Before you sign …

Your boss asks you to give a contract the “once over”. No problem, you think – you can probably fit it in over the next week. Then comes the catch – the commercial guys have just called to say they must sign up to it today or the deal’s off; you have just two hours to review the contract. Which are the important provisions you would look at? Probably you have some idea of what to look for, but do you know why? Here, in the first of two articles, are six of the areas you might start with:

Design obligations

Design obligations are not always obvious. Sometimes they may be implied where you have agreed to do things that involve an element of professional judgment. The important thing to remember is that what constitutes design is drawn widely – not only calculations and drawings but also choice of materials for particular functions and/or choice of particular work processes will mean you have a design obligation.

Following the case of Blyth & Blyth vs Carillion, which found that a contractor was liable for mistakes made by an engineer before it was novated, you should ensure that, when consultants are novated, you obtain enforceable assurances concerning the adequacy of design work already carried out.

Fitness for purpose

You are probably adept at avoiding fitness for purpose obligations, because you know your insurer will not cover them. If you have already accepted a design obligation, be aware that a fitness for purpose obligation may be implied. Phrases such as “suitability for intended use” should have you reaching for the red pen. When in doubt, add an express exclusion.

PFI projects often require the contractor to take on the obligation, because the project’s special purpose vehicle cannot. Check the insurance first.

Direct or indirect loss

You know you do not want to be responsible for someone else’s loss of profit claim, so you employ that handy clause about excluding “indirect and consequential losses”. It’s a common misconception that those words will always exclude loss of profit, but in many cases loss of profit may be a direct loss, and therefore you will not have excluded it. Assess what the potential losses may be and use clear words for those losses you wish to exclude.

Assignment

Be aware that a fitness for purpose obligation may be implied. Phrases such as ‘suitability for intended use’ should have you reaching for the red pen. When in doubt, add an express exclusion

Assignment often crops up because of the much-loved collateral warranty. You know what to do, because somebody once told you that you should never agree to more than two assignments. Not ever. Any idea why? Chances are it’s a term of your insurance policy. By the way, assignment cannot create any new rights, it only transfers the rights that already existed to another party.

Lists of deleterious materials

Subject of much debate over the years, these are increasingly popular. Materials such as mineral wool fibres, which regularly feature on (seldom updated) lists, have had their safety confirmed as an insulating core and are probably easier to insure than EPS panels, which are out of favour following the recent “fried onions” case of Sahib Foods Limited vs Paskin Kyriakides Sands Architects (2004).

The new Construction Industry Council warranty requires use of reasonable skill and care to specify materials in accordance with the Arup guide Good Practice in the Selection of Construction Materials. Try to agree a similar provision, rather than using a list.

Ground conditions

If your project involves groundworks, you need to establish the rules upfront. Are there any surveys or reports in existence? Do they warrant the quality of conditions across the site, or merely the boreholes? Are you going to rely on them? More importantly, does the contract say you can rely on them?

Although you may be able to demonstrate that the changed conditions constitute a variation if it’s a lump-sum contract, where you have design-and-build obligations, you may have to show that there has been a change in the employer’s requirements to obtain a variation. Rarely, you may have a claim for misrepresentation if, for example, the information you were given was so misleading that you would not have entered into the contract if you had known the true position. Dealing with ground conditions issues upfront is generally the better approach.

Next week, our guide to checking a contract continues with tips on six more vital aspects of law.