‘I know you think you understand what you thought I said, but I’m not sure you realise that what you heard is not what I meant.’
Those being the words of former U.S. Federal Reserve Chairman, Alan Greenspan.
A building or construction contract is a potentially marvellous instrument for decisively describing the obligations and requirements of builders and architects, and likewise, defining the obligations and rights of clients.
That said, it can only do so if it is fit for purpose. There are many standard contracts available for various types and scales of construction, nevertheless, they are all contracts, and signing them means that both parties are committed to the terms within.
A builder may say to a client: ‘it’s just a standard contract’. This may be intended to create a feeling of security – nothing out of the ordinary here. Clients must still understand what they are agreeing to, standard or not.
Contracts are just words… until things go wrong. At that stage, every word and meaning within the contract is examined. It is important to understand the words BEFORE the contract is signed.
Clauses
Contracts are designed to address many possible issues in order to clarify expectations including time frame, work required and payment schedules, and also, to provide coverage of obligations and liabilities when things don’t go according to plan.
These may be such things as:
- Indemnity
- Consequential loss
- Liquidated damages
- Time bars
- Warranties
Fully understanding these various clauses can be challenging. Are you aware, for example, the phrase warrant and agree is not just some fancy legal-speak for agree, but has a far greater meaning?
It may be the case that an overly ambitious contractor will have incorporated unduly onerous clauses that are not reasonable.
It is important to have a lawyer explain the full ramifications. Further, it has been demonstrated that courts will seek to identify the intentions of a contract by analysing its commercial purpose, that is, what would a reasonable businessperson understand by the words?
Contracts, and contracts …
It is normal to think of a contract as a multi-page legal-speak document, and that is invariably the case. However, in this internet-driven world, electronic communication can play a major role in business dealings, and often, business is done, and arrangements agreed to by the expeditious use of email exchanges.
Bear in mind that a contract is simply an agreement arrived at between parties, and an agreement reached in email form is also a contract. It is extremely important that such agreements are concise, and leave no room for misunderstanding, as in the first heading of this article.
Further, courts have found that verbal agreements can also form contracts, the so-called hand-shake agreement. It is far better to have all agreements in writing.
Don’t leave it to chance
When reading through a contract it can be easy to assume that the meaning is clear, but once signed, the agreement is final. It is wiser to seek proper legal advice before the event.
Likewise, as a builder, you may think that the contract you have used for years must be okay. But if you have never had cause to test it, how would you really know? Far better to have a lawyer with years of experience in the area have a look at it. Perhaps the cheapest insurance ever?
Commercial Law … we understand. It will be easier with sound legal advice from the experts. Owen Hodge Lawyers. We are here to help.