Using Standard Forms Of Building Contract To Reduce Risk
Standard forms of building contract have evolved since 1879. The environment in which projects are executed may have changed, but the relationship between the client and the contractor is essentially the same: The contractor undertakes to execute specified work for an accepted price within an agreed period of time, failing which the employer may penalise the contractor.
Standard forms of contract are drafted to ensure an equitable distribution of risk between the parties. Thus, if the employer fails to make a certified payment, he or she can suspend or terminate the works.
The use of standard forms of contract seeks to avoid disputes, or at least to minimise potential disputes by adhering to the rights and the obligations described in individual clauses. Users must comply with the law of the county where the project is located.
The employer generally appoints a professional team to deal with the design and related planning and legal issues; the building component of which is described uniquely in drawings, specifications and/or a Bill of Quantities while the relationship between the employer and the contractor is described in the standard form of building contract. The employer may also appoint a neutral person to administer the execution of the works. Changes to the accepted industry standard often cause avoidable disputes, delays and cost overruns.
The parties can agree to a bespoke form of contract, subject to the manner in which their respective risks are dealt with.
The employer and the professional team must timeously resolve the purpose of the project, its location, unique building features, choice of materials and finishes, as well as maintenance criteria, and the most appropriate form of construction that may determine the form of contract used (generally before a contractor is appointed) or another form of contract, where the contractor becomes part of the design team. The project team must:
- Provide accurate and complete definition of the scope of a project and, if applicable, enabling works;
- Ensure the timeous involvement of all stakeholders including suppliers, staff, customers, and the local community;
- Allow sufficient time to explore optimum design solution(s), the buildability of such solution, and obtain all statutory approvals before construction commences;
- Ensure the timeous issue of correct construction information;
- Ensure that sufficient funds are available should a project extend beyond the intial budget period;
- Pay the professional team realistic fees appropriate to the project complexity and pay the contractor for work properly completed, both in full and on time;
- Take note of novel construction techniques and/or of new materials (and ‘grey’ imports), their statutory compliance, and the ability to service or maintain such products;
- Comply with recognised performance standards; and
- Create simple communication and speedy approval mechanisms.
Unresolved issues will result in uncertainty in the contract execution, increasing the risk of claims from the contractor for delays and additional expense. Disputes can be avoided if the parties co-operate and communicate speedily in writing, following the procedures and using the terminology in the form of contract. Verbal communication should be avoided as such information is difficult to quantify or to enforce when the parties are no longer on speaking terms. Should any disagreement arise, all involved should be notified and a meeting held to discuss and resolve such issues while the information is fresh and accessible. All claims should also be processed promptly.
Proper contract administration is not a simple or part-time task. The contract administrator must interpret the employer’s defined project requirements and, should any disagreement arise between the parties, resolve such issues in a fair and speedy manner.