Law of Contract – Part 1 - What constitutes a contract? - Construction & Built Environment

After entering into a contract it is no argument or defence to claim the terms are ‘unfair’ as under the doctrine of freedom of contract, there is no requirement for the terms to be so.  The lesson here is to be fully aware of the terms of your contract and your contractual obligations before signing the contract, which will actually mean reading it, including the small print!

Source: http://www.holcomb-law.com/

I am sure that many of us have previously entered into a contract without fully understanding the terms of what we have agreed or indeed the implications of being in a ‘legally binding’ contract.  This may be because we are so keen to get our hands on whatever it is want/need that we often do not read the details of the agreement and particularly the small print.   Typical examples may include mobile phone contracts, tenancy agreements or commercial leases or where we have purchased something such as a house or a car. In fact the term ‘exchange of contracts’ is generally well known by those buying and selling property, however contracts are also formed for purchases of items for much less value, even single low cost items that you may not realise.  The actual price or value of something does not influence whether a contract is formed, as long as there is an exchange of something of value, something known as consideration, which does not necessarily have to be money.  I will discuss this in more detail in next week’s article.

Source: http://www.arabianbusiness.com/

Construction contracts can be particularly complex and many disputes that occur revolve around an argument of whether there is a binding contract in place or not. Solicitors and their legal representative will expend an enormous amount of time looking at the conduct of the parties, reviewing correspondence between the parties, looking at the wording of a contract and reviewing decisions of previous cases to try to establish legal precedent, in order to prove or dis-prove that a contract actually exists.  As you would expect this can prove to be very expensive and proof of the existence of a contract will have very different implications for the plaintiff (the person or party who brings the action/case) and the defendant (the person or party whom the action is brought).

In order to understand the basic concepts of English contract law it is worth being aware that many of the principles were developed in the eighteenth and nineteenth centuries under the doctrine of ‘Freedom of Contract’. This means that parties to a contract can enter into whatever terms they want, without any interference, influence or input from the courts or the government, with the exception of illegality, fraud or other legal wrong. The terms that are agreed within a contract may sometimes appear to be more in favour of what party over the other however, as the parties are free to enter into whatever terms they want this will still result in a legally binding contract once agreed and signed.  Therefore, after entering into a contract it is no argument or defence to claim the terms are ‘unfair’ as under the doctrine of freedom of contract, there is no requirement for the terms to be so.  The lesson here is to be fully aware of the terms of your contract and your contractual obligations before signing the contract, which will actually mean reading it, including the small print!

Source: http://www.sutherlandsurveyors.co.uk/

Most contracts are made in writing and in fact there are many suites of standard forms of contract available for all types of construction related projects such as JCT, NEC, ICE, FIDIC and others.  These provide ‘off the shelf’ solutions for a whole range of different types of projects and procurement methods, and are regularly updated to reflect industry and legislation changes by the bodies that draft them.  Although they include their own standard clauses these can be amended or deleted or even have new clauses added, to suite the requirements of the parties.  As these types of contracts have evolved, in most cases over many years, they are now well established within the UK construction industry and clearly saves time and money in writing and preparing bespoke contracts from scratch.

Although standard forms of contract are used extensively in the UK construction industry, they are not always as easy as you would think to get agreed and signed. A number of years ago I was involved in large new build housing development where I was acting as Employers Agent for a large Housing Association, a Registered Social Landlord (RSL). Before I drafted the JCT Design and Build contracts I asked the RSL whether they had any specific contractual terms which they wanted amending, adding or deleting from the contract.  About a week later, I received a document in the post from them which had obviously been prepared by their solicitors which gave almost a clause by clause narrative of amendments that they required. As I started making the amendments I started to wonder why they had bothered with the use of a standard form of contract as the amount of changes they required was so comprehensive.  I persevered with the changes and then eventually sent the contracts and documentation to the Contractor for signature, at which point the fun really started! I can only imagine what the Contractor thought when they noticed all of the amendments and all I can tell you is that they were not impressed. As the Contractor objected to some of the amendments and wanted other terms re-worded and others removed, the contract negotiations became very protracted, in fact after a number of meetings and endless emails and telephone conversations, both parties signed the contracts, however this took over two months to achieve from when I first drafted the initial contracts.

Whatever the nature of a contractual relationship, be it a multi-million pound new build housing development as described above or even something much simpler, it is worth understanding the fundamental ingredients that are required to form a legally binding contract, which I will discuss in next week’s article.

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