QTS 203

PRINCIPLES OF TENDERING
AND ESTIMATING I

QS FUNMILOLA OMONIWA (MRS)

CONSTRUCTION CONTRACTING
What is a Contract?

 A contract is an agreement entered into between two or more people with the
intention of creating legally enforceable obligations.
 Once properly concluded, a contract is binding on each party.
 This means that each party has a legal obligation to do the things which the
contract requires him or her to do.
 If a party does not do so, he or she may be in breach of the contract and the
other party will have certain remedies, such as claiming for additional costs
caused by the breach (called damages). They are also able to get a court
order to force the party in breach to do what is required of them under the
contract.
CONTENTS OF A CONTRACT
The contract should describe the following:

• What will be done;

• How long it will take to complete;

• How much it will cost and the payment terms;

• What will be done if either party defaults; and

• The extent to which the common law, which would usually apply, is adhered to.

Note: Ensure that you have read the entire contract and understand the terms and

conditions contained therein before signing.

CONSTRUCTION CONTRACT IS….

 A construction contract is an agreement between an employer (sometimes

referred to as the client) and a contractor to construct, repair, modify,
renovate or even demolish something in an agreed time frame, for an
agreed price and to agreed standards

 The contract is signed by both the employer and the contractor. As with
any contract, once the construction contract is signed, both the contractor
and the employer must follow the terms of the contract or face possible
legal action.
THE ROLE PLAYERS IN
CONSTRUCTION CONTRACTS
Although the construction contract typically only has two parties, (the employer and
contractor), there are a number of role players usually involved (appointed
separately by either party or in some cases jointly by both parties), who assist in the
construction process.
The role players are set out below:
Employer: Requires the construction work and provides payment
Employer’s Representative: Acts on behalf of the employer and may be referred
to as engineer, project manager, principal agent, etc.
Contractor: Commissioned to construct the works
Subcontractor: Appointed by the contractor to perform a part of the construction
works under a subcontract
Adjudicator/ Arbitrator/ Court: Settles disputes between the parties
DIFFERENT FORMS OF CONTRACT
o The type of contract form to be used will depend on the employer’s preference as well
as the works to be executed.
1. Bespoke contract: This is a type of contract that is not based on a standard
form contract and is specially drafted and fully customised to cater for
specific needs or requirements for the parties. This type of contract is not
commonly used by lenders or banks who sometimes provide the funding of
construction works.

2. Standard contract: There are usually risks and issues which will be common
for all construction projects and activities. Accordingly, a number of
“standard form” contracts have been developed which set out standard
terms for a construction contract to cover the related issues and risks that
will most likely apply. There are standard form contracts for both
construction work and construction-related professional services (for
example pure design work, or supervision work for construction).
STANDARD FORMS OF CONTRACT
According to the Construction Industry Development Board, when contracting with
government entities (state-owned companies, government departments etc.) only
standard form contracts should be used. This is to ensure a measure of consistency
and uniformity in the terms of construction agreements concluded with the
government.
Specific types of standard forms of contract in construction are:
a.JCT - Joint Contracts Tribunal 2011;
b.FIDIC – French Initials for International Federation of Consulting Engineers (1999)
Short Contract and Red, Yellow and Silver Book;
c.JBCC – (JBCC series 2000) (Principal Building Agreement and Minor Works
Agreement);
d.NEC – New Engineering Contract (Engineering and Construction Contract and
Engineering and Construction Short Contract).
WAYS OF CONTRACTING
Prospective Contractors can participate in construction contracts through the following ways:

 Main contractor: The contractor himself or herself concludes a contract with an employer to
build/ construct something. (e.g. building a school).
 Joint venture partner – The contractor forms an agreement with one or more other contractors
on an equal footing. They then jointly sign a contract to build/ construct all or a part of the
project. It is important to note here that, each contractor in the joint venture is responsible to
the employer for all obligations under the contract. In other words, as between the employer
and the members of the joint venture, each member of the joint venture is responsible for
the actions or breach of any other member.
 Subcontractor – The subcontractor has an agreement with the main contractor to complete a
part of the works, and will not have any contract with or obligations to, or rights against, the
employer. Subcontractors will usually have the same rights and responsibilities as the main
contractor. But since subcontractors contract with the main contractor, these rights and res-
ponsibilities will be exercised by and between the subcontractor and the main contractor.
 CONSTRUCTION CONTRACTS
ARRANGEMENTS
Can be broadly grouped as shown below:

 Pure construction contract – This is a form of contract where the contractor is

responsible for the construction of the works as per the specifications and
design provided by (or by a third party on behalf of) the employer. With this type
of contract, the contractor bears the lowest risk. The price is often re-
measurable, based on a bill of quantities, since the design is not usually
complete and fully available at the point that construction work is to
commence.
 Design-build – This is a form of contract where the contractor is responsible for
both the design and the construction of the works. Due to this fact the contractor
bears more risk when compared to a pure construction contract (including
ensuring that the work is fit for its intended purpose). Therefore, this is a
moderately priced arrangement; usually a fixed lump sum price is required for
doing both design and construction, but appropriate adjustments to the price are
provided for events outside of the contractor’s responsibility.
CONSTRUCTION CONTRACTS
ARRANGEMENTS contd
 Engineer, procure and construct – This is a form of contract where the contractor is responsible
for design/ engineering, procurement/ sourcing of materials and construction of the works
(including ensuring that the work is fit for its stated purpose). The contractor bears the majority of
the risk and the employer will regard him or her as the single point of responsibility for the
whole project. This is, therefore, the most expensive type of arrangement. The contractor is
usually required to provide a fixed lump sum price, with fewer entitlements to adjustments than
under any other arrangement, and must therefore appropriately price in the risks.
DECISION ON WHICH CONTRACT
TO USE
The idea of standard form contracts is to include provisions that are beneficial to both parties to the contract in accordance with good practice. Some contracts are, however, not based on the approach of good practice.

The three R’s to consider when deciding on which contract to use are:
Rights
Responsibilities and
Risks

Main contractor and subcontractor (rights, responsibilities and risks: Usually in

construction contracts the main contractor will be responsible for the entire project. He/
she will take responsibility for the safety of his or her employees and, most of the
time,the subcontractors. A summary of the more common rights,responsibilities and risks
are as follows:
RIGHTS
These are entitlements that one party has against another, entitling the party who has the right to compel the other
party to do or not to do something

 Timeous payments – the main contractor is entitled to be paid within the time stated in the
contract, failure to do that, enables him/her to be able to claim interest on late payment.
 Extensions of time – the main contractor can claim for an extension of time for completion in
accordance with the instances catered for in the contract. The usual test is whether or not the
particular act/ incident that will delay time for completion is within his or her control or not.
 Access to site – the main contractor has a right to access the site at which the works are to
be completed at the time stated and agreed in the contract agreement.
 Upon termination of the contract – the main contractor usually has the right to terminate the
contract should a material breach or a force majeure event occur.
 Appointment of subcontractors – the main contractor usually has the right to appoint sub-
contractors if not otherwise provided for in the contract, whom he/ she will be held
responsible and accountable for.
 RESPONSIBILITIES
These are obligations to do, or not to do something, for the party who has the right.

 Completing works – the main contractor has the responsibility to complete the
works within the time allocated in the contract agreement.
 Guarantees – in some instances, especially where the contract is a design-build or
EPC (Engineer, Procure and Construct), the main contractor will be required to
provide performance guarantees. This is a mitigation of risk strategy on the part of
the employer to ensure that if the works are not performed to the correct standard
or specifications, he or she will be covered accordingly. This will usually be priced in
by the contractor
 Insurances – the main contractor will in some instances be required to acquire
insurance for the works, site, its employees, materials, etc. This is to ensure that
risk remains mitigated at all times.
RESPONSIBILITIES contd
 Administrative procedures/ compliance with all applicable laws – the main contractor has to ensure
that the required licenses, permits and the like are obtained before, during and after the
construction works proceed. It is imperative for the contractor to obtain all licenses within the time
periods allocated in order to avoid situations where these issues lead to a delay in the
construction process and therefore a delay in the works.
 Response to communications – the main contractor has an obligation to respond to all communicat-
ions from the employer or his or her representative at all times during the subsistence of the works.
These might be variations, progress updates, suspension of works, access to site issues, delayed
payment notices, etc.
 Substantiation of claims – in the instance where the contract agreement makes provision for a
claim mechanism, unless otherwise stated in the contract agreement, the contractor must
substantiate such a claim in order to ensure swift settlement of such a payment.

• Subcontracts – main contractors should ensure that written agreements are entered into between
themselves and the subcontractors. This is to ensure that they are able to properly hold such
subcontractors liable should any issue arise.
 RISKS
These are the possibilities of something happening or not happening, which can result in additional liability arising for either or both parties. Risks can be absorbed, avoided, shared, transferred or mitigated under the terms of the contract. In this
way, they can be dealt with in a way that both parties are comfortable with and not caught off-guard, as long as they are not ignored or not considered at all.

Financial loss:
oErrors in calculations – the main contractor should ensure that measurements
regarding the works price are done completely and accurately. The contractor must
also include a contingency amount within the price for loss that could be suffered for
risks for which no additional compensation is allowed under the contract.
oPoor management – the main contractor should ensure that he or she manages the
project accordingly, especially when subcontractors are involved as this might lead to
dire financial consequences.
RISKS Contd
o Delays – the main contractor should also ensure that materials are delivered on time, licenses
obtained and that his or her employees perform the works timeously. Failure to do so will lead
to a situation where delays occur and depending on the wording of the contract the main
contractor might be subject to delay damages.
o Penalties – the main contractor should be aware of the fact that depending on the wording of
the contract, he or she might be liable for penalties should he or she fail to meet certain set
dates or fail to meet certain performance guarantees. It is important to note though, that if a
penalty applies, the employer does not have to prove that his or her loss stemming from the
breach is equal to the penalty, but may not claim further amounts from the contractor in
respect of the breach to which the penalty applies. In other words the contractor’s liability to
pay damages for the breach is limited to the amount of the penalty.
o Insolvency of employer – the main contractor is at risk of this occurring especially when the
employer is a private individual or small company. The main contractor can mitigate this risk
by acquiring bank guarantees from the employer guaranteeing performance (payment) of the
amounts owed. The main contractor must remember that he or she has a builder’s lien over
the constructed property which would stand against a claim for insolvency, provided that such
a contractor maintains possession of the works.
REFERENCES

• BOWMANS the value of Knowing. A Guide to Construction Contracts. www.bowmanslaw.com

Accessed 20th January, 2022.

• Turner D. (1983). Quantity Surveying Practice and Administration. (Third Edition). George

Godwin, London and New York.

 ASSIGNMENT

Discuss Disputes in construction and how to resolve

them
THANKS FOR
YOUR
ATTENT- ION