Selecting a construction contract

A construction contract lies at the heart of a construction project and is a legally binding document delineating the reciprocal rights and obligations of the parties to it. Choosing the right contract is integral to a successful project as it can affect the project cost and schedule, amongst other factors.

The two broad categories of contracts to select from are bespoke contracts and standard form contracts. A bespoke contract is a specially drafted contract by an Employer or a Contractor for a particular entity or project. On the other hand, a standard form contract is widely available and recognised, and drafted by industry experts. Examples of widely used standard forms of contract include the MBSA suite of agreements, JBCC, NEC 3 and GCC.

Standard form contracts are updated from time to time to reflect the evolving needs of the construction industry and always represent good practice. The advantages of a standard form contract include the following:

• Usually represents good practice.
• Avoids cost and time of individually negotiated contracts.
• Changes to the contract must be clearly recorded.
• There is a familiarity with the terms and conditions and consistency in managing the contracts.

A concern regarding standard forms of agreement is the adoption of a specific version of a standard form of agreement, which is sometimes a much older version of the contract and resistance to change to the newer versions.

Selecting a construction contract is not a one-size-fits-all endeavour and requires a comprehensive understanding of the project scope, pricing requirements and risks involved. The form of contract sets the foundation for how the project will be managed.

A few considerations when choosing a construction contract include the following:

• A cornerstone of construction contracts is the allocation of risk, with the underlying principle being allocating the risk to the party in the best position to manage the risk. When choosing the contract, it is important to understand the risks allocated to you and ensure that you have measures in place to manage them, and furthermore understand the contractual provisions to use when managing these risks. Astute contractors also price for the risk allocated to them.
• The complexity of the project and the management capabilities of the parties. For example, the MBSA House Building and Small Contracts Agreement may be used for a simple home building project, which facilitates both scenarios of with and without an agent, but for a more complex road construction or infrastructure project, a GCC agreement may be used.
• Consider the specific pricing requirements of the project as certain formats of contracts may only be suitable for a specific pricing strategy. For example, an NEC3 Option E contract will work well on an infrastructure project where the pricing strategy is cost reimbursable.
• Understanding the nature of the scope of work is also crucial to determining a suitable form of contract. Design and build contracts will require consideration of the additional responsibilities of the successful contractor and may necessitate specific design and build contracts, for example, the FIDIC Gold Book.

Through careful analysis of these considerations and the specific needs of the projects, a suitable contract can be chosen which provides clarity, allocates risks appropriately and paves the way for a successful project.

Bilaal Dawood

Head: Membership