June 27, 2024

What key clauses do I need in my construction contracts?

News Article

Having the right contracts in place is the key to a successful construction project.

They are designed to identify the roles, rights and responsibilities of each party, ensuring the work is completed efficiently, to an expected standard and to a set timeline.

They also protect the interests of each party and serve as a protection against, and guide for, disputes, should they arise.

Although every contract is different, there are clauses which should always be covered to keep the development on track.

Scope of the work

This clause outlines the work to be done, including specifications and schedules, which should be agreed upon by all parties.

It may also include details of how adjustments to the project will be managed.

Ambiguities in this clause can lead to disputes, project delays, and increased costs, meaning a well-defined, agreed-upon work scope is crucial.

Roles and responsibilities

All parties should understand exactly what is expected of them before the project begins, including the goods and services they are responsible for providing.

This clause may also include health and safety provisions and responsibilities for raising disputes or claiming on insurance policies.

Payment terms

This clause specifies the payment structure for the contractor, covering aspects such as the contract price, payment milestones, the method for calculating payment for work done, issuing payment notices, and resolving payment disputes.

Under the Construction Act, the payment terms in construction contracts must provide for the right to stage or interim payments where the works are to last beyond 45 days.

In the absence of a contractual payment mechanism that complies with the Construction Act then statutory provisions may apply which are set out in the Scheme for Construction Contracts Regulations.

Provision for variations

It’s common for project specifications to evolve, and this may require amendments to the original ‘scope of work’ clauses – known as variations.

The variation clause sets out the process for managing these changes and their impact on costs and project timelines, mitigating disputes.

Details on how to request and approve variations, adjustments to the contract price and timeline, and the contractor’s rights regarding frequent variations should be clearly defined within this clause.

In the event of a delay

This clause defines the project’s timeline, deadlines, and the repercussions of not adhering to these dates. It should also allow for the extension of deadlines under certain conditions like adverse weather.

Included often are Liquidated and Ascertained Damages (LADs), which are predetermined sums that the contractor may owe for delay-related losses, provided there’s no extension of time.

These sums must reflect a genuine estimation of losses to avoid being seen as penalties.

Getting to the bottom of a dispute

A dispute resolution clause outlines how to handle issues arising as a result of delays, disruptions, sub-standard work

The Construction Act requires that adjudication is included in construction contracts. It provides a quicker and more cost-effective alternative to arbitration or litigation.

Your contracts may also include provisions for mediation, as well as more structured forms of dispute resolution.

It’s important to get your contracts right in the first instance, as this can save you significant amounts of time and reduce costs going forward, as well protecting your professional working relationships.

For further advice, please contact us today to discuss the needs of your project.