Introduction
The construction of 80 housing units by OAS Development is a mammoth task that ought to have gone on smoothly. However, project stopped immediately it started and thus left the contractor and client in a tussle.
This was propelled by delayed payments as the chief reason for work behind schedule, late administrator’s instructions and lack of workmen on site. Therefore, the following subtopics describe essential principles that govern construction contracts.
Laws Governing Construction Contracts
The construction industry is one of the largest professions governed by a set of rules that guide the interaction between constructors and clients. These guidelines enable client’s procurement routes are negotiated, accepted and respected. Moreover, the portfolio enables constructors identify best approaches to providing quality and timely services to their clients.
There have been many mistakes, and errors made in the past concerning these agreements and conceited efforts are being made to ensure past mistakes are not repeated (Totterdill 2006).
These strategies enable constructors and clients manage risks, relationships and documents required in the construction. Although, clients may have diverse procurement routes they have similar principles that guide their relationships with constructors, responsibilities allocations and modes of payments.
The form outlines clauses, standard particulars and appendices presented by both parties. These aspects create predefined legal associations between contractors and clients to enable them understand their rights, liabilities and responsibilities of each party involved in the contract.
This contract is referred to as standard form since it forms the basis for any construction contract and gives direction to the project. All documents used in this stage define the following essential aspects.
The drawing presented to both parties regarding the project defines the work to be performed by the contractor and client. This describes the complexity and scope of work to be done; therefore, enabling the client identifies the project’s ability to fulfill the desired needs.
Moreover, this enables the contractor to determine the costs involved and set the project’s prize. Secondly, these two parties will identify the quality of work required for the project through identifying the drawings, annotations and specifications. This also defines the workmanship expected of the contractor by the client. Thirdly, the contractual conditions describe the agreements reached by both parties.
This also defines the rights and responsibilities of all parties (Rawlinson 2011). Moreover, this form contains the requirements and their prices in order to complete the project. This is contained in a budgetary form that states the cost of all procedures, materials and labour required by the project. Lastly, the form states the time required to complete the project and the provisions and costs for adjusting the time.
The Conditions Guiding Payment in the NEC 3 ECC Contract
Construction is a unique industry that has its own ways of doing things and its payments are not the same as in other professions. A project may last a few months to several years depending on its complexity or nature. The construction industry has devised various ways of facilitating their payments and agreements to protect client and constructor’s interests.
This has led to the formation of suites which provide forms (contract) for use on various construction types. The contract suite chosen by a client depends on the procurement or working style preferred by a client. There is a continuous updating of contract forms to reflect the changes ion trends and systems that govern construction to improve contracts and respond to the needs of this industry.
The most common suites available in the United Kingdom construction profession include JCT(Joint Contracts Tribunal), IChemE (Institution of Chemical Engineers), NEC (Institution of Civil Engineers), SBCC (Scottish Building Contracts Committee), ICE (Conditions of Contract Standing Joint Committee), GC/Works (UK Government), FIDIC (International Federation of Consulting Engineers) and ACA (Association of Consultant Architects).
Despite the presence of many construction suites in the UK, the suitability of any one of them depends on a number of reasons. One suite may not be appropriate for all clients due to their terms of service.
NEC3 is one of the common, civil engineers suites that stipulate how contracts are prepared, signed and followed. This suite addresses key elements that are related to the relationship between contractors and their clients. This suite aims at stimulating effective management of the contractor and client relationship with respect to the contract.
This also involves all the work and procedure included the project and contract form. Secondly, this suite is flexible; therefore, ranked amongst the best suite in many countries (Rawlinson 2011). For that reason, it is widely used in most countries and different contracts. This is the only family of the contract that has straightforward and comprehensible language that is understood by a majority of the population.
The main emphasis of this form is based on its claim that the form of contract used depends on the objectives of the project bearing in mind the principles of construction excellence. This form is most appropriate in the public sector procurements due to its flexibilities.
This is an elaborative approach that aims at managing the relationship between the client and contractor. The form emphasises on the need to have an effective and working relationship between contractors and clients based on the agreed terms of service and contract negotiations.
This form accommodates almost all legal systems and thus guarantees the client and contractor quality and timely responsibilities. This aspect enables contractors to invest and dedicate their professions to providing quality services and guarantees clients quality services within the stipulated time (Chappell 2010).
There are factors that determine the effectiveness of any form of agreement between contractors and clients. However, the most common factors that influence suites preferred by clients include the following.
First, the nature of legal contracts and relationships governing clients and contractors determine the suite appropriate for a project (Murdoch and Wilson 2010). The most common legal relationships are between clients and contractors, clients and construction consultants, subcontractors and contractors and collateral warranty. All these relationships have varied suites that suite their relationships.
Secondly, the nature and complexity of the project determines the suite effective for the given project. Some projects are risky and thus necessitate the need to spread the liability to other companies. Huge, risky projects require some insurance and construction companies to undertake them in order to spread and share the costs and risks involved (Chappell 2010).
In addition, there is the need to establish who will be responsible for covering costs incurred in the project apart from their initial project costs. The need to establish the party responsible for project designing determines the suite a project will use. The technical aspects and legal relationships involved in a project determine the suite to be used since the suites have provisions for such aspects.
Thirdly, payments are an essential factor that determines the progress of any project. Timely payments ensure all materials and machines required are available without delays. In addition, prompt payments ensure workers are always on site; therefore, reduces chances of having work behind schedules. There is the need to identify which method of payment is effective and at what stages should clients make payments.
This determines cost certainty and gives the client and contractor a chance to predict whether there will be additional costs or not. In addition, this enables the parties to plan for emergencies (Hinze 2010). They should assess the impacts of the nature of the work with regard to early cost certainty.
This aspect also covers incentives that may facilitate early completion of the project. Clients and contractors must understand the differences between these forms of contracts before deciding on which ones to adopt.
Contractual Standing in terms of Conditions Governing Contractual Program
According to the case study in this discussion it is evident that some contract agreements were breached by the client. This was as a result of either commission or omission of basic procedures responsible for governing the relationship between the client and the contractor.
The fact that OAS Development is a national company that has a significant reputation in Edinburg means that offer quality services. This is also evident in the undertaking they had signed with the client.
However, the project did not reflect the agreements between this company and its client resulting in stoppages. This will without doubt lead to further adjustments to ensure the project is complete. The client’s credibility is put to doubt after the agreed terms are not met.
This means that the client is largely to blame for stalled work. It is not reasonable for a client to sign contracts and later break the promises agreed upon by both parties. The client had adequate time to go through the legal documents that bind the contract and decides whether to accept or reject them.
However, the fact that the client saw read and signed the papers means there was full cooperation and understanding of the contract. There is no doubt that the contractor was determined to complete the project within the agreed deadline of 26 months (Murdoch and Wilson 2010).
However, the client was unable to make timely interim valuations leading to withdrawal of workers from the site. The contractor could not have risked paying workers from other sources apart from the client’s pocket.
In addition, the late administrator’s instruction was a deliberate action to delay the project since the client was proving difficult to handle. The contractor had the right to withdraw workers from the construction sire and terminate the contract since the client was not respecting the terms and conditions that governed their agreements.
It is futile investing in an unrewarding venture since this leads to losses caused by unrecovered debts. It is essential to seek professional advice on construction and terms governing the process before hiring contractors and signing contracts without understanding their terms of service.
The parties concerned must ensure they respect and follow the agreements and procedures agreed before embarking on any undertaking. This contract required full knowledge and understanding of the terms and policies governing the parties concerned.
However, it is evident that the client did not understand any the agreement and policies binding the contract or there was total negligence of responsibilities. Therefore, the client is largely to blame for failing to meet his part of the bargain. In fact, the contractor has a legal right to claim full compensation of the whole project price given the fact that the project was on its second phase (Hinze 2010).
There was no justification for delayed payments and thus this puts the client at a high risk of facing legal punishments. There was a complete agreement, and the contract signed and thus there is no reason to warrant non payment of funds to the contractor.
Preparation and Submission of Contractual Claim
All professions have procedures and mechanisms of preparing and presenting claims. These procedures are not only guided by legal undertakings but also economic and moral obligations. There is the need to consider contracts that guarantee clients and contractors refund and benefits as a result of termination of contract.
Even though, contracts are intended to last until all parties accomplish their responsibilities sometimes this is usually not possible due to intentional or unintentional events. It should be noted that some unavoidable circumstances necessitate the need to terminate contracts.
This may include high inflation rates, political instability and government policies. These are beyond client and contractor’s controls, and thus claims are made basing on mutual benefits.
However, most contracts are terminated prematurely due to negligence of responsibilities buy one of both parties. Contractors may fail to deliver the expected results in terms of quality of work done (Knowles 2005). Some contractors do not deliver quality work according to the agreed contracts.
This compromises the payments and trust of clients on such contractors and necessitate the need for refunds. On the other hand, some clients expect contractors to finish their projects without following the agreements signed prior to the commencement of the project.
Whichever the case failure to settle the dispute in an amicable way will result to either party seeking claims for compensating the losses suffered. The procedure for claiming compensations is a legal process that will ensure the aggrieved party is compensated in a mutually binding manner.
The solutions available to the aggrieved party depend on the level of damage suffered by the victim. This will result in termination of contract or payment for losses incurred. These are classified into the material and non material compensations. Material compensations involve payments of damages while non material compensation involves termination of contracts.
The most common way of compensation is through monetary payments made to the victim. This serves as compensation for losses suffered as a result of the other party breaching the contract (Knowles 2005). However, a party may opt to withdraw supply of material, labour or expertise as a way of self compensation.
In some cases, aggrieved parties may decide to withhold materials, land or finances in their possession if the other party fails to meet its responsibilities. This happens in rare cases where there is continuous dishonouring of contracts. The victim must prove that the breach of contract has resulted in damage.
There is the need to ensure the contractor adheres to the date of completion to allow the client generate income as per the scheduled time. However, if such arrangements fail then, the contractor must pay the client a calculated amount of money on weekly or monthly basis depending on the contract agreement. This is a crucial aspect that ensures contractors deliver quality results within the stipulated time.
However, the best approach for this case study is seeking legal intervention to compel the client to respect and meet the demands of the contract. This may give room for further negotiations that will see some terms of service changed. Whichever the case, there is the need to complete the project since the contractor has done almost half of the required work.
The preparation of a contract form is determined by these factors. The structure of the form of the contract is the most imperative aspect of any contract. This gives the client and contractor a glimpse of the project. Through this structure, they are able to identify the costs incurred and the complexities involved in the project.
In addition, this allows them to predict possibilities of further negotiations as a result of unavoidable conditions (Rawlinson 2011). The project overview offered by this form enables these parties to identify the need to incorporate other parties like arbitrators and subcontractors in the project. Secondly, the contract documents define the procurement route adopted by the client.
This document defines the work covered by the contract. It also gives a timeline within which the work must be complete. Therefore, the document guides the client and contractor on the roles each party has to play and the requirements for these roles.
The contract sum gives a summary of the cost of the project. This is an essential project aspect since it determines which company offers the most affordable services. This section must be understood and agree to allow clients understand and agree to pay the amount negotiated.
Moreover, it is crucial to indicate the client ad contractor’s obligations with regard to the project. This allows the parties to ensure they fulfill their bargains. Most contracts fail due to failure to respect these obligations. There is also need to set payment modes and dates. This will facilitate completion of the project within the agreed time since there will be no delays in paying workers or purchasing materials.
Time is also an essential aspect that determines the duration the project takes. There must be an agreed time within which the project must be complete (Totterdill 2006). The client may decide to offer different phases to different clients depending on professional advice.
Lastly there must be room for renegotiations in terms of payments and time for project completion due to uncertainties. After the above aspects are met and agreed upon the contractor, is issued with a contract certificate that gives him the right to start working on the project.
Dispute Resolution Methods
Most contracts do not end up in disputes since there are various ways of compensating claims. The contract form contains ways of handling claims.
These claims arise when one party feels the other party is responsible for causing unnecessary expenses or delays. However, if claims are not handled properly, they escalate disputes. This necessitates the need to introduce third parties (adjudicators, arbitrators or mediators) to help solve the dispute.
Conclusion
The need to have buildings to offer room for settlements, offices, business establishments, and industries necessitates professional service delivery in the construction industry. The main conflicts in the construction industry occur due to default in payments and incomplete or substandard work.
References
Chappell, D. (2010). Construction Contracts: Questions and Answers. Routledge Publishers, London.
Hinze, J. (2010). Construction Contracts. McGraw-Hill, New York.
Knowles, R. (2005).150 Contractual Problems and Their Solutions. Willey-Blackwell, Boston.
Murdoch, J. and Hughes, W. (2010). Construction Contracts: Law and Management. Taylor and Francis, London.
Rawlinson, M. (2011). A Practical Guide to the NEC3 Engineering and Construction Contract. Willey-Blackwell, Boston.
Totterdill, B. (2006). FIDIC Users’ Guide: A Practical Guide to the 1999 Red and Yellow Books – Incorporating Changes and Additions to the 2005 MDB Harmonized Edition. Thomas Telford Publishing, London.
Comparisons between the Advices given Based on the NEC3 ECC Condition of Contract with the FIDIC Red Book Form of Contract
The FIDIC Red Book bases the relationship of the client and contractor on traditional assumptions. Its structure and drafting has undergone various changes to encompass the modern contract environment. This discussion emphasises the difficulties involved in building trust between client and contractor.
The book argues that the two have never done business earlier and thus may experience difficulties trusting each other. The book gives clear definitions of the contractor and employer roles as a way of enhancing project completion.
On the other hand, the NEC3 ECC condition of contract emphasizes on the need for clients to select their forms of contracts based on the project’s objectives. These must reflect the AEC (Achieving Excellence in Construction) principles.
In addition, this approach identifies efficient management processes as essential tools of ensuring projects are completed without unnecessary delays, claims or disputes. Therefore, this is the best advice for OAS Development and its client as an effective way of ensuring contracts signed is completed.