Contracts 1

Contracts
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Table of Contents

Introduction......................................................................................................................................4

General principle of law governing contracts of construction.........................................................5

Design of NEC4 ECC contract........................................................................................................6

Comparison and contrast over management of payments under NEC4 ECC contracts and JCT

SBC/Q 16 contracts.........................................................................................................................9

Comparison and contrast on dispute resolution methods between NEC4 ECC contracts and JCT

SBC/Q 16 contracts.......................................................................................................................12

Conclusion.....................................................................................................................................14

References......................................................................................................................................15
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Introduction

The purpose of the report is to get an insight of the contracts in the construction industry. The

report covers general law principle which governs the contracts of construction. Further, a

contract of NEC4 ECC is designed on the basis of selection of main and secondary options as

well as relevant Z clause so that goals can be achieved. Explanation is also provided for the

selection of appropriate features of contracts. Comparison is made between management of

payment in NEC4 ECC contracts and JCT SBC/Q16. In addition to this, the comparison is made

between the NEC4 ECC contracts and JCT SBC/Q16 methods of dispute resolution.
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General principle of law governing contracts of construction

A contract includes two or more parties who signs an agreement or they are deemed to reach an

agreement and the obligations and rights under that agreement is recognized under the law.

Construction contracts are required to abide by the construct law which encompasses different

aspects of legal process including initial binding of the construction project, to the formation and

negotiation of the contracts and agreements. The disputes among the parties in the process of

construction such as homeowner and builder are also governed by the construction law. In the

process of construction, there are many laws which govern the process of construction and are

applied to different professions and businesses which are part of the construction industry.

Government contract law is a significant area of law of construction which involves state, local,

and federal governments and their governing is done under precise laws of government, legal

procedures, and legal principals. The principles of law by which construction industry is

governed are as follows:

 Under construction law, both contractor and owner are needed by law for acting in good

faith in the contractual obligations performance. This principle has to be abode by the

Cheapco stores by entering in agreement with the contractor who will be constructing

the Cheapco stores under the agreed terms.

 According to court, the contractor of construction owes the duty to the owner for

performing services in a manner which is appropriate and workmanlike. Such duty

includes warning the owner if the specifications or design of the construction may lead

to results which might be damaging. In this regard, Cheapco is required to discuss and

consult with the contractor at the time of finalizing the design of construction so that

they may know if the design finalized by them is appropriate or not. If it is identified
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that the design is not appropriate then it can be changed there and then. This will avoid

the disputes related to the design of the Cheapco stores in the later stage.

 According to courts, it is also the duty of owners to show cooperation with the

contractors. Therefore, the board of directors of Cheapco Stores are required to remain

cooperative with the contractors so that the stores can be constructed without any

conflict with mutual cooperation with the contractors (Hg, 2019).

 There shall be offer, consideration, and acceptance in order to make the construct

contract executable. If the contract does not have any seal then it will not be legally

binding and merely be a piece of paper. In order to make the construction contract

legally binding, Cheapco stores have to make an offer to the contractor and it shall be

accepted by the contractor. A valuable amount of consideration shall be given by the

either party of the contract and there shall be common intention of both Chapco stores

and contractor to get in a contract. Consideration is forbearance or the promise of one

party (Haigh, 2018). It is known as the price at which the other’s promise is bought and

the value is thereof enforceable. Thus, Cheapco stores is required to give some amount

of consideration to the contractor for the construction of cheapco stores. The details of

the consideration such as the consideration in whole amount or instalment shall be

mentioned in the agreement between the cheapco stores and the contractor clearly. This

will aid the organization to get involved in any kind of disputes related to the money or

payments.

Design of NEC4 ECC contract

ECC stands for engineering and construction contracts which offer improved clarity, increased

flexibility, and greater ease in the usage, and aids in delivering real value in the works
 Contracts 7

procurement. Ranging from highway construction to infrastructure projects, NEC4 allows the

timely delivery of project, set the budget, and gets the project completed with highest possible

standards (Ochieng, et al., 2017). This can be used by the Cheapco stores for appointing the

contractor for the purpose of construction and engineering work including design responsibility

level. In ECC contract, the main options of the contract for Cheapco store include priced quantity

contract with the schedule of activity. Under this, different main clauses are defined which are as

follows:

Main responsibilities of the contractor

 Master schedule shall be planned and made by the contractor including details of

implementation and development of project. Any issues related to material, equipment,

and material shall be identified in this. The contractor shall forecast any changes and

communicate the regulatory as well as legal issues to the stakeholders involved in the

contract.

 The contractor shall arrange material, funds, and equipments for the completion of the

tasks of the project (Kwakye, 2014). He shall also hire subcontractors and raise bills for

the tasks completed.

 The contractor is also required to monitor the quality of work and time schedule and

implement management systems for materials.

 He shall also ensure whether the legal requirements are fulfilled and ensure the safety and

health at the construction site.

Time

The construction project for the Cheapco stores will be time bound as it aids in the delivery of

project on time. The time limit for the project is 8 months in which different activities will be
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schedules such as planning, arranging the required material and labor, constructing, and interior

designing of the project.

Quality management

Quality management will be put in place by Chepco stores in order to minimize the defects in the

stores at the time of delivery and identify the issues before it comes to the notice of general

public to safeguard the reputation of the company. This will be done by establishing quality

policies and objectives and setting the standard of quality required in the construction of

Cheapco stores. In order to ensure the quality of the project, internal audits will be conducted

monthly to ensure the project is being done as per the set standards or not (McGrit, et al., 2013).

Payment

Payment is the crucial part of the construction project as it can delay the delivery of the project if

not done timely. Therefore, the half amount will be given to the contractor before the start of the

project and the remaining amount will be given once the project is completed.

Title

On completion of the construction of Cheapco stores, the title of the stores will be set in the

name of Cheapco stores. This will only be done when no payments are due and the project is

completed in full sense.

Liabilities and insurance

This is a clause in which the contractor is required to carry the insurance for the project of

Cheapco stores so that any kind of claim, liability, loss, expenses, and proceedings for death or

personal injury can be covered. If any employee undergoes any injury during the work then it

will be covered under the liability insurance of the employer (Ashworth and Perera, 2018).

Termination
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Cheapco stores will be liable to terminate the contract if the terms and conditions of the project

are not fulfilled as set in the beginning of the project. In the similar manner, the contractor can

terminate the contract if the conditions are not fulfilled by the Cheapco stores.

Secondary options will also be addressed for this project which includes the following:

Price adjustment

The price of the project will be adjusted with the rise or downfall of the inflation. In case of

inflation, the price will shoot as the material and labor required for the construction will become

expensive. Therefore, the budget of the project of cheapco store shall have a margin of 20%

which can be used to the make adjustment in the pricing of the project and completed the project

in the specified time period.

Early completion bonus

A bonus will be provided to the contractor if the project of Cheapco stores will be completed

before the prescribed time period. This will motivate the team of contractor to work harder and

deliver the project before or on time.

Multiple currencies

Since different stakeholder and engaged in this project therefore the amount of investment will

come in multiple currencies (Jizi, et al., 2014). However, the company shall exchange the

currency and make the payment in a single currency to the contractor.

In addition to Main options and secondary options, Z clauses will also be considered in the

project. Under the Z clause, the project manager under the contract is required to issue the final

assessment of the payment which is due before the contractor within four weeks of the certificate

defects. This will aid the parties in assessing the costs rather than just end the project. In addition
 Contracts 10

to this, dispute avoidance board shall also be included in the project which is similar to FIDIC

contracts in DAB.

Comparison and contrast over management of payments under NEC4 ECC contracts and

JCT SBC/Q 16 contracts

NEC4 ECC payment mechanism

The article of NEC4 ECC (Engineering and Construction Contract) was published in June 2017

and it provide more details of payment process and also of their rights which both the parties

need to understand the contract and the Construction Act (Hughes, 2018).

Contractor’s applications for payment

In the process the contractor now has to submit an application requesting for the payment to the

project incharge and if he do not provide application he will be penalized. This practice does

make sense and is practical as it makes contractor’s responsibility to clear its position and status

of payment to the client on a regular basis if contractor want to receive payment for the work

carried out in particular period. This process has make the payment process easy for the client

and also reduce their risk making it the responsibility of the contractor to submit the application

of payment on time if he like to receive payment for the work done in particular period. After

submission of the payment application contractor is free and stable as he is the one who has

initiated the assessment of the completed work and payment (Halpin, et al., 2017). He can

consider this assessment as “default payment notice” to the client according to the Construction

Act if the project manager does not able to provide a certificate regarding the assessment in a

particular period. If the contractor fails to submit payment application on time it is possible that

he might not receive any payment for that particular payment cycle.
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A contractor must understand all the rules of NEC4 ECC contracts and construction act and

provide all documents and information with the application. According to the NEC4, the

contractor only requires to submit the sum amount of the payment due after the last payment in

the application for payment (Eggleston, 2019). If the contractor wants that its application for

payment should also considered as “default payment notice” under the Construction Act he must

provide all the data and information and details of the work or service completed on which the

payment is been raised.

Payment under JCT 2016

The new JCT 2016 contracts provide and is limited to the dates related to the payments

mechanism which is governed by the Construction Act. These dates include the due date of

payment, payment application date, payment issue dates, final dates for payment. The JCT 2016

contracts also include the interim valuation date. Missing out any dates regarding payments can

affect the work progress and cash flow in the construction supply chain (Hacketts and Stathem,

2016). The Interim Valuation Date is introduced in JCT 2016 contracts, subcontracts. The JCT

contract system is planned to provide and deliver a standard payment system. It plans according

to the working of payment cycle throughout in all parts of contracts. This process was adopted

form the Government’s Fair Payment Campaign, which is an act governing the payments to

develop a standard and ethical industry payment terms by 2025. This will also make JCT a

standard public sector contract.

According to the contract if the parties does not provide the interim valuation date in contract the

default date will be set to a month after the date of possession. All the dates maintained in the

contracts are to be discussed and agreed by both the parties. The interim valuation date must be

the same day of every month or must be adjusted to the nearest date if falls on a holiday or non-
 Contracts 12

business day. According to the JCT contract, the due date is schedule after the 7 days of the

Interim Valuation Date which is followed by the final date for payment which is scheduled

within the 14 days from the due date of payments and Clint has to provide pay less notice to the

contractors at least 5 days before the final settlement of the payment (Keane and Caletka, 2015).

Comparison and contrast on dispute resolution methods between NEC4 ECC contracts and

JCT SBC/Q 16 contracts

Dispute resolution in NEC4 ECC

NEC4 always focuses on the partnering of the parties and enhance their collaboration and

understanding (Mosey, 2019). It also practices the flexibility between parties and contract in civil

construction and international infrastructure projects. The new launch was aimed to make NEC4

the world’s best procurement suite of contracts in construction industry. It is endorsing many

government and industry giants over the world.

As in the new launch the title dispute resolution has change to “Resolving and Avoiding

Disputes”. These changes have also brought a new option or process to the dispute resolution.

Option W1, W2 and W3 helps to resolve issues before any formal dispute resolution by

understanding parties behaviour and engagement with each other. In Option W1 it is compulsory

to provide senior representative with the initial referral process before starting the adjudication

process. Under option W2, whereas the agreement calls for the parties to submit a disagreement

at first instance to the Senior Representatives, it also confirms that parties can go for adjudication

at any time for any dispute. Amendments to Options W1 and W2 provide for the original access

to the Senior Members of the groups of all conflicts. Such members shall be listed in the

Contract Data before the beginning of the contract. In option W3 which is a new option in

contract for the dispute resolution process a dispute avoidance board (DAB) is being provided to
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deal with dispute of the parties. W3 option is applicable where the Construction Act fail to apply.

It provides a chance to every potential disputes of referral and standing in dispute advisory board

tribunal (Lee, et al., 2018). The main aim of the Dispute Avoidance Board is to resolve potential

disputes before they become disputes. The Dispute Avoidance Board also do site visit on

particular days to inspect the work and progress and to deal with situations which can lead to

potential dispute and affect the contracts. Cases of Potential disputes are referred to dispute

avoidance board where they are assisted to resolve these issues by consulting them and gathering

their information. The dispute avoidance board has only power to listen and resolve potential

dispute cases.

There are 4 ways to resolve dispute in JCT SBC/Q 16

 Negotiation

 Mediation

 Adjudication

 Litigation

Negotiation

In this process where parties meet each other to settle down before they go for any formal legal

procedures. In this particular period parties try to solve their differences themselves which may

bring the best solution to the problem.

Mediation

In this process a mediator is introduced jointly by the both parties which help them to mediate

through their disputes and bring a solution and adjustment according to the contracts.

Adjudication
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If they all fail to provide a solution to both the parties and bring them to settlement they can both

go for legal settlement in court as law suit.

Litigation

If the parties even left unsatisfied with Adjudication they can go for litigation depending upon

what has been agreed in contracts (Davis, 2012).

Conclusion

On the basis of the above discussion it can be concluded that the general principle of law which

govern the construction contract include, offer, acceptance, consideration. It also requires both

contractor and owner are needed by law for acting in good faith in the contractual obligations

performance. According to court, the contractor of construction owes the duty to the owner for

performing services in a manner which is appropriate and workmanlike. Cheapco is required to

discuss and consult with the contractor at the time of finalizing the design of construction so that

they may know if the design finalized by them is appropriate or not. According to courts, it is

also the duty of owners to show cooperation with the contractors. Therefore, the board of

directors of Cheapco Stores are required to remain cooperative with the contractors so that the

stores can be constructed without any conflict with mutual cooperation with the contractors. The

main options of the contract include contractor’s responsibilities, time, quality management,

payment, title, liabilities and insurance, and termination. The secondary option includes price

adjustment, early completion bonus, and multiple currencies.

References

(Accessed on: 15 November, 2019)

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Routledge.

Davis, C.L. (2012) Why adjudicate?: enforcing trade rules in the WTO. USA: Princeton

University Press.

Eggleston, B. (2019) The NEC4 Engineering and Construction Contract: A Commentary. USA:

John Wiley & Sons.

Hackett, M. and Statham, G. eds. (2016) The aqua group guide to procurement, tendering and

contract administration. USA: John Wiley & Sons.

Haigh, R. (2018) Legal English. UK: Routledge.

Halpin, D.W., Lucko, G. and Senior, B.A. (2017) Construction management. USA: John Wiley

& Sons.

Hg (2019) Construction law. [Online] Available at: https://www.hg.org/construction-law.html

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Routledge.

Jizi, M.I., Salama, A., Dixon, R. and Stratling, R. (2014) Corporate governance and corporate

social responsibility disclosure: Evidence from the US banking sector, Journal of business

ethics, 125(4), pp.601-615.

Keane, P.J. and Caletka, A.F. (2015) Delay analysis in construction contracts. USA: John Wiley

& Sons.

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Lee, C.K., Yiu, T.W. and Cheung, S.O. (2018) Application of the Theory of Planned Behavior to

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Affairs and Dispute Resolution in Engineering and Construction, 10(2), p.04518003.

McGirt, M.J., Speroff, T., Dittus, R.S., Harrell, F.E. and Asher, A.L. (2013) The National

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