H24MPP Lecture 11

Conditions of Contract
Ioannes Tang
Senior University Teaching Fellow
Department of Civil Engineering
Faculty of Engineering
Room: B1C16, Telephone: 03-8924 8346
Email: Ioannes.Tang@nottingham.edu.my

Based on original notes by

W H Askew

Introduction
Construction projects involve a number of companies
(parties) doing work they are responsible for
Links between parties identify the roles and
responsibilities and have a legal context
Explicit links are contracts or agreements
Some legal rights exist when no contract exists
Contracts often use standard clauses and terms
expressed in standard forms of contract
The contract must fit into the prevailing legal system
We will look at two standard contracts
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Parties to Contract
The key parties to a main construction
contract are:
client (or Employer)
contractor

Other parties may be named, or exist in

other contracts:
Consultants (or Engineer)
sub-contractors
suppliers
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Key Topics in Clauses

Roles and responsibilities (relationships)

Procedures for execution of project
Dealing with money and time
Dealing with changes
Dealing with disputes and their avoidance
RISK ALLOCATION

Contracts evolve and create/follow trends. Consider

the following clause from 80-100 years ago:
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Example of Early Contract Clause

In the event of anything reasonably necessary or proper to the
due and complete performance of the work (of which the
Engineer shall be the sole judge) being omitted to be shown or
described in the said drawings or schedules the contractor shall
notwithstanding execute and provide all such omitted works
and things as if they had been severally shown and described
without any extra charge and according to the directions of the
Engineer and to his satisfaction.

What are the concerns?

Who carries the risks?
Would it be a good clause now?
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Conditions of Contract I
Particular clauses will be examined in:
New Engineering Contract Engineering and
Construction Contract Edition 3 (NEC ECC)
ICE Conditions of Contract (7th ed) (ICE 7)

Conditions of Contract II
Others include:
JCT,
FIDIC,
Design and Construct,
Small Works,
Subcontracts,
Framework contracts,
Terms of engagement
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ICE7 Clauses
71 specific clauses
5-7
Contract documents
8-35 General obligations
12 Adverse physical conditions and artificial obstructions
14 Programme to be furnished
17 Setting out
32 Fossils etc
41-46 Commencement time and delays
51-53 Alterations additions and omissions
55-57 Measurement system
60-61 Certification and payment
66
Avoidance and settlement of disputes
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13 - Work to be to satisfaction of
Engineer
13(1)
Save insofar as it is legally or physically impossible
Contractor shall construct and complete in strict
accordance with the Contract to the satisfaction of the
Engineer (whether mentioned in the Contract or not).
13(3) covers Delay and extra cost and in addition to the
above refers to clauses 5, 44, 51, 53, 60

44 - Extensions of time

Deals with possible extensions of time for:

any variation ordered under clause 51(1)
any increased quantities under clause 51(4)
any cause of delay in any of the clauses
exceptional adverse weather conditions
any delay impediment prevention or default by
the Employer
other special circumstances of any kind
whatsoever which may occur
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51-53 Variations
51 - allows for any variation necessary with a
variation defined as additions, omissions,
substitutions, alterations to quality, form,
character, kind, position, dimension, level or
line
52 - covers the valuation of ordered variations
53 - covers procedure for additional payments

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12 - Adverse physical conditions and

artificial obstructions
excludes weather conditions and conditions
due to weather conditions
acknowledges risks with could not in his
opinion reasonably have been foreseen by an
experienced contractor
and shall as early as practicable give written
notice
allows consideration with if the Contractor
intends to make any claim for additional
payment or extension of time arising from such
condition

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66 Disputes
66(2) - If the Contractor or Employer are dissatisfied
with anything the matter shall be referred to the
Engineer who shall notify his decision to the
Employer and Contractor within one month
66(3)&(4) - mentions decision of Engineer and/or
adjudicator
66(5) - covers conciliation procedure
66(6)-(8) - cover adjudication procedure
66(7)-(11) - covers arbitration procedure
THIS IS A KEY RISK SHARING CLAUSE

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ICE7 and NEC3 I

Note the fragmented structure of ICE 7
Many clauses refer to clauses 44, 51-53 which
allow consideration of extra time and money
Clauses refer to claims and disputes
Users attitude can be adversarial with disputes
arising too easily and taking too long to resolve

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ICE7 and NEC3 II

Nevertheless it has been the contract of choice
for many years and forms the basis of the
international FIDIC conditions
It has been extended to include a partnering
addendum
It is promoted by ICE and other
professional/industry groups
So too is its main rival and now arguably
preferred NEC3
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New Engineering Contract

Engineering and Construction Contract
Has a general spirit of co-operation
expressed in its aim to stimulate good
management and cover a wide variety of
work
It has many parts which can be selected
and bolted together as appropriate, whilst
being clear and simple to understand
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NEC3 Structure
Contains core clauses 1-9
And 6 option clauses A-F
And 18 secondary option clauses X-Z (X17, X12-18, X20,
Y(UK)2, Y(UK)3, Z
And dispute resolution clauses W1, W2
It includes a partnering option (X12)
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Choosing NEC3
Firstly choose either:
A priced contract (with activity schedule or bill of
quantities) (A or B)
A target contract (with activity schedule or bill of
quantities) (C or D)
A cost reimbursable contract (E)
A management contract (F)

Also choose either:

Dispute Resolution Option (W1 or W2)

Then choose secondary options X (more

complicated but none needed)

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NEC3 Core Clauses

1.
2.
3.
4.
5.
6.
7.
8.
9.

General
Contractors main responsibilities
Time
Testing and defects
Payment
Compensation events
Title
Risks and insurance
Termination
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NEC3
Clause 1
10.1 shall act in a spirit of mutual trust and cooperation

States responsibilities for:

Employer
Contractor
Project Manager
Supervisor
Adjudicator
[ICE 7 mentions only Employer, Contractor, Engineer,
Engineers Representative, Nominated Subcontractor]
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NEC3
Clause 3
31 Programme to be submitted [cf. ICE 7 clause 14]

Clause 5
50 Assessment of amount due [cf. ICE 7 clause 52, 55-57]
51 Payment of amount due [cf. ICE 7 clause 53, 60]

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NEC3
Clause 6
60 Compensation events [cf. several ICE 7 clauses]
61 Notification
[cf. ICE 7 clauses 51-53]
62 Price quotations
[ditto]
63 Assessing
[ditto]
64 Project managers assessments [ditto]
65 Implementing
[ditto]

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Clause 60.1 Compensation events

1.
2.
3.
4.
5.
6.
7.
8.
9.

Changes to the Works information

Revised site accessibility
Late provision of information
Timing changes
Employer not working to times
Delay responding
Found valuable/historical objects
Changed decision
Withholding acceptance
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Clause 60.1 Compensation events

10. Defects not found
11. Delay caused by test/inspection
12. Adverse physical conditions
13. Unusual weather
14. Employers risk event
15. Early take-over of works
16. Materials facilities not provided
17. Correction to assumption
18. Breach of contract
19. Unpreventable/unforeseeable event
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Clause 60.1(12) Adverse physical

conditions
The Contractor encounters physical conditions which
Are within the Site
Are not weather conditions
An experienced contractor would have judged at the
Contract Date to have such a small chance of occurring
that it would have been unreasonable for him to have
allowed for them.
Only the difference between the physical conditions
encountered and those for which it would have been
reasonable to have allowed is taken into account in
assessing a compensation event.
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Clause 60.1(13) Unusual Weather

A weather measurement is recorded
within a calendar month
before the Completion Date for the whole of the works
and
at the place stated in the Contract Data
the value of which, by comparison with the weather
data, is shown to occur on average less frequently than
once in ten years.
Only the difference between the weather measurement
and the weather which the weather data show to occur
on average less frequently than once in ten years is
taken into account in assessing a compensation event.

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