Implied Conditions in a Design and Build Contract Essay

Introduction

The definition of a building contract takes the same form as any other general contractor. The building contract, like any other contract, is a legally binding agreement that arises out of an offer from the employer and the acceptance from the contractor. It becomes legally obligatory on the part of both the parties to perform their part of the contract diligently and to the satisfaction of the other party. The building contract may be one that is applicable to a small building maintenance work as well as to the construction of a housing complex or any other large building. Thus the essence of a building contract is to build something irrespective of the size or amount involved. It is always advisable to reduce the building contract in writing since there is every chance the verbal agreement may be misused against either party if any one of them proves to be unscrupulous.

The Standard Form of Building Contract (published by Hong Kong Institute of Architects and Hong Kong Institute of Surveyors) contains clauses that are usually referred to as Conditions. These are, in fact, express terms to which the signing parties expressly agreed. Apart from express terms, there are other categories of terms that exist in building contracts which are known as implied terms. This paper examines the nature and extent of the implied terms of the building contracts.

Type of Contract

There are two alternative forms of construction contracts that can be employed for the proposed construction activity. It can be taken up in the traditional form of a design-bid-build construction project or a design and build contract. In the design-bid-build contract, which is traditionally were being awarded as a design-bid-build contract in which the employer enters into separate contracts for designs as well as for construction. The contract for design is entered into with professionals like architects. The architect, in turn, may employ other professionals like engineers. On completion of the design process and approval by the employer, tenders are invited for the building on the basis of the completed design and the best bidder in terms of price and reputation is awarded the construction contract (Joseph G. Springer, 2000).

Conditions to the Building Contract

While the building contract is made into a written one, it will contain all the essential ingredients of a valid contract. But most of the time, it may not be possible to incorporate every term of the contract into a written one. Whichever conditions have been incorporated into the written contracts and agreed to by the parties to the contract by signing the contract, the conditions so included becoming the express terms of the contract. Apart from the express terms, there are certain other terms that are understood to be existing at the time of entering into any building contract. These are normal to the construction industry, and by entering into the written contracts, the parties to the contract also agree to these additional conditions, which form part of the building contract. These conditions are known as implied terms of the contract. Especially in a design and build contract where the contractor is made responsible for the entire execution of the building contract, it becomes vitally important that both the employer and the contractor mutually agree on all the express and implied terms of the contract.

Implied Terms within a Construction Contract

“Implied conditions are those which are not specifically stated by the parties but which apply to the contract by virtue of statute law, or trade custom or as the result of case law. Implied conditions are equally effective and binding, and reference to the most important of those Acts relating to goods and services is included in the invitation to tender.” (Department for Business Enterprises and Regulatory Reform)

It is always advisable to incorporate all the conditions attached to a contract in an express written form except those where the conditions are implied by statutes or applicable laws. It is usually not a good practice to depend too much on the implied terms of the contract.’

The following are some of the implied terms which can be construed to have been in built-in any building contract:

• An implied condition that the contract will be completed within a reasonable time – implying that the building will be completed and handed over to the employer within a reasonable time
• There is an implied condition that the contractor will communicate with the others involved in the contract in a reasonable manner.
• The other implied condition is that the contractor will use proper judgment and care apart from using the skills required for the completion of the contract.
• There is yet another implied condition that the contractor shall make use of materials that are of good quality to ensure the quality of construction. Under the implied conditions, the contractor implicitly agrees to the use of labour that is skilled and competent to carry out the intended work. This is very important in a building contract as the quality of the construction depends not only on the quality of materials being used by the contractor but also on the quality of workers he employs.

It may be noted that the above are some examples of implied conditions that are applicable when the contractor is responsible only for the completion of the construction of the building and not for the design and specifications of the building; in the traditional form of build only contracts, the building contract will be entered into only for the completion of the construction of the building by the contractor. The designing of the construction will be the responsibility of the owner, who usually will appoint an architect or an engineer to complete the design part of the building. In such cases, there will not exist any implied term in respect of the design defects, which will be the absolute responsibility of the architect or the engineer appointed by the employer. “It must be remembered that where a building has been designed by architects or engineers, it is not implied that the contractor who constructs the building is responsible for design defects or not following the construction techniques suggested by the design team.”(National Home Improvement Advisory Service) The construction techniques are not compulsory, as the design team does not tell the construction labourer how to build. It must also be noted that the implied term may be a condition or a warranty, and the rules shall be applicable in the same way as they are applied to the express terms.

Implied terms in a Build and Design Contract

Because of the complexities involved, many project owners prefer to award the construction phase of a project to the same firm that produces the design. (Hoovers) The American Institute of Architects (AIA) defines the term as “a process in which the Owner contracts directly with one entity that is to provide both design and construction services.” (Samuel Niece, 2004)

The Standard Form of Building Contract (published by Hong Kong Institute of Architects and Hong Kong Institute of Surveyors) for use in Hong Kong contains elaborate terms and conditions relating to the construction and execution of building contracts. But these conditions basically pertain to the traditional form of build only contracts.

When the responsibility for design is also delegated to the contractor, which is the current practice in most of the construction contracts, the applicability of the implied conditions enlarges to cover the following additional points:

• There is an implied condition that the contractor has used all the care and diligence required in making the designs for the construction of the building in accordance with the prevailing industry standards with respect to the designing of the building.
• Another implied condition is that the contractor has appointed architects or engineers who have specialised knowledge in making the designs for the type of construction for which the contract is being entered.
• In cases where the main contractor has appointed sub-contractors for carrying out some part of the construction work, it is an implied condition that the main contractor is responsible for the quality of the work being carried out by the sub-contractors appointed by him,

Significance of the Implied Terms of a Building Contract on the Part of the Employer and the Contractor

In the case of design and build contracts, the implied warranty with respect to the quality and adaptability of the designs will not become applicable where the owner has not supplied the designs, plans, or other specifications. Similarly, there cannot be an implied warranty if the plans and directions provided by the employer were not usable by the contractor or even if such directions represent nothing and also even if the directions make some misrepresentations, as the contractor, in this case, is supposed to know his job thoroughly well.

However, a contractor’s implied warranty claim may be defeated if:

• “an unusual risk or error or failure associated with a particular contract exists but has been explicitly disclosed by the owner in clear, non-boilerplate language and expressly and consciously assumed by the contractor;
• the inaccuracies and errors are minor and of the sort normally anticipated in any project;
• the contractor did not rely upon the inaccuracy or deficiency;
• the defects are so obvious that the contractor was or should have been aware of them when bidding but did not bring them to the owner’s attention; and
• the contractor deviates from the prescribed design.” (Fabyanske et al. 1989)

Conclusion

Thus in a building contract, it becomes vitally important for both the employer and the contractor, be it is a traditional build only contract or a design and build contract to understand and appreciate the impact of the implied terms of the contract.

References

Department for Business Enterprises & Regulatory Reforms – Government of UK ‘DTI procurement manual section D: legal framework’

Fabyanske, Svoboda, Westra and Davis ‘Owner’s Implied Warranty of Plans and Specifications’. Wеb.

Hoovers ‘Industry Overview: Commercial Construction Contractors’

Joseph G. Springer (2000) ‘Is a Design-Build Contract Right for You?’

National Home Advisory Service ‘Contract Information’

Samuel Niece (2004) ‘Design-Build Contracts as an Alternative Method for Public Construction by California Cities’