Contracts in the Construction Sector – Why They’re so Important

Contracts in the Construction Sector – Why They’re so Important

21st November 2018

The construction industry is one of the most contract-rich industries we have – there can be so many parties involved in any given project, including:

  • Employers (those buying the construction work)
  • Professional consultants (the experts)
  • Contractors (those in charge of the works)
  • Sub-contractors (those who will be responsible for specific parts of the works)
  • Suppliers (this is where the materials and equipment come from)

Depending on the type of building project being undertaken, there are so many issues to be considered, including:

  • Design
  • Engineering
  • Building
  • Management
  • Warranties
  • Guarantees

This is a complex chain, so it’s vital that there is clarity throughout the process in order to avoid confusion and resolve any conflicts.  This is where contracts come in.

A construction contract is the contract between the employer and the contractors, used to define what has to be built (or done) and how.  There are standard forms available for construction companies, with a wide range of legal structures so it’s vital to choose the appropriate type of contract that will cover the size and characteristics of any given project so that it can be managed successfully.  Each structure allocates the activities, risks and remuneration in a construction contract in a different manner, so it’s essential that construction contractors fully comprehend what they are signing up to. 

The most important aspects of a construction contract (from which most disputes arise) are:

  • The definition of the scope – that is, exactly what needs to be done, and what happens if any changes are required or wanted during the process.
  • When the works are to be finished and what happens if they are finished on time.
  • When payments are due and what should happen if the payments are not made on time.
  • Technical specifications and quality and performance requirements – together with what happens should the agreed standards not be met.

These are issues that should be scrutinised closely in the contract itself and in the schedules that constructions contracts have to deal with all the technical issues required to build or refurbish a building or part of a building.  It’s vital to ensure that all these agreements are compatible and work well together both commercially and legally or technically to avoid disputes during the process and thereafter.

For larger contracts, it’s often the case that warranties for the performance and completion of the works will be required – the bigger the contract, the more relevant they are.  It’s also the case that more items may be added to the list of contracts ruling any construction project. 

The signing of contracts is the very beginning of any construction project and construction companies are reliant on good contract management in order to deliver on time and in budget.  This means monitoring what is happening to all of the contracts in a project along the way to ensure that everybody is complying with what has been agreed upon.  So many disputes in the construction industry today deal with issues in contract management.