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About this book

This comprehensive and popular textbook aims to bridge the gap between theoretical study and practical application. It covers the essentials of construction contracts, including how the law has developed, the reasoning behind key clauses and how contract law is applied in practice, and it helps to make the transition from student to practitioner manageable.

This text is intended for all undergraduates studying a construction contract law or a contract administration module or unit. It is ideal for postgraduate degrees in quantity surveying and building surveying, construction project management, and construction management. Civil engineers and students of architecture and architectural technology will find it provides a comprehensive guide to the law in the construction context. It is also very comprehensive in scope and provides sufficient materials to bridge the gap between the student and professional texts.

Table of Contents

1. The Nature of Construction Contracts

Abstract
A variety of factors make a construction contract different from most other types of contracts. These include the length of the project, its complexity and its size, and the fact that the price agreed and the amount of work done may change as it proceeds. As a result, the allocation of these risks is a very important part of the contract since these factors always result in additional costs being incurred. This inevitably raises the question of who should pay or bear these extra costs.The structure may be a new building on virgin ground. It may involve the demolition of an existing building and its full reconstruction. It could involve partial demolition and rebuilding, or the refurbishment and extension of an existing building or structure. This may be mostly below ground (in which case it is engineering) or above ground (in which case it is building). Building, however, includes foundations and other underground works. A building contract can consist of activities and services carried out both above and below ground level.
John Adriaanse

2. Outline of the Law of Obligations

Abstract
The purpose of this chapter is to provide an introduction to the ‘law of obligations’ that forms one of the essential themes of this book. As Lord Steyn observed in Banque Financiere, de la Cité v. Parc (Battersea) Ltd [1999] 1 AC 221, unjust enrichment ranks next to contract and tort as part of the law of obligations. It is an independent source of rights and obligations. Its interrelationship and application are demonstrated by J Jarvis & Sons Ltd v. Castle Wharf Developments Ltd and ors [2001] EWCA 19. For completeness, an analysis of the evolving area of good faith is included. Put shortly, should the law of obligations be underpinned by an overriding principle of good faith? The adoption of such a concept was proposed for all construction contracts by the Latham Report, and subsequently incorporated in some standard forms. See, for example, clause 10.1 of the NEC3, ICC clause 6.1 and JCT 11.
John Adriaanse

3. The Formation of Construction Contracts

Abstract
The Supreme Court in RTS Flexible Systems Ltd v. Molkerei Alois Muller Gmbh & Company KG (UK Production) [2010] UKSC 14 was faced with the question often posed in cases brought to the TCC. This is whether there was a contract between the parties and if so, what were the terms of that contract? In VHE Construction Plc v. Alfred McAlpine Construction Ltd [1997] EWHC Technology 370, HHJ Bowsher QC remarked that this question [was] ‘probably the most frequent issue raised in the construction industry. On projects involving thousands and sometimes millions of pounds, when a dispute arises about payment, the first issue very often is to decide whether there was a contract and if so what were the terms of the contract, if any.’ It is not only in construction that this question has to be decided. Cooke J in the Commercial Court in Glencore Energy UK Ltd v. Cirrus Oil Services Ltd [2014] EWHC 87 (Comm) observed that the principles to be applied in deciding whether or not a contract had been concluded by emails between the parties were those laid down by the Supreme Court in RTS. So did Air Studios (Lyndhurst) Ltd (t/a Air Entertainment Group) v. Lombard North Central Plc [2012] EWHC 3162 (QB), where the issue was whether a contract for the sale of secondhand electronic equipment was made by email. Stuart-Smith J also applied RTS in Purton (t/a Richwood Interiors) v. Kilker Projects Ltd [2015] EWHC 2624 (TCC).
John Adriaanse

4. Consideration

Abstract
Consideration in construction contracts may appear at first an unlikely topic to require detailed discussion. After all, such contracts, whether they are made between commercial companies or between a householder and a builder, usually involve the outlay of significant sums of money. This would suggest that consideration and the intention to create legal relations are always likely to be present. This perception is not entirely accurate, however. The doctrine of consideration is of major importance in construction contracts. This is the inevitable consequence of a number of factors likely to be present, such as the length of the contractual chain stretching beyond the parties to their subcontractors and suppliers. In addition, the system of competitive bidding means that one party may well underprice the cost of the work, or the price of the work escalates beyond its control, thus raising the possibility that one party may wish to renegotiate the agreement. Such contracts are often made for the benefit of third parties, and thus it is inevitable that the rights of third parties will be involved at some stage. Lord Dunedin approved, in Dunlop Pneumatic Tyre Co Ltd v. Selfridges and Co Ltd [1915] AC 847, the definition provided by Pollock (1936, p. 133). Consideration is ‘an act of forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable’. Chitty considers that the doctrine is there to provide legal limits on the enforceability of agreements, even when they are meant to be legally binding. Such a valid agreement can only be vitiated by mistake, misrepresentation, duress or illegality (Beale, 1999, p. 167).
John Adriaanse

5. The Role of the Architect and the Engineer

Abstract
In the traditional contract the employer appoints a construction professional – either an architect or an engineer (A/E) – to carry out the design. In addition, these professionals will also be involved in making applications for planning permission, preparing the tender documents, the selection of a tenderer and (where they act as an appointed agent of the employer) carrying out the task of inspecting and approving the works on behalf of the employer. Quantity surveyors (QS) also carry out this role. The standard forms of contract therefore regulate in great detail the powers of construction professionals in administering the contract. Quantity surveyors will also be appointed separately to prepare cost estimates and carry out the valuation of work to be certified. They also act as project managers (PM) and contract administrators (CA). Increasingly, project managers are appointed to oversee the whole process on behalf of the employer. The NEC3 contract makes specific provision for the employment of the PM. The Project Management Institute was unsuccessful in seeking judicial review of the decision to recommend to the Privy Council the award of chartered status to the Association for Project Management. It sought unsuccessfully to challenge that decision in The Project Management Institute, R (On the Application Of) v. The Minister for the Cabinet Office & ors [2016] EWCA Civ 21.
John Adriaanse

6. The Main Obligations of the Contractor

Abstract
Parties to construction contracts use the words ‘terms’ and ‘conditions’ interchangeably. For example, the standard forms use the word ‘conditions’ to describe the obligations and duties of parties to the contract. Similarly, an invitation to tender may be accompanied by the ‘terms and conditions’ of the offeror. English legal language was once Latin, then French and finally English. The result is that English law sometimes uses the Latin and the French word to mean the same thing in legal language. This is why ‘terms and conditions’ are used together when they mean the same thing. There are a number of ways of classifying terms. For ease of explanation, this book considers construction contracts as containing three types of terms. These are express terms, implied terms and statutory terms. Where the parties employ professional advisers, the construction contract will usually be made using a standard form of contract. Norman Rice, in ‘Producing a standard form’ (1984, p. 257), considered that: The [then] JCT 1980 Standard Form is a series of compromises which none of the parties concerned is likely to regard as satisfactory but if the result is looked at objectively and as a whole, it should represent a fair balance between conflicting interests.
John Adriaanse

7. The Main Obligations of the Employer

Abstract
The primary obligation of the employer is to pay for the work carried out by the contractor. All standard forms of contract now incorporate the provisions of the HGCRA 96 (part II) as amended. All contracts covered by the statute are required to make provision for interim payments where the contract period exceeds 42 days. An example of the incorporation of such a provision is shown by clause 4.10.1 of JCT 11. The architect/contract administrator (A/CA) has to issue interim certificates stating the amount due, what it relates to and how such an amount was calculated. Clause 4.12.1 states that the final date for payment of such a certificate shall be 14 days from date of issue. Five days before the expiry of the 14 days the employer may, by written notice, specify any deduction to be made, giving the reason and the amount (4.13.1). In addition to payment, the employer has further obligations arising out of the nature of construction contracts. In order to complete the contract, the contractor requires the cooperation of the employer. This duty itself can be divided into two aspects which are contrary, in the sense that they are both positive and negative. The positive aspect of the duty requires that where the contractor is to do a piece of work that requires the employer’s cooperation, it will be forthcoming. See Luxor (Eastbourne) Ltd v. Cooper [1941] 1 All ER 33 where such a term was implied into the contract. Furthermore, the employer will do all things necessary on its part to bring about completion of the contract.
John Adriaanse

8. Time and Provisions for Delay

Abstract
Where parties to a contract want to ensure its completion or performance by a certain date, it is usual to expressly specify this in the contract, for English law regards time itself as not of the essence in a contract. Where the parties have not specified a completion date, or the time for performance has passed, a party may well argue for an implied term that the contract should be performed within a reasonable time. It is then a question of construction for the court, bearing in mind the subject matter and its importance to the contract as a whole, whether time is indeed of the essence. In a variety of contracts, the courts have held that the requirement that time is of the essence should be applied to the respective obligations of both parties (examples are between (a) buyer and seller, (b) ship owner and charterer, (c) purchaser and vendor and (d) contractor and owner). Time is normally of the essence where: (a) the parties expressly provide in their contract for it to be so: see Peak Construction ( Liverpool) Ltd v. McKinney Foundation Ltd (1970) 1 BLR 111, discussed below (b) the innocent party gives notice to the delaying party that unless performance is made in a reasonable time, it will regard the contract as at an end: see Charles Rickard Ltd v. Openheim [1950] 1 KB 616
John Adriaanse

9. Variations and the Right to Payment

Abstract
Construction contracts make detailed provision for the employer to extend the time for completion of the work. The need to extend the construction period arises from either (a) events external to the contract or (b) because changes in design or the construction method are required. These may arise as a consequence of extra work needed to accommodate changes made or required on behalf of the employer. For such a provision to be effective it must permit a variation of the work itself rather than the contract, since the basic rule at common law is that one party cannot unilaterally vary a contract. As Akenhead J observed in Supablast (Nationwide) Ltd v. Story Rail Ltd [2010] BLR 211 at para 29: ‘One must bear in mind that variations, that is additional, altered, substituted or omitted works, are very common and almost invariably feature in payment disputes between construction contract parties…’ The effect on the contract of external events depends on whether the parties have made provision for them. Thus events (called ‘excepted risks’ or ‘specified perils’) such as fire, strikes, shortages, riot, invasion, rebellion, terrorism and war are dealt with expressly in the standard forms of contract. See clause 22(2) of ICE 7th (ICC) and JCT 11 clauses 1.1 and 6.8. There is also a category called force majeure (e.g., see clause 2.29.13 of JCT 11) but its meaning in English law is unclear. Keating (Furst and Ramsey, 2012, p. 893) considers the words to have a restricted meaning because matters such as war, strikes, fire and bad weather are dealt with elsewhere in the standard forms.
John Adriaanse

10. Payment and Certification

Abstract
The main obligation of the employer is to pay the contractor for work and material supplied, and the contractor to pay its subcontractor and suppliers. It used to be said that the contractor’s right to payment depended on the wording of the contract, and that within the limits of legality the parties were free to make arrangements they chose. These could be grouped under three broad heads (Keating, 2012, p. 104), as further explained below: 1 A lump sum contract (the right to payment only arises after the work has been properly carried out). 2 An express contract other than a lump sum (common under the standard form contracts which make provision for interim payments as work proceeds). 3 A claim for a reasonable sum frequently called quantum meruit. This arises in two situations: (a) either under an informal contract where it is classified as a ‘contractual’ quantum meruit: see Clarke (2002) in Chapter 3, pp. 69–75. (b) or where a variation is made outside the contract: for an example see Costain (1996) in Chapter 3, pp. 71–2.
John Adriaanse

11. Subcontracting

Abstract
Although the construction contract is made between the employer and the contractor, subcontractors will usually do most of the work. As Lloyd J said in Birse Construction Ltd v. Eastern Telegraph Co Ltd [2004] EWHC 2512 (2004): on virtually all building contracts of any magnitude, the role of the contractor is to use his management know-how not only to procure the requisite skills but also to know whether and to what extent they are being provided adequately to meet the requirements of the contract. So despite this book being about the contract between employer and the contractor, most if not all of the legal principles apply to the contractor and subcontractor relationship as well. After all, it is still a construction contract. One difference is that as a general rule, the contractor always remains liable for the work carried out by its subcontractors (i.e., liable for the defaults of the subcontractor). For an example of such a contractual provision see Carillion Construction Ltd v. Woods Bagot Europe Ltd & ors [2016] EWHC 905 (TCC). The main contract contained four sections each with its own provision for liquidated damages. The two subcontracts required the payment of loss and/or expense for delay. In the standard forms of contract this has been held to be the same as damages under the first limb of the rule in Hadley v. Baxandale. When additional work was ordered and delay ensued it needed the help of the court to decide what the parties had agreed. The contractor was protecting its own interests. In Linklaters (Chapter 6), the subcontractor paid a heavy price for not protecting its own interest.
John Adriaanse

12. Supply Contracts

Abstract
Whether the construction contract is of the traditional type or a more modern variation, there will be many other contracts to support the construction activities. This chapter concentrates on the supply of goods and related issues of quality, title and exclusion or limiting clauses in those contracts. As discussed in Chapter 1, a construction contract is one for the supply of work and material. Until 1954 it was important to distinguish between a contract for work and materials and one for the sale of goods. Up to that time section 4 of the Sale of Goods Act 1893 required written evidence or part-performance of contracts of £10 or more. The Law Reform (Enforcement of Contracts) Act 1954 repealed this section in contracts. There is still a practical difference between these categories of contracts. The distinction matters where title to goods used in the construction of buildings is disputed. This is reflected in the case of Dawber Williams v. Humberside CC (1979) 14 BLR 70. The subcontractor supplied roofing tiles under a supply and fix contract. The contractor had been paid for the tiles but had not in turn paid the subcontractor. Subsequently the contractor went bankrupt. The tiles were stored on-site but had not yet been fixed. The employer refused to allow the subcontractor access to the site in order to remove them. It later paid other contractors to fix the tiles. When the employer was sued by the subcontractor, it was held that it had no title to the tiles. In fixing them to the roof it was liable to the subcontractor in conversion (a tort) and had to pay for the value of goods used.
John Adriaanse

13. Design Liability of Professionals and Contractors

Abstract
English law distinguishes between those who contract to supply a product and those who provide a service. In the case of the former, there is a duty to provide a product that is reasonably fit for its intended purpose; in the latter, the duty is only to take reasonable care in providing the service. Since Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145 it has been clear that this duty can arise both in contract and in tort. The 1970s saw a rapid expansion in tortious liability, starting with the case of Dutton and culminating in Murphy in 1990 (these cases are discussed in greater detail in Chapter 14). The effect of cases such as D&F Estates and Murphy (see below) has been to reinforce the primary distinction between the law of contract and the law of tort. In Esso Petroleum Co. v. Mardon [1976] 2 WLR 583, the Court of Appeal held that where the same set of facts amounted to a breach of contract and a tort, the plaintiff could choose in which action to frame a claim. This produced a number of advantages to prospective claimants. A major one is that the limitation period in tort is longer, since a tort action can be brought when the limitation period in contract has expired. An example of such a case is Pirelli General Cable Works Ltd v. Oscar Faber and Partners [1983] 2 AC 1. A chimney had been constructed at the plaintiff’s factory and was completed in 1970.
John Adriaanse

14. Liabilities Post-Completion

Abstract
The background to this topic is that commercial and often residential buildings are rarely constructed for the sole use of the employer under the construction contract. The employer may, for example, be a building developer, a public body, a speculative builder or housing co-operative. For this reason, allocating responsibility for latent defects that occur post-completion is of major importance when selling or leasing the completed building or development. How long should a building last? At the heart of the problem of post-completion liabilities in England is the resolution of this question. What if, after completion, the building should fail in some way? Who should be responsible for the costs of making good those defects? There are a number of problems that stand in the way: 1 The caveat emptor rule – let the purchaser beware. For the sale of goods, this rule has been abolished. A purchaser of a defective commercial building is subject to the rule and normally has no rights against the seller. It has to have the building surveyed to reassure itself that there are no hidden defects in it. Rights do exist for dwelling houses under the Defective Premises Act 1972. Section 1(1) provides that a person taking on work for, or in connection with, the provision of a dwelling owes a duty to the person ordering the work and to any person acquiring an interest in the dwelling. The duty is to see that the work is done in a workmanlike or ‘professional manner’, with proper materials, and that the house should be fit for human habitation: see Chapter 6. Note that JCT 11 in clause 2.19.2 limits liability for the design of the contractor under the Act to that of a professional.
John Adriaanse

15. Determination and Damages

Abstract
Standard forms of contract make provision for the paying of damages where one party is in breach. This may be a provision for the payment of liquidated damages (LD) for delay in completing the work. In Phillips Hong Kong (1993, see Chapter 8), the Privy Council observed that ‘in building contracts … parties should know with reasonable certainty what their liability is under the contract’. In turn the employer may undertake to pay for any loss and expense arising from its own delay. Despite these sort of provisions, the usual remedy for breach of contract is the payment of damages, which is monetary compensation intended to put the injured party in the position it would have been in had the contract been carried out. There are situations where damages would not be an adequate remedy. In such a case the court may order the equitable remedies of an order for specific performance or the grant of an injunction. Such remedies are discretionary compared with the common law remedy of damages. Injunctions were at one time not easily granted in construction contracts: see, for example, Hounslow BC v. Twickenham Gardens Development Ltd [1970] 3 All ER 326. The contractor refused to vacate the site on the determination of its employment under the contract by the employer. The court in turn refused an application for the grant of an injunction ordering the contractor to do so. However, in Bath and Somerset (discussed below), the Court of Appeal refused an appeal by the contractor after an injunction was granted against it. It supported the right of the employer to employ other contractors to enter the site and fix defective works. In today’s commercial climate an injunction is easier to obtain than in the past especially in cases to do with adjudication.
John Adriaanse

16. Methods of Dispute Resolution

Abstract
The Housing Grants Construction and Regeneration Act 1996 (HGCRA 96) part II, as amended by the Local Democracy, Economic Development and Construction Act 2009, altered fundamentally the resolution of construction disputes. The legislation is called the HGCRA 96 as amended from here on. It made it easier and less costly to challenge the other party where a dispute had arisen. In many instances, the dispute arises when one party makes an application for payment and the other disputes the value of the work carried out. Among the recommendations of the Latham Report was that tenders should be evaluated on quality and price and so limit arguments about it. A trawl through the public procurement cases show that evaluating criteria can be a double-edged sword. The nature of disputes Disputes arise during a construction project for many reasons. These include whether the parties have a contract, the standard of workmanship, the quality of materials, applications for extensions of time not being granted, claims for direct loss and/or expense being rejected, contractor delay and subsequent deduction of liquidated damages (LD), applications for payment and sometimes the meaning of contractual terms. The variety and scope of disputes in adjudication is much wider as the statutory definition of a construction contract includes professional contracts for services. Despite this observation, disputes are primarily triggered by applications for payment or a lack of payment.
John Adriaanse
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