Contract Conditions in construction contracts

The following article is all about contract conditions in construction contracts. It deals with specifically with what contract conditions in construction are and gives some discussion and examples of the most common.

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Contract Conditions in construction contracts

When two parties in a construction contract sign the contract they are agreeing to a new formal, enforceable legal relationship. The conditions will set out the details of this relationship between the parties allocating the risk, duties and responsibilities of each party.

A construction contract can of course be bespoke but it is prohibitively expensive and inefficient for a new contract with bespoke contractual terms to be issued for projects that are quite similar.

Over time, multiple competing organisations have researched and published (for a price) standard forms of construction contracts that can be used repeatedly on typical construction projects e.g. a house, an apartment block, a hotel and so on.

There are several forms (templates) of standard contract documents in the construction industry including the:

1. JCT suite of contracts
2. NEC suite of contracts
3. FIDIC suite of contracts

Each of these suites of contracts have standard forms of contracts that can be used for different procurement types. For example the JCT suite of contracts has standard forms for traditionally procured projects as well as design and build.

As well as traditional and design and build, all of the suites of contracts deal with one or more of the following procurement routes:

1. Construction management.
2. Design build finance and operate
3. Emerging cost contracts.
4. Engineering Procurement and Construction Contract
5. Engineering Procurement and Construction Management contract
6. Furniture, Fixtures and Equipment contract
7. Framework agreements.
8. Management contract.
9. Measured term contracts
10. Measurement contract
11. Partnering
12. Prime cost contract
13. Prime contracting

Conditions in construction contracts

Its important to remember that conditions are simply the rules that hold the contract together. But these rules would be nothing without the actual meat on the bones of the agreement. In construction a contract must include:

• The design – drawings and specification
• The contract sum – a priced bill of quantities or pricing schedule
• The program including start and completion date

A construction contract is typically one party agreeing to carry out the works as described (the design) for £xxxxx amount (the contract sum) within xxxxxx amount of weeks (the program).

The conditions just set out the rules for how to deal with expected events such as regular payments and unexpected events, a Government shutdown.

Standard contract conditions in construction contracts

Construction contracts spell out in detail the expectations relating to time, cost and quality of the contracted works.

Several conditions can be found in one guise or another in most construction contracts.

See below an an extract from the JCT Standard Building Contract with Approximate Quantities 2016.

In this contract is starts of with the articles of agreement, the contract particulars and then moves on to the conditions of the contract.

See below an extract showing the conditions of the contract.

 

These are just examples of the conditions. The creators of the contract layout the conditions under the following headings:

• Section 1 Definitions and interpretations
• Section 2 Carrying out the works
• Section 3 Control of the works
• Section 4 Payment
• Section 5 Measurement and Valuation
• Section 5 Injury, damage and insurance
• Section 7 Assignment, performance bonds and guarantees, third party rights, collateral warranties
• Section 8 Termination
• Section 9 Settlement of disputes

This is just the way the JCT decided to layout their conditions. It doesn’t mean its the right or wrong way. It does mean that the JCT contract is quite large and perhaps difficult to read.

Most standard forms of construction contracts will be laid out differently but will contain very similar conditions regarding payment, program and so on. We have listed some of the standard conditions below which concern the following key areas of a construction project:

General

• Sub-contractors -this lists out the rules of how sub-contractors can be appointed.
• Joint Fire Code.
• Insurances

Possession

• Date for possession – simply the date that the Client will hand over full possession of the site to the responsibility of the contractor.
• Deferment of possession – sometimes the Client will have to delay handover of possession of the site. For example, a tenant may not have moved out yet so commencement of the works has to be delayed.
• Access to the construction site – this concerns how much access the Client or consultants will have access to the site post handover of possession.

Design

• What drawings is the contract based on
• Contractor’s design -this outlines what areas the contractor has responsibility for the design (if any).
• What happens if there are errors in the design or any of the documentation

Change

• Employer’s instructions – these are the rules relating to how an employer instructs change.
• Variations – these are the rules regarding additional works.
• Fluctuations clause – these are the rules regarding what happens if say prices of materials increase.
• Provisional sums – these are the rules about how a provisional sum is firmed up. This may involve and increase or decrease to the contract sum.
• Prime cost sums

Claims

• Relevant events or compensation events
• Loss and expense claims

Money

• Contract sum
• Adjustment of contract sum

Payment

• Payment
• Valuation of the completed works
• Valuation of off-site materials
• Certificates
• Retention

Termination of the contract

• Insolvency
• Termination by Contractor
• Termination by Employer

How to resolve a dispute

• Dispute resolution procedures and alternative dispute resolution e.g. mediation, adjudication, arbitration.
• Suspension of works.

Delays

• Practical completion.
• Liquidated damages.

Programme

• Progress.
• Extensions of time.
• Delays.
• Completion date.
• Partial possession.
• Sectional completion.

Unexpected events

• Force majeure.
• Insolvency.
• Injury.
• Damage.
• Insurance.

End of project

• Commissioning.
• Testing and defects (defects liability period).

Special conditions

• Collateral warranties.

Standard sub-contract conditions in construction contracts

• The most popular form of contract suites such as the JCT deal with the contract between the Client and the main-contractor.
• However these organisations also publish standard forms for sub-contracts between the main contractor and the sub-contractors. These sub-contracts contain the same conditions as the main contracts so that the main contracts and the sub-contracts align. For example, the sub-contract might have Liquidated Damages of £2,000 a week if the main contract has Liquidated Damages of £2,000 a week. This makes administration of the contract easier for the main contractor.

Other contractual publications

The organisations also publish standard forms for the appointment of consultants and also collateral warranties.