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The 10 essentials of a construction contract

I have been developing a set of minimum requirements for construction contracts. Rather than start with a contract and then extract the 10 essentials, I started with a blank sheet of paper and worked out what I needed.

The first four were easy: time, cost, quality and works.

These are fairly traditional contents for a construction contract. In fact many of the letter of intent cases say it is “trite law” (in the sense of obvious) that a construction contract requires the works, price and time to be agreed.

Quality doesn’t often get a look-in, partly because of the many statutes and cases which provide implied obligations on quality and performance. I have always understood that time, cost and quality are the trio of requirements that a client needs.

The next four were a more modern view of what makes an effective contract: remedies, risks, objectives and exclusions.

These represent a more progressive view of contracts. Even these have been present since the start of contracting, less explicitly than this list suggests.

Partly, also this list reflects a statement in Managing Risk in Construction Projects (by Nigel J Smith, Tony Merna and Paul Jobling, Wiley 2006) which gave three purposes of the construction contract as defining and transferring the works obligation (list 1), defining and allocating risks, and ensuring common objectives (both list 2).

The last two were slightly more hum-drum: parties and procedures, but nonetheless vital.

My Top 8

Even though all 10 are essential, perhaps the core are these eight: works, objectives, cost, risks, quality, remedies, time and limits.

So how to these link together? If you are a visual person (like me) then you might link them using an object such as the fortune teller…

legal contract fortuneteller

The Fortune Teller

Often the parties know what the project comprises and requires. It is nonetheless essential that the works involved are properly and adequately defined. This provides clarity for the project team as well as interested stakeholders.

Knowing what the works involve is not enough by itself. In my view, contracts need to help the parties achieve ‘success’. Success for a project involves meeting the aims & objectives of the project and of the parties.

But a contract is not just about achieving success. It is also a tool which balances the reward that one party requires against the risks that party is accepting.

Of course, as noted above, cost also needs to be balanced with quality. Even if naive clients believe that you can build a high quality building at break-neck speed for knock-down cost, the reality is somewhat different!

No mention of quality can avoid reflecting on what happens when the project has defects and the remedies of the parties are when performance objectives are not met, or similarly when agreed dates are not achieved.

The parties also need to understand if there are any limits on those remedies such as liquidated and ascertained damages (LADs).

One major limit on the project is the way we define the works.

And so we come full circle round 8 essentials and our fortune teller.

Sarah Fox is a specialist law trainer and founder of Enjoy Legal Learning. She is the author of the 500 Word Contract, her experiment in making construction law simple, using plain language.

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