Everyone involved in construction and engineering appreciates the effort involved in planning a project and choosing an appropriate procurement strategy. All too often that work is undermined by careless errors made when compiling the contract documents into a formal agreement. The resulting disputes can be expensive and time-consuming. Here are some tips for avoiding trouble:
Identify each party precisely. If a party is a company, refer to its company name, registered office and company number as listed at Companies House. This avoids future confusion, particularly if the company changes its name or is part of a group of companies that is subsequently reorganised. Incorrectly identifying a party may affect a contract’s enforceability. In addition, it can have serious consequences if the employer intends to use an offshore vehicle or a limited partnership for tax reasons.
Incorporate your schedule of amendments properly. For example, in the JCT forms this is usually done by amending the Articles of Agreement. In the NEC Engineering and Construction Contract, amendments should be included at Secondary Option Z of the contact.
Refer to the correct form of contract. For example, if the JCT 2005 Design and Build contract is being used, check that the preliminaries do not refer to the JCT 2005 Standard Building Contract With Quantities. Believe it or not, it happens surprisingly often!
Ensure the contract package includes all relevant documents. If the terms and conditions refer to a drawing in the employer’s requirements (ERs) or require details of a procedure to be spelt out in the ERs, check it is there. Ensure that any relevant third party requirements (e.g. planning obligations) are properly incorporated as contractual obligations, not merely attached without explanation.
Check that the contract documents reflect the contract particulars. The contract particulars apportion responsibility for important matters such as insurance. Make sure that other documents in the contract package do not contain inconsistent provisions.
Do not add correspondence to the contract package. This is often seen as an alternative to amending contract documents. It can cause confusion because a chain of correspondence may well be vague and imprecise and contain conflicting statements. If changes are agreed in post-tender negotiations, best practice demands that the contract documents are amended to reflect what has been agreed.
Be clear about novation and collateral warranty requirements. If they are required, ensure the contract contains:
· agreed forms of novation and collateral warranty; and
· express provisions for their execution when required by the employer.
The recent case of Galliford Try Infrastructure Ltd v Mott MacDonald Ltd and Rowen Structures Ltd [2008] EWHC 1570 (TCC) illustrates the dangers of failing to provide for novation in a design and build project (see PLC’s Practice note for more information).
Clarify the status of any documents provided by the employer. The employer may give the contractor reports, surveys, plans or drawings at tender stage. State expressly whether each:
· is part of the contract; and
· can be relied on by the contractor or is for information only.
Again, the Galliford Try case illustrates the dangers of leaving this unclear.
Communicate with others who are preparing contract documents. Contract documents should not be drafted in isolation. For example, the lawyer drafting the schedule of amendments should liaise with the professional preparing the preliminaries to ensure that they are consistent and reflect the intentions of the parties.
Ensure that documents are properly signed and dated. Where execution as a deed is required, check that the documents have been executed by authorised signatories in accordance with the constitution of the company or firm concerned. Arrange for ancillary documents to be initialled by the parties where appropriate.
One point to add to John’s list: check that all ancillary agreements to be executed at the same time as the construction contract are signed in the agreed format. It is easy to overlook any changes to documents such as parent company guarantees and bonds in the hectic period before executing the contract documents. However, these are valuable documents, often requiring negotiation with multiple parties.