Essay Example on Parties to a construction Contract

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Parties to a construction contract are often still in the process of finalising contractual agreements when it becomes necessary to begin work on the construction itself This is due to the demand to start work quickly This work can include purchasing the materials readying the location and sometimes beginning the actual construction Jones Day 2013 recognised that where a contract has not been finalised parties tend to draft a letter of intent in order to begin the work as soon as possible for example by starting designing work or employing subcontractors Knack CFE and Vilmenay 2017 identified that letters of intent also serve to reduce the time and cost of reaching a contractual agreement and are a useful way to move negotiations forward However there are particular factors which need to be in place in order to create a binding construction contract intention on behalf of all parties to establish a legally binding agreement a clearly stated offer which includes all of the contractual terms and a clear acceptance of the offer Construction industry letters of intent can therefore result in some difficulties for the parties

Coleman 2008 stated that courts have a tendency to rule that a contract was established where the letter of intent includes key contractual terms such as costs the intended end date and extent of the construction This is despite the fact that they are drafted before all the terms of the contract have been mutually agreed upon and can also be produced at a point before the parties intend to establish a legally binding agreement Two fundamental disadvantages to parties of letters of intent have been identified by PWC Australia The first is that because of the ambiguity around whether or not a letter of intent is binding upon the parties their contractual duties and rights are also in question This can include fundamental principles such as the performance of the work and remuneration The second is that because the ambiguity outlined in the first point is often advantageous to the party carrying out the work they can lack the motivation to finalise the contract This principle is emphasised by the case of In Trustees of Ampleforth Abbey Trust V Turner and Townsend Project Management Limited 2012 Ampleforth Abbey Trust engaged Turner and Townsend Project Management Limited TTPM to project manage the construction of new student residences at Ampleforth College It was necessary for the construction work to begin promptly so that it would be finalised in time for the new school term so

TTPM agreed that the contractor could begin on the basis of a letter of intent This was necessary because fundamental contractual terms such as final remuneration had yet to be settled upon However TTPM continued to formulate letters of intent throughout the duration of the construction specifying that the contract was not binding upon the parties until it was finalised The contract was finalised a significant time after the construction ended Whilst the construction was completed to the required standard it was not ready by the completion date and students were not able to move in at the start of term The Trust were then required to pay for the students to be housed elsewhere until the building was complete A construction contract will ordinarily contain a term which provides the party who has suffered a loss due to construction overrunning with damages The provisional contract which had not been mutually agreed upon was appended to the original letter of intent and allowed for 50 000 worth of damages per week of overrun The letter of intent itself however failed to specify the contract terms and in fact declared that the contractual terms were not binding until the contract was mutually agreed The

Trust pursued a case in negligence against TTPM on the basis of the costs they incurred due to the construction overrun and their inability to claim damages from the contractors They stated that TTPM failed in their duty to finalise the contract which was the cause of their considerable losses It was found that TTPM had a duty of care towards the Trust and that the duty was breached in that they failed to apply the required level of responsibility and competence in finalising the contract The court stated that they did not adequately work to resolve the reasons that the contract finalisation was delayed and did not adequately encourage the contractor to do the same Their breach was found to be the cause of the Trust s losses The judge affirmed the outcomes of earlier cases in his decision He stated that TTPM were the administrators and protectors on behalf of the Trust and that therefore they should have ensured they worked to the necessary standard required of them worked to methodically resolve the reasons that the contract was not mutually agreed encouraged the contractors to do the same and informed the Trust that the contract must be finalised The judge made clear the significance of TTPM s failure to exert the required standard in finalising the contract He stated that the finalisation of a contract is essential not simply a goal or a desirable target

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