Construction Contracts – Terms To Understand
Most construction industry professionals are well versed in contracts. For those who maybe starting to expanding their business to larger tenders, we explain a few of the more common terms and what they mean contractually.
Time For Commencement
This Sets Out When The Actual Works Are To Commence. This Could Be:
- By a particular date
- By obtaining possession of a site
- On a ‘notice to proceed’
A contract can include a requirement to commence works by a particular date. Which, could be a condition of planning permission for example. If the contract contains no provision of time for commencement, then common law does not imply a general requirement for when the contractor should start work on site.
There can be times where a contract will require a contractor to co-ordinate your works with the works of others. This term will be implied that the contractor can commence work in time to be able to co-ordinate your work with the other work ongoing on site.
If it is conditional that work must be commenced by a certain date then this is a requirement that is conditional upon the employer providing access to the site prior to the date on which work is to commence.
Time For Completion
Construction contracts do not have to contain a date for completion but it is desirable. If there is no date, then the general reliance is on an obligation for the contractor to complete the works ‘within a reasonable time’. The argument will then be had upon a delay as to what was reasonable within the circumstances of the works.
In order to avoid these arguments, it is common for a contractor to be required to complete the construction by a stipulated date. If the contractor fails to complete the works by the completion date then he will be in breach of contract. It is most likely he will have to pay liquidated damages to his employer.
A contractor maybe relieved from his obligations to complete the works by the completion date if he has been prevented from doing so. Most contracts will normally include a list of those acts of prevention or delay which may excuse the contractor from completing the works by the completion date specified in the contract.
Many people will be familiar with the term from JCT contracts although NEC contracts use the term ‘completion’. Whilst the term is widely used, it does not actually have a definite legal meaning. As such, is not a defined term. The term is therefore an interpretation of the contract provision and case law. But, is mainly a case of fact based upon what the contractor agreed to supply and if this was supplied.
Practical completion cannot be certified if there are obvious defects in the works. Practical completion also depends upon the nature and purpose of the works. Any project involving plant or processing facilities will require their own commissioning and testing. This is to confirm outputs meet those specified before they can be considered completed.
There are advantages for practical completion to both the contractor and employer. For contractors this can include no further liability for liquidated damages, start of rectification/defects liability period and employer assuming insurance obligations for the insurance of the works. For the employer it allows him to take over the facility and potentially start generating income.
Both parties for these reasons will often certify completion. Even though there will be defects (snags) or minor defects still to be carried out. An official snagging list will often accompany the certificate of practical completion. It is expected that the contractor will be obliged to complete them during the resulting rectification periods.
But what if the contractor fails to meet the completion date?
The contractor is in breach of contract, meaning the employer can seek remedy for that breach. The employer has several actions. These include:-
- claims for general damages
- liquidated damages
- the right to terminate the contractor and to employ another contractor to complete the works
Termination for late completion can only be considered if the contract allows it. It is worth noting that the employer can seek either liquidated damages or general damages but not both.
Extension Of Time
Where the employer has caused delay or prevented the contractor performance, the prevention principle comes into force. The prevention principle essentially means that the employer can no longer hold the contractor to the completion date and time becomes at large. The contractor’s obligation to meet a completion date instead becomes an obligation to complete ‘within a reasonable time’.
Most construction contracts therefore will contain extension of time provisions which allow the completion date to be adjusted. The provisions will enable the contractor to claim for additional time and potentially compensation (loss and expense claim) where a delay has been incurred. It is important to note that a contractor can only make extension of time claims that are not as a result of his own making.
In reverse the employer cannot hold the contractor to the contractual completion date if he himself has prevented the contractor’s performance.
- If the employer has failed to issue instructions in a timely manner.
- Or has not instructed variations.
- Has has failed to give access to the site.
Then the contractor could claim extension of time.
Additionally, events outside of either parties control could also lead to valid extension of time claims Such as weather, fire or flood.
It is important to note that the contractor is not entitled to either extension of time or loss and expense claims. The contractual process must be followed and not adhering to this can lead to disentitlement.
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