In the Name of Allah the Most Gracious the Most Merciful

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Introduction

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Spring Semester
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 Course
Objectives
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 Course objectives
▪ To give participants a broad introduction to the subject of
contract management in order to manage contractual issues
in the industry.

▪ To acquaint the course participants comprehensively and at

considerable depth with construction contract management
knowledge by using up-to-date literature and research on
highly interesting, challenging, and increasingly important
area of the construction industry.

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 Course objectives
▪ To promote networking between the CE&M participants and
the industry practitioners.
▪ To encourage CE&M participants in sharing their academic
and industrial experiences related to contractual matters of a
construction projects.

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Course
Outline
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 Course outline
Introduction
▪ Contract
▪ Contract Management
▪ Contract Management Functions

Procurement Methods
▪ Bid Method: Enlistment or registration of contractors,
prequalification of contractors, types of tenders, Pakistan
Engineering Council (PEC) bidding documents, opening of
tenders, scrutiny of tenders, tenders evaluation.
▪ Negotiated Method

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 Course outline
Project Delivery methods
▪ Traditional project delivery
▪ Non-traditional project delivery

Contracts for Construction

▪ Types of Construction Contracts: Lump-Sum Contracts, Unit-
Price Contracts, Cost-Plus-Fee Contracts, Guaranteed
Maximum Price Contract
▪ Contractual relationships
▪ Pakistan Engineering Council (PEC) Contract Documents
▪ Pakistan Standard Conditions of Contracts
▪ Special Conditions of Contracts
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 Course outline
Contracting Methods
▪ Design-Build
▪ Design-Build-Operate

Contract Disputes
▪ Reasons of Contract Disputes
▪ Clauses of Contract to Prevent Disputes

Dispute Resolution
▪ Methods of Dispute Resolution
▪ Mediation, Arbitration and Dispute Resolution Boards
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 Course outline
Contract Surety Bonds (Guarantees)
▪ Bid Bonds
▪ Performance Bonds
▪ Payment Bonds

Contractor Insurance
▪ Worker’s Compensation Insurance
▪ General Liability Insurance
▪ Equipment Insurance

International Contracting
▪ International Contracting
▪ Joint Ventures 11
Assessment of the CE&M
course participants
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 Assessment of CM Participants
(Distribution of Course Marks)

➢ 3-4 x Assignments 05%

➢ 7-8 x Quizzes 15%
➢ Midterm 30%
➢ End Semester Exam 50%

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 Recommended Course Books
(not limited to the following)

✓ Yates, J. K. (2010). Engineering and Construction Law and Contracts.

Prentice Hall

✓ Jimmie, H. (2000) Construction Contracts. 2nd Edition, McGraw-Hill

✓ Fisk, E. R. and Reynolds, W. D. (2010). Construction Project

Administration. 9th Edition, Prentice Hall.

✓ Murdoch, J. and Hughes, W. (2008). Construction Contract: Law and

Management, Spon Press.

✓ Uher, T. E. and Davenport, P. (2010). Fundamentals of Building Contract

Management. UNSW Press.

✓ Barrie and Paulson. (1992). Professional Construction Management:

Including C.M, Design-Construct, and General Contracting. McGraw-Hill.
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Contract Management Course

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Why do we need a contract... don't we
trust?

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 Why do we need a contract?
• Contracts provide a description of
responsibilities.
• Contracts bind parties to their duties.
• Contracts can establish a timeframe for duties.
• Contracts can secure payment.
• Contracts provide recourse when the
relationship weakens.

Now, doesn’t that sound better than dealing with the chaos
that can erupt when a handshake deal falls apart!
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 Contract v/s Trust
• Ensuring a well drawn contract is in place does
NOT create mistrust nor does it have to be
expensive, time consuming or complicated.
• Simply, it is the basis for TRUST: if all the
terms are written down in one place, there is
little room for misinterpretation.

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 Need of a contract for construction
works
• A number of construction projects, especially
works of smaller nature, may be
commissioned by an oral agreement or “on
the back of a cigarette packet”.
• However, despite this reluctance to document
arrangements, a written contract provides
certainty and if things do go wrong, it gives a
better chance of a successful claim.

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Need of a contract for construction
works

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 Need of a contract for construction
works
• The business world of construction industry is
structured by contractual relationships, and the
business aspects of construction require the
establishment of legally binding relationships
with a wide range of parties.
• In addition to the contractual relationship with
the owner/client, construction managers
supervise contracts with subcontractors, specialty
firms such as scheduling services, labor unions, as
well as equipment and materials vendors.
 Need of a contract for construction
works
• The Importance of Understanding Engineering and Construction Law
and Contracts
– It is crucial that engineers and constructors understand contracts, how
construction contracts are used in the engineering and construction
industry, and how the legal system interprets contracts because they are
the ones that will either write or interpret contracts for construction
projects.
– For example, default on a mortgage contract can help explain the
importance of understanding the terms of a contract. The consequences of
a default in a mortgage may not be limited to forfeiture of the down
payment and the property only. In case the property values less (during
auction) than the original value of the mortgage, the original owner of the
property may be legally liable for the difference. If the mortgage holder
incurs any legal costs during the resale of the property, the original owner
may also be liable for those costs.
– For other types of contracts, in case of a default, the non defaulting party
may be legally entitled to compensation to reimburse them for not fulfilling
the obligations under the contract.
 Need of a contract for construction
works
• How Contracts are Used in the Engineering and
Construction Industry
– Contracts are required to set forth the terms and conditions of
agreements, protect whoever is a party to a contract from being
taken advantage of by the other signatories to the contract, and
protect parties in case the other signatories to a contract default
on their legal obligations, as set forth in the contract.
– From a legal perspective, the party who understands the terms
and conditions of their contract has a better chance of
prevailing in a court of law should issues arise related to terms
of a contract.
– If a contract is fulfilled by all the parties to the contract, then the
terms and conditions of the contract are used only to specify
the requirements for performance of the contract.
– In case the contract is not successfully completed, then the
conditions of the contract are used to determine who is
responsible for a default.
 Need of a contract for construction
works
• Laws that Influence the Engineering and Construction
Professionals

– In addition to contract law, engineers and constructors have to

comply with labor laws, environmental laws, safety regulations and
others.

– Building codes (example: structural designing) also have to be

followed along with any local laws and ordinances that affect the
engineering and construction.

– Most engineering and construction firms either write their own

contracts or they purchase standard engineering and construction
contracts through professional organizations such as American
Institute of Architects (AIA), FIDIC (International Federation of
Consulting Engineers), etc.
 Project management phases

Feasibility Design Phase Development Closeout Operations

Can we do it? Implement it? Use it?

How to do it? Finalize it?

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 Construction, a complex and dynamic
phenomenon?
• The building industry is chaotic,
unpredictable, constantly changing and
becoming more complex every day.
• Here, decisions happen in a nonlinear way.
• The chaos of the industry needs to be looked
at from a legal and contractual point of view.

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 Construction is all about contracts
• The contract is the single most important
part of a construction project. It spells
out in detail all the possible scenarios
that may be encountered on a project.

• The contract defines the responsibilities

for each participant and the rights and
obligations associated with the parties.

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 Construction is all about contracts
• It comes as no surprise that when there is a
problem, everybody refers to the contract to
see how to handle it. While everybody wants
a fair or concise contract, this does not always
happen.

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 Agreement

• An agreement involves an exchange of promises

or goods.

• An agreement that is legally binding is a

‘contract’.
 What is a Contract!!
• Lawyers usually use the terms ‘agreement’ and
‘contract’ interchangeably.

• Lawyers often call an agreement that is not a contract a

‘void contract’.

• A contract made by spoken and not written words is an

‘oral contract’.

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 What is a Contract!!
• If Makhdoom Sb says to Malik Sb, ‘I will repair your house.
• Malik Sb makes no promise in return. No agreement
• If Malik Sb says, ‘I will pay you 1000 rupees, then there is still no
agreement. Why?
• An agreement involves an exchange of promises or goods.
• Makhdoom Sb has not yet agreed to accept 1000 rupees for doing
the work
• If Makhdoom Sb says, ‘I will accept 1000 rupees, there is
agreement on price, but is there a contract?
• Makhdoom Sb and Malik Sb must know exactly what work is
necessary, for example repair of a leak in the roof. In that event, the
actual work to be performed is agreed and there may be a contract.
• Unless there is agreement on all the essential terms, the law does
not recognize the existence of a contract.

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 What is a Contract!!
• Express and Implied Terms
– The contract is the sum of express and implied terms.

• The contract consists of following express terms:

▪ Makhdoom Sb will repair Malik Sb house
▪ Malik Sb will pay $1000
▪ Makhdoom Sb will accept $1000
• These terms are said to be ‘express’ because they
are the actual words written or spoken.
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 What is a Contract!!
• Implied Terms

– The contract also includes two types of ‘implied’ terms. An implied term is
one that ‘goes without saying’.
– The first type of implied term is implied from the circumstances — since
Makhdoom Sb and Malik Sb know exactly what repair work they are
referring to, the implied term is: ‘The work is the repair of the leak in the
roof’.
– The second category of implied term is implied by law. The law implies
certain terms in any contract in which the express terms do not cover the
matter. Some of the terms that the law would imply in this contract would
be:
• the work will be completed within a reasonable time
• payment will be made upon completion of the work
• the work will be done in a reasonably workmanlike manner
• Malik Sb will give Makhdoom Sb reasonable access to the roof to enable him to
carry out the work.
– Terms may also be implied by statute (law), for example health and safety
laws and prevailing labor laws.
 What is a Contract!!
Not all agreements are contracts:
• the agreement was not meant by the parties to create a
legal relationship (e.g. an agreement by a parent to buy a
child an ice-cream if the child behaves properly — it was
never envisaged by either party that breach would give
rise to a right to sue for damages)
• the promise of one party was made under duress (e.g. at
knife point)
• One party did not have a capacity to make a legally
binding bargain (e.g. a person under 18, someone
handicapped)
• the terms of the agreement are not sufficiently certain

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 What is a Contract!!
• Let us go back to the question ‘What is a
contract’
• What we want to know is whether Makhdoom Sb
and Malik Sb have a contract?
▪ Have Makhdoom Sb and Malik Sb actually
reached consensus on something?
▪ If so, have they agreed on all the essential
terms?
• If the answer to either is ‘No’ then there is almost
certainly not a contract

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 What is a Contract!!
• If the answer to both questions is ‘Yes’ then there
probably is a contract unless the answer to any of the
following questions is ‘No’
▪ Did Makhdoom Sb and Malik Sb intend to create
legal relations?
▪ Did both Makhdoom Sb and Malik Sb have legal
capacity?
▪ Was the agreement freely made (without duress)?
▪ Can the contract be performed without breaking
the law?
▪ Are the terms of the agreement certain?

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 What is a Contract!!
• A valid contract is an agreement made between
two or more parties whereby legal rights and
obligations are created which the law will
enforce.

• Contracts have no existence outside a legal

system. They are a product of the law.

• Restitution (compensation) is the restoring to

someone of something, or its value in money,
where the defendant (the person sued) has been
unjustly enriched.
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 Elements of Contract
1. There must be an intention to create a legal
relationship.
2. There must be offer and acceptance.
3. There must be valuable consideration.
4. The parties must have legal capacity to contract.
5. There must be a genuine consent by the parties.
6. The legality of the object of the agreement must
be ensured.
7. The terms of the contract must be sufficiently
certain.

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 Elements of Contract
1. Intention:
• The intention may be expressed or implied.
• If parties A and B enter into a contract whereby A agrees to
build a fence by B, then B would expect to be able to
recover damages if A refused to pay B when B had finished
the work. Both would expect the agreement to give rise to
legally enforceable obligations.
• But a person who failed to keep a dinner appointment
could not be sued for breach of contract even though the
host may have incurred considerable expense in
preparation.
• Quotation or Estimate!!

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 Elements of Contract
2. Offer and acceptance:
• An offer is a proposal by one party to enter into a legally
binding contract with another.
• If an agreement is to be legally enforceable, it must be
shown that an offer has been made and that such an offer
has in fact been accepted.
• There are so many matters to be agreed.
• It may be impossible to identify offer and acceptance.
• The execution of a formal written contract document
expressed to contain the whole agreement between the
parties.
• If both parties have signed a written contract, it is not
necessary to identify offer and acceptance.

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 Elements of Contract
3. Consideration:
• Consideration is something of value, which is
given by each party to the other at the time of
making the contract.
• Consideration is also referred to as the price paid
for the promise.
• A contract can only be binding on the parties if
there has been consideration given by each party
to the other.
• The consideration given must be possible of
performance
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 Elements of Contract
3. Consideration:
Example:
A contractor says that certain work is not part of the contract
and the contractor will not carry out the work unless the
principal agrees to pay extra. Assume that the principal does
agree to pay extra but the particular work is in fact not a
variation but work that the contractor was required to
perform for the original contract price. In that instance, the
contractor has provided nothing to the principal which the
contractor was not already bound to provide. The contractor
has provided no consideration to the principal in return for
the principal’s promise to pay extra.

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 Elements of Contract
3. Consideration:
How the client would respond to this issue?
The principal should be able to avoid the
‘contract’ to pay extra. The principal’s grounds
would be that the ‘contract’ to pay extra was
void for want of consideration.

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 Elements of Contract
4. Capacity of Parties:
• Contract is entered into with an intoxicated person, one
under the influence of drugs; Avoid the contract
• Bankrupts have a limited right to contract
• A person who enters into a contract in contravention of this
Division or who contracts to do work under a Contract that
does not comply with this Division:
(a) is not entitled to damages or any other remedy in
respect of a breach of the contract committed by another
party to the contract; but
(b) is liable for damages and subject to any other remedy in
respect of a breach of the contract committed by the
person

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 Elements of Contract
5. Consent of Parties:
• The parties have voluntarily consented to
make a legally binding agreement.
• An ‘agreement’ made at the point of gun is
made under duress and is not a contract.
• Duress need not be physical force.

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 Elements of Contract
5. Consent of Parties:
The plaintiff, a carrier, agreed with the defendant to deliver baskets to
Woolworths at PKR 100 per basket. The carrier discovered that the price
was uneconomic. When the carrier arrived at the defendant’s premises to
collect the baskets, the carrier brought a revised form of contract, which
had written on it a charge of PKR 450 per basket. The carrier said to the
defendant that if the defendant did not sign the new contract, the carrier
would not deliver the baskets. The defendant could have refused to sign
but it would have been difficult if not impossible to get another carrier in
time to deliver the baskets to the defendant’s customer, Woolworths, to
meet the delivery dates, which the defendant had agreed with
Woolworths. Had the defendant defaulted under the contract with
Woolworths, the defendant would have been in serious financial
difficulties. The carrier had the defendant ‘over a barrel’. The defendant
signed the new ‘contract’, but after the baskets had been delivered,
refused to pay more than the originally agreed PKR 100 per basket.

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 Elements of Contract
5. Consent of Parties:
What should be done with the carrier regarding
the difference in the contract amount?
The carrier sued for the difference between that
amount and the amount in the second ‘contract.

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 Elements of Contract
5. Consent of Parties:
• The court found that the defendant’s apparent
consent to the second contract was induced
by economic duress.
• Hence there was no second contract.

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 Elements of Contract
6. Legality of Object:
• Some contracts will be regarded at law as illegal.
• These include agreements to commit a crime or
tort, hinder justice, act immorally.
• The contractor has or will breach a law (e.g., a
provision of some act governing safety,
protection of the environment or other matter)
does not mean that the contract is void.
• The contractor may be prosecuted and may also
be in breach of contract, but the contract is not
illegal or unenforceable.
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 Elements of Contract
7. Certainty:
• There may be no contract unless the contract lacks
sufficient certainty and completeness.
• Example: a contract to build an office building for $1
million, without any agreement on the size, location or
anything else to identify better what is to be built for $1
million, would be void.
• A contract to do an unlimited quantity of work for a fixed
price would be void.
• The parties have not agreed on a time for doing something.
The law will imply a term that the obligation must be
performed within a reasonable time.
• Contract would be void if there is no limit on variations.

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 Oral and Written Contract
• Contracts do not have to be made in writing
or be evidenced in writing unless required by
the law.
• It is most imprudent (unwise) to rely on oral
contracts.
• The parties to a contract should make the
terms of the contract in writing.

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 Significance of a Written Contract
• A written contract usually supersedes all previous
agreements.
• A complete understanding of all the contract
conditions by both parties is essential.
• Once a written, signed contract is finalized the
law will attach full significance to it.
• The law requires that the contract must be
observed or the party breaching the contract
must pay any damages to other party.
• In case of Mistake in a written contract?

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 Order of Precedence - Documents
a) The contract agreement and
the Appendices
b) Notification of Award/ Letter
of Acceptance
c) Power of Attorney to sign the
Contract Documents
d) Letter of Price Bid and Price
Schedules submitted by the
Contractor
e) Letter of Technical and
Technical Proposal submitted
by the Contractor
f) Post Bid Correspondence and
Minutes of Meetings
g) Addenda and Bid
Clarifications
h) Special Conditions of
Contract
i) General Conditions of
Contract
j) Technical Specifications,
Technical Data Sheets and
Drawings
k) Other Completed Bidding
Forms
l) Any other documents part of
the Employer’s requirements
m) Any other document shall be
added here
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What is Contract Management?
 Contract Management

▪ Contract management is the process that enables parties to a contract to

meet their obligations in order to deliver the objectives required from the
contract.

▪ It also involves building a good working relationship between the parties.

▪ It continues throughout the life of a contract and involves managing

proactively to anticipate future needs as well as reacting to situations that
arise.
 Contract Management

▪ The central aim of contract management is to obtain the services as agreed

in the contract and achieve value for money.
This means
− optimizing the efficiency, effectiveness and economy of the service or
relationship described by the contract,
− balancing costs against risks and actively managing the relationship
between the parties.
▪ Contract management also involve aiming for continuous improvement in
performance over the life of the contract.
What are Contract Management Functions?
 Contract
Management
Functions

Service delivery Relationship Contract

management Management Administration
All three areas must be managed successfully if the arrangement is to be a success.
 Service delivery management

▪ The ability to measure the level of performance and quality and to provide
the feedback is critical to successful contract management.

▪ Service delivery management ensures that the service is being delivered as

agreed, to the required level of performance and quality.
 Relationship Management

▪ Contractual arrangements may commit the party(s) for some time and to
varying degrees of dependency.

▪ It is therefore important to make the relationship work effectively.

▪ Relationship management keeps the relationship between the parties open

and constructive, aiming to resolve or ease tensions and identify problems
early.
 Contract Administration

• While the changes will almost inevitably occur during the period of a contract
and managing these changes is a particularly important activity.

• Contract administration handles the formal governance of the contract and

changes (variations) to the contract.
 Fundamentals of Contract
Administration for Principals
• to appoint suitable consultants
• to define project scope
• to set the key project
objectives of cost, time and
quality
• to assist in formulating a
project brief
• to select the most appropriate
method of project delivery
• to ensure accuracy and
completeness of tender
documentation
• to avoid making changes to
the design
• to pay the contractor strictly in
accordance with the contract
• to resolve issues as early as
possible
• To be able to defend against a
potential claim from the
contractor
• to award a contract to the
contractor on fair and
equitable conditions of
contract
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 Fundamentals of Contract
Administration for Contractors
• to execute the project
strictly in accordance with
the contract conditions
• to award subcontracts on
fair and equitable
subcontract conditions
• to monitor and control
progress of subcontractors
• to minimize overall project
time, thus reducing site
overheads
• to allow sufficient time to
rearrange activities, acquire
additional resources
• to recommend to the
principal not to make any
changes to the design
• to document the actual
progress compared with a
program to identify areas of
progress loss
• to take immediate action on
contractor-caused problems
and immediately advise the
principal of other problems
• to manage extensions of
time and a prolongation of
overhead costs
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 Types of Contract
Bilateral Contracts:
• A bilateral contract is an
agreement between at least two
people or groups
• Offeror and Offeree exchange
promises to each other
• A contract is formed when
Offeree promises to perform
Example
• Purchase of items at your local
store
• Ordering a meal at a restaurant
• Receiving treatment from your
doctor
• Checking out a book at your
library
Unilateral Contracts:
• A unilateral contract involves an
action undertaken by one person
or group alone
• Offeror wants performance in
exchange for his promise
• Contract is formed when Offeree
performs
• Revocation of Offer: modern
view is that offer is irrevocable
once the Offeree substantially
performs
Example
• A reward of certain amount of
money on a lost item
• Contests, insurances and lotteries
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 Bilateral vs Unilateral contracts
• A bilateral contract is a promise for a promise;
if the offeree need only promise to perform,
the contract is bilateral

• A unilateral contract is a promise for an act; if

the offeree can accept only by complete
performance, the contract is unilateral

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 Contracts on the basis of formation
Express Contracts
• Contracts formed with the
words spoken or written, is
an express contract
Example
• A tells B on phone that he
wants to buy his car for PKR
1.0 million and B accepts
the offer on his phone, this
is an express contract
Implied Contracts:
• When the offer and
acceptance is made by acts
or conducts of the parties, it
is an implied contract
Example
• A coolie in uniform takes up
the luggage of B at railway
station and B allows him to
do so, then the law implies
that B will have to pay for
the services of A. This is an
implied contract.
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 Contracts on the basis of formation
Formal Contract Informal Contracts
A formal contract is a An informal business
contract where the parties contract is an agreement
have signed under seal, between two parties that
while an informal contract is has the intent of a formal
one not under seal. A seal contract without the seal of
can be any impression made a government agency or
upon the document by the witness. In other words, its a
parties to the contract. mutually agreed upon
Usually the contract is decision between two
formed by a greater parties not formally
authority, such a documented by an agency
government, or corporation or witness

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 Contracts on the basis of formation
Quasi Contracts
Quasi contract does not arise by virtue of an
agreement, but the law infers or recognizes these
contracts under special circumstances
Example
• A finder of a lost good is under the obligation to
find out the true owner and return the good
E- Contracts
• These contracts are entered into between the
parties using internet

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 Contracts on the basis of formation
Valid Contract
An agreement enforceable by law when all the essential
features of a valid contract are present
Voidable Contract
A contract becomes voidable when, for example, the
consent of one of the parties to the contract is not free
Example
• A threatens to shoot B if he does not sell his bike to A. B agrees.
This contract is voidable at the option of B
Void Contract
A void contract is a contract that has no legal effect at all.
• “A contract which ceases to be enforceable by law becomes void.”

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 Contracts on the basis of formation
Executed Contract
– A contract is said to be executed contract when both the parties to a contract
have performed their obligations
– Example
• When a bookseller sells a book on cash payment, it is an executed
contract because both the parties have done what they were supposed to
do in a contract
Executory Contract
– When either both the parties to a contract have still to perform their
share of obligation, then it is executory contract.
– Example
• A buys a car from B for PKR 1.0 million. Now, A has made the
payment but B has not transferred the contract, it is an executory
contract as the parties have to meet the obligation

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 Attributes of a good construction
contract
1. Is there such a thing as
a “good” construction
contract?
2. Can a “good” contract
increase the likelihood
of project success?
3. What are the
attributes of a “good”
construction contract?

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 Attributes of a good construction
contract
• The answers to the first
two questions are “YES”!
• A fitting analogy is that a
“good” construction
contract is like a well-
constructed ship—it will get
you safely through rough
water.
• Conversely, a “bad”
construction contract is
analogous to a poorly
constructed ship—in rough
water, it is likely to capsize,
resulting in disaster.

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 Attributes of a good construction
contract
• Project Delivery: Many delivery systems are available
to the parties (EPC, D/B, Cost Plus, Reimbursable, etc.).
Great care must be taken to select the project delivery
system that is best designed to meet the parties’ and
the project’s expressed needs.
• Well Integrated: Taking shortcuts to save time and/or
money should be avoided. It is an investment that will
pay big dividends later if problems or disputes arise.
• Language: The clauses and provisions should be
written in language that can be easily understood by
someone unfamiliar with the project (such as an
arbitrator or judge).

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 Attributes of a good construction
contract
• Mechanically sound: All of the provisions, clauses,
definitions and terms should be consistent throughout
the document.
• Scope of the work: The description of the scope of
work be as fully developed as possible so that
opportunities for differing interpretations and costly
disputes over contract details are avoided.
• Potential Problems: A good contract should consider
and address the many obstacles that may arise
throughout the project and clearly define the method
by which problems will be resolved.

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 Attributes of a good construction
contract
• Risk Allocation: It fairly allocates risk to the party
who is best positioned to anticipate and control
it.
• Dispute Resolution: Considerations must include
choice of law, choice of venue, choice of language
(for international contracts), whether the dispute
will be subject to litigation or arbitration, and
which party gets to choose the forum.
• Followed at Project Level: The ultimate value of a
good construction contract lies in how well it is
understood and followed by the project teams.

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 Importance of a written contract
• In many cases, parties will take one of the
standard forms of contract as a starting point.
• Such contracts will usually set out in some
detail
– the work to be done under the contract,
– the price to be paid or basis for calculating sums
due, and
– generally the rights and responsibilities of the
parties to the project.

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 Importance of a written contract
Clarity and certainty
• Perhaps the most important reason for having such a contract is to
try as far as possible to ensure clarity and certainty in the parties’
respective rights and obligations.
• In addition to the main responsibilities for design, fabrication and
the like, these will include such other obligations as provision of
performance guarantees and insurance against damage to the
works and injury to persons.
• The contract should also provide for as many of the circumstances
which might arise during a project as possible. These will typically
include
– Variations to the works; delay due to unforeseeable physical
conditions on site; delay due to adverse weather conditions; testing of
the works; and termination of the contract in the event of the default
or insolvency of a party, including the financial and other
consequences of such a termination.

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 Importance of a written contract
Procedures
• The construction contract should also provide the
parties with procedures to be followed in certain
cases or to obtain a certain result.
• For example, one important aspect of the
procedural side of contracts is that they set out
rules for the notification and processing of claims.
– Thus clause 20.1 of the FIDIC contracts provides that a
contractor must notify a claim within 28 days of the
time when he became aware or ought to have
become aware of the facts giving rise to the claim.9

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 Importance of a written contract
Risk Allocation
• A properly written construction contract will allocate the risk of
loss or damage occurring to the project clearly and completely,
so that each party knows precisely which risks he bears and
what the consequences are should a risk eventuate.
• These include the following:
– There are design-related risks. Does the design for critical parts of
the plant or structure, for example, achieve the performance
expected? Is it efficient and workable?
– There are risks associated with site investigations : geotechnical
investigations, for example, where tunnelling or extensive excavation
work is required.
• Only if risk is clearly and completely allocated will each party be
able to manage risk efficiently, taking steps to protect against
the consequences should the risk eventuate.

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 What should a properly written
construction contract cover?
• The terms of a construction contract should at least deal
clearly with the following areas:
– Identification of the parties to the contract: who (or what legal
entity) exactly is the contractor, and who (or what) the
employer?
– How is the employer to ensure that what is provided complie s
with the contract? Clear provision has to be made for inspection
of the works, before they are covered up and generally
throughout the project; for the rectification of defects, both
during the works and after they are taken over. Crucially,
provision needs to be made for suitable testing of the works, to
ensure that the performance and other requirements for the
structure are satisfied; and a clear procedure and timetable for
taking over and acceptance of the work by the employer must
be spelled out.

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 What should a properly written
construction contract cover?
• The terms of a construction contract should at least deal clearly
with the following areas:
– Whatever the contract, the time or times at which the contractor is
expected to complete must be defined. This will include the date of
commencement of the works or services; the requirements for the
programme (what it should show and how it is to be revised and
updated); provision for progress reports and monitoring of progress
throughout the project; the contract completion date for the work or
sections and the consequences of delay beyond that date for which no
extension of time is granted.
– Price and payment : the price and, more generally, the basis of
payment of the contractor (fixed price, remeasurement or other basis)
must be defined. The amount and timing of payments (on achieving
milestones in a payment schedule, for example, or monthly or other
periodic payments), and the procedures for applying for and obtaining
payments (employer to pay on engineer’s certificate, for example)
have to be defined; also the remedies available to the contractor for
delayed payment and his entitlement to advance payments.
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 What should a properly written
construction contract cover?
• The terms of a construction contract should at
least deal clearly with the following areas:
• Responsibility for damage to the works and injury to persons
needs to be defined, including obligations to insure; as does
intellectual property rights and ownership of plant,
equipment and materials used or intended for the works.
• Environmental and social matters need to be covered, such
as labour protection and compliance with local anti-pollution
regulations.
• The consequences of any failure to perform a party ’ s
obligations need to be spelled out. These include delay
damages but cover other defaults. The parties’ rights to
suspend the works or terminate the contract in the event of
default by the other (and also the availability of termination
or suspension by the employer for ‘convenience’, or
otherwise than for contractor default) need to be specified.
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 What should a properly written
construction contract cover?
• The terms of a construction contract should at least deal
clearly with the following areas:
– Security for performance of the parties’ obligations, including
retention and performance guarantees and bonds, needs to be
defined.
– The effect of ‘force majeure ’ or exceptional and overwhelming
events preventing performance for which neither party is
responsible should be defined. When can a party be excused
performance in such an event, for how long and with what
effect?
– So-called ‘ boilerplate ’ or standard clauses need to be
completed. These cover such matters as the governing law of
the contract, the agreed language of the contract and the notice
provisions of the contract (whether all notices need to be in
writing, for example, or whether they can be given by e-mail).

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 What should a properly written
construction contract cover?
• The terms of a construction contract should at least deal
clearly with the following areas:

– Also important are procedures for one or the other party to make a
claim against the other, and how claims may be determined when
made. How are disputes to be resolved; what steps, if any, need to be
taken before a formal and binding process, such as court or
arbitration, is resorted to?

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