Construction Contracts - Manifestation Of Obligations And Liabilities

JCT Standard Form of Contract

Question:

Discuss about the Impact of Implementation of Internal Controls in an Organization.

A document which sets out the obligations of the parties to a construction project is known as known as a construction contract. A construction project consists of both contractual as well as tortious liabilities for the parties to it. It is in the best interest of the parties understand about the rights and obligations which they have in relation to a construction project so that any further dispute can be avoided. It is essential for the parties to ensure that they document all the rights and obligation which they have in relation to a construction project and oral agreements have to be avoided at all cost.  Parties to the construction projects can select a standard form of construction project for the purpose of carrying on with their operations. One of the best standard form of contracts which are used in the United Kingdom is the Joint Contract Tribunal (JCT) standard form of contract. This reports deals with a major construction project in relation to the construction of a flagship hotel in Springville and therefore the JCT Major Project Construction contract (MP) has been selected for the purpose (Hughes, Champion and Murdoch 2015).

The parties to the construction project also owe a duty of care towards each other to ensure that they are not subjected to undue losses or detriments and therefore they are also subjected to the obligations under the law of torts (Burr 2016). The paper discusses the contractual and tortious liabilities in a contraction project by discussing the impacts of major clauses in a construction contract in the light of relevant case laws and legislations.

This type of contract has been formulated for construction projects which operate on a large scale and which involve major work. Employers who procure large scale construction projects on a regular basis use this type of contract. on the other hand the contractors who have the ability to manage high risk which may be considerably less under other forms of JCT contracts and have experience in relation to large construction projects choose this type of contract. Projects which have been procured through the design and building method are best suitable under this form of contract. Therefore in the given situation the where Madeleine Li is planning a flagship hotel which is worth millions of pounds and the contractor selected for the project Monroe Construction (UK) Ltd (MCUK) is also a big company the JCT MP contract is best applicable.

Legal and Financial Liabilities

In this form of contract the contractor and the employer have in-house procedures which have been developed by themselves and therefore the contract conditions requires only limited procedures to be set out. As in this case the contractor is subjected to increased risks as compared to other forms of contract they along with the employer and subcontractors are efficient in undertaking projects which are commercially large (Williams et al. 2013).

The contractor under this contract has the responsibility of designing and the completion of the project. The extent to which the designing work is to be carried out by the contractor is subjected to variations. The contractor in this case may also be asked to complete the design based the concept which has been given by the employer or their advisors. In other cases the contract imposes a liability on the contractor to undertake the work starting from design till the contraction project is completed through the employment of sub-contractors or through their house teams.

Generally this type of contract has a novation agreement which allows the designer or architecture who worked with the employer initially to continue and complete the design under the responsibility of the contractor (Cartigny & Lord 2017).

There are various clauses in the JCT standard form contract however this part of the report only discusses about the most importance causes which can have a significant effect on the parties to the construction project in terms of legal and financial liabilities. The MP is divided into four sections which acts as helpful guidance which are the contract conditions, the contract particulars, the third party rights schedule and the pricing document (Eadie et al. 2013).

The contract conditions which are set out in section headed format so that similar clauses are kept together contains the primary terms of which the construction work is to be carried out such as time of completion, method of payments and contract variation clauses. The contract particulars which were formerly included in appendix set out all particular information which includes default option wherever applicable (Cooke and Williams 2013). The their party rights schedule sets out the terms in relation to the rights of the third parties and finally the pricing documents set out information required to allow the calculation of valuation of changes and the contract terms. The major areas where the parties need to be careful in relation to the contract includes scope of work, payments, price variation, time variation, project type variation, warranties and bonds, indemnification (Keane and Caletka 2015).

Novation Agreement

A variation order is an order under the construction contract for the purpose of altering the scope of work in a construction project by adding, substituting or omitting the original scope of work. Almost all large construction projects alter to some extent form the original scope of work. The change may however not be easy for the parties to the contract and therefore these in event of such orders the aggrieved party has to be compensated for any loss which have been incurred by them in relation to the change. Variation may also take place when the contract document does not contain specific work which need to be performed and in such cases the other party loses the right to claim any compensation. Therefore it is recommended that all such information is properly documented.  Variation can also be in relation to the time when the project is to be completed and in case the project is not completed in the provided time the aggrieved party may be entitled to compensation (Thomas and Wright 2016).

Indemnification clauses are incorporated by the parties to the contract so that the parties are not made liable beyond a set limit. Through these clauses the parties to the construction contract limit their liability to a certain extent and therefore cannot be held liable beyond the Set liability. As the MP has provisions for an indemnity clause the parties to the contract must be very careful while negotiating the close as at the time of any breach the wrongdoer may use such clause to limit the liability which may be detriment to the aggrieved party (Potts and Ankrah 2014).

The provisions in relation to how payments are to be made with respect to the construction contract had to be set out specifically and clearly through the terms of the contract. Large construction project may require periodic payment by the employer to the constructor and therefore the provisions in relation to search payment should be clear in order to avoid any dispute. Under the MP it is not allowed to incorporate a term into the contract according to which the payment for the contract would depend upon the performance of any other contractual obligation arising in some other contract (Adriaanse 2016)

The MP sets out provisions in relation to a statutory adjudication. No parties to the contract is allowed to add a clause into the contract through which only one party would be liable to pay the cost of the process until and unless it is provided by the arbitrator. Dedication has to be done mandatorily before the parties seek any other way of resolving the contractual dispute such as litigation (Tomlinson and Woodward 2014).

Variation Orders

Construction contracts in UK are covered the by Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act).  The provisions of Housing Grants, Construction and Regeneration Act 1996 have been significantly amended by the new legislation. Which was applicable on most of the construction contracts in the United Kingdom since 1998. The new legislation contents fallback provisions in situation where the construction contract expressly does not contain terms in relation to payments and adjudication. The legislation was a result of constant demand from the interested party with respect to enhancing the perceived weakness in construction projects which fall into mainly two provisions of payment and adjudications. One of the most significant changes in relation to the act has been section 107 which expressly provided that for the act to be applicable the construction contracts have to be in writing which excluded those contracts which were not in writing and subjected search parties to detriment. The new legislation no longer makes it mandatory for a construction contract to be in writing in order for that to be applicable. In the case of Bridgeway Construction Ltd v Tolent Construction Ltd [2000] CILL 1662  it was held by the court that construction contracts can have a Tolent clause in which the cost of adjudication would be borne by the party who has referred the dispute graduation. The provisions was present to prevent a party from referring a dispute to adjudication the new legislation to Section 108 prevents the use of the tolent clause and render any such clause ineffective in relation to construction contracts until and unless power is provided to the adjudicator to allocate the cost of the proceedings. The legislation introduces provisions of statutory at dedication which means that it is binding on the parties to the construction contract until they try to resolve the dispute through the process of litigation.

The new legislation also address is the issue of incorrect ruling by introducing “slip rule” which enables the adjudicator to correct typographical of clerical error in a decision. The previous legislation supported the pay-when-paid clause however the new legislation sets out provisions to invalidate the use of such clause. The rule had been discussed in the case of Midland Expressway Ltd v Carillion Construction Ltd [2005] EWHC 2963 with the court describe the process pay-when-certified, however under the new legislation the payment provisions in a construction contract cannot be linked to the provisions of any other contract until and unless there is an agreement between the parties for doing the construction operation through another party rather than one of the parties to the contract. According to the case of Cavendish Square Holdings BV v Talal El Makdessi and ParkingEye Limited v Beavis [2015] UKSC 67 a penalty clause in a construction contract is added to prevent the other party to the contract from breaching and provisions however the real damages are still assessed from the actual loss which has been faced by the aggrieved party to the contract. In the case of MT Hojgaard A/S v EON Climate and Renewables UK Robin Rigg East Limited [2015] EWCA Civ 407 it was ruled by the court that where a contract has an absolute warranty it is the liability of the contractor to achieve a specific result even in case he had complied with specific design guidance where the absolute warranty in the contract is clear and consistent with the other provisions of the contract in the case of SSE Generation Ltd v Hochtief Solutions AG [2015] CSOH 92 it was held by the court that it is necessary for the parties to take into account the impact and purpose of any necessary joint names insurance in the initial stages of the contract and set out in the contract weather the policy is a substitute to any contractual liability or they exist together.

Indemnification

The import of a number of professionals are required in most of construction project where is of the professionals have a different role to play in the project starting from designs till the project is completed. Each professional for the duty of skill and care towards the other party. In addition the input of non-professional such as building contractors are also required for the purpose of successfully completing the project (Walker 2015). There are significant risk associated in the construction project which may lead to damages due to the negligence of those who are involved in the project. Who has been at fault in relation to the damages with respect to the input of professionals and non-professionals complicate the argument further. Negligence cases in the construction industry can result in significant damages and therefore the parties to the project have to be very careful in the way in which they carry out the operation. In addition they must always have and insurance in place to mitigate the risk of any negligence which has been committed by their agents. The Architects who has the role of designing the whole construction project would be considered negligent failed objective test and are not able to deploy the skill and diligence which a reasonable professional architect would have done in the same situation. These Architects automatically over duty of care towards the employer and the constructor according to the principles laid down in the landmark case of Donoghue v Stevenson 1932 AC 522. According to the principles of this case any person whose action can cause harm to the other was the duty of care towards each other person. The “but for test” is also applied in the construction industry to ensure that the elements of negligence have been fulfilled. The test is used to determine the last element of negligence which is causation. According to the test if the damages would have not been caused if the negligent Act was not in place then the person owing the duty of care is not liable for negligence. Terms in relation to negligence in construction project must be incorporated into construction contract so that the liability of the parties to the project is clear from the outset. However it is to be noted that under the law of negligence in UK a person is not allowed to add an exclusion clause in the contract with respect to the liability of negligence. Therefore construction contracts and only have exclusion clause in relation to contractual liability but not for the liability of negligence by the parties involved in the project (Brook 2016).

Conclusion

From the above discussion it can be concluded that construction projects in the United Kingdom are governed by common law horse contract and negligence as well as specific legislations enacted by the parliament. For the purpose of carrying out any major construction work which is to be done in this case one of the most suitable form of standard contracts is the JCT major project contract. The contract provides flexible clauses which can be determined by the parties to it. However the clauses cannot be of such a nature where they are contrary to any existing common law or legislative provisions. Therefore Madeleine Li have to take into consideration the above discussed provisions in relation to construction projects to carry out the operations of the new hotel in Springvill

References

Adriaanse, M.J., 2016. Construction contract law. Palgrave Macmillan.

Bridgeway Construction Ltd v Tolent Construction Ltd [2000] CILL 1662 

Brook, M., 2016. Estimating and tendering for construction work. Taylor & Francis.

Burr, A. ed., 2016. Delay and disruption in construction contracts. CRC Press.

by Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act)

Cartigny, T., & Lord, W. (2017). Defining social value in the UK construction industry. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law, 170(3), 107-114.

Cavendish Square Holdings BV v Talal El Makdessi

Cooke, B. and Williams, P., 2013. Construction planning, programming and control. John Wiley & Sons.

Donoghue v Stevenson 1932 AC 522

Eadie, R., Browne, M., Odeyinka, H., McKeown, C., & McNiff, S. (2013). BIM implementation throughout the UK construction project lifecycle: An analysis. Automation in Construction, 36, 145-151.

Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and management. Routledge.

Keane, P.J. and Caletka, A.F., 2015. Delay analysis in construction contracts. John Wiley & Sons.

Midland Expressway Ltd v Carillion Construction Ltd [2005] EWHC 2963

MT Hojgaard A/S v EON Climate and Renewables UK Robin Rigg East Limited [2015] EWCA Civ 407

 ParkingEye Limited v Beavis [2015] UKSC 67

Potts, K. and Ankrah, N., 2014. Construction cost management: learning from case studies. Routledge.

SSE Generation Ltd v Hochtief Solutions AG [2015] CSOH 92

Thomas, R.W. and Wright, M., 2016. Construction contract claims. Palgrave Macmillan.

Tomlinson, M. and Woodward, J., 2014. Pile design and construction practice. CRC Press.

Walker, A., 2015. Project management in construction. John Wiley & Sons.

Williams, T., Bouchlaghem, D., Loveday, D. and Law, C., 2013. Principal contractor involvement in post-occupancy evaluation in the UK construction industry. Facilities, 31(1/2), pp.39-55.