Disclaimer

These questions and answers are for general information and guidance only. They should not be relied on in particular situations without contacting Quigg Golden and receiving detailed advice.

So how do you incorporate your terms and conditions?

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.

What is the significance of having a record of when we started and finished?

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.

How important is a programme?

Apart from being an essential planning tool for any construction project, programmes can have a specific contractual meaning. The most important programme, but also one of the most unusual, is a programme which actually forms part of the contract. This is a two edged weapon, since if any dates shown on a contract programme are not achieved then the contractor is automatically in breach of contract. One important programming item which is almost always included in the contract is a completion date. This is described in clause 23 of JCT 98; and in clause 43 of the ICE 6th Edition.

During the tender process it is good practice for the contractor to draw up a tender programme. This does not form part of the contract but is usually used by the contractor to estimate the contract duration and the critical elements and sequence for the Works. If the programme is detailed with reference to each part of the contract, it becomes of tremendous importance whenever the job begins to change as a result of changes by the Client, actions of the others on site, or unforeseen weather or ground conditions. This tender programme is commonly used by contractors to show how they had originally intended to do the work and consequently, when compared with an as-built programme or progress programmes, shows how much they have been prevented in using the method of work they had intended to complete the works as planned. This is a very important tool in establishing a claim for loss and expense because of disruption to the works or for attempting to prove an extension of time or acceleration claim. How accurate this tender programme is, very much depends on the priority allocated to it at tender stage, the skill of a contractor’s estimator and the ability to accurately reflect the elements of the work on paper. Whilst this will cost money for preparation, management or administration without careful preparation these costs will be subsumed by the cost of preparing a claim and the undoubtedly lesser amount that will be recovered. After all, the side with the better record wins.

The contractor must base his rates and contract sum on something. It, therefore, should not come as a surprise to clients or their professionals that whenever changes occur in the progress of the works, it costs the contractor money or has a cost implication. These are costs that clients must be prepared to pay. Most contracts have a mechanism for allowing the contractor to recover losses incurred in this way.

It is therefore vitally important that tender and successive programmes are carefully maintained and inter-related as the work progresses. The importance of these is often lost in the thick of battle during the contract.

What records do we need to have and why?

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.

Is it an instruction or direction?

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.

Oral and written instructions?

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.

What is an instruction issued in writing?

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.

How can we get our dayworks paid?

The use of dayworks to value variations is often resisted by quantity surveyors and architects as they believe it provides the contractor with greater reimbursement than he might otherwise secure.

Dayworks are only dayworks and will only be paid when you are executing a variation and when the variation cannot be valued under the contract by measurement, reference to the bill, tender breakdown or similar.

Daywork sheets are often more than records of men, materials and machinery engaged in certain activities for certain lengths of time. It is generally easy to calculate the amount each daywork sheet represents. That does not extend to an entitlement to payment for that daywork sheet. There is a multi-step process to be gone through to establish entitlement. This is:

• Is the work on the Daywork Sheet that for which the contractor is entitled to be paid, or is it work which is to rectify defects?

• Is the work to be paid for on daywork, or is it work which is covered by items in the bill of quantities? If it is covered in the bill of quantities, and the evaluation mechanisms in the contract apply, then the contractor is not entitled to be paid on a daywork basis. Equally, if the daywork price is less than the rate in the bill, the employer is not entitled to pay only the daywork rate.

• If the proper way for payment is on Daywork Sheet then, and only then, are the sheets themselves of importance. The starting point is that the sheets must be accurate and honest. One of the biggest problems in relation to dayworks is the fact that there is a general perception that daywork sheets are neither accurate nor honest.

Many architects and engineers will resist dayworks. There must be a clear instruction and proper records every time to prove an entitlement.

What do we need to do to submit a claim?

There are three things that you need to do in order to submit a claim.

1. Use the Contract

Many of the standard forms will expressly provide for the recovery of loss and expense.

There are two key points to remember whenever dealing with a loss and expense claim under any contract:

• the contract itself will usually set out a number of procedural steps which need to be followed closely in handling all such claims;
• the contract itself will state the different basis upon which a claim for loss and expense may be brought.

For example JCT 98 at clause 26.2 states the basis upon which a claim for loss and expense may be brought.

2. Submit it early

What happens if no claim is submitted until after the job is finished? The first result if no claim is submitted until after the job is finished is that the Contractor is unlikely to be paid any money on the claim until after the job is finished too i.e. Practical Completion. This does not assist the cashflow for the contractor, but is of great benefit to the employer. Under most forms of contract, it does not mean that the claim is barred absolutely. It may mean that the value of the claim is reduced because the provisions of the contract have not been complied with. Thus by implication this would reduce contractors cashflow and profitability. There may be arguments from the employer in that:

• interest is not payable on sums claimed;
• if the employer had the claim at an earlier stage, other actions would have been taken which would have reduced the amount of the claim payable and that, the contractor is not entitled to as much money as is being claimed. Simply stated the employer was not given the opportunity to mitigate his losses.

One of the certain effects is that the memories of the people involved will start to fade and there will be none of the freshness which you would get with a claim which is put in as the work progresses. At worst the people involved may have left the company taking with them your best source of evidence to prove your claim.

Contractors should submit claims as promptly as possible, even if the employer/contractor denies responsibility. Immediate action may pressure the employer/contractor to resolve an ongoing problem and stop the future consequences.

3. Have good records

The better your records are, the more likely you are to be successful in a dispute. You need to spend time and ultimately money making sure that you have the right number of staff to produce good records. This will invariably assist in claims. You need to make a decision as to whether it is more commercially viable to hire more staff or to possibly lose money later, on jobs.

How do we deal with a withholding notice?

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.

How does the Construction Act 1996 or Construction Contracts (Northern Ireland) Order 1997 affect us?

The Order provides certain rights to parties to a construction contract in respect of payment. If you keep an eye on these, you will improve your cashflow. These are:

• For payment by instalments or stage payments for contracts over 45 days duration;

The Order now regulates the provisions which must be found in construction contracts both standard form and those that you have drafted yourselves. Article 8 of the Order states that unless the duration of the works are to be for less than 45 days contracts must provide for stage or other periodic payments.

• To be informed of the amount to be paid in any instalment and when it is due for payment and the basis on which any amount is calculated;

The Contract must provide a mechanism for determining what payments become due, when these are due and what the final date for payment is. Article 9 of the Order means that the payee must now specify the amount of the payment to be made or proposed to be made within 5 days of the date on which a payment becomes due.

• To be given notice if it is intended that any payment be withheld;

Article 10 of the Order provides that payment may not be withheld after the final date for payment unless the payee has given a Notice of Intention to Withhold Payment.

• The right to suspend performance if payment is not made within a specified period; and

Article 11 of the Order gives a right to suspend performance for non-payment if monies due under the Construction Contract are not paid in full by the final date for payment and no Notice to Withhold has been given.

• The outlawing of pay when paid clauses

Article 12 of the Order prohibits pay when paid clauses except where a person from whom the payer is receiving payment is insolvent. If your contract does not comply with the Order then the Scheme for Construction Contracts Part 2 applies. By way of the Scheme for Construction Contracts the Order makes provision for the referral of a dispute arising under a construction contract to adjudication.

Top of Page