Ambiguities in construction contracts

* BATHO MOHWASA | Friday March 19, 2010 00:00

Late completion of and over expenditure on construction projects is attributable to a number of circumstances which in my opinion should not be exclusively credited to the contractor.

It is important to note that construction, especially major projects is generally a complex process which requires good and effective management, cooperation between the parties to a contract, higher degree of clarity and use of simple common occurring language. An ambiguity in construction projects is an area of possible dispute and cause for cost and time over runs.

Unclear contract documents can have two implications: 1) they have potential to cause delays in construction work due to time spent on reaching consensus as to what the true intention of the contract is, 2) there are legal doctrines that can be applied by the courts to interpret a vague contract expression in a way that puts the client in an unfavourable position and contrary to his intentions.

Differing opinions by parties to a contract as to the true interpretation of a particular contract expression and its precise context in the overall contract may be financially ruinous. 

Clients, especially in the current financial climate are constantly looking for value for money and the role of Quantity Surveyors as custodians of client's commercial interests can never be sufficiently stressed.

Quantity Surveyors should be vigilant when preparing contract documents and ensure that they are comprehensive but simple and well- drafted. Parallel to the need for Quantity Surveyors to be competent on Laws of the country, Common Law and the construction contract adopted to procure the works it is important to ensure that ambiguities and inconsistencies are avoided in contracts.

Poor drafting of contract documents can have adverse consequences for the project as a contractor who has the disposal of legal advice can exploit discrepancies in contract documents to his benefit.  For instance the definition of what constitute s a defect should be explicit and straight forward. If this is not achieved the contractor can deliver a shoddy job and successfully defend his deeds in the court of law on technical grounds.

A clear distinction between possession date and start date should be made as ambiguity in this regard can result in divergent opinions of completion date by parties to a contract.

 Remedies for late completion should be certain. One of the remedies for late completion is liquidated damages.

It would be suicidal and exposing the client's commercial position if the contract documents are drafted such that the words liquidated damage and penalty are used as though they were interchangeable.

Liquidated damages are compensatory in nature and should be a real attempt to envisage the damages likely to follow due to late completion. Penalty is not related to probable damage but is intended as a punishment. Generally the courts can enforce liquidated damages but cannot enforce a penalty. It is, therefore, of prime importance to ensure that the right expression is used as failure to do this may not be in the client's interest.

Some construction contracts have provisions that deal with ambiguities and vagueness. The New Engineering Contract (NEC Contract) has a contractual provision to clarify unclear contract terms. Clause 17 of the NEC Contract vests authority on the Project Manager to issue a Project Managers Instruction resolving the ambiguity or inconsistency as soon as he becomes aware of it. 

These kinds of provisions result in swift resolution of differing interpretations of contract terms. The challenge is when there is no provision and the contractor is aware of his technical legal recourse.

In the absence of contract provisions dealing with ambiguity, the general rules of contract interpretation apply where the courts intervene to determine the true meaning and intention of parties to a contract.

As fellow professionals in the industry will attest, verbal expression of the parties to a construction contract are subordinate to written agreements and the parties' intention must be determined from what is written and the wording of the agreement not what is said. This is a provision of the 'Parole Evidence Rule'. This doctrine, however, is not absolute and has limitations.

 The courts have jurisdiction to establish a default rule so that ambiguities in contract documents can be interpreted in a way that benefits the party who did not impose it i.e. the party who did not draft the contract documents (contractor).

 The 'Contra Proferentem Rule' is often used by the courts to interpret contracts that are misunderstood. This rule applies only: 1) to an ambiguity (e.g. where the contract clause has several meanings) and, 2) where contract term or wording under dispute was included at the unilateral insistence of the party drafting the contract documents. Under the doctrine of Contra Proferentem the ambiguous contract term may be interpreted by the courts against the person who drafted / produced tender documents (client), so that the application of interpretation gives the benefit of doubt in favour of the party whom the contract documents were imposed (Contractor).

The client can be put in an unfortunate position if for instance it's not clear when commencement of the works is triggered (whether on possession date of site or when the spade is put on the ground) as this may offer differing opinions on completion date and contrary to intentions of the client.

It is important for Quantity Surveyor as client's representative tasked with contract documentation and contract administration to ensure that the wording of contract documents is brief, unambiguous, and use simple and plain language.

This will reduce time and financial risks due to ambiguities. Otherwise if there is multiple meaning of contract terms they may find their clients in undesirable position as interpretation of the contract wording will be favourably applied to the contractor. * Batho Mohwasa is a Quantity Surveyor with Franklin + Andrews in the UK (part of the Mott MacDonald Group) and writes in his personal capacity.