Dadcic 61972 003

Download as pdf or txt
Download as pdf or txt
You are on page 1of 6

Delay and Disruption Claims in Construction

ISBN 978-0-7277-6197-2

ICE Publishing: All rights reserved


http://dx.doi.org/10.1680/dadcic.61972.003

Chapter 2
Construction and contract law
2.1. Construction law
In many ways, construction law is no different to any other field of law. It is, however,
recognised as being a body of law that relates to those elements of the law that directly
affect the construction and civil engineering industries.

It covers things such as contract law, the law of tort, and construction claims generally; and
it is particularly concerned with the effect that these elements of the law have upon those
participants (including employers, consultants, contractors and subcontractors) involved in
the construction process.

Some types of law only apply in respect of the relationship between particular people or
bodies (this is referred to as civil law) while other types apply to the rights or duties of a
person or a body against the state (this is referred to as criminal law). This book deals only
with civil law matters.

Furthermore, some law (for example contract law) only applies in respect of the
relationship between particular people or bodies, while other aspects of law (for example
the tort of negligence) can have a much wider application. This book deals almost
exclusively with contract law.

2.2. Contract law


The basic principles of contract law are outlined below.

A contract can be considered as being an agreement which gives rise to obligations that are
enforced or recognised by law.

Therefore, the essence of any contract is agreement.

In deciding whether there has been an agreement, and what its terms are, a court usually
looks for an offer to do or to forbear from doing something by one party, and an
unconditional acceptance of that offer by the other party, turning the offer into a promise.

In addition, the law requires that a party suing on a promise must show that they have
given consideration for the promise, unless the promise was given by deed.

Furthermore, it must be the intention of both parties to be legally bound by the agreement,
the parties must have the capacity to make a contract, and any formalities required by law
must be complied with.

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.
Delay and Disruption Claims in Construction

If there is fraud or misrepresentation the contract may be voidable, while if there is a


mutual mistake about some serious fundamental matter of fact this may have the effect of
making the contract void.

Finally, there must be sufficient certainty of terms. Partly due to this, standard forms of
contract are regularly used in the construction industry.

Each of the essential elements of a contract is considered in more detail below.

2.2.1 Offer and acceptance


As stated above, for there to be an agreement the starting point is an offer being made by
one party and an acceptance of that offer by the other party. This is not always as simple as
it sounds, particularly when there have been prolonged negotiations between the parties, but
the courts have developed their own rules for looking at such matters.

In terms of offer and acceptance, the courts adopt what is sometimes known as the ‘mirror
image’ rule of contract formation. That is to say, there must be a clear and unequivocal
offer that is matched by an equally clear and unequivocal acceptance of that offer.

An offer is a statement by one party of a willingness to contract on definite and clearly stated
terms and an acceptance by that party that those terms will be legally binding provided that
those terms are unequivocally accepted by the party or parties to whom the offer is addressed.

There is generally no requirement that the offer be made in any particular form; it may be
made orally, in writing or by conduct. Of course, if a dispute arose in the future then it
would be beneficial for the offer to have been in writing.

In whichever form an offer is made it must be sufficiently definite to be capable of resulting


in a contract if accepted. Its terms and conditions must be clear and unequivocal, and it
must be made with the intention that it is to become legally binding as soon as it is
accepted by the person or legal entity to whom it is addressed.

For an agreement to be reached there must be a clear and unequivocal acceptance to a clear
and unequivocal offer. The acceptance must be unqualified – that is, as noted earlier, it
must ‘mirror’ the offer – and it must be communicated. If the acceptance does not clearly
and unequivocally accept the offer (in other words, if it seeks to add to or vary the terms
contained in the offer) then it is, simply, a counter-offer (not an acceptance), and a counter-
offer has the effect of extinguishing the original offer.

In reality, a counter-offer has the same status as an original offer in the formation of a
contract; and consequently, a counter-offer must itself be clearly and unequivocally
accepted before agreement has been reached.

In respect of construction works in particular, it is common for a whole series of offers and
counter-offers to be made before there is an acceptance. This may be because the parties
are negotiating about the terms or because they are each trying to impose their own terms.

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.
Construction and contract law

This latter situation is often referred to as the ‘battle of the forms’, and variants of this
battle of the forms are at the base of many disputes between participants in the construction
and civil engineering industries. It really is unnecessary for a ‘battle of the forms’ situation
to arise, and it is certainly unhelpful for such a situation to exist if reliance needs to be
made upon agreed contract terms.

2.2.2 Agreement
As noted above, the essence of any contract is agreement.

The test for the existence of an agreement is objective rather than subjective. In other
words, the existence of an agreement is tested on the facts, rather than on what may have
been perceived to be the intention of the parties. The principal justification for the adoption
of this test is the need to promote certainty.

An agreement is reached either

■ when a statement of agreement is signed or executed, or


■ when one party makes an unambiguous offer capable of being accepted, and the other
party accepts it unequivocally.

If a dispute about the interpretation of a term that has been agreed arises because of an
ambiguity in respect of that term, the contra proferentem rule applies. This is a doctrine of
contractual interpretation which provides that, where a promise, agreement or term is
ambiguous, the preferred meaning should be the one that works against the interests of the
party who proffered the wording in the first place.

2.2.3 Consideration
Other than where a contract is executed as a deed, an agreement requires consideration to
be exchanged between the contracting parties before the contract becomes binding. In the
ordinary building contract situation, the consideration given by the employer is the price
paid or the promise to pay, and the consideration given by the contractor is the carrying out
of the works or the promise to carry them out.

2.2.4 Executed as a deed


As noted above, consideration is not required in the case where a contract is executed as a
deed – meaning where the contract is executed by the use of a corporate seal countersigned
by authorised persons, or by the signature of the company secretary and another director.
Contracts are often executed as a deed because the limitation period for a contract executed
as a deed is 12 years whereas the limitation period for a contract executed under hand is six
years only.

2.3. Standard forms of contract


Contracts can be created in many different formats, and can be produced on an ad hoc basis
for each and every agreement between the parties. However, the approach more commonly
used in the construction industry is for a contract to be formed using a standard form of

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.
Delay and Disruption Claims in Construction

contract. There are some obvious benefits in using standard forms of contract, which
include the following.

■ There is no need to produce (and incur the legal costs of producing) an ad hoc contract
for every project.
■ There is a degree of certainty regarding the interpretation of the clauses of the contract
(particularly those standard forms that have been in existence for some time and where
some of the more important clauses may have been tested in the courts).
■ The parties know (with reasonable certainty) the consequences of various possible
courses of action.
■ The allocation of risk between the parties in respect of the (unamended) standard forms
of contract is known with some certainty.

There are many standard forms of contract in use in the construction and civil engineering
industries, and a brief commentary on a few of the more commonly used standard forms is
provided below.

It must be acknowledged that it is common for standard forms of contract to be amended,


and that when amendments are made, the benefits to be gained from using a standard form
are often lost. When amendments are made, the amendments in effect make the contract an
ad hoc contract. As a result, although nominally a standard form of contract is being used,
the distribution of risk between the parties may have been changed entirely. Amendments
may legitimately be made to a standard form contract to make it suitable for use in unusual
circumstances. However, they are often made simply to make the contract more
advantageous to one of the contracting parties.

As the range of possible amendments that could be made to a standard form contract is
vast, it is beyond the scope of this book to consider anything other than the unamended
terms and conditions in the standard forms of contract.

2.3.1 NEC4
NEC4 is a generic name for a family of contracts published for the Institution of Civil
Engineers by Thomas Telford Limited. NEC stands for New Engineering Contract and it is
by this acronym that the contracts are generally known. The main contract and the
subcontract were first published as consultative editions in 1991. First formal editions were
issued in 1993, second editions (NEC2) in 1995, and third editions (NEC3) in 2005. The
fourth edition (NEC4) was published in June 2017, and builds on the content of NEC3 in a
way that has been described as ‘evolution not revolution’.

The NEC contracts were drafted with the stated objectives of achieving flexibility, being a
stimulus to good project management and bringing clarity and simplicity to the contract terms.

It was always intended that there would be a family of NEC contracts, and currently the
NEC4 family includes: Engineering and Construction Contract; Engineering and
Construction Subcontract; Engineering and Construction Short Contract; Engineering and
Construction Short Subcontract; Professional Service Contract; Term Service Contract;

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.
Construction and contract law

Dispute Resolution Service Contract; and Framework Contract. List of NEC4 suite of
contracts here: https://www.neccontract.com/NEC4-Products/NEC4-Contracts/NEC4-June-
2017-Edition-complete-family-of-contrac.

The Engineering and Construction Contract has six main options

■ Option A: priced contract with activity schedule


■ Option B: priced contract with bill of quantities
■ Option C: target contract with activity schedule
■ Option D: target contract with bill of quantities
■ Option E: cost reimbursable contract
■ Option F: management contract.

There is also a range of secondary options that may be selected for use, and there are
options that enable additional or amended clauses to be added by way of so-called ‘Z
clauses’.

2.3.2 Joint Contracts Tribunal (JCT) contracts


The Joint Contracts Tribunal (the JCT) was established in 1931 and has for almost 90 years
now produced standard forms of contracts, guidance notes and other standard
documentation for use in the construction industry, principally in the UK.

Currently, JCT forms require the agreement of eight constituent bodies (including
representatives of employers, consultants, contractors and subcontractors) before they are
issued by the JCT.

A benefit of the JCT Forms of Contract is that they are tried and tested: there is therefore a
great deal of certainty regarding the meaning of various clauses and as to how the courts
will interpret those clauses (particularly as many of those clauses have at some time or
another been considered by the courts). The traditionally perceived problem with the JCT
Forms of Contract was that they were cumbersome and unwieldy, and were not flexible
enough to cope with modern requirements. However, many of these perceived problems
were dealt with by the publication in 2005 (updated in 2011 and again in 2016) of an
entirely new suite of contracts and subcontracts.

Some of the more commonly used JCT contracts are the

■ Standard Building Contract


■ Intermediate Building Contract
■ Minor Works Building Contract
■ Design and Build Contract.

The JCT works on the basic principle that the type of work to be carried out dictates which
contract should be chosen. In contrast, other standard forms of contract (NEC4, for
example) use the way that payment will be made as the basis for deciding which version of
the contract will be used.

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.
Delay and Disruption Claims in Construction

2.3.3 Fédération Internationale des Ingénieurs-Conseils (FIDIC) contracts


FIDIC produces standard forms of contract for civil engineering and construction works
which are used throughout the world. FIDIC contracts are often referred to, with very good
reason, as the international standard form of contract, and FIDIC is recognised as the
leading body for the development of model standard forms of contract for use in the
international construction industry.

The FIDIC standard forms are generally accepted by employers and contractors as
delivering a balanced allocation of risks and providing fair procedures for the
administration of contracts.

FIDIC contracts are widely referred to by their colours, and the full suite of contacts is
sometimes called the ‘rainbow suite’. The present suite of FIDIC contracts comprises

■ the Red Book, which is the Conditions of Contract for Construction


■ the Yellow Book, which is the Conditions of Contract for Plant and Design-Build
■ the Silver Book, which is the Conditions of Contract for EPC/Turnkey Projects
■ the Green Book, which is the Short Form of Contract
■ the Blue Book, which is the Conditions of Contract for Dredging and Reclamation
Works
■ the White Book, which is a form of agreement for the engagement of consultants
■ the Gold Book, which is the Conditions of Contract for Design, Build and Operate
Projects.

Downloaded by [ Mr Manuel Chaves] on [29/11/22]. Copyright © ICE Publishing, all rights reserved.

You might also like