Frequently Asked Questions - Records

It may see obvious, but in order to incorporate your terms and conditions, you need to have a set of properly drafted terms and conditions to suit you. You will need to take time preparing this and it will probably have to be of general application as hopefully your terms will apply to many jobs. It is feasible to have several "general" contracts for different roles. The first thing to note is that when we refer to a "contract" we are not referring solely to a set of standard terms and conditions but are referring to the overall deal you strike. This could include all the documents that you have exchanged. This could include for each contract but may include:

the articles of agreement;

• the priced bill of quantities;
• specification;
• letter of acceptance;
• tender drawings;
• standard for of contract;
• method of measurement;
• programme;
• site investigation report;
• correspondence;
• minutes of pre-contract meetings;
• telephone notes;
• details of the main contract;
• terms and conditions on the back of an order or tender.

Terms and conditions can be found in all of the above. It is extremely important therefore to make sure that there is no conflict. This will save you arguments later on. Decide which documents need including, and include them. For agreements to do construction wok there are no formal requirements for a contract to be in writing, nor for it to be signed by both parties. (Although in the UK, failure to have a written contract can mean you will not have a right to statutory adjudication).

The copy of the contract must be put together at the time the contract is formed because trying to recreate it at a later stage can lead to serious difficulties. We have had an arbitration for several hundred thousand pounds which turned on which revision of a drawing was included in a contract, and apart from memory there was no way of ascertaining which version was actually incorporated. It will also save arguments later as to which terms are included, and which are not. You may have negotiated some terms. Don't lose the advantage of these if the other parties change their minds.

One of the most professional ways of putting the contract together is to put together all the correspondence and documents which you feel make up the contract and send a copy to the other side stating that this is the contract and no other documentation or representation forms part of the contract before wok commences on site. Include the terms and conditions that you want. If the other side do not write back querying its contents then it will provide very strong evidence in a later dispute as to the terms of the contract. There is absolutely no doubt that those who take the time to do this are in a much stronger commercial position, not only to take the matter to adjudication, arbitration or litigation but to also achieve a higher settlement than would have been possible had they not taken this action.

It is the contract that sets out the rights and obligations of the parties to it. Your terms and conditions should always include:

• how much should be paid;
• when it should be paid;
• who values variations;
• are extensions of time due;
• who is liable for design;
• are notices required, etc;
• mechanism for dispute resolution.

Lastly, make sure that there are mechanisms within the contract to take action! Mark relevant dates on a calendar and use them. In the UK, you will be able to go to adjudication under the Scheme, but if you have preferred way of resolving dispute include it. This way in the unfortunate event that there is a argument over terms and condition sit may be resolved quickly.

Accurate and objective records on when work started and stopped are of great benefit for everyone. This sort of basic but fundamental record is often surprisingly badly kept. Don't let this happen!

To recover money at the claims stage! The contract price will almost definitely be based in part on how long it is intended that the job will take. This is on the premise that if the job takes longer it will cost more. A record of when you started and finished will be invaluable when formatting a claim for disruption/delay/prolongation or loss and expense. In order to prove how effectively you carried out the work, you will also need records of when you started and finished each part of the contract. One essential record for both the offensive and defensive action is a programme.

The importance of having records has already been discussed. The simple purpose of all records is to clearly present proof of what actually occurred during a contract. A claim is only as good as the documentation proving the Facts and assertions. Any weak or loose link in the facts or documentation will hinder and devalue the claim.

THE SIDE WITH THE BEST RECORDS WINS!

The type of records which are important include:

• records of instructions including verbal instructions, site instructions, instructions through minutes of meeting, daywork sheets, etc;
• requests for information (or Technical Queries or Information Requests) and similar information;
• records of progress (again including photographs or video footage, site diaries, progress reports, minutes of meetings, programmes etc);
• records of plant and personnel on site. These will include labour returns, daily allocation sheets, site diaries, plant returns, plant hire records, sub-contractor's returns, etc;
• weather records;
• records of ground conditions (including photographs and levels).

It is extremely important that records are accurate and verifiable. You should try to incorporate the terminology of the contract and programme when writing records. It is common to have the clerk of works or engineer's representative to sign records or allocation sheets for "record purposes only".

These records can be used in a host of circumstances. The most important examples are to prove claims for acceleration, delay and disruption. It is often easier to motivate personnel on site to keep good records if they understand the importance of records and the practical importance in keeping them. Again this will take time and cost money, but the commercial advantage that good records will give you as regards increased cashflow and profitability, should make the initial expenditure well worth it.

Good records help with claims for money and for extensions of time.

It should be noted that not all directions are considered to be instructions - see clause 10 and 12 of JCT 1998, for instance, where the clerk of works is empowered to issue certain directions.

Compliance with a direction which the issuer is not empowered to give may result in:

• not being entitled to payment; or
• not being entitled to payment and having to return the situation to the state which existed before the direction was given; or
• the employer/contractor may not be liable to reimburse you.

It is vital to understand the limits of the powers of those issuing instruction or directions and have effective procedures in place to ensure payment is received properly and quickly where appropriate.

Whenever instructions are issued they should, as a general rule, be given in writing because this is a simple and straightforward way of ensuring that there is a record. The majority of standard forms of building contract adopt this position. Most also have a mechanism for confirming in writing verbal instructions. An exception is the NEC Contract.

JCT 98 requires that all instructions issued by the architect shall be issued in writing, and where they are not they shall be of no immediate effect. The intention is quite clear; all instructions should be in writing.

This confronts the contractor with a commercial problem. Should he carry out the works immediately or wait for a written instruction with all of its resulting consequences? Commercially, it may be better to wait for a written instruction before executing the works. But in practice this may not be the most desirable action to take. It is always essential to bear in mind what is your main aim for being on the project, i.e. to carry out the works and to get paid for the work carried out.

Some contracts are very specific about the requirement for instructions to be in writing; especially JCT, ICE, RIAI, IEI and GCCC Contracts. An instruction issued by the architect in writing, regardless of whether it is on an official instruction form, or a non-standard form or letter in a duplicate notebook fulfils the requirement of the JCT 98, clause 4.3.1. If an architect gives an instruction otherwise than in writing it can become effective by the forthcoming procedure:

• the architect confirms instruction in writing within 7 days.
• the contractor confirms the instruction in writing within seven days and the architect does not dissent from it in writing within 7 days of receipt of the contractor's confirmation.

It can be seen that in both cases the instruction relies upon the architect and takes effect either from his own confirmation or at the end of the period in which he can dissent from the contractor's confirmation. A contractor should write for confirmation within 7 days, as this minimises the contractor's risk if a dispute arises. Not doing so increases the risk of having to establish liability and not getting reimbursed sufficiently or at all.

If an instruction only becomes effective in this way, can a contractor rely upon compliance with an instruction issued otherwise than in writing? The answer to this question is, clearly no. In summary, all instructions should be confirmed in writing before commencement of the work. It is difficult to envisage situations where an architect would be unable to issue a valid instruction in writing immediately, and certainly the contractor should be wary of any supervising officer who declines to do so. In such circumstances contractors should consider what the intension is behind the non-issue of an instruction and how this might affect right to payment.

If you are on the receiving end of a withholding notice and you do not agree with what is being withheld, object! It will help your case later. If no withholding notice is issued, this is contrary to the Order.

Make sure that you have all of your documents together to make a claim promptly after completion. The earlier your claim is in the mind of the payer the more quickly you may resolve difficulties. It is a good idea to keep all relevant records from day 1 in order that you can fully substantiate the monies due to you at an early stage. We will be discussing records and emphasising the importance of keeping them throughout this seminar.

Of course it bears repeating, that as initially stated, you will find it more difficult to get your final payment, and will not help your cashflow and profitability overall if you do not take a no-nonsense approach to all money due to you. Interim payments should be applied for promptly under the Contract and followed up if they are not received. There are provisions in the standard form or contracts for application for these just as there are for final payment. These may be found at clause 21 of DOM/1, clause 30.1 of JCT'98 and paragraph 4 of the Scheme.

In the worst case scenario despite having followed all the steps mentioned previously it may be the case that the Employer or Contractor refuses to pay the full amount due to you or at all.

Q Can you suspend your Works to force payment?
A Yes, if the Contract or the Construction Order allows.

For those contracts that fall under the Construction Act, the Act does make provision for suspension if payment in full is not made by the final date for payment and no effective Article 10 withholding notice is issued. If the money claimed is indeed due, Article 11 allows a Contractor to suspend works until final payment is made providing that 7 days notice in writing is given to the person from whom payment is due stating the ground upon which it is proposed that suspension be made. If suspension is exercised in the proper manner, the period during which parties have suspended is disregarded when calculating the time limits of the contract.

But great caution is necessary. If you suspend improperly you could be said to have committed a repudiatory breach of contract and so could be prevented from completing the contract and fined to pay considerable damages.

Contra Charges & Set-Off

Set-off is the single biggest source of dispute between Employers, Contractors and Sub-Contractors. This is because contractors/sub-contractors claim that employers/contractors deduct money for insufficient reason or for no reason at all. The effect in many instances making a profitable project break even or even worse making a project at final account stage into a loss making project. If Employers/Contractors are deducting money, you need to be sure at the outset that they are following the correct procedures. If they are not, they can't deduct money from your account!

Sir Michael Latham recommended in his famous report "Constructing the Team" that one unfair contract clause which needed to be outlawed was that which purported to set-off in respect of any contract other than the one in progress. Unfortunately this is still done. In the absence of an express contractual term, Contractors and Employers cannot set-off monies from another job other than the one that you are undertaking. This is because the two different jobs will presumably be covered by two separate contracts. The right to set-off arises under the Contract. However, Contractors/Employers are getting around this by inserting terms into the Contract allowing set-off from other jobs. If you have agreed to this you cannot object! The moral is not to agree to such a term when negotiating. After all, whose benefit is this term for?

Any set-off is subject to the Notice of Intention to Withhold that we have discussed. Regardless of what is in the Contract, if you do not agree with what is being set-off you must object in writing. Once monies have been set-off it is difficult to get them back. Whilst it may be commercially difficult, pursue it.

Where the Scheme for Construction Contracts applies, the date for final payment is taken from this. It is well worth calculating this date as early as possible in order that a prompt application might be made. The final payment will become due according to paragraph 5 of the payment provisions in the Scheme, namely on the expiry of 30 days following completion of the works or on the making of a claim by the payee whichever is the latest.

Omissions are worrying as they will instantly mean "loss of profit".

If a contract has a variation clause, this allows for omissions seemingly without restriction. How you deal with omissions will depend on what is omitted, why it is omitted and how the character of your work changes as a result.

Usually work cannot be omitted from your package and given to someone else, this is a breach of contract and you are entitled to exercise your options. Depending on the contract, the options include claiming payment for the work which you would have originally have undertaken under the Contract, the right to terminate performance of the Contract and the right to prevent the party in breach from enforcing the Contract.

Usually the valuation of omissions at bill rates means an under recovery of profit and this consequential loss may be recoverable under the contract or may not. The exact terms of the contract must be considered.

Presumably, the only reason you will want to try and avoid doing variations is that you are worried about not getting paid. So can you avoid doing them?

The usual answer to this is no.

Strictly a contractor is not bound to execute more than the contract work unless there are express provisions allowing this. This is why the standard forms of contract do provide that the employer or his agent may require alterations additions or omissions to the contract work (i.e. variations) which you will be bound to carry out. Examples include Clause 13 of the JCT 98 Form of Contract, Clause 51 of the ICE or Clause 27.3 of NEC.

These contracts also provide for payment to be made in respect of variations (For example clause 13.2.3 of JCT '98). Make sure that you identify the clauses within the contract for payment and valuation and that the right ones are used. DO NOT agree to any terms of a party that do not provide for the valuation of variations.

There are limited exceptions to the compulsion to perform a variation which would come under two heads:

• are the variations necessary for the completion of the Works?
• is the variation so far beyond the scope of what was contemplated that you can refuse to perform it?

The first question is relatively easy to answer. There is one circumstance where contractors/sub-contractors will not be compelled to perform a variation and that is where the employer/main contractor attempts to incorporate variations into the defect list when requiring the rectification of defects and refuses to acknowledge that they ARE variations by disguising them as defects. It is advisable to undertake such variations, once payment terms have been resolved, but not to undertake them, if the employer/contractor persists in stating that they are defects.

The second question is considerably more difficult to answer. Some assistance may be derived from clause 13.2.2 of the JCT 98 form of contract which holds that any instruction under clause 13.2.1 (for variations):

"...shall be subject to the Contractor's right of reasonable objections set out in clause 4.7.7".

Clause 4.1.1 allows the Contractor to make reasonable objection in writing to compliance with a variation. Unfortunately JCT 98 gives us absolutely no guidance as to what is "reasonable". In the case of Thorn -v- London Corporation (1876) 1 App.Cas.120 the Lord Chancellor said of variations:-

"If, on the other hand, it was additional or varied work, so peculiar, so unexpected, and so different from what any person reckoned or calculated upon, that it is not within the Contract at all; then, it appears to me, one of two courses might have been open to him; he might have said: I entirely refuse to go on with the Contract - non haec in foedera veni: I never intended to construct this work upon this new and unexpected footing. Or he might have said, I will go on with this, but this is not the kind of extra work contemplated by the Contract, and if I do it, I must be paid a quantum meruit for it."

Quantum meruit would be a reasonable price. Given that there is a possible option to recover financially for "unreasonable variations" it is suggested that in order to avoid a fight later on, it would make sound commercial sense to undertake all variations, and take steps to recover money for them.

You must take instructions from the correct people, as this has an impact on profitability. If you are operating under a standard form of contract there will be provisions within this for whom you should take instructions from. For example with the GC Works 1 Contract, instructions could be given by the project manager and would be valued by the quantity surveyor. The project manager and quantity surveyor would largely be the equivalent of an engineer or architect under other forms of standard contract. It is important that you check the contract. If you take instructions from the wrong people, you may not get paid.

Once it has been established from whom you should take instructions, you need to ascertain that the instructions are genuine instructions and that you can get paid for them. It is sound practise to ensure that all instructions are in writing.

In the JCT Contracts, it is necessary to consider what constitutes an instruction and to distinguish between the different types of instructions the architect may issue, because whether an instruction exists is contractually significant, as is the type and form of the instruction. In many projects instructions greatly impact on a company's cashflow and profitability.

The architect is frequently given the express right to issue certain particulars. For example, clause 5.3.1 of JCT 98 provides:

"So soon as is possible after the execution of the contract:

the Architect. . . shall provide . . . descriptive schedules or other like documents necessary for use in carrying out the Works. . ."

These "descriptive schedules" may be more explanation or they could well be variations.