Construction contracts can often be extensive and complex, where even minor errors or misunderstandings can have major consequences. This is particularly typical in small and medium-sized projects, where key issues are not necessarily well regulated before the project starts.
In this blog, we've listed 7 common pitfalls you should be aware of, whether you're a contractor or developer.
1. Missing agreements and unclear contracts
Many projects, especially those of a smaller size, are entered into by a conversation or a simple offer and acceptance sent by email. This can often present challenges as the project takes shape and it turns out that the parties had a different understanding of what was to be delivered.
If responsibility for the project is not allocated correctly, this can be a demanding process to clean up afterwards, and it can be difficult to document the basis for any claims.
The Norwegian Standard (NS) Contracts are well-known templates in Norwegian construction law, but there are major variations in the different variants. It is therefore important that the right template is used for the right project. We often find that contracting parties uncritically apply an NS contract without using the correct version, or that no adjustments have been made to the standard contract to give the project the necessary tailoring.
We therefore recommend that you always use written and customized contracts that clearly cover key issues such as progress, price, handling of changes, delays, security and final settlement.
Also read: Construction contracts types overview
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2. Changes are made without notice
A change in the work that is being carried out is a natural part of most construction projects. However, if these are not properly notified or documented as agreed in the contract, it can be costly. In the worst case, you risk not being paid for the work done in connection with the changes.
Our clear advice is to follow the notification rules to the letter, especially where the contractual relationship is based on an NS Contract.
3. Unclear regulation of progress and liquidated damages
Where the parties have drawn up rough sketches of the project's progress, or have vague provisions on liquidated damages, it can be difficult to enforce the consequences of project delays. Without clear targets and milestones, the developer may lose control of the project's progress and the ability to impose sanctions may be weakened.
It is therefore a great advantage to have detailed progress plans that clearly set out milestones and the various rates for daily penalties for delays.
4. Unclear description of services
It is not uncommon for what is to be delivered to be described in general terms, and the parties therefore end up with different perceptions of what constitutes satisfactory delivery of the service. This can be both the functional and/or technical solution of the service, as well as quality, standard, etc.
This can lead to problems between the contractor and the developer, who may end up in an argument about whether what has been delivered is defective or not.
A good tip is therefore to take your time with supplementary descriptions and specifications of the product or service delivered. It's far cheaper than a court case in the future.
5. Too many cooks spoil the broth
When several contractors are involved in the same project, especially when they work in parallel, it must be clarified who is responsible for what - and especially when.
A typical problem is that one contractor is dependent on part of the delivery being completed by another contractor before they can start their work. But what happens if the other contractor has only partially completed their work, or perhaps hasn't started at all because of unforeseen events? Who will coordinate this?
If there are no clear interface matrices or rules for coordination, the work can come to a standstill and, in the worst case, no one takes responsibility for the stoppage. Contractor no. 1 points to contractor no. 2, who points to the developer, who points back to contractor no. 1. It quickly becomes expensive for everyone involved.
This can be avoided by having clear rules for the division of responsibilities and coordination.
6. Missing documentation
Contractors and developers who don't have a firm grasp on documenting the progress of the project can end up in a situation where they have a weak evidence base in the event of a dispute.
"There's a difference between being right and being right" is a well-known concept in Norway. Without good documentation, it is difficult to prove one's own claims, or to reject the other party's, which makes this saying particularly relevant.
We therefore recommend that you ensure continuous documentation of progress, deviations and changes, so that you are well prepared should a disagreement arise between the parties. All relevant deviations and changes must also be notified, otherwise the good documentation is of little use.
7. Missing procedures for takeover and final settlement
Disagreements or conflicts typically escalate when the parties have reached the end of the road, and you have to think about the final settlement. Has the project been completed, and what were the rules for complaints?
Uncertainty about deadlines, liability and payment will be limited by the handover protocol and final statement, which should be regulated in the contract.
The pitfalls are many—avoid them with the correct construction contract and proper planning
Construction contracts require thorough planning and attention to detail to avoid costly pitfalls. As we've briefly touched on, even minor mistakes or misunderstandings can have major consequences.
The common thread running through all these pitfalls is the importance of clear communication and thorough documentation. Whether it's using written and customized contracts that cover key issues, following the whistleblowing rules to the letter, or ensuring ongoing documentation of progress, deviations and changes - it's about being proactive rather than reactive.
Our advice is therefore simple: Invest time and resources in getting the contract and procedures in place before the project starts. It's far cheaper than a court case in the future, where liquidity is locked up and additional costs are incurred. Good contracts save all parties involved from unnecessary conflicts and costs.
With these guidelines in mind, you will be well equipped to navigate construction contracts in a safe and efficient manner, whether you are acting as a contractor or developer.
If you have any questions, please do not hesitate to contact us at Magnus Legal.
GET HELP WITH YOUR CONSTRUCTION CONTRACTS
Our skilled corporate lawyers are here to assist. Contact us today.
