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Construction projects – part 7 - Documentation



The contract

This should be fair to both parties.
It sets out the rule and regulations for submitting a bid and other aspects.
Once signed it governs the rights and responsibilities of both parties.
You must be familiar with every aspect of the contract and if in doubt you should consult a legal expert in the matter.

In most cases it contains, plans, specifications, ‘bills of quantities’, detailed drawings, ‘articles of agreement’ and the ‘conditions of contract’.
By not fully understanding the implications of the document the Contractor could lose money by claims against him or her or lose money by not taking up a valid claim for compensation.

Articles of agreement

They will state the name of the Client, Contractor and the Consultant.
They will list any relevant documentation.
It will show the amount to be paid to the Contractor on completion of the project.
They will be signed by both the Client and the Contractor.

Conditions of contract

See comment earlier covering Project Requirements in Construction Projects.
These contain the terms and conditions under which the project will be carried out. The Contractor must be aware of his or her rights in order to make any justified claims. It contains the Contractor’s rights and responsibilities.
The Contractor must be aware of the risks under the term and conditions of the contract as some projects may not even be worth bidding on.
In many cases the interest of the Contractor can be improved by the use of standard contracts by getting suitable local advice.

The ‘conditions of contract’ usually contain:

The contract period

The start date of the project is often arranged when the contract is signed. It is often referred to as the ‘date for possession of site’.
If possible make this a few weeks after the contract is signed which will allow you to organise a few items for when you start.
The completion date is usually subject to a clause in the contract which provides details of damages that may be incurred if it is not met.
This is known as ‘liquidated damages’.

Payment

Large projects will be subject to interim payments, usually monthly, by the Client to the Contractor.
It is the responsibility of the Contractor to submit the amount of work completed. This will be checked by the consultant. Poor payment by Clients can be a big problem for a Contractor. If this is the case look for suitable associations to plead your case. This is a preferred approach to cancelling the contract and trying to recover costs which is not very easy to do.

Payment for extra work and variations

If the Client alters current plans or requests extra work the Client will have to pay the Contractor extra money.
Make sure that all records are complete and that every modification or extra item is confirmed in writing.

Retention money

There is often a limit to the level of the retention fund.
It is accumulated by the Client retaining a small amount, usually about 5%, of the sum of each interim payment.

Once the project is complete the consultant will issue a ‘certificate of practical completion’.
This triggers a period, often 6 months (could be any period), for the Contractor to correct a list of areas of work indicated by the consultant.
This is the ‘maintenance period’ or ‘defects liability period’.

Some defects will not appear until some way into this period.
At the end of the period the consultant will make a list of defects still outstanding.
When all ‘defects’ are complete, and have been validated by the consultant, the retention money will be released.

Should the Contractor not complete repairs the consultant may get another Contractor to do the job using the retention money.
You should check the ‘conditions of contract’ for the exact nature of the retention fund, how it is accumulated and the period of maintenance.

Materials on site

The interim payment can cover materials on site that have not been delivered too soon, are properly stored and protected against the weather, damages and theft. They must also be covered by insurance. Once payment is made the Client will own them.

Price variations

It is not unusual, especially over a long project, for rises in salaries and raw materials costs to cause problems.
If you believe this may be a problem make sure that a suitable clause exists in the ‘condition of contract’ that will cover such variations. If is does not, you may have to increase your costs in the bid to cover this.

Local authorities

How you pay fees and recover the costs to local authorities should be in the ‘condition of contract’.
These may typically include site inspections and water and electricity connections as well as others.

Insurance

You will have obligations under the contract and as such will need to insure yourself against adverse events.
This may include serious injuries or death or damage to property.
At the same time you must protect the Client (that is indemnify the Client) against such events.
The Client and the consultant are likely to want to see your insurance policies as part of the bid process.

In addition, any sub contractors that you employ must have suitable insurance that protects them and indemnifies you.
It may be that the Client will be able to extend existing insurance to cover the project itself, for example, an extension of existing premises.

Poor workmanship or materials

The specification and drawings define the quality and standard of workmanship and materials.
A poor Contractor may try to save money by carrying out work to lower standards using inferior materials.
This is a poor policy and will eventually lose the Contractor money for reworking and by loss of reputation.

Liquidated damages

This is compensation for not completing the contract by the due date.
It is a fixed sum paid every week / month over the agreed completion date.
The compensation covers the Client for lost business.

If delays are caused by unforeseen circumstances you may be able to negotiate a later completion date.

Extension of the project completion date

You may be able to request an extension if:

There are extremely bad weather conditions.
Problems caused by other major issues, for example, acts of God (floods and earthquakes), war, riots etc.
Missing items from the plans provided by the consultant that must be included to complete the project.
Delays in necessary information that you have requested in writing from the consultant.
Delays that are caused by the consultant due to inspections of suspicious workmanship that is proven to be OK.
Delays in handing over the site by the Client to begin working.
Delivery of materials is delayed due to unforeseen circumstances, for example, imports from abroad.
Where others may be involved that are directly employed by the Client causing unplanned delays.

Termination of the contract

Either the Client of the Contractor can terminate the contract.
This might come about if certain facets of the contract are not met.

If the contractor works to a poor standard or stops working for no reason.
There is persistent refusal to make good defects indicated by the consultant.
The Contractor makes independent decisions over significant issues when prior permission of the consultant is required.

The Client is able to terminate the contract provided it is acceptable under the law. The Client can then move onto the site, employing another Contractor and using any equipment that is still available. The original Contractor will be liable for extra costs.

Alternatively, the Contractor can terminate if:

The Client fails to pay on time.
Although, in this scenario, you are better to go to an independent body to try to expedite the matter.
Termination can be the last resort and may damage your chances of getting additional work.

There may be inordinate delays in the project for reasons not under the control of the Contractor.
The Client may go bankrupt (as an individual) or may go into liquidation (if a limited company).

When the Contractor terminates he or she is in a position to claim for work to date, materials delivered on site and not yet used, the cost of removing equipment and any other reasonable losses.

In any of the above circumstances you should consult legal professionals as to the best course of action.

Arbitration

This is a person respected by both parties who will make a fair decision based on the facts of a dispute.
Either party may wish to use arbitration if informal discussion fails to resolve an issue.
To pursue an issue through the legal system can be expensive with the result uncertain.

Non - PRINCE2 information