Getting Your Ducks in a Row – 5 “Best Practice” Steps in Administering Construction Contracts

So, now that you’ve got your construction contract in place and started your project, what could go wrong?  You won’t need me to tell you that the biggest issues in any construction contract boil down to issues/events that affect the completion date and cost (i.e. time and money).

In my extensive experience of resolving construction disputes, simple steps in good administration of the contract are fundamental to making your project run as smoothly as possible, whichever side of the contract you’re on.  There are five simple steps you can take to help avoid a dispute and keep yourself on the right-side should you end up in one.

To take advantage of our contract review service, or if any of the issues in this article concern your company, contact Stephen McKenna at Stephen.McKenna@h-f.co.uk

#1 Read your contract – There is no substitution for reading the contract and knowing the terms you’ve agreed.  All too often people don’t, and they get into trouble.  When reading a contract, even one you’ve been working on for some time and are familiar with, it’s surprising what you can pick up when you take a step back and read the full document.   In disputes a lot can turn on the wording of a single sentence.  You don’t need to be a lawyer to understand the contract and, if it’s in a standard form, reading it cover to cover once it’s agreed, will put you in a good position.

#2 Do not do anything you have not already agreed to unless it is in writing/instructed properly – Construction firms are not charities.  They’re commercial entities who charge for the specific work they agree to execute, but it’s hard to think of another industry where change is so rife after parties have signed on the dotted line of the contract.  This often results in compensation events/variations.  All too often we see contractors/sub-contractors carrying out varied works that are later disputed.

Consider this: does the person asking you to do the additional/varied work have the authority to instruct you to do it?  Is there a maximum limit on the amount they can instruct?  If anything is verbally instructed, be sure to go straight to your laptop to email the customer confirming exactly what they have instructed to immediately have a written record – something along the lines of “just following up on what we just discussed”.  If there’s then any kickback, you are immediately forewarned that you will not be paid for that work.

#3 Always try to agree costs up front – Warn early and provide evidence at the outset of the likely cost of any varied work.  If the costs are going to change or are uncertain, get your best guess across (backed up with evidence, pointing to agreed rates where possible), and provide “continuing effect” notices, monthly.  It will really help your position if there is a dispute later on, and when you set out what it is likely to cost within the instruction to proceed, it’s difficult for the other side to dispute that at a later date.

#4 “Conditions Precedent” (i.e. hurdles to be overcome) – A “condition precedent” is a term of a contract that stipulates you must do something before a right or obligation arises.  Typically, these are that a contractor/subcontractor MUST notify their customer when they become aware of anything that will affect time or money.  Usually they have to notify twice (i) as soon as they become aware of the issue and (ii) a few weeks later with full details of the effects of the claim, including to the programme and costs.

All too often these come along with wording like “if the contractor fails to notify on time, they will NOT be entitled to any more time or any more money”.  So, if a change occurs that’s not your fault, and it costs a great deal of time and money, but you forgot to send a notification, you get nothing.  Is that fair?  Sometimes not (the law says they are, because they warn the Employer as to exposure).  The best possible advice is that if your contract says you must notify – make sure you do.  If the contract does not say you must notify, make sure you do anyway.

#5 Keep excellent records – It’s very often said in construction law that “the side with the best records wins”.  It’s usually true.  Be aware that this is not always the innocent party – it’s the party with meticulous/contemporaneous records.  Good record keeping spans all areas of a project – saving emails / meeting minutes / instructions / site diaries / invoices /payments made, and many more.

As well as keeping good written records of any correspondence, agreements reached and instructions for varied work, it’s just as important to keep good records which include weekly reports of site progress and photographs.  In short, record everything and leave a clear paper trail.

If a judge or an adjudicator has to look at a dispute, and you have (i) notified correctly and on time, (ii) have set out a very clear indication of costs from very early on, and (iii) have very detailed records, you will be in a very good position from the off.

To avoid any contractual terms which place an unnecessarily heavy burden on you, thoroughly reviewing the construction contract pre-signing is extremely useful.  Quigg Golden offer a Contract Review service for this very reason.  We can quickly and easily flag up causes for concern to clearly highlight any risks.

If you do find yourself in a dispute, our expert team provide a range of services including help with mediation and advice and preparation for the adjudication process.  (Click here for a full list of our services).