Minimising the risk of construction disputes – setting off on the right foot

construction disputes
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Construction projects can be a breeding ground for disputes. If you want to improve your prospects if things do go pear-shaped, there are some key points to watch out for at the outset when you enter your contract. Rowan Turrall summarises them below.

Who are you contracting with?

It may seem obvious to say you need to get the parties’ names right, but be pedantic. If you don’t get paid, or want to bring a claim for defective workmanship, you need to know who it is you are going to pursue.

If one of the parties is a company, use the full name of the company as it appears on the Companies House website, including ‘Limited’, ‘PLC’ etc as appropriate. Don’t just use a trading name or abbreviation. Including the company number also helps to avoid confusion if the company later changes its name.

Use the full name of sole traders and not just a trading name, for example Mr Smith t/a Smith’s Builders.

Make sure all parties are included. Is the employer a husband and wife, for example? If so, both names should be used, otherwise the rights and liabilities will only vest in one of them.

A lot of company filings can now be obtained free from the Companies House website to assist with checking company names and latest filed accounts.

Are you including a liquidated damages provision?

If you’re using a standard form with a liquidated damages (LADs) provision, make sure you understand the implications of the provision being triggered when agreeing the amount to include in the contract.

In simple terms, if a party is in breach of contract and it has caused the other party loss, then the wronged party is entitled to claim damages. These damages have to be quantified and proved and so are unliquidated damages because the amount has not been ascertained.

LADs are damages which the parties agree in advance will be payable in the event of a certain breach occurring. In a construction context they are frequently used for delay. The contractor agrees to completion by a certain date. If they fail to do so they are in breach of contract, subject to any extensions of time. Instead of the employer having to calculate and prove its losses, it applies the agreed LADs figure. This is usually calculated on a daily or weekly basis.

Once the trigger in the contract has been fulfilled the full amount of LADs is payable. If the provision is valid, it doesn’t matter if the employer has suffered no loss as a result of the delay, or more loss than the LADs figure. The LADs figure is usually the sole remedy for the delay and the court will usually consider the parties have taken on the risk as part of their commercial bargain.

If your role includes advising on the amount of LADs, then you may be negligent if you just use a figure from a previous similar project which proves to be inadequate.

Lastly, be careful if you do not want to have LADs at all. In a case where the parties inserted the word ‘Nil’ in the contract particulars, the court found it had been agreed there would be no LADs rather than that the LADs clause should be disregarded.

How do you want to resolve disputes?

You may have to decide if you want to include an arbitration clause as a method of resolving disputes, or you may be asked to advise on whether it should be used.

Arbitration is an alternative to court proceedings and its use needs to be agreed by the parties in the contract or when a dispute arises. The dispute is determined by an arbitrator rather than a judge and the decision is binding. In contrast with a court judgment, the process and the decision is confidential. It is the confidential aspect of arbitration which is what often makes it attractive to parties. Particularly if you are working on a high-profile project, you may not want a public dispute if things go wrong.

If this is important to you then including an arbitration provision in the contract rather than trying to get the other party to agree to arbitrate once a dispute has arisen is likely to be easier.

What difference does executing as a deed make?

Lastly, do you ever give much thought to whether the contract should be executed under hand or as a deed? The main difference is the effect on the limitation period for breach of contract and this may be important to your project. If under hand then the limitation period is six years from the date of breach. If a deed, then the limitation period is 12 years.

Rowan Turrall is partner and head of dispute resolution at Boyes Turner.

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