The Importance Of Knowing Your Contract
In today’s environment; getting appointed on projects can be very challenging. The margins are lean and work is scarce. The emphasis is just getting the work in, starting the job, and getting the cash flowing. The terms are simplified to a tender amount and the small print is simply ignored.
Often in the resolution of a dispute; the first point of order is coming to an agreement on what contract was signed or whether a contract was signed at all. The contractor attempts to rely on the terms and conditions of their proposal, while the employer attempts to rely on the conditions of their appointment letter.
In my opinion, the construction contract is a fundamental part of the planning process and should be concluded and understood by the contractor before they commence with the project. Every project is unique, and obligations and conditions should be clearly defined on an individual basis.
A quote that is applicable to the contractor in driving the point across about the importance of understanding intimately the terms of the contract before commencement of works is by Brendon Burchard where he says, “The time to have the map is before you enter the woods.” Taken from a literal standpoint, getting the map before you enter the woods will help you navigate the woods confidently and with focus, as you would have the end destination point in mind with more clarity.
Only understanding the terms of your agreement post commencement can lead to several problems. The most common of these problems is proper notification to the employer or his agents of delays, variations, and compensation events. Many standard construction contracts have time constraints on the notification of such events; and the failure of proper notification in the terms of the contract will ultimately result in the rejection of a claim.
Failing to understand the contractual obligations regarding notification to the employer (or his agents) can result in a contractor accruing penalties for late completion. Penalties can add up quickly and easily cause a contractor to make a substantial loss on the project or even go insolvent.
To avoid such risk, a contractor should always ensure:
- There is a contract and the type and edition of the contract is clearly identified
- The payment terms and requirements are understood
- The notification process is understood
- Contract documentation is listed (such as):
- Recording of the drawing numbers of the designs used to price the project
- Specification documentation (e.g. finishing schedules)
- Breakdown of Preliminaries and General (to establish the cost chargeable to the employer per day, if a delay was caused by the employer or one of his agents)
- Bills of Quantities/ Bill of Rates (if applicable)
- Contract data is complete (such as):
- Contact details of the party to receive notices and claims (e.g. Principal Agent, Project Manager, Employer proxy or Engineer)
- Is the contract fixed or re-measurable?
- Contract Price Adjustment Provisions
- Date of handover
- Date of completion
- Who is responsible for insurance, and to what extent?
- Type of security chosen (e.g. retention amount)
- Penalties (per calendar day or working day?)
- The nominating body for alternative dispute resolution is recorded
- The contract makes provision for an alternative dispute resolution process (mediation, adjudication and/or arbitration)
- The contract is signed prior to commencement of the project and by those that have the authority to enter into the agreement
- Request a communication plan
- All revisions or alterations to the contract or the project are recorded and agreed to in writing (do not rely on oral agreements or instructions)
- Notifications in terms of the contract are given in the time allowed and to the correct party
I believe that contractors can mitigate a lot of their risk of falling into a dispute, simply by understanding the terms of their appointment and administering the contract for the duration of the project and its finalisation.
Knowing your contract like the back of your hand (on in the case of a contractor – like the back of the hard hat) will save you from sticky situations that could get you into hot water. As the common adage goes, “Prevention is better than cure.” Know your contract back to front, don’t be afraid to vocalise concerning issues that you gauge could be a potential threat to your sanity during a project. You should try and address them before commencement. Remember; prevention is better than cure.