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Construction Contracts

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First edition published 1992 by E & F N Spon

Second edition published 1996

Third edition published 2000 by Spon Press

Fourth edition published 2008 by Taylor & Francis

This edition published 2015 by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

And by Routledge

711 Third Avenue, New York, NY 10017, USA

Routledge is an imprint of the Taylor & Francis Group, an informa business

The right of Will Hughes, Ronan Champion and John Murdoch to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any efforts or omissions that may be made.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Hughes, Will (William Paul), 1956author.

Construction contracts : law and management / Will Hughes, Ronan Champion and John Murdoch. -- 5th edition.

pages cm

Includes bibliographical references and index.

1. Construction contracts--England. I. Murdoch, J. R., author. II. Champion, Ronan, author. III. Title.

KD1641.H84 2015 343.4107’8624--dc23 2014047697

ISBN: 978-0-415-65705-1 (hbk)

ISBN: 978-0-415-65704-4 (pbk)

ISBN: 978-1-315-69521-1 (ebk)

Publisher’s Note

Camera-ready copy prepared in Times New Roman by Will Hughes

Contents

Introduction ................................................................................................			v
List of tables ..............................................................................................			vii
List of figures .............................................................................................			ix
Table of cases .............................................................................................			xi
Table of statutes......................................................................................			xxv
Glossary.................................................................................................			xxvii
1	UK construction sector context ......................................................		1
	1.1 The nature of the sector .....................................................................		1
	1.2 The nature of professionalism in construction...................................		6
	1.3 The nature of projects ........................................................................		8
	1.4	Procurement methods ......................................................................	11
2	Roles and relationships .................................................................		13
	2.1	Common problems...........................................................................	13
	2.2	Client roles.......................................................................................	18
	2.3	Consultant roles ...............................................................................	20
	2.4	Professional services agreements.....................................................	21
	2.5	Architect ..........................................................................................	22
	2.6	Quantity surveyor ............................................................................	24
	2.7 Typical terms in professional services agreements..........................		24
	2.8	Integrated documentation ................................................................	28
3	General contracting.......................................................................		31
	3.1	Background......................................................................................	31
	3.2 Use of general contracting ...............................................................		34
	3.3	Basic characteristics.........................................................................	40
	3.4 Risk in general contracting ..............................................................		45
	3.5 Standardized approaches to general contracting..............................		49
4	Design-build ...................................................................................		51
	4.1	Background......................................................................................	51
	4.2 Features of DB contracts..................................................................		53
	4.3 Use of the JCT design build form (JCT DB 11) ..............................		56
	4.4 Characteristics of JCT DB 11 ..........................................................		61
	4.5	Risk in DB .......................................................................................	64
	4.6	Approaches to DB............................................................................	66
5	Construction management............................................................		69
	5.1	Background......................................................................................	69
	5.2 Use of construction management contracts .....................................		71
	5.3 Principles of CM contracting...........................................................		73

ii	Construction Contracts
	5.4 Overview of JCT CM Contract........................................................		75
	5.5 Allocation of risk in construction management ...............................		77
	5.6 Approaches to construction management ........................................		79
6	Collaborative contracting .............................................................		81
	6.1	Background......................................................................................	81
	6.2 Use of collaborative contracting......................................................		82
	6.3 Principles of collaborative contracting ............................................		84
	6.4 Characteristics of collaborative contracting.....................................		84
	6.5 Risk in collaborative contracting .....................................................		90
	6.6 Approaches to collaborative contracting .........................................		91
7	Risk allocation and procurement decisions.................................		93
	7.1 Types of risk in construction contracts ............................................		93
	7.2	Dealing with risk..............................................................................	94
	7.3	Procurement.....................................................................................	99
	7.4 Identifying and choosing procurement methods............................		103
	7.5 Characteristics of procurement methods........................................		107
8	Contract choice ............................................................................		117
	8.1 Use of standard contracts...............................................................		117
	8.2	Contract drafting............................................................................	120
	8.3	JCT contracts .................................................................................	120
	8.4	Other standard-form contracts .......................................................	127
	8.5 The burgeoning landscape of standard forms ................................		132
9	Tendering and contract formation.............................................		133
	9.1 The meaning of construction contracts..........................................		133
	9.2 The formation of contracts by agreement ......................................		134
	9.3 Contracts made by tender ..............................................................		144
10	Liability in contract and tort ......................................................		157
	10.1	Express terms.................................................................................	157
	10.2	Exemption clauses .........................................................................	166
	10.3	Incorporation by reference.............................................................	168
	10.4	Implied terms.................................................................................	169
	10.5 Liability in tort for negligence.......................................................		172
11	Contractor’s obligations..............................................................		175
	11.1	Standard of work............................................................................	175
	11.2	Statutory obligations......................................................................	179
	11.3	Co-ordination and management.....................................................	181
	11.4	Transfer of materials......................................................................	185
12	Employer’s obligations................................................................		187
	12.1	Implied obligations........................................................................	187
	12.2	Employer’s express obligations.....................................................	190
	12.3 Responsibility for the contract administrator.................................		192
	12.4 Responsibility for site conditions ..................................................		193
	12.5	Health and safety ...........................................................................	196

Contents iii

13	Responsibility for design.............................................................		197
	13.1	Design management.......................................................................	197
	13.2 Design duties in law.......................................................................		198
	13.3 Legal responsibility for design ......................................................		204
14	Time	..............................................................................................	209
	14.1	Commencement.............................................................................	209
	14.2	Progress .........................................................................................	211
	14.3	Completion ....................................................................................	212
	14.4 Contractor’s obligations after completion......................................		216
	14.5	Adjustments of time.......................................................................	217
15	Payment ........................................................................................		229
	15.1 Employer’s obligation to pay.........................................................		229
	15.2	The contract sum............................................................................	233
	15.3	Variations.......................................................................................	234
	15.4	Fluctuations ...................................................................................	243
	15.5	Retention money............................................................................	244
16	Contractors’ delay and disruption costs....................................		249
	16.1 Contract claims and damages ........................................................		249
	16.2 Grounds for contractual claims......................................................		251
	16.3	Claims procedures .........................................................................	254
	16.4	Quantification of claims.................................................................	256
17	Insurance and bonds ...................................................................		267
	17.1	Insurance........................................................................................	267
	17.2	Bonds and guarantees ....................................................................	277
18	Role of the contract administrator.............................................		283
	18.1 Contract administrator as the employer’s agent.............................		283
	18.2 Contract administrator as independent certifier.............................		294
19	Sub-contracts ...............................................................................		303
	19.1 Reasons for the prevalence of sub-contracting ..............................		303
	19.2 The legal basis of sub-contracting .................................................		305
	19.3	The contractual chain.....................................................................	306
	19.4	Domestic sub-contracts..................................................................	307
	19.5	Defaults of sub-contractors............................................................	309
	19.6	Rights of sub-contractors...............................................................	313
	19.7	Collateral warranties......................................................................	319
	19.8 Employer selection of sub-contractors...........................................		324
20	Financial remedies for breach of contract.................................		331
	20.1	General damages............................................................................	331
	20.2	Liquidated damages.......................................................................	336
	20.3	Quantum meruit claims..................................................................	341
	20.4 Non-payment as a contractual remedy...........................................		342
21	Defective buildings and subsequent owners ..............................		347
	21.1	Claims in negligence......................................................................	347
	21.2	Statutory protection .......................................................................	350

iv	Construction Contracts
	21.3 Alternative forms of legal protection.............................................		353
	21.4	Assessment of damages .................................................................	358
22	Suspension and termination of contracts ..................................		361
	22.1	Suspension of work ........................................................................	361
	22.2 Termination for breach at common law.........................................		362
	22.3 Termination under JCT contracts...................................................		369
	22.4 Termination under NEC contracts .................................................		375
	22.5 Termination under FIDIC contracts...............................................		376
	22.6 Termination of contract by frustration...........................................		377
23	Non-adversarial dispute resolution............................................		379
	23.1	Background to disputes ..................................................................	379
	23.2 The nature of construction disputes...............................................		382
	23.3 The role of the contract administrator............................................		384
	23.4 Methods of dispute resolution........................................................		384
	23.5 References to ADR procedures in standard forms.........................		389
24	Adversarial dispute resolution....................................................		391
	24.1	Adjudication ..................................................................................	391
	24.2	Arbitration .....................................................................................	398
	24.3	Litigation .......................................................................................	407
	24.4	Arbitration or litigation? ................................................................	409
References		...............................................................................................	415
Author index ...........................................................................................			421
Subject index...........................................................................................			423

Introduction

This book is aimed primarily at students for whom the study of building or civil engineering contracts forms part of a construction-based course. We have had in mind the syllabus requirements for first degrees in Building, Civil Engineering, Architecture, Quantity Surveying and Building Surveying, as well as those of postgraduate courses in Construction Management and Project Management. We have also assumed that such students will already have been introduced to the general principles of English law, especially those relating to contract and tort. As a result, while aspects of those subjects that are of particular relevance to construction are dealt with here, the reader must look elsewhere for the general legal background.

In producing this fifth edition, we have again been greatly assisted by the many helpful comments made by reviewers and users of previous editions. Nonetheless, our basic aim is identical to that which underpinned the first edition: to provide an explanation of the fundamental principles of construction contract law, rather than a clause-by-clause analysis of any particular standard-form contract. As a result, the book is based not just on one standard-form contract. We draw frequently upon particular standard-form contracts, such as JCT SBC 11, FIDIC 1999 Red Book, NEC3 and ICC 11 for our illustrations of particular points and to contrast different approaches to specific issues. The choice and range of contracts reflects the preeminent positions occupied by the forms currently in use, both in the UK and internationally. Indeed, by dealing with these contracts in the context of making general points about construction contract law, we hope that we generate insights for users in a wider range of countries than the UK.

Finally, we repeat our previous warning as to the dangers inherent in a little learning. Neither this book, nor the courses for which it is intended, seek to produce construction lawyers. The objective is rather to enable those who are not lawyers to resolve simple construction disputes before they become litigious, and to recognize when matters require professional legal advice. We feel that every construction practitioner should understand the legal framework in which they operate. The extent of this understanding should be enough to enable them to instruct and brief specialist construction lawyers. We hope that this is also the aim of every construction student. Ultimately, our aspiration is that this book will help construction practitioners to understand the impact of contract law on their work in construction projects of all kinds, in diverse countries.

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List of tables

Table 2.1: Structure of responsibilities in construction projects	................15
Table 7.1: Principles of procurement .......................................................	105

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