Construction contracts – a guide
Eleanor Griffiths of Mundays LLP provides an introduction to the key concepts that any home improver, self-builder or developer should consider when starting a project.
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Who will be involved in my project?
Irrespective of the size of your project, it is unlikely that you will appoint or have to deal with just one single professional. The roles and size of the project team will vary depending on the scale and complexity of your project, but these are some of the key parties:
1 You, the Client (the employer/the purchaser). You are the instigator of the works, you need to: be able to communicate your ideas to your team; understand how your decisions and instructions can impact on things like cost and delay; and fund the works.
2 The Contractor (the builder/the developer). This is the party appointed to carry out the works. On a smaller project the Contractor may undertake most of the work themselves, whereas, on a larger project, they will manage numerous Sub-contractors, Designers and Consultants. Even on small projects the Contractor will probably need some specialist assistance.
a. Sub-contractors. This term can refer to any number of trades people, specialist or labourers, appointed by the Contractor to fulfil a specific role, for example, electricians, carpenters or plasterers.
3 Consultants. The term consultant usually refers to a party providing professional services. Two common consultants are:
a) The Architect (designer). An Architect will be involved in the design and planning of your works. They will draw up plans and specifications for the Contractor to use to build the works, assist with a planning application and may be involved in managing the works. The Architect may also appoint sub-consultants to provide technical assistance, for example, a qualified engineer to carry out structural calculations.
b) Quantity Surveyor (QS). A QS will help to control the project budget. They can be involved with estimation of quantities at inception and will value the work as it progresses: their appointment is likely to save you money.
4 Suppliers. All of the materials for your project will need to be supplied by a manufacturer, builders’ merchant or other stockist. If your Contractor is purchasing materials on your behalf, you will need to clearly communicate your requirements. If you are purchasing items be aware of delivery/production time and ensure they are available when required to keep the programme on track. Also remember that the cost of materials can fluctuate, especially on large, long-term projects, you should ensure your contract deals with this possibility.
Whilst each part of the construction team will fulfil a different role, there are several key themes that will impact the entire team and that you should consider at the outset of the project.
Do I need a construction contract? Contracts don’t need to be written down to be binding, however to best protect yourself and your project it is always advisable to have a written form of agreement. If you don’t it can be difficult to keep track of what has been agreed and more importantly prove this in the case of a dispute. A written contract can also give you legal protection for your project and a good contract will offer some protection against spiralling costs or extensive delays. It is worthwhile spending time at the outset working out what you want to achieve, who will be responsible for what and a budget. You can then ensure that your contract accurately reflects this.
There are several standard forms of contract available with guidance as to the type of project they are suitable for, including JCT Home Owners or Minor Works contract, RIBA’s Domestic Building Contract and the Federation of Master Builders’ contracts. The contract should suit your project: a contract that is too complex and not administered properly won’t help either party.
Whilst it is important for each party employed on the project to have a written contract, the Client may not be a party to every individual contract. The Client might engage the Contractor and Architect directly, they in turn will engage relevant Sub-contractors or Sub-consultants. The Contractor and Architect contracts should provide that they will retain liability for the proper execution of the entire project, so even if something goes wrong down the chain they remain accountable.
You can also protect yourself by entering into a collateral warranty with important Sub-contractors. For example, your Contractor may employ a mechanical and electrical engineer to undertake important works and the Client has an interest in ensuring that they are properly completed. As above, the Contractor should retain liability for all sub-contracted works, but what happens if the Contractor is insolvent or has ceased trading? A collateral warranty will give you a direct right of recourse against the Sub-contractor. All important Sub-contractors, particularly those undertaking design works, should be required to provide warranties to the Client.
Project control: The holy trinity – Cost, Time and Quality.
Cost. Regardless of whether a contract is described as fixed or target cost or otherwise, there will be circumstances when it becomes reasonable for price to be adjusted. Sometimes the cause may be outside of the parties’ control, i.e. the project is damaged due to an ‘act of God’, however Client ‘changes’ can also drive up costs. For example, something as simple as changing the location of a plug socket may require the electrician to return, the original position will need to be made good which may involve filling in, a plaster skim and the area repainted if it has been decorated, and so on. These sorts of changes can amount to a variation of the original contract and the parties should agree any additional costs involved before they are implemented.
is an experienced Development and Construction lawyer having trained with a national law firm in both its Guildford and London offices and subsequently gaining in-house experience working for a major construction company and a listed energy company. She is experienced in advising on procurement under, and the drafting and negotiation of, both bespoke and industry standard forms of contract (including JCT and NEC) and all associated project documentation (including amendments to the standard forms, warranties, bonds, guarantees, professional appointments, subcontracts and letters of intent). Eleanor Griffiths of Mundays LLP on 01932 590619 or by email at firstname.lastname@example.org
Time. As with cost, factors outside of the parties’ control can delay a project, for example certain activities cannot be carried out in the rain or during very low or high temperatures. A Sub-contractor who has left site may be needed to implement changes, but they may not be available immediately. Even if design changes can be incorporated into the normal run of the works, they may take longer to execute and your Contractor may have other work booked in. Most programmes will allow for some delay and the Client can assist by ensuring changes are communicated and information provided in good time. Where a delay is outside the parties’ control, a good contract will guide the parties in agreeing extensions of time and additional costs, or disallowing the same as relevant.
Quality. What standard of work have you agreed on and paid for? The starting position is that work will be carried out with reasonable skill and care. If a particular skill, trade or profession is involved, the contract should refer to the task being carried out with the knowledge, training and experience of a person with that particular expertise. If you expect a higher standard of care and you are paying extra for this then your contract should be amended to reflect this. If you require something to be fit for a particular purpose this should also be explicitly stated.
As regards materials, the starting position is that they should comply with British or equivalent EU standards, be selected in accordance with the “Good Practice in the Selection of Construction Materials” guide and not be deleterious to people or the building. Any more specific requirements should be communicated to the Contractor and stated in the contract documents. Further, the parties need to know who will select materials: does the team have autonomy to select materials in line with the brief or must the Client approve all materials? The position may be somewhere in between with the Client specifying finishes, but leaving the choice of ‘hidden’ materials to the team. If the Client does want final sign off, do they have the time to dedicate to this task, bearing in mind a delay in instructions, or change of heart, could have time and cost implications?
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The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2018.