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Build Your House On Rock - Even In The Good Times

Build Your House On Rock - Even In The Good Times

Chris Arnold

In times of relative prosperity, the temptation can sometimes be to ignore the basics and assume that everything will run without a hitch or glitch – however it is even more vital to ensure that all boxes are ticked in terms of contracts signed and stored, collateral warranties and letters of reliance properly executed. Once such documents are signed (sealed) and delivered the hope is that there will be no need to consult them in the future. Should however a problem arise in due course, whether in design or workmanship, the written document will be the first port of call. Here are some of the commonest failings and their potential consequences:

Contract not signed –despite this is there evidence that the terms were sufficiently agreed to be enforceable?
Contract not signed by authorised signatory and properly witnessed- this makes it harder to rely on in any legal proceedings.
Liquidated Damages clause left blank – does this mean the financial consequences of delay are zero or that actual losses are to be established in due course?
Drawing lists in the contract do not correspond with the bundle of ‘contract drawings’- so which applies? Remember the tender drawings may have been updated by the time the contract is entered into.
Main contract terms incorporated en bloc into a sub-contract- how does this work in terms of individual responsibilities for delay, compliance with specification?
Prompt notification of delays not given- this may prejudice a contractor or sub-contractor’s right to any extension of time or loss and expense.
Payment notice or Pay Less notice not given on time for purposes of Construction Act – the payer will lose the right to withhold sums even if he is justified on the merits.
Performance bond agreed but not provided until sometime into the project – this means that the employer has paid for security but not had the benefit of it.
Collateral warranties agreed but not entered into – once a dispute arises it is in practice too late to get a warranty signed even if there is a contractual right to call for it.
There are of course many other causes of building contract disputes. The list above represents some of the simplest ways to minimize disputes and you ignore getting ticks in these boxes at your peril. Clearly it is no excuse to say “we were too busy with ongoing projects to get our paperwork in order”. The sheer volume of construction at present going through the books particularly  in the North East statistically increases the likelihood of arguments arising in the future.
Long may the construction industry continue to prosper – to make sure this prosperity is long lasting you should ensure your contracts are properly drafted and just as importantly are entered into in a valid and binding way.

It is reassuring to keep reading about continued growth in the construction industry. In Aberdeen the slowdown arguably never happened but other regions are now catching up as green shoots of recovery permeate throughout the UK. It is good news for investors, designers, planners, contractors and the many other professionals who are involved in taking a project from concept through to completion. We are also seeing a large amount of activity in the secondary market with developers selling on their completed buildings to longer term investors/institutions.

In times of relative prosperity, the temptation can sometimes be to ignore the basics and assume that everything will run without a hitch or glitch – however it is even more vital to ensure that all boxes are ticked in terms of contracts signed and stored, collateral warranties and letters of reliance properly executed. Once such documents are signed (sealed) and delivered the hope is that there will be no need to consult them in the future. Should however a problem arise in due course, whether in design or workmanship, the written document will be the first port of call. Here are some of the commonest failings and their potential consequences:

  • Contract not signed –despite this is there evidence that the terms were sufficiently agreed to be enforceable?
  • Contract not signed by authorised signatory and properly witnessed- this makes it harder to rely on in any legal proceedings.
  • Liquidated Damages clause left blank – does this mean the financial consequences of delay are zero or that actual losses are to be established in due course?
  • Drawing lists in the contract do not correspond with the bundle of ‘contract drawings’- so which applies? Remember the tender drawings may have been updated by the time the contract is entered into.
  • Main contract terms incorporated en bloc into a sub-contract- how does this work in terms of individual responsibilities for delay, compliance with specification?
  • Prompt notification of delays not given- this may prejudice a contractor or sub-contractor’s right to any extension of time or loss and expense.
  • Payment notice or Pay Less notice not given on time for purposes of Construction Act – the payer will lose the right to withhold sums even if he is justified on the merits.
  • Performance bond agreed but not provided until sometime into the project – this means that the employer has paid for security but not had the benefit of it.
  • Collateral warranties agreed but not entered into – once a dispute arises it is in practice too late to get a warranty signed even if there is a contractual right to call for it.

There are of course many other causes of building contract disputes. The list above represents some of the simplest ways to minimize disputes and you ignore getting ticks in these boxes at your peril. Clearly it is no excuse to say “we were too busy with ongoing projects to get our paperwork in order”. The sheer volume of construction at present going through the books particularly in the North East statistically increases the likelihood of arguments arising in the future.

Long may the construction industry continue to prosper – to make sure this prosperity is long lasting you should ensure your contracts are properly drafted and just as importantly are entered into in a valid and binding way.

Chris Arnold
Partner

Burness admin