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What is a Construction Contract?

View profile for Andrew Cullyer
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When embarking on any sort of building project, it is vital that the terms and conditions of the arrangement are set out in writing and understood by all parties concerned.  Having knowledge of the clauses within the contract and the subsequent issues that may arise lead to a solid foundation for the project and can assist all parties concerned should there be a later dispute.  There are many forms of contract that can be used, particularly in relation to construction projects.  Andrew Cullyer, Litigation Executive specialising in construction contracts and disputes, reviews here the main facts regarding contracts, the documents involved and the uses for construction contracts.

What is a contract?

In its most basic form a contract is a bargain between two or more parties.  Usually, this bargain is subject to certain rules or terms.   The essential elements required for a contract to be formed are, in the simplest possible terms:

  • An offer by one party to another
  • Unconditional acceptance of that offer by the other party;
  • For adequate consideration.

The offer and/or the acceptance can be in writing, by verbal agreement or even by actions. For example, if you send a quote (an offer) stating that you are ready to start on a certain day and the other party allow you to start on that day (by taking some form of action such as unlocking the site) this may be sufficient to show acceptance of your offer.

Consideration is a legal term and it refers to what each party is providing/getting. So in a classic construction contract, party A provides construction services and/or goods which party B gets and  party B then provides payment which party A gets.

Most often, and most usefully, a contract will be in writing. We would strongly recommend a written agreement for the following reasons:

  • Construction contracts generally involve large sums of money and having a written contract will minimise the financial risk.
  • If the agreement is not written down it can be very difficult to ascertain retrospectively what it was.  This is specifically true as construction projects take significant amounts of time.
  • If there is a dispute about a contract it can be many months or years after it was agreed and without a written contract certain agreements can be overlooked or forgotten.
  • A written contract is easier to refer to and its terms are clear to read (subject to any terms potentially implied by law).
  • A written contract can assist in ensuring all the relevant details are taken into account, for example what insurances the contractor should hold.

There are a number of standard forms that cover construction work such as JCT and NEC.  The nature of your project will determine whether any of these are appropriate.  There are even standard contracts for small projects like home extensions; we are happy to advise on the terms of any building contract.

What are the contract documents?

Contract documents refer to all of the documents that make up the contract or are referred to by it.  They can include, but are not limited to:

  • Contract terms,
  • The tender,
  • Drawings, and
  • Specifications.

Contract documents are important as they often contain vital information about the scope and standards of the contract.  It will often be very important to ensure that key documents, such as exclusions, are part of the contract documents.

It is important to keep all the contract documents together; if you need to refer to them at a point in the future it will become easier and less time consuming to locate them. 

It is worth remembering that, unless the contract explicitly states otherwise, all of the contract documents will be read together in order to interpret their meaning.  Therefore, what each of the contract documents says is very important.

What is a construction contract?

In non-legal terms this is simply any contract which relates to construction work.  In legal terms, these words have a specific meaning due to the Housing Grants Construction and Regeneration Act 1996 (as amended) (“the Act”).

The Act sets out that construction contracts are those that relate to ‘construction operations’, which includes architectural and design work, surveying, decoration and landscaping. 

Importantly, there is also a total exclusion for ‘residential occupiers’.  This refers to projects where you are having work done to, or if you are building, your own home in which you do, or intend to, live in.  If you are having work done to your home (or you are rebuilding it) this likely means the Act does not apply to you automatically, but you can “opt in” to its provisions.  We are happy to advise you on the benefits and disadvantages of your project falling under the Act.

In addition certain classes of construction work are excluded from being construction operations, which include:

  • Drilling for oil or natural gas
  • Mining
  • Nuclear processing, power generation and water effluent treatment
  • Production, transmission, processing and non warehousing bulk storage of chemicals, pharmaceuticals, oil, gas, steel or food and drink
  • Goods only contracts for manufacture and delivery to site of components, material, plant or equipment
  • Artistic works.

As with residential occupiers, these exclusions mean the Act does not automatically apply but can nevertheless be opted into. The rights and obligations you may have will very much depend on whether the contract you have is a construction contract for the purposes of the Act.

Whatever your contract is, it is vital that you read it and you understand it.  The contract sets out your rights and your obligations.  If you do not know what these are it is all too easy to miss an important right or fail to comply with an important obligation.   This means you could end up paying out money or failing to recoup money that you would otherwise be entitled to.

Contracts, and especially construction contracts, can be difficult to understand.  To discuss your construction contract, you can contact Andrew Cullyer today on 023 8071 7482 or email andrewcullyer@warnergoodman.co.uk.

For general Litigation or Dispute Resolution enquiries, contact Laura Blakemore on 023 8071 7412 or email laurablakemore@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.