Having a written contract in place is a great start and it should be signed and agreed before commencing the works. This is key to avoiding disputes.
However, before accepting the agreement, it is important to fully understand the terms and conditions.
In reviewing the contract, there are a few key things you should consider.
It is vital to understand the terms and conditions you are agreeing to and the ramifications of any alterations to those terms.
There are several forms of standard construction contracts that we typically see, such as NEC, JCT, FIDIC etc. However, many are heavily amended which alters the rights and obligations of the parties.
It is vital that you not only understand the standard terms and conditions, but you should also understand any amendments to those clauses.
The form of contract, terms and consequently the risk allocation, is the choice of the parties involved. The more the parties move away from the standard terms, the more time and cost they are likely to incur in negotiating.
Even if you are familiar with the standard terms of the contract you are entering into, it is vital that a detailed review of the amendments is carried out. This is so you have a full understanding of how the amendments interact with the standard terms, how they interact with common law, and to gain an understanding if there are any implied terms.
Particular care is also needed in drafting any limitations or exclusion clauses to ensure they are lawful and enforceable.
Key issues we see with amended or bespoke terms include ambiguities in the clauses, unenforceable clauses, lack of certainty around risk allocation or obligations, which leads to interpretation and disputes.
2. Fill in the Blanks
In every construction contract there will be a section which requires data input that is particular to that project. In the NEC, this is the Contract Data. In the JCT, this is the Contract Particulars.
As defined by the New Engineering Contract, Contract Data is what:
“needs to be completed as part of the necessary contract documents; in the ECC this contains details such as starting date/Completion Date/employer details/defects date and the like. It is in two parts; part one (provided by the employer) and part two (provided by the contractor”.
Simply put, the Contract Data (or project particulars section of the contract) directly affects the administration of the contract and often contains key information including payment timeframes, claim notification provisions, timeframes for communications, the contract price, information relating to the programme, key dates, the law of the contract, delay damage provisions, and insurance requirements. Such information allows each construction contract to be unique and as such, contains many important defining factors for a project.
Such information will form the backbone of a construction contract and so it is critical that it is input correctly and before commencing the works.
3. Know your Scope of Works
The document which sets out the contractor’s scope of works is usually named in the contract and there may be multiple documents that set out the scope of works.
The scope of works document provides the contractor with a clear description of the quality of the work that they are obligated to undertake, alongside other duties and responsibilities of the contractor.
It is critical that contractors review the scope of works to ensure that it aligns with what they tendered for. Once the contract is signed, you are expected to deliver the criteria set out in such documents.
Often the scope provisions outline the standard that the works should be performed to and whether such works are subject to commissioning tests. Such provisions are constantly referred to throughout a contract and form the foundation on which the contract is based. It forms an essential project management document which expressly defines the obligations of each party to a contract.
The works information is often at the centre of many construction disputes. Small ambiguities which are overlooked at pre-contract stage can often grind the progress of a project to a halt further down the line. It can provide a vague / broad description of the works or include a particularised description of the works. The latter, in our experience, often proves to be better for both parties.
4.Price and Payment
The contract should always include clear details of the price for the works. It should set out the payment process and the process for altering the price if any change occurs.
The introduction of the Housing Grants Construction and Regeneration Act (“HGCRA”) in 1996 has greatly improved the payment procedures in construction contracts, not least by rendering pay when paid clauses invalid.
Regarding payment, timeframes are king. Both employers and contractors alike must be alive to contractual obligations in relation to timely applications for payment and subsequent payment assessments. A good idea is to map out and familiarise yourself with the payment cycle from the offset of the project.
Regarding changes to the price, there will usually be three simple steps to follow under the construction contract. These are identification of entitlement, notification in accordance with the contract, and establishing the effects of the change on the price. Familiarise yourself with the relevant clauses in relation to each step.
Be sure that any documents that are to be relied upon in pricing the works are included in the contract, such as the bill of quantities, activity schedule, schedule of rates, and hourly rates.
Failure to have adequate payment provisions in the contract will result in those contained in the HGCRA being imposed on the contract.
Finally, if you are the contractor, get to know your rights if you are not paid for works completed.
The contract duration should be stated in the contract. Know the contractual completion date and understand the implications of any failure to meet that timeframe. For example, what is the rate of delay damages / liquidated damages that the employer can apply if the contractor finishes late.
Often the contract will refer to the programme. The parties must be sure of their obligations and timeframes in the programme. This includes things like access to all or part of the work areas, critical path activities, and key interfaces, such as works to be provided by others, design approval timeframes, float allocation, and working days / hours.
As with changes to the price, changes to the programme will usually require the parties to follow the same process: identification of entitlement, notification in accordance with the contract, and establishing the effects of the change.
If a baseline programme is not established before commencement of the works, it can be very difficult for the parties, in particular the contractor, to substantiate the effect of any change.
It is of upmost importance that parties are aware of the terms governing termination. If you wish to terminate the contract due to a breach, be sure that the breach is in fact ‘material‘ or ‘substantial‘.
The contract will often set out the procedure to be followed before any termination can occur, such as the giving of a default notice. It will also include the process that should follow further to termination occurring, such as how the works are handed over and what payments become due.
You must ensure that you understand and follow the relevant notice provisions if you do decide to terminate. Invalid termination will amount to repudiatory breach which will land the defaulting party in serious difficulties.
Repudiatory breach will afford the referring party the ability to terminate the contract and sue for any arising damages. If you are in doubt, seek legal advice as any error in terminating can be a costly one.
7. What happens if a Dispute arises
Generally, in construction contracts, there is an express dispute resolution clause. This can be seen through the W Clauses in NEC4 Contracts, Section 9 of the JCT D&B 2016, or Clause 21 of FIDIC Silver Book. Such provisions outline the obligations of the parties if a dispute arises.
Despite the occurrence of express provisions, many jurisdictions allow for statutory dispute resolution procedures to be invoked. This can be seen with the existence of the HGCRA affording the right of statutory adjudication to parties within a construction contract.
Common dispute resolution procedures that might be set out in your contract include adjudication, conciliation, mediation, arbitration, or litigation. Note that it won’t be all of these options.
8. Deed or Simple Contract
Finally, you need to consider how the contract is signed, whether as a simple contract or a deed.
What is the difference?
What Quigg Golden do for You?
Quigg Golden deliver a broad range of legal services in the construction and procurement sectors.
The things we can do to assist you in understanding your contractual obligations or administering your contract include:
Published 16 August 2022
Published 9 August 2022
Published 2 August 2022
Published 5 July 2022