Detailing the Terms of a Construction Contract

Construction Contract

1. What component parts are required for the formation of a contract?

There are four components which are essential for the formation of a contract. They are: Offer, Acceptance, Consideration and Intention to create legal relationship

2. What do we mean by terms of a contract?

The terms of a contract are the statements that describe the rights and obligations of each party to the agreement. Terms are all the matters agreed between the parties about what is to be done, how it will be done and under what circumstances.

Exactly what those terms are must be determined by the parties to the agreement. Terms are the elements of the contract. They are binding and carry legal consequences if they are broken.

They can be divided into two categories: Implied Terms & Expressed Terms.

• An express term is stated by the parties during negotiation or written in a contractual document.
• Implied terms are not stated but nevertheless form a provision of the contract.

3. Do all terms carry equal weight in law? If not what are the differing categories, and why is it important to categorise contract terms?

No, not all terms carry equal weight in law.

Lawyers divide contractual terms into ‘warranties’ and ‘conditions’. There might be a third type, the ‘inominate term’ (‘term without a name’)

Conditions are terms that go to the very root of a contract. Breach of these terms gives the right torepudiatethe contract, allowing the other party to discharge the contract.

A warrantyis less imperative than a condition, so the contract will survive a breach. Breach of either a condition or a warranty will give rise todamages.

Lord Diplock, inHong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, created the concept of an innominate term, breach of which may or may not go to the root of the contract depending upon the nature of the breach. Breach of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether legal benefit of the contract has been removed from the innocent party. Megaw LJ, in 1970, preferred the use of the classic categorizing into condition or warranty due tolegal certainty.This was interpreted by the House of Lords as merely restricting its application inReardon Smith Line Ltd. v Hansen-Tangen

Terms can also be implied by common law(in fact), statute, by custom or trade, course of dealings

4. What is the difference between expressed and implied terms? When are terms implied and what are the rules governing the inclusion of such terms?

• An express term is stated by the parties during negotiation or written in a contractual document.
• Implied terms are not stated but nevertheless form a provision of the contract.

The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.

Terms may be implied into contract through statutes or by the courts. When implied by statute, Parliament may well make certain terms compulsory, example: Sales of Goods Act 1979

When terms are implied by courts, the general rule is that they can be excluded by express provision in any agreement. The courts have developed an apparent distinction between terms implied “in fact” and those implied “in law”.

Terms implied “in fact” are said to arise when they are “strictly necessary” to give effect to the “reasonable expectations of the parties”.

Terms implied “in law” are confined to particular categories of contract, particularly employment contracts or contracts between landlords and tenants, as necessary incidents of the relationship.

5. What is meant when reference is made to a “standard form of contract”?

Standard Form Contracts are agreements that employ standardized, non-negotiated provisions, usually in preprinted forms. These are sometimes referred to as “boilerplate contracts,” “contracts of adhesion,” or “take it or leave it” contracts.

The terms, often portrayed in fine print, are drafted by or on behalf of one party to the transaction – the party with superior bargaining power who routinely engages in such transactions. With few exceptions, the terms are not negotiable by the consumer.

Examples of standard form contracts are insurance policies (where the insurer decides what it will and will not insure)

6. Is there an alternative to a “standard form of contract”?

There is an alternative to a standard form of contract, usually standard form of contracts can be modified, terms/clauses added/amended to suit a specific projects. Another form of contract is : Bespoke Contract

7. How many “standard form contracts” do you know about? Is there one type of standard form – or is there more than one?

There is more than one type of form of contract, namely:

• Joint Contractors Tribunal (JCT)
• New Engineering Contract (NEC)
• La Federation Internationale D’Ingenieurs-Conseils (FIDIC)
• Association of Consultant Architects (ACA Form of Contract; PPC 2000)
• Chartered Institute of Building (CIOB)
• GC/Works/1 Contract for building and civil engineering major works
• ICE 7 Conditions of Contract Measurement Version

8. Who publishes “standard form contracts” and how do you get one?

Professional Registered Bodies (ACA, ACE, BPF, CIC, FIDIC, GC/Works, ICE, ICC, IChemE, IMechE, JCT, NEC (NEC3), PPC (PPC2000), RIBA, and RICS) publishes the standard form of contracts and they are subject to copyrights.

You can buy hard copy and digital copies of the various standard forms from a number of external websites and specialist bookshops:

• ACA PPC2000. The PPC2000 may be bought from theACA’s website.
• ACA Standard Form of Agreement for the Appointment of an Architect. The SFA may be bought from theACA’s website. The 2012 version includes Construction Act 1996 amendments.
• ACE Agreements 2009. The ACE Agreements 2009 may be bought from theACE’s website.
• BPF Consultancy Agreement Version 2. The BPF’s Consultancy Agreement Version 2 is available to buy from the construction contracts section of theBPF website.
• Building Centre bookshop. The Building Centre bookshop stocks a variety of materials for the built environment, including a number of the standard form contracts published by the ACE, FIDIC, JCT, NEC and RICS. These are available to buyonline, or by visiting the bookshop on Store Street, London WC1E 7BT.
• Construction books direct. TheChartered Institute of Building’s(CIOB) online bookshop sells its own forms of contract, such as the CIOB Facilities Management Contract and CPC 2103, as well as other forms of contract.
• CIC Consultant’s Contract Package. The CIC’s Consultant’s Contract Package may be bought from the publication section of theCIC website. The second edition (November 2011) includes amendments prepared by the CIC to take account of the changes to the Construction Act 1996.
• FIDIC forms of contract. Copies of all of the FIDIC contracts may be bought from the bookshop on theFIDIC website.

TheFIDIC MDB Harmonised Edition (Pink Book)is available to download free of charge.

• GC/Works. The GC/Works suite of construction contracts may be bought from the Stationary Office’sonline bookshop.
• ICC conditions of contract. The Infrastructure Conditions of Contract (ICC) may be brought from theACE’s website. The amendment sheet for the payment provisions to comply with the Construction Act 1996 (as amended) is free to download from itswebsite.
• ICE conditions of contract. With effect from 1 August 2011, the ICE conditions of contract have been replaced by the Infrastructure Conditions of Contract (ICC). The ICE contracts have been withdrawn from sale. SeeICC conditions of contractabove.
• IChemE forms of engineering contract. The IChemE forms of engineering contract may be bought from the shop on theIChemE website. The amendment sheets to comply with the Construction Act 1996 (as amended) are free to download from itswebsite. However, note that these have now been incorporated into the 2013 versions of its contracts.
• IMechE/IET model forms of contract. The model forms of contract and their commentaries can be bought from the publishing section of theIET website.

MF/4 is available to download free of charge from theIMechE website.

• JCT standard forms of building contract. All of the JCT standard form building contracts and related contracts may be bought from the contracts section of theJCT website. Some amendments, updates and corrections may be free to download.
• NEC contracts. The NEC contracts are published by Thomas Telford, and may be bought from theNEC contracts website.
• RIBA bookshop. In addition to the RIBA professional forms of appointment, theRIBA bookshopstocks a range of publications on architecture, design and construction, a selection of standard form contracts (including GC/Works, JCT and NEC) and the building regulations. These are available to buy online, or may be bought by visiting one of the RIBA bookshops. The amendment sheets to comply with the Construction Act 1996 (as amended) are free to download from the RIBA bookshop.
• RICS bookshop. The RICS forms of appointment are available to RICS members to buy from the knowledge section (practice standards and guidance) of theRICS website. Alternatively, copies of the forms of appointment may be bought from theRICS bookshop.