August 8, 2022
The contract is perhaps the most important part of a construction project to get right; it is the pathway to a successful project and is in all respects ‘the rulebook’. Given the complexity of construction contracts and the risk involved, it is important that the terms are thoroughly reviewed to ensure the risk is allocated to best protect your interests when something unexpected occurs.
Unsure on where to begin? Quality, time and cost are arguably the three pillars of risk in construction contracts. Therefore, these areas should be a contractor’s first port of call when reviewing a contract and allocating risk.
This article forms the first in a four-part series which will explore the importance of contract review and provide a comprehensive overview on how to consider quality, time and cost to review your contract. This series will identify the contractual red flags and clauses to proceed with caution, as well as drafting considerations to ensure your contract will adequately protect your interests throughout the duration of the project.
Importance of Contract Review
Whether you are the principal, contractor or subcontractor, before you sign the dotted line it is critical ensure the contract reflects your understanding and agreement of the parties’ intent and expectations.
A construction contract will often come as a standard form contract that has been drafted by one of the parties. Usually, the party that has drafted its terms, would have done so in a way that is to their advantage. Further, it is possible that the contract contains unclear terms or have hidden pitfalls which can adversely shift the risk among the parties, potentially leading to devastating impacts.
Therefore, during contract negotiation stage it is important to diligently review the contract to ensure:
- the contract reflects what has been agreed;
- any ambiguities or outdated provisions are identified; and
- the risk of allocation is adequate to protect your best interests.
The primary objective of quality, time and cost are heavily interrelated and are useful tools for allocating risk under a contract. The prioritisation of these three pillars when reviewing a contract will see you on a pathway to project success.
Quality
The first step in quality is the definition of the principal’s needs and expectations which must be translated into clearly defined and measurable requirements for building construction projects.
Quality can be a subjective concept which means it is often subject of disputes. Where possible, contracts should provide for clear standards, upon which the works can be objectively assessed to ensure that works are completed in accordance with the requirements of the contract.
Clauses such as the warranties, defect liability, fitness for purpose and what constitutes defective works should be considered early to minimise disputes.
Time
As we all know time is money on construction projects.
The time a project takes to complete is a key concern for contractors. Construction works are, by nature, often disruptive, complex and almost inevitably involve delays. As a contractor you need to adequately address time when reviewing a contract.
Common issues relating to timing in the contract include programming, grounds for extensions of time and relevant notice requirements, liquidated damages, compensable delays and importantly what constitutes practical completion.
Cost
For contractors, anything that puts hurdles in the way of getting paid is likely to be a key issue and should be identified in a contract review. Therefore, focus must be turned to addressing clauses that have the potential to affect payment, including set off clauses, variations, latent conditions, changes of law and delay costs. It is also important to consider what pricing model the project is based (i.e., lump sum, schedule of rates or cost-plus).
Further with the increasing pressure on the construction industry due to the rising costs of materials, you need to ensure that your contract provides you with clear entitlements in relation to cost for any material cost increases.
The next three articles will explore quality, time and cost in detail by setting out what to look out for and contractual considerations to ensure you are adequately protected.
Lamont Project & Construction Lawyers
The LPC team has extensive experience and industry knowledge in to assist both principals and contractors in all major infrastructure projects. With this knowledge and experience, LPC Lawyers can provide the required support and advice with respect to contract review and allocating risk to ensure you are adequately protected.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Stephanie Purser
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
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