Construction Contract

A normal contract is an agreement with specific terms to do something in return for something and follows the procedure of offer, acceptance, consideration, contractual intention and form of contract. A standard building contract in essence has a lot of similarities however there are four main differences making it ‘special’. A normal sale of good contract has a visible end product, in construction on the other hand it’s a concept to start with; this creates a large number of risks unlike normal contracts. Intervention of statutes is another point that differentiates a standard building contract from a normal contract.

The final two points are that there are multiple professions involved within a construction contract and also unlike normal contracts a tendering process is required with a construction contract. A standard construction contract can be defines as ‘an entire contract for sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work done. Decisions have to be made from time to time about such essential matters as the making of variation orders, expenditure of provisional and prime cost sums and extension of time for the carrying out of work under contract.

– Lord Diplock The Joint Contracts Tribunal (JCT) covers standard building contracts and ’represents a wide range of interests in the building and construction industries. It produces standard forms of contract, guidance notes and other standard documentation for use in the industry. The intention of the JCT is that the contracts generated by them represent a balanced allocation of risk between the parties’ (OutLaw, 2010). A normal contract will contain a few legal backdrops of common law and statutory rules.

The huge difference making a JCT standard building contract ‘special’ is that it will take into account all of them, from: The sale of goods act 1979, The supply of goods and services 1982, defective premises act 1972, Unfair Contract terms act 1977, Unfair terms in consumer contracts reg1999, late payments of commercial debts interest act 1999, the contracts rights of third parties act 1999, the public contracts regulations 2006. It was then amended in 1998 to also include Housing Grants, Construction and Regeneration Act and Latham Report.

Standard contracts start with an offer a ‘take it or leave it’ situation, for instance when buying a jumper from a retail shop – the price is offered and then accepted it is not up for negotiation. Construction contracts differ before there is even a contract. This is because a procurement and tendering process is required before a contract type is even discussed. Procurement breaks down into the following: The client appoints independent consultants, on a fee basis. They then design the project as well as preparing tender documents.

Then competitive bids are placed based on the documents. The three main types of procurement are traditional, design and build and management. In a standard contract the product is already there – you buy a can of drink from a shop; the can is already there you are buying the final product. In a construction contract however the contract starts at an inception, the final product is not already there nor guaranteed to turn out how is stated in the contract in the case of mistakes made in the construction stage.

The next stage offers more differences to a normal contract. With a normal sale of goods act if you meet the needs i. e. you have enough money you can purchase the item. With a construction contract tendering will be used. This is competitive with certain contractors submit bids and then the client will choose one – you don’t just have the option to buy it if you have enough money. After all this then a satisfactory contract will be selected.

The most common JCT contract handed out will be a Standard Building Contract (SBC) in which the contractor tends not to be involved in any aspects of the design and the will be issued based on drawings and bills of quantities prepared by the employer. SBC’s come in three forms: with quantities where the work is designed prior to contract, approx quantities where construction commences prior to design being completed or without quantities which costs higher as it has specific schedule rates.

As mentioned in the intro in essence there are similarities between a standard contract and standard building contract in that there is offer, acceptance, consideration, contractual intention and form of contract. But before an offer is reached a tendering and procurement process in needed, unique to construction contracts. And normally there won’t be consideration AFTER offer as they are quite clearly intending to carry out the work by offering in the first place. The Latham Report has had an effect on contract forms and procedures.

It recommended more integrated ways of companies, clients, contractors working together, fairer tendering, enhancements in payment processes and a faster way of resolving issues by adjudication. This as well as the ‘Egan Report and Part II of the Housing Grants, Construction and Regeneration Act 1996, have significantly affected procurement methods, and the text of current contract forms. ’ (Which Contract, 2007). Risks are another factor that separates a normal contract to a standard building contract. Where there are so many professions involved so many risks could occur.

For instance if interaction between workmen break down and causes faults in design or there is lack of coordination between design team and constructors this is going to change the contract and cost more money, time and affect the quality, there is no guarantee this won’t happen. Comparatively when purchasing a TV you will be given a contract that guarantees your TV to work for a certain amount of time and if fault does occur that isn’t your fault then they will resolve the issue and it won’t cost the client extra.

Other risks will always be variables as it can never be guaranteed, all of which could cause risks in the three vital factors of a construction contract: time, cost and quality. Cost is a decisive factor in everything but as mentioned previously when you see a price for say a bottle of perfume in a shop it is advertised at that price therefore you buy it at that price and not a higher price, guaranteed. However in construction design briefs are often subject to unrealistic cost restraints from the outset and in some cases even failing to differentiate between initial capital expenditure and long-term costs.

In terms of quality it is essential to define what is meant by ‘quality’ in terms of finished project and services such as what quality materials should be used or should workers have specialist expertise. Basically it’s like a client overlooking you ‘get what you pay for’ for instance trying to purchase an Aston Martin at the price of a Ford Fiesta. The final major risk is time which could be affected from a number of things including ground and weather conditions, material and labour shortage, accidents and innovations in design.

In a normal contract you don’t have all these variables because the product is already there it is not an inception that needs to be brought to life. The fact that there are so many different professions involved in a standard construction contract makes it different to a normal contract which in most cases comprises of two parties. In a construction contract you start with the client. After establishing their needs the client will most likely appoint a project manager and a design team including an architect and quantity surveyor; already more than two parties.

From here they need consultants before they then get to the contractors who will then have sub-contractors and suppliers. This differs from a normal contract as in a construction contract; as there will be other contracts for instance the sub-contract for sub-contractors. ‘The Housing Grants, Construction And Regeneration Act 1996 section 113 states that payment provisions which attempt to make payment dependent on receipt of payment provisions which attempt to make payment dependent on receipt of payment from a third party are ineffective except in the case of third party insolvency. ’ (Understanding JCT SBC, 2007)