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Building Contracts: What You Should be Aware of

Now, more than ever, contractors and tradespeople need to be aware, not only of their obligations under the law, but also the obligations contained in any contract they may be asked to sign.

Some clients use the standard documentation from the Royal Institute of the Architects of Ireland, others will have a different template or indeed a bespoke contract they prepared themselves. Likewise, a contractor may have their own document that sets out their rights and obligations. Regardless of which contract is used, it is imperative that the terms and conditions it contains are understood and agreed by all parties.

In particular, it’s important that a contractor is aware of the following:

1. Project Supervisor Requirements

A contractor or sub-contractor should be aware that a Project Supervisor must be appointed under current Building Regulations (unless certain conditions are met) and once appointed, who the designated Project Supervisor is. Contractors and tradespeople are obliged to inform a client whether or not a Project Supervisor should be appointed, and if a contractor agrees to take on this role, they need to be aware of their obligations in carrying it out.

2. The Price to be Paid for the Work to be Done

The scope of the works to be completed should be clearly agreed and understood by both contractor and client. If necessary, refer to the plans and drawings annexed to the contract. The pricing mechanism should also cover any agreed variations to the original works.

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3. The Timeframe for the Completion of the Works

The timeframe for carrying out the work should be clearly set out and agreed upon. Contractors must pay particular attention to any time penalty clauses in the contract.  Likewise, the contractor should ensure that they can complete the agreed works within the timeframe and strictly provided for unforeseen delays. Contractors and tradespeople should also be aware of any restrictions in the working hours on the site, and how these will affect them.

4. VAT and Relevant Contracts Tax

The position on VAT should be clearly set out and state whether or not payments include VAT. The contractor should also ensure that their obligations under the Relevant Contracts Tax legislation are clearly set out. Any VAT allocation provided for should be accurate and should provide for any change in future VAT rates.

5. Insurance and Liability For Injuries

A contractor or tradesperson should ensure that they have an adequate insurance policy in place. In the case of larger contracts, it may be that additional insurance should be taken out. The contractor should ensure that the cost of maintaining this additional insurance for the period specified in the contract is not an overly onerous burden, and this cost should be included in any estimate given. Likewise, all contracts should deal adequately with potential claims for injury or death due to negligence, and the contract should contain appropriate indemnity clauses.

6. Payment and Retention Monies

The contract should clearly set out the basis on which the contractor is to be paid together with the payment intervals or dates.  The contract should also have an adequate dispute resolution mechanism, such as referral to an expert appointed by an independent body to deal with any disputes, not only for payments but for all issues which may arise if there is a dispute about the contract. Mediation and Arbitration mechanisms can be useful. If the contract provides for retention monies, the circumstances for the retention should be clearly set out, as well as dealing with when these retention monies are to be paid.

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7. Liability for Defects

The contract should set out the time limit for liability for any works which have not been carried out in accordance with the contract. Generally, a contractor or tradesperson would not want this period of time to exceed six years, which is the normal statute of limitations period for breach of contract.  It is however worth noting that, from a contractor’s perspective, the contract should also provide that the contractor liability will not exceed this period of six years even for latent defects. This is to stop any claim being made far into the future.

8. Collateral Warranties

For some large developments, collateral warranties may be given to parties who are not a party to the contract. This means that the contractor agrees that some other body – for example a developer’s bank – will have rights under the original contract. If such a warranty is given, it is important that a contractor double-checks their own insurance, to ensure that it would cover a claim by such a third party. Likewise, it is important that a limit be put in place as to how many times the collateral warranty can be assigned.

9. Miscellaneous Contractual Provisions

Most contracts will have clauses dealing with definitions, the circumstances in which the contract may be suspended, appointment of sub-contractors, service of notices, ownership of intellectual property rights and perhaps even confidentiality. All contractors should check to ensure that the contract is governed by the laws of Ireland and that Irish Courts have jurisdiction.

Ideally, most contractors should have their own standard contract, to be used on a regular basis to ensure that their interests are securely and accurately protected in all agreements. This would help avoid unexpected pitfalls. However, depending on the client, the value of the works and services that are provided, it is not always possible to use such a contract. Given that some of these agreements can run to many pages, and cover potentially severe risks, it is always prudent for a contractor or tradesperson to obtain their own legal advice before signing any contract, letter of appointment or document presented to them by a client.

Gibson & Associates Solicitors have significant expertise and experience in advising professionals, contractors and sub-contractors on their liabilities and responsibilities under the Building Control (Amendment) Regulations 2014 (BCAR). Should you require more information or advice on a building or any other agreement, they would be happy to assist you. You can contact Gibson & Associate Solicitors at http://gibsonandassociates.ie/ or on Freephone 1890 989 289.