INTRODUCTION TO CONSTRUCTION LAW

Construction projects touch many areas of law, including contract and tort, equitable obligations, restitution, agency and the sale of goods.

There are many methods of procuring construction contracts. Traditional procurement involves an employer engaging a designer to design and, separately, a contractor to build. This may involve the employer contracting with a quantity surveyor, an architect and an engineer as well as the contractor. The contractor may in turn engage subcontractors.

Another form of procurement is “design and build” (or “turnkey”), where the contractor agrees to design and build a project according to the employer’s requirements. In these circumstances, the employer contracts with a contractor and the contractor in turn may engage designers, quantity surveyors, sub-contractors.

Parties’ obligations are often governed by a contract, which may or may not be in a standard form. (Standard form contracts are drafted, for example, by industrial bodies. They are in common use and include the JCT, NEC and ICE contracts). Section 104 of the Housing Grants Construction and Regeneration Act 1996 (“HGCRA 1996”) (Pt II of the (Construction Contracts) of the HGCRA 1996 has been amended by the Pt 8 of the Local Democracy, Economic Development and Construction Act 2009 (the 2009 Act), with the amendments coming into force in England and Wales from October 1, 2011. Transitional provisions apply. Reference should be made to s.149 of the 2009 Act) defines a “construction contract”. If a contract falls within the threshold requirements of HGCRA 1996, the parties’ obligations (including as to payment (Refer HGCRA 1996 ss. 109-113) and dispute resolution (Refer HGCRA 1996 s.108) will be affected by this statute.

The claims which a party can make in contract depend upon the terms of the particular contract. A contractor may claim under the contract, for example, for unpaid sums or a final account. Another typical claim by a contractor is that pursuant to a provision in a contract it is entitled to an extension of time to complete the works, either with or without a payment for loss and expense to cover the cost of it being on site for a longer period of time. An employer may, for example, rely on a provision in the contract that says it is entitled to liquidate damages if the project is handed over late due to the fault of the contractor.

If a contracting party suffers loss as a result of another party’s breach of contract, it can sue for damages. An employer, for example, may claim that in breach of express or implied terms of the contract, the works contain defects.

If a party suffers loss as a result of negligence, that party may seek to sue in tort. Where a party wishes to sue the party it contacted with concurrently in tort (for example because the limitation period under the contract has expired) difficult questions arise about whether there is in fact a duty owed. (Refer, Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9).

The law of restitution is also relevant, for example if the contractor carries out work for an employer without entering into any contract. In such circumstances a claim for quantum meruit (or what the work is worth) may be made.

As well as HGCRA 1996, parties to construction projects will need to have regard to other statutes, including the Defective Premises Act 1972 and the Party Wall etc. Act 1996.

There are three forms of formal dispute resolution, namely court proceedings, arbitration and adjudication. Alternative dispute resolution, including mediation, is also frequently used by parties to resolve disputes even before proceedings are issued.

In terms of court proceedings, the Technology and Construction Court (“the TCC”) is the specialist construction court for both England and Wales. It deals with a wide range of disputes from across the world. Both the High Court and the County Court deal with TCC business. Before commencing a construction law dispute, reference should be made to the Pre-Action Protocol for Construction and Engineering Disputes, Pt 60 of the Civil Procedure Rules and the Technology and Construction Court Guide (2nd edn).

Some parties choose instead to refer their dispute to an arbitrator pursuant to the Arbitration Act 1996. A number of bodies have also developed rules of arbitration which parties may choose to adopt. (Refer for example to the LCIA and ICC). A benefit of arbitration is that the parties’ dispute remains private. Low value disputes can often be swiftly resolved by arbitration because many do not require an oral hearing.

For contracts which comply with the threshold requirements of the HGCRA 1996, this statute introduced adjudication as a form of speedy dispute resolution. Parties may also agree to adjudicate their dispute.

The Building Contractor

In a traditional building contract the building contractor is engaged by the employer to construct a building in accordance with plans and specifications prepared by the employer’s architect. The contractor (sometimes called the ‘main contractor’ or ‘principal contractor’) will enter into a building contract with the employer, although he may not necessarily carry out all, or indeed any, of the building works. Instead, the contractor may enter into sub-contracts with other builders or trade contractors who will carry out the work. These sub-contractors are likely to be specialists in particular areas of the construction industry, such as lift sub-contractors, cladding sub-contractors or mechanical and electrical sub-contractors, so that, in a large project, there may be several different sub-contractors who execute works on different parts of the development. Most traditional forms of building contract permit sub-contracting only with the prior written consent of the employer (to be given through the agency of his architect), and some building contracts require the sub-contractors to be engaged on specific terms and conditions acceptable to the employer, which may include the obligation on the sub-contractors to grant collateral warranties to the employer/lenders in relation to the works carried out under their sub-contracts.

There are many different standard forms of building contract used in the construction industry, and this chapter does not intend to provide a detailed analysis of the obligations of the employer and the main contractor. The basic obligations of the employer under most traditional forms of contract are to give up possession of the site to the contractor (to enable uninterrupted building works to commence), not to interfere with the execution of building works (as the contractor has an implied right to complete the works, as well as a duty to do so), to appoint an architect for the purposes of the contract (ie to supervise the execution of the works, in his role as designer of the works, and to certify when the building has been satisfactorily completed and therefore adjudged to have reached the stage of ‘practical completion’), to nominate sub-contractors to carry out the works (unless the contractor is to select his own), and to pay the price payable to the contractor as and when the contract requires.

In return, the contractor agrees to complete the work set out in the contract in the form of the architect’s plans and specifications. When the architect has issued a certificate of practical completion, the contractor becomes entitled to receive full payment of the contract price less an amount known as ‘retention’ monies, and the employer is able to resume possession of the site for the purpose of granting leases to his tenants. The retention monies are held until such time as any minor works still to be completed at practical completion, known as snagging items of work, are completed, whereupon the retention monies are released to the contractor and a ‘final certificate’ is issued. If the contractor does not complete the works on time, the employer will usually be able to levy liquidated damages for delay, the amounts of which the parties will have agreed at the outset of the project. Such damages must represent a ‘genuine pre-estimate’ of the losses likely to be incurred by the employer, otherwise there is a danger that they will be classified as penalties which are unenforceable under English law.

Obligations as to quality and fitness of the building materials are implied under s.4 of the Supply of Goods and Services Act 1982, and s.13 of that Act implies a term that the contractor will exercise reasonable care and skill to see that the works will be of satisfactory quality and reasonably fit for their intended purpose. However, notwithstanding his implied obligations, the building contract is likely to contain an express obligation to execute the works in accordance with a standard prescribed by the contract and in accordance with the employer’s requirements and performance specifications. The ‘fitness for purpose’ implied term referred to above is often included as an express term of the contract and is heavily negotiated between the parties. Employers sometimes seek an obligation that the contractor will carry out the works so that completed project as a whole (rather than simply the works) is fit for purpose. Conversely, contractors often seek to exclude fitness for purpose obligations altogether, spurred on by their professional indemnity insurers, by stating that such risks are uninsurable. A compromise is commonly achieved by linking the obligation of the contractor back to the wording of the Act, with a clause in the contract being inserted stating that the liability of the contractor shall be to carry out the works (rather than the completed project as a whole) so that such works are reasonably fit for their intended purpose.

It should be noted that with all forms of procurement, save for construction management there is no privity of contract between the employer and the sub-contractors since it is the main contractor who engages their services. However, the main contractor should be made liable under the terms of the main contract in respect of the acts or omissions of the sub-contractors. As noted above, in major projects, collateral warranties are often sought by clients from a list of principal sub-contractors, i.e. those whose packages of work are particularly important by size, value of the nature of their particular expertise. A client may regard any sub-contractors’ warranties beyond such principal sub-contractors as an added benefit, but will likely be relying on the strength of the main contractor’s covenant in the event that a defect arises in the completed works.

The Architect

In a traditional form of contract the architect is engaged by the employer to carry out various tasks in relation to the design of the building. Broadly speaking, the architect prepares plans and specifications of the works required by the employer from which the builders will take their instructions, and he will supervise the execution of those works by the building contractor (or sub-contractors) in accordance with the plans and specifications. When the architect is satisfied that the works required by the building contract have been completed, he will issue a certificate of practical completion. This triggers the release of payments to the contractor save for retention monies, which are released only when snagging has been completed. In some instances, where, for example, there are several sections of the works comprising a building contract, the architect may issue sectional completion certificates to reflect the completion of different phases of the project.

The Quantity Surveyor/cost Consultant

The quantity surveyor or cost consultant is engaged by the employer (or by the architect on behalf of the employer) to estimate the quantities of the materials to be used and to set them into bills of quantities. What the quantity surveyor or cost consultant does is to measure the amount of work and materials which will be necessary to complete construction in accordance with the architect’s plans and specifications. On the basis of his bills of quantities, building contractors will be able to work out the amount of their estimated cost of construction.

The Engineers

In large construction projects, there may be a team of consulting engineers, including a structural engineer, engaged by the employer to give advice on structural design, and mechanical, electrical, heating and ventilating engineers, who give advice to the employer on matters within their areas of competence.

The architect, quantity surveyor and team of consulting engineers, as professional people, owe the employer a duty by contract to carry out the work required of them with reasonable skill, care and diligence. The standard of care expected is the standard of the ordinary skilled man exercising and professing to have that special skill. If any one of them falls below that standard, or below any higher standard of care set by the professional appointment under which he is engaged, he will be liable in damages for breach of contract.

The Project Manager

In addition to the consultants referred to above, clients will often engage a project manager on major projects to assist with managing the contractor and professional team to achieve a successful completion of the project. The role of the project manager will be to coordinate the other team members, ensure deadlines are met and oversee the project as a whole.

The Construction, Design and Management Coordinator

There is also an obligation on clients involved in major construction projects in the UK to engage a construction, design and management coordinator (a ‘CDM coordinator’). The Construction (Design and Management) Regulations 2007 (SI 2007/320) (the CDM Regulations), which came into force on 6 April 2007 and which replaced the Construction (Design and Management) Regulations 1994 (SI 1994/3140), govern the relevant obligations of the client and team members. The CDM coordinator’s function is to ensure that the project is carried out in accordance with applicable health and safety regulations. For example, the CDM coordinator will ensure that the contractor provides adequate welfare facilities for its workers on site and that the site is adequately protected with hoarding. There are also general duties on all team members to communicate, coordinate and cooperate effectively with one another. Breach of the CDM Regulations can lead to criminal as well as civil liability.