Construction Contracts

Why you don't go ahead on a nod and a handshake.

Many people have asked me about the training required to become an Architect. Most have heard that it involves a long time at University, but not many realise that graduates are not yet fully qualified. It takes another year at least, and often two or three, of workplace experience before sitting the exam that allows one to use the title of Architect, in the course or business.

What really confuses people is that the exam has very little, if anything, to do with design.



The purpose of the examination is to ensure that the Architect is a competent professional, aware of all the legal and regulatory issues involved in running an Architects Practice. A major component of the exam is the JCT / SBCC construction contract. This type of contract is so widely used it is informally referred to a the "traditional" contract. The JCT / SBCC is a body composed of all the main groups involved in the construction and property industry in the UK. They make a suite of various contracts, suitable for a variety of building types and contractual arrangements. The SBCC revise their contracts every decade or so, to reflect current legal and construction practice. I offer my clients a Construction Contract service and I have several projects currently on site using the JCT / SBCC Minor Works 2011 contract. The SBCC version is suited to use in Scotland. The Minor Works is the most simple to administer of all the contracts in the SBCC suite and it is ideal for house extensions. This contract is signed by two parties; the property owner (known as the Employer) and the builder (known as the Contractor). The Architect acts as the Contract Administrator. The contract splits risk and responsibility equally between the two parties, it is not a stick to beat the Contractor with. The completion date and the construction cost are agreed at the outset. At it's simplest, the contract states that the Contractor will construct what is on the drawings, for the construction budget and be finished by the completion date and that the Employer will pay him for that service. The contract has many useful clauses which cover the many problems that can occur in a typical construction project. These are the main ones: Extension Of Time Liquidated and Ascertained Damages Payment and Retention Completion

Defect Rectification PeriodExtension of Time:


Thought the contract has a stated completion date by which the Contractor must be finished, this isn't absolute. The Architect can grant an Extension of Time if a delay has occurred for some reason that is "beyond the control of the Contractor". This usually means sever weather, strikes, acts of God, instructions given by the Architect, decisions not made in time by the Employer, etc.


Liquidated and Ascertained Damages:

More usually known as L&A Damages, this is money the Contractor must pay to the Employer if they don't finish the building by the agreed completion date and they don't have a valid claim for an Extension of Time. It must be in cash, hence Liquidated, and it must be ascertained, that is the sum must be relevant to a real loss suffered by the Employer due to not having the building finished on time. The sum must be agreed at the outset, before the contract is signed and it is usually charged on a weekly basis. Some of my clients have charged a sum that would cover them staying in a guest house if their homes weren't complete in time.



Payment and Retention:


Payment is controlled by the Architect. Every four weeks, the Contractor applies to the Architect for payment of all work done up to that date and for any materials they may have purchased. It's the Architects responsibility to certify that the works have been carried out in accordance with the contract and that the sum of money being claimed by the Contractor is a fair reflection of the work that has been carried out. If everything is in order, the Architect issues a Payment Certificate to the Employer, who then pays the Contractor. Each Payment Certificate contains a deduction of 5%, so if the contractor is claiming £10,000, they are paid £9,500. The 5% is called Retention and it is kept back by the Employer until the project is complete.



Completion:


When the building is finished, the Architect inspects it and, provided there isn't anything amiss, the Architect can issue the Penultimate Certificate. This releases half of the Retention fund to the Contractor, the remaining half is kept by the Employer until the end of the Defects Rectification Period. The Employer can now take possession of the building.


Defects Rectification Period:

This is a period of time, normally three months, from the date of completion during which any defect that wasn't apparent at completion must be rectified by the Contractor. It is for this reason that the remaining half of the retention fund, 2.5% of the construction cost, is kept back. If the Contractor cant or wont repair the defect, there is still money to pay another contractor to do so, although this seldom happens as 2.5% is usually a significant sum of money for any Contractor. At the end of Defects period, once everything has been rectified, the Architect can issue the Final Certificate. This releases the remainder of the Retention fund to the Contractor.Many of my client are relieved when I explain the workings of this contract to them, because it gives them confidence in dealing with a very stressful situation. Many builders like it as well, as it secures their cash flow. One builder told me he thinks its a great idea because he can shout at the Architect as much as he likes and not at the employer, who pays his bills

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