Construction Contracts

Law and Management

Will Hughes, Ronan Champion, John Murdoch

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317442271
• Edition: 5
• Topic: Law
• Subtopic: Construction Law
• Index: Law

The fifth edition of this bestselling textbook has been thoroughly revised to provide the most up-to-date and comprehensive coverage of the legislation, administration and management of construction contracts. It now includes comparisons of working with JCT, NEC3, and FIDIC contracts throughout.

Introducing this topic at the core of construction law and management, this book provides students with a one-stop reference on construction contracts. Significant new material covers:

• procurement
• tendering
• developments in dispute settlement
• commentary on all key legislation, case law and contract amendments

In line with new thinking in construction management research, this authoritative guide is essential reading for every construction undergraduate and an extremely useful source of reference for practitioners.

1 UK construction sector context

This book is about construction contracts. The purpose of this introductory Chapter is to place such contracts in their proper context by describing the shape of the UK construction sector in terms of the general groupings of those who take part in the process. Although most readers will already have a comprehensive knowledge of the sector, our aim in this Chapter is to step back from the detail and to develop an overview which is less dependent on the interests of specific professional groups than is usually found in books about the construction sector.

1.1 THE NATURE OF THE SECTOR

Construction projects can best be understood in their context. The construction process is complex, expensive, time-consuming, and fragmented. Technological complexity ranges from the simple, familiar, well-known materials and trades through to highly complex facilities involving multiple interacting sub-systems. Regardless of its technological complexity, any reasonably-sized project also involves a high level of organizational complexity. This arises because there are many specialized skills and professions with a useful contribution to the process. Most who study the construction sector do so from the point of view of the profession to which they aspire. Because of this, there are many different descriptions of the construction sector, drawn from different specialist disciplines. This produces a certain amount of confusion, which is compounded by the fact that construction involves such a wide range of associated activity that the industry’s external boundaries are also unclear. The term ‘construction’ can include the erection, repair and demolition of things as diverse as houses, offices, shops, dams, bridges, motorways, home extensions, chimneys, factories and airports. Some include the construction of pipelines and petrochemical installations as part of a wider construction and engineering sector, but often these are seen as a part of other industry sectors. Similarly, the manufacture of components that are incorporated into buildings may or may not be seen as part of the same industry sector. What is clear is that many different firms carry out specialist work relating to particular technologies, but few firms are confined to only one building type or one technology. Thus, the various industrial activities that collectively constitute the construction sectors (and the issues that affect construction projects) are difficult to comprehend fully because:

• The relationships between the parts are not always clear.

• The boundary of the construction sector is difficult to define.

Although it is sometimes seen as a problem in its own right, the fragmentation of construction into a large number of diverse skills is an inevitable consequence of the economic, technological and sociological environment: there is an extraordinary diversity of professions, specialists and suppliers. It is important to approach construction contract problems in an organized, rational way. Although each professional discipline likes to focus upon its own contribution and the way that it relates to other project team members, a deeper understanding can be gained by considering how the industry provides a service to clients and to society at large. There are many texts that already focus on the needs of specific professional groups. Therefore, in order to provide a more meaningful context, we begin by separating participants into five generic groups: builders, designers, regulators, purchasers and users of buildings. Each of these groups is increasingly sub-divided into specialist interests such that any building project will bring together a large number of different specialists. The way they combine is specific to each project. This uniqueness arises from the individual demands of the project coupled with the continuing evolution of specific roles. Thus, in order to resolve construction contract issues, it is not enough simply to know the contents of standard-form contracts. The specific details of each project and the continuing evolution of changing roles provide the context in which students of construction can understand the importance of contract structure and the options open to those who choose project strategies. Contracts have little meaning without an understanding of context and purpose.

Therefore, the construction sector, and the contracts that are used, only make sense in the context of changing circumstances and in the wider context of how the sector provides a service to its clients and users. As a first step, each of the five generic groups of participants is introduced below, with a brief account of their context and their relationships to construction projects and to each other to put specific contractual roles into a wider perspective. Roles are difficult to deal with, because different people comprehend their own roles, and those of others, in different ways, leading to confusion and ambiguity about responsibilities (Kabiri, Hughes and Schweber 2012).

1.1.1 Builders

Although construction is not a new activity, the most significant developments have taken place since industrialization (Hughes and Hillebrandt 2003). Before the Industrial Revolution, construction involved only a handful of technologies – such as bricklaying, carpentry, thatching and stonemasonry. Some projects were sufficiently important to justify the appointment of an architect but few projects employed other than craft skills.

In the absence of a designer, building types and styles simply evolved from one project to another, involving slight modifications as each new project applied the lessons from experience. Pre-industrial projects in the UK were completely organized by a master mason or an architect (interestingly, in Japan, where timber was the material of choice, the original master-builders were carpenters). The interactions between the small number of trades were predictable. Each craft operative had a detailed knowledge of a particular technology and knew what to expect of the other trades. Thus, organization and management were simpler than they are today, as organizational theory would lead us to expect (see for example, Lawrence and Lorsch 1967, Miller and Rice 1967, Hughes et al. 2006).

The Industrial Revolution led to the emergence of new materials and ways of working. These led to more adventurous and innovative buildings. For example, the use of steel beams enabled larger spans to be achieved. In parallel with the developments to the technology of materials, the transportation network became more sophisticated enabling the rapid spread of new technologies. Thus, sites became more complex, involving increasing numbers of specialist trades.

As the technological complexity of any process grows, so the demands for integration and co-ordination increase (Lawrence and Lorsch 1967). In the case of the construction industry, this demand led to the emergence of the ‘general contractor’ (see Chapter 3), a role first undertaken by Thomas Cubitts of London in the early 19th century (Spiers 1983), although Cartlidge (2011: 5) positions the emergence of general contracting as a response to high demand for construction work in Britain brought about by the Naploeonic Wars. Before this, clients would have entered into a series of separate trade contracts with the people who were doing the work (Cartlidge 2011: 5). Indeed, as Cartlidge points out, separate trades contracting is still practised in many countries including, for example, France and Germany. The general contractor that emerged in Victorian Britain fulfilled a need by employing and providing all the necessary skills, providing all of the materials, plant and equipment and undertaking to build what the client had had designed. Thus, in a general contract, the basic premise is that the client takes the responsibility for design and the contractor takes the responsibility for fabrication. Although this process is often referred to as traditional general contracting, it is a tradition that only goes back to the 19th century. One important, but confusing piece of terminology is the use of the word ‘employer’ to indicate the client for the purpose of many standard-form building contracts. Employer denotes the organization or person who pays the building or civil engineering contractor.

The task of builders is generally to bring the labour, materials and components to site and manage their assembly. Today builders might be described as a general contractor or construction firm. Recent developments have caused some construction firms to move away from a focus of construction and more towards a focus of management and co-ordination of others (trade contractors), as in ‘construction management’ procurement (see Chapter 5). Some builders respond to the market by specializing in narrower fields (whether technical specialization or management); others respond by offering wider, integrated packages (such as ‘design and build’, see Chapter 4). Integration sometimes encompasses maintenanace and operation of a facility, where the built facility becomes but a part of a wider contract for services, as in ‘performance-based contracting’ (see Chapter 7). These diverse approaches to contracting are explored in subsequent chapters. Perhaps the only constant in all of this is that the builder must ultimately ensure that certain elements are installed on site, whatever else the project may entail.

1.1.2 Designers

The advancing technological complexity of the sector also led designers to embrace new techniques. There grew a demand for specialist designers who understood the new technologies. It is useful to think of design as a once whole discipline that has been successively eroded by more specific disciplines. As explained above, the need for co-ordination of construction work led to the emergence of general contractors. Further, the need for measurement and valuation of work in progress and for cost planning led to the emergence of quantity surveying; the need for a specialized understanding of new technologies led to the emergence of structural engineering and services engineering; the need for overall control of the process led to the emergence of project management. In simple projects, some of these disciplines have little involvement, but their roles can be very significant in the case of complex buildings and structures.

Like builders, designers face an increasingly complex management problem. The co-ordination of information from tens or sometimes hundreds of specialists is a very real problem (Gray and Hughes 2000). Good design requires a clear policy for the project that provides a basis for all design decisions. Although architectural training may cover management issues, the skills of good leadership will not necessarily be found in all architects (Hawk 1996). Clients who feel that architectural leadership may not be forthcoming may, perhaps, look to alternatives, such as the appointment of a project manager or the use of a procurement system that plays down the role of the architect. Similar issues apply in civil engineering.

The progressive erosion of the architect’s or engineer’s role leads to the question of whether an architect should lead a project or should be just one of the consultants managed by a project leader. The view taken on this question depends upon what architecture is believed to be. The debate can be resolved down to two alternatives: it is either art or science. An art involves the exercise of subjective and personal choice with little need to rationalize or explain the output. This contrasts sharply with the view of architecture as a science, involving rational choices based upon objective techniques that can be explained and justified. Architecture as art cannot effectively be subjected to external management: indeed it can only occur if the architect is in complete control of the process. Architecture as science can be subjected to external controls because output can be measured against some predetermined objective set by the architect. Reality is rarely so simple: real projects involve a complex and difficult tension between these views and such a debate is rarely exercised at the outset of a project, when it is most needed. Engineering tends to be seen as more of science than an art. Even so, there are aesthetic considerations in most civil engineering projects. Indeed, the standard-form contracts used for civil engineering contracts often set up the engineer’s role to allow subjective judgement to be applied to decisions about contractor’s work.

1.1.3 Regulators

Buildings and structures affect everyone who comes into contact with them and very few people believe that the freedom to erect structures should be unfettered. There are many instances where a structure can threaten the freedom, privacy or rights of an individual. Thus, legislation of many types has evolved to regulate the activities of those who wish to build. Planning legislation controls the appearance of buildings; building control legislation controls safety of finished buildings; health and safety legislation controls safety of the process of building; and so on.

Planning control in the UK originally arose from the Town and Country Planning Act 1947 which basically set up a process of locally based plans that describe the views of the local planning authority on how the area will develop. Today, the applicable planning control acts are the Town and Country Planning Act 1990, the Planning and Compulsory Purchase Act 2004, the Planning Act 2008 and the Localism Act 2011. Additionally, in common with many countries, all building work in the UK requires permission before it can go ahead. In this way, proposals for infrastructure, building and alteration work can be gauged against the local development plan. An applicant who fails to get permission has a right of appeal. In terms of major infrastructure developments, there can be difficult tensions between local issues and national issues. This may lead to complex political processes that can take years to resolve.

Building control is intended to identify certain minimum standards defined nationally but enforced locally. The Building Act 1984 refers to Approved Documents, which contain advice on how to satisfy the functional requirements of the regulations. This advice is not compulsory, but if it is not followed, then it must be proved to the satisfaction of the Building Inspectorate that the building satisfies the functional requirements of the regulations. The powers to make building regulations in UK were extended by the Sustainable and Secure Buildings Act 2004 and the Climate Change and Sustainable Energy Act 2006.

The Health and Safety at Work Act 1974 (under which the Construction (Design and Management) Regulations 2015 are issued) and the Occupiers’ Liability Acts 1957 and 1984 also have an impact on the organization and management of construction.

1.1.4 Purchasers

All construction work is ultimately undertaken for the benefit of a client. But even within one project, not everyone is on the same payroll. Clearly, someone is paying for the work and such a person is best thought of as the purchaser. The concept of client is wider than this as it includes end-users, workforce, etc. On some projects, users and purchasers are different and become involved in the project in different ways. On other projects one organization, or even one person, undertakes both roles. Everyone who is paid for their involvement, whether designer or builder, is involved through a contract. This will connect a purchaser with a supplier or with a provider of services. The document may be a building contract, a sub-contract or a professional’s appointment document. Although many of the participants will be professionals, the basic commercial nature of the process cannot be denied. Contracts are records of business transactions and the courts will approach them with the same rules that apply to all commercial contracts.

The importance of purchasers cannot be over-emphasized. Construction is about providing a service, whether narrowly defined as providing a building or structure, or more broadly defined as providing services, of which construction is simply a sub-set; a means to an end. This provision is complex because of the nature of the product, the duration of the project and the involvement of so many different people. But this should not distract us from the idea that those who pay have expectations. If their expectations are not met, then dissatisfaction is bound to follow.

Purchasers do not fall into a discrete category. The word covers everyone who buys construction work, from a householder buying a garage, a multi-national corporation buying a factory complex, a municipality buying a road, to a national government buying ports and harbours. In other words, it is wrong to categorize purchasers into one group. There are very few generalizations that apply across the board and it is important always to be clear about the type of purchaser for a project.

1.1.5 Users

Finally we turn to the users of buildings and structures. Although the...