Understanding Construction Contract Law

"Fit for purpose" = unlimited liability. Yet 99% of contractors don't understand what they're signing: Almost every Design & Construct contract includes "fit for purpose" requirements. But here's the scary part: Most people have no idea what "purpose" actually means. Under Australian Consumer Law: - This obligation cannot be contracted out of  - It's a legislated guarantee - It applies to all goods and services But which "purpose" are you guaranteeing? → Intended Purpose (defined by the buyer) → Ordinary Purpose (common understanding) → Stated Purpose (clearly defined in contract) The risks are massive: - Intended Purpose: Changes over time - Ordinary Purpose: Open to interpretation - Stated Purpose: Only safe option if clearly defined Recent court case: Hestbay v One Sector (2024) QSC 180 - Concrete slab for warehouse alleged not fit for purpose - Queensland Supreme Court dismissed the claim - Reason: Ambiguous contract language - Court couldn't determine what "purpose" actually meant The brutal truth: Terms like "Fit for Purpose," "Design Life," and "warranty obligations" are consistently: - Misunderstood - Misquoted - Misused What you must do: 1. Ensure 'Purpose' is well defined 2. Prefer "Stated" over "intended" or "ordinary" 3. Check warranty obligations up and downstream 4. Verify your insurance coverage (PI and Product Liability) Remember: Subcontractors and suppliers often have no idea about their fit-for-purpose liability. Has your company been caught by fitness for purpose claims? P.S. Need your contract's ‘fitness for purpose’ clauses reviewed? DM me to discuss.

Capital letters in Contracts are not decoration. They decide rights. They decide obligations. And sometimes, they decide millions. Contracts are written in two languages at once. The first is ordinary English. The second is the language of defined terms. The difference between them is not decoration. It is the difference between rights preserved and rights lost. Capitalisation means definition. A word in capitals carries the meaning assigned to it in the definitions clause or elsewhere in the Contract. Once defined, it must always be read in that sense. A capitalised word is not an ordinary word. It is a defined term and cannot be read casually. Consider the distinction: • Engineer means the person formally appointed under the contract. engineer could be any individual on site. • Completion Date fixes entitlement and liquidated damages. completion date might only mean “finish the works” in everyday language. • Notice is a formal communication that preserves rights. notice may be an email or verbal message. One protects entitlement. The other does not. • Variation is a change instructed under contract procedure. variation could be any on-site change. Only one is enforceable. Courts & Tribunals do not compromise on these distinctions. A Contractor who claims that “the engineer instructed” could fail if the letter did not come from the Engineer. A Contractor who relies on an informal “notice” may lose if the Contract required a formal Notice. Capitalisation is therefore not style. It is law in action. The difference between capitals and lowercase is the difference between enforceable rights and wasted arguments. Construction may be delivered on site, but disputes are resolved on words. And in Contracts, the capital letters are often the words that matter most. 👉 Have you ever seen a claim collapse or succeed, because of a single capitalised word? Share your experience. #ConstructionClaims #ContractsManagement #EOTClaims #ConstructionLaw #AegisPMC

Here are some construction contract fundamentals that most project owners miss. After negotiating hundreds of construction contracts, I've found that most project failures trace back to the same fundamental misunderstandings. These are some helpful basics that can help you understand projects better: Most projects use either lump sum or cost-plus contracts. Understanding the difference is critical. Lump sum (fixed price) = (typically) closed book. Cost-plus = open book, but need to be properly negotiated because otherwise, they can have significant conflicts of interest. In cost-plus agreements, the fee rises as costs increase, which can create a misalignment between contractor and owner objectives. That's why understanding how all contract clauses work together is crucial. Bonus thought: GMP (Guaranteed Maximum Price) isn't a contract type. It's an amendment to a cost-plus agreement that locks in a price ceiling after trade pricing is secured. Many owners misunderstand this. The contract contingency isn't a slush fund. It needs clear parameters about what costs it can and cannot cover. Many owners don't realize they can exclude certain contractor errors from contingency coverage. Always include this in cost-plus contracts. Contract templates aren't just for convenience - they're strategic tools that save legal hours and ensure your preferred terms are included. When possible, do not negotiate other people's forms. Your construction accounting should never rely solely on the contractor's reporting. Independent tracking is essential, especially when managing investor funds. Change orders are contractual documents that extend your original agreement. Signing them without thorough review establishes precedent for future COs. When you carefully review change orders and enforce high standards, you actually reduce the number of unjustified COs submitted later. Most contractors respond to clear expectations. Development projects have natural ebbs and flows. Losing communication with the team during the "boring" periods - permit approvals, financing delays, etc - often causes more damage than the busy phases. Your lender will have specific requirements for insurance, indemnity, and contingency terms. Consult them early in contract negotiations to avoid costly surprises late in the process. Managing a project team without a basic understanding of the contracts that reign the relationships is a mistake. The best approach is having a team member who both manages the project and understands every contract term. This eliminates costly information gaps, and ensures that the scope that was required, negotiated, and paid for is actually fulfilled. Final thought: The most profitable development projects aren't distinguished by fancy design, but by the quality of their contracts and management systems, which are directly behind excellent execution. The paperwork isn't sexy, but it's where many projects succeed or fail.

The contractor signed quickly. Big project. Good margins. They skimmed the details. Then the dispute hit. The drawings said one thing. The specification said another. The tender clarifications said something else again. Which one ruled? The Order of Precedence clause. But instead of the usual order (special conditions → contract → specs → drawings), this contract flipped it: - Specifications trumped everything. - Special conditions sat at the bottom. The result? - Variation claim denied - Contractor wore the cost - No leverage — the clause was against them The lawyer’s note? “You read the documents. But not the order.” The takeaway? Order of precedence clauses decide which document wins in a conflict. ✅ Don’t assume they’re standard ✅ Check where drawings, specs, and clarifications sit ✅ Make sure the order reflects your risk position ✅ Negotiate changes before you sign, not after the dispute Because in construction, the contract decides the winner. And if you don’t read the order, you may already have lost. #ConstructionLaw #ContractRisk #OrderOfPrecedence #Variations #ContractAdministration

Some failures make your variation claim unsuccessful. Not perfectly understanding what your contract says is one of these common failures. * Properly learning the; ➤ Relevant clauses that may be related to your situation ➤ Requirements to be satisfied regarding variation ➤ Process you should follow while submitting the claim will help you determine; ➤ What notices need to be sent ➤ When variations can be claimed ➤ Which types of variations can be claimed ➤ What you need to do to establish your entitlement * When your claim is unsuccessful that means you are probably making one or more of these contract interpretation-related mistakes. MISTAKE #1: Not clearly understanding the scope of work In order to clearly identify whether the change in scope is a “variation” or not you should clearly understand the scope of work. You should clearly identify the; ➤ Project goals that need to be reached ➤ Essential details regarding the tasks and their technical aspects ➤ Overall anticipated project timeline, delivery dates and any relevant completion milestones MISTAKE #2: Not correctly reviewing the variation procedure Understanding the way how variations will be properly handled is critical. By reviewing the contract, you will be able to determine; ➤ Who has the power to initiate variation ➤ The scope of variation ➤ The procedure regarding the approval of variation and check if the process is performed accurately. MISTAKE #3: Not perfectly evaluating how to value variation Many contracts set out how variations are to be valued or priced. Reviewing the contract will help you identify the; ➤ Acceptable methods for pricing of variation  ➤ Types of costs that need to be considered ➤ Insights related to measurement procedure ➤ Rates or prices to be used MISTAKE #4: Not appropriately assessing the EoT Clause You should review the EOT clause in your contract to identify; ➤ Which events will entitle you to an extension of time ➤ What you need to prove to establish the entitlement MISTAKE #5: Not complying with the claim procedure You should understand the process and rules about how you should submit your claim. You should understand the Notice Requirements, such as; ➤ Timing of the Notice ➤ The information it should contain ➤ To whom it should be sent ➤ The proper way of providing Notice * Learn the process. But do not forget that every claim has unique needs. Build your own claim preparation system. Formulate the effective claim and present it in a professional way. #fidic #contracts #constructionclaims #disputeresolution #claimsmanagement #constructionlaw #constructionarbitration #infrastructure #projectfinance #ppp #ppps #contractmanagement #claims #construction

🔍 Insightful Mondays: Understanding Contract Management in Construction Managing contracts effectively is the backbone of any successful construction project. Contracts outline expectations, responsibilities, and deliverables, ensuring all parties are aligned. Today, we’ll explore types of contracts and the dos and don’ts to keep in mind. Types of Construction Contracts 1. Lump Sum (Fixed Price): • The contractor agrees to complete the project for a fixed price. • Best for: Projects with a well-defined scope. 2. Cost Plus: • The client reimburses actual costs plus a fee or percentage for profit. • Best for: Projects with uncertain scopes or complex requirements. 3. Time and Materials (T&M): • Payments are based on actual time spent and materials used. • Best for: Smaller projects or those with undefined timelines. 4. Unit Price: • Pricing is based on individual units of work, like per square meter or cubic meter. • Best for: Projects with repetitive tasks. 5. Design-Build: • The contractor handles both design and construction. • Best for: Projects requiring a single point of responsibility. Dos and Don’ts of Construction Contracts Dos ✅ Define Clear Scope of Work: Avoid ambiguities to reduce disputes. ✅ Specify Payment Terms: State when and how payments will be made. ✅ Include Deadlines: Clearly outline timelines and penalties for delays. ✅ Account for Risks: Include clauses for unforeseen circumstances (e.g., weather or material shortages). ✅ Consult Legal Experts: Ensure contracts comply with local laws and regulations. Don’ts ❌ Don’t Use Ambiguous Language: Clarity is key; vague terms can lead to disputes. ❌ Don’t Skip Documentation: Record all agreements and changes in writing. ❌ Don’t Ignore Performance Bonds or Guarantees: These protect clients from non-performance. ❌ Don’t Neglect Review: Regularly review contracts for compliance during the project lifecycle. ❌ Don’t Overlook Termination Clauses: Specify conditions for ending the contract. 💡 Key Takeaway: A well-structured contract is a roadmap to project success. It protects all parties, ensures accountability, and minimizes risks. Invest time in understanding the right type of contract for your project and manage it diligently! What’s your experience with contract management? Share your insights below! 👇

Why Fair Contract Drafting Matters – We have all seen those contracts that say “no escalation” or “fixed price". On paper, they sound strong. But site execution rarely go exactly as planned. That is what happened in the case of K.N. Sathyapalan v. State of Kerala (2007) The contractor had agreed to a government contract with a strict “no price escalation” clause. Everything was locked in. But the project was delayed as the government delayed site access. Naturally the cost increased. Materials and labour got more expensive. Contractor claimed for compensation. Employer responded? “You signed the contract. It says no escalation. That is final.” Contractor went to arbitration, asking to be compensated for the extra time and cost, and the arbitrator agreed and awarded in favor of Contractor. The government challenged the same and the High Court set asided most of the claims, saying the contract didn’t allow for any price increase. Contractor challenged it and the Supreme Court ruled in his favour. The Court said that if the delay is caused by the employer, it is not fair to enforce a no escalation clause. You cannot hide behind a clause if you are the reason things went off track. It is a reminder that good contract drafting is not just about locking down every possible risk, it is about being fair. #ConstructionLaw #ContractManagement #Infrastructure #ProjectDelivery #EPCProjects #FairContracts #SupremeCourt #India