Construction and project contracts, and arbitration provisions in such contracts have to be drafted and crafted by lawyers with utmost care. There exist certain protocols and different structures for such contracts. So, beware of templates.
The key features are essentially the same - whether the contract administration is under FIDIC or Joint Contracts Tribunal (JCT). There is the employer, who is usually also the owner or the developer or both, the architect, who may wear more than one hat, or there could be the engineer, who is often also the first stop for dispute resolution, and in certain situations an internal dispute resolution board. The last resorts are the arbitrators and the court, the latter is usually reserved for appeals and interim relief purposes.
The contractor is the key figure inasmuch as being the person executing the project. The key issues in such agreements are that of the scope of work, time frame, deployment of labour, payments which could be on the basis of fee plus cost of labour and equipment or lumpsum.
The protocols of the JCT are probably the oldest, its members comprising Royal Institute of British Architects, Royal Institution of Chartered Surveyors and Institute of Consulting Engineers among others. JCT contracts do not envisage mobilisation advances and interim payments, though interim certificates for completion of an itemised item may be released, liquidated damages for defective work, failure to execute in accordance with scope of work are allowed.
FIDIC suit of contracts are followed in most European jurisdictions, Switzerland, Italy to name a few - FIDIC's unique selling point is that it is used in a host of standard forms of contract between employers and contractors on international construction projects. FIDIC's Red, Yellow and Orange books cover civil engineering, mechanical works including erection and turnkey contracts.
In 1999, FIDIC suites were upgraded taking into account project finance and dredgers contracts. The basic FIDIC characteristic is lumpsum payment, minimum employer involvement and elimination of major unforeseen hazards.
In India, building activity is and continues to be rampant. These vary from mega infrastructure projects, ie, those having horizontal multiplicity, such as, integrated housing projects and townships to simpler construction verticals in which the entire suite of players are not required and a single contract suffices. For large projects, which are spread out over years, the players are multiple and sub-contractor involvement is essential.
The architect and contractor are required for all building contracts in India for passing of plans and execution. The architect's role is a critical one. From selection of the contractor, preparing the designs and drawings, plans, estimates and bill of quantities and project and construction management, the architect's role requires involvement in the entire process from inception to the point of handing over, as the owner/ employer's agent.
But the architect's duty is not just construction, it's the details, such as, measurements and elevations, as they can be held liable for improper construction in case of failing to discharge the contractual obligations by reason of their office such as failure to ensure proper supervision of the building process, improper certification or wrongly withholding a certificate.
Invariably, the first major document is the advertisement for tender/ bids along with the forms and the process of accepting and evaluation thereof. The next in line are the requirements for drawing and plans, and allocation of duties and obligations of the key players such as, architect, engineer, contractor, designer, and employee.
The first stage is the planning, in which all the parties and agencies are involved. It involves setting the time lines, the scope of work for each of the above agencies. In large and small contracts the architect will not be defaulted and be held liable unless negligence can be established, and it can be demonstrated that reasonable care was taken. But a regular, large contract usually includes and provides for the General & Special Conditions of Contract, Billing of Quantities, in addition to the above.
The architect very often acts as an on-the -spot trouble shooter/ arbitrator to resolve disputes between the owner and the contractor. But this does not create a situation of conflict of interests, since the owner is the one who pays all, which is why it is important to have a distinction, particularly as the architect could also be a potential witness in an arbitration proceeding, which is why it is not always desirable to appoint the architect.
There are multiple contracts - as sub-contracting is a feature common to most constructions and projects are spread out over several years and usually not completed. There are no rules as such for these contracts, though there are norms and practices. In the Indian context the biggest impediment is that of delay, which cannot always be predicted in advance.
The legal issues that normally arise are increase or change in the scope of work and costs. Construction contracts, therefore, require quick and effective dispute resolution processes and not lengthy arbitrations.
There could be unwarranted increase in the cost, which often renders a fixed fee contract unviable for more than one party. To ensure that all disputes are properly addressed, it is important to provide levels of dispute resolution mechanisms and options, with the rider that suspension of work should be permitted only by any one authority and that also in the rarest of rare cases, and the party responsible would be liable for damages, if so warranted.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum.sen@bharucha.in
