10 essentials for a construction contract

Back in 2012, as part of my research into how to write a contract in just 500 words, I developed my set of minimum requirements for construction contracts. Rather than start with a contract and edit madly, I started with a blank sheet of paper and worked out what I needed… I settled on ten essentials.

First and foremost you need to know who is involved: the parties. Then I followed the advice from letter of intent cases saying it is “trite law” (in the sense of obvious) that a construction contract requires works, time and price to be agreed. But when you review time and cost, then you need quality as one of the trio of client needs.

The aims of a project are often wider than just these three, so I added objectives; and as discussed in ‘Answer your why’, risks.

But I wanted the contract to be pragmatic and practical – providing remedies without the need to resort to a formal dispute, containing clear procedures to manage change and protecting the parties with limits and exclusions.

My Top Ten

1 Parties: Your contract needs to make it crystal clear which companies or organisations the agreement affects.

2 Scope:  A well-defined scope is essential to project success. A contract must spell out the supplier’s duty to provide specific goods, works or services. A lack of clarity e.g. about what the scope covers and what the price includes, can lead to disputes.

3 Time: Clear dates for starting, progressing and finishing the scope are critical for any construction project.  Your contract needs dates/periods and the flexibility to change those dates for specific events arising during the project.

4 Price: All contracts need to balance the price to be paid with the scope, risks and liabilities accepted. Your contract should adopt fair payment practices, which are essential to cashflow through the project team.

5 Quality: Time, cost and quality are the typical trio of client aims for any construction project. Quality covers (1) quality standards for goods, (2) performance requirements for works, and (3) standard of care for services. These standards must be clear and measurable to avoid disputes about whether they have been met.

6 Objectives: All construction projects need the project team to work together and co-operate for ‘success’.  Your contract should state what ‘success’ means in objective terms.  If your contract sets out clear objectives or outcomes, it is much easier for the partners to plan for them and achieve them.

7 Risks: Good project management needs the early identification, allocation and management of risk events.  Like objectives, construction contracts have dealt with risk events for years, by listing events which did or did not allow the supplier to ask for extra time or money or both.

8 Remedies: Your contract can add extra remedies to those implied by English law i.e a right to take a dispute to a short form of dispute resolution called adjudication, interest on late payments, right to suspend any contrcatual obligation for non-payment, and the inherent right to bring claims for breach of contract before a court in litigation.

9 Procedures: Your contract needs simple, robust and clear procedures for the smooth running of the project, in particular dealing with change.

10 Limits: There are several common limits on the supplier’s liability in construction contracts – from the express remedies to the use of delay damages. The parties can expressly agree other limits or exclusions. Used wisely, these terms help balance the consequences of risk events with the rewards being offered.

What should you do?

Review all your contracts against these items – are they really clear and do the parties really understand what is required of them?

[Updated November 2023]

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