If you ask a developer what their key goals are in the build of a new
development, it usually boils down to a variation of “I want my building on time,
in budget and to specification”. Yet, it is an all too common scenario that the
construction of new premises does not go according to plan.
In light of weather conditions earlier in the year, it was not be too difficult to imagine a scenario where a development was in
delay because sustained high winds and rain meant the contractor could not get his crane off site or that storms had highlighted
that the installed windows were inadequate and needed to be replaced. If the contractor claimed additional time and money
under the contract for the crane and windows, would they be entitled to them? The answer is that it depends. Some important
considerations are:
Additional time
Additional time in the form of an
extension of time to the completion
date is important because it pushes
back the date from which liquidated
damages will run. Whether the delay
due to the crane and the windows is a
“contractor risk event” or “employer risk
event” depends upon the terms of the
contract. The lesson for the employer is
in the importance of careful negotiation
as to the events allowing the contractor
additional time as if the project does
become delayed, this negotiation could
determine an entitlement to liquidated
damages for that delay.
Additional money
Depending on the terms of the
contract, a contactor may be entitled
to additional time but not additional
money. Again, the lesson is careful
contract negotiation to place certain
events as “contractor risk events” to pass
the burden to the contractor. By doing
so, this could be the difference between
the project being on budget or over
budget.
Procurement
The form of building contract could
have a big impact on who is responsible
for events such as those set out
previously. In traditional procurement,
the design team is responsible for the
design and the contractor is responsible
for implementing the design. If the
windows were a design issue for which
the contractor had no responsibility,
they are likely to get both time and
money under the contract. This position
is different under design and build
procurement where the contractor
is often given total responsibility for
the design and
In design and build, it would not be unusual for the contractor to be denied time or money for the windows. However, as with all
contracts, it would depend on the negotiated terms. As well as considerations in relation to time, budget and specification, there
are other contractual issues unique to construction projects that cannot be ignored. Other considerations are:
Practical completion
Practical completion generally occurs
when the works are complete save
for snagging items. When practical
completion is achieved, the employer
can occupy the building, liquidated
damages stop running and the
contractor’s insurance obligations
usually end. Given the importance of
practical completion, it is surprising
that most standard form contracts do
not define ‘practical completion’ and
disputes around what it means and
what items are properly “snagging”
items are not uncommon. Accordingly,
our advice is to clearly define practical
completion in any form of building
contract.
Warranties & third party rights
In the event of defects in the
workmanship or design of the
development, it is important the
employer and its purchaser, lender or
tenant (as appropriate) has recourse
against the party responsible. This
is achieved through either collateral
warranties or third party rights and it
is important that the drafting of the
relevant contracts makes procuring
these documents possible.
Legislation and Regulation
Part II of the Housing Grants,
Construction and Regeneration Act
1996 (as amended) (“Act”) regulates
payment under construction contracts.
Parties to a contract can negotiate the
payment arrangements but cannot
opt out of the payment rules under the
Act. Our advice is therefore that you
comply or you could find yourself on the
losing side of a payment dispute. The
Construction (Design and Management)
Regulations 2015 represents an
important change to health and safety
in construction projects and enhances
the role of the ‘client’ and the impact
their decisions have on health and
safety.
Our advice is therefore that you
familiarise yourself with your obligations
under these regulations and make
suitable arrangements for managing the
project.
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