We’re excited to introduce a new series of short-form articles designed to support professionals working in construction-related fields.
These articles will focus on practical project and contract management by identifying key responsibilities, focus areas, strategy, and tactics to ensure effective contract administration, to pursue claims, or protect your company’s position against inflated and spurious claims by opposing parties.
Whether you’re managing claims, navigating contracts, or overseeing projects, our upcoming posts will share practical insights, real-world scenarios, and ideas to sharpen your skills and spark conversation across the industry.
Adhering to the terms and conditions in a Contract
A Contract is an enforceable agreement between two or more parties.
The purpose of any Contract is to establish legal rights, expectations, and obligations and set each party’s risk allocation. It must also detail how potential and unexpected events will be addressed. The Contract must also be representative of the intentions of the parties at the time of Contract execution.
It is imperative that all of your risks and obligations are addressed and nothing is left to chance. It is also worth noting that what is generally referred to as ‘the Contract or Contract Documents’ also incorporates the general terms and conditions, Special terms and conditions, the scope of work, and any specifications and technical documents.
1. Adhering To Contract Terms
Most construction Contracts contain many obligations on the entity responsible for executing the Work (the Contractor). The Owner, by contrast, typically has far fewer obligations.
Within a bespoke construction Contract, there can be thousands of Contractor obligations set out in the Contract Documents. In broad terms, these obligations cannot be contracted out of, ‘unless the parties agree.’
Some of the standard primary obligations that the Owner holds are to provide access (assumed to be unrestricted unless stated otherwise), permits, working space (related to access), the provision of engineering data or associated information, free issue of materials and equipment, and to provide payment following the agreed-upon conditions.
Failure to fulfill these obligations will lead to the submission of Changes or Claims. Full or partial entitlement may exist; however, the success of these demands depends almost entirely on the party that has consistently produced accurate, detailed, and factual contemporary records.
Contractors are typically obligated to provide progress reports and retain personnel dedicated to these activities. The contents of these reports may contain an early warning of potential claims – these should not be ignored; If not responded to, they may support a Contractor’s case in dispute resolution. The Owner should review and comment, as appropriate, on all Contractor reports and schedules, particularly where posturing or positioning is occurring in place of a factual account of progress.’ If the Owner elects not to review and respond, this may weaken any position to defend these Claims after the fact.
Both the Owner and Contractor should strive to maintain the most accurate records, ensuring they are detailed, factual and readily available to the project team. However, either side may seek to present the information that best positions itself to capitalize on a disproportionate value of changes and claims. These submissions may be exaggerated, inflated, and sometimes erroneous, or they may attempt to mask other parties’ caused planning or execution inefficiencies.
Ensuring both sides adhere to the obligations as set out in the Contract is paramount. Inconsistency on the part of the Owner may lead to excessive Changes or Claims and allegations by the Contractor of ‘the Contract being varied by conduct.’
Five key takeaways for Owners and Contractors (or Subcontractors working for Contractors)
Owners
- Ensure the Owners team reads, understands what Contractor writes in progress reports.
- If the Contractor has an obligation, enforce it or ensure the Contractor is adhering to the terms of the Contract.
- Analysis of the interim schedule updates are critical, responding regularly and consistently
- Insist on evidence which sets out the causal link for any Variation/Claim
- Be conscious of varying the Contract by conduct.
Contractor/ Subcontractor
- Keep detailed records
- Enforce Subcontractor obligations and administer the subcontracts rigorously.
- Ensure Subcontractor schedules conform to the terms of the Subcontract, responding regularly and consistently.
- Insist on evidence which sets out the causal link for any Variation/Claim. These may support submissions to the Owner or be critical in a formal dispute.
- Be conscious of varying the Subcontract by conduct.
Conclusion
Both parties have obligations under the Contract. The Owner should work diligently to consistently and strictly enforce contractual obligations under the Contract per its terms. Timely approval of Contractor submitted deliverables, coupled with timely issuance of the Owner-provided information, is vital to Claims prevention or avoidance.
Any delay in this regard may result in a demand for additional time, costs, and potential disruption, or an assertion that the Owner is negatively impacting the Contractor’s cash flow. Adherence to the timelines for document transmittals and timely responses between Owner and Contractor is a critical responsibility for each party.
