Construction Contracts This is a fully revised edition of the UK’s leading textbook on the law governing construction contracts and the management and administration of those contracts. Although the legal principles involved are an aspect of general contract law, the practical and commercial complexities of the construction industry have increasingly made this a specialist area. This new edition is up to date with recent cases and developments in the law as it stands at July 2000. It takes full account of the effects of the Housing Grants, Construction and Regeneration Act 1996, the Arbitration Act 1996, the Contracts (Rights of Third Parties) Act 1999 and the changes in the legal system brought about by the Woolf reforms.
The coverage of financial protection, particularly bonds and guarantees, the Construction (Design and Management) Regulations, construction insurance, and tendering controls has been extended and amplified. All of the common standard-form contracts have been revised in recent years and the text takes account of these changes. In particular, more use is made of the New Engineering Contract and the GC/Works family of contracts, especially where these contain specific differences from JCT 98, IFC 98 and ICE 7. Rather than providing a commentary on standard-form contracts, the approach is to’ introduce the general principles that underlie contracts in construction, illustrating them by reference to the most important standard forms currently in use and to the practical issues arising in construction cases.
Practitioners — consultants, builders, clients and lawyers — will find this an extremely useful reference work, providing in- depth explanations for all of the features found in contemporary construction contracts, with reasons. It is a key text for construction undergraduates and postgraduates as well as for those taking the RIBA Part III’ and CIOB Part II examinations. Both authors are at the University of Reading – John Murdoch in the Department of Law and Will Hughes in the Department of Construction Management & Engineering. Construction Contracts Law and Management Third Edition John Murdoch and Will Hughes First published 1992 by E & F N Spon Second edition published 1998 Third edition published 2000 by Spon Press 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Spon Press 29 West 35th Street, New York, NY 10001 This edition published in the Taylor & Francis e-Library, 2001.
Spon Press is an imprint of the Taylor & Francis Group © 1992, 1996, 2000 John Murdoch and Will Hughes All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Murdoch, J.
Construction contracts: law and management / John Murdoch and Will Hughes. Includes bibliographical references and index. ISBN 0-419-26170-2 (hbk : alk. paper) – ISBN 0-419-25310-6 (pbk : alk.
Construction contracts–Great Britain. Hughes, Will, PhD.41'078624–dc21 00-058781 ISBN 0-419-26170-2 (hbk) ISBN 0-419-25310-6 (pbk) ISBN 0-203-18498-X Master e-book ISBN ISBN 0-203-18507-2 (Glassbook Format) Contents Contents v Introduction ix Cases xi Statutes xxiii Glossary xxv 1 UK construction industry context 1 1.1 The nature of the industry 1 1.2 The nature of professionalism in construction 5 1.3 The nature of projects 7 1.4 Procurement methods 9 2 Roles and relationships 11 2.3 Professional services agreements 15 2.5 Typical conditions in professional services agreements 18 2.6 Integrated documentation 23 3 General contracting 25 3.2 Use of general contracting 27 3.4 Risk in general contracting 36 3.5 Standardized approaches to general contracting 40 4 Design and build 41 4.2 Features of design and build contracts 42 4.3 Use of the JCT design build form (CD 98) 46 4.4 Characteristics of CD 81 50 4.5 Risk in design and build 53 4.6 Approaches to design and build 55 vi CONTENTS 5 Management contracting 57 5.2 Use of management contracting 59 5.3 Contents of MC 98 61 5.4 Risk in management contracting 65 5.5 Approaches to management contracting 69 6 Construction management 71 6.2 Use of construction management contracts 72 6.3 Contents of construction management contracts 75 6.4 Allocation of risk in construction management 79 6.5 Approaches to construction management 81 7 Procurement and contract choice 83 7.1 Types of risk in construction contracts 83 7.2 Dealing with risk 84 7.3 Allocating risk through methods of payment 87 7.4 Selecting procurement methods 88 7.5 Contract choice 95 8 Tendering and contract formation 109 8.1 The meaning of construction contracts 109 8.2 The formation of contracts by agreement 110 8.3 Contracts made by tender 119 9 Liability in contract and tort 131 9.3 Incorporation by reference 141 9.5 Liability in tort for negligence 145 10 Contractor’s obligations 147 10.1 Standard of work 147 10.3 Co-ordination and management 152 10.4 Transfer of materials 155 11 Employer’s obligations 159 11.2 Employer’s obligations under JCT 98 162 11.3 Responsibility for the contract administrator 163 11.4 Responsibility for site conditions 164 11.5 Health and safety 166 CONTENTS vii 12 Responsibility for design 167 12.2 Design duties in law 168 12.3 Legal responsibility for design 173 13 Time 179 13.4 Contractor’s obligations after completion 184 13.5 Extensions of time 186 14 Payment 197 14.1 Employer’s obligation to pay 197 14.2 The contract sum 199 14.5 Retention money 208 15 Contractors’ claims for loss and expense 211 15.1 Contract claims and damages 211 15.2 Grounds for contractual claims 212 15.4 Quantification of claims 217 16 Insurance and bonds 223 16.2 Bonds and guarantees 230 17 Role of the contract administrator 237 17.1 Contract administrator as the employer’s agent 237 17.2 Contract administrator as independent adjudicator 246 18 Health and safety obligations 253 18.1 Objectives of the CDM regulations 253 18.2 Application of the CDM regulations 255 18.3 Obligations of the parties 255 18.4 Sanctions 258 19 Sub-contracts 259 19.1 Reasons for the prevalence of sub-contracting 259 19.2 The legal basis of sub-contracting 260 19.3 The contractual chain 262 19.4 Domestic sub-contracts 263 19.5 Defaults of sub-contractors 265 19.6 Rights of sub-contractors 268 viii CONTENTS 20 Nomination 275 20.1 Reasons for employer selection of sub-contractors 275 20.3 Defaults of nominated sub-contractors 280 20.4 Rights of nominated sub-contractors 292 21 Financial remedies for breach of contract 297 21.3 Quantum meruit claims 305 21.4 Non-payment as a contractual remedy 306 22 Defective buildings and subsequent owners 311 22.1 Claims in negligence 311 22.3 Alternative forms of legal protection 316 23 Suspension and determination of contracts 323 23.1 Suspension of work 323 23.2 Termination for breach at common law 324 23.3 Determination under JCT 98 and related sub-contracts 329 23.4 Determination on neutral grounds 333 23.5 Frustration of contract 335 24 Non-adversarial dispute resolution 337 24.1 Background to disputes 337 24.2 The nature of construction disputes 339 24.3 The role of the contract administrator 341 24.4 Methods of dispute resolution 342 24.5 Incorporating alternative dispute resolution procedures 345 25 Adversarial dispute resolution 347 25.4 Arbitration or litigation? 362 References 367 Index 371 Introduction This book is aimed primarily at students for whom the study of building or civil engineering contracts forms part of a construction-based course. We have had in mind the syllabus requirements for first degrees in Building, Civil Engineering, Architecture, Quantity Surveying and Building Surveying, as well as those of postgraduate courses in Construction Management and Project Management. We have also assumed that such students will already have been introduced to the general principles of English law, especially those relating to contract and tort.
As a result, while aspects of those subjects that are of particular relevance to construction are dealt with here, the reader must look elsewhere for the general legal background. In producing this third edition, we have again been greatly assisted by the many helpful comments made by reviewers and users of its predecessor. Nonetheless, our basic aim is identical to that which underpinned the first edition: to provide an explanation of the fundamental principles of construction contract law, rather than a clause-by- clause analysis of any particular standard-form contract. As a result, while we draw most frequently upon JCT 98 for our illustrations of particular points, this merely reflects the pre-eminent position occupied by that particular form of contract in the UK construction industry.
We conclude by repeating our previous warning as to the dangers inherent in a little learning. Neither this book, nor the courses for which it is intended, seek to produce construction lawyers. The objective is rather to enable those who are not lawyers to resolve simple construction disputes before they become litigious, and to recognize when matters require professional legal advice. It should be the aim of every construction student to understand the legal framework sufficiently that they can instruct and brief specialist lawyers, and this book is designed to help them towards that understanding.
Cases A & D Maintenance and Construction Ltd v Pagehurst Construction Services Ltd [1999] CILL 1518. 112 Alfred McAlpine Construction Ltd v Panatown Ltd (1998) 88 BLR 67. 320 Andrews v Schooling [1991] 3 All ER 723. 315 Anglian Building Products Ltd v W & C French (Construction) Ltd (1972) 16 BLR 1.
308 Anns v Merton LBC [1978] AC 728. 312, 316 Architectural Installation Services Ltd v James Gibbons Windows Ltd (1989) 46 BLR 91. 325, 331 Archivent Sales and Developments Ltd v Strathclyde Regional Council (1984) 27 BLR 98. 157, 272 Arenson v Casson, Beckman Rutley & Co [1975] AC 405.
352 Ashville Investments Ltd v Elmer Contractors Ltd [1988] 2 All ER 577. 351 Att-Gen v McMillan & Lockwood Ltd [1991] 1 NZLR 53. 294 Babcock Energy Ltd v Lodge Sturtevant Ltd [1994] CILL 981. 219 Bacal Construction (Midlands) Ltd v Northampton Development Corporation (1975) 8 BLR 88.
165 Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) 62 BLR 1. 194 Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd [2000] CILL 1574. 232 Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc [1994] CILL 925. 298 Barclays Bank plc v Fairclough Building Ltd (1994) 68 BLR 1.
146 Barclays Bank plc v Fairclough Building Ltd (1995) 76 BLR 1. 146 Barnard Pipeline Technology Ltd v Marton Construction Co Ltd [1992] CILL 743. 140 Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd (1998) 88 BLR 1. 249 Beaufort House Development Ltd v Zimmcor (International) Inc, Zimmcor Co and Cigna Insurance Co of Europe SA-NV (1990) 50 BLR 91, CA.
79 Beeston v Marriott (1864) 8 LT 690. 249, 305 Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium Ltd (1997) 82 BLR 39. 213 BFI Group of Companies Ltd v DCB Integration Systems Ltd [1987] CILL 348. 303, 352 xii CONSTRUCTION CONTRACTS Bickerton v North West Metropolitan Regional Hospital Board [1977] 1 All ER 977.
98 BL Holdings Ltd v Robert J Wood & Partners (1979) 12 BLR 1. 172 Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 3 All ER 25. 126 Blue Circle Industries plc v Holland Dredging Co (UK) Ltd (1987) 37 BLR 40, CA. 34, 91,203 Bolton v Mahadeva [1972] 2 All ER 1322.
329 Bottoms v York Corporation (1892) HBC 4th ed, ii, 208. 165 Bouygues UK Ltd v Dahl-Jensen UK Ltd [2000] CILL 1566. 264, 327 Bradley v Eagle Star Insurance Co Ltd [1989] 1 All ER 961. 224 Bramall & Ogden Ltd v Sheffield CC (1983) 29 BLR 73.
184 Brickfield Properties Ltd v Newton [1971] 3 All ER 328. 171 Brightside Kilpatrick Engineering Services v Mitchell Construction Ltd (1973) 1 BLR 62. 142, 310 Brightside Mechanical & Electrical Services Group Ltd v Hyundai Engineering & Construction Co Ltd (1988) 41 BLR 110.