Dadcic 61972 003
Dadcic 61972 003
Dadcic 61972 003
ISBN 978-0-7277-6197-2
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.
A contract can be considered as being an agreement which gives rise to obligations that are
enforced or recognised by law.
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.
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Finally, there must be sufficient certainty of terms. Partly due to this, standard forms of
contract are regularly used in the construction industry.
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.
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.
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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.
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.
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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.
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;
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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.
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’.
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.
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.
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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
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