CONSTRUCTION LAW

LAW 63804/QSB 4414

Melvin Lim – 0315772 Ng Ding Boon - 0319243

THE STANDARD FORM OF BUILDING CONTRACT

Seminar Presentation

Why are standard form of building contract used?

• Employers and Contractors understand their basic terms and obligations in their tenders or negotiations and thus focus on special terms and conditions

• Standard forms resulted in settled interpretation to standardize the expectation of the parties against a backdrop of custom, practices and processes.

• Contractors and their subcontractors can price their tenders more precisely and employers can have more consistent evaluation of a tender.

• Differences in commercial objectives: employers attempting to keep project expenditure within budget and contractor trying to recoup some of margins given away during tendering and negotiation or maximizing profits.

1.

• Recourse can follow precedents of commonly encountered problems

Purpose of Contract Documents

Expressed terms specifying how a contract is to be performed.

Sets out the respective obligations of each parties.

Provides parties like Architects and Quantity Surveyors to have administrative and certification roles.

2.

Contract Documents

1. Articles of Agreement.

• contain names of the contracting parties. • specify the price to be paid by the employer in consideration for the contractor's

execution and completion of the works• specify the period for completion of the works. • contain brief description of project and its location. • contain names of the consultants appointed for the project. • contain Preambles describing general obligations of the parties, definitions and

meanings of words.

3.

2. Conditions of Contract

• terms and conditions which regulate the contractual relationship between contracting parties.

• specify duties and rights of each parties. • address some of the likely events to happen during construction.

Contract Documents

4.

3. Contract Drawings

• Floor plans and elevation to specify how a project is to be built and their reference to the site.

• Contain architectural, structural, civil, mechanical and electrical, interior design, landscapes, facade, etc.

• Certain items in the drawings can be documented in the form of schedules.

• Enable contractor to estimate and price his tender.

Contract Documents

4. Bills of Quantities

• Refers to a quantified description of the extent of work item to be carried out by the contractor.

• Quantities of all work items in the project are summarized in the BQ.

• BQ are usually divided into 3 main sections, Preliminaries bill, trades bills and a schedule of provisional sums and PC sums.

5.

5. Schedule of Rates

• A schedule of rates is intended as a basis for adjusting the contract price where variations and extras have been ordered. It attempts to list as much as possible of the probable variation work which are likely to be encountered.

• The rates priced in the schedule of rates are often not subject to competitive pressures since it does not affect the priced tendered by a contractor and usually priced with higher margins.

Contract Documents

6.

6. Specifications

• Describes the work to be carried out in technical detail.

• Where specifications are intended to form a part of the contract, it should be expressly stated in the contract.

• No regulation or standard on drafting of specifications

• Mowlem v British Insulated Callenders Pension Trust (1978), where the bills required 'waterproofing concrete' but this was held insufficient to impose a design liability on the contractor.

• In PAM without quantities, the specification is the overriding description of the quality of the works required.

Contract Documents

7.

A simple and small building project can be classified as “ an entire contract”

An entire contract is which a party has to complete his entire obligations before the other party can pay for the total work done.

Hoenig v Isaacs (1952) : whether the entire performance is a condition precedent to payment depends on the true construction of contract.

8.

Condition of Construction Contract

Generally for mega projects, the contracts are not based on “entire contracts”.

As contractors has to price with more premium to cover the risks and financing costs in entire contracts.

However depending on situation, sometimes large construction companies with sufficient financial resources may to offer to fund the projects based on entire contracts.

Condition of Construction Contract

9.

Is to provide for contractor to be paid in regular intervals in accordance to the value of work

Each interim payment is usually preceded through valuation of work on site by Quantity surveyor at a particular point of time.

Architect then will issue progress payment certificate for the amount valued based on the valuation done by QS during site inspection. A certain percentage of amount will be deducted for retention sum as a security for defective works to be repaired.

Provision for Progress Payment

10.

Variation works refer to the change, add or deduct for the works described in the actual design drawings and specifications during tender stage.

When Architect has issued a variation order, it is compulsory for the contractor to comply with the work.

Provide flexibility of design for employer

Sometimes contractors may try to identify the potential variation works during tender stage so to bid the project with more competitive prices. In return, the contractors are aiming for a high recover from the compensation in variation works.

Provision for Variation Work

11.

Architect and Quantity Surveyor have to act independently when issuingcertificates.

in Sutcliffe v Thackrah [1974] AC 727, where the House of Lords acknowledged thata professional consultant had an implied duty to act impartially when decidingquestions between its client and the contractor. This means acting independently,honestly, fairly and without bias.

Provision for Certification

12.

States the amount to be paid to the contractor for the work done on site duringthat interval

Employer can challenge the certificate if works are over-valued.

First Catergory: Interim Certificate

13.

Second Catergory: Final Certificate

Issue after completion of works

It certify approval of works and the final payable sum to the contractor

In Kaye v. Hosier & Dickinson, the effect of the certificate was that the employerwas no longer entitled to contend that the works had been executed defectively.

Refers to certificate to record events for the purpose of contract conditions

Eg. Certificate of practical completion, Certificate of Non-Completion, Certificate ofMaking Good Defects.

Third Catergory: Other Certificates

14.

If the certificate is a condition precedent to payment, then contractor may recoverwithout a certificate if he can prove that the certifier or employer has actedimproperly.

However, Contractor has to prove:

1. If the certifier and employer have performed collusion

2. If the certifier has some interest or other factors which may influenced his mind andwhich is unknown to the contractor.

3. If the certifier has acted improperly in some way. In Hickman v. Roberts (1913), thecontractor was entitled to payment in the absence of a certificate because the architecthad allowed himself to be influenced by the employer.

Recovery without a Certificate

15.

THANK YOU