This Contract contains terms and conditions under which a contractor will carry our work and services for a client (referred to as the 'Company' in our draft). Although a fairly balanced document, it is designed from the Company's perspective and it is intended for use in a wide range of relatively low value projects, including work to be carried out by a contractor on the Company's premises - e.g. building an extension, constructing a car park, installing a boiler etc.
The precise scope of work and the payment terms are left to be included in the Schedules and these conditions of contract set out the regulations governing the relationship between the parties.
Dealing with the specific clauses:
This sets out certain capitalised words and phrases which are used in the Contract. As drafted, the only definitions which need to be completed are the Completion Date and the Effective Date, i.e. the date upon which the services are to be commenced and completed.
2. SCOPE OF SERVICES
This is left for completion in a Schedule. From both parties' point of view, it is important to have a clearly written and well-defined scope of services so as to avoid argument as to what is or is not included in the Contract Price.
This requires the Contractor to start and complete the services on time. Here you should note Clause 11 which deals with acceptance of the work and the possibility of extensions of time for completion.
4. PRICE & PAYMENT
The Contract Price and the terms of payment are to be included in a Schedule. This is likely to be a fixed Contact Price with payment being made as the work progresses. Sometimes there is a payment schedule which specifies the precise amount or percentage of the Contract Price to be paid on certain dates. It is advisable always to link the payment with progress - either by having the work valued before it is paid for or, where there is a Schedule of payments, linking payment to completion of elements of the work before any particular progress payment is made.
The wording in 4.1 contains a payment procedure that will apply if no alternative is set out in Schedule B. This procedure is fairly common in the UK and complies with the statutory requirements which now apply to payment under UK construction contracts. Our Free Information contains a download on this topic – document Z146.
Clause 4.2 contains a method of dealing with the situation where the Company is not happy with the amounts requested by the Contractor. Under the law notice has to be given before deductions are made and this wording complies with the law.
Clause 4.3 deals with VAT. Clause 4.4 is designed to make it clear that payment does not prejudice the Company's right to question the quality of any services. Clause 4.5, which may not be relevant in all cases, gives the Company the right of access to the Contractor's books and records.
5. WORK ON COMPANY PREMISES
This clause makes particular reference to the Contractor's obligations when working on the premises of the Company - not to interfere with the Company's activities, with third parties etc. It also deals with the need for the Contractor to comply with safety and other regulations which are in force. Where there are Company policies and procedures, the Company should make sure that copies are given to the Contractor at the beginning of the job.
As written, this clause requires the Contractor to obtain all necessary permits - from local authorities etc. In some circumstances, this clause will not be appropriate - it may, for example, be necessary for the Company as site owner to obtain the permits rather than the Contractor and an adjustment would be required. Also, if the Company's assistance is required, then a sentence to the effect that : "the Company shall provide all assistance reasonably requested by the Contractor in obtaining these licences", could usefully be added.
7. CONTRACTOR'S PERSONNEL
This not only requires the Contractor to employ suitably qualified people but also gives the Company the right to require the removal of personnel who are not acceptable.
In clause 7.3 there is provision for the Contractor to nominate a representative who will have authority to make decisions on the Contractor's behalf and to accept instructions.
8. COMPANY REPRESENTATIVE
This mirrors clause 7.3, with the Company nominating a representative authorised to make all decisions. In this connection, the Company should be careful to establish its own internal procedures so that where a critical decision is made, the representative consults with others in the Company before issuing an instruction to the Contractor.
9. ACCEPTABILITY OF SERVICES
This gives the Company wide powers to require re-performance of inadequate work or acceleration of a contract where progress is too slow.
10. STANDARD OF SERVICES
This clause sets a reasonably high standard against which the supply of services can be measured.
This deals with the inspection of the services by the Company when they are completed and the issue of an Acceptance Certificate by the Contractor.
In clause 11.2, there is a 12 month defects correction period during which the Contractor must remedy any defects which are notified to him. Failure to do so entitles the Company to engage a third party to do the work and back-charge the costs to the Contractor.
Clause 11.3 renews the guarantee for any remedial work carried out within that 12 months.
It is quite common for liquidated damages – i.e. a pre-determined amount – to be payable by a contractor if he fails to complete the work by the due date. If there is no liquidated damages clause the Company could claim for the loss it suffers as a result of the delay. With liquidated damages, which should be a reasonable pre-estimate of the loss, the Company can only recover the liquidated amount – which is usually expressed as a daily or weekly sum, limited to, say, 10 per cent of the contract price. With relatively low value contracts, liquidated damages may not be much of a sanction on the contractor, which is why we have not included this provision.
If you want to include provision for liquidated damages a clause along the following lines can be inserted:
“If the Contractor fails to complete the Services by the Completion Date, it shall be liable to pay the Company liquidated damages at the rate of [£ ] for each [day/week] of delay up to an amount equal to  per cent of the Contract Price. The Company may deduct liquidated damages from any amount owing to the Contractor.”
This clause makes the Contractor liable to indemnify - i.e. make good all losses - incurred by the Company in various circumstances - essentially where there is default or negligence on the Contractor's part causing damage to property or death or injury to individuals. Clause 12.3 deals with the death or injury of the Contractor's own personnel and clause 12.4 provides an indemnity for the Company in the event of any patent infringement by the Contractor.
In practice, these fairly onerous obligations on the Contractor should be covered by the insurances which he takes out under the next clause.
It is standard practice in most jurisdictions for a Contractor to take out construction all risks insurance covering loss and damage during the course of works. Public liability insurance, also known as third party insurance, will cover the risk of the Contractor causing death or injury to third parties or damage to third party property.
Clause 13.2 makes it clear that deductible - i.e. the "excess" which is not covered by the insurance policy, is the responsibility of the Contractor.
Clause 13.3 gives the Company the right to approve both the amount of insurance cover and the insurers selected by the Contractor.
It should be noted here that if work is to be done on Company premises, it may be more appropriate for the Company to arrange the works insurance. Although not covered specifically in this clause, the words at the beginning of clause 13.1 - "Unless otherwise agreed..." would allow this.
14. PERFORMANCE SECURITY
It is common in construction projects for a company to insist on the Contractor providing a performance guarantee from a bank or insurance company - usually for 10% of the value of the Contract. This guarantee can be called if the Contractor becomes insolvent or fails to perform its obligations. As with liquidated damages, if the contract value is fairly low, a performance bond may not offer much security – in which case, as contemplated by the opening words of the clause, the Company can agree not to require it – or else clause 14 can be deleted.
15. CLAIMS & LIENS
This clause is designed to ensure that ownership of materials incorporated in the Services passes to the Company when they are paid for or when they are delivered to the Company's premises. Clause 15.2 is designed to prevent third parties establishing any rights over materials and equipment.
In practice, especially in the event of Contractor insolvency, competing claims from third parties with regard to ownership of equipment - e.g. an unpaid materials supplier - can arise. The wording of this clause is nonetheless designed to give some protection to the Company.
16. TERMINATION & SUSPENSION
Under clause 16.1 the Company has the right to terminate the Contract if the Contractor is in default or becomes insolvent.
Clause 16.2 deals with the consequences of termination, giving the Company the right to retain equipment which is on the site as well as to recover the additional costs of engaging another contractor to complete the Services. Once the Contract is terminated, no further payment becomes due to the Contractor until the Services have been completed by someone else.
Clause 16.3 gives the Company the right to cancel all or any part of the Services at will and in that event, clause 16.4 allows the Contractor some compensation, in particular any extra costs it incurs - e.g. termination costs of personnel or cancellation of contracts plus, if the words in brackets are included, an allowance for anticipated profit.
This clause gives the Company the right to request variations and deals with the method of pricing those variations. It also, in clause 17.3, gives the Contractor the right to request a variation. Under 17.4, a procedure is established for the issue of a variation order by way of confirmation of any variations. This procedure is important: during the course of a contract, changes can be agreed on site and if those changes involve any additional cost there must be a variation order if the Contractor is to recover that cost.
18. COMPANY SUPPLIED MATERIALS
Especially when work is taking place on the Company's premises, the Company may provide some of the materials and this clause requires the Contractor to keep them in good condition pending use and to return any unused materials.
19. ASSIGNMENT & SUBCONTRACTING
Assignment - a transfer of the contract to a third party by the Contractor - is prohibited without the Company's prior written consent and if the consent is given, a formal novation agreement is entered into. Under such an agreement the assignee will enter into a new contract with the Company.
It is usual for Contractors to subcontract the supply of services and materials but prior approval of the Company is nonetheless required, but in this case it will not be unreasonably withheld. Clause 19.2 makes it clear that subcontracting does not relieve the Contractor of any of its obligations to the Company.
20. ENTIRE AGREEMENT
This clause makes it clear that preliminary negotiations and other agreements are superseded by this contract. In this connection, it is important for the contract to list any correspondence or documents which are comprised in the contract between the parties - e.g. the specification and any exchange of letters during the contract negotiations which are intended to be relied upon.
21. SETTLEMENT OF DISPUTES
This clause provides for a three stage process for resolving disputes: first direct negotiation, then adjudication and, finally, the courts.
Adjudication is a method of resolving disputes more quickly than through arbitration or the courts. Under UK law any party to a construction contract generally has the right to refer a dispute arising under the Contract to adjudication. The law states that a party can give notice at any time of his intention to refer a dispute to adjudication and the timetable must be designed to secure the adjudicator's appointment and the referral of the dispute to him within 7 days of the notice, with the adjudicator's decision within 28 days from referral. This 28 day period may be extended by 14 days with the consent of the referring party or for any other period by agreement between the parties.
The adjudicator must act impartially and be able to take the initiative in ascertaining the facts and the law.
The adjudicator's decision will be binding (and must be implemented) until a dispute is finally determined by legal proceedings, arbitration or agreement.
22. GOVERNING LAW
In particular, where a contract is entered into between two companies of different nationalities, e.g. an English client and a French contractor - it is sensible to specify the governing law - i.e. the law of the country which will be referred to in interpreting the Contract if a dispute arises. If no governing law is specified, ultimately the courts will have to determine which is the appropriate law to be applied. This is a complex topic which, hopefully, will not have to be argued if there is a governing law clause in the Contract. The Free Information section on our website has some more on this subject.
As there will be a number of notices issued during the course of the contract, it is sensible to make it clear that they must be in writing as well as dealing with the method of service of notices.