Assembling building contracts can be a complicated and confusing task. What are the pitfalls and how can these best be avoided?

Building contracts invariably include significant amounts of paperwork, including plans and drawings, tender returns, qualification documents and post tender correspondence.  But a tendency to include as much detail as possible, “just to be on the safe side”, can create significant confusion, with discrepancies and divergences and the inclusion of documents whose status is unclear.  It is often difficult to sieve through all this and establish the true intention of the parties.

Contract programmes

The recent Scottish case of Martifer UK Limited v Lend Lease Construction (EMEA) Limited highlights the dangers of including documents which do not have a clear status.

The court had to consider whether an outline programme included in a sub-contract was binding on the parties.  Whilst the case was heavily fact dependent, the court provided some helpful observation and guidance.

It explained that including a document in a contract does not automatically mean that the parties intend to be bound by it.  Whether it does will depend upon the terms of the contract and the intention of the parties, but the mere fact of including a document in a contract does not necessarily oblige either party to comply with it.

The court also reinforced the widely held view that, unless expressly providing for this, parties to a contract are unlikely to intend to be bound by a programme included in a contract.  If the programme were to be binding, the almost inevitable failure of either party to comply rigidly with it would lead to breach.

On the facts, the court held that the programme was not binding on the parties.

There are a few other areas where failure to take time on the assembly of the contract can lead to headaches in the future.

Discrepancies and more

The aim should always be to assemble a set of contract documents without discrepancies and divergences or irrelevant material.  While contracts include provisions on how these are to be dealt with, time should be taken pre-contract to try and iron them out.  Arguments and costly disputes can then hopefully be avoided.  Thought should also be given to how any schedule of clarifications or post-tender correspondence is dealt with. Is the status of this clear within the contract?

Another issue is whether the contract particulars been completed accurately and in full.  All too often we see contract particulars which state that a particular item is to be confirmed or agreed.  Are the interim payment dates clear, are the insurance arrangements agreed and have these been confirmed by brokers; is it clear whether any optional limitations on liability apply?

Then there is the matter of whether the correct contracting parties have been identified in the contract.  Numerous cases have been heard by the courts regarding identity of contracting parties.  The case of Hamid v Francis Bradshaw Partnership went all of the way to the Court of Appeal on the question of whether a contract had been entered into by Mr Hamid in his personal capacity or with a limited company he owned.  It is of fundamental importance that parties agree and recognise who they are contracting with and that they are correctly identified in the contract.

Take your time

While considerable time is usually invested in tendering and negotiating a commercial deal, all too often assembly of the building contract is left too late and not given the attention it requires.  Start the process early and give it the time it deserves.

In Plain English: Liquidated damages

Liquidated damages, or LADs, are damages payable for delay in completion of the works. They are a pre-agreed level of compensation the client will be entitled to if the works are completed late. The idea is that the parties understand the financial implications of a delay in completion at the outset of the project and that the client does not have to demonstrate or mitigate its actual loss if the works are completed late. A few specifics:

The level of damages should be a genuine pre-estimate of the loss likely to be suffered if there is a delay – in practice, the level of LADs the client is able to impose on the contractor is often less than the actual loss it will suffer.

If there is a significant variation to the contract, it may be necessary to review the level of LADs. This will particularly be the case if there is a major omission from the contract works.

This article was originally published in the August 2015 edition of RIBA Journal.