Contractual issues
Whether standard form or bespoke, contracts for major construction and infrastructure projects in the UK tend to be complex, and subject to significant negotiation prior to their execution.We set out below a snapshot of some of the issues and risks that are most commonly encountered by contracting parties.
Price and payment The price, the length of the payment period, and the way in which both anticipated and unforeseen increases in costs are managed is of key concern to contracting parties. Methods of payment vary according to the nature of the contract. The four main types of payment are: – – Lump sum A pre-agreed sum that the contractor will be paid to carry out either a stage of or the whole of the works that are required under the contract (subject to adjustment for certain supervening events – including variations – for which the contractor may receive additional monies) – – Measurement The work is measured and valued according to a schedule or formula – – Prime cost Payment is made for the cost of labour and materials used – – Cost plus Payment is by prime cost, as above, plus an added percentage for profit
The risk of price fluctuations in the market is usually borne by the contractor. Some UK standard form contracts include fluctuation provisions, but they are often amended to exclude these provisions. Certain aspects of payment under the contract, such as instalments and notices of sums due, are dictated by the Housing, Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 (the Construction Act ). If the parties to a contract fail to incorporate provisions which comply with the requirements of this legislation, then the relevant sections of the Scheme for Construction Contracts (issued pursuant to the Act) will apply to their contract. Contractors may seek to mitigate the risk of non-payment by requiring the client to provide a bond by way of security. In the current market, contractors may request such bonds for high value or high risk projects. Project bank accounts provide security for the supply chain on larger projects. This mechanism requires the client to make payments due under the main contract directly into a single bank account.
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