Construction Contract Conditions Demystified
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Helps in understanding the interpretation or authoring of contract conditions. The 'Why' of most contract conditions can be understand by understanding the basics.
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Construction Contract Conditions Demystified
- 1. Construction Contract Conditions Demystified Understand the Basics Ravi Sankar @Rightvendors Navi Mumbai, India 06th Dec 2017
- 2. Definitions When you define a word in a contract, normal English meaning no longer applies to that word wherever it appears in the contract with first letter uppercase. Observe the usage of word Statement in a clause with ‘S’ in uppercase meaning it’s a defined word and one should refer to definitions for its meaning. Defined Word Usage of defined word with first letter in uppercase
- 3. Definitions Maintain uniformity while writing definitions ▪ Bold the defined word ▪ Put the defined word inside double quotation marks ▪ Maintain ‘means’ after the word and then the actual definition ▪ maintain alphabetical order for easy navigation
- 4. Risk Balancing One of the main objective of any contract document is to balance risks of both parties. ▪ Client’s risks ▪ Contractor’s risks ▪ Risks that can’t be estimated shall able covered by an insurance cover ▪ Risks that can’t be covered by insurance shall be in the client scope.
- 5. Risk Balancing - Client Risks Event ▪ Issue of Tender Risk ▪ Non receipt of sufficient offers may delay contract finalization Mitigation provision ▪ Send expression of interest (EOI) ▪ Levy Tender fee
- 6. Risk Balancing - Client Risks Event ▪ Performance or Default Risk ▪ Contractor not performing as per agreed conditions Mitigation provision ▪ ‘Performance Security’ valid until expiry of Defects Liability Period
- 7. Risk Balancing - Client Risks Event ▪ Advance Payment Risk ▪ Couldn’t recover the advance amount paid to contractor Mitigation provision ▪ Advance bank guarantee clause
- 8. Risk Balancing - Client Risks Event ▪ Schedule Delay Risk ▪ Delay in Project completion Mitigation provision ▪ Liquidated damages clause ▪ Define Start and End dates of contract unambigiously
- 9. Risk Balancing - Client Risks Event ▪ Tax payment Risk ▪ Contractor doesn’t pay taxes for which client may be held responsible Mitigation provision ▪ Clarify who pay what under taxation clause ▪ Make it mandatory to submit documentary evidence of tax payments along with monthly invoice
- 10. Risk Balancing - Client Risks Event ▪ Labour compliance Risk ▪ Client may be responsible as per local authorities to ensure compliance Mitigation provision ▪ Make it mandatory to submit documentary evidence of all labour payments and statutory compliances along with monthly invoice
- 11. Risk Balancing - Client Risks Event ▪ Remedying of defects Risk ▪ Defects realized after Taking over of the Works Mitigation provision ▪ Defects Liability Period
- 12. Risk Balancing - Client Risks Event ▪ Remedying of defects Risk ▪ Contractor not remedying the defects during Defects Liability Period Mitigation provision ▪ Retention money
- 13. Risk Balancing - Contractor Risks Event ▪ Payment Risk ▪ Delay in making payment by client Mitigation provision ▪ ‘Delayed Payment’ clause under Payment terms indicating interest payable for payment delay
- 14. Risk Balancing - Contractor Risks Event ▪ Client inputs Risk ▪ Delay in providing clarifications, approvals etc. in time Mitigation provision ▪ Time frame to provide response ▪ Provision for extension of time (EOT) for response delay
- 15. Risk Balancing - Contractor Risks Event ▪ Prolonged delay Risk ▪ Prolonged delay by Employer; Employer becomes bankrupt etc. Mitigation provision ▪ ‘Termination by Contractor’ detailing the events that can lead to Contractor exercising his right to Terminate.
- 16. Risk Balancing - Contractor Risks Event ▪ Disputes Risk ▪ Employer disputes Contractor’s entitlement. Mitigation provision ▪ ‘Dispute Adjudication Board’; ‘Amicable Settlement’ & ‘Arbitration’.
- 17. Risks that can’t be estimated by contractor: cover by insurance or shall be in the client scope. Activity Risk Clause to mitigate the risk 1 Injury / Damages Injury / damage to men, machine & materials Can be covered by taking insurance: YES Proper insurance clause specifying who buys what. 2 Damage to underground tools Damage to drilling tools that can’t be retrieved out for damage inspection. Can be covered by taking insurance: NO Compensation in the client scope 3 Material / manpower price increase Can be estimated by Contractor: NO Can be covered by taking insurance: NO Escalation clause. Cost impact in the client scope. 4 Changes in Legislation Can be estimated by Contractor: NO Can be covered by taking insurance: NO Compensation (both time and cost) in the client scope 5 Force Majeure events (other than floods) Can be estimated by Contractor: NO Can be covered by taking insurance: NO Compensation (both time and cost) in the client scope 6 Force Majeure events (floods) Can be estimated by Contractor: NO Can be covered by taking insurance: YES Compensation (only for time) in the client scope. Cost can be covered by insurance 7 Unforeseeable Physical conditions Can be estimated by Contractor: NO Can be covered by taking insurance: NO Compensation (both time and cost) in the client scope
- 18. Web: www.rightvendors.in Email: info@rightvendors.in Linkedin: www.linkedin.com/company/rightvendors/ Facebook: www.facebook.com/rightvendors/ A cloud based vendor management, vendor discovery and proposal management platform for making construction procurement easy.