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Getting Your Ducks In A Row – Good Practice In Construction Contracts

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So, now that you’ve got your construction contract in place and started the project, what could go wrong?   The things to look out for in any construction contract are those matters/events which will affect cost and completion date (i.e., as we at QG refer to it “managing change”).

Good practice when administering the contract is fundamental to making the project run as smoothly as possible.  This article will set out some simple steps you can take to either avoid a dispute, or keep yourself on the right side of the facts should you end up in one…

Change Management: Compensation Events / Variations 

 Perhaps the matter that gives rise to most disputes is change to what has been agreed between the parties, be that compensation events (under NEC and PWC) or Variations (under the JCT).  Such change is an alteration to the scope of the works.  Remember that this could be an omission or substitution from the original design and definition of the works, or it can be changes in the quantity of work required (up or down).  While it is almost inevitable that a project will depart from the original specification in some way, this does not mean that you should not approach the issue of change management without caution.  Change can create significant impacts to the cost of the works and indeed the completion date, often leading to disputes.  With change management being such a key source of conflict, we have a few rules you should follow in order to protect your position, should a dispute arise.

 Instruction in Writing to Implement Change 

 Firstly, never implement any change without a written instruction to do so.  This written instruction must come from someone (i.e., an agent) who is authorised to do so, such as the Employer or Contract Administrator.  The construction contract should include a clause that designates the authorised person.  Where the Contractor finds that extra work needs to be done which is not stated in the contract, they should notify the Contract Administrator in writing and do so in a timely manner.  Often the contract will stipulate a time frame.

 Agreement as to Cost 

 Secondly, always try to agree with your Employer the value of any change.  Proper Valuation (i.e., “Quantum”) of the cost of change is a huge source of disputes in the industry and something we see very frequently in adjudications.  You should always try to submit a CE/Variation claim which includes projected cost implications with supporting evidence such as quotations and any other relevant information.

 Conditions Precedent to Entitlement to Make a Claim 

 Another important thing to note is what your contract terms say about change and what does or does not count as a CE/Variation and any “conditions precedents” (i.e., hurdles you must get over in order to be able to claim payment) that must be adhered to in terms of notice:

  • Do you need to notify of becoming aware of change within 14 days?
  • Does your notice need to be company headed paper and cite the correct contract clause for it to be valid?

 Keeping on top of cashflow is at the top of any Contractor’s priority list. Keeping a calendar for all key dates (i.e., payment claims to be submitted) is crucial.  Do your QS’ teams have calendars for this?  If not, why not?  It is vital to know your payment timeframes, so ensure you have reviewed any contractual obligations that concern payment applications and any requirements for payment, such as project milestones and assessments.  Mapping out the payment timeline for the whole project from the get-go is always a good idea.

 Delay: Extension of Time Claims 

 Besides disputes over the costs of change, another major issue we see is disputes over extensions of time, and loss and expense claims, due to the impacts change has on the original Completion Date.  Therefore, our third rule is that it is absolutely vital that Contractors agree any extra time needed to implement any changes agreed, even if it is only one- or two-day’s work.  Always notify any delays caused and always, always get the agreement to extra time in writing.  This will also protect you against delay damages.

 Records, Record, Records 

 If there is one common denominator within the above rules on change management, it is to keep good records of the change not least getting instructions to change things in writing.   Keeping good records includes weekly reports of site progress and photographs to log this progress.  Aim to be diligent in taking meeting minutes and make sure these are accurate.  Record everything and leave a clear paper trail.   We often say that in a dispute it is the side with the best records that wins!

 What can Quigg Golden do for you? 

 Often amendments to construction contracts will try to minimise what sort of alterations count as Variations and will try to allocate the majority of the risk to the Contractor.  In order to avoid this sort of headache, having a clear understanding of the terms of your contract before signing it is absolutely vital.  Quigg Golden can help with this using our “traffic light” Contract Review system

 With the above in mind, we would say that, even where contractual relationships are good, records are fundamentally important from start to finish to pre-emptively protect yourself in a future dispute.  Always approach your contract management as if you were getting your ducks in a row.

Taking this a further step back, in order to avoid any contractual terms which place an unnecessarily heavy burden on the Contractor when it comes to alterations to the scope of the work, thoroughly reviewing the construction contract pre-signing is an extremely useful tool.  Quigg Golden offer a Contract Review Service for this very reason, we can flag up any causes for concern in your contract and set out clearly the risk allocation.  In the event you do find yourself in a dispute, our expert team provide a range of services, whether you require help with mediation or leading advice and preparation for the adjudication process.  (Click here for a full list of our services).

Please do not hesitate to contact us if any of the above issues concern you or your company.

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