Assignment on construction contract laws
This is mainly the case due to the fact that apart from the readily known direct costs, there are many other shared costs such as the overheads that might be difficult to identify. In the course of the contract, a contractor is reimbursed for all defined costs less any disallowed costs. The target cost is adjusted progressively for any compensation events and/or inflation and at last, the final defined costs are compared with the target cots. In the event that the target cost exceeds the defined costs, the parties share the savings. In the same way, if the defined costs exceed the target costs, the additional costs are also shared among the parties. Lump sum contracts, on the other hand, as is the case for the FIDIC Red Book and JCT contracts, a single lump sum price is agreed upon for all the work before the works begin (JCT-2016 62).
The most notable drawback for this form of payment is that it apportions more risk to a contractor. The advantage to the employer is that they give him/her more certainty about the probable cost of the project compared to the target cost contracts. On the other hand, as a result of the uncertainties that typify this approach, the tendering process tends to be slower and hence more expensive. In this form of contract, the collaboration between the client and the contractor is less as well. The main issue is on the rights of the employer in the event the subcontractor fails to deliver what the employer expected in terms of standard, quality and workmanship. There are two types of subcontractors provided for in the standard forms of contract namely nominated and domestic subcontractors.
The nominated sub-contractors in this case refer to contractors who are chosen by the employer who then enter into a contract with the main contractor to perform the assigned work. The employer in this case will negotiate the commercial and legal aspects of the contract with the subcontractor who in return will enter into a subcontract with the main contractor. The terms of the sub-contract between the main contractor and the subcontractor are legally bound by the subcontractor’s agreement with the employer. 5 under the new Red Book for instance ascertainment and certification of loss and expense claims as well as granting of extension of time and certification of interim payment. Clause 3. 1 of the new Red Book provides that unless otherwise stated, the contract administrator acts on behalf of the employer.
In our case, he sees to it that the main contractor acts in the best interests of the employer. There are situations, for instance, provided for in JCT Standard Form of Building Contract where the main contractor may request for extension of time especially where a project has encountered delays directly linked to the nominated subcontractor. These changes should reflect all the forecasted delays as well as the compensation events. The compensation events are captured under clause 60. 1 for instance due to physical conditions (60. 1(12)), lack of access (60. 1(2) or a delay in acceptance (60. There is however an avenue for a contractor to claim extension of time. Sub-clause 8. 4 lists several grounds to seek such in line with sub-clause 20. Such a claim needs to be made within 28 days of one realizing that a delay might occur.
A contract administrator then follows a process captured in sub-clauses 20. Changes to a construction contract can be initiated by the owner, the contractor or the contract administrator. In most cases, however, they are owner-requested changes and tend to benefit the owner more. The contractors may be driven into performing work that is outside the contract’s scope without certainty that they are going to be compensated. It is for this reason that contractors should at all times take proactive steps to protect their interests by fully being aware of their rights and responsibilities as provided for in the contract. On the party that benefits most from such change, that would depend mostly on who initiates the change. e. the owner, the contractor and the contract administrator.
In a case of voluntary change, the project will move forward uninterrupted. This is however not usually the case as in most cases, such changes are involuntary. As a result, additional time is needed to complete the project. 2 and 5. 9 of the JCT contract draw attention to the changes brought about by the employer and the impact on other work respectively (JCT-2016 60). Such delays are also captured in FIDIC Red Book contracts as well and include denied/late access or possession, termination by the contractor, adverse physical conditions and errors in setting out information etc. in clauses 2. 12 and 4. This clause states that “the engineer (who is the contract administrator) is responsible for controlling and monitoring the construction process on behalf of the owner and so he has the rights to notify necessary changes about the quality and quantity of work to the contractor”.
Valuation of changes also is also done differently using the different standard forms of contracts. For NEC3, valuation is done at the moment the changes arise and at times in advance through forecasting. FIDIC and JCT contracts on the other hand value changes retrospectively. Clause 5. Other forms of insurance covers include the builder’s risk insurance, performance bond, contractor’s pollution policy as well as commercial automotive insurance. It is important to note that a third-party is normally not party to the contract of insurance and hence cannot claim against the insurer. JCT, NEC and FIDIC and other standard forms of contracts contain detailed provisions for property and liability insurance. Allocation of liability between parties is done under ECC core clause 8 titled ‘Risk and Insurance’ and ‘Liabilities and Insurance’ for NEC3 and NEC4 respectively.
Clause 80. Clause 21 on the other hand is on insurance against injury to persons and property whereas clause 22 in on the insurance of the works etc. JCT also provides for a special provision (JCT 21. 1) where it is established that there is a danger that a neighboring property may in any way experience damage due to the construction works (JCT minor works contract) (JCTInsurance). It is very important to ensure that one has the necessary insurance policies to cover the construction project against any unfortunate event. Question 7 Delay in the payments of work done on construction projects is a factor of considerable concern for contractors. Option C is a target contract with activity schedule. In this case, it is a cost-plus contract with a pain/gain share mechanism and the reference point being an agreed target cost built from an activity schedule.
In addition, the other option under NEC3 option D also referred to as target contract with bill of quantities. This one is similar to Option C only that its target cost is built up from the bill of quantities. Next, there is Option E, which is referred to as the cost reimbursable contract which as well is a cost-plus contract. Here, a set of conditions are set to lay out the circumstances under which the employer can claim the performance bond. Sub clause 4. 2 of the FIDIC standard contracts lists many such circumstances for instance when the employer has grounds to terminate the contract. Question 8 The goal of every construction project is to address all the issues in a contract document in such a way that all parties are satisfied.
That notwithstanding, contract disputes as well as other construction disagreements almost always arise. The parties are given a further 14 days to avail any further information to the adjudicator who then provides a decision and the reasons within 28 days. There is an option to extend these timelines if a consensus between the parties is reached. The NEC4 also introduced a new dispute resolution mechanism referred to as “Dispute Avoidance Board” (DAB). The dispute is for this reason first referred to the DAB before being taken for adjudication. In FIDIC contracts, clause 20 allows for the contractor to claim additional time and/or money should they feel that they have an entitlement pursuant to the contract of such a compensation. The mediator is appointed jointly by both parties (JCT-2016 81).
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