Construction Contracts and Disputes

One of the most important elements of a construction project is the contract. The construction contract is a legal agreement between the owner and the contractor based on certain policies and conditions recorded in documentation form. The construction contract defines the contractor's scope of work and compensation, and also establishes the responsibilities, liabilities, and warranties of both the contractor and the owner. Here is a summary of the different contract types and forms of contract used by quantity surveyors, contract administrators and by claims consultants and lawyers.

Common Contract Types

• Unit price contract: based on anticipated quantities of items which are counted in the project in addition to their unit prices.
• Lump sum contract/ Fixed Price Contract: owner agrees to pay contractor a specified amount of lump sum money for performing the specified and described project for a fixed price. There is no cost breakdown.
•  Incentive contracts: Cost/payment based on the contracting and/or engineering performance in accord with an agreed target – schedule, quality, and budget.  Incentive contracts commonly fall into one of two common categories: Fixed Price Incentive Contracts and Cost Reimbursement Incentive Contracts
•  Percentage of construction contracts: compensation involved in these contracts is based on a percentage of the cost of construction.

Standard Forms of Contracts

•          JCT (The Joint Contracts Tribunal)
•          ACA (The Association of Consultant Architects).
•          Chartered Institute of Building
•          FIDIC (Fédération Internationale des Ingénieurs-Conseils/ International Federation of Consulting Engineers).
•          NEC (The New Engineering Contract): Engineering and Construction Contract)
•          IChemE (The Institution of Chemical Engineers)

Contract Disputes
As the construction contract establishes the rules and terms for the entire project, therefore, to avoid contracts disputes, the contractor should prevent any contractual dispute at the earliest stage. Firstly, in order to maintain the proper and timely performance of the duties to avoid post-contract disputes and claims, the contractor should perform pre-tender duties which may include site visits, material take-offs, and evaluation of key requirements for the work such as insurance and bonding. Proposed general terms and conditions of the contract and evaluation of risks should be read and studied carefully. Further actions should be taken to action to clarify, modify, or eliminate exposure to contract language that imposes intolerable risks on the contractor.

I recruit all types of contract formulation and contract administration and claims consultants and can either signpost companies in need of advice to the right expert organisations or happily recruit specific experts with the above skill sets for you for work in Hong Kong or across Asia.

Scarlett Ku
Maxim Recruitment 
Hong Kong Office