Managing Building and Engineering Contracts
In all modern construction and engineering projects, managing contracts has become crucial not only to the success of those projects but also to the maintenance of ongoing relationships between the parties.
Whilst major principals and contractors have at their disposal a dedicated contracts management department, smaller contractors rarely have that luxury and either take on the management of the contract themselves or assign it to an employee as part of their overall duties, usually secondary to their primary duties.
Contractors are notoriously ill-equipped to deal with complex contract management issues and regularly find themselves in overwhelming, stressful and costly situations where the principal is demanding compliance with certain provisions of the contract.
There are a number of important steps to take to ensure effective contract management including the following.
No two construction contracts are alike however, regardless of the size of the project all construction contracts are usually made up of the same elements. An understanding of the terms which go into a contract will greatly improve a contractors understanding of the contract as a whole, and will simplify the task of navigating through different contracts for various projects.
Before signing any contract, a contractor should carefully examine the provisions of the contract to identify any areas which could potentially be a source of dispute. Key provisions for consideration include the following.
Notices and Reporting
Major issues often arise where there is a requirement for an interaction between the contractor and principal such as clauses requiring notices, reports or audits.
Before a project starts, contractors should sit down with the principal to discuss processes and systems for managing the contract during the course of the project. Things such as
(a) how notices will be lodged and dealt with;
(b) how much time the principal wants for assessing notices;
(c) how quickly the contractor wants responses to notices.
Contractors should pay careful attention to the termination clauses in a contract. Not all termination clauses are equal. Some contracts allow termination for:
- any breach of a material term,
- any material breach of any term,
- any breach of any term.
Even to a non-lawyer it is evident from reading those clauses that the wording of the termination clause contained in the contract will have a significant impact on the consequences which will result from a breach of the contract. A termination clause that allows for termination as a result of any breach of any term is severe and onerous, and should be avoided at all costs.
The appointment of a Superintendent is another area of contention. A Superintendent’s role is to administer the contract impartially between the principal and the contractor, so as to achieve the contractual aim.
It is becoming increasingly common for the principal to appoint an employee as Superintendent. This practice increases the tension and room for argument between the principal and the contractor about the respective roles of the Superintendent both as superintendent and as contracts administrator for the principal.
This potential conflict is also highlighted where the Architect is appointed as Superintendent. The dual role of both the principal architect and Superintendent usually exposes vulnerability and often leads to conflict with the contractor.
Failure by principals to sufficiently reconcile the Superintendent’s powers and duties under the Superintendent’s contract with those under the construction contract has proved a major source of dispute on many construction projects. Courts have increasingly asserted the need for the Superintendent to exercise their duties impartially and to be independent when exercising those Superintendent duties.
Despite everyone’s best efforts there will inevitably be situations where discussions and collaboration will not resolve the problem, and in those situations it is important that contractors actively manage the contract so as to comply with their duties and enforce their rights.
Again the key is to be familiar with the provisions of the contract so as to be across not only the contractor’s duties and responsibilities, but also the duties and responsibility of the principal when things go wrong.
Principals will attempt to enforce legal remedies under the contract, and the contractor must be prepared to either comply with, or defend those demands in accordance with the provisions of the contract.
Managing the Contract
All of the pre-contract considerations can be a waste of time if the contract is not managed effectively during the project works.
Once a project commences, contractors should be encouraged to use the governance and administration provisions of the contract to their benefit. Regular meetings, reports, and audits should be approached positively rather than being treated as an inconvenience or chore. Through regular meetings and reports problems can be identified early and dealt with before they become a major issue, either for the contractor or the principal.
On any project problems will arise and there will always be faults on both sides. However open and honest discussion at an early stage, and continuing throughout the project, will identify those faults before they become a major issue and will allow for collaborative efforts to resolve those faults quickly and efficiently.
In summary, the key to managing any contract is to understand the contract and to be aware of the duties and responsibilities of all parties under the contract.
The next step is to invest time and effort into managing the contract, including establishing and maintaining proper, open and regular avenues of communication.
Do not let problems build or roll-on unresolved. Addressing problems as and when they come to light will usually result in the problem being resolved quickly and efficiently, before it becomes a major issue or has any significant impact on the project.
Finally, keep detailed and accurate records. If court proceedings do eventuate, those records are invaluable.
With proper communication and management, all parties in a construction project can achieve the desired outcome and maintain and build strong relationships which will endure from project to project.
Even the simplest contract can have provisions, or a lack of provisions, that can lead to adverse consequences so investing in professional advice to limit risk as far as possible is a prudent step for any contractor.