Construction Contracts

Introduction
The construction industry as a whole is a very diverse and complex world. There are a huge
range of people involved in the average project; client, contractor, architects, engineer,
building surveyors amongst many other parties. Regardless of its technological complexity
any reasonably sized project involves a high level of organizational complexity (Murdoch &
Hughes 1996 p1). And at the heart of every project is the contract. There is an abundance
of available contracts including many off the shelf standard forms. This report will primarily
focus on the JCT11 SBC/Q. As mentioned the construction industry is diverse and when
entering into a contract the parties must be diligent and take care. Many official publications
such as the Lathem report, the Egan report and many government construction strategy
reports have noted that many construction contracts available tend to be adversarial and
cause conflict. Conflict, adjudication and arbitration are all events that every
employer/contractor should strive to avoid.
This report is going to address the issues that Modern Contractors have been presented with
during the course of the contract. These issues mainly concern delay and payment. Delays
are inevitable on all construction sites and for this reason there must me provisions to deal
with such events. Payment is a fundamental part to any contract this is the consideration and
without it there can be no contract. On a more personal note payment and more importantly
prompt payment is essential to the survival of many companies and late payment might
mean that a contractor is unable to continue with its contractual obligations, so again there
needs to be mechanisms in place to ensure that payment is administered fairly. The report
examines the various provisions under the JCT11 SBC/Q available Modern Contractors and
to Smart and the duties they both have.
Issue 1
The first issue that modern contractors are faced with is concerned with possession of the
site and the subsequent delay that this has caused.
It is an implied term in contract law that Smart contractors will give possession of the site to
Modern Developments in a reasonable time to allow Modern Contractors to complete their
work by the contractual date (Adriaanse 2007 p142). The date for possession should be an
express term written into the contract particulars. If the contract stays silent on the issue then
common law states that the contractor should be given possession within reasonable time to
complete the contracted work Freeman v Hensler (1900) 1 time will now in this situation be
considered to be at large. Where the contractor fails to complete the work in a reasonable
time it is possible for the employer to issue a notice that will make time of the essence.
Clause 2.4 under section 2 carrying out of works states that Smart Developments should
give Modern contractors possession of the site to allow them to commence with the work
which they have been contracted to do. Failure to grant possession to modern contractors
could be considered a breach of contract which might result in awarding modern contractors
damages Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1984)2.
Because Modern contractors were not given possession of site by the commencement date
any right of Smart to claim Liquidated damages as a result of late completion will be lost

1
2

Freeman v Hensler (1900) 64 JP 260

Rapid Building Group Ltd v Ealing Family Housing Association [1985] 29 BLR 5

Holme v Guppy (1838)3.Smart Developments should make use of clause 2.5 this would
allow them to defer the possession date for up to six weeks, there is no express term that
states Smart Developments should provide written notice of the deferment. Clause 2.28 will
allow Modern contractors to apply for an extension of time under clause 2.29, this clause
sets out all the relevant events that an extension of time is applicable for. Clause 2.29.3
refers to deferment of the giving of the possession of the site.
Conclusion to issue 1
In this case an extension of time should be granted and damages also will be available to
modern contractors. Smart Developments should make use of clause 2.5 allowing the
deferment of possession. Modern Contractors would then be able to apply for an extension
of time clause 2.29.3. Because the delay was caused by Smart developments they would
lose the right to claim liquidated ascertained damages from Modern Contractors for late
completion of the contract. Furthermore Modern Contractors may also be able to claim loss
and or expenses. Clause 4.23 states that any loss or expense that has or is likely to occur
due to the deferment of possession of site will be reimbursed to the contractor, considering
that the delay took place actually on the date of possession it would be fair to say that there
might be substantial losses such as plant hire, subcontractors and deliveries. Although it
should be taken into consideration that this was the main entrance perhaps Modern
Contractors would have had other routes of entry at their disposal. One other thing to
consider is that it might not (depending on the materials left in the entrance) be
unreasonable for Modern contractors to move the obstruction and continue with the work.

Issue 2
The second issue to arise again concerns delay but on this occasion it is caused by a
statutory authority. In general utility companies such as gas, electric, water and
telecommunication suppliers are statutory undertakers this means that they hold a legal right
under government legislation to carry out and inspect work.

Under a construction contract the contractor has an obligation and a right to carry his
work and the employer has an obligation to allow the work to be carried out. An
employer must not hinder the progress of work in any way. If a delay in the main
ground works led to a delay in the completion date and was the outcome of an event
caused by Modern contractors then this would allow Smart to recover Liquidated
damages. In this case British gas were called to replace a gas main that was not in
the stated in the bill of quantities or any other contract documents. This will entitle
Modern contractors to apply for an extension of time. Clause 2.27.1 of the JCT
SBC/Q requires the contractor if and whenever it becomes reasonably apparent that
the progress of works or any section is being or is likely to delayed the contractor
shall forthwith give notice to the architect/contract administrator of the material
circumstances, including the cause or causes, and shall identify in the notice any
event in which his opinion is a relevant event. British gas are statutory undertaker so
modern contractors will claim an extension of time under clause 2.29.8 this covers
acts and omissions of statutory undertakers. Unless employed under a subcontract
British gas will be considered to be employed by Smart Developments Henry Boot
3

Holme v. Guppy (1838) 3 M & W387

Construction Ltd V Central Lancashire Development Corporation (1980)4. Smart will be

liable to pay any expenses and losses associated. But this will protect Smart developments
right to claim liquidated damages. It should be noted that using clause 2.29.8 will not always
guarantee protection against liquidated damages. If it can be proved that the contractor
would still be in delay weather or not a statutory undertaker caused any extra delay Jerram
Falkus Construction Ltd. v Fenice Investments Inc. (1935)5.
Conclusion to issue 2
In this situation an extension of time will be available to Modern Contractors they will also be
able to claim for any loss or expenses incurred due to delay caused my British Gas. British
gas are unless employed as a sub-contractor considered to be under contact with Smart
Developments. Modern Contractors will be able to use clause 2.29.8 and will be able to
claim losses using clause 4.24.5 this refers to any act by Smart Contractors or any of Smarts
persons and as British gas are a statutory undertaker then they will be considered to be one
of the employers persons.
Issue three
The issue here concerns the discovery of roman coins and the delay caused by the
archaeological work. When the building project was in its infancy and the plans were
submitted to the planning office they would have been cross referenced against local records
to ascertain whether the proposed building was going to be developed on areas of
archaeological interest. The information gained would allow for the employer to plan or
insure against this risk. Under the JCT11 SBC/Q clause 3.22.1 any fossils, antiquities or
other items of value which are found on the site or whilst excavating will become the
property of Smart Developments Modern contractors should use his best endeavours not to
disturb the work and cease work as set out in clause 3.22.1. Modern contractors should
apply for an extension of time under clause 2.29.4. Smart Developments will be liable to pay
modern contractors for any loss and or expenses under clause 2.23, the regular progress of
the works or any other part of them has been materially affected or likely to be affected by
any of the relevant maters. Clause 4.24 sets out the relevant matters and clause 4.24.3
states compliance with clause 3.22.1 or with 3.22.2. Claims under this ground are not
uncommon and are likely to increase. The provisions of the Ancient Monuments and
Archaeological areas act 1979, affect contractors working in areas of Archaeological
importance Chapple, D (2013). It should be considered whether or not that Modern
contractors could have started work on any other part of the site. This could affect how much
damages they are awarded.
Issue four
The final issue Modern Contractors are faced with concerns payment and their right to
payment and sub-contractors. Payment is essential to the survival of many contractors.
During the course of this contract Modern contractors will have many expenditures they will
need to pay for materials, sub-contractors amongst other liabilities. The inclusion of interim
payments in the JCT11 SBC/Q help keep contractors above the water, cash flow has been
referred to by the courts as the life blood of the industry Uff, J (2005). For this reason it is
imperative for the survival of many contractors that provisions for interim payments are
4

Henry Boot Construction Ltd V Central Lancashire Development Corporation (1980) 15 BLR
1
5

Jerram Falkus Construction Ltd. v Fenice Investments Inc. (No. 4), [2011] EWHC 1935
(TCC)

implemented. In standard forms of contracts the obligation to pay will depend on two things,
weather the contract is entire in this case the contract would be considered to be a lump sum
and payment will only be received once all the obligations to the employer have been
completed Sumpter v Hedges (1898)6. The other condition is weather the contract is
severable this means to be able to separate the contract in to different parts Ritchie v
Atkinson (1808)7. In this case Smart have agreed to monthly interim payments this makes
the contract severable. Smart Developments have agreed with Modern Contractors to pay
monthly interim payments under section 4.9.1 in the contract particulars. The
Architect/contract administrator on behalf of Smart Development should no later than five
days after the date (15th) issue an interim to modern contractors stating the amount that he
considers to be due clause 4.10.1 also will state the method used for calculating this
amount. Smart are under an obligation to pay and clause 4.12.1 states that payment should
be made within 14 days after the due date unless clause 4.12.4. If clause 4.12.4 was used
this would mean that Smart had failed to issue an interim certificate to within the 5 day
period set out in clause 4.10.1, Modern contractors could now any point after the 5 day
period issue an interim payment notice to Smart Developments Quantity Surveyor again this
will state the amount that the contractor believes is due to him and the methods in which this
sum has been calculated. This will now move the final payment date forward by the same
number of days after the 5 day period that the interim payment notice is issued. Assuming
that Smart continue failing to pay then they will be liable under clause 4.15.7 to pay interest.
JCT11 SBC/Q set this at 5% above the base rate. It should be noted however that
acceptance of interest payments under this clause does not account to waiver of the original
debt 4.15.8. If the contract does not contain a provision for interest then Modern Contractors
can rely on the Late Payment of Commercial Debts Act 1998 to claim interest for late
payment after the appropriate due date. Modern contractors could consider Smart
developments failure to as a breach of contract and suspend performance, the contractor
has a statutory right to suspend work for non-payment Adriaanse 2007 p204. The
contractor must give seven days notice to the employer that they plan to suspend
performance, work will be suspended until payment has been made by Smart. It is possible
for the contractor to claim any loss or expenses under clause 4.23 matters materially
affecting the progress of work. Clause 4.24.5 under relevant matters states any impediment,
prevention or default, whether by act or omission, by the employer, the architect, quantity
surveyor or any of the employers persons. An extension of time will be available to the
contractor clause 2.29.6 refers to suspension of work by the contractor. Modern Contractors
are proposing to implement a pay when paid clause that will allow them to pay their subcontractors when they have been paid by Smart Developments, this will ease the cash flow
issues. The Housing Grants, Construction and Regeneration Act (Construction Act 2013)
have outlawed the inclusion of such provisions it is not fair for the performance of a third
party to affect the payment of the main contractors subcontractors. So Modern Contractors
will be obliged to pay its sub-contractors irrelevant of whether Smart pay them.
Conclusion
So in the first issue Modern contractors will be entitled to an extension of time and to
damages. Smart Developments leaving the materials on site constitutes an act of
prevention. So providing that Smart include a deferment of time clause then this event would
be covered in the relevant matter thus protecting Smarts right to deduct liquidated damage
for failure to complete. In the second issue again an extension of time will be available and
loss and expenses will be recoverable. British gas are a statutory undertaker so clause
2.29.8 applies in relation to the amendment to the completion date. Clause 4.24.5 will be
applied to recover losses as British gas are under contract with Smart Developments.
Smarts right to liquidated damages will be preserved as this event is covered in the relevant
6
7

Sumpter v Hedges (1898) 1 QB 673 Court of Appeal

Ritchie v Atkinson (1808) 10 East 295

matters for an extension of time. Issue three will once more see Modern Contractors granted
an extension of time under clause 2.29.4. This will protect the right to liquidated damages for
the employer. Damages will be recoverable under clause 4.24.3. In issue four Modern
Contractors will have the right to suspend work under clause 4.14.1 after giving smart
developments notice of seven days of their intent to do so. Damages will be recoverable
under clause 4.14.1. Interest will be owed to Modern contractors under clause 4.15.7. An
extension of time will also be available to modern contractors under clause 2.29.6. All these
issues reinforce why it is important to both the employer and the contractor in construction
contracts to have a good knowledge of the contract. It is essential that the contractor is
aware of damages that are available to him for the inevitable delays and disputes that arise
in all projects. It is also very important for the employer to be preserve his right to liquidated
damages.