Five points to consider when dealing with construction contracts

Construction projects and construction contracts are complex. There is a myriad of things to get right. Here are just 5 to bear in mind:

1) Scope of works

A properly defined scope of works is crucial, otherwise the parties immediately have different expectations of what is going to be delivered. Some scopes run into hundreds of pages of requirements and specifications. Deliverables, tasks, responsibilities etc all need to be clear. Also check that there are no inconsistencies between the various scope documents.

Clarifications are sometimes made to the tender scope documents during negotiations. If so, ensure that they are included in the final contract documents and it’s clear how these clarifications are to be treated.

2) Design responsibility

It is important to set out which party is responsible for which design, to avoid costly arguments as to whose fault any defective design is.

If the contractor is to accept responsibility for any design carried out by the client, thus creating a single point of design responsibility, ensure that the contract reflects this.

Where professional appointments are to be novated to the contractor, ensure that any design specific obligations (such as the level of skill and care) in the professional appointments and in the building contract, are consistent. To avoid any delays at the negotiation stage, it is sensible to ensure at the outset that the terms of the building contract and novated appointments are back-to-back.

Any “fitness for purpose” obligations which effectively require the contractor to guarantee that the design will meet its purpose, are problematic and these are not insured. Consider reasonable skill and care obligations instead.

3) Site and/or ground conditions

Cost as well as delay caused by unforeseen ground/site conditions, could be significant and could result in a project coming to a halt.

The parties should agree who is best placed to manage this risk and allocate responsibility accordingly. Too much risk on the contractor may result in prohibitive costs consequences which the contractor simply cannot afford, resulting in insolvency.

Consider managing risk though early contractor involvement. If there are pre-contract surveys and investigations, consider allowing the contractor to rely on them or provide appropriate letters of reliance from their authors in the contractor’s favour

4) Higher-Risk Buildings (HRBs) under the Building Safety Act 2022

Building Safety Regulator project approval rates are currently low and approval times much longer than anticipated. These teething problems are likely to reduce as the construction industry gets to grips with the new regime. It is nevertheless important to ensure that your contract deals with responsibility for any associated delays and loss and expense.

Do not forget to cover how Major Changes (which are changes to the proposed use of the building, the layout and dimensions of the overall HRB) are to be dealt with.

5) Limitation on Liability

Consider if it is appropriate to include limitation on liability clauses. This is not all or nothing. If an overall cap cannot be agreed, then perhaps a cap in respect of certain type of claims and/or losses may be agreed. For example, it is not uncommon to see that liquidated damages are capped at 10% of the contract sum or that any consequential losses are capped.