Building and civil engineering contracts – Commercial
1. Construction contract in brief
When undertaking building and civil engineering works, professional developers and contractors normally enter into a construction contract that is most frequently based on Standard Norge’s standard contracts.
A construction contract is used when erecting a new building, maintaining or repairing an older one, or when re-developing existing structures. The contract may include all the work in a project, including its technical aspects, or one or more production items such as work on the foundations, joinery, water and drainage etc.
Consumers should also enter into a written contract when engaging in building work. The regulations and contracts governing consumer construction contracts are dealt with in a separate article that can be read here.
A construction contract will normally regulate a long-term arrangement during which the parties, on signing the contract, do not necessarily know what will be produced or the price. A construction contract often constitutes a complex delivery, which might well involve a number of uncertain factors such as inclement weather, difficult ground conditions etc., which the parties cannot foresee and over which they have no control. A major objective in a construction contract is therefore to determine which of the parties is liable for the sort of risks that may affect progress and increase costs.
Another central issue is the client’s right to instruct that changes be made in the scope of the work covered by the contract. Such changes typically involve extra tasks. Construction contracts generally specify short time limits during which the contractor must notify the client of extra charges and delayed delivery times due to changes. If the contractor does not notify the client in time, he will lose the right to charge extra or prolong delivery time. These rules are based on the client’s need to be able to control the cost of the work, especially where a fixed price has been negotiated.
A third major issue is the coordination of the various participants on the building site. As a rule, construction work involves the integration of the work carried out by different tradespeople into the one main product. The construction contract will stipulate who holds the responsibility for this coordination and set out the individual participants’ duty to comply.
We differentiate between two main forms of contract: design-build and design-bid-build. The difference between these two is explained below.
“If the contractor does not notify the client in time, he will normally forfeit the right to make an additional charge or prolong delivery time.”
2. Standardised building and civil engineering contracts – Norsk Standard
THE RULES IN GENERAL
There is no general legislation regulating commercial contracts, as opposed to consumer contracts.
On the other hand, there is a long tradition of using standard contracts for commercial projects. These are documents negotiated by Standard Norge with the assistance of industry participants. The objective in doing so has been to strike a balance ensuring that the interests of both developer and contractor are safeguarded. The most frequently used standard, which is usually used a reference, is NS 8405 Norwegian building and civil engineering contract (2004, revised 2008).
Both parties must agree in the contract if a standard, such as NS 8405 for example, is to be binding on them both.
The standard itself comes together with a form that can be used as a contract document. This form indicates what should be regulated in the contract, and it refers to the standard itself. The form and the provisions of the standard contract are the key documents involved when the contract is signed, together with the parties’ description of the work to be undertaken. The description is often based on the developer’s request for proposal, or possibly the contractor’s bid or similar. Moreover, before they finalise the contract, the parties will often meet or correspond in order to clarify other matters relating to the delivery or the contract. Minutes of the meetings and details of correspondence should be attached or referred to in the contract as documentation of what the parties have agreed.
When standard contracts were drafted, it was envisaged that they should be applied without any other amendments or variations than those the standards themselves make allowance for, apart from those deemed necessary because of the special circumstances of an individual project. Notwithstanding this, major public developers and others have drawn up their own standards that contain standardised variations from the standard contracts.
“Minutes of meetings, correspondence etc., should be attached to or referred to in the contract in order to document what the parties have agreed.”
3. Design-bid-build versus design-build contracts
The decisive difference between design-bid-build and design-build contracts is which of the parties, developer or contractor, is responsible for the design phase. The developer will usually have produced more or less thorough drawings, descriptions and calculations prior to signing the contract, often as basic documentation when applying for general permission to build. Project plans are therefore readily available when the contract is entered into. Such plans, referred to as the developer’s design, are carried out by the developer’s advisers, architects or other consultants. When the developer retains this staff and carries out detailed project design, we refer to a design-bid-build project (NS-8405 and NS-8406). The developer bears the liability here for any design faults.
On the other hand, in a design-build project, the contractor is responsible for all or for essential elements of the project, which he carries out independently or with the assistance of his own advisers. The risk is thereby transferred from the developer to the contractor, which normally increases the cost of the project. However, the developer is largely relieved of the burden of having to tackle the complexities of the interface between design and implementation.
One tends to say that in a design-build project functionality is central, and that the contractor can choose both the method and the materials. He is, however, bound by the contractual provisions governing the specifics of the delivery, and choice of materials etc., where such is stipulated in the contract. And a developer is also entitled to issue change orders or request that a design-build contractor carry out additional work within the scope of the contractual provisions.
4. The various standards in more detail
4.1 NS 8405 NORWEGIAN BUILDING AND CIVIL ENGINEERING CONTRACT
NS 8405 is the general standard for design-bid-build contracts. Here the contractor shall carry out the work in accordance with the developer’s design. This standard includes detailed notification rules that govern requests for changes to prices or delivery time. These rules impose a duty on both the developer and the contractor to react. If a party does not comply with the notification rules, he may as a result lose the rights he would otherwise have had. Furthermore, the standard contains important stipulations with respect to the parties’ performance, consideration and payment, takeover and settlement, as well as specifying liability for defects and deficiencies.
4.2 NS 8406 SIMPLIFIED NORWEGIAN BUILDING AND CIVIL ENGINEERING CONTRACT
NS 8406 is also intended for design-bid-build projects, though it is a simplified contract suitable for less extensive undertakings. It also contains less stringent rules governing forfeiture of rights as a result of neglectful notification.
4.3 NS 8415 NORWEGIAN CONTRACT FOR SUBCONTRACTS CONCERNING THE EXECUTION OF BUILDING AND CIVIL ENGINEERING WORKS
NS 8415 is a standard for sub-contracts, where the sub-contractor assumes the responsibility for performing the some of the duties that to which the main contractor has committed himself vis-à-vis the developer. The division of roles between the main contractor and the subcontractor resembles the relation between the developer and the main contractor, with some adjustments made for the subcontract. This standard contains a similar set of rules for notification of which the parties must be aware.
4.4 NS 8416 SIMPLIFIED NORWEGIAN CONTRACT FOR SUBCONTRACTS CONCERNING THE EXECUTION OF BUILDING AND CIVIL ENGINEERING WORKS
NS 8416 is associated with the aforementioned NS 8406. This contract should normally be used for less comprehensive projects. Even though its stipulations are less stringent, it is important that the parties are fully aware of the provisions of the contract.
4.5 NS 8407 GENERAL CONDITIONS OF CONTRACT FOR DESIGN AND BUILD CONTRACTS
The purpose of NS 8407 is to regulate the contractual relationship in which a contractor takes on all or a significant share of the design and execution phases of a building or civil engineering project. The contractor will normally assume overall responsibility for project execution within the scope of the contract’s specifications and descriptions etc. This usually implies that the design-and-build contractor has agreed to proceed with the developer’s design and has accepted the constraints the contract might impose. It is sometimes the case that the contractor assumes liability for any risks inherent in the developer’s own design. Such an agreement should only be reached if the design-and-build contractor is in fact in a position to shoulder the potential risks involved in the project, for instance those relating to soil mechanics.
4.6 NS 8417 – GENERAL CONDITIONS OF CONTRACT FOR DESIGN AND BUILD SUBCONTRACTS
The purpose of this standard is to regulate the contractual relationship where a subcontractor takes on all or part of the design and execution of a construction project. There is therefore no anomaly in a subcontractor assuming responsibility for design. Indeed, this may be quite natural in a subcontract involving a specialist discipline, but may also be evident in other subcontracts.
5. Consultancy standards
There are special standards for architectural and other consultancy services, such as:
NS 8401 – General conditions of contract for design commissions
NS 8402 – General conditions of contract for consultancy commissions with remuneration on the basis of actual time taken
NS 8403 – General conditions of contract for construction supervision commissions
These standards comprehensively regulate the project duties and responsibilities of the parties. Moreover, the standards stipulate when a consultant may be held liable for losses due to his defective work. Finally, the standard delineates the liabilities for which the consultant is expected to have insurance cover.
6. Concluding remarks
It will often be the developer who chooses the contract format to be applied. But both parties need to be fully conversant with the standard so that they are clear about what can be required of both of them. Of special practical significance are the rules governing notification of change orders, which are often not carefully respected or even overlooked, but which may prove to be crucial to the project’s economy. It is also important to mention the special rules governing settlement and payment.
Finally, we should highlight the importance of the contract’s description of the work, which is crucial in terms of the performance the contractor commits himself to and the expectations the developer is justified in having.