UK: Construction Contract Signed – What Next For An Owner?

Introduction

Driving a construction contract to signature can sometimes feel like reaching the finishing line of a very long, uphill race. The tender process for the contract may have included a pre-qualification stage or a multi-tiered tender review, protracted dialogue with one or more tenderers to reach a preferred bidders stage, and then a lengthy negotiation to finalise the contract-drafting.

Owners might be forgiven for preferring to take a hands-off approach to their construction contract, simply stepping away until such time as they need to take over the project for operational purposes.

Unfortunately this approach can land an owner in hot water. He may risk, by his own actions or inactions, decreasing (or even eradicating) any rights of claim he may have under his construction contract or, worse, trigger claims from his contractor. It really is crucial for owners to read their contract, understand their obligations, and comply with them in every respect.

It is not possible here to discuss the full range of obligations that an owner would need to comply with under his construction contract – in any event many such obligations will be particular to the drafting of the contract itself. However, we know that an owner will face a typical range of major obligations.

I Just Follow the Contract, right?

Owners may be interested to know that the obligations they have under a contract are not just those expressly contained in the contract itself. Contractual terms may be broadly split into express contractual obligations and obligations which are imposed upon the parties by implication at law. Owners need to be fully aware of these unsaid or unwritten obligations.

Let us Cooperate and not Hinder

The 'prevention principle' is an implied term under English law, to the effect that neither party may do anything to hinder the other from performing the contract. Or from another perspective, no party is able to take advantage of his own wrongdoing. Beware the overbearing owner who is hit with a whole host of claims on completion of the works for having hampered the contractor's progress through his own excessive involvement.

Owners may also face the argument that they have a positive obligation to do anything that may be necessary to enable the contractor to perform his own duties. This is effectively an obligation to cooperate, albeit a limited one in English law: "to the extent that it is necessary to make the contract workable"1, so that such an obligation might be a 'best endeavours' or even 'reasonable endeavours' obligation rather than an absolute obligation. Civil jurisdictions tend to impose a stronger cooperation obligation than this by operation of their civil code principles of good faith and fair dealing.

The spirit of these two implied terms runs through the core of every construction contract and needs to be borne in mind at all times by owners in everything they do.

Access all Areas?

One of the most fundamental obligations at law of any owner is the requirement to give access and/or undisturbed possession of the site for the purposes of performing the works in the manner (which includes the sequence) of the contractor's choice. An owner must give his contractor timely access in accordance with the terms of the contract. Failing express provision, English common law implies a term that the site will be handed over to the contractor within a reasonable period of signing the contract.

It is relatively common in construction contracts to include provisions for the awarding of time and money to a contractor who has been denied timely access, or alternatively denied access strictly on the terms set out in the contract. Even if no such express provision exists, the contractor would typically have an entitlement to damages at law for contractual breach.

A timely reminder at this point: every owner needs to ensure that, at the outset when the contract is being drafted, he is contracting to perform only those matters that are actually within his power to perform. Beware a commitment to provide access and possession of a site which is not yet in the control of an owner.

Show me the Money

The obligation to make payment is clearly one of the most important owner obligations. To reflect this, there are normally quite serious consequences for failure to make payment set out in a construction contract, including the right for the contractor to suspend for non-payment (such right also being entrenched in law in many jurisdictions; in England via the Housing Grants, Construction and Regeneration Act 1996 which applies to construction contracts), and ultimately to terminate the contract if the non-payment is persisting.

The payment provisions in any particular contract will invariably reflect a finely balanced liquidity profile – many contractors will expect to be able to operate on at least a cash-neutral basis. Payment provisions may therefore include an obligation to make an advance payment to the contractor, perhaps to secure long-lead items of equipment.

The payment provisions may include either for monthly payments, or for staged payments upon achievement of particular milestones. The owner will be required to make such payments upon a particular due date, failing which he may be obliged to pay interest on any payments being made later than such due dates.

Although entitled to withhold payments for disputed amounts, owners will often be obliged to tell the contractor in advance of the due date what sums will be withheld and why (again, in some jurisdictions this obligation is also entrenched in law).

There may also be provisions relating to the right of the owner to take retention as a form of performance security – however the owner must stay on top of his obligation to repay the retention monies, usually in two stages upon practical completion and then the end of the defects liability (or maintenance) period.

Every owner needs to make sure in all of this that the terms agreed for payment are terms which his own accounting teams can actually achieve – promising 30-day payment terms which an owner's internal processes cannot manage will lead to extra costs and give the contractor some legitimate causes for claim.

I have Changed my Mind

An owner should expect (and want) to have an obligation to propose and/or approve any changes/variations to the scope of the works. Normally an owner's comments or approvals will need to be made within a specific timeframe. An owner failure to comply with a timeframe under the contract may amount to a breach entitling the contractor to damages to the extent that he can prove any losses attributed to such breach.

Whether or not a contractor is required to continue with the works pending agreement of the extra time and/or cost of the change will define the practical urgency with which an owner must comply with any timeframes under the contract. In reality, it will suit many owners to leave assessment of variations to the end of the project, when they can be swept up with any other claims that may be pending from the contractor.

You Need to Tell me What You Want

An owner can expect contract terms relating to the provision of information necessary for the carrying out of the works. Again, failure to comply with this obligation within the timescales set out in the contract (or failing express provision, a reasonable time, according to the prevention principle) may have time and cost consequences. It is in every party's interest that the contractor be in possession of any relevant data, and particularly any relevant geological/site/engineering data, say, for example, feasibility studies.

Very few construction contracts are able to contain sufficient detail that subsequent 'instructions' are not also required. Instructions, to be distinguished from changes/variations, are extra detail which the contractor needs from the owner to be able to perform the existing works. By contrast, changes/variations are extra works which will entitle the contractor to more time and/or money. It is normal for a construction contract to contain an obligation for the contractor to perform the works in accordance with, amongst other things, written instructions of the owner. A sensible construction contract will contain a procedure for such instructions to be formalised.

Sounds straight-forward, but in reality it can be very difficult to distinguish an instruction from a change to the works, and this often leads to major claims and disputes.

Necessary instructions can, for common law purposes, fall into the requirement for owner provision of timely information to the contractor (on the basis of the prevention principle), and failure to provide timely instructions may accordingly entitle the contractor to damages. Persistent failure, or alternatively failure to provide information that is strictly necessary for the works, may ultimately be considered as a repudiatory breach of the contract at law, entitling the contractor to terminate.

A common cause of action that we see regularly tested is that of time and money claims for failure to approve drawings/samples/other documents in a timely manner. Although from time-to-time there may be claims resting upon the owner's failure to approve one particular crucial document, claims of this nature will usually aim to demonstrate the creeping effect upon a project programme of failure generally by the owner (or his agent) to push through all document approvals quickly enough.

A well-drafted construction contract will include an approvals process with timescales (e.g., 14 days from receipt) for approval of each and every document by the owner.

The success or failure of a claim of this nature will rest upon the evidence available to the parties. Does the contractor have sufficient evidence to prove that he has incurred cost and delay as a result of late approvals? Or can the owner demonstrate that he did approve documents on time, or that the time and cost incurred by the contractor was not incurred as a result of delayed approvals? The keeping of good records by an owner is an extremely important project management responsibility (rather than an actual contractual obligation) and one to which every owner needs to pay some attention.

For practical purposes...what does all this mean?

Owners can invest heavily in the drafting and negotiation of construction contracts, but the work does not stop there. Owners must be aware of their obligations and be proactive in their management of the contracts. To do otherwise risks a wasted investment, or worse still, exposure to additional risks and claims from the contractor.

This work falls broadly under the banner of project management: the act of planning, organising, securing, and managing resources to achieve particular goals. Even an owner who has appointed an EPC contractor to take on responsibility for the entire project still needs to implement a degree of project management support on his own side to manage his obligations and ensure he doesn't inadvertently commit any contractual breaches.

From a practical perspective, many owners simply do not have adequate resources to be able to handle project management internally, and will choose instead to appoint a separate company to perform that role. One way or another, this role needs to be performed to avoid time slippages, cost increases and/or quality suffering.

Next time...a study of what to expect for good project management.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.