CONSTRUCTION CONTRACTS - BENEFITS OF A WRITTEN CONTRACT
At law a contract between two parties can be oral, written or partly oral partly written. However, when dealing with commercial contracts it is important for the parties to have a written contract, as by their nature they can be complicated. By having a written contract, the parties can determine the obligations they have to one another and how the risk will be shared. A written contract will also detail when payment will be made and how disputes will be resolved.
The Benefits of a Commercial Contract
The most important element of a commercial contract is the identification of the parties. As lawyers we too often see written contracts that incorrectly identify the parties. Should this occur it may result in an unenforceable contract. Consequently, it is for this reason builders and contractors should understand the different types of business contracts. The common structures include:
Sole Trader - Individual Natural Person who owns a business in their own name. they can personally trade in their own name, enter into service and credit contracts and employ employees.
Partnership – Relationship between persons with a view of profit. Business operates in the name of the partners and the partners jointly engage in trade, enter into service contracts and credit contracts and employ employees.
Private Company – An artificial entity recognised by law as a sperate legal person with its own rights and liabilities. The company engage in trade, enter into service contracts and credit contracts and employ employees. This structure has limited liability for the directors and shareholders.
Trusts – Not a separate legal entity. The trustee looks after the assets of the trust and the beneficiaries. The trustee on behalf of the trust enter into service and credit contracts and employ employees.
Additional Benefits of a Written Contract
Once the parties have been correctly identified in the written contracts, the other terms which should be addressed include:
Approvals. Detailing the statutory requirements for the project to be completed and the consequences (including who pays the additional cost) should a regulatory authority fail to give approval.
Time. Agreed date of practical completion and process of dealing with delay, if a project completion is delayed. This includes which party will incur the additional cost, to what extent and how the delay is to be measured.
Variations and Design Issues. What will amount to a variation of a defect and how will the variation be approved and resolved. In the case of a defect in the design, which party will be responsible for correcting the defect and to what extent.
Acts of God / Damage to the Work / Effects of Weather. What is the process for acts of god and which party is responsible for the additional costs and delay.
Payment: When payments are to be made and if there is a dispute, the mechanism that will be used to resolve the dispute.
Indemnity. Who and when will a party be indemnified including who is responsible for injuries to third parties.
This above list is not exhaustive and therefore we recommend that you engage a properly qualified lawyer to draft your construction contract to meet your individual needs.
Many construction companies elect to use industry forms and do so without really understanding the contents of the form or the correct form to use in each different project. Whenever you sign an agreement you should fully understand your rights and obligations and the consequences should you or the other party breach the agreement.
If you would like advice in respect of your circumstances, we are happy to provide you with a free initial consultation to help you determine your next steps (if any). Please contact us 1300 011 123 team@wallaceweir.com.au
Please note that this article is written as an informative piece and that you must not take the contents of this article as legal advice. Wallace Law Group accepts no liability from your reliance on this article.
