Wednesday, 2 February 2011

Fixed-Price Building Contracts

It is a common desire for clients to fix in advance the cost, quality and scope of a building project.

If complete certainty is required, a simple lump-sum agreement may be appropriate, but most standard forms are unsuitable as they provide mechanisms for revaluing the payments due. Before they enter into a building contract, it is wise to ensure employers fully understand the scope for costs to vary.

Lump-sum contracts require maximum certainty over what is to be done when building prices are obtained. Builders cannot be expected to price accurately for tasks which they cannot foresee. As there is always a risk of the unforeseen occurring, there is always some uncertainty over cost. The contract sets out the basis on which unforeseen costs will be apportioned between the contracting parties.

The ability to obtain meaningful lump-sum prices depends on the quality of information provided in the tender invitation. Many disputes arise where an attempt is made to enforce a lump-sum price obtained on insufficient detail.

Where tender information is incomplete, drawings and specifications have to be prepared and issued during the work to provide the additional necessary information. On receipt of this information, builders may realise that what is required of them is not what they envisaged from the tender information – an all-too-common starting ground for disputes.

Arguments over the interpretation of the production information are common. The work will be seen as defective by clients or their consultants where it does not comply with their intention – often as expressed by drawings issued after a lump-sum price has been obtained. The builders will have made their own interpretation of the employer’s intention from the tender information and will see any further information issued, which departs from their understanding of the tender information, as variations which should be issued and paid for as such.

No comments:

Post a Comment