Well, we all know the examples of unfair contract conditions. Unreasonable high penalties for scratches at a rented car or flat? Undesired additional services from your mobile provider? Unannounced charges. These things steal your attention and can be ultimately fixed with or without the help of a customer protection agency.
Would you like to serve similarly unfortunate contract conditions to the other party in the construction project? Since the Construction contracts are long and complex, it is pretty easy to add many strings to the agreement. Your advisors might add it, thinking of betterments, without you even being aware. But should you stick to that unreasonable/unfair conditions? Would the unfair conditions be considered enforceable?
Is the other Party to the Contract a partner or adversary? Can the Contract against the other Party result in smooth project completion?
Lately, I have found several examples where advisors introduced the number of “betterments” to the construction contract, which ultimately stopped the projects and led to disputes.
[Unnoticed swift from remeasurement offer to lump sum contract] Not many Construction contracts are sure about a load of upcoming works. That is why many of these are on a re-measurement basis, i.e., the final price is calculated upon agreed unit rates and finally calculated quantities.
But what do you do if you prefer to have a fixed price? Well, sometimes you shouldn’t go for it. Why? A fixed price may be reasonable if the minor part of the work is uncertain. But what would happen if the uncertainty as to work quantities is a key risk - and one asks for a lump sum with an appropriate contingency margin? Reasonable contractors would refuse to bid, but others can put a contingency on – say, 20% or 100%.
Down this road - what if the final quantity triples up? I have never seen a contractor who would admit his fault and complete the project in such a case. The contractors often don’t have the budget for such a free giveout. The Contractors might have 20% of your investment costs to finance the project and keep up the cash flow, rarely more.
So, if the quantities exceed the reserved budget, they would stop the project or go bankrupt. Either way, you will not be provided with the desired service. Asking for a lump sum, where the quantity of work is the key risk, is a clear-cut bad idea.
Yet, I found a contract where the contractors were asked to bid upon the specified quantities, supposedly to let the Employer compare the different offers. However, during negotiation, the contract was concluded at an offered price based on the previously suggested, inaccurate amounts - qualified not as the re-measurement, but as the lump-sum i.e. without being subject to adjustments if quantities change.
In that case, some precedencies keep the Contractor liable for (i) not checking quantities or (ii) accepting the risk. While others do not enforce such contracts, (iii) if the Employer carelessly issued quantities, or (iv) quantities were to induce reliance. It can turn out both ways, and I am not here to resolve it. It is worth highlighting that neither Party wants to find itself as the part in that gamble.
If somebody aims to proceed with the construction but ends up with delays and legal disputes about some wired contract conditions - it means that something went wrong. And that was the ill advice.
[Liquidated Damages] Another example is about charges for defaults. Remember the last time you scratched a rented car? Or somebody damaged the walls of the rented flat? Well, one can accept the cost of making it up or even make it up by himself.
But what if you cannot make it by yourself, and a little scratch costs you as much as repainting the whole car/flat?
This case is similar to the one at Construction sites - the unreasonable clause about Liquidated Delay Damages. Usually, the rates are as high as 0.2%/daily - it would mean that your investment payback period is below 2 years (100%/0.2% daily = 500 days). The courts do not enforce the LD’s clause, which gives one party more incentives from the other's incompliance than if it completes the service. It encourages the former to disturb and deteriorates cooperation.
The other unenforceable application of the Liquidated Damages is a rate unrelated to default severity. For example, can the other party be charged if any tiny part of the work is unfinished? In practice, not all the work must be finalized to let the Employer move in or benefit. Although minor corrections should be quickly finalized, they might be a little later than the central part of the investments.
[Conclusions] Finally, the unreasonable clauses cause the concerns. The privileged Party wonders whether it should withdraw its unreasonable rights in favor of the other. The disadvantaged party cannot move forward or will likely expose itself to more significant damages if it moves forward — the project de-rails.
The betterments that unconscious advisors introduce to the Construction Contract terms deteriorate the understanding and trust of parties, ultimately making the project a nightmare.
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