We are regularly consulted when there is a dispute regarding a building contract. In order to advise the client, we ask to see the signed contract, only to find that the contract was never actually executed (signed) by both parties. Sometimes there is a letter confirming acceptance of a tender, but the actual contract terms have never been signed. Clearly this presents problems determining exactly what obligations there were on the contractor and the manner in which these were breached, leading to disputes. How important is signing a building contract?
Even where a building contract has been signed, it is imperative that all supporting documentation is also executed prior to work commencing, including collateral warranties, bonds, guarantees etc. This is highlighted by the English case of Sweett (UK) Limited v Michael Wight Homes Limited.
So what happened in this case?
- Sweett was the QS and Employer’s Agent and Wight was the employer under a building contract with Diamond Property Construction Limited.
- The building contract provided that the contractor would procure a performance bond to a value of 10% of the contract sum.
- The bond was never forthcoming from the contractor, despite numerous attempts on the part of Sweett to obtain this.
- The contractor went into liquidation and Wight raised an action against Sweett, on the basis that it was Sweett’s responsibility to ensure that the contractor provided Wight with the bond.
- The court found that Sweett’s appointment did not impose an obligation on them to ensure that the bond was produced, as it simply required them to “arrange” the provision of the relevant contract documentation.
- Sweett was therefore only obliged to use reasonable skill and care in carrying out its obligations. The court found that Sweett had done that in the steps it took to attempt to procure the bond on behalf of Wight.
- As such, the court could not find that Sweett had any liability to Wight in respect of the contractor’s failure to produce the bond.
This case demonstrates the importance of ensuring that contractual documents are executed on behalf of all parties involved prior to performance of the contract. Even where consultants are employed to manage the contract, the employer is the party ultimately taking the risk where works are progressed without the completed relevant documentation.
If you are in discussions with a contractor for a development, have queries about signing a building contract or are involved in a dispute in respect of a building contract, please contact our team to discuss.