Misrepresentation in Construction Contracts

The relationship between employer and contractor begins long before the contract is signed. During the tender process, information flows from employer to contractor — site investigation reports, design information, planning consents, utility records, programme requirements, and budget expectations. If any of this information is false, and the contractor relies on it in tendering, the basis of the contract may be fundamentally undermined. This is the territory of misrepresentation.

The Problem

Misrepresentation in construction arises most commonly in connection with pre-contract information provided by the employer. The most litigated category is ground conditions: employers routinely provide ground investigation reports, borehole logs, and geotechnical surveys during tendering. Where these are incomplete, outdated, or inaccurate — and where the contractor encounters materially different conditions — the question of whether the employer made a false representation (and whether it did so fraudulently, negligently, or innocently) becomes central.

Other common scenarios include misrepresentation of existing structure conditions (in refurbishment contracts), false statements about the status of planning consents or environmental approvals, inaccurate information about utilities or services, and misleading scope descriptions that cause the contractor to under-price the works.

The Legal Principle

Under the Misrepresentation Act 1967, a party induced to enter a contract by a misrepresentation may rescind the contract and/or claim damages, subject to the following:

– **Fraudulent misrepresentation** (a statement known to be false or made without belief in its truth): damages are assessed on a tortious basis, recovering all losses caused by entering the contract.

– **Negligent misrepresentation** (a statement made without reasonable grounds for belief in its truth): damages are available under s.2(1) of the Act, assessed on the same basis as fraud.

– **Innocent misrepresentation** (a statement genuinely believed to be true): the court may award damages in lieu of rescission, or rescission alone.

The remedy of rescission — unwinding the contract — may be refused where third party rights have intervened, where the parties cannot be restored to their original positions, or where the misrepresentation was relatively minor (in which case the court may award damages instead under s.2(2)).

Practical Application

For contractors: if you believe you were induced to contract on the basis of materially false pre-contract information, the key questions are whether the information was a statement of fact (not opinion), whether you relied on it, and whether it was false. Preserve all pre-contract communications — tender documents, pre-bid meetings, site visit records — as evidence. The misrepresentation claim may sit alongside contractual claims (for unforeseen conditions, for example) or may be the primary claim if the contract excludes or limits other remedies.

For employers: ensure that all information provided during tendering is accurate to the best of your knowledge. If information may be incomplete, say so clearly and include appropriate disclaimers — though note that a disclaimer that attempts to exclude liability for misrepresentation may itself be subject to reasonableness review under UCTA 1977.

Risks

Misrepresentation claims expose employers to potentially significant damages, including all losses flowing from the contractor entering the contract at an artificially low price. The prospect of rescission, which would unwind the contract and require accounting for works already performed, is commercially disruptive and can be more damaging than a straightforward damages claim.

Mitigation

Employers: be transparent and accurate in pre-contract information. Flag known limitations in site investigation data. Avoid making representations about conditions or circumstances you have not verified. Include carefully worded (and legally reviewed) disclaimers where information may be incomplete.

Contractors: conduct your own site investigation where possible. Do not rely uncritically on employer-provided information. Raise pre-contract queries about information that appears incomplete and record the answers.

Conclusion

Misrepresentation is a powerful remedy for a party who was induced to contract on a false basis. It requires careful evidential preparation and legal advice, but where the misrepresentation is established, it can provide recovery that is unavailable through the contract alone.