Commercial building contracts (especially those for large projects and developments) can be hundreds of pages long and filled with what feels like endless legal jargon. Reviewing contracts of this nature is, consequently, often quite a daunting task.
So how can you make the task of reviewing your commercial building contract slightly less overwhelming?
In our experience, knowing the key clauses which you should always read as a contractor entering into a commercial building contract helps to get the review process underway by giving you points of focus amidst the pages and pages of terms and conditions. Of course, you should always ensure that you know and understand every clause in your contract and seek legal advice where necessary.
At Construct Law Group, we are often engaged to review commercial building contracts and prepare departures tables that seek to redress issues with the contract. This week, we share 5 things a contractor should always check before entering into a commercial building contract.
1. Party Details
One of the most important things to check when reviewing your contract is that both party’s details have been accurately recorded. This includes checking that:
- the correct legal entity name has been recorded, and that the ACN and/or ABN listed match that name;
- the correct Queensland Building and Construction Commission licence number (if applicable) has been listed, and that the details of that licence match the entity details recorded; and
- the correct contact details (including address, email and phone number) have been recorded.
We cannot emphasise the importance of this step enough – you want to be certain who the contracting parties are to avoid confusion throughout the project as to who is liable for the party’s respective obligations, and to avoid engaging with an unlicensed contractor.
2. Time Bars
We see a lot of contracts prepared by principals (or head contractors) which contain what we refer to as ‘time bars’, being timeframes which a contractor (or subcontractor) must comply with in order to make a claim. Failure to comply means that the contractor (or subcontractor) is barred from bringing that claim.
Time bars can apply to all types of claims, including but not limited to claims for variations, latent conditions, extensions of time and delay damages.
Given the potential time and cost consequences of a time bar, it is of the utmost importance that you identify any times bars in the contract and either take note, or request an amendment to remove such time bars or increase the time within which the claim can be made. Its important to note also, that poorly drafted time bar clauses may be unenforceable.
3. Grounds of Delay
It’s no secret that large projects often face numerous delays, so it’s important to ensure that the grounds of delay included in the contract are sufficient to cover all delays which are likely to be experienced during the project.
As a general guide, contractors should ensure that the contract includes the following grounds of delay, as a minimum:
- any act, default or omission of the superintendent (if applicable), and the principal/head contractor (including its consultants, agents and other contractors) which is not permitted under the contract;
- inclement weather;
- variations;
- latent conditions;
- changes in legislative requirements that may affect the works; and
- a suspension of the works under the contract, other than a suspension by reason of the contractor’s/subcontractor’s default.
The more grounds of delay which are included in a contract, the better protected a contractor/subcontractor will be if the project is impacted by delays and liquidated damages are to be avoided.
4. Damages
There are two key types of damages that commercial building contracts often contain: liquidated damages and delay damages.
When looking at liquidated damages (being those damages payable to the principal/head contractor if the contractor/subcontractor is late in completing the works), principals/head contractors should check that the rate for liquidated damages is reasonable and akin to a genuine pre-estimate of the loss the principal/head contractor is likely to incur if completion of the works is delayed. Contractors/subcontractors may wish to request an amendment to the contract to place a cap on their liability to pay liquidated damages.
When looking at delay damages (being those damages payable to a contractor/subcontractor if they are delayed in performing the works), contractors/subcontractors should check:
- that the rate of delay damages is sufficient to cover for the losses/costs they are likely to incur if the works are delayed;
- which grounds of delay entitle them to claim delay damages;
- any time bars that may apply to such claims.
5. Termination Rights
Finally, it is important to look at the parties’ rights to terminate the contract.
In many cases, principals will insert a ‘termination for convenience’ clause which entitles the principal to terminate a head contract at any time and for any reason. Head contractors should seek legal advice regarding whether to have such clauses removed to provide them with some certainty as to the term of the contract.
You should also carefully look at the clause/s providing for termination by default and ensure that the contract provide rights to all parties and not just the principal/head contractor.
Importantly, as stated above, you should always read and understand the whole contract from front to back before signing.
This article provides general information and should not be taken to be legal advice. Each contract is different and therefore you should obtain specific legal advice. If you have any questions regarding your commercial building contract, please do not hesitate to contract our team on (07) 3139 1874 or at info@constructlaw.com.au.
