Jacob Austin 00:00:17 Hi all Jacob Austin here from QS.Zone. And welcome to episode 66 of The Subcontractors Blueprint, the show where subcontractors learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about understanding construction law, and so we'll be covering what a contract is, why contracts are essential in construction, and how different types of contracts shape your rights and obligations. If you're new to the show, please subscribe for more user friendly advice on all things subcontracting. Now let's get into it. So to kick things off, let's go to the core question. What is contract law and why does it matter. So much in construction? Well in construction. Contract law provides the rules and principles that govern agreements between parties like subcontractors, main contractors or clients and contractors. It's about ensuring that all parties understand their rights, responsibilities and what's expected of them for subcontractors. Contract law can be especially crucial. It's often what protects your business from unexpected risks, delays and disputes, and a contract in construction doesn't always have to be in writing.
Jacob Austin 00:01:33 But written contracts are highly recommended. Contracts can be made verbally, through emails, or even inferred from actions. But written contracts have the advantage of clarity. They lay out terms like payment schedules, timelines, and specific deliverables, which leaves less room for misinterpretation. So now that we know basically what contract law is about, let's look at what makes a contract legally binding. There are three key elements which are the offer and acceptance. The consideration and the intention to create legal relations, as in, both parties have to intend to contract together, so offer an acceptance. This is the most basic component. Essentially, one party makes an offer and the other person accepts it. For example, if you send a quote for a specific piece of work to a contractor and they agree to your terms and your quotation, you've got an offer and they've accepted it, offer an acceptance. However, be careful. If the acceptance isn't clear. Ambiguous language can lead to misunderstandings, so it's best to have explicit written confirmation.
Jacob Austin 00:02:49 Next, we have consideration, and that means that each party is providing something to the other party of a particular value. And in construction this is usually some form of payment, and it's made in exchange for a service that you provide or for labor, materials and time. It is an essential part of any contract without consideration. A contract can be considered void. The next step is intention to create legal relations. The parties must intend for their agreement to be legally binding in commercial contracts like those in construction. This intention is usually presumed, but in a personal agreement, like offering a friend a free favor. There's typically no intention to create those legal arrangements, so if you've tracked all the way to a pub to go and meet a friend who's offered to buy you a pint, and then he turns into a no show because there's been no intention to create a legal relation, then there is no basis for there to be a contract. But typically in construction, contractors will invite tenders and stipulate within their inquiry that they intend to place a subcontract for a portion of the building work.
Jacob Austin 00:04:02 So it's always pretty clear from the outset that that legal relations intent is there. Let's talk about the different types of contract you might encounter. Contracts can be categorized in several ways, including simple contracts, deed contracts, or bilateral or unilateral contracts. Simple contracts can be made in writing, orally or through conduct, and they're typically enforceable for up to six years. So even a verbal agreement with the contractor, if followed up by actions like starting the work and certainly completing the work, they can be considered a simple contract. However, it's often harder to enforce a verbal agreement because of lack of documentation. Contracts that are executed under Deed, unlike simple contracts, don't always need a consideration for them to be binding. For example, if a contractor provides a deed of guarantee, it's enforceable for 12 years whether or not there's any payment involved. And that period can, of course, be extended. Say, if you're willing to warrant a product for maybe 20 or 30 years, which is sometimes a requirement for things like roofing, for example.
Jacob Austin 00:05:15 Often these contracts will include a consideration and there will say in consideration of the exchange of £1, which then avoids all doubt that there's been consideration made. These give longer protection for all the parties involved. And it typically is where the 12 year latent defect period comes from in construction contracts. Now, as I mentioned, you're also from time to time and count a bilateral and unilateral contract. In a bilateral contract, both parties are making promises to each other. For instance, you might promise to complete a job and then the main contractor promises to pay for it. In a unilateral contract, one party may make an offer which could be unilaterally accepted or actioned upon by multiple other parties. so these are quite uncommon. But a situation might occur where a contractor needs to finish a job. And so they offer to pay extra money for all the subcontractors that finish their work early, some kind of completion bonus. As I said, this is uncommon, but it can and does happen. And it might actually be supplementary to the subcontractor that you're typically operating under on a particular site.
Jacob Austin 00:06:28 Moving on. There are several key statutes that influence construction contract law in the UK. So I'm going to mention a few of these that are particularly relevant to you as a subcontractor. The first, of course, being the Housing Grants, Construction and Regeneration Act. This act provides guidelines on payment schedules and dispute resolution through adjudication. It was designed to help subcontractors receive payments promptly, providing sufficient information for the subcontractor to understand the payment he receives and provide a quick way to settle disputes without going through the courts. And of course, because this is a statute, it is deemed part of your contract, whether it's written into the contract in words or not. And the same applies to the next couple. The Limitation Act of 1980. This act places time limits on when claims can be made. If you're working on a simple contract, you usually have six years to bring a claim, and for deeds the limit extends to 12 years. Knowing these limits is essential because missing them can mean losing your right to claim.
Jacob Austin 00:07:35 Then we have the Unfair Contract Terms Act. This act protects parties from unfair contract terms, as the name of the statute suggests, and it's particularly useful when there's an imbalance of power in construction. It's common for larger contractors to try to impose unfair terms on smaller subcontractors, and this act ensures that certain rights can't be waived unfairly, offering a layer of protection for smaller parties by knowing these relevant statutes, you're better prepared to protect yourself from unfair terms and to be able to enforce your rights under the law. Now let's talk about terms of a contract. In every contract, there are express and implied terms. Express terms are specifically stated, and express terms may include further terms by reference, meaning that all of the relevant clauses of a piece of legislation don't need to be written into a contract for them to be bound into it, and this allows various pieces of legislation to form part of a contract without making the damn thing another 200 pages long. Implied terms are those that aren't written down, but are assumed to be part of the contract to give.
Jacob Austin 00:08:49 Examples of these two express terms include things like the project scope, payment amounts and deadlines for completing the works, or to achieve a certain state of the work by a given date. These are generally stated upfront in the contract, and then agreed upon by both parties. Implied terms, however, are often assumed to be incorporated based on industry standards or common practice. For instance, it's usually implied that all work should be done to a reasonable standard, even if this isn't specifically spelled out in the contract. Implied terms might also relate to the timing of work or using good quality materials. Understanding implied terms is important as they provide a baseline of expectations, even if they're not in writing. However, it's still best to document as much as possible into the contract to avoid relying on implied terms, because those can sometimes be subject to interpretation. And if there's one thing that you really don't need in any form of contract, it's ambiguity which will lead to misunderstandings and potential disputes. Now the construction industry is filled with complex contracts, and there are several pitfalls that you could fall into and that you need to avoid.
Jacob Austin 00:10:06 Firstly, ambiguous or misunderstood terms. Always try to clarify contract terms before signing. Misunderstandings lead to disputes over payment, scope of works or perhaps deadlines, and having one of these in your subcontract can lead you down the path of losses for either contrary charges, lads, or simply completing work to a greater standard than you thought you had priced for. For instance, if a contract includes an ambiguous term about when the payment will be made, it's best to clarify and document additional details to remove that ambiguity. A next really common pitfall is not following notice requirements. Pretty much all subcontracts have a notice requirement for communicating issues like delays, changes in scope, or to establish additional entitlement to money if certain events occur. Missing these requirements make it really difficult to claim extra time or money later, and in fact they are often a condition precedent to making those claims, so you need to make sure you're aware of any specific notice deadlines and also the way the notice needs to be delivered, whether that be in writing or an email to a key person that stated in the subcontract.
Jacob Austin 00:11:23 Make note of what they are and then comply with them fully. Exclusion clauses. These can limit or exclude liabilities for certain issues like delays or defects. Understanding these is critical because they can limit your ability to claim compensation if problems arise. For instance, a clause might exclude liability for delays caused by third parties, and this is another note that you need to read your documents and ensure you're fully aware of any exclusions to avoid surprises down the line. Now, it wouldn't be an episode of the Subcontractors Blueprint if I didn't mention records somewhere within the show, and this week it's all about documentation. Keeping documentation is one of the best tools you have for protecting yourself in a subcontract. Accurate records can make or break your case if a dispute arises. So here's what to have in mind. Document all communications, including emails, letters and notes from phone conversations. And of course, those conversations with the site manager where he asks you to do something extra but never sends you an instruction for often, if you agree something on the phone, the simplest way you can record this is to follow up with an email outlining what's been agreed and with who and when that agreement was made.
Jacob Austin 00:12:45 Now, the contractor will then have a period of time to respond to that. But assuming they don't, then you've now got a record of a conversation which you can rely on to establish your right to payment. It's things like this that ensures there's a paper trail, if any misunderstandings arise, changes to scope or design. If there's a change to the project scope, make sure you document it along with any impacts on the cost or, of course, the timeline to completion. Don't rely on verbal agreements for major changes. Always get them in writing. And as I mentioned previously, don't be afraid to confirm back to the contractor anything that has been said verbally as a means to recording your entitlement to it, documenting the progress of your work. Regularly monitor the status of your work with photos or even videos. This can provide valuable evidence if delays or disputes arise over project milestones. Having these on a regular basis is key if you end up in any kind of claim scenario. And of course they are all the more important.
Jacob Austin 00:13:50 If you feel like you're starting to be behind or you're starting to be disrupted by other people. And the rule is document everything, even seemingly minor details, because these can save you a lot of headaches later on. Dispute resolution disputes are sadly all too common in construction, but the good news is that you have options for resolving them. Adjudication is a quick and relatively inexpensive dispute resolution method in the UK, and it's particularly valuable and known to us under the Construction Act as the default method for dispute resolution. It's designed for fast resolution, often within 28 days, which can be a lifeline for subcontractors needing a quick decision on payment mediation, which I covered in detail in last week's episode. It is a non-binding process up until a final agreement is made, and a mediator will sit with both parties and help them to come up with a meaningful settlement to resolve a dispute. It's often used when both parties want to maintain a working relationship as it encourages cooperation, but it also has added benefits of being a quick and relatively cost effective process.
Jacob Austin 00:15:04 And of course, being completely confidential. These are methods of avoiding the court system and resolving your disputes. There is, of course, the lengthy and costly court process, which I think everyone in the world would advise you to avoid. So knowing these options allows you to choose the most effective way to resolve disputes without harming long term professional relationships. There are also instances when a contract can be voided, meaning it's treated as though it never existed at all. This can happen due to mistake. If both parties make a fundamental mistake about the contract, it could well be voided. For example, if both parties mistakenly believe a material is available when it simply doesn't exist, it might invalidate the agreement. Duress. This involves one party being forced into a contract or into a particular agreement through threat or undue pressure. Contracts made under duress are often unenforceable. Misrepresentation. If a contract is based on a false statement, the misled party may be able to avoid the contract or even any damages claims. This includes fraudulent, negligent or even innocent misrepresentation.
Jacob Austin 00:16:17 For example, if one party misrepresents their ability to complete the project on time, this could give the grounds for the other party to cancel the contract or claim compensation. Now, whilst you might not be able to use these scenarios very often at all, it's worth you knowing them because it may well provide you protection. If you find yourself in a situation where the contract was based on inaccurate information, and knowing your rights around this may help you navigate out of a potentially damaging agreement. Now, hopefully, you should have a basic level of knowledge of some of the contract law that forms the backbone of your subcontract agreements. I've done several episodes on various different aspects of contracts, which you might find of interest, which are all available where you usually get your podcasts from. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to somebody else who'd benefit from hearing it.
Jacob Austin 00:17:18 And of course, subscribe yourself if you haven't already. And thanks for tuning in to today's show. If you like what you've heard and you want to learn more, please do find us at Arxan where you can subscribe to our training and support system for like minded subcontractors. In there you'll find templates, how to videos, interviews, and more, all for less than the price of a cup of coffee per day, and you can cancel any time. Also, we're on all your favourite socials at QS.Zone. Please do give us a follow or some feedback or even your ideas on what you want me to talk about next. And thanks again! I've been Jacob Austin and you've been awesome.
