The key to the smooth and efficient completion of a construction project starts at the beginning – with a clear, well-written construction contract. Often, when a construction dispute arises, the Courts’ first port of call is to check what the contract says.
Of course, all construction contracts should include the basic information such as the names and addresses of the parties, the scope of work and the payment terms but, in addition to these, it is imperative the following clauses aren’t overlooked:
Indemnification
Indemnity clauses can be used to allocate risk for claims between the parties of the contract. This clause can be used to explicitly protect a party from losses caused by the other party. The exclusion of an indemnification clause means a party would have to rely on costly and lengthy litigation to recover costs as opposed to relying on a written contractual right to recover.
Dispute Resolution
The Construction and Regeneration Act 1996 gives parties to a construction contract the right to adjudication at any time, but a good construction contract that incorporates a dispute resolution clause will provide a clear strategy for resolving disputes before resorting to litigation. Knowing exactly which method of dispute resolution will be used will save time on disagreements as the resolution process can begin much sooner.
Frustration
Frustration occurs when, after the contract has been lawfully entered into, there is an intervening event outside the parties’ control that renders the obligations radically different from the contract or consequently impossible to perform. The inclusion of a frustration clause can avoid disputes and confusion as it can provide a clear remedy, such as an extension of time, to a party affected by such an event.
Termination and Suspension
This clause will provide clarity as to the situations under which a party has the right to walk away from the contract and, if these situations do not occur, neither party can walk away without committing a breach of contract.
Force Majeure
Force majeure concerns an event that is beyond the control of the parties of the contract that may cause delay in the completion of obligations and provides relief for parties affected. These may include industrial action, severe adverse weather conditions and war. It may seem redundant at the time of drafting as these events are unenforceable but, as recent events such as the COVID-19 pandemic and the Ukrainian/Russian conflict have demonstrated, a party may find itself reliant upon the force majeure clause for an extension of time.
This is far from an exhaustive list of clauses that should be included in a construction contract, but the importance of these specific clauses is often underestimated. This article is a reminder to consider including these clauses in all construction contracts to reduce the likelihood of a dispute and avoid cost and confusion in the future.
How can we help?
If you have a query about construction contracts or any of the topics raised in this article, please contact a member of our specialist Construction Law team.
