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10 Essential Clauses in Construction Work Agreements

CM Advocates > Construction & Infrastructure Law  > 10 Essential Clauses in Construction Work Agreements

10 Essential Clauses in Construction Work Agreements

essential clauses in construction work agreements

A construction work agreement is an important document in construction and construction management process. Parties agree on and set out key terms and conditions of a construction project and outline and define the parties’ obligations concisely. 

The 10 essential terms of the construction work agreement are as outlined below 

1. Parties Duties and Responsibilities  

In a construction contract there are usually several parties involved with the developer sometimes referred to as the employer and contractor being the chief parties. 

The employer engages certain professionals including architects, engineers and quantity surveyors to do certain works on his behalf. The employer also engages the contractor to undertake the construction of the building. 

The duties and responsibilities of all the parties are clearly outlined in the contract. 

This is done to ensure that each party understands their role in the project and for accountability purposes  

Contract parties are therefore able to identify where liability lies in case of performance failures. 

2. Statement of Work 

Statement of work is a contractual term in the construction agreement that clearly sets out the scope of work to be performed by the contractor. 

The contract will also usually outline a schedule attached to the contract that clearly outlines what work the contractor is expected to perform. 

This clause is also very important in determining the extent of liability on the contractor’s part. Also in case of change of work specifications, this term helps to quantify the changes and adjust the contract price as necessary. 

3. Contract Price 

The contract price sets the consideration for a construction contract. The parties usually set the contract price after considering certain factors, including the nature of the work to be undertaken. 

The contract price mechanism adopted is sometimes used to classify the type of contract. 

The main contract pricing models used in establishing the price are: 

Lump sum A single “lump sum” price for the project is determined before the works commence. This is an appropriate option where the works are well defined at the time of tender and there is a low likelihood that the employer’s requirements will change, 

Re-measurement –  The price for the works is calculated based on the “re-measurement” of the actual work carried out. This pricing method is suitable where there is a lack of certainty as to the volume of work required, even though the design, specification and quality requirements can be reasonably well defined at tender stage. The re-measurement calculation is undertaken using agreed rates/ unit prices which the contractor originally tendered on the basis of the drawings and bill of quantities provided by the professional team.  

Cost-plus (Sometimes referred to as “cost reimbursement”) The contractor is reimbursed the actual costs incurred in carrying out the works (i.e. labour, plant, materials, sub-contractors, etc), plus an additional fee to cover overheads and profit. This option is appropriate where the scope of the work cannot be well defined at the outset but the employer nevertheless requires an early start on site.  

4. Payment Clause 

The payment clause includes a description of the payment process in the contract, including the timing, documents required, approval process, and the terms of final payment. 

Important payment dates, including the invoice due date and actual payment dates are included in this clause. Document requirement to support the work billed, or materials bought will also be specified in the contract. This documents include cost back-up, subcontractor invoices, subcontractor and supplier lien waivers, payroll reports, and a list of subcontractors and suppliers and how much each is owed. 

The payment process may require the assessment of work done so far and the process of approval and certification including the timeliness for such approval and. This section will include who reviews and approves the payment request and how long they have to review it. This process will tie into the dates provided in the timing portion of the payment clause. 

5. Contract Document 

The construction contract also identifies and determines key contract documents which include, architectural design documents, bill of quantities and schedules. These document essentially also form part of the construction contract. 

6. Insurance 

Construction project usually take some time and involve a huge financial obligation on the developers. In order to take care of certain eventualities and uncertainties in the project the developer may be required to insure against foreseeable risks. The contract document may also require the contractor to take up necessary insurance covers before they are engaged by the developer or the employer. 

Contractors All Risk Policy, Performance Bonds, Work Injury Benefits Act Policy, Occupiers Liability are some of the common insurance policies that parties may be required to obtain by an insurance contract. 

7. Breach of contract and Limitation of Liability Clauses 

Due to the nature of construction projects, it is common for parties to raise claims relating to breaches of contract or negligence. As a result, the question of damages for these types of breaches, and how to minimize liability if faced with a claim, is extremely important. 

Liquidated damages may be provided by the contract as a remedy for breach of contract and parties likely to be in breach of contract may also negotiate for terms that will limit the liability. The inclusion of financial caps on liability, net contribution clauses and exclusions of specific types of loss are examples of terms that limit the parties liability in a contract. 

8. Intellectual Property Rights 

Construction projects usually involve design and construction work which may be subject to and protected by intellectual property rights laws. 

The construction contract usually apportions these rights subject to the parties’ agreements or assign all the rights accruing from designs and the entire project work to an agreed party within the contract. 

9. Dispute Resolution 

Disputes are quite common occurrence for contracting parties. The contract itself is an important tool in dispute management and particularly sets out how conflict that results from contract is to be managed. 

Alternative Dispute Resolution mechanisms are heavily preferred in construction contracts with arbitration being the most preferred mode of dispute resolution.  

Other alternative dispute resolution mechanisms include negotiations and mediations. 

Although the court process is avoided, parties usually concede to court ordered injunctive reliefs being adopted in the contract. 

10. Termination 

Termination of the contract can be preceded by the occurrence of certain events including bankruptcy or insolvency of parties, death, persistence of force majeure events beyond certain prescribed time.  

Termination clauses usually set out the incidences that would trigger one of the parties or both to end the contract. Termination of a contract bring to an end parties obligation provided for by the contract and releases the parties from being bound by the contract. 

 However certain terms are constructed to survive termination of the contract meaning that termination of the contract does not absolve the parties of the obligations provided by those terms. 

HOW CAN WE HELP YOU? 

At CM ADVOCATES LLP, our team of lawyers work with individual, corporate developers, architects, engineers, quantity surveyors and contractors. We review and advise on a number construction work contract agreement. We also draft bespoke agreements, suited for specific project needs. 

To access our free construction agreement templates, join our CM SME membership club. 

For more information, book a consultation to speak to our Advocates. 

Contact Persons & Contributors

Victorine Rotich–Senior Associate and Head of Business Unit

Susan Mwango- Associate 

Disclaimer

This alert is for informational purposes only and should not be construed as legal advice.

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