Key Problems Faced with Payment Clauses in Construction Contracts:
- Lack of contractual hygiene – often there is a lack of clarity about the deal entered into. Sometimes parties start out with a Memorandum of Understanding or a Letter of Intent, but never actually manage to enter into a formal contract, because they can’t agree the final terms. There is also the problem of incorporating correspondence to reflect the negotiations, rather than including this within the terms themselves.
- Attribution of last-minute discounts – we see many cases where the price has been agreed between the contractor and employer and everything is ready to go, then at the last minute the employer thinks they can push a bit further, and asks for another 5% discount or £5million off the price!
The contractor then feels obliged to agree, or settle on some other figure, so away the problem goes until later, when it comes to the payment certificate – how do they deal with this discount? Invariably parties haven’t reached an agreement on this and they fall out.
- Lacking records – parties either fail to generate records in the first instance, or do not retain them. These records are essential if a party is ever to be able to prove their case.
- Experts – often parties either fail to use experts or use the wrong type. If you have an expert who is expected to be very knowledgeable in a particular area, you do not want to dilute their knowledge and try and spread them across the whole project.
Solutions:
- If the parties want to work in a specific way – express it in the contract! It shouldn’t be the case that a tribunal is needed to work out what was actually agreed. The contract should reflect the deal as understood by the parties, so there is clarity and consistency.
- Spend more time discussing, agreeing and arguing terms from the outset, so you don’t spend so much time in contentious proceedings later. For example:
- Pre-emptively consider how payment variations are to be accounted for in the documents and provide for this in the contract.
- Draft the contract on the basis that a dispute will arise, hope for the best and prepare for the worst!
- Keep detailed, accessible records, this includes all documents. Even WhatsApp and text messages make the list.
- Think about how you are communicating before and during the project, especially if it is going wrong. In that case, there’s even more reason to be keeping records.
- Don’t be surprised or upset if someone sees what you thought were personal or private emails and text messages.
- You need to think at an early stage about the experts you are going to use. If you are using a solicitor to deal with the non-contentious aspects of the contract drafting, can they also hold your hand throughout the process and deal with any contentious aspects later too?
- Consider the use of a dispute board.
- Don’t discount obtaining counsel’s advice – there is no reason why you shouldn’t do this at the outset. The money spent is an investment in trying to make sure the project finishes (let’s be honest – vaguely) on time and on budget.
Payment: Contracts and Cases was discussed in our webinar on 24 September 2020 with Adrian Cole and Nicholas Dennys QC. Click here to view the webinar and detailed notes.
How can Barton Legal help?
At Barton Legal we have extensive experience in all the standard contract forms, including JCT as well as NEC, IChemE, and FIDIC.
We believe that an increased understanding of contractual terms and the roles and responsibilities of all parties ensures a successful conclusion to a project, which is why we always use plain English and ensure you understand and can apply the terms of your contract.
Our aim is to reduce legal gobbledegook and increase collaboration between parties to increase the prospects of completing your project on time and on budget
We place great emphasis in the early stages of the contract on understanding and preparing thoroughly, in order to avoid costly disputes later.