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The Importance of a Contract Review

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The contract is at the heart of every construction project. Prior to entering into the contract, the parties can spend weeks, or even months, negotiating the terms of the contract.  When instructed to carry out a contract review, Quigg Golden check the terms to identify potential risks which are then highlighted and explained.  This could include any unenforceable and/or unfair terms that seek to transfer an unreasonable amount of risk to the contractor.

What is the purpose of a contract review?

  1. To enable clients to make informed decisions when they are negotiating and entering into agreements; and
  2. To ensure the relevant persons know their obligations under the contract such as the timeframes within which notices must be served.

Why is a contract review important?

Construction is inherently risky.  How that risk is allocated between the parties can often be a deciding factor in whether a project goes well or is a failure.

These risks arise not just from the wording/form of the contract, but also any omissions, and in the minutia of law.  Seemingly unassuming wording or omissions can have significant cost implications further down the line.

Grey areas and uncertainty within contracts are a breeding ground for disputes.  High risk and onerous clauses that were not identified prior to contract execution could have significant consequences affecting payment and/or claims for additional time and/or money under the contract.

Legal professionals who specialise in construction contracts and disputes have the experience to identify the risk(s) posed by clauses that might otherwise seem innocuous or inconsequential.  By seeking professional contract review advice, and spending a relatively modest amount, contractors can manage the risk they are exposed to, and hopefully avoid expensive, drawn-out legal proceedings.  Below are some of the key areas of risk allocation that should be considered by a party prior to entering into a contract:

Payment 

Payment is important for all businesses.  Heightened risks could include unusually long payment terms or impediments to receiving payment, including any condition precedents and/or time bars which could completely remove entitlement to payment unless certain terms are first complied with by the payee within a specified timeframe.

Change Management 

Change management, and how change is dealt with by the parties is one of the most common causes of disputes.  Change management includes claims for any extensions of time and additional payment (delay/disruption claims and/or variations).

Again, any condition precedents and time bars should be identified and, if necessary, negotiated out of the contract.  Failure to comply with condition precedents and/or time bars can significantly limit a contractor’s entitlement to claim additional time and/or money.

Liquidated and Ascertained Damages

It is important to understand how a LAD clause functions, what the purpose of these clauses is and how they can be negotiated to limit the risk to your company such as negotiating caps on liability.

Design Liability

Different forms of contract have their own way of allocating design risk between the parties.  Typical examples of the transfer of additional design risk include:

  • The Contractor assuming responsibility for any designs produced by the Employer / others;
  • The Contractor being responsible for ensuring that all designs conform with statutory requirements, and any subsequent changes to those statutory requirements (clauses such as this can have serious cost consequences, for example, cladding requirements post Grenfell); and
  • “Ground conditions”.

Termination and Dispute Resolution  

At contract negotiation stage, there is a tendency for little attention to be paid to termination and dispute resolution provisions.  However, these provisions are extremely important, and can pose significant risk.  For example, the contract could include a “termination for convenience” clause, which allows one of the parties (usually the Employer) to terminate the contract, without the need for the Contractor to have committed a breach and without there being any cost consequences i.e, the Contractor is prevented from bringing a claim for loss of profit on the remaining works.

What can Quigg Golden do for you?

When reviewing standard form and bespoke contracts, it takes a trained and experienced eye to identify all the above risks (and many more we have not mentioned for the sake of brevity).  Quigg Golden have a dedicated contract review team (led by James Sargeant), with years of experience, who would be happy to discuss whether your contract could benefit from these services that we offer.

Contract Reviews. What is the purpose of a contract review and why are they important? See what the experts have to say.
James Sargeant, Associate Director

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