What Is A Condition Precedent?

A condition precedent is a clause or term which one party MUST comply with before it is entitled to other rights or remedies.

It’s like a contract bouncer – if you don’t have the right code then you don’t get in.

Examples

The UK standard forms contain a selection of conditions precedent, for the contractor to comply with:

  • NEC3 clause 61.3 requires the contractor to notify each compensation event within 8 weeks of the event occurring. If it doesn’t then it cannot claim extra time or money
  • FIDIC clause 20.1 (Silver/Yellow) requires the contractor to notify claims for extensions of time as soon as practicable and no later than 28 days of becoming aware. If it doesn’t then it cannot claim extra time.
  • MF/1 clause 41.1 requires the contractor to notify all claims for additional payment within 30 days. If it doesn’t then it cannot claim extra money.
  • IChemE clause 16.5 requires the contractor to notify the project manager within 14 days if a variation order would prevent/hinder it from complying with the contract (although the clause does not go on to state the consequences of failing to meet this time period – see next section)
  • JCT requires the contractor to give notice of loss and expense (held by Walter Lilly v Mackay to be a condition precedent) and the employer to give notice of non-completion before deducting LADs

Bare minimum

An effective condition precedent needs:

  1. to state the precise time within which the act has to be carried out or notice to be served (so ‘as soon as reasonably practicable’ is not precise enough), and
  2. to expressly and plainly state that unless act is carried out or notice served within that time, then claimant loses specific rights or remedies and
  3. precisely what those rights/remedies are.

Conditions precedent have a valuable role to play in managing the project as it continues:

Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.

Why use them?

Conditions precedent are a form of exclusion clause and will be interpreted strictly by the courts. Like all contract clauses, you should work out why you are using it before recklessly shoving it into a long-term relationship that requires mutual co-operation to be a success.

For example in a recent review of contracts which a subcontractor client was being asked to sign, there were conditions precedent relating to:

  1. issuing interim applications on specific dates – without exceptions for public holidays
  2. paying if the contractor becomes insolvent – without reference to the insolvency rules
  3. agreeing the rate of interest on late payments [read more]
  4. providing notice of a claim for an extension – without a timescale or explaining the consequences (see above)
  5. any payments without specific documents having been provided – without a timescale [read more]

What should you do?

Ensure your contracts build trust before you build terms.

Cases: Bremer HandelsGesellschaft MBH V Vanden [1978] 2 Lloyds Rep 109; Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC)

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