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Question #7
You asked, ‘How do you rate the importance of a Construction Contract in the entire Project Tendering & Execution Process?’
Our Answer:
Introduction
Objectively, I would rate the Construction Contract as the No. 1 importance in Project Design, Construction in the present Construction Industry, it is so important that it is practically the decisive factor in determining whether the Project could be profitable or suffer possible huge losses before you even start.
Let me elaborate further: Based on my experience in serving our various clients since January 2000 as Specialist Engineering, Project Management, Contracts & Claims Consultant, we have helped them in all kinds of Construction problems, ranging from design issues to site management & construction problems and to claims process, the most difficult issue is probably when the Client told us that they should not have concluded the contract with the other party in the first place. Believe me, this regret is a real torture for anyone involved, once the project is being concluded by both parties, you would be “stuck with it” until you have fulfilled all your contractual obligations, whether you like it or not. Well, one could choose to run away from it, but be prepared to pay the damages to compensate the losses of the other party under the Contract.
Matters concerning Contractors
For a Contractor, the reasons of regret could be as follows:
a. Under-pricing of any items ranging from permanent works to temporary works or access issues. b. Not knowing how to construct the Project before tendering & after the project is awarded to you, such as building a Tall Commercial Structure above the MRT Station / Tunnels. c. Have misunderstood the terms and conditions stated in the Tender Documents or Contract Documents. d. Have missed out certain important Specifications that are essential for the completion of the works. e. The Subcontractors that you engaged refuse to perform and you need to look for others who would charge you at higher rates. f. You have proposed an alternative design for construction, but you have under-priced it. g. Others.
Of course, when you have encountered any of the aforesaid problems, the best solution would be that the Employer agrees to pay you “the extras”. But you know fairly well that he may not able to help you as he could also have a tight budget and a 3rd party such as the Bank could be helping him to finance the project.
Matters concerning Employers / Developers
For an Employer / a Developer, the reasons of regret could be the following:
a. You have awarded the Project to the lowest price Contractor in tender, and he has failed / refused to perform. b. The Tender Documents or Contract Documents are “incomplete”, the Contractor is going to claim for the additional works as Variations and also Extension of Time to complete the Project and 3rd parties could not move in as scheduled. Thus they would be claiming from you damages in the form of loss of profits etc. c. The Contractor that you appointed for the Project becomes insolvent and you could not get another to complete the works based on the current project cost / rates. d. The External Consultants that you engaged produce construction drawings that do not tally with each other, the Contractor discovers the discrepancies and writes to you to resolve the conflicting construction issues, the project is delayed. e. Others.
What the Law says for some of these cases?
a) Pricing Errors
On occasions, a contractor may make mistake in computing the total tender price for a contract. Such mistakes may arise when the contractor failed to take into consideration important terms or conditions of Contract or any arithmetical errors.
In Riverplate Properties Ltd v Paul (1974) 2 All ER 656 (CA), it was held that in such a situation, the only way the acceptance and hence the ensuing contractual obligations could be invalidated is for the Contractor to show that, prior to the acceptance of the tender, the employer knew of the mistake and that the price in the contractor’s offer was in fact not intended by the contractor.
This onus is not lightly discharged. The mere discovery of errors by the employer or his consultant in the contractor’s pricing, per se, is usually considered insufficient for this purpose. To succeed, it is necessary to show that the subject error, in this case being arithmetical, goes to the root of the contract, in line with the general principles governing the effect of mistakes in contracts.
b) Claims Arising from Tendering Errors
In MV Gleeson Ltd v Sleaford UDC (1953) unreported, because of an oversight, contractors failed to price a substantial portion of one of the bills of quantities and tendered a contract sum which was too low. The court held that on a true construction of RIBA standard form (a predecessor of JCT standard form), there was no provision for the rectification of such errors in the bills, except where there is an omission of bill items. In this case, there was no omission of bill items on the facts, but only of the contract’s pricing of them. Accordingly, the contractors could not recover anything for the work in question.
Well, we will not discuss further any law cases here in order not to confuse you. The aforesaid is to highlight to you the importance in concluding a good Contract in a Construction Project.
How to resolve this issue if you are the Contractor?
Everyone knows that every Construction Contract concluded in Singapore is written in English. However, do you know that it is a well-known misconception by many “to assume that the English language that is used in the Construction Contract is the same as what we use every day in work”? If you think so similarly, then it would be a big mistake, and this mistake could cost you possible financial loss. We are telling you now to give you a gentle reminder, so that you would not lose your money for nothing.
The English Language that is used in a good Construction Contract is always drafted according to proper legal language which normally has a meaning for each word used. That meaning may not be that same meaning that you find in the English Dictionary.
The construction of each contractual clause normally comes with a meaning and it would be advisable for you to engage an experienced Contracts and Claims Consultant who is well versed in Construction Law and Engineering to help you to interpret the Contractual Terms and Conditions and ensure that all the necessary cost are being priced in your tender, all the qualifications inserted to protect you from unexpected obligations related to any part of the work so that all un-priced items would remain outside your scope of work, and should you be required to complete them when you are being awarded the Contract, you would be entitled to additional payment and extension of time.
The aforesaid is definitely a non-exhaustive answer and there are numerous other related matters that are concerned which we would not discuss here.
We have successfully helped many Contractors and Subcontractors with regards to such work at an affordable cost, you could contact us when you have such a need.
How to resolve this issue if you are the Employer?
The effects of badly drafted Contract are obvious: one would invite the Contractor to claim for work-done outside the ambit of the Contract concluded by both parties earlier as discussed. As such, no matter how hard you try, there is no way to evade the cost if you want him to construct that particular item outside the contract provisions, as he would be protected by Law if he has done that additional work. Now with the implementation of the Security of Payment Act 2004, the Employer / Developer would need to explain in the Payment Response to be issued to the Contractor why he is not paid for the amount claimed for each item. The law now protects him so that he would be paid equitably for work done.
There are also other complex considerations which I would not elaborate here.
You may engaged a Specialist Consultant who is well-verse in Engineering and Law to help you with the drafting of the Contract or help you to review your Contract after it was being drafted, before you call for Tender, to check, review and / or modify on the relevant technical specifications, drawings and contract clauses to ensure that no unexpected cost would arise during construction.
We have done many of such cases successfully with economical cost for Employers / Developers; you could contact us when you have such a need.
Conclusion
From the aforesaid, you understand that to proceed with a Construction Project is definitely a complex process and the Construction Contract is just a small portion of it, but it is the pivotal factor in determining if the project could be successful financially or a financial failure, you need to have a competent Professional who is good technically, contractually and also legally to help you, so that you could complete the project on time and to save cost. Thus we wish you all the best.
Drafted by: Er. Goh Cheow Leng Maria
First drafted on 10 September 2008. |
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To Contact us
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Telephone: +65 93384746 Fax: +65 62192358 Email: emmanuel.maria2000@yahoo.com.sg
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