CONSTRUCTION CONTRACTS - WHY CONTRACTORS SHOULD HAVE TERMS AND CONDITIONS AS A MINIMUM

If you work in the construction industry, you need to read this article.

What is a contract?

You might think that a contract is a signed document that contains the terms between the parties. That is correct to a degree and it can be a lot more complicated then that.

What you probably did not know is that contracts can be written or oral and or a combination of the two.

Elements of Contract

For a contract to be legally enforceable, you need to prove the following:

(a)        an offer occurred; and

(b)        it was accepted; and

(c)        consideration (usually a promise to pay money occurred); and

(d)        an intention to be legally bound.

(the ‘Contract Elements’)

If you can prove the Contract Elements, you can establish that you have a legally enforceable contract. But how do you do that and is that enough to get paid?

Step 1 – Acceptance

Usually, when performing construction works, especially if you are a subcontractor, you will be asked by a client, or head contractor or principal to provide a quote. This is the offer to do work!

Offers can occur verbally, by email, by notice, invitation to tender or by receiving a purchase order to name a few methods relevant to the construction industry.

Regardless of how the offer occurs, you should keep a record of how you were engaged, as it may become relevant at a later point in time, especially if a dispute arises and someone does not want to pay you.

Step 2 – Offer

If you provide a quote in response to an offer, this may amount to a communication from you that you were willing and able to perform the work arising out of the offer. Once you provide the quote back to the offeror (provided it is not subject to any events that would invalidate acceptance) you may be able to prove that you accepted the offer to do work.

Step 3 – Consideration

Consideration is usually the promise to do something arising out of the agreement between the parties. It is typically to the effect that, if A does the work B will pay A for that work, typically the amount stated in the quote or contract.

In saying that, if events like variations, delays and extensions of time occur, your quote will more then likely be silent on these issues and your contract will fall short of an explanation. We will touch on this below.

Step 4 – Intention to be Legally Bound

Provided you have an offer, acceptance and consideration (as explained above), you will be able to prove the bare minimum contract to show:

(a)        who the parties are;

(b)        what the work was to be performed; and

(c)        the price to be paid (not taking into consideration any other circumstances). 

Essentially, there may be a basis for proving to a court that the parties had  an intention to be legally bound but it might not be enough to save you if a dispute arises.

So, what is the issue if I have a contract?

Just because you have a contract on a prima facie basis, does not mean that the obligations of the parties are clearly stated or capable of being determined.

In building and construction disputes, it is all too common for parties to dispute the amount of money owed under the contract, especially in the following instances:

(a)        when variations occur;

(b)        delays occur;

(c)        extensions of time;

(d)        latent conditions arise;

(e)        when payment is due;

(f)         what happens for defects;

(g)        access or prevention from site occurs;

(h)        paid when paid provisions (e.g. third parties not paying head contractors who do not pay their subcontractors as a result);

(i)          changes to scope of work;

(j)         changes to plans, specifications and drawings;

(k)        unclear due date for payment; and

(l)          unclear dispute resolution processes (resulting in unnecessary legal fees being incurred and diminished commercial relationships).

Solution

The first point of call for any contractor who is serious about reducing disputes and getting paid on time is to have a clear contract in place. As a bare minimum you should have tailored terms and conditions that accompany your quote.

Although you may have a contract without clear terms and conditions as explained above, you can achieve the following by having a written contract in place or custom terms and conditions you will have:

(a)        clear obligations of the parties;

(b)        reduced fights about contractual obligations, which improves commercial relationships;

(c)        improved contractual awareness; and

(d)        access to remedies when disputes arise reducing costs and delay.

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.