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5.5 Contracts


Contracts are agreements made between parties in order to get work done. The work might be the provision of materials such as gates, the provision of services such as legal advice, or the provision of a defined amount of work such as the construction of a building. The fundamental feature common to all contracts is that there is an exchange of something that someone wants (known as a benefit) for something that acts as payment or reward (the consideration).


Basic contract features

Contracts can vary in complexity to a huge extent from simple verbal agreements to large complex documents. There are however features common to any contract these are:

  • The contract contains rules of understanding that are called ‘Terms’
  • There is a desire to be bound by the ‘Terms’ by both parties
  • There is a ‘Benefit’
  • There is a 'Consideration' -most often a payment- in exchange for the provision of a benefit
  • A contract is triggered by an ‘Offer’ being made — this is often referred to as a ‘Tender’
  • The ‘Offer’ has to receive ‘Acceptance’

These then are the basic components of a contract but beyond these simple rules lies a minefield of complexity for the unwary or uninformed. Disputes between parties often occur because of a misunderstanding about one or other of the features. This is when problems start, which can often end up with legal actions in the law courts. For this reason it is generally advisable to employ specialists to assist in the preparation of proper legal documentation.


Forms of contract

Some types of contract are for similar kinds of work. Constructing roads and bridges is to all intents and purposes pretty much the same as far as the type of ‘terms’ required in order to administer the work. Over time, organisations have realised this and have developed sets of standard ‘terms’ that can be applied to many contracts of the same type. These types of documents are called ‘Standard Forms of Contract’ and are generally published by organisations that regularly deal with the administration of similar types of project. Organisations based in the UK who publish such standard forms include:

  • The Institute of Civil Engineers (ICE)Contracts
  • The Joint Contracts Tribunal (JCT)
  • General Conditions of Works 1
  • The Joint Council for Landscape Industries (JCLI)

Most of the above standard forms and many specially drafted contracts will define the following main terms:

  • The purpose of the works
  • Delegation of Authority — who has the legal responsibility for administering the contract
  • Terms of Payment and related matters
  • Method of Measurement
  • Contract Period — how long will work last
  • Liquidated Damages — these are penalties for not completing the project on time
  • Retention — money held back to ensure the satisfactory completion of the work
  • Insurances
  • Claims Procedures — the rules to be followed in the case of a dispute

Contracts can be the cause of much trouble and distress, but many problems can be avoided by the application of careful thought.


Some practical tips for the creation of a good contract

By all means employ a professional to help you procure a good price but remember that you are the client and therefore check that the following points are observed:

  • Sort out the details BEFORE signing a contract. Work as though litigation was anticipated and the process will provide a basis of understanding such that recourse to law should not be necessary.
  • AGREE all terms beforehand.
  • Go to tender on final design. Sending out a tender document based on draft designs will lead to changes and potential claims from the contractor.
  • Don’t embed conflicting terms in a contract document.
  • Remember that the more risk you try and unload on a contractor the more the price will increase and the greater the chances of disputes at a later stage. Try and sort out as many of the issues relating to variables such as ground conditions BEFORE going out to tender. This will ensure that all the people giving you a quotation will be calculating their price on the same basis. This is much fairer and gives a better chance of a lower price!
  • Don’t give the contractor too short a tender period. Clients and their designers try and make up time by shortening the tender period, but this is a common mistake. A contractor needs time to get quotes from suppliers and subcontractors. If you give insufficient time the result is that they are obliged to estimate rates. They will err on the side of caution and you won’t get the best price.
  • Don’t put too many contractors on tender list. Six is plenty to ensure a good market price. Too many contractors tendering may turn the process into a lottery. A good contractor may not be bothered to try under such rules of engagement. You may lose the potential both for a good price and a professional contractor.
  • Don’t set liquidated damages so high that they are disproportionate to the reward to the contractor. A small, low value contract will be priced high if the contractor thinks that there is a high risk of losing money through liquidated damages.

For more advice on contracts and approaching professionals please go to the Engaging professionals section.


Go to the next section - Financial issues


Useful links

Contract templates

I.C.E. contracts

J.C.T. contracts

J.C.L.I. contracts

Tendering

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