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Construction Law – The Basics
Written by Vishal Mahay, Solicitor and Head of Commercial Litigation at Silverback Law
Construction Law is a vast topic with a number of complex areas. This introductory guide is aimed at providing a basic understanding of some of the areas.
Parties involved in a Construction Project
The key parties will usually be:
- The Developer – may also be known as the ‘employer’ or the ‘client’. This is the party who wants to have the building work carried out and will engage and pay the construction team(s) under the terms of the contract.
- The Contractor – or usually the ‘main contractor’. This is the party responsible for doing the main building works and is usually engaged by the Developer under a type of Building Contract. It is worth noting that the Contractor is unlikely to do all the agreed work themselves and it will usually engage specialist trades who will be its Sub-contractors.
- The Sub-contractors – these are the specialist trades people who are engaged by the Contractor to carry out specific areas of work on the building project such as dealing with foundations, mechanical and electrical lifts, roofing and cladding, amongst many others. The list of types of Sub-contractors can be lengthy and they usually come under a specific area within the Building Contract.
- The Consultants – the Developer will usually appoint a number of professional consultants such as Architects, Engineers, Quantity Surveyors and Conservation Experts. The Contractor may also appoint Consultants directly if they have a responsibility for design works.
- Interested Third Parties – it is common for a number of third parties to be interested in construction works, for example:
- Funders/lenders (usually banks) providing finance for the works
- Purchasers that have agreed to buy the completed development
- Tenants that are going to move into the completed building
- Landlords/freeholders that own the land or existing building that is being renovated
- Local councils
A Building Contract is entered into between the Developer and the Contractor and is crucial to ensure a building project goes as smoothly as possible.
It is used so that parties have a framework to define key particulars such as:
- who will complete the building work
- the time frame for completion
- the likely costs involved
- the type of materials and designs to be used or adopted
It will also set out the agreed legal terms and it will have all the technical drawings and specifications attached to it. The legal terms will usually cover matters such as:
- the standard of works required
- claiming for extensions of time and/or loss or expense due to variations to the works
- reaching practical completion
- dealing with defects
The legal terms in a Building Contract are unlikely to be entirely bespoke. Over the years, construction industry has developed several standard formsof Building Contract which contractors and developers are familiar with, but which can be adapted depending on the particular project.
The different standard forms are aimed at a variety of situations such as the size of the project, the way the contract was formed or the particular type of works being carried out.
The most commonly used standard form is the JCT forms of contracts. These are usually available through solicitors. Another form of contract which is widely used is the NEC contract. Both are prepared primarily as English Law contracts.
The FIDIC forms of contracts are prepared and drafted so that they can be used in any jurisdiction and are suitable for international projects.
Most construction contracts are prepared by solicitors, experts and engineers. This is advisable, and often preferred, as they will seek to ensure the parties are protected and may anticipate any possible issues that could arise in the future.
Sub-contracts are a common element of any construction work. These contracts are entered into between the Contractor and the Sub-contractors, so are the next step down the contractual chain, after the main building contract.
The Contractor will want to pass down the obligations it has to the Developer to its Sub-contractors, and the phrase ‘back to back contracts’ is therefore often used. The Sub-contractors are then in a position where they have legal obligations under the sub-contract.
The main difference is that the Developer does not have direct rights against the Sub-contractors under the sub-contract and therefore does not usually pay them directly, nor should it issue the Sub-contractors with direct instructions as if it were their developer – this is in the control of the Contractor.The Contractor is then still liable under the contract to the Developer.
The most common forms of pricing structures for construction projects are:
- Lump sum – the contract sum is agreed before the works start. This is nearly always used in design and build contracts, and traditional contracts are often agreed on a lump sum basis too.
- Remeasurement – the contract sum is finalised after completion by reference to the works carried out, using a previously agreed basis for payment.
- Prime cost/cost reimbursable – the Contractor receives its actual costs, plus a fee
- Target cost (a form of prime cost) – the Contractor receives its actual costs plus a fee, subject to a target cost.
Timeline of a construction project
A simple construction project would typically follow a process similar to the below:
- Developer carries out viability studies
- Developer enters into design consultant appointments and has initial designs and site surveys carried out
- Developer obtains relevant planning permission
- Design Consultants/Designers/Architects prepare detailed designs
- Developer goes out to tender, that is it puts out an ‘invitation to tender’ for contractors (construction firms) to submit prices and proposals for carrying out the works
- Developer and chosen contractor enter into a legally building contract
- Developer enters into remaining consultant appointments
- Contractor tenders sub-contract packages and appoints sub-contractors
- Contractor starts work on site
- Works progress and construction team applies for monthly or stage payments throughout
- Works reach practical completion – certain certificates issued
- Defects liability period (usually for six months to one year) and contractor is liable for correcting defects
- Certificate of making good defects issued
Construction projects can sometimes be problematic, and each party needs to understand their legal rights and obligations, and indeed the role they need to perform to avoid a breach of the contract terms. It is common for issues to occur, which is why you should consider obtaining professional advice from a solicitor before projects commence.
Should you have any concerns about a construction contract and the obligations and rights of each party, it is advised that legal advice is sought at an early stage.
For further advice, please contact Vishal Mahay, Solicitor and Head of Commercial Litigation at Silverback Law on 0844 967 2700 or email firstname.lastname@example.org.
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