What is a Construction Contract

The construction contract defines the contractual relationship

between the parties to a construction project:
 the owner pays, facilitates and states its requirements and
contractor obligations
and
 the contractor undertakes to completes its contractual
obligations in order to fulfill the owner’s requirements

What are Contract Conditions:

 Contract Conditions are contractually binding and govern
how the rights and obligations of both parties are to be
determined
 specifications (including drawings) describe what is to be
constructed and form part of the contractually binding
contract.
 Joint Contracts Tribunal (JCT)
 The Government Contracts
 ACA (The Association of Consultant Architects).
 FIDIC (Fédération Internationale des Ingénieurs-Conseils)
 NEC (The New Engineering Contract): Engineering and
Construction Contract)
 Other forms of contract
In the procurement of construction, contracts are:
• Standard forms
• Modified standard forms
• Bespoke
JCT (The Joint Contracts Tribunal)
1. DB: Design and build contract.
2. CD: Standard form with contractors design.
3. CE: Constructing excellence contract.
4. CM: Construction management contract.
5. IFC: Intermediate form of building contract.
6. MC: Management contract.
7. MTC: Measured term contract.
8. MW: Agreement for minor work.
9. PCC: Prime cost building contract.
10. MP: Major project construction contract.
11. RM: Repair and maintenance contract (commercial).
12. SBC: Standard form of building contract.
ACA (The Association of Consultant Architects)
1. Form of building agreement.
2. PPC: Standard form of contract for project
partnering.
3. SPC: Standard form of specialist contract for
project partnering.

Chartered Institute of Building

1. CPC2013: CIOB Contract for use with Complex
Projects.
FIDIC (Fédération Internationale des Ingénieurs-Conseils)
FIDIC's core suite of contracts includes:
1. Conditions of Contract for Construction. The Red Book.
2. Conditions of Contract for Plant & Design-Build. The Yellow
Book.
3. Conditions of Contract for EPC Turnkey Projects. The Silver
Book.
4. The Short Form of Contract. The Green Book.
NEC (The New Engineering
Contract): Engineering and Construction Contract).
1. Option A: Priced contract with activity schedule.
2. Option B: Priced contract with bill of quantities.
3. Option C: Target contract with activity schedule.
4. Option D: Target contract with bill of quantities.
5. Option E: Cost reimbursable contract.
6. Option F: Management Contract.
7. Option G: Term contract.
Other forms of contract
Other less commonly used forms of contract include:
1. The GC Works suite of standard government conditions of
contract are no longer being updated by the government who
are now moving to the New Engineering Contracts, now in
their third edition NEC3.
2. IChemE (The Institution of Chemical Engineers) forms
of contract.
3. ICC Infrastructure Conditions of Contract. A relaunch of CoC.
4. The ICE Conditions of Contract (CoC) (previously maintained by
the Institution of Civil Engineers) have been withdrawn in
favour of NEC contracts.
5. IMechE/IET (The Institution of Mechancal Engineers / The
Institution of Engineering Technology) Model Forms of
General Conditions of Contract.
Bespoke contracts
• 24% of respondents to indicated that they use purpose-written
bespoke contracts.
• Not only is this considered inadvisable because of the risk that
bespoke contracts may not adequately or fairly make provision
for all circumstances.

Pre-Construction Services Agreement

The first stage appointment of a two-stage procurement process
might be made using a separate pre-construction services
agreement (PCA or PCSA), sometimes called early works
agreements, rather than under the provisions of the main, second-
stage contract.
The choice of a standard form which:
• supports the primary objective of the employer is important
in minimizing or eliminating potential claims and disputes
• aims to minimise the time and cost of negotiating contracts
The standard forms and their use with the responsibilities of
the main part for the phases of the project.

BID DESIGN PROCUREMENT CONSTRUCT COMMISSIONING O&M

TURNKEY

EMPLOYER CONTRACTOR

EMPLOYER CONTRACTOR
Requirements in the Contract

Employer Ensure Contractor Aspiration

Technical Specification,
Quality & Standards Access & Possession of the Site

Time Scale Clarity of Risk & Responsibility

Health & Safety Removal of Obstructions

Method of Payment Prompt Payment
Change Mechanism Security / Certainty

Legal Frame Works Diligent Administration

Content of Contracts
• Forms of Agreement
• Conditions of Contract
1. General Conditions of Contract
2. Particular or Special Conditions of Contract
• Technical Specification
• Drawings and Design Specification with calculations
• Procedures
• Bill of Quantities / Payment
• Schedule
Forms of Agreement
• The core document unique to the project.
• Completed and signed by the bidder and states the terms of his
offer.
• Information may include;
1. The amount of liquidated damages if applicable
2. Contract completion requirements, or number of days to
complete the work
3. An agreement to submit a performance bond
4. A statement that the bidder has examined plans,
specifications, & job-site location
5. Special provisions that may be applicable
Conditions of Contract
GCC
 This states conditions applicable to all contracts to be
awarded.
 It is developed by individual employers/projects and the
company standard form based on
• International Standard Forms (e.g.; Fidic) or
• National Standard Forms (e.g.; NEC or other different
forms for USA) or
• Industry Standard Forms (e.g.; IChemE).
SCC
This sets forth specific conditions applicable to the particular
unique project. It is tailored for project to retain GCC risk
separation and tailored for employer & project to change risk
allocation.
 Turnkey
 Contractor provides facilities include
• design,
• specification,
• drawings,
• procurement,
• construction & commissioning and
• possibly operations and management
• Possibly financing

 Utilised dependent upon schedule objectives and the price

risk that the owner is prepared to accept
 Initial scope must be sufficiently clear
 Usually lump sum will be paid on progress milestones
Responsibility of Each Party on Turnkey

Contractor Has control

Employer Pays and approves

Damages For lack of performance of contractor

 Engineering, Procurement and Construction (EPC)
1. Employer engages FEED (“Front End Engineering and Design)
(Basic Design / BoD)
Specification or Performance Criteria
Which requires the EPC contractor to provide:
 Detailed engineering
 Procurement
1. Contracting and sub-contracting for services of general and
specialty construction contractors
2. Obtaining materials and equipment required to construct
the project

 Construction is the process

2. FEED with Engineer involvement between Employer &
Contractor
• Acceptance of FEED is Contractor’s responsibility within a
specific period

• If there are errors, omissions, and discrepancies arising 

considered as variations

• The faults found from BOD after hand over

not qualified for variations but become the
responsibility of the Contractor or Contractor’s
errors

• If latent faults are found 

considered the Contractor’s responsibility and the
possibility of disputes arises
3. There is no Engineer / Consultant involvement between
Employer and Contractor

I. The acceptance of FEED is contractor’s responsibility and

it has risk to the Contractor after the time period allowed
by the Employer.

II. Usually it is lump sum and paid on progress milestones.

III. Employer provides BOD, Site and Payment, but Contractor

completes design and gets approval in time.

IV. Acceptance of FEED is following activity of BID process.

V. LDs on failure to complete on time are delay damages and

LDs on failure to meet performance are performance
damages.
Works Designed by Employer (Procure &
Construction)
Employer

Consultant

Design

ITT

BID

Contract Document
 The payment is mostly considered by monthly for work
done or by approved BOQ.

 The risks of this application are mutually shared between

employer and contractor

Employer Risks Contractor Risks

Design Time

Get paid for work

Quantities
done (measured)
 PROJECT DOCUMENTATION

1. CONTRACT DOCUMENTS
• Form of Contract
• The Agreement which the parties sign
• The Conditions which normally includes the
General Conditions and any Particular
Conditions
• Appendix to Tender which contains variable
information e.g. retention percentage, level of
damages etc.
• Bills of Quantities
• Included if applicable to the particular contract
• Specification
• Included as Contract document in some forms
of contract
• Drawings
• The contract drawings are those used in the
preparation of the Bills of Quantities or those
forming the basis of a lump sum bid
• Contract Sum analysis
• Shows a breakdown of the lump sum tender –
refererred to as Activity Schedule in NEC
• Schedule of Works/Approximate Quantities
• Utilised where Bills of Quantities not used
• Preparation often carried out by lawyers or the
Quantity Surveyor
• Contract often only referred to when problems arise
• Ambiguities, discrepancies and contradictions can
lead to delays and disputes
• Errors in preparing documents can lead to claims for
negligence
• Primary Contract Documents
• See following examples from FIDIC
• Letter of Tender
• Appendix to Tender
• Contract Agreement/Articles of Agreement
• Date of Agreement
• Names and addresses of the Parties
• Brief description of the Works
• The Contract Sum (in FIDIC normally in the Letter of
Acceptance)
• The documents forming the Contract – Letter of
Acceptance, Letter of Tender, Contract Conditions,
SpeciEications, Drawings, Schedules (if any)
• In the JCT form also includes the names of the
various consultants
• Where the Agreement is signed by the parties
• The “signature” can be:
• “under hand”
• as a deed
• Under hand
• parties sign by hand and witnessed by a third
party
• As a Deed
• A company executes the contract by imprinting its
common seal in the presence of a Director and the
Company Secretary
• See following examples from JCT (a more
lengthy process)
• Articles of Agreement
• Recitals
• Articles
• Contract Particulars
• Attestation
• FIDIC has General Conditions and then Particular
Conditions amended for the particular project
• JCT has clauses which contain alternative wording
• Some Employers have standardized amendments to
the FIDIC General Conditions
• Ensure all amended and correct rates are shown
• Include any adjusting amount in the General
Summary
• Sign Bills of Quantities “These are the Bills of
Quantities referred to in the Contract”
• Specification
• “This is the Specification referred to in the
Contract”
• Drawings
• “This is a Contract Drawing” or “This drawing was
used in the preparation of the Bills of Quantities”
• The Contractor should be given a certified copy of:
• the Articles of Agreement
• The Conditions of Contract
• The Contract drawings
• The Contract Bills of Quantities (if applicable)
 Precedence

Whilst the various documents are

deemed to be mutually explanatory, in
order to avoid dispute in instances of
contradiction, the order of precedence
of the various documents should be
stated.
• Form of Contract
• The Agreement which the parties sign

• The Conditions which normally includes the

General Conditions and any Particular
Conditions

• Appendix to Tender which contains variable

information e.g. retention percentage, level of
damages etc.
• FIDIC 1999 – Federation International des
Ingenieurs Conseils – used extensively
internationally

• JCT 2011 – Joint Contracts Tribunal – used primarily

for building work in the UK. Similar contracts used in
countries part of commonwealth

• NEC3 2005 – New Engineering Contract

• Red Book – Building and Engineering works
designed by the Employer. Standard form includes
Bills of Quantities.

• Yellow Book – Electrical and Mechanical Plant and

Building and Engineering works designed by the
Contractor.

• Silver Book – Construction on a Turn Key basis used

for Process, Power plants and the like
• Identification of the Parties –check legal entities
• Definitions in clauses 1.1.2.2 to 4
• Duties in clauses 2, 3 and 4
• Actual names in Appendix to Tender
• Documents describing the Works or Services
• DeVined in the Letter of Tender(Offer)
• Priority of Documents
• Clause 1.5
• Inspection – normally covered in SpeciVications
• Testing
• routine testing covered in Specifications
• Clause 9 covers Tests on Completion
• Taking over – completion certiVicate or in FIDIC
Taking Over CertiVicate – Clause 10
• RectiVication of defects – Clause 11
• Acceptance – Clause 11.9 Performance
CertiVicate
• Basis of price – lump sum, re-measurement
• Red Book – re-measurement
• Yellow and Silver Book – Lump Sum
• Payment - Clause 14
• Timing of payment applications and payments
• Interim payments – measured work, materials on
and off site
• Materials off site – Clause 14.5 (b) – as listed
• Materials on site – Clause 14.5 (c) – as listed
• Payment - Clause 14

• Procedures for payment –who certiVies

• Remedies for non-payment

• Payment of interest –Clause 14.8
• Termination –Clause 16.2

• Advance payments –Clause 14.2

• GCC 8.1 – The Engineer shall give the Contractor not
less than 7 days notice – Notice must be within 42 days
of the Letter of Acceptance

• GCC 8.2 – The Contractor shall complete the Works

within the Time for Completion

• Appendix to Tender 1.1.1.3 – Time for Completion to be

stated

• GCC 1.1.1.3 -DeVinition of Time for Completion as

stated in the Appendix + any EOT
• GCC 10 – The Works shall be taken over by the
Employer
• the Works have been completed in accordance
with the Contract
• a Taking Over certiVicate has been issued

• The Contractor may apply for a Taking Over CertiVicate

not earlier than 14 days before the Works will be
complete

• The Engineer shall within 28 days issue the Taking Over

certiVicate or reject the application
• The primary clause in the FIDIC contract is clause
8.4 which entitles the Contractor to an extension of
time for the following:
• Variation or substantial change in quantity
• A cause of delay referred to elsewhere in the
conditions of contract
• Exceptionally adverse climatic conditions
• Unforeseeable shortages of personnel and goods
caused by epidemic or governmental actions
• Delay caused by the Employer, Employer’s Personnel
or the Employer’s other contractors
• Clause 1.9 – Delayed Drawings or Instructions
• Clause 2.1 – Delayed Access to the Site
• Clause 4.7 – Errors in setting out information
• Clause 4.12 – Unforeseeable Physical Conditions
• Clause 4.24 – Items of Archaeological interest
• Clause 7.4 – Testing (not already required by the
Contract)
• Clause 8.5 – Delays caused by Authorities
• Clause 8.9 – Engineer’s Instructions to Suspend Work
• Clause 10.3 – Employer’s interference with Tests on
Completion
• Clause 13.7 – Changes in legislation
• Clause 17.4 – Employer’s Risks – rectification of loss
or damage caused by Employer’s Risks
• Clause 19.4 – Force Majeure – delays caused by
Employer’s Risks and natural catastrophes
 CAUSES FIDIC 99 EFFECTS OF
IMPACTS
1 Delayed Drawings or Instructions 1.9 Time + Cost + Profit

2 Access to the Site 2.1 Time + Cost + Profit

3 Setting out 4.7 Time + Cost + Profit

4 Testing on completion 10.3 Time + Cost + Profit

5 Contractors Entitlement to Suspend 16.1 Time + Cost + Profit

6 Unforeseeable Physical Conditions 4.12 Time + Cost

 CAUSES FIDIC 99 EFFECTS OF IMPACTS

7 Consequence of Employers Risks

Damage arising from war, riot etc. 17.3 a to e, h Time + Cost
Damage arising from Employer acts 17.3 f and g Time + Cost + Profit
Delay arising from war, riot etc. 19.4 Time + Cost
Delay arising from natural 19.4 Time
catastrophe
8 Consequence of Suspension 8.9 Time + Cost

9 Delay Caused by Authorities 8.5 Time

10 Variation Orders 13 Time + Cost + Profit

• 20.1 Contractor to give notice to the Employer not later than 28
days after the Contractor became aware of an event giving
entitlement to EOT or additional payment

• If the Contractor fails to give notice within 28 days, the Employer

shall be discharged from all liability

• 20.1 (a) Contractor to submit a fully detailed claim within 42 days

of the event which shall be considered as interim

• 20.1 (b) Contractor to submit further interim claims at the end of

each month

• 20.1 (c) Contractor to submit a Vinal claim within 28 days of the

end of the event
• 3.5 The Engineer shall consult with the Contractor in an
endeavor to reach agreement

• 3.5 The Engineer shall make a fair determination

• 3.5 The Engineer shall give notice to the Contractor with

supporting particulars
• GCC 8.7 – If the Contractor fails to meet the Time
for Completion shall pay delay damages

• Appendix to Tender 8.7 – Delay damages per day

• Appendix to Tender 8.7 – Maximum amount of

Delay damages (often 10% of Contract price)
• Retention –Clause 14.3

• Performance Bonds –Annex to Contract

• Parent Company Guarantees –Annex to Contract

• FIDIC has three sets ofclauses:

• Risk and Responsibility –Clause 17

• Insurance –Clause 18

• Force Majeure –Clause 19

• The Contractor is responsible for:

• Injury or death to persons (except if caused by

negligence by the Employer, agents or consultants)

• Damage to property arising from negligence, wilful

act or breach by the Contractor (except if caused by
negligence by the Employer, agents or consultants)

• Care of the Works and Goods until completion

• The Employer’s Risks are:
• War, rebellion, riot etc. etc.
• Occupation by the Employer
• Design of the Works
• Unforeseeable Forces of Nature
• Contractor entitled to EOT and recovery of cost
• Damage to the Works – Vire, Vlood etc – Clause
18.2
• Injury to third parties – Clause 18.3
• Damage to third party property – Clause 18.3
• Injury to persons working on the site – Employer’s
Liability – Clause 18.4
• Damage arising from Design problems – PI
• Force Majeure Events – Clause 19.1
• War, rebellion, unforeseeable forces of nature
etc. and natural catastrophes – earthquake,
hurricane, typhoon

• Party excused performance

• Contractor entitled to EOT and recovery of cost