Understanding Contract Administration as a Builder

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Table of Contents

• Familiarity with the Contract
• Making Claims
• Common Claims
• Handling Disputes
• Key Takeaways

As a builder or someone in the construction industry, having a clear understanding of the project you work on is critical. While you might negotiate with your clients, recording those details in a written contract is incredibly important. Otherwise, you can easily forget what each party agreed to, giving rise to potential disputes. This article will unpack contract administration and what this involves as a builder. 

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Familiarity with the Contract

In the course of business, you will undoubtedly enter into building contracts with your clients. When receiving a contract, the first step should be to review and familiarise yourself with the contract’s terms. You or your key personnel can review the contract, including your:

• management team;
• contract representative;
• commercial team; or
• site team. 

Familiarising yourself with the contract makes it easier and smoother to administer. Like a well-oiled machine, a well-administrated contract may assist with the timely delivery of a building project and (hopefully) on budget and decrease the likelihood of a dispute arising.

In any building project, it is practically inevitable that you (or your key personnel) will need to submit a claim to the counterparty. This may include the Principal or the Principal’s Representative (or a Superintendent) for a variety of circumstances, including claims for: 

• an extension of time (EOT);
• variation;
• payment; and 
• disputes. 

Generally, contract administration requires your key personnel need to be aware of your contractual obligations under the contract, and the scope of the services you provide.

Making Claims

Time Bars

When making claims, you need to be aware of any time bars. A time bar is an implied prevention that applies to you (or the claimant) if you do not submit a claim within the time period written in a clause. For example, this could be 5 business days or calendar days. 

There may be a time bar within a relevant clause or it may be under its own clause. Once the specified time period lapses, you will not be able to make a claim under the contract. 

Pre-Conditions to Claim

When making a claim, you may need to satisfy pre-conditions. This is particularly prevalent when making any EOT claims. Pre-conditions to making a claim are criteria you need to satisfy to be eligible to make a claim. Pre-conditions are imposed for reasons such as: 

• gathering and producing evidence by a party; 
• encouraging proactive behaviour by a party to try and mitigate any damage or delay; or 
• encouraging forward-thinking to factor in the length of any estimated delay into the construction program. 

For example, pre-conditions to an EOT claim will generally include:

• evidence of a delay to be submitted;
• a written account of the steps taken by a party to try and minimise any delay; and 
• the likelihood of a delay and what this means for the construction program. 

Making the Claim

You need to check the notices clause to see who to address a claim to. As a rule of thumb, the more serious types of claims (such as for a dispute) will need to be addressed to this person. Additionally, you need to be aware of the form of the claim. For example, check if the claim needs to be by email or if there is a particular document management system (DMS) you need to use.

Common Claims

Some of the more common claims you may need to make include variations, EOT claims, and payment.

Variations

You may need to make a claim for a variation if your scope of services changes beyond what you originally agreed. Whether this change qualifies for a variation depends on how you define variation in the contract. Generally, you will need to notify the other party of the proposed change, the impact (if any) on the construction program, and the impact (if any) on the contract price or fee. The other party will then need to agree on your proposed change before it is binding. 

In some contracts, you may also be required to respond to a variation claim by the other party. In this situation, you may need to respond with the impact of the proposed change by the other party on the construction program and the contract price or fee. 

Payment

It is important that you know how to make a claim for payment under the contract. A payment clause can set out requirements for making payment claims (also known as progress claims). This clause can also include details about:

• time provisions for making the claim;
• work performed that relates to the payment claim; and 
• evidence of payment to subcontractors. 

Generally, the other party will provide a payment schedule in response to your payment claim. They will then pay you within a certain timeframe after your payment claim. Depending on the contract and where you perform the work, parties must comply with the relevant building and construction security of payment laws. 

Handling Disputes

The term ‘dispute’ is used loosely here and for good reason. A dispute may not necessarily be a full-blown litigation you are visualising. It also refers to the beginning of an issue and usually begins with poor contract administration. 

Most contracts should have a dispute resolution clause that sets out the steps the parties need to take in the event of a dispute. Make sure you follow these steps carefully, as you may be time-barred if you do not make a dispute claim in time. 

Good contract administration will hopefully prevent you from using this clause. Below are some useful tips for you:

• keep detailed records and notes on the project, which are readily available for your legal team;
• address potential disputes when they arise (at least internally);
• be aware that at the end of a defects liability period, you may ‘release’ the other party from any claims you may have. This release may cover any claims that have been notified but not resolved;
• be aware of any release you may give to the other party at practical completion (and when submitting your final payment claim); and
• remain on good terms with the other party and address potential disputes as legal disputes are costly and lengthy.

Key Takeaways

Contract administration involves planning, creating and performing a contract to achieve a desired business outcome. As a builder, understanding your contracts is key to complying with them and avoiding legal penalties. 

For more information, our experienced construction lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.