CONSTRUCTION CONTRACTS

CONSTRUCTION CONTRACTS

Construction projects of all kinds are carried out by industry professionals, so-called construction contractors. In order for the contractor to implement the project according to specific specifications, plans, and drawings. The owner concludes an agreement with the contractor, which is called?a

construction?contract or contracting contract, under which the owner pays the amounts of money specified in the contract to the contractor, in exchange for the contractor implementing the project, and delivering it to the owner in its agreed form.

Usually, the owner announces the invitation of a number of contractors to submit their bids, to implement the announced project with the determination of the required cost, and then the owner and his assistants choose the appropriate contractor?based on several factors such as: experience, cost required, capabilities, previous work, and the extent of the contractor's commitment.

Contracting Contract

It is one of the most applied contracts in life. It is defined as a contract whereby one contracting party undertakes to manufacture something or to do work for remuneration undertaken by the other contractor

Characteristics of the Contracting Contract

It is a contract that is not based on personal consideration unless there is a clause in the contract that prevents the contractor from employing a subcontractor or the nature of the work presupposes reliance on his personal sufficiency.

It is a consensual contract: therefore, the principle of it does not have a special form, as it is concluded as soon as the parties agree, whether in writing, orally, or by sign.

It is a netting contract: that is, it has a consideration for each of its parties.

It is a contract binding on both sides: that is, one of the parties cannot derogate from its obligation unilaterally, otherwise it is obligated to compensate the other party.

It is a contract that is contained in the work: that is, it is not possible for the person (the contract is for the manufacture of a door, not for the door maker)

Elements of the contracting contract

Satisfaction: with its elements (offer, acceptance identical to the offer), and its defects: (error, fraud, coercion, and exploitation)

Subject: (i.e. subject of the contract): The law does not specify special conditions for the place of the contracting contract, but it must be possible, specific, and legitimate.

Reason: It is the wage in the contracting contract. The remuneration must be appointed, or appointable (e.g. stating that the pricing of items is bound by prices in the Authority's regulations)

Effects of the Contracting Contract The contractor's obligations according to The Civil Transactions Law of the United Arab Emirates are summarized in Articles (647-650 civil) They are as follows:

Contractors Commitments

1.???(Article 875)

If required to provide materials, the contractor must ensure their quality as per contract terms or prevailing customs.

Proper handling and return of any remaining materials provided by the employer.

2.???(Article 876)

The contractor must provide necessary machinery and tools unless otherwise agreed or customary.

3.???(Article 877)

• Complete work according to contract terms.
• Rectify any failures or defects within a reasonable timeframe upon request, or face contract termination.

4.???(Article 878)

Liable for any damage or loss resulting from their actions, regardless of negligence, except in unavoidable accidents.

5.???(Article 879)

May retain the property until payment is received if their work affects the property. Not liable for destruction of property before payment if not at fault.

6. ?(Article 880)

Jointly liable with the engineer for damages within ten years for constructed buildings or installations, regardless of land defects or employer's consent to defective designs.

7.???(Articles 881, 882)

Any conditions exempting from or limiting guarantee or liability are null and void.

8.? ?(Article 883)

Guarantee claims are invalid three years after demolition or defect discovery.

9.??(Article 890, 891)

• May assign work to another contractor unless prohibited, but remains responsible to the employer.
• The second contractor cannot claim from the employer unless referred by the first contractor.

The contractor's primary obligations include ensuring work completion in line with the contract and specifications to achieve the project's goals, or, if specifications are absent, aligning with the building's intended purpose. They must also safeguard materials and objects on-site. Should the contractor deviate from agreed standards, the employer is entitled to demand correction within a set period. Failure to comply allows the employer to terminate the contract or reassign the work, at the original contractor's cost. The delivery of work, whether explicit or implicit, signifies the project's completion and the transfer of responsibility to the owner, marking a crucial phase in the construction process.

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Clients (Employers) Commitments

1.??(Article 884):

Obligated to accept the completed work unless refusal is justified. Contractor not liable for damage or defects if work is unjustly refused.

2.??(Article 885):

Must pay the agreed consideration upon completion, unless otherwise stipulated.

3.???(Article 886):

If unit-based measurements exceed estimates significantly, the contractor must notify the employer, who may withdraw and suspend execution.

4.???(Article 887):

No additional fee claimable for agreed-upon design. Adherence to current agreement for any design modifications or additions.

5.?? (Article 888):

Contractor entitled to a reasonable wage plus material costs if not specified.

6.? ?(Article 889):

Entitled to reasonable remuneration if not agreed upon. Remuneration for work done if completion prevented by unforeseen events.

The employer's obligations encompass securing building permits and necessary utility licenses for construction, ensuring continuous and clear access to the construction site, delivering any materials they've agreed to provide at the specified times, and facilitating an unobstructed environment for the contractor to complete the work without hindrances. These responsibilities are crucial for maintaining project timelines and ensuring smooth execution of construction activities.

Termination of Contract (Articles 892-896):

1. The contract expires upon work completion, mutual consent, or court order.
2. Rescission or termination is possible if execution or completion becomes impossible.
3. Contractor entitled to value of work and expenses if unable to complete for reasons unrelated to them.
4. Compensation within custom limits may be sought by the aggrieved party.
5. Termination upon contractor's death if personal performance was stipulated, with proper execution guarantees required from heirs.

Types of Construction Contracts

Contracts in the construction industry often refer to agreements between the owner and the contractor under which the contractor carries out the works set out in the contract, abiding by the architectural, structural and detailed panels, specifications and requirements attached to the contract documents, in exchange for sums of money paid to him by the owner and in the manner described in the contract.

there are several types of contracts that can be concluded in construction contracts on the basis of :

1. ?Pricing Structure: From fixed-price to cost-plus, detailing the approach to cost management.
2. Project Phases: Customized contracts for different stages like planning, design, and construction.
3. Project Specifics: Tailored agreements based on the project's unique requirements and risks.
4. Specialization: Focused contracts for specific construction disciplines.
5. Engagement Terms: Establishing the scope, responsibilities, and timeline of the project collaboration.

However, Construction contracts usually use two main types according to the method of physical interaction between the owner and the contractor.

There are contracts that rely on the physical transaction being price-based. It is the total cost of the project in terms of direct and indirect costs. There are two main types:

1.???? Total Price Contract

2.???? Unit Price Contract

There are contracts that depend on the fact that the material transaction is on the basis of direct cost only, including two main types:

1.???? Cost contract plus percentage or expense reimbursement contract

2.???? Target cost contract

Price Contracts

Lump Sum Contract It is one of the types of construction contracts in which the contractor is obligated to carry out the agreed works, in return for a fixed total amount of money paid by the owner. It is noted that the stability of the agreed amount holds the contractor responsible for any risks to which the project is exposed during implementation, and the owner does not bear any participation in bearing any percentage of any financial increase to which the project is exposed.

?The use of the total price contract necessitates determining the total cost with high accuracy before contracting, which leads to the need to completely complete all drawings, designs, specifications and any requirements for the project before starting to prepare bills of quantities and calculate the cost and contract. The characteristics of this type of contracting can be mentioned in the following points:

It is characterized by the stability of the total cost of the project from the owner's point of view

It does not give any flexibility to the owner to make a change in the number or size of project items

Provides the contractor with a very large incentive to save any amounts of money

Full completion of all designs, drawings and specifications is required.

The contractor bears all risks that the project may be exposed to.

Increase quantities

The principle in this case is that the agreed gross wage can only be increased in the cases specified in article 658 of the Civil Code, which are as follows:

The amendment or addition is due to the employer's fault.

The amendment and addition must have been made with the permission of the employer and it was agreed with him to determine the wage, and the agreement must be in writing if the original contract is in writing.

The contract must have contained an additional condition that allows this.

In all cases, an agreement may be made between the contractor and the employer on the increase in wages, otherwise the judge shall be referred to for assessment. The judge may order an increase in the total price or the termination of the contract if the theory of emergency circumstances can be applied, and the performance of the obligation has not commenced. If execution has begun, the price may not be adjusted.

Unit Price Contract

This type of contract is based on the unit price of each item, for which the cost is estimated by the contractor, based on bills of quantities that are counted through architectural and construction drawings. The contractor or his representative, based on the volume of works mentioned in the bills of quantities for each item and after determining the appropriate method of implementation, shall determine the work crews, which consist of labor and equipment, as well as calculate the quantities of raw materials necessary for the implementation of these items. Thus the direct cost of the item can be calculated. By collecting the cost of the required resources of workers, materials and equipment, then the indirect cost is estimated, including: site management, general management, guarantee, risks, profit, as a percentage of the direct cost, and added to it, so the total cost of the item is obtained, i.e. the price of the item.

The characteristics of this type of contract are characterized by:

This type of contract can be used even when the designs are not completed unlike the total price contract

Allows the owner to make some changes in some items with increase or decrease during the implementation phase

Participation of both the owner and the contractor in bearing the risks that the project may be exposed to during the implementation work

The final cost of the project is not specified, and cannot be known before the complete completion of the implementation work, as the physical calculation between the owner and the contractor is based on the unit price and that the amount of work is subject to change, and not on the basis of the project price as followed in the total price contract.

Increase quantity

Civil code regulates this according to the estimated assay exceedance. This is as follows:

How to deal with the increase in quantities in the contracting contract based on Unit?

If the increase is significant

The employer must be notified and the execution suspended, The employer must be accepted before the resumption of the works begins, Upon acceptance, the employer bears the increase in the cost, Upon rejection and dissolution of the contract, the employer gives the contractor the value of the work accomplished without compensating him for the lost earnings (i.e. what he could have earned if he had completed the work).

?If the increase is perceptible (10%-15%)

The contractor shall notify the employer immediately indicating the amount of the expected increase in the price, otherwise his right to recover the expenses exceeded the value of the assay shall be forfeited and the contractor shall not suspend the execution.

If the increase is imperceptible (1%-5%)

The employer is obliged to pay the cost when making the final account

Cost Plus Contract Or Cost Reimbursable Contract

In this type of contract, an agreement is made between the owner and the contractor on the basis that the contractor will carry out the required work, in exchange for recovering any expenses he spends in addition to a percentage of the contractor for management and profit. This percentage may be replaced by a fixed amount, or they may be combined, meaning that the contractor receives an agreed fixed amount in addition to a percentage of expenses, and it is preferable to use this type of contract in the following cases:

In the case of projects that can change the quantities of work during implementation, that is, the volume of work in the project is not currently completely defined, and the owner wants to start implementation, in order to save time.

In the case of projects that require the start of implementation work as soon as possible without waiting for studies and designs, such as: maintenance work, or the completion of works that have stopped for any reason and are intended to start completing them as soon as possible.

In the event that the owner wishes to participate in the management of the project, and monitor it himself, as paying direct expenses will provide him with the opportunity to view all accounts, work rates and the exchange system.

Among the most important features of this type of contract are the following:

Speed up the start of implementation work even before the completion of the design work, as the cost estimate does not depend on the contract.

The owner's participation in the management and follow-up of the project, where he can view the expenses, and be fully aware of the percentage of amounts given to the contractor.

Give the owner high flexibility in making any changes in the project terms or requirements.

The disadvantages of this type of contract include:

The absence of any incentive for the contractor to raise the efficiency of work, and thus save expenses, and perhaps the opposite, as it is in the interest of the contractor to increase expenses because this increases the amounts he takes.

Target Cost Contract

In this type of contract, an agreement is made between the owner and the contractor on the basis that the contractor will implement the project and the owner's responsibility for the expenses, in addition to a percentage of these expenses paid to the contractor for his work and management for implementation, and to this extent it is quite similar to the cost contract?plus a percentage, but in the target cost contract, a prerequisite is added to the contract, which is the contractor's participation in bearing part of any expenses that exceed the final cost of the project, which is called?the target cost.

Management contract

This type of contract is made between the owner as a first party and an office specialized in project management as a second party, on the basis that this office manages the project in all its stages (feasibility study, design, contracting, implementation, delivery) or in some of these stages only. This depends on the capabilities of the owner, and the nature of the project, for example, the second party may manage the design and implementation phase or one of them, and may participate in the feasibility study stage and supervise the bidding stage, for example.

This type of contracting is characterized by the second party (project management) and on behalf of the owner to contract with the main contractor, subcontractors and suppliers and deal with them on behalf of the owner, and through his high experience in project management, excellent results can be reached in terms of quality, implementation time and project cost, which is much reduced as a result of the high level of management.

Contract Counselling

A counselling contract is a contract that imposes on one of the contractors an obligation to provide advice based on his strongest position - as a professional - to help the client make a final decision, regarding the subject of the consultation, in exchange for a fee.

Or it is an agreement between a person called a consultant, under which he commits to one or more other persons who are called clients, to provide them with what will lead to the success and achievement of the goal they seek.

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This contract is characterized as a?contracting contract but of a special nature. It shall have the following characteristics:

Consensual contract: that is, it has no specific form, and it does not have rituals (such as a land lease...)

Professional contract: related to a particular profession

A binding contract for both sides

Personal consideration has an important role to play. (It is not permissible to assign it to others - such as a lease contract - and it is not permissible to subcontract).

Contract of independence

An indefinite contract (a private contract) and therefore refers to the contracting contract in the Civil Code. This is the most likely judicially.

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Classification of construction contracts

Construction contracts can be classified in more than one way according to the parties to the contract or the accounting method (as described above), or the scope of work, as follows:

Classification according to the parties to the contract

From the point of view of the owner:

1.???? Contracting contract between the owner and the contractor

2.???? Loan or financing contract between the owner and the financier

3.???? Contracting contract between the owner and the consultant

4.???? Supply contract between the owner and the supplier

5.???? Management contract between the owner and the person responsible for managing the project

From the contractor's point of view:

1.???? Employment contract between the contractor and the employees

2.???? Subcontracting contract: between the general contractor and subcontractors

3.???? Management contract between the contractor and the project management (contract) for the contractor's account

Classification by scope of business

1.???? Specialized contracts

2.???? Design and supervision contracts

3.???? Contracting contracts, subcontracting

4.???? Design and implementation contracts

5.???? Turnkey contracts

6.???? BOT Contracts

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Construction Contract Documents

Specifications and types

The specifications contain all the conditions and specifications that must be met in the materials used in the construction industry, as well as the foundations of the industry, measurement methods, and standard quantities that are the basis for judging the validity of the work. What is meant by specifications in construction contracts: It is a set of requirements and recommendations that are written and documented for reference when implementing and receiving work.

Specifications are considered one of the main contract documents and are expressed as general requirements in the form of general specifications, or as special requirements in the form of project-specific specifications. Since the specifications of the project are the responsibilities of the?designer?engineer (architectural and constructional), this requires extensive knowledge and continuous knowledge, and the ability to write specifications in?a clear, accurate and easy-to-understand manner, and this requires those who write specifications to be aware of everything new in the world of construction and construction. And to be familiar with the qualities and characteristics of materials and their advantages and disadvantages as well as their prices. He must also be familiar with the types of equipment, their productivity, characteristics, cost of operation, maintenance, and the advantages and disadvantages of using this equipment in the conditions and nature of different projects.

General?requirements: Many international bodies interested in the construction industry have developed general requirements, in order to internationalize and benefit from them when writing construction contracts, especially in international projects. Examples of international bodies that have made a great effort in this field.

General requirements usually contain:

1.???? A general definition of the project and who is the owner, contractor, and designer.

2.???? Contract Contents & Documents

3.???? Rights and responsibilities of the contractor

4.???? Designer Rights and Responsibilities

5.???? Estimated project implementation time

6.???? The method of physical interaction between the owner and the contractor

7.???? Conditions associated with any changes to the project terms

8.???? Necessary insurances and guarantees

9.???? The method to be followed to resolve any disputes.

Special requirements:?They are the complementary requirements that are added to the general requirements, in order to achieve some of the requirements of the project, which were not met by the general requirements, or are intended to modify some of the general requirements items, to suit the conditions of the project under study. Examples of special requirements include:

1.???? Changing the insurance system stipulated in the general requirements.

2.???? Special requirements to give the owner some freedom to make changes in the project terms without increasing prices.

3.???? The owner's responsibility for providing some equipment or materials that are not available locally. Providing some special services such as surveying works, soil testing works, or public services (telephones - electricity - water)

4.???? Requirements that the contractor should not be engaged in other works during the project implementation period, or set limits thereon.

5.???? Delay fines and how to bear risks, each according to its type

In general, specifications can be divided into the following types:

Technical Specifications

These specifications determine the method of implementation and the techniques to be used in this. Usually, a complete conception is developed for the implementation of the various items according to the specifications set by the designer engineer, and within the framework of general requirements, such as excavation works, concrete, insulation works, and electrical works. And so on.

In each of the previous items, the materials to be used, the level of labor required for implementation, the quality of the equipment, and the method of follow-up shall be determined, and the contractor's compliance with these specifications shall be ensured through periodic tests such as non-destructive tests, and continuous inspection of what is being implemented.

Performance Specifications

This means the specifications that the item must have after its completion, in the sense that it must be in satisfactory form, and perform its purpose efficiently. In this type of specification, it may be left to the contractor to choose the appropriate method of implementation and technology, provided that he ensures that all requirements and specifications are met and any works contrary to that are borne upon receipt and testing of the implemented works, and this gives flexibility to the contractor in using what he deems appropriate techniques and method of implementation from his experience in working in this field.

Material & Workmanship Specifications

They are the specifications that determine the types and qualities of the materials used, whether the physical or mechanical qualities of the material, in addition to the requirements for transportation, handling, storage, and installation.

As for labor, some requirements are set for it, in terms of the required level of experience, and the level of performance, especially the works that need high accuracy in performance, such as welding works, and some mechanical installation works, and it is the right of the owner or his representative to conduct the necessary tests to ensure the availability of the skills required for candidates to carry out these works, who has not proven his worth, he is replaced by the contractor and under his responsibility.

Specific specifications

Closed Specifications These specifications are intended to specify a specific type of materials or labor and equipment, and this is mentioned in the requirements and specifications. While not allowing its replacement with a suitable replacement. In this case, it is possible to mention the name of the material or its specifications, which are available only in this type, and these specifications are often used in the work of the private sector, while it is not preferable to use them in the work of the government and the public sector so as not to be one of the means of favoritism or work to market certain types of materials or equipment without creating the necessary competition between suppliers.

Open Specifications

They are the specifications that must be met in the materials used, without being restricted to a specific type, so that the contractor is given the freedom to deal with any of the suppliers, provided that these specifications are available in the materials used. In some cases, the engineer may have to select a specific type of material to achieve special quality, while allowing the contractor to change the selected materials within the framework of the mentioned qualities, in order to increase the degree of competition between suppliers and thus reduce prices. In the event of any disputes between the owner and the contractor, the consultant is resorted to for an opinion.

Standard Specifications

These specifications are developed by specialized bodies responsible for the implementation of some special projects, such as the Roads and Bridges Authority, which develops standard specifications for the implementation of the construction items of road and bridge works, and these specifications may be developed by professional syndicates.

Calculation of quantities

Quantity surveys (takeoff) It is intended to calculate the quantities of materials and works to be implemented in the form of items necessary to complete the project, in order to develop a plan and method for the implementation of these items, and thus calculate the cost for each item of materials, equipment and labor. Then determine the direct cost of the item, and by adding the indirect cost, the total cost of the items is determined. Hence the cost of the project Bills of quantities are one of the contract documents and are prepared by the designer engineer, and attached to the tender documents, but these quantities that are calculated by the designer are not considered binding, but rather considered estimated calculations, which are reviewed and confirmed by The contractor.

I hope this brief on construction contracts proves helpful. For more discussions, please feel free to reach out.

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