10 Essentials for a Construction Contract

I have been developing a 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 decided 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 Works:  Well-defined works are essential to project success. A construction contract must spell out the contractor’s duty to carry out the works. A lack of clarity e.g. about ‘the works’ covers and what the price includes, can lead to disputes.

3 Time: Clear dates for starting and finishing the works are critical for any construction project.  A contract needs both dates and the flexibility to change those dates for circumstances arising during the project.

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

5 Quality: Time, cost and quality are the trio of client requirements 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 apply throughout the project team.

6 Objectives: All construction projects need the partners 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 easier for the partners to 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 not allow the contractor to get compensation: extra time or money or both.

8 Remedies: Your contract can add extra remedies to those permitted generally i.e a right to bring a dispute to adjudication and claims before the court in litigation.

9 Procedures: Most construction contracts need robust and clear procedures for the smooth running of the project, in particular dealing with change.

10 Limits: The most common limit on liability is the use of LADs for delay. The partners can agree to limit or exclude other liabilities. These terms help balance the consequences of risk events with the rewards being offered.

Interestingly, the RIBA Code of Professional Conduct Guidance Note 4, listing the essential elements for an architect’s appointment mentions most of these but not specifically: timescales, objectives (unless this is comprised in client requirements) and risks.

What Else?

Is this enough? What else does a contract need to make it work for you and your partners?

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