There are many considerations that must be identified and considered before a party signs up for a construction project. We suggest these should be on your list.
- Are you going to draft amendments to a standard form contract, and if so how specific are they to the relevant project? Do not use any standard form of contract just for the sake of it. The various forms of contract offer different levels of control and require different levels of input from the parties. It is beneficial to appoint solicitors to draft and negotiate these amendments, to ensure the terms and conditions accurately reflect what is actually required and what has been agreed, so there is a balance of obligations and risk, and the contract is executed correctly.
- Identify and appoint an experienced and trusted advisor throughout the project, whether that is the Employer's Agent (JCT Contracts), Project Manager (NEC) or Engineer (FIDIC). This not only takes responsibility away from the Employer, but ensures the contract will be administered correctly.
- Prepare a diagram of key personnel showing the key contacts at each party, including their role and contact details. Encourage open dialogue between the corresponding individuals from each party, as this breaks down barriers, aids communication, and reduces disputes.
- Review the contractual terms and identify what your contractual liabilities and obligations are. What notices have to be served, by who, when, and how? Ensure that everyone (at the very least everyone on your side) understands these and how they are required to comply with these contractual obligations. They are included for a reason, and failing to comply leads to complications, breach and may even give the other party a right to terminate.
- Select the most appropriate payment option for you and discuss, agree and use a payment schedule, e.g. lump sum payment or target cost. This is subject to the type of project and scope of work required. You need to ensure payment is covered for extended periods; for example, where specific dates for payment are set out in the payment schedule, ensure there is a provision which allows for further payment if the project programme is extended.
- Consider what is the most appropriate balance of risk between the parties? This does not have to be the same and there is nothing wrong with one party taking or being given greater risk. What is essential is that any risk is properly identified and described and can thus be understood and priced in terms of cost and time. This is easier said than done, but it is essential parties accept risk based on their skills, experience and their ability to manage that risk. This ensures parties are better prepared for dealing with the actual issues arising from those risks and reduces the prospects of a dispute, and or delay.
- Have agreed processes in place – who are notices served to? How are they dealt with? Who has to be notified of a delay? What is the mechanism for dealing with delays? Who deals with documents? Who is responsible for dealing with disputes? How are disputes meant to be resolved? All of these questions must have an answer prior to the commencement of the project, to ensure it runs effectively and efficiently.
This question was answered in our '20 Brilliant Construction and Engineering Questions and Answers from Industry Experts' webinar of 18 August 2022. To view the full webinar click here.
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.