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FEATURED
ARTICLE - BUILDING CONTRACTS
Foundations
for a successful contract
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When
landlords commit to building work to their properties
it is up to them to see that any contract clearly
defines what is required and what the cost of
this will be, advises Terry Corbitt.
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 A building contract is an agreement between two parties,
the landlord and a contractor, to undertake an agreed
amount of work, to an agreed standard and for a fixed
sum of money. There are common elements which every contract
should include:
• Provisions for every party to deal fairly with each
other and to mutually co-operate.
• A clear separation of the roles and responsibilities
of all involved.
• Established methods of payment.
• A clear description of the work to be carried out.
• An agreed timescale for start and completion.
• An adjudication system acceptable to all parties.
The traditional elements of building are: labour, materials,
capital and plant. The contractor will require all of
these to carry out the work.
From the point of view of the landlord there are three
basic considerations: cost, quality and time ¬ the
landlord wants the highest quality, at the lowest cost,
in the shortest time possible.
Completion of building works sometimes leads to disappointment
and dispute. This may arise due to a lack of understanding
between the landlord and the builder as to exactly what
work was to be carried out. The usual complaints are
that the work was shoddy, the builder took too long to
complete, and the builders' final price was unreasonable.
To avoid these problems a building contract should be
agreed before work is commenced. There are two types
of building contracts: informal and standard.
Many landlords order building work with little preparation.
The builder is called in, discusses the job with the
landlord. He then gives a quote, often a verbal one,
which the landlord accepts verbally.
To reduce disagreements the landlord should write out
exactly what is to be done and the builder should then
give a written quote.
The scope of the work may change as construction occurs
and in the absence of written terms, apart from a definition
of the works and the price, all else will depend on implied
terms. Terms may be implied into contracts for a number
of reasons. These include trade practice, previous dealings
of the parties, or the result of statute, for example
the Supply of Goods and Services Act 1982.
Building contracts are contracts for labour and materials.
Where there are no written terms the law has developed
a number of principles which affect their operation.
Contracts are usually lump sum contracts as opposed to
fixed price ones. The contractor agrees to carry out
the work for a lump sum, with the contract being an 'entire'
one. A contract is 'entire' if complete performance by
one party is a condition precedent to payment by the
other. If the contractor abandons the works before completion
he is not entitled to payment.
However this rule is mitigated in certain circumstances.
If the contractor has provided the landlord with a benefit,
the contractor is entitled to payment less the cost of
making good defects and omissions. In Hoenig v Issacs(1952)
the plaintiff was employed to carry out work for £750.
The payment terms were 'net cash as work proceeds; balance
on completion'. The defendant having paid £400
by instalments refused to pay the balance on the grounds
that the work was defective. The court decided that the
contract had been substantially performed with the defendant
liable to pay, less the cost of making good defects.
When a landlord does not employ an architect or structural
engineer but leaves this aspect to the builder, the law
requires that the builder provide a finished building
that is suitable for the purpose required. For example,
in the case of Greaves (Contractors) Limited v Baynham
Meikle & Partners (1975), Lord Denning ruled: 'Now
as between building owners and the contractor it is plain
that the owners made known to the contractors the purpose
for which the building was required so as to show that
they relied on the contractor’s skill and judgment’.
It was therefore the duty of the contractor to see that
the finished work was reasonably fit for the purpose
for which it knew it was required. It was not merely
an obligation to use reasonable care. The contractor
was obliged to ensure that the finished work was reasonably
fit for the purpose'.
 One thing that frustrates people having building work
carried out is the failure of the builder to complete
on time. Builders prefer to keep completion dates as
flexible as possible as this allows them time for any
problems that may arise. Some builders will work in spasms,
flooding the site with workers and then leaving it untouched
for a time. But this method of working can lead to work
not being carried out properly. A due diligence requirement
should be included in the building contract requiring
the contractor to plan the work coherently, use sufficient
labour and avoid stop-go practises. If a completion date
has not been agreed the contractor may only be required
to complete in a reasonable period of time.
Arguments between landlord and contractor over the quality
of workmanship and materials abound. The contractor has
an implied common law duty to carry out his work with
proper skill and care. Even when the landlord chooses
the source of materials the contractor will still be
liable for any defects in these. A contractor also has
a duty to warn the landlord that particular construction
techniques will not work, even where the landlord has
relied on other expert assistance such as an architect,
structural engineer or building surveyor to draw up plans.
For instance, an ostensibly competent builder could muster
no excuse which justifies reliance on a plan which showed
an obviously load bearing wall as non-load bearing.
In the absence of a specific exclusion by the landlord,
the contractor has specific implied obligations to avoid
the use of shoddy materials. First, materials must be
reasonably fit for their purpose and secondly, they must
be of good quality.
The Government is concerned about 'cowboy builders' and
because of this has introduced a self-certification scheme
- the Approved Contractor Person Scheme (Building Regulations).
Bodies such as CORGI and the Institute of Plumbers and
the Glass & Glazing Federation issue certificates
to their members. Under the scheme ‘Approved Contractor
Persons’ (ACPs) present a certificate to the local
authority that their work will comply with the building
regulations. Local Authorities are authorised by regulation
to accept these certificates as evidence that the regulations
are being complied with by the ACP presenting the certificate.
This provides a straightforward route for a competent
person to self-certify his or her work using a commissioning
certificate.
Construction defects can arise without there being negligence
on the builder's part. This was illustrated in the case
of Emson Eastern Limited (In Receivership) V EME Developments
Limited (1991) when Judge Newey QC said that, 'building
construction is not like the manufacture of goods in
a factory. The size of the project, site conditions,
use of many materials and employment of various types
of operatives make it virtually impossible to achieve
the same degree of perfection as can a manufacturer.
It must be rare for a new building to have every screw
and every brush of paint correct. Some work will be snagging
(minor defects) to complete post-completion'.
In England, Wales and Northern Ireland the Supply of
Goods and Services Act 1982 sets out in statutory form
certain implied terms which apply to informal building
contracts.
In a contract for the supply of a service where the supplier
is acting in the course of a business, there is an implied
term that the supplier will carry out the service with
reasonable care and skill.
What is reasonable will depend on the facts and circumstances
of each case; it is reasonable to expect a high level
of competency from one who presents him or herself as
having particular skills and qualifications. Liability
is strict, it is not enough that the supplier did his
best: he or she must produce a satisfactory result. For
example a repaired car must be capable of being driven
on the highway.
Where the time for completion of a service is fixed the
customer should expect the service to be completed on
the expressed date. Where the completion of the service
is not fixed there is an implied term that the supplier
will carry out the service in reasonable time.
There is also an implied term that the party contracting
for the service will pay a reasonable charge.
Although the majority of building contracts that a landlord
will enter into do not require a formal contract document,
the need for one will arise if a large renovation or
conversion is being undertaken. The construction industry
uses standard form construction contracts to define the
relationship between a contractor and a landlord.
There are two professional organisations, the Joint Contracts
Tribunal (JCT), an alliance of various construction industry
bodies and the Institute of Civil Engineers (ICE), each
of which produces a range of standard form contracts.
These contracts cater for different procurement methods
and projects of varying value and complexity.
Generally JCT contracts are for building works and ICE
contracts are for civil engineering ones. In this article
we will concentrate on JCT contracts.
Building contracts generally fall into one of two categories.
There are those where professional architects are responsible
for the design of the works. Here the contractor's responsibilities
are limited to workmanship and the quality of the materials
used. There are also contracts called ‘design and
build’ where the contractor also assumes responsibility
for the design of the works.
Where architects are responsible for the design of the
works, and assuming that those works are of some complexity
and not inconsiderable value, the main form of contract
used is JCT 98. This is a lump sum contract; the contractor
undertakes to complete the works, usually defined in
bills of quantities, for a lump sum, which is agreed
at the commencement of the project.
JCT 98 (Build and Design), is a design and build contract
and places more risk on the contractor. Design and build
is based on the ‘employer's (landlord's) requirements’,
which are issued with the invitation to tender. They
are intended to describe the work which the landlord
requires the contractor to carry out. The employer's
requirements may be fairly brief or can be extremely
detailed, tending to remove the contractor's discretion
to the design of the works. There are no guidelines on
the extent of detail required.
 The other key document is the ‘contractor's proposals’ which
is submitted by the
contractor with the tender submission and represent the
contractor's proposals for the design
and construction of the works in accordance with the
employer's requirements. The proposals should include
plans, elevations, layout drawings and specifications
of the materials to be used and workmanship to the extent
that these matters are not covered in the employer's
requirements.
The contractor's proposals must incorporate the sum the
contractor requires for carrying out the work necessary
to meet the employer's requirements. Under JCT 98 (Build
and Design), the contractor submits a lump sum together
with a contract sum analysis. This facilitates agreement
of additional costs resulting from any changes in the
employer's requirements ordered after the date of the
contract.
There is no provision in JCT 98 (Build and Design) for
the appointment of an architect to act independently
and impartially in the administration of the contract.
Instead, an employer's agent is appointed to act on the
landlord's behalf. The agent issues notices, consents,
instructions and so on, as required under the contract.
The employer's agent is often a quantity surveyor rather
than an architect.
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