the BBC Tender Design Specification and other changes including the use on the larger sites of the 8 door controller that had been detailed in Tender A instead of the four-door controller that had been detailed originally in Tender B for all sites. This led to the BBC informing ACC on 26 March 1999 that the Project Board had approved the appointment of ACC as contractors for the retrofit contract.
20. Discussions continued as to the tender price and ACC began to undertake design and survey work and other costs were incurred in preparation for factory acceptance tests. This work was undertaken in anticipation of being awarded the contract. Since the BBC was not yet in a position to finalise the contract details and execute the contract, it issued to ACC a document that both parties during the trial called a letter of intent dated 4 June 1999 under which ACC was to continue with its survey and other preparatory work. I describe this document as a "letter of intent" because the parties referred to it in this way. However, the document was signed by an authorised representative of each party and its contents are, in substance, such as to make it a concluded contract albeit it is in the form of a letter. The document does not include the phrase "letter of intent" in its wording and, indeed, it is this so-called letter of intent which the BBC contends continued to constitute the contractual framework for all work carried out by ACC.
21. The salient parts of this letter read as follows:

We refer to [ACC's] tender submission dated 5 January 1999 and the following meeting at the BBC on 13 April 1999 we write to confirm the following:

It is the intention (but not the obligation) of the BBC, subject to the BBC and ACC reaching agreement as to all applicable terms, to enter into a formal agreement with ACC for the undertaking of this work incorporating the following:

A. Your Tender Submission dated 5 January 1999.

B. General Conditions of Contract MF/1 1988 Edition (Rev as altered and added to be Special Conditions to be agreed.

C. Supplementary correspondence between the parties and/or Hanscombe which modify the tender.

D. The savings offered in your letter of 27 April 1999 and the additions and omissions to your Tender B as detailed in the minutes of the meeting held on 5 May 1999.

E. The Contract Sum to be £2,545,612 established from your tender incorporating fixed lump sums for wiring and associated builder's work as set out in the minutes of the meeting held on 5 May 1999.

F. The agreed addition of £115,000 to the Preliminaries within the Contract Sum, for extending the programme from nine to eighteen months shall not be increased unless the agreed duration of the programme exceeds 21 months.

G. Builders work, reinstatement of all necessary fire stopping and making good associated with the stripping out of existing wiring and the installation of the Works is deemed to be included within the fixed lump sums for wiring and associated builders work and shall be carried out by ACC or a BBC approved subcontractor.

H. ...

I. A detailed breakdown of your Contract Sum to the same detail as your Tender Submission to be prepared and incorporated into the Contract Documents in accordance with the principles established as set out in the minutes of the meeting held on 5 May 1999.

J. Work to be executed in accordance with an agreed programme.

II. Forthwith following agreement as to the contents of this letter ACC shall commence and carry out Survey work of all sites set out in the Invitation to Tender Document and shall prepare and submit for approval to the BBC a programme which shall identify the order and timing of all design and installation works and all other relevant matters. ACC shall use its best endeavours to accommodate any BBC observations on the programme submitted and to obtain the BBC's agreement to the programme within a reasonable period.

III. The survey shall establish any further information which ACC requires in order to commence site installation.

IV. The programme to be agreed shall be subject to the following constraints. [These were then set out]

V. Installation works shall not commence until the programme has been agreed.

VIII. All computers will be made by Compaq and will be provided by ACC/ The specifications shall be not less than the following:

II. Following the completion of the initial surveys of all sites the requirement for a controlling workstation at each site is to be reappraised by the BBC and the location and number of workstations agreed with the BBC. Any adjustment of the number of workstations shall be instructed by the BBC as an MF1 variation and valued as such.

III. It is understood that the BBC may require that the BBC provides the above computer hardware and operating system software to ACC in which event the Contract Sum shall be reduced by the sum of £129,432 as detailed in the minutes of the meeting held on 5 May 1999 at Hanscombe offices. . .

IV. ... the Engineer may include in an interim Certificate of payment a fair and reasonable valuation for computer equipment, software and other hardware which the Engineer considers is essential in order to carry out the factory testing set out in the Specification or otherwise required by the Engineer provided that ACC shall insure the equipment at its expense. . .

V. Subject to the terms of this letter, ACC is authorised to proceed with the works up to a total value of £250,000 or any other sum which may subsequently be notified to you in writing by the BBC.

VI. Subject to the foregoing until such time as the Formal Agreement is executed work shall be valued by Hanscombe and payment will be made in accordance with the provisions of contract as set out in the invitation to Tender Document.

Vii. In the event that the BBC determines that it is not possible to conclude a formal agreement the total amount, inclusive of any amounts already paid by the BBC, which shall be payable by the BBC to ACC shall be limited to the lesser of:

A. the value of work executed at the time a decision not to proceed is advised to you as determined by Hanscombe or

B. The total value of work with which you are authorised to proceed in accordance with the terms of this letter or any other such sum which may subsequently be issued to you in writing.

VIII. It is anticipated that the formal documentation of the Contract Agreement will be issued for execution within three weeks of the agreement of the Contract Programme.

IX. Can you please confirm ACC's agreement to the contents by returning the enclosed copy of this letter duly signed and dated on behalf of ACC."

22. This letter was signed by ACC and returned to the BBC on 9 June 1999 indicating its acceptance of these terms. It is accepted by both parties that that acceptance constituted a contract. ACC then made a further application for payment for £228,950 which was described as Application No 1 and this led the BBC to issue a purchase order which was in these terms:

"Provision of security services as per MF1 contract, networked access control system"

2.2. The Factual Matrix to the Letter of Intent

23. The factual matrix out of which the letter of intent arose is important. The nature of the contract which ACC had tendered for was for the procurement of additional access equipment and associated hardware including cabling and software, and for design, supply, installation, commissioning and training of staff. These services were to be undertaken at 57 separate premises throughout the United Kingdom over a nine-month period which had been extended to an 18-month period. ACC tendered for both the retrofit contract and the MTC contract and the BBC regarded these tenders as being acceptable. Indeed, at the first post-tender meeting, the BBC congratulated ACC on its tender bids for both contracts and informed ACC that contract documents would be drawn up and, it was hoped, finalised by the end of April 1999 to enable a general project start to take place Soon afterwards, Hanscombe, who had been appointed by the BBC to be the quantity surveyors for the MF1 project, prepared a chart of cash flow projections prepared on the basis of both the tender and that the contract would be a MF1 contract.
24. At a subsequent meeting on 13 April 1999, the parties agreed that site surveys would be undertaken as soon as possible, since these had yet to take place, so as to enable the BBC to decide whether to accept Tender A or Tender B. This decision would clarify the final contract sum In the meantime, a letter of intent would be raised to cover expenditure for approximately 6 weeks until the MF1 contract was in place. This would cover mobilisation and the survey work. It was vital for both the survey work and the work needed to prepare for the factory acceptance test should start as soon as possible given the very tight contract period provided for in the tender of 18 months.
25. When the letter of intent was submitted to ACC for consideration on about 11 May 1999. By then, the revised contract sum based on Tender B had been agreed in the sum of £2,545,612. What remained for finalisation and agreement was a detailed programme and specification The scope of work was defined in the tender in what the BBC described at a progress meeting held on 11 August 1999 as a conceptual specification and it clearly envisaged that the contractor would have to undertake a considerable amount work in relation to the finalisation of the detailed design of the system and the outstanding detailed choices of equipment and wording of the specification. However, in the period prior to the submission of the letter of intent, it was neither intended by the BBC nor envisaged in the tender documents that this design and drafting work would be finalised and approved by the BBC prior to the finalisation and entry into of the MF1 contract or that any document would be prepared which summarised and set out all ACC's detailed design and specification work or that any such document would be incorporated into the contract as a contract document.
26. Mr Eastwood and his colleagues on the Steering Group had evaluated the tenders had had recommended the acceptance of ACC as the access control system contractor. The project was regarded as being sufficiently important by the BBC's Director of Finance, Mr John Smith, that it would be funded from the BBC's central budget rather than from one or more of the budgets of the various directorates involved in the project. Thus, he and Ms Margaret Salmon as the relevant directors involved, sponsored the project. On 24 March 1999, Mr Eastwood obtained the approval and authority from the BBC's Investment Expenditure Approval Group to incur £3.3m on the project with ACC as the contractor. However, there was a cash limit of £1.75m up to April 2000 which explained why the BBC transformed the project from a nine to an 18-month project at that time.
27. What was also known to both parties prior to the letter of intent being agreed was that the sequence of work would involve initial design and survey work and the ordering of hardware, software, cabling and other equipment and the setting up of factory acceptance testing followed by installation work across the sites. The initial work, including the ordering of materials, equipment and software, would require significant financial outlay on ACC's part since any ordering would have to be supplemented by partial payments and any survey and design work would involve the deployment of manpower and other resources. Thus, ACC submitted two initial applications for payment dated 30 April 1999 and 23 May 1999 for, respectively, £119,853.52 and £339,497.97. Thus, by the time that the letter of intent had been signed on 9 June 1999, ACC had invoiced the BBC a total of £411,510.49 albeit that nothing had by then been paid.
28. The reason why the BBC proceeded by way of the so-called letter of intent rather than concluding a formal MF/1 contract appeared to change with time. At the trial, the BBC's case was that it was necessary for the contents of a detailed specification, to be prepared by ACC, to be finalised and for this agreed document to be incorporated into the contract documentation before the MF/1 contract could be executed. However, it is clear that that belief, although firmly held by the relevant BBC personnel from the time the programme was agreed in principle in early July 1999, was not one held by the BBC prior to that time nor, as I have already stated, was the need for the preparation and contract incorporation of such a document provided for in the tender documentation or in the meetings held to discuss the tender following ACC's submission of its tenders. The reason why the BBC did not enter into the MF/1 contract in May or June 1999 was because it was uncertain, in the absence of any pre-tender surveys, whether its tender specification best served its requirements. However, ACC needed both to start survey work immediately and to incur substantial financial commitments in ordering equipment and the BBC could not, given its internal accounting procedures, incur any obligation to pay a contractor or make any payment for such an outlay until a contract had been entered into. Thus, pending the clarification of this uncertainty and of the programme of work to be agreed with ACC at an early stage, the BBC decided to instruct ACC to start work under the authority of a document which had the status of a contractual but which did not amount to the formal MF/1 contract.
29. The evidence provided about the circumstances under which this letter of intent is instructive. On behalf of ACC, Mr Patterson stated that ACC had, by early June, incurred costs of at least £250,000 but the BBC had informed ACC that the letter of intent was a formality since no payment could be made by the BBC unless some form of contract was in place. He was also advised by Mr Inns and Mr Allan that the letter of intent would only be effective for a matter of weeks. On behalf of the BBC, Mr Eastwood agreed that the purpose of the letter of intent was to enable ACC both to progress the project prior to agreement as to the design and the programme and also to enable it to be paid prior to a contract being executed.

2.3. The work content provided for by the tender

30. The scope of ACC's work was provided for in the tender documentation, particularly the specification. The equipment to be supplied included workstations, routers connecting these to the WAN, zone controllers, smart card readers, cabling and a certain amount of builders' work. The form of contract chosen by the BBC for the work, the MF1 form, is one which provides for the contractor to undertake the detailed design of the works, an obligation which was confirmed in paragraph 13.3 of the tender specification.
31. The parties appointed a joint expert, Dr McArdle, to answer specific technical questions arising in the dispute. He is an electronic and electrical and software design specialist and he was asked to describe the system required by the tender specification. He explained that normally the user in the BBC's position will describe the functional requirements in the contract specification and the supplier will respond with a technical specification in which the technical solution suggested as appropriate to meet those requirements would be set out. However, the BBC's tender specification fell between both types o document. It discussed functionality but it was also very prescriptive in specifying to a high degree the hardware devices and network architecture to be used. In consequence, the tendered system would have had to have been as close as possible to that shown in the BBC tender document.
32. Dr McArdle also identified ACC's design tasks which it would have to undertake, assuming the contract was entered into once its tender had been accepted but before any design work that ACC would have to undertake during the course of the contract, that was provided for in or necessitated by the specification, had been undertaken. These were the identification of the suppliers and arrange for the supply of equipment, the translation of the system requirements into a bill of materials, the survey of each site, the validation of the software and hardware configuration so as to ensure that the two would function correctly when installed, the management of the integration process, the provision of suitable documentation and the development and execution of appropriate acceptance tests. There was no reason put forward in either the tender documents or in evidence adduced at the trial why any of these tasks ought to have been or needed to have been carried out before the formal contract was entered into.

2.4. Construction of the letter of intent

33. The parties adopted significantly different positions as to the meaning and intent of the letter of intent. ACC contended that this document constituted a contract requiring it to carry out and complete the entire project and that its terms would govern that work unless and until the contract was replaced and superseded subsequently be a formal contract. All that was needed for that formal contract to be finalised and take effect was agreement as to the details of the programme and, possibly, a detailed specification to be prepared by ACC. On ACC's case, that second document was not required at all but, if the BBC's case was accepted, it was required but, once its contents were agreed, there was a need for the agreement of both it and a programme but, once both were agreed, a formal contract would be finalised and would supersede the terms of the contract set out in this letter of intent document.
34. On the BBC's case, the document was a true letter of intent. Thus, it authorised but did not commit ACC to start work, either side could terminate the relationship without notice and only a limited financial obligation was imposed on the BBC, namely to pay for the work actually carried out up to but not beyond the cost limit set by the letter or subsequently notified by the BBC.
35. Both parties referred to the well known line of authority concerned with the nature and effect of so-called letters of intent and with the formation of contracts whilst the work required by the contract has been started. These cases included: Turiff v Regalia (1971) 9 BLR 20, Judge Fay QC; BSC v Cleveland Bridge Co [1984] 1 All ER 504, QBD, Robert Goff J (subsequently Lord Goff of Chieveley); Pagan v Feed Products [1987] 2 Lloyd's Reports 601, CA; Kleinwort Benson Ltd v Malaysian Mining Corp [1989] 1 All ER 785, CA and G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Law Reports 25, CA. The relevant principles derived from these cases may be summarised as follows:

1. A document called or treated by the parties as a letter of intent may, on analysis, give rise to a binding contract, if that is the effect of the language of the parties when objectively construed. That contract is one in which, pending the entering into of a formal contract governing the whole of the project, the parties have assumed reciprocal obligations towards each whose content is defined by the terms of the document.

2. Alternatively, the document may, on an objective construction of its terms, give rise to an "if" contract whereby one party makes a standing offer to the other that if it carries out the defined performance of services, that other party will be remunerated for that performance. However, no obligation to perform is created and the reciprocal obligation to remunerate is limited by the express and implied terms of the offer.

3. It is possible for a contract to come into being without the conclusion of the formalities of the signing and execution of a formal contract documents if a transaction is fully performed and all obstacles to the formation of a contract are removed in the negotiations and during the performance of the contract.

4. In construing and giving effect to the language of a letter of intent, it is necessary to take into account the factual background out of which the letter of intent arose.

36. A number of matters are noticeable from the wording of the letter of intent. These are:

1. The work to be carried out forthwith under the letter of intent was defined as the survey work of all sites set out in the tender document, the preparation of a programme of work and the obtaining of the BBC's agreement to that programme. The programme would be prepared subject to the defined constraints and subject to a requirement that installation was not to commence until the programme had been agreed (see the two clauses numbered IV and V).

2. The letter also envisaged that certain computers would be ordered and other unspecified equipment would be ordered to enable preparatory work for factory testing to be undertaken (see clause VIII and the second of the two clauses numbered III and IV).

3. The surveys were to establish what further information ACC needed to commence installation and the location and number of workstations at each site would be reappraised after the completion of the initial surveys. However any adjustment of the number would be instructed by a variation of the MF/1 contract and valued as such.

4. ACC was authorised to proceed with the works up to a total value of £250,000 or such other sum as might subsequently be notified to ACC who would be paid in accordance with the provisions of the contract pursuant to valuations made by Hanscombe.

5. The formal contract would, it was anticipated, be issued and executed within three weeks of the agreement of the programme. The only documents requiring preparation for the formal MF/1 contract that were not in existence when the letter of intent was agreed on 9 June 1999 were the programme and a detailed breakdown of the contract sum which would be a revised version of the breakdown contained in the tender but prepared having taken into account the discussions and agreements reached in order to achieve the agreed contract sum that had been much reduced from the tendered sum.

37. There are two particularly significant features of the document. First, it was a contract whose terms had been negotiated and which had been signed by both parties in order to bring it into effect. The signed document therefore constituted a contract and did not have to be accepted. On signing the contract, ACC became contractually committed to perform the obligations imposed on it by the terms of the letter. Secondly, it required ACC: "forthwith [to] commence and carry out survey work ... and prepare and submit for approval ... a programme". It also envisaged the carrying out "of factory testing set out in the specification". However, no other work was provided for and the letter made it clear that it was the intention but not the obligation of the BBC to enter into a formal contract once agreement as to all applicable terms had been reached. Thus, a limited but clearcut parcel of work was provided for which had to be carried out over a short period of time and the maximum life of the contractual obligation imposed by the document was both defined and short.
38. It follows that the letter was clearly only intended to have a short life and was limited to the necessary further survey work needed to enable the BBC to decide on the final specification of its requirements before entering into a formal contract with a tight timescale for the completion of the project. Moreover, the scope of work it provided for was limited to such work as would be needed to enable ACC to be in a position to finalise the contract programme to be incorporated into the contract and to be ready to start installation work as soon as that formal contract had been executed.
39. The letter did not cover any installation work and the term it contained to the effect that installation work would not commence until the programme had been agreed was intended to provide a direction or constraint to be built into the programme and was not a direction that installation work should be started by ACC as part of the scope of work that the letter provided for.
40. As a further indication that the letter of intent was not intended to cover installation work, the valuation provisions governing the valuation of ACC's work that are set out in the letter are wholly inappropriate for installation work or for a large and complex contract which would take many months to complete. This is because the letter provides that payment would be made solely on the basis of what Hanscombe decided was due.
41. Overall, it is clear from the factual background to this letter that the BBC felt unable to execute a formal contract in the period April - June 1999 because it remained uncertain about various significant features of its requirements and because it was unwilling to execute that contract before the programme of work had been devised. That programme could not be finalised until the scope of work required by the BBC had been finalised which, in turn, required extensive survey work to be undertaken since this had not been carried out prior to the tendering process. However, the BBC wanted the project to go ahead and had budget approval involving a tight timetable which it did not want to slip. The steering group was, therefore, in a difficulty since it needed ACC to undertake significant work and incur significant expenditure which it could not reimburse without a contract of some sought in place given its internal procedures. On its part, ACC, having been incurring expenditure since April, was unwilling to continue to do so without the comfort of either reimbursement or contractual commitment.
42. When all these considerations are taken into account, it is clear that the terms of the letter of intent require ACC to carry out and complete the survey and associated pre-contract work and that the letter is, in effect, a mini contract with a defined scope of work which ACC is to implement in full. It would not have been possible, and would have amounted to a repudiation of that contract if ACC, having embarked on that work, then decided to terminate the survey or programme preparation work and walk away.
43. On the BBC's side, the letter of intent provided for three situations. First, it made it clear that although it was the BBC's intention to enter into a formal contract for the installation and other access control work with ACC, it was not obliged to do so. In other words, once the survey work and the programme had been completed, the BBC had an option as to whether or not to continue with the project or continue the project with ACC. Secondly, the letter provided for the situation in which the BBC decided during the course of the survey work that it would not be possible to conclude a formal agreement with ACC for whatever reason. In such circumstances, it could terminate the survey contract forthwith and the letter provided for how and what ACC would be paid for the work carried out prior to that termination. Thirdly, the letter provided that ACC was authorised to proceed with the works up to a total value of £250,000. That provision, in context, was clearly intended to identify the scope of the survey and other work within the envisaged timescale of a few weeks at most. It also indicated that until that value of work had been undertaken, save where it had resolved that no formal agreement could be concluded, it could and would not determine ACC's limited engagement.
44. It follows that the BBC could not have terminated the survey contract at will and would not have had to continue with ACC until either it resolved that no formal contract could be concluded or until work to a value determined by Hanscombe as being £250,000 had been completed. What is not clear is what would have happened in the hypothetical situation in which the survey and other work was completed and it emerged from Hanscombe's valuation that the total value of that work exceeded £250,000 and no extension of that cost limit had been notified to ACC by the BBC.
45. The value of the work was to be ascertained by Hanscombe without any guidance being given as to how that value was to be calculated. Since the contract was to be of such short duration, that lack of detail was immaterial. In context, the valuation provision was clearly meant to be applied by Hanscombe by identifying a reasonable remuneration as work proceeded. The elaborate certification provisions in clause 39 were obviously not envisaged as being needed since the contract would be of such short duration. Once ascertained, the payment would be in accordance with the provisions of the MF 1 conditions. The only relevant provisions of the MF 1 conditions, therefore, were those contained in clauses 40.1 and 40.3 of the conditions, relate to the time of payment and remedies where there has been a failure to pay.
46. These provisions for ascertainment and payment provide some indication as to the meaning and scope of the cost capping provision that is set out in the letter. Since the determination of the value of the work being carried out for the BBC that was authorised by the BBC in the letter was entirely in the hands of the BBC's agent and since ACC could not stop work or terminate the contract at will, the BBC would not have been able to decline to pay ACC anything in excess of £250,000 if ACC had undertaken that addition work or financial commitment as a reasonable part of the scope of work instructed by the letter.
47. In conclusion, therefore, the letter of intent provided for a limited "if" contract whereby, if ACC accepted the offer it contained to undertake limited survey work, it was then to perform all of that limited survey and other pre-installation work that the letter provided for. The work was both clearly defined and limited in scope and when the factual background to the letter of intent is taken into account, it can be seen that the clear intention of the parties was that ACC would complete that scope of work and could not give up or cease working before that scope of work was completed. The work that was instructed by the letter was intended to cover all the work that was needed to enable the BBC to finalise the contract documents and to decide whether or not to proceed with the project and with ACC in circumstances where it would want that project, if it proceeded, to be completed within the tight revised timescale that it had previously decided upon.

2.5. BBC's letter of 7 July 1999

48. During June 1999, sufficient survey work was undertaken to enable Mr Lant to conclude the work he had been undertaking on the preparation of a programme. At the same time, the BBC was in the process of changing its requirements in several significant respects. These included a change from having one computer workstation at each of the 57 sites to having one at only 12 sites, a change from one to two central servers and a new requirement to incorporate a security badging system. Some of these changes arose because it became clear that Infographics was not able to provide all the details of the system that had been provided for in the BBC's tender specification. Additionally, the parties discussed and agreed upon the contents of a revised breakdown of the contract sum. This agreed revised contract sum analysis was sent by Mr Keating of Hanscombe to ACC in an e-mail on 16 July 1999. The programme was issued in late June 1999 and a meeting took place on 6 July 1999 of some significance. The minutes prepared by the BBC record that:

"Programme of Work

4.1 The BBC accepted in principle ACC's previously submitted Programme of Work as meeting the contractual requirements of the contract. ACC stated, changes at this stage to the order in which different site instructions were stated was not a problem (or cost consideration), provided sites were not swapped between the different installation teams."

49. The BBC's case at the trial was that no programme of works was ever agreed, all that the BBC agreed to was the contents of the programme submitted to the BBC pursuant to ACC's programming obligations under the letter of intent. According to the BBC, this programme was only an installation programme. Under the terms of the tender specification, a much more detailed programme was required covering not only installation work but surveys, manufacturing periods, resources to be employed, dates of issue of drawings and documentation, factory acceptance tests or the approval of the installation at each site. The limited agreement to the limited programme was, in any case, only an agreement "in principle".
50. However, these objections to ACC's programme were directed to showing that no programme of the kind the BBC wanted before it would have been prepared to execute a formal MF 1 contract was ever produced and no programme was produced which met the requirements set out in the tender specification. However, the programme produced in June 1999 was one intended to enable ACC to comply with the different and less onerous requirements of the letter of intent. There was no suggestion when the programme was produced and then agreed in principle nor subsequently that that programme was insufficient or inadequate for its intended purpose of enabling the BBC to decide whether to instruct the start of installation work.
51. On the following day, Mr Inns sent to ACC the following letter:

"Re: BBC Nationwide Access Control System replacement of existing installations contract MF 1 (Rev 3)

Our letter of 4 June 1999 confirmed the intention (but not the obligation) of the BBC, subject to the BBC and ACC reaching agreement as to all applicable terms, to enter into a formal agreement with ACC in respect of the above works as stated therein.

Further to the above letter you are hereby authorised to proceed with the works to an additional value of £250,000 making a total authorised value of £500,000.

All other terms and conditions of our letter of 4 June 1999 remain unaffected."

52. It is to be noted that the letter, in referring to "the works" is clearly referring to the entirety of the works set out in the tender as revised in subsequent meetings and documents and as priced in the agreed revised contract sum which was the subject of the agreed contract sum analysis. In context, the BBC was notifying ACC that installation work should start as a prelude to the execution of a formal contract. In other words, ACC should forthwith start to undertake all work required by the agreed scope of work to be covered by and provided under the formal executed access control system MF 1 contract.
53. The definition of the "works" that was the subject of the instruction to proceed with the works included, therefore, the entirety of the work content defined by the tender specification document and by such terms of the MF 1 contract and of any other document that helped to define the scope of work. That work scope included all design, procurement, testing and installation work required for the access control system being that was to be provided.
54. The contents of this instruction is in sharp contrast to the terms of the letter of intent in its original form which defined the works to be carried out under that original letter so as to be very limited in scope and with a cost limit of £250,000. This scope was limited to such survey and other pre-installation works that would be needed prior to installation work starting and a formal contract being concluded.
55. In essence, the letter of 7 July 1999 constituted a major and fundamental variation to the original letter of intent. It was, in reality, a second offer to enter into a second "if" contract. The terms of this second offer were that ACC was to embark on the access control system project and to start to carry out all the work involved that was defined in the specification and associated documents. Given the recent agreement as to the contents of the programme of work and the context in which this letter was sent, it was clearly envisaged by both parties that that work was to be carried out in accordance with that agreed programme. It follows that, in context, what was being offered by the BBC in the phrase: "you are hereby authorised to proceed with the works" was for ACC to start to undertake all remaining access control work in accordance with the agreed programme.
56. The difficulty the parties now face is in trying to give contractual effect to that "if" contract given that it governed and still governs the contractual relationship of the parties even though it was clearly meant to have a short life and to be superseded by a formal MF 1 contract. This difficulty arises because the letter of 7 July 1999 also provides that: "all other terms and conditions of our letter of 4 June 1999 remain unaffected". Those terms and conditions are wholly unsuited to, and were not drafted for, the installation and procurement work that was being instructed particularly if these terms were to govern the whole or a considerable part of such work. Indeed, the great majority of such terms were only relevant to pre-installation survey work, programme preparation work and such limited procurement as would be necessary to enable factory testing to be undertaken. These terms only had limited continuing relevance since that work had been largely completed.
57. The difficulty arising from the inappropriate terms of the "if" contract created by ACC's conduct in accepting the offer contained in the BBC's offer of 7 July 1999 gives rise to two disputes given that no formal contract was ever subsequently concluded or executed. Indeed, the proposed finalised terms for such a contract were never proffered by the BBC to ACC for agreement. Instead, ultimately, the BBC purported to terminate ACC's involvement in the project.
58. In summary, these two disputes are first as to the terms under which the work was undertaken after 7 July 1999 and secondly as to whether there was a cost limit or cap which provides a ceiling to ACC's potential recovery whatever the overall value of its work might be that would otherwise be recoverable. The first dispute is in five parts:

(1) Was the installation work carried out under the terms of the letter of intent?

(2) If so, was it a term of the amended letter of intent brought into being by the letter of 7 July 1999 that the parties would agree the terms of a detailed specification to be prepared by ACC?

(3) If so, what was the contractual basis of installation and other work undertaken pursuant to the letter of 7 July 1999 pending execution of a formal agreement?

(4) Was that specification, a programme and all other required documentation subsequently agreed?

(5) If so, once these were all agreed, did that give rise to a varied or superseded contract to the contract prevailing in the meantime?

The second dispute is as to the meaning and effect of the provision which sets out an apparent cap or ceiling on authorised expenditure and payment. Clearly, this second dispute only arises if no more substantial and formal contract came into being.

2.6. The meaning and effect of the letter of 7 July 1999

2.6.1. Was the installation work carried out under the terms of the letter of intent?

59. The installation work was carried out under a contract which consisted of the entirety of the letter of intent dated 4 June 1999 with a further new clause added to it which read:

"Further to the above letter you are hereby authorised to proceed with the works to an additional value of £250,000 making a total authorised value of £500,000."

This clause was additional to and separate from the clause which reads:

"... ACC shall commence and carry out survey work ... and shall prepare and submit for approval to the BBC a programme."

60. There is little or no overlap between the two sets of work since the previous scope of work, involving pre-contract survey and programme preparation work, was not included in nor covered by the scope of work involved in the design, procurement and installation parts of the intended MF 1 contract for which the programme had been prepared. The only overlap would have been in such work and procurement required under the original letter of intent for the purposes of making arrangement for factory testing and at least some of the survey work which would have been necessary as part of the contractor's design work involved in undertaking the tender specification. Some part of the survey work actually carried out would have been additional to that required design-based survey work. Thus, the new obligation related to any remaining work covered by the MF 1 retrofit contract scope of work save for any part of the survey work required by that scope of work which had already been undertaken by 7 July 1999 under the 4 June 1999 letter of intent.

2.6.2. Was it a term of the varied letter of intent that the parties would agree the terms of a detailed specification to be prepared by ACC?

61. Neither the tender specification nor ACC's tender provided for the preparation of a detailed specification by ACC either after the award of a formal MF 1 contract or at all. It is clear that the BBC personnel connected with this project regarded the proposed MF 1 contract as involving ACC in detailed design work and that it would be necessary for the BBC to approve the design documents that emerged. In fact, as has already been shown, the design work required of a contractor by the MF 1 conditions and the terms of the tender specification was limited to providing whatever details were needed to fill in and give effect to the functionality required by the BBC's specification which, as Dr McArdle showed in his expert joint report, was unusually detailed and prescriptive for the type of work involved.
62. The BBC's view of what was required of ACC was fostered by its receipt from ACC of a first draft of a document entitled "Detailed Technical Solutions Proposal and Performance Specification" which stated that it was intended to:

"... deliver ACC's interpretation of the BBC's specification, to clarify system functions of the Infographics access control system being provided and present for approval our methodology to achieve the objectives of the BBC. It is also intended that this document will become a primary contractual document by which the supplied system will be measured for quality and performance."

The first draft was first shown to the BBC at an informal meeting held on 7 June 1999. The preparation of this draft and its submission to the BBC undoubtedly crystallised the belief within the BBC that it would be necessary to agree a detailed specification to be prepared by ACC and include that further document into the contract documents as a prelude to the execution of a formal contract. It had not however been ACC's intention in first preparing it that it should become a contract document nor that its preparation should hold up the execution of a formal contract.

63. What is clear is that the BBC decided that it would not enter into the a formal contract until such a detailed specification was prepared by ACC and agreed by it. The initial reason for not entering into the formal contract on 7 July 1999 was that the revised draft of ACC's draft specification that had been prepared in late June 1999 was based on a requirement that regional servers could be upgraded in real time but that Infographics had soon afterwards stated to ACC that this real time upgrading would not be possible. Moreover, Infographics had raised other potentially serious concerns about the compatibility of its program with the proposed system Indeed, on 7 July 1999, Infographics sent ACC a letter in which it set out a number of proposes alterations to ACC's proposals which Mr Maclaine accepted amounted to a significant departure from the tender specification. Although, in early July 1999, it was envisaged that these apparent difficulties would be rapidly sorted out and a final and approved draft of the detailed specification prepared, this was not available on 7 July 1999 and the BBC wanted a short term stop gap solution to the need to embark on the approved contract immediately but the continuing inability to execute a formal MF 1 contract.
64. The draft detailed specification went through many versions but was never finally accepted by the BBC. Since the BBC had no contractual commitment to enter into a formal contract, let alone one containing a specification prepared by ACC which was not envisaged by either BBC's tender documents or by ACC's tender it had every right to impose the requirement on ACC that a detailed specification had to be agreed and incorporated into the contract documents prior to the execution of the formal MF 1 contract. The position of the BBC was completely at one with that described by Lloyd LJ in Pagan v Feed Products [1987] 2 Lloyd's Reports 601 at page 619:

"It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge, the masters of their contractual fate ..."

65. It follows that although it was not necessary for a detailed specification to be agreed for a formal MF 1 contract incorporating the tender specification to be executed and although it was not a stated requirement of either the tender documents or of ACC's tender that this be done, the BBC decided that such a document would be a precondition of the execution of a formal contract and that this document would become a contract document in such a contract. ACC was prepared to proceed on that basis and to start the installation work on the basis of the letter of 7 July 1999 whilst continuing discussions about the terms of the detailed specification. At the time the programme was being discussed and installation work was about to start, both parties envisaged that this second interim contractual arrangement would last for days at best and a short three to four-week period at worst.

2.6.3. What was the contractual basis of installation and other work undertaken pursuant to the letter of 7 July 1999 pending execution of a formal agreement?

66. The only relevant terms of the parties' contractual relationship set out in the letter of 4 June 1999 were those numbered VII, VIII, and the second of the clauses numbered III, IV, V, VI and VII. Of these, only V, VII and VIII are of any moment.
67. The significant questions are as to the terms identifying the two letters of 4 June and 7 July 1999 must be construed together against the factual background already summarised. In particular, the BBC wanted the work it had by early July identified as being required to be undertaken within a defined timescale and to a defined installation programme and cost and also wanted to transform this arrangement smoothly into a formal and executed MF 1 contract in the near future without incurring any additional cost or programme slippage. The BBC was reserving the right to decline to execute a formal contract but it was the obvious intention of both parties that it would only do so if agreement could not be reached as to the technical specification. There did not appear to be, in early July 1999, any outstanding need to agree a more detailed programme before a formal contract was executed.
68. The BBC was also providing for the possibility of determining this interim arrangement and bringing the relationship to a premature end, but only if it: "determines that it is not possible to conclude a formal agreement". Thus, in the absence of such a determination, the BBC neither envisaged terminating the relationship prematurely before the works had been completed nor provided for that possibility in the contract made by ACC's acceptance of the offer contained in the letter of 7 July 1999.
69. Incorporated terms. Clearly the specification and the wording of the priced tender setting out the scope of work formed part of the contract. That has the effect that sections 5 and 6 and the six appendices of the tender document, the design of the works and specification for the works sections, formed part of the contract since these, when read with subsequently produced documents which amended or added to these sections, defined the scope of the works. However, the MF conditions were not incorporated. The instructions to tenderers informed all prospective contractors that the works would be carried out under these conditions but until the formal contract was executed, these conditions did not operate or govern the parties' contractual relationship.
70. Scope of work. The scope of work was defined by sections 5 and 6 of the tender documents, the subsequently agreed variations, modifications, additions and omissions to those sections as at 7 July 1999 and the wording of Tender B of section 7 as modified by subsequent agreements up to that time. The contents of the appendices to the tender documents and the drawings incorporated into them also helped to define the scope of works. In other words, the scope of work was as would have been defined by all the documents which would have formed the executed contract had such been prepared for execution on 7 July 1999.
71. Timescale. The timescale was that envisaged by the parties on 7 July 1999. That timescale was set out in the programme agreed in principle by the BBC. This had been prepared by ACC by Mr Herrald with the approved of Mr Lant and it provided for completion by the end of December 2000. It was the programme agreed in principle by the BBC. Such activities as were not shown on that programme would have had to be undertaken at such times and sequences as would have enabled the programme to be fulfilled. There were no provisions for extensions of time nor for the payment of liquidated damages in the event of delayed completion, albeit that neither party considered that the letters would still be governing their relationship by the time that the work was to have been completed.
72. Payment. The letter provides that: "work shall be valued by Hanscombe and payment will be made in accordance with the [MF 1] provisions of contract ...". It follows that the value of work would be determined by Hanscombe. Since there is no reference to the agreed contract sum or its breakdown, that sum and its constituent parts did not form part of the contract. However, it is a necessary ingredient of any contractual relationship where the price is not stipulated that a reasonable sum must be paid. Clearly Hanscombe had to determine a reasonable value of work and the most obvious starting point for that determination would be the agreed (in a non contractual sense) contract sum and its constituent parts. Unless there was good and reasonable reason to depart from that starting point, ACC would be paid whatever emerged from an application of the constituent parts of the agreed contract sum to the work and other services actually performed.
73. The letter does not clearly provide for the procedure to be followed for any valuation carried out by Hanscombe nor for how and at what time intervals the valuations are to be made other than that the work would be valued in accordance with the provisions of the MF 1 conditions. Clause 39 of those conditions provides for applications to be made by ACC for periods "of not less than one month". No provision was made as to the form of the application save that it had to relate to completed plant or equipment delivered to site and, so far as installation work was concerned, the basis of payment was to be "a fair and reasonable assessment made by [Hanscombe] of the value of work completed". Thus, ACC would be in the hands of Hanscombe as to the value of work and, at the point when any application was made, a significant value of work and materials would have been ordered or undertaken which would not feature in the valuation application since that work or materials would not have been completed. By the time of the valuation by Hanscombe, further unvalued work would have been undertaken.
74. Termination. Since the applicable terms were those governing earlier letter of intent, it would not be possible for ACC to terminate the contract at will or to cease to work prior to the completion of the scope of work. Equally, the BBC could only terminate once work to the value of £250,000 had been completed, being a valuation provided by Hanscombe unless it determined prior to that having occurred that it was not possible to conclude a formal agreement. If at any time it did so determine, it could then determine the arrangement.

2.6.4. Was that specification, a programme and all other required documentation subsequently agreed?

75. The short answer to the question as to whether or not agreement was reached on a specification and on the details of a programme which the BBC would be prepared to insert into a formally executed contract is two-fold: no agreement was reached and, in any case, the BBC was not prepared to treat any particular document as constituting an executed detailed specification that was capable of being inserted into a formal contract.
76. The difficulty that arose was that a number of technical problems and inconsistencies emerged as work proceeded and the BBC wanted, at each stage, to agree the solution to those difficulties and insert that agreed solution into the technical specification. In other words, the document being prepared by ACC, which went through innumerable drafts, was being prepared on a rolling basis rather than on the basis of the position as at 7 July 1999 with any technical developments being treated as variations to that document. Thus, by way of example, the tender specification called for a card reader range of 150mm and ACC's tender stated that the reader range would be 100mm. Following the factory acceptance tests, ACC stated that the new card readers would achieve a reader range of 40mm yet by December 1999 the draft of the technical specification was providing for a reader range of 20mm. On 28 January 2000, the BBC drew ACC's attention to its dissatisfaction with this limited reader range. No further change in the draft specification occurred.
77. Similar difficulties emerged in attempts to agree a formal contract programme. The tender specification required the contractor to produce the programme for the works for approval a maximum of 14 days after the award of contract. The BBC, in effect, was seeking agreement to the contract that that provision envisaged before being prepared to execute a formal contract so that that programme could be incorporated into the contract and, simultaneously, was seeking to ensure that the programme provided an up to date programme of works taking account of delays that had occurred up to the date of any particular draft that was being considered. As an indication of the difficulties that arose from a wish to agree an up to date programme, two new programmes were submitted by ACC to the BBC on 28 January 2000. These programmes were rejected by the BBC in part because they were considered unrealistic given the limited progress that had been made to that date.

2.6.5. Did any agreement as to the technical specification give rise to a varied or superseded contract to the contract prevailing in the meantime?

78. Since no agreement as to the contents of a technical specification or programme was ever reached, the question of what were the consequences of that agreement on the overall contractual basis upon which the work was being conducted never arose.

2.6.6. What was the meaning and effect of the authorised expenditure cap provision?

79. The BBC's case was that the provision which stated that ACC was authorised to proceed with the works up to a total value of £250,000, or to the subsequently extended values of £500,000, £750,000 and £1,000,000 imposed a ceiling of recovery by ACC irrespective of the reasonable value of the work it had carried out. This last ceiling was provided by a letter dated 24 November 1999. It provided for a total authorised value to date of £1m which, as I have already found,¹ was to be treated as being split between the pre-contract work undertaken under the letter dated 4 June 1999 of £250,000 and for work undertaken under the second letter dated 7 July 1999 of £750,000.

¹ See paragraph 59 above.

80. The BBC's submission was based on its interpretation of both the unamended and amended letter of intent to the effect that either party could cease work at will at any time. ACC submitted that it could not have ceased work at any time but, instead, had an obligation to complete the work unless and until the BBC decided to terminate the arrangement. Furthermore, ACC submitted that the cap was no more than a budgetary device which was disregarded in practice.
81. In construing the meaning and effect of this cap provision, the following factors must be taken into account:

1. The terms of the letter of 4 June 1999 were to govern the enlarged contractual arrangement created by the letter of 7 July 1999. Under that earlier letter, ACC was contractually committed to complete the survey work. Thus, the BBC was indicating in the letter of 7 July 1999 that a similar arrangement was to apply to the enlarged arrangement.

2. The value of the work at any one time could only be determined by the BBC and ACC would never know, with any certainty, when it had exceeded the cap on the authorised value of its work. Moreover, any valuation would inevitably fail to take into account a significant amount of work for which ACC would reasonably be entitled to payment if the arrangement was stopped at short notice.

3. Thus, ACC could not terminate unilaterally the work it was carrying out and would never know the point in time when it had reached any cap or limitation of value.

82. With these considerations in mind, the meaning of this cap provision becomes clear. The words "authorised to proceed up to a value of " must be read with the whole of clause VII which follows them. Taken together, the words mean that the work to be carried out was subject to two limitations:

1. The BBC could terminate at any time but only if it had determined that a formal agreement could not be concluded.

2. Additionally, the BBC could terminate if and when ACC's value of work, as determined by Hanscombe, reached the defined value or at any time thereafter.

The onus on termination in either situation lay with the BBC. Unless and until the BBC terminated in one or other situation, ACC had to continue to work and would be entitled to payment for the reasonable value of work up to the point of termination.

83. The only difficulty with this construction of the provision is that clause VII provides that ACC's payment entitlement on a termination shall be limited to: "any other sum which may subsequently be issued to you". In a situation where ACC had undertaken work whose value exceeded the authorised limit, the BBC argued that that excess in value was not within any subsequently issued authority and was not, in consequence, recoverable.
84. There are three answers to the BBC's contentions. First, the authority would arise because Hanscombe had an obligation to value all work at the point in time when the arrangement was terminated. That valuation would be of work reasonably carried out. The valuation, once issued, would constitute the relevant authority. The provisions of clause VII did not require the relevant authorisation of work to have been issued in advance of that work being carried out but merely that it should have been issued subsequent to the letter of intent itself.
85. Secondly, since ACC could not terminate its services at will, any work undertaken whose value exceed the cap would have been authorised by the BBC or would be work for which it had waived the operation of the cap.
86. Thirdly, clause VII was only to operate where the BBC had determined that it was not possible to conclude a formal agreement with ACC. Where the BBC chose not to proceed with a formal agreement with AC because it wished other contractors to take over the same project and where it was still possible to conclude such an agreement, the BBC had not limited its obligation to pay ACC to the predefined cap or ceiling. The wording of clause VII of the letter of intent does not cover the situation where the BBC concludes that it "does not want to conclude a formal agreement" but only covers the situation where it concludes that "it is not possible to conclude a formal agreement". For it not to be possible to conclude a formal agreement with ACC, it would have to be shown either that the work was not to proceed or that there was a good and reasonable reason why it could not continue with ACC. Such good cause would have to be related to ACC's unreasonable conduct either in the way it was continuing with the work or in the way it was negotiating and discussing the prospective terms of the formal MF 1 contract.
87. The BBC was clear that it wanted to continue with the project when it terminated ACC's works. What it no longer wanted was to continue that project with ACC. It did not, however, seek to show that ACC's conduct was such that it was no longer reasonably possible to continue with ACC or to execute a formal MF 1 contract for the work with it. Although this decision not to continue with ACC was within the BBC's contractual rights under the letter of 7 July 1999, it was not a decision to which clause Vii of the letter of 7 July 1999 was applicable.
88. This can be seen from the letter communicating the BBC's decision to ACC, dated 3 April 2000, which stated that:

"The purpose of the letter of intent was to allow preliminary matters and other limited works to be started whilst yourselves and the BBC attempted to agree terms of contract. It is regrettable that it has not been possible to agree terms of contract, or indeed a programme of works or technical specification in the required form."

89. The BBC had been trying for some months to agree the terms of a detailed specification with ACC. That document was not envisaged at the time the letter of intent was agreed and the "terms of contract" referred to were those that would be found in the contractual documents envisaged by the terms of the letter of intent. If the BBC sought thereafter to include a further document not envisaged by that letter, it was free to do so but it could not subsequently seek to rely on clause VII if it failed to agree with ACC on the terms of such a new document. That failure led to the suggested additional failure to agree terms or a programme. Thus, the BBC was declining to proceed further with ACC because it could not agree the terms of a detailed specification with ACC, a failure which did not enable it to invoke clause VII of the letter of 7 June 1999.
90. In summary, therefore, the BBC was obliged to pay ACC for the full value of its work and services as reasonably determined by Hanscombe even if that value exceeded the authorised total value. Clauses V, VI and VII when read together constituted a code defining when the BBC could terminate the arrangement and how and in what sum ACC should be paid whether or not the arrangement was terminated. These clauses did not limit payment for work properly executed and performed even if the value of that work was in excess of the authorised limit provided by the BBC.

3. Introduction to claims

91. The claims presented by ACC are claims for a reasonable remuneration for the work, design, procurement and installation actually carried out. It is not a loss-based claim nor one for damages. It takes as its stating point the constituent elements of the agreed contract sum and then adds to or subtracts from those relevant elements anything which it is reasonable to add or subtract. The resulting sum is the sum which Mr Keating should have valued pursuant to clause VI of the letter of intent dated 4 June 1999 and, if it applied, should have determined also under clause VII but failed to value. The BBC has no cross-claim for damages nor does it seek to rely on any abatement.
92. Moreover, the BBC does not seek to rely on any alleged repudiation by ACC of the contract. It contends that it terminated the work summarily as it was entitled to do. Although the BBC asserted in the letter informing ACC that the work was being terminated that "... it will not be possible to conclude a formal agreement with you and so the provisions of the second paragraph VII in the letter of intent will apply regarding the total amount of monies that will be paid to you", no reason was given for that asserted impossibility save that it was stated that "it is regrettable that it has not been possible to agree terms of contract or indeed a programme of works or technical specification in the required form". It was not suggested, however, that that lack of agreement arose from a refusal by ACC to reach agreement or from any unreasonable conduct on the part of ACC. It is true that no agreement had been reached but that was not because it was impossible to reach agreement but because the BBC had decided to terminate the discussions before agreement had been reached. In consequence, the valuation is not strictly one being carried out under clause VII of the letter although that does not, in practice, affect the size or quantum of the valuation since both are grounded in what is a reasonable remuneration.

4. Measured works claims

4.1. Card readers

4.1.1. Manchester card readers

93. The claim is for 50 card readers which were supplied by ACC for use at the Manchester site but were never installed there since the work was suspended and then terminated before it was possible to instal them. The card readers were included for payment in ACC's application no 10 dated 29 February 2000 and included in Hanscombe's valuation of that application dated 15 March 2000.² However, the card readers were never delivered to the Manchester site. They were taken there by Mr Torrence who showed them to a security guard who, Mr Lant stated had given Mr Torrence a certificate or receipt stating that he had counted the number of card readers and verified that they were brought into site by Mr Torrence. However, Mr Torrence, who was working at that site at the time, kept them in the boot of his car for safe keeping and, when the work was terminated by the BBC, these card readers were returned to ACC's premises in Slough.

² See 8/206C and 8/211A.

94. Thus, this claim is for materials manufactured for use on site which were provided to site, claimed for and valued by Hanscombe but which were retained in ACC's custody for safekeeping. The BBC now disputes payment on the grounds that the card readers were retained by ACC and property in them has never passed to the BBC. However, the relevant special condition provides that any completed plant and equipment delivered to site may be included in an application for interim payment.³ This equipment was delivered to site and a form of delivery acceptance or receipt was provided by the site security staff. Mr Torrence then took possession of this equipment as a voluntary bailee for its safe keeping. Property passed to the BBC and the value of these card readers was correctly included in an application for payment and certified for payment by Hanscombe who, in so certifying, valued the relevant executed work pursuant to clause VI of the letter of 4 June 1999. The BBC was, and remains, entitled to delivery up of these card readers but there was no evidence that it has never demanded delivery up or that ACC has converted them to its use. Moreover, there is no counterclaim for the value of these card readers based on the wrongful detention of them by ACC for its own use.

³ See special condition 39.2 (6/28).

95. The claim for the reasonable value of these 50 card readers succeeds.

4.1.2. Value of card readers

96. The issue is as to the appropriate rate per card that ACC should be paid. ACC claims £243.60, the BBC maintains that the reasonable figure should be £198.00.
97. ACC's case is that the smart card rate in Tender B was £274.00 which was a composite rate for supply and installation. The supply element of this figure was £162.40 to which has been added 50 per cent for overheads and profit. The BBC accepts that an appropriate mark up should be 50 per cent. This acceptance is in part based on internal advice received from Mr Keating in March 2000 that overheads and profit should be added to the appropriate rate for the supply of smart cards. However, the BBC contends that the tender supply rate was only £132.00 whereas ACC contends that it was £162.40.
98. The parties' surveyors, Mr Ashford and Mr Keating, agreed that the cost to ACC of obtaining the smart cards from Plail was £132.00. Mr Ashford's evidence was that the cost of supplying smart cards contained in an internal ACC document, inaccurately called Tender C but which was in fact an internal costing document produced from Tender B, was £162.40 and that the breakdown of the smart card rate in Tender B was the same figure of £162.40.4

4. D11/1522/2 - 6 and /1524/3 - 5. Mr Keating's advice is at 23/312.

99. Since the appropriate starting point for this valuation is the contents of Tender B as agreed by the parties in June 1999, since I accept Mr Ashford's evidence as to the breakdown of the Tender B smart card rate and since it is agreed that the starting rate should have added to it a 50 per cent mark up, the appropriate smart card rate for all smart cards, being a total of 64 delivered to Belfast and 50 delivered to Manchester is 114 x £243.60. The total is £27,704.40 of which £12,672.00 has been admitted. Thus, ACC's net entitlement under this item is £15,032.40.

4.2. Software licence

4.2.1. Introduction

100. ACC claim for procuring the Infographics licence and associated costs is based on the sum of £168,993.00 being the sum contained in Tender B for procuring and supplying the appropriate software licence to the BBC from Infographics, a licence that authorised the BBC to use the IGS software for 10 years. Of this sum, ACC claims £75,243.00, being that part of the total sum of £168,993,00 that remains once there has been deducted the direct cost of £93,750.00 that was payable direct by ACC to Infographics for obtaining the licence which ACC never ultimately had to pay Infographics.
101. Much evidence was given about this topic. Much of it from ACC was unsatisfactory and consisted of a series of inconsistent explanations as to what sums had been paid by the BBC to ACC for this item and what sums had been paid by it to Infographics in circumstances in which the relevant documents that were supplied piecemeal by ACC did not coincide or appear consistent with the various explanations proffered by Mr Patterson. However, I am not concerned with much of this evidence since it was largely directed to the following issues with which I am not concerned in addition to those with which I am concerned. The irrelevant issues included these: what sums were paid on account by the BBC during the work; what sums paid by the BBC were allocated by ACC at the time to this item; what sums were paid to Infographics by ACC during the period that ACC was working for the BBC and what sums were allocated internally by ACC towards its liability to pay Infographics as its work proceeded. Moreover, I am not concerned with what the BBC decided to pay Infographics direct for the same or a modified licence after it had terminated ACC's work although this too was the subject of detailed evidence.
102. The relevant issues which I must resolve as fourfold:

1. What may reasonably be regarded as the build up or make up of the work content of and the sum inserted for licence procurement in Tender B?

2. What part of the import duties, mark up and commissioning and start up work elements of this item could be said to have been provided by ACC to the BBC by the time ACC's work was terminated?

3. What payments were ultimately made by ACC to Infographics for the licence following any credit provided or return of payments given by Infographics to ACC?

4. In the light of the answers to the questions 1 - 3, what sum ought reasonably be paid to ACC for Infographics' licence procurement?

Given the inconsistent and constantly changing evidence provided by ACC for this item of claim, however, I have treated with great reserve any disputed or unsubstantiated evidence provided in connection with the four issues involved in this item of claim that I must resolve.

4.2.2. What may reasonably be regarded as the build up or make up of the work content of and the sum inserted for licence procurement in Tender B?

103. The item in question is set out in Tender B as follows: "Central Equipment: Unlimited Software Agreement £168,993.00". ACC's case as pleaded was to the effect that this item related to the supply of software, servers and other hardware and the provision of drawing facilities. It is now accepted by both parties that that way of pleading ACC's case was erroneous. It is common ground that $150,000 or £93,750 of this item (taking an agreed rate of exchange of 0.6) represented the licence fee payable by ACC to Infographics for the appropriate number of sites for which a licence was sought, namely for up to 300 sites, being the requirement of the BBC. It is also common ground that the overall sum includes a small sum for installation work, namely for handling the software and for installing it onto file servers, and a mark up of 50 per cent on the component parts of the sum as representing ACC's standard mark up.
104. ACC contends that the balance is made up of an allowance of 20 per cent on the licence fee for customs dues and freight whereas the BBC contends that it is made up of a fee for configuration work, which work was as events unfolded never undertaken, and a further small procurement fee.
105. The evidence as to the make up of this item for licence provision was scanty and unsatisfactory. On the one hand, ACC's pleaded case was clearly wrong since it was erroneously pleaded that this item represented the cost of providing certain hardware and software and not on the provision of a licence at all. On another hand, Mr Patterson's evidence was unsatisfactory since his evidence as to the breakdown of the item was given in chief without it appearing in his witness statement and without any supporting documents being made available to verify his oral evidence. On a yet further next hand, the BBC's evidence was unsatisfactory since it consisted of unsubstantiated valuation evidence from Mr Keating which was no more than an assertion that the item included for configuring the system and a small balancing item for the provision of procurement services. On a yet further hand, the BBC also relied on the fact that during the work it had withheld £24,933 of this item because configuration work had not been executed but it did not explain at that time nor subsequently in evidence why it believed that the item included for an element for configuration services.
106. ACC in its submissions pointed out that configuration work was provided for partly in that part of the preliminaries that dealt with design services and partly in the commissioning item in so far as configuration work involved the linking of each site to the central server. It is clear from a consideration of Tender B as a whole that these submissions are correct and that whatever this item consists of, it does not include anything for design or commissioning services.
107. ACC also pointed to the contents of an e-mail sent by Mr Keating to Mr Inns of the BBC dated 24 January 2000 concerning the licence agreement with Infographics signed by the BBC. He stated:

"The tender rate for the provision and installation of the software by ACC is £168,993. ACC have been invoiced by Infographics an amount of $150,000. ... On importation into this country importation charges are payable. I have not been provided with a copy of the importation charges in respect of software. I was provided with an invoice from Emery Worldwide (who imported the software for ACC) which showed an amount of £6,831.17 and was verbally advised by Emery that this was in respect of goods imported from Infographics to an invoice value of $53,5993.93. I have a copy of an invoice from Infographics for this amount. This suggests that importation charges are in the region of 20 per cent of the invoiced amount."

108. There is no reason to believe that Mr Keating's contemporaneous advice given to his client, the BBC, about the make up of this item was erroneous and the reasoning he provides is compelling. It is this evidence that enables me to find that the build up of this item is as follows:

1. Licence fee: £ 93,750.00

2. Import duties etc (20 per cent of fee): £ 18,750.00

3. Installation work: £ 162.00

Total: £112,662.00

4. ACC's 50 per cent mark up: £ 56,331.00

Total: £168,993.00

4.2.3. What part of the import duties, mark up and commissioning and start up work elements of this item could be said to have been provided by ACC to the BBC by the time ACC's work was terminated?

109. The BBC's case is that ACC never procured a licence, that it subsequently procured its own licence directly from Infographics which it paid for directly and that ACC ended up not paying Infographics anything for the licence fee. Since ACC did not procure the licence, it should not be entitled either to remuneration for the import duties it incurred for importing the Infographics software nor should it be entitled to its own 50 per cent mark up. Finally, since the software never worked satisfactorily, it should not have to pay anything for its installation.
110. The BBC paid ACC the licence fee of £93,750 less retention which was included in Hanscombe's valuation no 1 dated 16 June 1999 and a further £50,310 less retention which was included in its valuation no 5 dated 29 September 1999. Mr Keating of Hanscombe did not explain how he arrived at this second valuation which left £24,933 unvalued which, with the retention withheld by the BBC, left 19 per cent of the item unpaid. In fact, by that date, the host servers had been set up and the software had been installed on them. Mr Keating's evidence was that he had indicated to Mr Horsall from ACC at the time of his September 1999 valuation that the balance of this item would become payable when ACC completed of the configuration of the software but at no time did he explain why he was linking ACC's remuneration for the licence fee and its reimbursement of importation charges that it had incurred to the completion of a different and subsequent activity associated with the software's configuration.
111. Thus, the BBC paid the whole of this item less £24,933 withheld in September 1999 and £7,203 retention or £136,857. Since neither payment was specifically allocated to the licence fee, it can be seen that the BBC has paid 81 per cent of the item as a whole including 81 per cent of the licence fee or $121,500 of overall fee of $150,000.
112. The terms of the licence itself was the subject of some negotiation between Infographics and the BBC with ACC acting as intermediaries. ACC received Infographics' licence soon after the first issue of software occurred and both ACC and Infographics regarded the BBC's licence as having been issued and payment as being due from that time. The first draft of Infographics' proposed wording of the licence was sent via ACC to the BBC on about 2 July 1999 and the BBC's legal department modified the draft so as to substantially increase Infographics' potential liability for losses resulting from system malfunction. This modified version was sent back to Infographics who modified the modifications and returned the travelling draft via ACC to the BBC who received it on 12 July 1999. Unfortunately, this draft was mislaid within the BBC and when ACC attempted to replace it with another copy for signature, if forwarded the modified version produced by the BBC and not the subsequently further modified version produced by Infographics. The BBC signed this incorrect version on 3 October 1999. However, ACC did not forward this signed version to Infographics. The reason for this was that ACC did not regard it as appropriate to procure the issued licence from Infographics and issue it to the BBC until the BBC reached final agreement on the parameters of how the software system was to operate and until the terms of the detailed specification were finally agreed. That decision did not affect the validity of the licence issued by Infographics to ACC in mid-1999 nor the BBC's ability to start to use Infographics' software in late 1999.
113. Nothing further was done to procure the formal issue of the licence by ACC and it is in dispute as to how much of the licence fee was paid by ACC to Infographics. It is clear that by the end of September 1999, ACC had paid Infographics $126,000 towards the licence fee and that, if retention of 5 per cent it contended it could withhold from Infographics to correspond to the 5 per cent retention being withheld by the BBC is taken into account, there then remained unpaid $16,500 plus retention of $7,500. ACC paid $10,000 of this remaining balance in February 2000. There is much confusion as to whether it is correct to allocate from payments made to Infographics these specific sums towards ACC's liability to pay Infographics $150,000. There is clear evidence that the two payments were made by the end of September 1999 in specific amounts totalling $126,000 and that a further payment was made in February 2000 which Mr Patterson contended included a further payment of $10,000 towards the licence fee. The BBC contended that such payments as were made to Infographics were made generally on account. I accept that at least $126,000 was paid and that, by the time ACC came to settle with Infographics in June 2000, most of the fee had been paid.
114. When ACC's work was terminated, the BBC rapidly negotiated a technical specification with Infographics and obtained a licence direct from Infographics in the same or similar terms to the revised version sent through by Infographics in July 1999 rather than in the earlier version containing the BBC's revisions which the BBC had signed in October 1999. Infographics also agreed to accept $100,000 for this licence which was paid by the BBC. No explanation was provided by the BBC as to why it was able to obtain the same licence as ACC was attempting to procure for it for $50,000 less than ACC had previously been charged by Infographics.
115. On 6 April 2000, ACC formally notified Infographics that it had revoked the BBC's software licence agreement, would take a full credit for the software licence against its account with Infographics and would return the licence. Thereafter, Infographics offered to refund ACC the licence fee it had been paid by ACC and, treating the situation as one in which it had been paid in full by ACC, gave ACC a credit note for $150,000.
116. What is clear from this history is that ACC chose to delay procuring the formal issue of Infographics' licence to the BBC until the technical details of the system had been agreed. However, ACC regarded the licence as having been issued to it in May 1999 and Hanscombe considered that the licence was sufficiently close to being available to the BBC that it sanctioned payment of the greater part of the licence fee from the BBC to ACC in late September 1999 and this payment was made less only 5 per cent retention. Furthermore, the final terms of the licence were readily capable of rapid agreement between the BBC and Infographics once the technical details of the system had been finalised as was shown by the rapidity with which the BBC agreed with Infographics the technical details of the system and the terms of the licence on Infographics' terms once ACC's work had been terminated.

4.2.4. What payments were ultimately made by ACC to Infographics for the licence following any credit provided or return of payments given by Infographics to ACC?

117. It is agreed that, following the settlement between ACC and Infographics in June 2000 of their account in relation to the BBC project, ACC was refunded by way of a credit note $150,000 and that that credit represented the entirety of the licence fee otherwise payable by ACC. Thus, ACC ended up not having to pay any part of the licence fee. Moreover, the BBC paid Infographics direct $100,000 for the same or a very similar licence as Infographics had charged ACC $150,000 for and had then repaid ACC $150,000 for.

4.2.5. In the light of the answers to the questions at 4.2.2. - 4.2.4, what sum ought reasonably be paid to ACC for Infographics' licence procurement?

118. Infographics regarded itself as having issued to ACC a licence enabling the BBC to use its software in mid-1999 and ACC made payments to Infographics of a substantial part of the fee it was liable to pay that company. The BBC regarded the licence as having been obtained on its behalf by ACC from Infographics since it had paid by October 1999 the equivalent of 81 per cent of the fee due to ACC for that licence. Once the BBC had terminated ACC's work, it was able to obtain rapidly and without further substantial discussion an issue of the same or a very similar licence as Infographics had issued to ACC for $50,000 less than ACC had paid for it and ACC had returned to it the whole of the licence fee by way of a credit note. Moreover, ACC incurred all import duties and related charges in obtaining Infographics' software and licence for the BBC.
119. What is due to ACC is a reasonable sum ascertained by taking into account the agreed sum for the services in question contained in Tender B and the actual costs it has incurred. On that basis, it would be reasonable for ACC to be paid £168,993.00 less that part of that sum representing the direct payment to Infographics for the licence which ACC has been saved. This is what ACC is claiming and this item is, in truth, one in which what is in issue is the extent of the repayment of the sum of £136,857.00 already paid by the BBC that should now be repaid or credited to the BBC.
120. Since ACC had earned an entitlement to the whole of the sum of £168,993 from the BBC, there is no good reason to deprive it of any part of the 50 per cent mark up on the licence fee that it was to earn from this item. Hanscombe should have certified in September 1999 that the whole of the sum of £168,993.00 was due rather than certifying that the equivalent of 81 per cent was due and giving a reason for withholding the balance which was neither justified nor reasonably linked to ACC's entitlement to payment of that sum.
121. It follows that ACC is entitled to this item of claim in full, namely £75,243.00 being £168,993.00 less the licence fee element of £93,750.00.

5. Variations

5.1. Redesign costs

5.1.1. Introduction

122. This claim is for additional remuneration for the additional time ACC alleges it spent in redesign work in the period August - December 1999 to accommodate changed requirements of the BBC involving, in particular, central servers, a reduction in the number of workstations, other changes to hardware and software requirements and all the associated meetings and discussions held by the relevant personnel from both ACC and the BBC. These changed requirements were partly the result of changed views of what was required and partly the result of the BBC's inability to specify its requirements in sufficient detail to enable ACC's design process to be undertaken with reasonable efficiency and dispatch since the BBC's requirements had to be explored and discussed with its personnel in unusually prolonged meetings and discussions with the BBC.
123. The overall claim is for £25,062.32. The claim is in two parts: first, for the time of four individuals spent on this work prior to a two-day design conference and secondly for the time of four individuals, one of whom is also charged for in the earlier part of this claim item, at the design conference itself held at the end of the redesign period in question.
124. The BBC's case is that this work was not necessitated by its own changed requirements but was needed as part of the working up of its own design for which it has been paid. Undoubtedly additional time was spent to that originally intended but that resulted from the need to work around Infographics' inability to provide the full functionality it had agreed to provide. Furthermore, the time spent was not properly or sufficiently documented or established in evidence.

5.1.2. The redesign that occurred

125. The nature of the BBC's tender specification was such that significant design work was required both to prepare the tender submission and to detail the hardware and software and configure and commission it once work started. The reasonable costs of this work were to be recovered through the overheads and mark ups found in ACC's prices and in part of the large item for preliminaries in the tender.
126. ACC's proposed solution to the BBC's functionality requirements in the tender specification, as spelt out in its tender, involved ACC in using software and much of the hardware supplied by Infographics. It was ACC's reliance on Infographics which was a key factor in the BBC's decision to accept ACC's tender. The tender documents required, and the tender included, a compliance statement from Infographics to the effect that the proposed system was fully compliant because it met the requirements of the specification. The tender specification also required ACC to include for the design, supply, installation and commissioning of the hardware and software for the provision of the integrated access control system. The preliminaries were to include for everything necessary for the complete design and execution of the works and for the full and proper operation of the installation. The BBC's required functionality was set out in the tender specification coupled with the list of addresses of the retrofit sites set out in appendix one and the appended schematic diagram showing the sites and their relationship to each other.
127. Included in the necessary design work needed from ACC was the undertaking of surveys of each site, the preparation of its initial design set out in its tender, site specific design work, the setting up and carrying out of factory acceptance tests and any design work needed to fill out gaps and inconsistencies in the tender specification. This last activity was translated, in practice, to the preparation and discussion of large parts of the detailed specification which occupied ACC in so much time and effort.
128. ACC spent much time between April and early August in undertaking its design obligations. The culmination of this phase of its design work was the factory acceptance tests held on 3 August 1999. ACC claimed to have incurred costs, including the time of its personnel, of £168,593.73 in undertaking this work. The bulk of this time was incurred before the factory acceptance tests but a limited additional time was spent on certain individual site surveys up to 30 February 2000. ACC also claimed that it has recovered £112,150.00 of this sum through its preliminaries recovery and is not making any further claim for the resulting shortfall. The BBC challenges these figures, particularly the figure for the value of the costs and time claimed by ACC.
129. The relevant time incurred by ACC occurred after the factory acceptance tests on 3 August 1999. These tests were acceptable to the BBC. The joint expert's report suggested significantly:

"... the state of development at the end of July was such that a functioning set of software and hardware had been demonstrated to BBC by ACC and it would seem that in most respects BBC was happy that the proposed system would meet its need."

130. However, the BBC had produced a new schematic drawing on 22 July which undoubtedly changed the architecture of the system to a significant degree, particularly by reducing the number of computer workstations from one at each site to one at only 12 sites, by replacing one central server with two servers and by a requirement to incorporate a security badging system and database. The joint expert report suggested that these changes in architecture were such, given the flexibility of the Infographics' Diamond software system that had been supplied, that the work involved in reconfiguring the network would be relatively low and little or no redesign work should have been involved.
131. The joint report did suggest, however, that if there was a lack of a clear understanding in the operational environment in which the system was to operate by the BBC and a lack of a clear statement by the BBC of its exact system requirements, much additional design manpower would be needed, particularly if this work was being undertaken against changing architecture. Experience has shown, he considered, that even minor changes in specification can have major ramifications for the timescale and cost of a project of this kind. ACC's development team would probably need to be dedicated on a continuous basis over a much more extended period of time to this particular project and much time negotiating, discussing and explaining the necessary changes with the BBC's technical staff might well be needed.
132. The BBC maintained that the time involved in and after August 1999 occurred for two reasons, to accommodate the changes to the system's architecture that it had sanctioned solely because the Infographics system was unable to provide the original specification and to enable ACC to fulfil its design obligations covered by the tender specification design requirements and the preliminaries.
133. It is clear from the voluminous documentary evidence submitted for the trial that the BBC's requirements were not spelt out in sufficient detail in material respects. To start with, no site surveys had been carried out before the tender specification was prepared. Furthermore, the principal reason why the first letter of intent was agreed to rather than a formal contract being executed at the outset was to enable the BBC to reappraise the requirement for a controlling workstation at each site and for the number of workstations to be agreed. Furthermore, even at that stage, the number of readers at the Belfast site had been changed. The changes in architecture were clearly, in part, dictated by changes in the manning structure of the BBC's security arrangements and the development of a more detailed and coherent security policy. These changes were developed and articulated with difficulty because of differences of opinion within the BBC and because of the need for many different individuals to formulate and articulate the BBC's precise requirements.
134. The evidence showed that there were 6 progress meetings and two further progress meetings in the period from August to November 2002 in addition to the full scale design conference held on 9 and 10 November 1999. These meetings involved much detail and technical discussion with a large number of BBC personnel, largely on what were obviously changes and refinements to the access security system.
135. The BBC's case that these discussions, meetings and exchanges formed part of the work needed to respond to Infographics' failure to deliver software that conformed to its compliance statement and for ACC to conform to its design obligations have some but only relatively small justification. There was no effective evidence to meet Mr Maclaine's evidence that the Infographics' software could have been adapted to provide the system originally designed and specified by the BBC. Moreover, the factory acceptance tests were regarded as being satisfactory by the BBC. Finally, its belated insistence that a detailed specification be prepared added additional design requirements to those inherent in the tender specification, particularly as the BBC's final requirements required much teasing out to enable them to be precisely formulated.
136. I conclude that about 75 per cent of the time spent on design and 100 per cent of the time spent at the design conference by ACC personnel in the period 3 August 1999 to 10 November 1999 was additional time not covered by the preliminaries item and warranting additional payment. This time was spent dealing with changes and variations in the BBC's requirements including the need to prepare a detailed specification and to respond to the detailed surveys and changing security arrangements being specified by the BBC in the period after the successful factory acceptance tests.

5.1.3. Quantum of claim for redesign work

137. The claim undoubtedly suffered from a lack of contemporaneous timesheets and was the result of evaluation exercises conducted largely by Mr Ashford on ACC's behalf. The time claimed was based on estimates of time spent on redesign and on design. However, given the detailed work needed to undertake the preparation of the detailed specification, at least some of that work both entitles additional payment and is covered by the so-called design work carried out in this period.
138. Overall, ACC is entitled to reasonable remuneration for work not covered by the tender and the agreed contract sum. There is no need for that remuneration to be tied precisely to time sheets although any evaluation exercise must make an estimate of time for which additional remuneration is to be based. I conclude, having carefully evaluated the plethora of evidence, schedules, spread sheets and submissions on this topic, that ACC is entitled to 75 per cent of the sum currently claimed for design and redesign, namely 75 per cent of £22,573.57, namely £16,930.18, and 100 per cent of the costs of attending the design conference, namely £2,488.75. Thus, ACC is entitled to recover £19,418.93 for this item of claim.

5.2. Additional cost of card readers

5.2.1. The claim

139. This claim is for part of the cost of supplying card readers. The claim is for £57 each of the 141 supplied, a total of £8,037.00.
140. The card reader provided for in ACC's tender was a Plail card reader and the rate was £274 per reader. Mr MacLaine's evidence was that Mr Allan informed him at a meeting on 14 April 1999 that the BBC wanted a card reader that would be secure when used in the future for purse applications when money transactions took place. It is clear that Mr Allan was aware that this would entail a different card reader to the Plail card reader provided for in ACC's tender. The BBC was also interested in a card reader that would also be suitable to provide internal buzzers, which create an alert or alarm if a door was left open by being activated by the open door. At that time, the Plail card reader was not readily available and would not in any case have been able to provide these additional facilities. The only card reader which was both available and able to provide those facilities was one with a triple encryption produced by Banque-Technology of Australia. ACC ordered these cards readers and although they had to be specially designed for the BBC's requirements and specially tooled, this element of the cost of production was not passed onto the BBC. Ultimately, the BBC instructed the use of Banque-Tec triple encoded card readers for the project by Instruction Sheet No 67 issued on 2 March 2000 with this instruction:

"The BBC is not prepared to consider a change to an alternative design at this stage of the project. The Banque-Tec triple encoded reader is to be installed at all require (sic) locations."

141. The BBC resist this claim on two grounds. First, it claimed that it did not authorise the use of the Banque Tec card reader or the substitution of the tendered Plail card reader for this card reader nor the increase in price. Secondly, it claimed that the card was technically unacceptable and should not therefore be paid for.

(1) Authorisation

142. The order for the Banque Tec card was placed by ACC in May 1999 after the BBC had discussed with ACC the need to replace the Plail card with an alternative given the unavailability of the Plail card and the wish by the BBC for the card readers to have facilities not available on the Plail readers.
143. ACC and Hanscombe received a copy of the order soon afterwards as part of ACC's policy of providing copies of all invoices and orders relating to the work. Samples of the proposed card reader were provided to and rejected by the BBC as not being "BBC blue" in colour and, after trial and error, an acceptable colour was provided to and approved by the BBC. The BBC was informed that the Banque-Tec card reader would cost the BBC £36 more per unit in an e-mail from Mr Patterson to Mr Inns dated 8 September 1999 and, as already stated, the BBC issued an instruction for the Banque-Tec card readers dated 2 March 2000. The claim is for an enhanced cost of £57 per reader made up of a prime cost increase of £38 from the prime cost of card readers provided for in the tender to which has been added ACC's 50 per cent mark up. This figure, subject to liability, has been agreed by the parties' quantity surveyors and, although £2 plus the mark up more than the notified figure in September 1999 is clearly a reasonable sum for ACC to be paid. The contractual terms of valuation are for a reasonable sum to be paid and, given that the change to a Banque-Tec reader was agreed to and authorised by the BBC and the enhanced cost was brought to its attention without complaint, the BBC's first ground of challenge fails.

(2) Technically unacceptable

144. The BBC contended that the card reader was only able to read cards up to a distance of 20 - 30 mm when the specified range was 100 mm. However, the BBC accepted the Banque-Tec cards following the factory acceptance tests and when these were installed. Moreover, it has accepted that it should pay the tender price for the Belfast and the other readers at sites other than Manchester and, if it the BBC had good grounds for rejecting this claim, it should have rejected having to make any payment for the Belfast and other non-Manchester sites.

5.2.2. Conclusion

145. This claim succeeds in full in the sum of £8,037.00.

5.3. Labour for badge production

146. This claim is for the additional labour costs arising out of instructions to provide additional labour compared to that required by the tender specification for the setting up of badging stations at various sites. The instruction, no 4 issued on 16 September 1999, required ACC to bring forward the installation of workstations at five sites, supply five Eltron printers and additional labour for the 14th badging station. This was in addition to the supply of services to help the BBC with the bulk production of identity cards.
147. The BBC's case is that the setting up costs were included in the tender rates and the documents provided by ACC do not show or support the case that additional work was undertaken in connection with the badges.
148. However, as ACC pointed out, the tender rate was for installation costs as part of the installation being undertaken generally at a particular site. The result of the BBC's instruction was that special trips had to be made to the sites concerned merely to instal the badging stations. The claim is based on 112.75 of the time of Mr Abid Ali of which all but 2.5 hours were established as being spent on setting up badging stations. However, no allowance was made for the lesser cost of undertaking this work for which payment has been received from the contract rates. My evaluation is that one-third of the hours worked by Mr Ali come into that category. Thus, two-thirds of 110.25 hours are chargeable. 101 hours of Ms Filiz Kaya time are claimed for. These were not substantiated by time sheets but were supported by evidence adduced at trial which I accept. Ms Kaya did not attend for cross examination but her statement was admitted and is evidence in its own right. I do not regard the absence of cross-examination as detracting from the reliability of this evidence.
149. The BBC also challenged this part of the claim by way of abatement on the grounds that the identity badges which were produced were defective This problem had been caused by defectively printed smart cards, However, this claim is for design services in connection with the appearance of the identity badges and is as high as it is because the BBC's requirements kept changing resulting in additional design time being required. ACC is entitled to payment for that work irrespective of the subsequent technical quality of the printing of the identity badge.
150. In conclusion, ACC is entitled to 2/3 x 110.25 x £34.50 or £2,510.39 for Mr Ali and 101 x £34.50 or £3,484.50 for Ms Kaya in relation to the time she was involved in when producing badges. This produces a total recovery for this item of £5,994 89.

6. Survey costs for perimeter fencing and additional training

6.1. Introduction

151. The sum claimed for perimeter fencing of £2,070.00 is conceded by the BBC. The further claim is for £4,190.00 in respect of 10.50 allegedly additional training days provided by ACC for training BBC staff in relation to the security badges and £11,970.00 in respect of 30 days spent in the production of training manuals for these badges.

6.2. The claim in principle

152. The need to train the BBC's staff in relation to the security badge systems only arose once the Infographics software relating to badges was adopted. This training was originally required by the BBC, was not provided for in the tender specification and was not priced within the agreed contract sum. Equally, although training manuals were provided for, these did not extend to the security badge systems and a substantial document of over 60 pages in length was supplied. Reasonable remuneration for such additional time involved in both training and in the preparation of training manuals is, therefore, in principle recoverable. The BBC contested this claim on the grounds that the time in question was covered by the training item in the agreed contract sum but it is clear from the evidence that these items are additional training items not covered by those training provisions or the tender sum.

6.3. Quantum

153. The relevant time is that of Mr Abid Ali on 5 August, Ms Filiz Kaya at Milton Keynes on 27 September and half a day at Caversham on 28 September, Mr Ali at Glasgow on 28 September, Ms Kaya at Cardiff and Mr Ali at Manchester on 29 September, Mr Ali at Belfast and Ms Kaya at Bristol on 30 September, Ms Kaya at Birmingham on 1 October This is a total of 8.5 days. The claim is for 10.5 days but the further two days were not identified in evidence. The recoverable sum is, therefore, 8.5 x £399.00 or £3,391.50.
154. The time for preparing the relevant training manuals of 30 days was not challenged by the BBC whose case was that this time was to be taken to have been included in the relevant tender sum. I am satisfied with the evidence that this time was taken and was reasonably taken. The recoverable sum is, therefore, 30 x £399.00 or £11,970.00.
155. In conclusion, the total recoverable sum for this item of claim is £15,361.15.

7. Equipment

7.1 Introduction

156. This is a claim for £45,798.39 plus 50 per cent mark up for four categories of equipment which was procured by ACC for use with Infographics equipment and, in the case of remote reader and access control housings, was manufactured specially for the BBC project so as to fit the particular sites these items were to be installed at. This equipment had been acquired by ACC and was stored in ACC's Slough premises when work was suspended and remained there when work was terminated. The equipment was not capable of being used by ACC on any other project and could not be returned to the supplier or manufacturer.

7.2. The equipment

157. The equipment was as follows:

(1) 2 access control units

158. These were printed circuit boards manufactured by Infographics and bought from that company. The programme required about 12 of these to be used per month and there was a long lead time for delivery. These particular units were ordered on 13 January 2000 and were delivered to ACC and have remained there ever since. The price paid by ACC to Infographics was £1,059.24 which, at the rate of exchange accepted by the parties of 0.6, is £662.03 per unit. Although ACC was using Infographics equipment at one other contract, for the new North Stand at Chelsea Football Club, this equipment could not be used there and since Infographics terminated its relationship with ACC after the BBC work had been terminated and since these circuit boards could only be used with Infographics equipment, ACC could not off-load this equipment or return it to the manufacturer and obtain a refund. The total for this item was, therefore, £1,324.06.

(2) 4 Remote readers

159. These are also circuit boards and precisely the same evidence was given about these as was given for the access control units. The price per unit was $436.50 or £272.81 and eight were involved. The total for this item was, therefore, £2,182.48.

(3) 151 Remote reader housings

160. These were ordered from, and manufactured especially for the BBC work by, Security Support Products Ltd. The boxes had special locks and were silk screen painted especially to suit the BBC's requirements. The housings were ordered in bulk in May 1999 and 151 remained at ACC's Slough premises when the work was terminated. There is no other use to which these can be put and the manufacturer would not be prepared to take them back. The cost to ACC per unit was £44.75. The total for this item was, therefore, £6,757.25.

(4) 254 Access control housings

161. These involved precisely the same evidence as was given for remote reader housings. The cost to ACC per unit was £139.90 and there were 254 units left with ACC. The total for this item was, therefore, £35,534.60.

(5) ACC's mark up

162. ACC claimed its usual mark up of 50 per cent on these items which the BBC disputed without giving reasons why ACC could not claim its usual mark up. This too is recoverable.

6.3. Conclusion

163. ACC may recover the total of sums due under heads (1) - (5). This is a total of £68,697.00.

8. Design or copyright costs

8.1. Introduction

164. This claim is for £60,120.75 alleged additional design services undertaken in preparing designs and documentation for the printing of smart cards and the conversion of the security database to the Infographics system. The claim is made up of claims for the time of Ms Kaya and Messrs Ali, Maclaine, Wilson and Cottrell.
165. This claim is a further part of the claim already dealt with in section 5.1., redesign costs. It is concerned with the time spent in the preparation and conversion of the data held on the security system for use on the newly installed Infographics system and for the preparations for the printing of the security badges. The work was mainly carried out in the period from October 1999 to January 2000.
166. The work involved two inter-related functions. The first concerned the design and layout of the security badges. These were the badges issued to each employee and person to be given access to a particular site or location using the security access system. These badges went through a lengthy design process. The first change occurred when the BBC decided on a changed order of priority relating to which individuals had access to which areas and sites. This revised requirement evolved slowly during the period when the design specification was being developed in its early stages of development. The system, as it evolved, enabled the BBC to provide limited access to defined areas to defined individuals and enabled the system to control access throughout the BBC in clearly defined ways. The definition of the BBC's requirements, however, evolved slowly and involved significant technical redesign of the badges and their associated software.
167. A further difficulty was in the design of the badge itself. The BBC card had to match precisely the format of its existing card. This required the card to produce a consistent colouring and layout which was very difficult to achieve given the need to print over the chip embedded in the card. The badge also had to contain correct data. This proved to be a particular problem because the data in the existing security database was very inaccurate. This necessitated much reprinting of the cards that were produced as samples.
168. The inaccuracy of the database meant that up to 25 per cent of the individuals whose data was held on the security system was inaccurate. Moreover, it proved very difficult to convert the photo records held on the security system onto the Infographics system in BLOB format to JPEG format. These difficulties led to much additional work by the BBC in cleaning up and transferring the system from security to Infographics with ACC personnel having to spend much time in liaison with these personnel. The transfer difficulties led to servers crashing and it was necessary to provide fixes to rectify them.
169. The time of ACC personnel involved in these problems was to some extent provided for in the tender specification. Dr McArdle's opinion was that it was always intended to transfer the security database to the Infographics system. This transfer and any additional design work associated with the badging system should have involved ACC in some, but relatively little, additional supervisory and liaison work. Moreover, there was nothing contained within the tender for the design of the badges. It is that work which is to be taken to have been priced for in the tender. However, what was not anticipated was the considerable amount of technical liaison from Ms Filiz Kaya and Mr Abid Au that was involved nor the additional management time of Mr Maclaine and Mr Cottrell, nor was it reasonable to have expected ACC to have anticipated this. Since I am concerned with an assessment or evaluation of the reasonable remuneration that ACC is entitled to, there is no necessity to allocate or determine responsibility or blame for this additional use of resources merely to identify the reasonable amount of time which ACC may charge for having taken into account the reasonable amount of time which it may be said that the tender already provided for.

8.2 Quantum

170. Having considered the somewhat inadequate records of this time, I conclude that the time that is claimed for includes about 25 per cent of time which was spent on activities associated with security transfer is to be taken to have been included in the tender pricing and that the split between design and security work is roughly 50 - 50. The design work that was undertaken was largely undertaken by Ms Kaya and Mr Ali. I also conclude that the claim is inaccurately overstated by about 10 per cent given the inadequacy of the timesheets. I therefore discount all component parts of the claims by 10 per cent and allow 90 per cent of the claims for Ms Kaya and Mr Ali and 45 per cent of the claims for Mr Maclaine, Mr Wilson and Mr Cottrell. The resulting claim is:

1. Ms Kaya: £14,158.80

2. Mr Ali: £9,780.75

3. Mr Maclaine: £8,851.28

4. Mr Wilson: £993.60

5. Mr Cottrell: £5,239.68

Total: £39,024.11

9. ACC's indirect financial claims - Introduction

171. ACC makes six related claims which, in essence, arise from the fact that ACC performed much work for the BBC in circumstances where there was no formal contract but where there was an obligation to carry out a defined parcel of work in a defined timescale which was subject only to a requirement that the BBC pay for that arrangement on the basis that the sum to be paid for the work carried out, the services performed and the skill and resources deployed by way of a reasonable remuneration. The starting point for determining the amount of that reasonable remuneration is to use the agreed rates that would have been inserted into the anticipated formal contract for that work if and when that formal contract had materialised. The items of claim so far dealt with when taken with the items of claim that have already been agreed in the remaining parts of the final account have been valued on the basis of those agreed rates.
172. ACC's remaining claims are based on its overall contention that starting point for the valuation of its work and services is inadequate since the work and services performed and carried out and the significant resources that were deployed were all undertaken under very different conditions to the conditions for which those agreed rates were intended. Thus, ACC now contends that the starting point for the valuation of its work is inadequate for six inter-related reasons if the agreed rates are used as the sole basis for assessing the reasonable sum that ACC is entitled to recover.
173. ACC's under-recovery thus gives rise to six additional heads of claim:

1. Until the time when the works were largely suspended, ACC earned an unreasonably low recovery for overheads.

2. In the period after work was wholly or partially suspended, ACC also earned an unreasonably low recovery for overheads.

3. The work that was carried out was subject to disruption and lack of productivity for which a claim is made.

4. The overall remuneration for MTC work was unreasonably low and a claim is made for higher remuneration.

5. ACC incurred direct losses as a result of the termination.

6. ACC lost further turnover and profit that would have been earned from three of its suppliers as a result of the way that the BBC took over the supply of goods and services for this project from these suppliers.

174. Each of these heads will be examined separately in sections 9 - 14 below.

10. Overhead recovery

10.1. Introduction

175. The parties had agreed that the work covered by the revised letter of intent, which incorporated the revised tender specification and the agreed installation programme, would be carried out in an eighteen month period culminating in December 2000. The agreed contract sum for that work was £2.4m. This sum included a sum for preliminaries and overheads of 29.66 per cent, a percentage agreed by the parties' expert quantity surveyors. In the period from May to November 1999, had ACC worked to the programme on which that contract sum was based, it would have carried out work and services to an approximate value of £880,000 whereas it actually carried out, again using the agreed rates, about £540,000, thus resulting in an overall shortfall of £340,000 and a shortfall in the recovery of overheads and preliminaries of about £101,000.00. It is this sum that is claimed as the first head of claim. The claim is based on the assumption, which is both reasonable and established by the evidence, that ACC earned a sum for overheads and other indirect but recurring costs an overall sum representing about 30 per cent of its direct turnover. Thus, if turnover dropped in a given period, ACC's overhead recovery would drop albeit that its overhead expenditure would still be incurred in running its business.
176. The claim also assumes that ACC would have been capable of working to the agreed programme and to have earned £880,000 worth of the agreed contract sum had the BBC made available the relevant sites in time. The essence of ACC's case is that this value of work to this timescale was not carried out for three inter-related reasons which were neatly summarised by Mr Patterson in his evidence as follows:

"... design changes resulting from the BBC's internal charging structure, the change in the nature and scope of the works arising from the BBC's additional requests for badging and printing of cards plus alterations to the programme of works to incorporate the BBC's additional requirements such as badging and the BBC's changing site priorities."

177. The BBC contends that nothing is due for this claim. However, when analysed, the BBC's starting point in considering this claim is fundamentally flawed. The BBC started from these considerations:

1. There was no agreed programme and no obligation on it to provide sites and working conditions to enable a programme to be maintained.

2. The claim can only succeed if ACC proves that any shortfall in recovery resulted from the BBC's breach of contract and was not caused by its own failure to carry out its work with reasonable skill and care.

3. There was a defined cost ceiling to the work so that ACC could not assume that it would undertake work to the value of £880,000 in the timescale in question.

4. The claim assumes that there was no preliminaries recovery in the remuneration actually provided by use of the agreed rates and no alternative recovery for overheads from other work and contracts.

5. Overall, but for shortcomings by ACC in its design and management of the work, ACC could and would have carried out £880,000 worth of work in the relevant periods

10.2. ACC's case

178. Had ACC been able to work to the required installation programme, it would have had to have worked at 57 sites over a relatively short period of time. In fact, it was only given access to nine sites and then only to install part of the works. These problems were exacerbated by the changes in the architecture of the system and the design and data transfer difficulties associated with the badging system. The BBC has not identified any significant volume of work in addition to that carried out that ACC could and should have carried out, indeed it relies on the authorisations it gave as to the ceiling of work to show that ACC was not entitled to carry out any more work.
179. ACC fully established its case in evidence. It was not necessary to determine what who if anyone was culpable for the order, sequence and volume of working actually achieved. ACC was working to a letter of intent and it was for the BBC to decide on the volume of work. All ACC was obliged to do was to seek to achieve as far as was reasonably possible the rate of progress shown in the installation programme. It also had to show that it was reasonable for it to recover the costs and overheads that it is now seeking.

10.3. The BBC's case

10.3.1. No agreed programme

180. The BBC, as has been found, agreed in principle to an installation programme and ACC was contractually obliged to work to that programme if it was given the opportunity to do so by the BBC. At the very least, ACC had a reasonable expectation, as from early July, that its turnover in the period from May until December from the so-called MF 1 contract, in reality the contract of 7 July 1999, would be in the order of £880,000. Thus, although the BBC was not in breach of any contract if it did not make available work and working sites in a sequence and manner to enable compliance with the installation programme it had agreed in principle in July 1999, it certainly had an obligation to remunerate ACC on the basis that its turnover from MF 1 work was of the order of £880,000 in the relevant period.

10.3.2. Breach or default by the BBC

181. The BBC were not in breach of contract nor in any contractual sense in default in not making available working sites or in introducing substantial changes in the architecture of the access security system. It was for them to decide what use if any would be made of ACC's services given that it had required ACC to make available work and resources at a level which would enable compliance to be achieved with the installation programme agreed in principle in July 1999. It is on that basis that ACC is entitled to have its work, services and provision of resources made the subject of a reasonable valuation.

10.3.3. Defined cost ceiling

182. The BBC's defined cost ceilings were, as I have already found, only intended to have a short life span, did not limit ACC's recovery and primarily had the effect of curtailing the BBC's otherwise unrestricted power to determine the work without cause or notice if it chose. However, the existence of these cost ceilings provides further support for the conclusion that it is not reasonable to confine ACC to the overhead and preliminary recovery provided for in the agreed rates since the cost limits were contractually linked to the progress intended by the agreed installation programme. Any failure to achieve that progress must have removed such limitation if any that the cost limits imposed on ACC's overhead recovery. That recovery is whatever is reasonable in the circumstances that eventuated.

10.3.4. Other overhead recovery

183. Mr Keating, for the BBC, bases his assessment of this claim on the erroneous basis that it is for ACC to demonstrate that the BBC was responsible for delays. In fact, all ACC need demonstrate is that it is reasonable for it to recover overheads at a rate which it would have recovered such overheads had it earned £880,000 from the MF 1 contract in the relevant period. This was in fact amply demonstrated by ACC.

10.3.5. ACC could have recovered its programmed recovery

184. It is clear from the evidence that ACC could not have undertaken any significantly greater amount of installation work than it achieved in this period since the work was not available to it. The BBC never attempted to show what work could have been achieved but for any perceived default or inadequacy of ACC.

10.4. Quantum

185. In the light of any good reason being put forward as to why and how ACC could have achieved significantly greater turnover than £540,000, this claim is in principle a recoverable claim. I do, however, make a reasonable assessment of the volume of turnover ACC might have achieved had the design difficulties created by Infographics' system not being entirely what was claimed for it. This revised turnover would have been about £600,000. In those circumstances, a reasonable recovery would be (£880,000 - £600,000) x 30 per cent or £84,000.

11. Overhead recovery loss — After works suspended

11.1. Introduction

186. This claim is, essentially, a claim for the difference between the overhead recovery that should have been obtained between December 1999 and April 2000 had the MF 1 contract or the July 1999 letter of intent been worked to as anticipated by reference to the agreed installation programme compared with the actual recovery. The claim is for £237,978.00.
187. The background to the claim is the instruction given by the BBC to ACC on 14 December 1999 which were confirmed by ACC in a letter to the BBC on 23 December 1999 and were to this effect:

"(ACC] would confirm your instructions to suspend works on site as from 14 December 1999 until 4 January 2000. ... WE would be pleased to receive an extension of time to our contract period and would notify yourselves that we are incurring additional costs for which we shall require reimbursement."

It was anticipated that the MF 1 contract would be executed shortly after the Christmas and New Year break. In fact, no contract was ever executed. However, ACC continued to work in such sites as were made available to it until 11 February 2000 when instruction 60 was issued in these terms:

"As ACC have not produced a programme of works which the BBC has been able to Agree and your e-mail points out the difficulty of working without an agreed programme, till such time as a programme is agreed, we confirm that no new MF 1 works are to commence."

Finally, on 3 April 2000, the BBC notified ACC that:

" . . . it will not be possible to conclude a formal agreement with you and so the provisions of the second paragraph VII in the letter of intent will apply regarding the total amount of monies that will be paid to you."

188. The basis of the claim is that in the period from 14 December until 3 April, ACC had a dedicated team comprising its management, designers and engineers available for the MF 1 work and, save for some alternative work, used this team to generate the maximum possible turnover from the MF 1 work, namely £112,800 in circumstances when it reasonably anticipated, and could have generated, about £625,000.
189. Surprisingly, ACC does not seek to calculate its claim on the same basis as the overhead claim it has presented for the earlier period between May and December 1999. This was largely because it perceived this claim as being one based on a loss of turnover during a period when work was suspended. However, the claim is a valuation claim and is properly to be regarded as being related to the reasonable rates it should recover for its work in the period it was working, whether before or after December 1999. Since it was reasonable of it to maintain a dedicated team available for the BBC's use in this period, given that it was continuously anticipating the execution of a new contract in that period, there is no reason in principle why it should not recover 30 per cent of the difference between £625,000 and £112,000 or £153,900 with an allowance being made for any part of that shortfall of £513,000 that was caused by ACC's unreasonable performance or was recouped as a result of other work. It will be recalled that the two expert quantity surveyors agreed that overheads represented about 30 per cent of sales.
190. ACC's method of calculation was based on a different percentage, being the agreed percentage of direct costs that represented overheads. However, in principle, both parts of the claim should be ascertained in the same way.

11.2. The BBC's case

191. The BBC maintained that it did not invite or instruct ACC to maintain its workforce available for the MF 1 work. However, ACC had only been instructed not to start new work pending the agreement of a programme and it was both reasonable and intended that ACC should be ready to resume the MF 1 work in full and at a moment's notice even after that instruction was issued. The onus was on the BBC to instruct ACC not to maintain its workforce, it was not on ACC to unilaterally turn its work force to other work which did not involve the BBC without an instruction to that effect from the BBC.
192. The BBC also suggested that ACC did not prove that it failed to recover its overhead contribution from other work. That however is not the appropriate test. ACC is concerned with reasonable remuneration for this work. If the workforce was unable to undertake other work, that would make it reasonable for the recoverable overheads on this work to be equivalent to the overheads recovery that would have been earned had a full complement of work been available. It is, however, relevant to ascertain what if any alternative work the workforce was undertaking for the BBC in the relevant period and what recovery the workforce earned from that other work.
193. The BBC was able to point to work carried out for it by this workforce of ACC in this period. This earned ACC £41,118. Moreover, both parties analysed the hours that had been worked and the income that had been earned from other non-BBC contracts which it emerged that only 13 per cent of the time worked by the relevant workforce had been spent on non-BBC projects and a total of £83,944 had been earned.

11 3 Quantum

194. It follows that the quantum of this claim is:

1. ACC's anticipated earnings from MF 1 work: £625,000

2. ACC's actual earnings from MF 1 work: £112,800

3. ACC's actual earnings from MTC work: £41,118

4. ACC's actual earnings from other work: £83,944

£237,862

5. ACC's shortfall in earnings: £387,138

Thus, the appropriate additional remuneration for this period, representing the lost opportunity to earn overheads, is 30 per cent of the shortfall or £116,141.40.

12. Uneconomic working

195. The basis of this claim for £149,834.00 is that the number of man hours worked at six different sites, Caversham, Union Threshold, Manchester, TVC, Centre House and White City was significantly greater than the number of man hours used as the basis of the tender rates for those sites and for which payment has been made. It is alleged that the shortfall in productivity was caused by the changes in the architecture and the other requirements of the BBC and in the piecemeal way in which access to these sites was given to ACC. The number of hours used as the basis of claim is significant.
196. The design changes and the piecemeal delivery of site access would undoubtedly have caused a loss of productivity but, as the BBC forcefully submitted, it is not possible to form any clear view as to the nature of that loss or its linkage to the causes of lost productivity that occurred from the evidence, including spreadsheets analysing labour hours and from the work undertaken to analyse the tender build up. It follows that the claim is sound in principle but unsound in its verification.
197. ACC did establish the numbers of hours discrepancy between worked and earned hours. Since I am concerned with an evaluation exercise to determine a reasonable remuneration for ACC, I will exercise to determine a reasonable remuneration for ACCJ. I will take a very conservative view of the evidence. At least one-fifth or 20 per cent of these hours were directly caused by the design and released site access changes as is clear from a detailed consideration of the evidence as a whole. In consequence, I will award ACC 20 per cent of its claim or £29,966 80.

13. MTC rates

198. The basis of this claim is the inadequate rates for payment earned for MTC work, particularly for the installation of card reader doors. The MTC rates that were tendered for a card reader door were £1,893 75 per reader, a figure which had been tendered on the basis of an anticipated turnover of MTC work of at least £500,000 per annum for at least three years. In fact, no MTC contract was executed and this work was carried out piecemeal until ACC's work was terminated in early April 2000. The limited amount of work available was such that ACC contends that a reasonable sum by way of remuneration would be about £2,400. ACC claims the difference between these two figures which is £555 per reader or £123,464 in total.
199. ACC's expectation when tendering for the MTC contract was provided for in the tender documentation. This stated that:

"Tenders are also required to submit tenders for the installation of additional access equipment including the design, supply, installation and commissioning of the associated hardware (including cabling) to extend the Integrated Access Control System as subsequently required by the Purchaser ... This work is the subject of a Tender to be offered in accordance with the JCT Measured Term form of contract as detailed in separate documentation issued herewith. The Contract shall enable authorised BBC staff to raise individual purchase orders to install access control equipment specified therein with payment being made in accordance with that contract's provisions.

The contracts will be awarded to a single contractor after consideration of both tenders."

200. The reason for the discrepancy between the tendered rate and the final cost of undertaking the work is one of scale. Had ACC been awarded a long term supply contract involving a turnover of at least £500,000 per annum for at least three years, its overheads would have been lower and the unit cost of production and installation much smaller. ACC reasonably anticipated that it would be awarded such a contract at the same time as the MF1 contract. It carried out MTC work without a formal contract in the anticipation that such a contract would eventuate. When it did not, the resulting quantum meruit payments for the MTC work carried out were unreasonably low since they had been arrived at on a different basis to the basis upon which the work was carried out. It would be unreasonable for the BBC to obtain that work for much less than it would have cost it on the assumption that it was being provided on a small scale piecemeal basis. Indeed, once ACC stopped work, a successor was appointed who charged the BBC about £3,700 per unit. I do not accept Mr Keating's evidence that the charge was less than £1,000.
201. The BBC contests this claim on the basis that no representation was made that ACC would get the long term contract and so it cannot recover on the basis that it has lost such a contract following a misrepresentation. However, the basis of the claim is a purely restitutionary claim ACC had provided rates which would only be applicable if it got a long term contract. These rates are unreasonably low for undertaking a small volume of similar work without there having been any formal contract or agreement as to the price.
202. It follows that some additional remuneration is reasonable. That claimed by ACC is reasonable since it represents the difference between what it would have charged had it known from the outset that only a limited amount of piecemeal work would have been undertaken and what it charged on the false basis that its tendered long term rates were suitable and applicable.
203. The claim succeeds in full in the sum of £123,132.

14. Direct losses flowing from the termination

14.1. Smart cards

204. The claim is for £23,400.00 and it generated a huge amount of evidence, most of it irrelevant for the purposes of proving the claim and its quantum. The basis of the claim is that the BBC ordered 50,000 smart cards, then cancelled the order and acquired the same cards from the same supplier much more cheaply and thereby cut out ACC's overheads recovery on these cards.
205. The claim story starts with the tender requirement for the supply of 50,000 Philips Mifare proximity smart cards. This requirement was changed by agreement with ACC to the supply of cards to be supplied by Burral with a more precise specification. These cards were not of sufficient quality and the specification was changed twice more, initially to another unsatisfactory card manufactured by Orga and then to a card manufactured by Eagle Technology and supplied by Gemplus. This card was accepted by the BBC on 26 November 1999 by Instruction 22 which instructed that the printed set of Eagle Technology samples were approved and that printing and encoding of the cards could proceed. The additional costs in respect of these cards were to be established. The overall cost of the card was later agreed between the BBC and ACC on 2 December at £3.17 per card. The BBC then prepared internally an instruction dated 23 December 1999 which stated:

"As agreed with BBC project director Mr Paul Birch supply 50,000 smart ID cards at a cost of £3.17 each."

The instruction set out precise details of the specification required and also stated that all bulk printed cards were to be completed by 15 February 2000.

206. The BBC then made direct contact with Eagle Technology and, following direct negotiations with that company, placed an order direct with Eagle Technology for the same Gemplus card and then terminated the instruction issued on 23 December 1999 with a further instruction which had the effect of releasing ACC of its obligation to provide 50,000 smart cards. The reason why the BBC had taken this decision was because it discovered that, by going behind ACC and Gemplus direct to Eagle Technology it could but the cards at a unit cost of £1.51, thereby saving £83,000. It is clear that, by 23 December 1999 when the BBC resolved to use the Eagle Technology card supplied via Gemplus at a unit cost of £3.17 that all problems had been resolved as to the quality of the finished card and that the cards supplied direct from Eagle Technology via Banque-Tec were precisely the same cards as would have been supplied via Gemplus and ACC and which were to be delivered by ACC by 15 February 2000.
207. The BBC sought to rely on the shortcomings of ACC's June 1999 amended smart card specification and on the abortive attempt to obtain cards from both Burral and Orga. However, these problems were irrelevant since they caused neither loss nor delay and a satisfactory card had been obtained, trialled and ordered by early January 2000. Indeed, acceptable samples were provided to the BBC on 19 January 2000 which were blemish free.
208. ACC was providing procurement services and design services as well as supply and installation services and, by 19 January 2000, it had supplied the entirety of these services in connection with the smart cards. The BBC then cancelled the card because it discovered that it could obtain the same card more cheaply. ACC was able to avoid contractual payment to Eagle Technology for these cards. However, it is entitled to payment for its procurement and design services and for the fact that its contractual obligation to supply the smart cards created by the agreement in December evidenced by the unissued instruction on 23 December 1999. Since the BBC profited from these services by being able to order the same card from the same supplier but by cutting out the intermediaries including ACC, the reasonable fee for ACC's services is the overhead recovery that it would have made had the same supply continued through it. That is the agreed sum of £23,400.

14.2. Overhead Recovery in April and May 2000

209. The basis of this claim for £79,567.00 is that the staff dedicated to the BBC's work was instantaneously terminated and took two months to acquire other income generating work to make a contribution to overheads. That staff, with sufficient notice, could have acquired income generating that level of overheads in April and May 2000.
210. This claim suffers from the unfortunate defect that the basis of ACC's engagement was such that the BBC was entitled to terminate ACC's engagement at will and was subject, if it did so, to the terms of the letter of 4 June 1999. ACC relied on the termination clause of the MF 1 contract conditions but that clause formed no part of the parties' contractual relationship. This claim fails.

14.3. Termination staff costs

211. A sum of £7,982 is claimed as representing the cost of terminating the employment of four members of staff as a direct result of the work being terminated by the BBC. However, the documentary evidence shows that these four terminations were not the direct result of the termination by the BBC of ACC's work for the BBC. This claim fails.

15. Interference with suppliers

212. There were three claims made. The first related to the suggested loss of future business with Infographics as a result of the BBC poaching Infographics away from ACC. That claim fails since the loss sought is not capable of being linked to any recoverable cause of action. The second related to the loss of an order with Banque-Tec for card readers. However, the requirement for ACC to supply card readers was withdrawn by the BBC before it had formally been issued to ACC and was replaced with a different supply on a later occasion. The third related to the supply of smart cards and has been adequately compensated for by the claim dealt with in section 14.1 above.

16. Conclusion

213. ACC's claims succeed as follows, using the numbering of the summary of remaining claims used by the parties in their closing submissions:

SS Item	Description	Sum allowed or agreed	Judgment paragraph no
1.	Measured work
	Agreed sum	300,896.00	-
	1. Card readers	15,032.40	99
		12,672.00	-
	2. Software licence	75,243.00	121
2.	Preliminaries	436,247.00	-
3.	Variations
	Agreed sum	61,980.00	-
	1. Redesign costs	19,418.93	138
	2. Additional cost of	8,037.00	145
	3. Labour for badge production	5,944.89	150
4.	Overhead contribution
	1. Suspension Dec 99 to April 00	116,141.00	194
	2. May 99 to Nov 99	84,000.00	185
5.	Smart cards	23,400.00	208
6.	Uneconomic working	29,966.80	197
7.	Survey costs and training
	1. Perimeter surveys	2,070.00	-
	2. Training	3,391.50	153
	3. Training manuals	11,970.00	154
8.	Equipment purchased	68,697.00	161
9.	MTC re-rating	123,132.00	203
10.	Design ("copyright")	39,024.11	170
11.	Costs of termination	nil	210 & 211
12.	Interference with	nil	212
	suppliers
	Sub-total	1,437,263.60
	Payments made by BBC	937,175.00
	Total due to ACC	£500,088.60
	Less BBC's [ ]	20,000
		£480,088.60