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Sunday, March 1, 2009


A Contract is a legal agreement between two or more people for an exchange of goods or services. Contracts are enforceable by Contract law. There are many different types of Contracts and they vary between industry and according to the type of services performed.

Contracts are an essential part of the construction industry. A Contract between an Owner of a site and a Building Contractor setting forth the terms under which construction is to be carried out, the basis of remuneration, the time scale, and the penalties, if any, (for failure to comply with terms of the Contract) is termed as a Building/Construction Contract.

The Contract Documents are all documents which, when combined, forms the basis of the Contract. It is recommended that both parties to the Contract execute or endorse complete sets of all Contract documents and these should be preserved intact. A possible list of documents that makeup the Contract Documents include:
  • The Contract or Agreement to be used by the parties.
  • Conditions of the Contract - these define the legal rights and obligations of the parties; another way of describing the general conditions is as the rules by which each party will operate in performing their obligations as set down under the Contract.
  • Special conditions of Contract - these are an extension to the general conditions and apply specifically and individually to each project/Contract.
  • Bill of quantities - it lists quantities of the various items and the material to be included in the Contract. It can also be used as the basis for valuation of variations and assists the preparation of progress claims. The extent to which the Owner warrants the completeness of a bill of quantities or a schedule of rates depends upon the terms of the Contract.
  • Drawings - required in building the structure (contract plans including Architectural and Structural). These include drawings from relevant Consultants.
  • Specifications - sets out the technical requirements of the work It describes the project and adds clarity to its drawings; describes the requirements for materials and workmanship.
  • Other documents considered necessary, for example, Schedule or Annexure to the Contract completed, all technical schedules, all pricing schedules.

A crucial battle in negotiating Construction Contracts is waged between the Owner’s desire to get the work done and the Contractors desire to get paid for the work performed or goods supplied.
  • Clarity -The most important aspect of Construction Contracts is to clearly define the subject matter of the Contract as cost overruns and mismanaged resources are a frequent hazard. Hence while entering into the construction agreement, experience and understanding of the administration aspects of Construction Contracts is important.
  • Selecting the Contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the Contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a Contract type and price (or estimated cost and fee) that will result in reasonable Contractor risk and provide the Contractor with the greatest incentive for efficient and economical performance.

Managing Construction Contracts requires a hands on approach to ensure compliance with Contract terms and conditions and external regulations that may affect the industry. Some of the core aspects and external factors that can impact Construction Contracts are:
Overseeing the Construction Contractor’s work including site visits during construction to ensure the work is carried out according to the Contract documents,
  • Monitoring the Contractor compliance with safety codes,
  • Prevailing on wage requirements,
  • Environmental regulations and
  • Other state and local regulations.
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