PART 1: What does the contract say? Number one tip from litigators to avoid Construction Litigation

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Dispute Resolution Article

24 January, 2019

Construction litigation is costly, uncertain and high risk. It gets in the way of ongoing projects, places financial strain on contractors, and creates disruption in the timeframes of a build. Court Proceedings should be a last resort. Whereas the priority for all parties is to get the project completed on time and on budget, construction disputes have the potential to hinder each of those top lines, affect KPIs and can have a detrimental impact on relationships between the parties.

To avoid this happening, or minimise the risk of this, set your stall at the outset and follow our number one top tip:

Our number one tip: know what the contract says

The best advice we can give you is to:

  1. know what your contract says;
  2. if you are using a standard form JCT or NEC make maximum use of the potential modifications or if using a bespoke contract ensure it is properly drafted; and
  3. use the tools open to you as part of negotiations and general project management.

This may sound straightforward and obvious, but there are so many tools open to you as part of these standard documents, which are rarely utilised, and little consideration is given to the possible advantages they could give to you throughout a project.

It shouldn't need to be said… but make sure there is a contract in place and that it is signed by both parties. Too often, we are instructed to bring or defend a claim on behalf of a client where there is ambiguity around terms and/or no signed agreement in place. It should be the first thing in place when dealing with a construction project or sub-contracting job. Having no signed agreement makes the issue infinitely more complex and difficult to resolve.

What protection can be built into the contract?

The standard form JCT and NEC could be considered to be 'gentle'. In otherwords, they do not place stringent obligations on the Contractor. However, if used effectively incorporating modifications, they can swing the contract very much in favor of the Employer and are potential tools to avoid disputes arising or turning into litigation.

Delay and quality issues are often the biggest problems for construction projects and the cause of the majority of disputes. The possible modifications to protect against these issues include:

  • payment by stages where appropriate in order to incentivise progress;
  • liquidated and ascertained damages at reasonable amounts to disincentivise delays:
  • bonuses linked to attainment of KPIs to ensure quality and prevent delay;
  • suitable retention rates at high enough levels to impact upon the contractor should they not complete according to projections;
  • ensure suitable insurance levels are maintained and where appropriate your interest is noted on insurance policy;
  • collateral warranties in place to ensure we can pursue sub-contractors directly and have step-in rights to replace the contractor if need be (i.e. wish to terminate or contractor becomes insolvent);
  • make it a requirement for the contractor to take out a performance bond;
  • obtain parent company guarantees to prevent the contractor simply folding when going gets tough;
  • amend the dispute resolution clause to include, early negotiations (escalation JCT or early notification of disputes NEC) and provision for alternative dispute resolution.

Summary

Utilise the contract to your advantage from the word go, firstly by setting it up to work in your favour, know what is in the contract, follow it and utilise the tools within it to project manage the development and avoid disputes arising.

Our bonus tip is a practical one - keep good records, especially with regards to contract modifications and notices issued under contract!

For more information contact Stephen McArdle in our Dispute Resolution department via email or phone on 0333 207 1142. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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