Implications of Poorly Drafted Contract Documents

Poorly drafted contract documents are often the source of claims. If they contain contradictions or ambiguities, it is natural for each party to interpret the inconsistencies to their advantage, thus giving grounds for contention and dispute.

One of our distance-learning students recently asked for my opinion on the following case and I thought it would be worth sharing. The student’s description was as follows:

‘Although it was understood by the parties that the contract was to be a lump sum price, clause 14.1 of FIDIC Red Book in the conditions of contract was not amended to reflect this (Note: the un-amended FIDIC Red Book includes for the Works to be remeasured). In various other places such as the contract agreement, the letter of intent and the cover page, it clearly says that the type of contract is a lump sum. Our client’s auditors have issued a report to the client that the contractor may dispute the type of contract in the future.

The client now wants the contract amended and is seeking our own and legal advice. The lawyers have advised the Client to replace the Red Book with the Yellow Book, to which we responded back to the client that this ridiculous because, whilst the Yellow Book is for a lump sum price, it is also for design and build, which does not apply to this project’.

This is a perfect example of poor contract admin. If you do not put the effort into getting the contract right in the first place, the likelihood of claims and disputes is increased. Questions have to be asked about the consultant and client’s procedures here.

It is easy to see how contention could arise here. If the Contractor considered that a re-measurement would put him at a financial advantage, he could argue that the conditions of contract should be applied. If however, Sub-Clause 1.5 (Priority of Documents) is taken into account, it will be seen that the Contract Agreement and the Letter of Acceptance take precedence over the Particular and General Conditions, so consequently the lump-sum provisions are applicable. In addition to this, it seems fairly obvious that at the time of tender, the intention was to enter into a lump-sum contract.

In order to resolve the matter, I would suggest that a contract amendment be proposed to the Contractor. This could involve substituting the Clause 14 wording from the Red Book with that of the Yellow Book and would neatly change the remeasurable contract to a lump sum without changing the whole contract from a construct only to a design and build as suggested by the lawyers. If the Contractor objects to this, then Sub-Clause 1.5 (Priority of Documents) could be used to argue the case.

It took me about five minutes to come up with this solution. I wonder how much the lawyers charged the client for proposing their totally uninformed and unworkable solution?

What’s your opinion?