Comment: Know your contractual rights
Knowledge of standard contract types in isolation is insufficient in today’s construction market, explains Murtuza Challawala, MEP quantity surveyor (electrical engineer) at the Engineering Group – MEP Division of Al Mulla Group
The continuous development in the field of science and construction has led to emergence of many specialized building systems and technologies to be incorporated in the building system.
Besides the basic necessities of civil, MEP, and communication services various, other specialised building automation and Information technologies services are on the rise, and are becoming a vital part of the building development system. As a result of the increased use of these specialists, there is a corresponding increase in the coordination and integration of these works.
In the construction industry, the developer’s vision and designer’s engineering are realised and brought into reality by contractors. A main contractor is generally engaged by the employer in this context and becomes a one point contact for all the construction progress at site for the clients and consultants. However, the vast and specialist requirements for building services result in subcontracting parts of the works, and various subcontractors are brought on board to work in unison to achieve desired engineering vision.
The stepping stone towards the successful management and interaction between these specialists – the main contractor, designer, and developer – lies in the accurate drafting of a contract agreement, stating clearly the role and scope of work of each party involved.
Generally, the contract agreement acts as a direct contractual link between the contractor and the client. It sets out the contractual rights and obligations of the parties involved by stating the quality, control, and financial rights over the works to be carried out through the various contract documents, which consist of: the letter of intent; general and particular specifications; the bill of quantities; design drawings; price analysis; and the construction schedule. The structure of the contract agreement flows from the client to main contractor level, and to the subcontractor as well.
The contractual agreements, composition, and clauses are laid out within the FIDIC general conditions of contract. These conditions are modified to suit the particular project requirements forming the conditions of contract. Also, based on the project’s nature, the quantities of items of works, and the availability of design, the contract types are drawn up commonly as a lump sum, unit rate, or cost plus type of contract.
Lump sum type or fixed-type contracts are the most common. Under this contract type, the contractor agrees to perform the specified and described project for a fixed price. This type of contract is appropriate when the scope and schedule of the project in question are well defined.
Unit price contract are suitable for construction projects where the different types of items are identified, but not their numbers. In this type of contract, the unit rates of items are fixed, but the final price of the project is dependent on the design undertaken.
Cost plus contracts, meanwhile, are favored where the scope of work is highly uncertain and the labor, materials, and equipment needed are also uncertain. Under this type of agreement, the contractor must maintain complete records of all time and materials used in project delivery.
Once the type of contract has been agreed upon, the next step involves the establishment of contract clauses.
The general structure of clauses incorporated in within the general contract agreement is as follows:
• Definition and interpretation – the definitions of the expressions used in the agreement and their respective interpretations must be consistent throughout.
• Role of engineer and engineer's representative – this clause states the role, qualifications, responsibility, and authority of the designers and/or engineers.
• Assignment and subcontracting – the qualification and assignment of the work to the contractor and his rights towards subcontracting parts of that work.
• Contract documents – this clause identifies the local laws and languages which are to be applied to the contract. All documents becoming part of the agreement are identified and clearly stated. Furthermore, the priority of the contract documents is also stipulated.
• General obligations – this involves the contractor's general responsibilities with details for site operations, site facilities and security, cash flow, risks, scope of work, insurance of workforce, compliance with specifications and regulations, documentation procedures, and any other stipulations.
• Material, plant, and workmanship – the quality of the materials, plant, and workmanship required for the works must be specified, alongside details for inspection, witness test, examination of works, and report or removal of any anomalies.
• Commencement, defects liability period, and delays – this clause relates to the commencement of work at site, site mobilisation, right of ways and facilities, completion of works prior to taking over certificate, the defects liability period and its obligation, and interim determination of extension.
• Variations – including any alterations, additions, or omissions to subcontract works that result in variations to the scope of work. Though ideally, contracts should be drawn up with all conditions considered, changes do occur and hence this clause is of great importance when claiming for variations in works. In the absence of this clause, a separate contract would be needed for any changes. The procedure for variation claims, the method of measurement, and unit pricing should also be addressed within this clause.
• Payments and certificates – as its name suggests, this clause provides the details relating to submission of payments, cash flow details, and substantiation documents to be presented for payment certification, duration of payment, retention amount, close-out documentation, defects liability certificate, and the final payment certificate.
• Termination of main contract – in the instance of the non-compliance with standards or the detrimental attitude of a contractor towards work progress, this article provides the conditions related to the termination of the main contract, valuation at the date of determination and its payment, main contractors risk and liability for damages at site, and force majeure.
• Settlement of disputes – conditions relating to arbitration, the engineer’s decision, the amicable settlement of disputes and notices, claims, and accounts to be sent to engineer or employer are set out in this clause.
• Default of employer – this clause covers the condition of default of the employer to the contractor in terms of payment and subsequent rights of the contractor to suspend work at site. It also pertains to the removal of equipment and the resumption of work upon settlement.
In addition to the above, clauses relating to the secrecy, local taxes, and application of state laws should also be applied and constituted in the contract as required.
In summary, as each of the groups involved in construction is increasingly subdivided into specialist interests, the way in which they combine will be specific to each project. This specificity arises from the individual demands of the project in question, coupled with the continuing evolution of specific roles.
For this reason, simply ‘knowing’ the contents of standard contracts is insufficient. The specific details of each project, and the continuing evolution of stakeholders’ roles, demand that construction professionals understand both the importance of a contract’s structure and the options open to those who devise project strategies.
Murtuza Challawala works as an MEP quantity surveyor (electrical engineer) at the Engineering Group – MEP Division of Al Mulla Group.