7 WHAT SHOULD A PROPERLY WRITTEN CONSTRUCTION CONTRACT COVER

We will look shortly at how risk may be allocated in more detail. But let us

look now at the main areas or topics which any properly written construction

contract for a project of any size should cover. This will enable us to put much

of what we have discussed so far in context.

The terms of a construction contract should at least deal clearly with the

following areas:

●

Identification of the

parties to the contract: who (or what legal entity)

exactly is the contractor, and who (or what) the employer?

●

Identification of the

work or services to be provided: in which documents

or sets of documents are these defined? What

priority of contract docu-

ments should be agreed upon in the event of inconsistencies between the

contract documents (often highly complex and various)?

●

How is the employer to ensure that what is provided

complie

s with the

contract? Clear provision has to be made for

inspection of the works, before

they are covered up and generally throughout the project; for the

rectifica-

tion of defects, both during the works and after they are taken over.

Crucially, provision needs to be made for suitable 

testing of the works, to

ensure that the performance and other requirements for the structure are

satisfied; and a clear procedure and timetable for

taking over and

acceptance

of the work by the employer must be spelled out.

●

Whatever the contract, the

time or

times at which the contractor is expected

to complete must be defined. This will include the date of

commencement

of the works or services; the requirements for the

programme (what it

should show and how it is to be revised and updated); provision for

progress

reports and monitoring of progress throughout the project; the contract

completion date for the work or sections and the

consequences of delay

beyond that date for which no extension of time is granted.

●

Price and payment : the price and, more generally, the basis of payment of

the contractor (fixed price, remeasurement or other basis) must be defined.

The amount and timing of payments (on achieving milestones in a payment

schedule, for example, or monthly or other periodic payments), and the proce-

dures for applying for and obtaining payments (employer to pay on engineer ’ s

certificate, for example) have to be defined; also the remedies available to the

contractor for delayed payment and his entitlement to advance payments.

●

Responsibility for

damage to the works and

injury to persons needs to be

defined, including obligations to insure; as does

intellectual property rights and

ownership of plant, equipment and materials used or intended for the works.

●

Environmental and

social matters need to be covered, such as labour

protection and compliance with local anti-pollution regulations.

●

The consequences of any

failure to perform a party ’ s obligations need to

be spelled out. These include delay damages but cover other defaults. The

parties’ rights to

suspend the works or

terminate the contract in the event of

default by the other (and also the availability of termination or suspension

by the employer for ‘convenience’, or otherwise than for contractor default)

need to be specified.

●

Security for performance of the parties’ obligations, including retention

and performance guarantees and bonds, needs to be defined.

●

The effect of ‘

force majeure ’ or exceptional and overwhelming events

preventing performance for which neither party is responsible should be

defined. When can a party be

excused performance in such an event, for

how long and with what effect?

●

So-called ‘ boilerplate

’ or standard clauses need to be completed.

These cover such matters as the governing law of the contract, the agreed

language of the contract and the notice provisions of the contract (whether

all notices need to be in writing, for example, or whether they can be given

by e-mail).

●

Also important are procedures for one or the other party to make a

claim

against the other, and how claims may be determined when made. How are

disputes to be resolved; what steps, if any, need to be taken before a formal

and binding process, such as court or arbitration, is resorted to?