Books about construction contracts tend to be dense andwordy, but what most architects, quantity surveyors, projectmanagers, builders and employers are looking for is an easilynavigable, simple guide to using a contract, written in plainlanguage.
The JCT Standard Building Contract 2011 is anuncomplicated book about a complex and commonly used contract. Itstraightforwardly and concisely sets out exactly what the contractrequires in various circumstances, as far as possible without legaljargon and without assuming any particular legal or contractualexpertise from the reader. It explains, often from firstprinciples, exactly what is meant by a contract and why certainclauses, such as extension of time clauses or liquidated damagesclauses are present and more importantly, what they mean. The bookis divided into many chapters, each with many sub-headings, to makeit easy to read and to help readers to find relevant explanationsquickly. Tables and flowcharts are used to ensure clarity and mostchapters include a section dealing with common problems.
* Covers the recently issued JCT Standard Building Contract2011
* Straightforward, concise, and as far as possible free of legaljargon
* Sets out exactly what the contract requires in variouscircumstances
* Includes many tables and flowcharts to ensure clarity
David Chappell BA(Hons Arch), MA(Arch), MA(Law), PhD, RIBAhas 50 years of experience in the construction industry. David hasworked as an architect in the public and private sectors, as acontracts administrator, as a lecturer in construction law andcontracts procedure and as a construction contracts consultant. Hewas Professor of Architectural Practice and Management Research atThe Queen's University of Belfast and Visiting Professor ofPractice Management and Law at the University of Central England inBirmingham. The
author of many books for the construction industry, he is Directorof David Chappell Consultancy Limited, is a specialist advisor tothe RIBA and RSUA and regularly acts as an adjudicator.
Part I Preliminaries
1.1 What is a contract?
Everyone is subject to the law of the country in which they live. In general, the law is divided into two parts: criminal law and civil law. If we break the criminal law, we may find ourselves having an interview with the police. There are also Acts of Parliament that make doing things or failure to do other things a criminal offence. The Health and Safety at Work Act 1974 is an example of one such Act. Most people understand that very well.
The civil law governs the way we should behave to our neighbour. We all have rights and duties to each other. They are sometimes set out in Acts of Parliament and sometimes they are derived from the judgments of the courts. Law that is found in the judgments of the courts is usually referred to as the 'common law'. These are duties and rights that are there whether we like it or not.
In general 'tort' is a civil wrong for which the person suffering the wrong is entitled to take action through the courts for compensation. It is based on the duty that everyone owes to one another. There are many wrongs that most people will recognise and that will come under the headings of 'tort'. Such things as negligence, trespass, nuisance and defamation are concepts in general use; although not always properly understood.
As well as these legislative or common law rights and duties, two people may agree additional rights and duties to each other. For example, I may agree to buy a clock from a shop for £100. I have a right to receive a clock, but a duty to pay £100 for it to the shop. The shop has a right to the £100, but a duty to supply the clock. Where there are agreed rights and duties on both sides we call it a contract. Of course there are all kinds of other things that also might have to be agreed, such as the style, make and colour of the clock and the date on which I must pay. That is why even the simplest contracts can become quite complicated.
Breach of contract
We usually say that two people have 'entered into' a contract or that a contract has been 'executed' if documents have been signed. Contracts are legally binding, which means to say that usually once the contract is agreed, neither person can say: 'I've changed my mind now' without serious consequences. If one person does something that the contract does not allow or fails to do something that the contract requires, it is referred to as a 'breach' of contract.
For example, if I only pay £95 for the clock, or if the clock is supplied in a different colour or style, or if it does not work. These are all breaches of contract. It is not always appreciated that it would also be a breach of contract if I was supplied with a better clock worth £150 when we had agreed a particular clock for £100.
The person who is not in breach is usually referred to as the 'injured party' or the 'innocent party'. The injured party is entitled to receive payment from the person in breach to make up for the breach. That is called 'damages'. The amount of money to be paid is normally calculated to put the injured party back in the same position as if the breach had not occurred. Sometimes that is easy, for example, I could be ordered by a court to pay the additional £5 together with any other costs I had caused as a result of my failure to pay the full £100 for the clock. Sometimes it is not possible, but a court tries to do what it can to rectify the situation.
If the breach of contract is particularly serious, it may be what is called 'repudiation'. That is a breach that is so serious that it shows that one of the persons wants nothing more to do with the contract. Extreme examples would be if I refused to pay anything for the clock or the shop took my money but refused to provide any clock at all. In building terms, it might amount to a contractor walking off site, never to return, half-way through the project or the employer telling the contractor that he would not be paid any more money.
Faced with repudiation, the injured party has the choice of, either accepting the repudiation and seeking damages through the courts, or saying that the contract is still in place and carrying on with it (called 'affirmation'). The injured party is still entitled to seek damages even after affirmation. Obviously, there are many instances where it is just impossible to carry on as if nothing had happened; for example if the contractor walks off site.
Essentials of a contract
People sometimes get confused between a promise by one person to do something for another and a contract. In order for there to be a contract there must be three things:
- An intention to create legal relations.
- Something given by both persons.
Agreement is usually demonstrated by showing that one person made an offer and another person accepted it. Using the clock example: if I offer £100 for the clock and the shopkeeper accepts, there is an agreement.
An intention to create legal relations is usually assumed in commercial dealings and it is for the person who says that there was no such intention to prove it. In a social context, people do not always intend to create legal relationships. If Tim says to Lucy that if she joins him at a restaurant that evening, he will buy her a meal, that is not a contract and the arrangement can be broken with impunity.
Something given by both persons is fairly straightforward. In the case of the purchase of the clock, I agree to give the shopkeeper £100 and the shopkeeper agrees to give me the clock. This can be expressed in various ways. For example, it can be said that the shopkeeper promises to give me the clock if I give the shopkeeper £100. In a construction contract, the contractor promises to construct the building and the employer promises to pay whatever is stated in the contract as the Contract Sum. In legal terms, it is usually referred to as 'consideration'. This consideration can take forms other than the ones just described. For example, one person may agree to pay another, if that second person agrees to stop doing something or not to do something he or she was about to do. The important thing is that both persons contribute something; not necessarily of apparent equal value.
When talking about contracts, it is customary to refer to the 'parties' to the contract. That is convenient when reference to 'persons' would not be appropriate - for example, where one or both parties are corporate bodies such as local authorities, universities or limited companies.
Two types of contract
There are two types of contract:
- Simple contracts.
- Deeds or specialty contracts.
Most contracts are simple contracts. If it is desired to make a contract in the form of a deed, it is necessary to observe a particular procedure. Before 1989, all deeds had to be made by fixing a seal to the document. That could be in wax, but more often it was simply a circular piece of red paper embossed with the name of the relevant party. Nowadays, the procedure is laid down by statute. Essentially, the document must clearly state that it is a deed and the parties must sign in one of the prescribed ways. The alternative ways are usefully set out in JCT contracts on the attestation page.
A deed is a very serious form of contract. Its attributes are:
- There is no need for consideration. In other words, a promise that one party will do something for the other becomes legally binding.
- The limitation period is 12 years (see Chapter 4, Section 4.4 below).
- Statements in a deed are conclusive as to their truth as between the parties to the deed.
Therefore, a contract should not lightly be entered into as a deed.
1.2 Purpose of building contracts
Broadly, the purpose is to get a building erected. The contract sets out the rights and the duties of the parties: what each may do and what each must do. It also sets out the procedure for certain things. For example, how the contractor can have the time allowed for constructing the building extended, or how the architect can get an instruction carried out if the contractor is slow, or on what grounds either party may bring their duties under the contract to an end. In SBC, there will be an employer (who employs the contractor) and the contractor (who carries out the construction work). There is also a contractor administrator who is often, but not necessarily, an architect (and assumed to be so in this book) and who does the things allocated in the contract and a quantity surveyor who is principally concerned with valuing the work.
1.3 Types of construction contracts
Construction contracts can be analysed into three types relating to costs:
Fixed price contracts
This is where the contractor undertakes to do the specified work for a sum not adjustable in the price of goods or labour. This is the common situation when a contractor quotes for the installation of a shower or other minor building work. It is commonly thought that if a contractor submits what he terms an 'estimate', he will not be bound by the price. Indeed, if the...