Construction Disputes – Terms of Contracts

When a construction project commences, many parties do not clearly set out the terms of the agreement. This causes difficulties when things go wrong. Berry Smith regularly acts in construction disputes where the terms are unclear.

What are the terms of my contract? What if the contract is unsigned?

In an ideal world, both parties will have negotiated, agreed and signed the terms of a written contract to govern their agreement.

If a formal contract has not been agreed and signed, there will be uncertainty as to the precise terms of the contract. If the terms of the contract have been agreed orally, a Court or adjudicator would have to consider which party’s version of events it believes.

Even where the terms have been formed through text / WhatsApp messages or emails, the terms will have to be pieced together which can lead to disagreement.

There are commonly disputes where a contract has been proposed (sometimes even negotiated) but not signed. It will then be necessary to consider how the parties have conducted themselves through the project and decision maker will have to determine what it thinks the parties intended.

How can I remove uncertainty in a construction project?

In larger projects, it is common for parties to use a JCT contract. JCTs are a set of standard precedents for different types of project. They are comprehensive and address most issues which can be expected to occur in construction works. They usually involve a Contract Administrator who manages the contract.

A JCT will often entitle the parties to have their disputes dealt with by adjudication rather than Court. It is worth noting that, regardless of the terms of the contract, if both parties are companies legislation can imply terms relating to payment mechanisms and resolving disputes through adjudication.

If a formal contract is agreed, it is important to note how it has been signed. Breach of contract claims generally become time-barred 6 years from the date of the breach. If a document is executed as a deed, that period is extended up to 12 years from the date of the breach.

While parties wish to start works before finalising their contract, a letter of intent (LOI) can be used to govern the works in the meantime. In many cases, parties may not get around to finalising the contract and displacing the LOI. In such cases, the weight and effect given to the LOI will depend on its terms and how the parties have conducted themselves.

For many reasons, a project will involve variations as it develops. For example, to timeframes, costs, materials or works. To give certainty to the parties, these should be documented in as much detail as possible.

In the event of a dispute, under the Pre-action Protocol for Construction Disputes, both parties should clarify their position as to the terms of the contract before proceedings are commenced. It is advisable to discuss with your solicitor at this point, based on all of the information available throughout the project.