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Pre contract risk: A Quick Guide to Reducing Risk at the Pre-contract Stage

Pre Contract risk, its one of the key areas in any construction project, but all too often not enough attention is paid to it.

One of the greatest threats to a project and one of the biggest causes of disputes is failure to properly understand the requirements of the contract and properly address pre contract risk. The Kenzie Group have put together a brief guide to help you to reduce pre contract risk in your project. The guide prompts thought into some of the questions you should be asking yourself, and the factors to consider before finalising the contract for your next project.

Before tendering for that great new project ask yourself these questions;

/ Is the employer financially secure?

/ How is the project being funded, and is the funding really secure?

/ Does the employer have a reputation for paying on time?

/ Has the employed signed the Fair Payment Charter?

Following the recent administration of a number of major contractors, in the current industry climate it is essential that you are confident that your employer, either the main contractor or the client, is able to pay for the works you have planned to carry out. Although this may seem like common sense, it is paramount and should not be ignored.

During the tender and pre contract stage, when reviewing the contract it is important to consider issues that may cause risks to both the time and cost of the project.

/ Is the programme realistic for the works which have been defined?

/ Are there contractually binding target or interim dates?

/ Are the completion dates clear and unconditional?

/ Do all programme revisions need to be approved?

/ Can you claim extensions of time for events outside of your control which delay the works?

/ Can you claim loss of productivity for events outside your control which disrupt the works?

/ Are liquidated damages (LADs) set at a reasonable level?

/ If the project takes a long time, does the contract permit price fluctuations for rising costs in materials or energy?

/ Can the employer ask you to complete works sooner than the original agreed completion date?

/ Is the retention per cent acceptable?

/ What is the period between certification of installments and the final date for payment? If you are subcontracting works out, does this meet your subcontractor’s expectations regarding payment periods?

/ Is the procedure for changing the price due to instructions or risk events robust and workable?

/ Is the percentage of the price represented by provisional sums acceptable?

/ Can the employer omit works and, if so, how would this affect your profit margin?

If you are unsure of the answers to any of the above questions, then it is advisable to discuss with a contract claim consultant, and the Kenzie Group can help ensure your contract is robust with a fair and appropriate balance of risk, whilst reducing risk for you wherever possible.

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