Get your priorities right

Paul Taylor, partner at HBJ Gateley Wareing, considers the ways in which construction contracts and local law determine which documents, and in what order, form construction contracts.

Paul Taylor, HBJ Gateley Wareing.
Paul Taylor, HBJ Gateley Wareing.

During the course of putting together a construction project, the employer (or more usually his appointed engineer or project manager) usually collates and prepares a number of key documents that form part of the "contract documents."

These include the conditions of contract (both general and particular terms), the specification and the drawings. These form part and parcel of the invitation to tender on which the employer seeks tenders from contractors for the execution of the works.

In due course, the contractor's tender and the employer's letter of acceptance of that tender are also subsumed into the contract documents which encapsulate the agreement or bargain that the parties have agreed to.

Difficulties

Two situations can arise which often give rise to legal difficulties for the parties. First, the parties have failed to include all the relevant documents which should have been included in the contract documents (or there is a dispute as to which documents are included); or, second, the parties disagree on the order of priority of those documents.

How therefore does the contract or the governing law of the contact deal with these two situations?

The commonly used FIDIC 1987 Red Book form of contract dealt with these situations in two ways. FIDIC defined what was meant by "contract" and specifically listed the documents that formed the contract and made sure that any other documents were swept up by inclusion in "such further documents as may be expressly incorporated in the letter of acceptance or contract agreement."

In that way, it was hoped the various tender addenda, pre-contract minutes and tender clarifications would all find there way into the contract and leave little room for argument at a later date.

The order of priority of those documents was also dealt with by stating that the "documents forming the contract are to be taken as mutually explanatory of one another."

Where there was any ambiguity or discrepancy, the engineer was authorised to explain and adjust matters and the documents would be prioritised as follows:

(1) The letter of acceptance

(3) The tender

(4) Part II (the particular) conditions

(5) Part I (the general) conditions

(6) Any other document forming part of the contract.

Provided the drawings, the specification and the any schedules were all referred to and therefore wrapped up into the contract, then everyone was satisfied.

In the FIDIC 1999 suite, the new Red Book went a stage further and actually included the drawings, specification and schedules as part of its list of prioritised documents and again included provision for the engineer to issue any necessary clarification or instruction.

The 1999 priority list was stated to be applicable for all cases of interpretation and includes the employer's documents as the highest priority.

While this might seem unfair at face value, it is the only practical solution and places the emphasis on the contractor to ensure if there are any specific issues which have been raised in the pre-contract period on which he wishes to place reliance, he must first and foremost ensure the matter is included in the contract documents and then in a document sufficiently high in the prioritised list.

The second scenario that often causes arguments is when the parties cannot agree whether a document has actually been incorporated into the contract documents at all.

To ensure that any previous correspondence that the contractor may later wish to rely on is excluded from the contract documents, employer's may also try to include an "entire agreement clause" stating that the documents forming the contract are the only documents that can be included and no earlier versions, or previous correspondence, can be considered at a later date to be part of the contract.

At a practical level, it is therefore very prudent for a contractor to itemise all the correspondence, minutes of meeting and tender clarifications which he considers should form part of the contract and for copies of those documents to be listed and included in the actual documents to be prepared and then signed by the parties.

Assistance

The contractor might also get some assistance through the use of local law provisions when interpreting what is and is not part of the contract documents. For example, the UAE's Civil Code (Federal Law No. 5 of 1985) has a number of articles that might allow a more general examination of the whole factual scenario in which a contract was formed.

These provisions (and others) may assist with the possibility of trying to show that in fact a very different understanding prevailed in the mind of the parties to that which has been committed to the contract documents alone.

Nevertheless, the safest way to ensure the parties agree on what constitutes the contract, and that its constituent are documents clearly set out, is to make sure that all relevant documents are either listed or actually bound into the contract, and that the order in which those documents are to be considered is clearly set out and agreed upon in advance of signing the contract.

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