Contract Extension

Introduction

The article focuses on clarifying and elaborating Contract Extension subject. Tackling contracts subject in general is preferred prior to moving to the main subject body.

A contract, as known to a lot of people, it is an agreement, (could be written or verbal) between two (2) or more parties and consequently that will have a legal relation and obligations between all parties.

In other simple words, contract is offer and acceptance. We as humans, practicing contracts in our life on daily basis. Believe it or not, to the extent that it might be once or twice or maybe more every day, but till now with that frequent practice some people still don’t realize that they are doing so and has legal obligation on them or even sometimes not having a full understanding of the basics of contracts. Herewith next sample of different types of contracts that are practiced frequently by most of us, but not limited to.

·??????? Marriage contract (life related).

·??????? Employment contract (career related).

·??????? Terms and conditions on our debit and credit cards (life and back related).

·??????? Terms and conditions once signing up into any application on the mobile phone (life and business related).

·??????? Cinema tickets (entertainment related).

·??????? Aviation or airways tickets (leisure and business related).

·??????? Hotel booking (leisure and business related).

·??????? Construction contracts (development and business related).

In this article, the focus is on the construction and service contracts that are related to construction projects or term contracts that are varying from very small-scale projects such as small residential houses up to extremely huge-scale projects such as skyscrapers, shopping malls, dams, plants, factories, etc.

Contract is an essential element and forms the base of any project once feasibility study is done, allocating funds, design drawings (including architectural and structural details). Why it is essential or the most important in my opinion, because it is a mechanism that enables all parties to sit together and shape their need or proposal in a legal form, set liabilities, maintain each party’s right, and finally enforceable by law.

Furthermore, in my opinion, the success of any project considering no financial obstacles or crisis, proper feasibility study is done, no external interference such as politics or pandemics, the “CONTRACT” is the next step forming the foundation of any project moving forward to success, provided the below factors are met: -

·??????? Clearness. All contract documents such as scope, drawings, specifications, etc. shall be clear enough and readable to avoid any misunderstanding, confusion, etc. which may take all parties to a financial consequence or even disputes.

·??????? Fairness. Being fair in setting terms, conditions, etc. to maintain comfort ambience between all parties and work without pressure or stress and feeling unfairness.

·??????? Strongness. Strong contract to be drafted to ensure proper line with no voids or missing clauses. Preference to be reviewed by specialist or lawyer.

·??????? Legal Contract. Contract shall be legally in written form reviewed by all parties including lawyers prior to signing.

Moreover, contracts draw borders between each party, relations between different parties, liabilities, and obligations that will make and keep the track clear and easy to move forward for all parties involved.

After this brief introduction to contracts, thereof next is the elaboration of the Subject title above including terms and conditions terminologies as they are highlighted in several places of this article.

Contract Extension

Contract extension from its terminology gives the indication and focus of the time factor. Contract extension in principle, is the process of extension or prolongation of the lifetime of a contract. Such an extension of time will drag the expiry or validity of the contract to a further period.

Essential trait of the contract extension process is that the whole process is focusing on extension of further period (time) only, maintaining the validity of the same terms, conditions including other parts of the contract that remains the same unchanged continuing its effectiveness concurrently with the period extended.

The process of contract extension starts from a need from one party to extend the contract followed by mutual discussion and agreement in principle.

Mostly, an extension of a contract clause usually forms part of the conditions of contract to serve such need if required in the future during the lifecycle of the contract.

Once initial acceptance is made, a thorough discussion between parties takes place for the extended duration to ensure that all parties will have mutual positive return and being beneficial to all. That return could be in the form of financial return, or maintaining relations, or securing upcoming projects or contracts, etc.

Finally, an agreement of contract extension is translated in official papers stating the agreed extended period. Such an agreement can be drafted as a new contract agreement, or addendum, or even through a fax. All such agreements shall be documented as preference number 1 to avoid future disputes and misunderstanding.

Moreover, it is very important to understand when and why is the need to extend contract duration. Here below some of the points, but not limited to: -

·??????? Financial return and cost effective to parties.

·??????? Avoiding risk of loss or price fluctuation.

·??????? Avoiding new negotiation and risk of newcomer’s performance (till certain period).

·??????? Continuing the same level of satisfaction and ensuring stability of service.

·??????? Extension to meet certain needs, requirements and to avoid any disruption.

·??????? Maintaining relations and continuing supportive terms and conditions that are helping against market change that are reflected due to global politics, oil prices, wars, etc.

Despite of the importance of contract extension, it will be having its advantages and disadvantages as follow, but not limited to: -

Advantages: -

·??????? Provided services will be continued for a further period without any disruption and ensuring project efficiency.

·??????? Maintaining positive relationships between parties that had been built on trust for a certain timeframe. Building up more and more relationships as much as progress of the work moves forward without struggle.

·??????? Understanding each other is another factor, avoiding misunderstanding and mistakes as all parties are fully aware and familiar of the scope, terms, conditions, etc. rather than having newcomers (contractors or suppliers). Consequently, the risk of having new contractor(s) with a new attitude, mentality, and thoughts is reduced.

·??????? Avoiding waste of time, efforts, clashes, etc. for a new round of negotiation of costs or prices.

·??????? Saving time and efforts rather than having new round of negotiation or going out for a tender as tendering process and formalities are lengthy and time consuming.

·??????? Having price stability if the client feels that prices are unstable in the near future or almost going to increase.

Disadvantages: -

·??????? It is not the correct choice or right decision, especially to the contractor if the market is not stable due to price escalation or inflation.

·??????? Opportunity is limited and not given to others to participate and bid. Moreover, others won’t be tried and examined. Consequently, performance and capabilities won’t be measured adequately and assessed.

·??????? Any increase in prices during the extended period might create dispute or trouble to the contractor and most likely client and ends up in the court.

·??????? Less competition and therefore, competitive prices might not be seen or furnished.

·??????? Newcomers (contractors) means new mentality, new ideas, new experiences, so on and so forth.

·??????? Frequent contract extension might lead to an understanding of the contractor that he is the only required or available source of service by the client and result in being a complacent contractor.

Conclusion: Contract Extension is the extension of a contract original duration for a further period maintaining the same scope, terms, conditions, prices, rates, etc. that will remain unchanged. Contract extension can be highly advantageous in different perspectives such maintaining relationships, cost effective, saving time, etc. as long as it remains mutually beneficial (to all parties). At the same time, it might lead to limited competition, opportunities, improvement of knowledge, exchanging experiences, etc. number of factors to be assessed such as market condition, core need, contractor performance and others that are found necessary to be assessed project to project base.

Terms Vs Conditions

In principle, as a common factor both terms and conditions are set into the contract to protect the right of each party in that contract. They are forming essential part of any contract that structure and take advantage of knowing contractual rights, obligations, limitations, etc. of each party. Terms and conditions role is to set border and limits of each party assignments and responsibilities.

If these terms and conditions are set clearly, comprehensively, agreed on and understood by all parties, then we can consider that the purpose of the terms and conditions is achieved. The purpose is to maintain, protect and to give guidance to all parties including court.

Above paragraphs explains the importance and common factor(s) between terms and conditions, however, certain differences in role and functionality of each terminology.

“Terms” can be referred to or covering a broad aspect such as, but not limited to, relations between parties, responsibilities, timelines, so on and so forth. Below are some examples: -

·??????? General framework governing relationships between all parties.

·??????? Timelines.

·??????? Payment method or layout.

·??????? Role of each party.

·??????? Duties and responsibilities.

·??????? Dispute resolution procedure.

·??????? Guarantees and warranties.

·??????? Insurance requirements and policies.

·??????? Road map of rights and obligations of each party i.e. client, contractor, subcontractor, consultant, etc.

·??????? Adherence to local authorities’ law, rules, regulations and codes.

·??????? Penalties for delays.

·??????? Procedures for variations or change orders.

Moreover, “conditions” are specific provisions that must be met to keep the contract valid. Conditions are mainly referring to specific actions, events, milestones that must be met. Below are some examples: -

·??????? Obtaining planning permissions.

·??????? Obtaining building permissions.

·??????? Obtaining environmental permissions.

All above are considered “Condition Precedent” and to be fulfilled and obtained prior to commencing of the work or prior to contract gets into effect. If not fulfilled, contract is considered void. Usually, it is the responsibility of one party to fulfill the condition(s).

·??????? Maintaining insurance coverage throughout the project cycle.

·??????? Compliance to the laws, rules and regulations of the state such as environmental issues.

·??????? Compliance to safety rules and regulations.

·??????? Timely payments to subcontractors.

All above are considered “Condition Subsequent”, to be avoided and not to happen during the lifetime of the contract. Once it is maintained, contract remains valid and effective till completion. If it happens and take place, it terminates or modifies the contract. Could happen from either party or external agency (most likely out of the parties’ control).