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Avoidance of Disputes By Contractors in Design and Construct Contracts

by Donald Charrett

Dr Donald Charrett (2008) 25 International Construction Law Review 27

Courts uphold the doctrine of freedom of contract, which is the ability to enter into a binding agreement to do anything (other than matters which are contrary to public policy or statute law or are illegal). One important consequence is that the parties will be held to the specific bargain they have made, irrespective of whether it is fair, reasonable or is consistent with common practice or “normal” contracts of that type.

As a general principle, if the terms are clear and unambiguous, the parties will be held to the actual words in the contract. Surrounding circumstances, prior conduct and reference to common practice will be irrelevant. Furthermore, it should be assumed that the other party to the contract will strictly apply the contract terms in accordance with their plain and ordinary meaning, irrespective of whether that appears unfair, harsh, unjust or not in accordance with the norms of the industry.

This applies particularly in the case of a “bespoke” contract which has been specifically written by lawyers acting in the interests of one party, as considerable attention will have been focused on drafting contract terms that advance that party’s interests.

In order to avoid subsequent disputes it is essential to understand the legal effect of the proposed terms for a contract so as to prepare the tender, and to understand the risks and formulate the appropriate strategies for managing those risks, before the contract has been entered into. Once a contract has been executed, both parties are bound by its terms unless and until they agree to change those terms. Clearly there is little scope to change the terms of a contract unless both parties believe it is in their interest to do so. Accordingly, it is imperative to ensure that the contract terms are satisfactory before it is executed.

After execution of a contract, both parties are bound by its terms, and these must therefore form the guidelines for successful management of the contract, and execution of the work. The paper presents some suggestions that may assist design and construct contractors to avoid the type of contractual disputes that can result from issues arising before entering into a contract, as well as during its execution.

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