Caution: Contracts

by Dennis Brand

Ask a group of industry professionals to state what they believe to be the most important provision in a construction contract and you will probably get as many varied responses as there are people in the group.

Give the same group of people a copy of a standard form contract (e.g. FIDIC, ICE or JCT) to read with a form of Particular Conditions or similar attached, and invariably they will look first at the Particular Conditions and possibly no further.

The Particular Conditions, depending upon the standard form contract being used, allow for the amendment of the contract terms. However, such amendments are not always carried out with the necessary care or understanding that is needed.

A change to one clause may affect or require that other contract clauses must also be modified. Unfortunately only too often modifications are made to clauses in the form of Particular Conditions without the effect being fully understood.

The result is that the parties end up with a form of contract that has terms which are ambiguous, inconsistent or both.

Sadly, such errors often only come to light when there is an issue or dispute that the parties are unable to resolve and seek legal advice. If the contract terms are read in their entirety before the contract is signed, there is a reasonable chance that such ambiguities will be realized and corrected before signature.

Standard contract terms

There is a firmly held view that using a standard form contract substantially reduces time and costs when agreeing and finalising contract terms.

While this is true to a degree, where there are a number of amendments to be made, care must be taken in the preparation of Particular Conditions to ensure that any amendments made are accurate, complement the clauses and do not result in inconsistencies with regards to other clauses.

Often the Particular Conditions amount to little more than a one-page document recording certain facts such as the contract duration, the rate and limit of liquidated damages and limit of liability.

However, they are sometimes more substantial and require the amendment of contract clauses. The more clauses that are amended, the more that the appropriateness of using the standard form contract should be questioned and whether a bespoke contract would better serve the parties’ needs for the project.

The need for caution

Unfortunately, often those who are concerned with the performance of the contract do not read it in its entirety.

Those concerned with the execution of the work will read only the scope of works; those concerned with payment will read only the remuneration provisions and bill of quantities; and those concerned with the contract administration will read the general and particular conditions.

The whole contract will rarely be read. I recall an occasion when the main contractor’s managing director, upon signing a contract that had been the subject of protracted negotiations, commented: “We can now put the contract aside and get on with the work.”

If it is unthinkable for a contractor to not read and understand the scope of works or bill of quantities, why is it acceptable for some to almost ignore the General Conditions and Particular Conditions of the contract?

The contract is a tool that is available to the parties involved in the performance of the work.

Just like a power tool that comes with a set of instructions, the manufacturer advises that the instructions should be read fully in order to obtain optimum use of the item; a contract should similarly be read in full in order for the parties to gain most from it.

Language complications

It is also of vital importance to understand the contract, therefore it is equally important that the language that is used be clear and uncomplicated.

Unfortunately, not all standard form contracts are written using such language, which makes their reading and understanding difficult even for those that prepare and review contracts for a living.

Similarly it is important that Particular Conditions, especially those amending clauses, are written using language that is clear and uncomplicated.

To summarise, where it is necessary to modify a standard form of contract in order to accurately reflect the terms agreed by the parties, it is important that the effect of the change on the clause to be modified plus any other clauses that may be affected are considered and to make any appropriate amendments.

Thereafter, having agreed terms and a contract that reflects those terms, it is important that the contract documents are read as a whole by those who are engaged in the work on a day-to-day basis.

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