Focus on Manufacturing | Irwin Mitchell | Contractual Issues Specific to New Premises

If you ask a developer what their key goals are in the build of a new development, it usually boils down to a variation of “I want my building on time, in budget and to specification”. Yet, it is an all too common scenario that the construction of new premises does not go according to plan.

In light of weather conditions earlier in the year, it was not be too difficult to imagine a scenario where a development was in delay because sustained high winds and rain meant the contractor could not get his crane off site or that storms had highlighted that the installed windows were inadequate and needed to be replaced. If the contractor claimed additional time and money under the contract for the crane and windows, would they be entitled to them? The answer is that it depends. Some important considerations are:

Additional time

Additional time in the form of an extension of time to the completion date is important because it pushes back the date from which liquidated damages will run. Whether the delay due to the crane and the windows is a “contractor risk event” or “employer risk event” depends upon the terms of the contract. The lesson for the employer is in the importance of careful negotiation as to the events allowing the contractor additional time as if the project does become delayed, this negotiation could determine an entitlement to liquidated damages for that delay.

Additional money

Depending on the terms of the contract, a contactor may be entitled to additional time but not additional money. Again, the lesson is careful contract negotiation to place certain events as “contractor risk events” to pass the burden to the contractor. By doing so, this could be the difference between the project being on budget or over budget.

Procurement

The form of building contract could have a big impact on who is responsible for events such as those set out previously. In traditional procurement, the design team is responsible for the design and the contractor is responsible for implementing the design. If the windows were a design issue for which the contractor had no responsibility, they are likely to get both time and money under the contract. This position is different under design and build procurement where the contractor is often given total responsibility for the design and

In design and build, it would not be unusual for the contractor to be denied time or money for the windows. However, as with all contracts, it would depend on the negotiated terms. As well as considerations in relation to time, budget and specification, there are other contractual issues unique to construction projects that cannot be ignored. Other considerations are:

Practical completion

Practical completion generally occurs when the works are complete save for snagging items. When practical completion is achieved, the employer can occupy the building, liquidated damages stop running and the contractor’s insurance obligations usually end. Given the importance of practical completion, it is surprising that most standard form contracts do not define ‘practical completion’ and disputes around what it means and what items are properly “snagging” items are not uncommon. Accordingly, our advice is to clearly define practical completion in any form of building contract.

Warranties & third party rights

In the event of defects in the workmanship or design of the development, it is important the employer and its purchaser, lender or tenant (as appropriate) has recourse against the party responsible. This is achieved through either collateral warranties or third party rights and it is important that the drafting of the relevant contracts makes procuring these documents possible.

Legislation and Regulation

Part II of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“Act”) regulates payment under construction contracts. Parties to a contract can negotiate the payment arrangements but cannot opt out of the payment rules under the Act. Our advice is therefore that you comply or you could find yourself on the losing side of a payment dispute. The Construction (Design and Management) Regulations 2015 represents an important change to health and safety in construction projects and enhances the role of the ‘client’ and the impact their decisions have on health and safety.

Our advice is therefore that you familiarise yourself with your obligations under these regulations and make suitable arrangements for managing the project.

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Contractual Issues Specific to New Premises

Additional time

Additional money

Procurement

Practical completion

Warranties & third party rights

Legislation and Regulation

For general enquiries

International Firm

Award Winning

About Irwin Mitchell

Contact Us

Get a call back

Request A Callback

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Contractual Issues Specific to New Premises

Additional time

Additional money

Procurement

Practical completion

Warranties & third party rights

Legislation and Regulation

For general enquiries

International Firm

Award Winning

About Irwin Mitchell

Contact Us

Get a call back