A Construction Contract (“the Contract”) like every other contract spells out the terms upon which the parties bind themselves before, during and after a construction work (“the work”). For the work to meet the expectation of the Employer and for the Contractor to satisfactorily deliver the work, certain provisions must be included in the Contract to define the positions of the parties. This will not only enable the work to be completed within the stipulated period, it will also prevent unnecessary conflicts, waste of time and resources of the parties. Some of the provisions are discussed below.
(1) Scope of Construction Work
Either out of carelessness or inadvertence of the parties, some Construction Contract does not clearly define the actual scope of work of the Contractor. For instance a provision such as “The Employer hereby appoints the Contractor to construct an auditorium” without describing in details the size and design of the auditorium will create room for ambiguity. The parties will draw different conclusion as to how the auditorium should be constructed. It is therefore important for the Design Plan showing details of the work, the Letter of Award and Bill of Quantities for the work to be incorporated into the Contract.
In the same, the scope of work envisaged in a Contract may not be feasible as a result of a government policy or a ban in the importation of some of the materials for the work. The Employer may make variation to the scope of the work to suit an arising need. It may not be possible to carry out the scope of work as a result of events which occur after the execution of the Contract. The parties should envisage these circumstances in their Contract and make provisions on how to manage the variation in the scope of work.
(2) Period of Completion
Some work may be for an event fixed for a particular date; for example, a Stadium for a sport event or a multi-purpose hall for an international conference. The Employer would expose itself to ridicule and embarrassment and in some instances lawsuits for damages running into billions of naira if the work is not completed in time for the event. Hence, the Employer must tie the work to a stipulated period to enable the Contractor handover the work and correct snags and defects before the date for the event.
Besides, there should be room for extension of the completion period to take into account events of force majeure or incidents beyond the control of the Contractor.
(3) Contract Sum
This term may be an obvious provision of the Contract but many disputes arise from it. Disputes may arise where the contract sum was wrongly stated in the Contract. The Employer may intend to pay the contract sum in installments but dispute would arise if this was not stated in the Contract. If the mode of payment is unclear, there may be problems in effecting payments as at when due.
Furthermore, there may be a serious drop in the value of the local currency vis-à-vis the foreign currency upon which the assessment for the work was made. The Employer may even vary the scope of work to be carried out. The Contract must envisage these circumstances and its effect on the contract sum.
(4) Defects Liability Period and Payment of Retention Sum
It is common practice in construction for the Employer and Contractor to agree for the Employer to retain 5% of the contract sum until after the Defect Liability period. The Defect Liability Period is usually a 12 months period after practical completion and handover of the works to the Employer in which the Contractor will upon receipt of a schedule of defects from the Employer, remedy the defects and ensure the work is suitable for the purpose for which it was commissioned (“the remedial works”). Upon completion of the remedial works, the Employer or its agents will issue the Contractor with a Certificate of making good defects and the retention sum will be paid to the Contractor.
However dispute may arise if Employer fails to inform the Contractor of defects in the work within the Defect Liability Period and deny the Contractor the retention sum upon expiration of the period. In some instance, the Employer may insist on carrying out the remedial works by itself. It is without doubt that these disputes arise because the Contract did not make clear provision on the duties and obligations of the parties during the Defect Liability Period.
Moreover, with the prevalence of collapse buildings these days, the liability of the Contractor on the work should not be limited to the Defect Liability Period. Latent defects in the work may lead to a complete or partial collapse of the work within a few years after construction. Since the Nigerian law does not provide for a Decennial Liability Period against the Contractor for such collapse, it is important for parties to make such provision in the Contract. This will make the Contractor liable to the Employer and other third parties if the work collapses within a period of years.
(5) Insurance Policy
At a Construction site, the Employer’s and Contractor’s agents are at risk of sustaining injuries and death may even occur from accidents thereon. Hence, the parties must decide on the insurance policy they will take to absolve or mitigate their liability when an injury or death occurs at the site.
The parties must also decide whether the insurance policy will be maintained in their joint names or in the name of either of the party.
(6) Dispute Resolution
Conflicts and disputes are almost inevitable in a construction contract. In order to complete the work within the stipulated period, the parties must determine how their disputes will be resolved. The parties may resolve their disputes by a meeting between their representatives or by negotiations between them within a stated period. If the parties include a valid arbitration clause in the Contract, they will avoid the technicalities associated with litigation when negotiation fails. Arbitration affords the parties the opportunity to quickly resolve their disputes and concentrate on executing their obligations under the Contract. The acrimony and delay in litigation will hardly occur in arbitration especially where the parties makes the award of the arbitration tribunal final.
In conclusion, both the Employer and Contractor must ensure that the above provisions are not only included in their contract, they must ensure that the provisions are drafted in such a way that their respective interests are adequately protected. They must anticipate likely disputes that may arise and endeavor to reduce the occurrence of such disputes. If the parties envisage variation of the scope of work, it will be easier for the parties to reach an agreement on the effect of such variation.