The process of compiling construction contract document usually happens after the agreement between the parties is formed. This practice is quite unique to construction industry in that a voluminous contract document is physically collated to “formalise” an existing agreement that was previously signed by the parties by way of Letter of Acceptance or sometimes also known as Letter of Award, or LOA in short. The compiled construction contract document represents the physical bundle of all documents previously referred to in the agreed LOA. The compiled contract document is suppose to be substantively identical to the LOA.

The practice of compiling a contract document to be signed by the parties after an agreement was previously formed seemed odd and duplicative at the first blush. This is because the signed contract document should ordinarily be the only document agreed upon by the parties where all terms and conditions are captured within the four corners of that signed contract. This singularity avoids misunderstanding or dispute over what were precisely agreed upon by the parties, or in the contract law parlance ‘battle of the forms’. 

To understand the origins and rationale behind the practice of compiling construction contract document, one needs to understand the relevant aspects of a construction tendering process, which will be illustrated in the next section of this article.

Construction Tender Process And The Need For Compilation of Contract Document

The tender document issued by the Employer represents the requirements of its proposed construction project. Tenderers are invited to submit a tender price based on the said requirements. In an ideal world, the Employer accepts the best offer via an LOA and that should be the end of the contracting process. However in reality, this simple and direct process rarely happens because a construction project is quite a complex endeavour. At the point of tender, the requirements may well be significantly defined but can never be completely defined. That is why construction projects are often described as being ‘prototypical’. Even at the point when the tender document is issued to the bidders, project requirements continue to evolve particularly at the granular detail aspect of its design. These changes go beyond the scope of works originally included in the tender document. The Employer at this point could not merely accept the original tender price via an LOA without including additional document that reflects those changes that occur after the issuance of tender document. This is why, superseding documents such as tender addendum or even post tender addendums are quite commonly issued above and beyond the original tender document.

The continuous evolution of design is not merely initiated unilaterally by the Employer and its team. Occasionally the Employer may well tweak its design based on feedback and comments from the tenderers. The tenderers being builders by profession often interprets building design, drawings and specifications from a different perspective from the design consultants appointed by the Employer. The tenderers may propose alternative design that could be more buildable, or using more cost effective material that achieves the same design intent or other value added initiatives. Certain tenderers may view its proactiveness in offering value added options as a way to distinguish itself from its competitors. Where the Employer and its consultants decide to adopt these design improvements, certain parts of the original tender document and tender drawings would have to be superseded by new details. These amendments would invariably need to be included in the agreement between the parties. Depending on the nature and extent of these changes, it may well involve issuance of various new drawings, specifications and pricing schedule which could be time consuming. Therefore whilst the LOA may describe these changes as clearly as possible, it comes with a certain limitations. This explains why, a contract document will need to be compiled and signed after the issuance of an LOA for clarity in documentation.

The construction tender process typically include tender interview or even a series of interviews so that the Employer and its consultant would have the opportunity of directly interacting with the tenderers to better evaluate their proposals. Certain tender questionnaires which consist of various tender clarifications would usually be circulated to the shortlisted tenderers prior to these interviews. These questionnaires are usually drafted by the consultants based on their initial evaluation of the tender proposals received from the tenderers. Therefore these questionnaires often include points of clarifications such as the reason for certain qualifications of contractual terms, the origins of certain proposed materials, whether certain proposed construction approach had been previously approved by the statutory authorities etc. Whilst these clarifications are not strictly design changes, it direct affects the manner in which the eventual agreement ought to be interpreted, often with associated financial implications. Once again, the responses to these clarifications if acceptable are required to be included in the agreement between the parties. As the tender evaluation process including interviews of a large project could take a few months to complete, this results in hundreds if not thousands of pages of clarifications and responses to the questionnaires. Whilst the LOA would usually refer to these clarifications as part of the agreement, it is during the compilation of contract document that these documents are physically bundled together and signed by the parties as a way of formalisation. 

Parties negotiate prices during the tender process especially in the advance stage when the Employer is about to make its decision for an award. Occasionally parties negotiate face to face for hours which culminated in an agreement for a price reduction in exchange for say the acceptance of an alternative design proposal. Typically the outcome of these negotiations gets documented via a letter from the contractor to the Employer setting out the precise agreed scope of concession. This letter is then included in the LOA as part of the list of correspondence that formed the agreement. The agreed price discount which can be expressed in the form of a percentage reduction of the original tender price or as a lump sum reduction in amount will subsequently be incorporated into a revised pricing schedule. This discount could be administered as a percentage in which case will be applied to any future increase or decrease in the revised contract sum. Alternatively this discount could be administered as a lump sum amount where the price reduction gets distributed evenly or selectively across the pricing schedule. In the latter case, the lump sum discount would not have any effect on future increase or decrease in contract sum.  The mathematical treatment of such matters are usually carried out at the point when the construction contract document is compiled rather than in the LOA as it can be time consuming and administratively laborious. 

Tender Documentation That Are Commonly Subject To Amendments During Contract Compilation

In order to better demonstrate the necessity and complexity of contract compilation process, the following hypothetical example will be used for illustration purposes. This example assumes an Employer and a shortlisted tenderer enter into an advance stage negotiation in respect of a tender to engage a main contractor for the construction of a commercial building. The tenderer counter proposes an alternative steel beam which is thinner, lighter and has a smaller cross section in lieu of the existing design included in the structural tender drawings. According to this tenderer, despite this alternative beam being lighter and thinner it is able to meet the load bearing specification prescribed and is compliant with the relevant code of practice as well as industry standards. This alternative beam is also more cost effective and involves a shorter construction period. The Employer is persuaded to adopt this alternative design because in addition to the aforementioned benefits, it also offers a larger floor to ceiling height due to the adoption of a beam with smaller cross sectional area. This in turn makes the commercial development more marketable. After a considerable negotiation, the Employer agreed to in-principle award the tender to the tenderer based on certain price discount. The LOA was swiftly signed by the parties and eventually followed by the process of compilation of the construction contract document. So how should one navigate the compilation of contract document in view of the design alternatives, pricing discounts, representations made during the negotiations? 

Firstly the sections included in a typical contract document is quite similar to the tender document that was issued to the tenderers. The sections included in contract document are usually interrelated, as making certain amendments to one section will affect the other sections. Going back to the example used above, since the alternative steel beam is used in lieu of the existing design, the corresponding types of structural tender drawings that are affected including the elevations, cross sections, structural details, plan views etc will need to be revised by the structural engineer. These revised drawings including the remaining structural drawings will be issued and labelled as ‘structural contract drawings’ which will formed part of the contract documentation. Next, the architect will have to perform a similar exercise to its architectural drawings for the purposes of production of ‘architectural contract drawings’. In this case, it is likely that the number of drawings that needed to be revised will be relatively less. Whilst architectural drawings do not show the structural components of the building, the floor to ceiling height was affected and should be amended in the corresponding architectural drawings. Since these changes to architectural drawings are rather localised, for the sake of clarity the changes should be denoted with ‘cloud markings’. As regards the mechanical and electrical drawings produced by the services engineer, the size of the structural beam may affect the manner in which the associated cables, ducts, wirings are routed. The additional floor to ceiling height may even affect the calculation of any cooling load. Therefore subject to the production of combined services drawings and shop drawings that will be produced by the main contractor in future, the mechanical and electrical contract drawings will be amended in the same manner as the architectural and structural drawings mentioned earlier. 

Apart from the drawings, there are also specific sections within the contract document that will be affected. The structural specification within the tender document will need to be replaced in so far as it is affected by the change in type of steel beam. The other affected section relates to the pricing schedule. The relevant descriptions in the pricing schedule will need to be amended including any reference to drawings that were superseded. One aspect of amendment to pricing schedule that can be tricky relates to the pricing discount mentioned earlier. As pointed out in an earlier section of this article, pricing discounts can be administered by way of a percentage discount to the original tender price or as a reduction of a lump sum amount. However as the change in steel beam is likely to affect its corresponding unit rate, there is a question of whether the discount should be reflected by a reduction in the unit rate. This is quite different from a percentage discount to the contract sum in that a discount to unit rate will have a valuation impact on future variation works to the structural steel beam. Whilst it is advisable to have these issues sorted out during negotiation, it is quite common for these details to be overlooked in an executive level negotiation. This is why the contract compilation process becomes the natural avenue for the intricate yet important detail to be ironed out.

As evident from the steps illustrated above, there are various sections within the tender document that have to be revised in addition to tender drawings leading to the formation of a complete contract document. Whilst these details are theoretically included in the LOA by reference to the letter from the contractor to the Employer, the necessary details are often unclear. In most large organisations, the team managing the tender could be different from the subsequent team that executes the project. Therefore, the documentation of detail in the contract document above and beyond the LOA is crucial to ensure that the agreed deal makes commercial sense, not just at the point of inception but also until completion and closure of final accounts. 

When To Compile Construction Contract Document

One should plan to compile the contract document as soon as possible preferably within the first few weeks after the issuance of the LOA. In reality however most projects will have its contract document compiled and signed towards the end of the project for various reasons, primarily due to busy schedule, workload and other miscellaneous reasons. The relationship between the contractors with the Employer and its consultants can be adversarial and contentious at times. As evident from the preceding section of this article, there remains some minor scope of negotiations between the parties during the process of contract compilation. When the relationships sour, one may find that the parties’ ability to negotiate and compromise is adversely affected. Therefore it certainly pays to strike the iron while it’s hot.

In any case, there are various contract administration tasks that cannot be properly performed without a fully compiled contract document. By way of example, a revised pricing schedule where necessary is required for monthly interim progress payment. Therefore the complete compilation of contract document in many ways facilitates the interim progress payments.

How To Compile Construction Contract Document

Contrary to popular belief, contract compilation process involves thoughtful professional judgment calls as opposed to a mere administrative exercise. This is because some of the points of clarifications, amendments or concessions made at the downstream of the tender process could supersede certain project requirements originally set out in the tender document. One should also consider how the contract documents shall be interpreted and construed as a whole, particularly when there are conflicts or inconsistencies within the contract document. In this regard, there are usually provisions included in the standard form of contract or the LOA which sets out the rule on construction of contract documents. These rules are important because it is quite common to find contradictory or conflicting parts of the contract document despite care that had been taken in removing obsolete portions of the tender document during the compilation process. After all, different sections within the contract document are produced by different consultants. 

The different standard forms of contract used in Singapore prescribes different methods to construe the contract document. By way of example according to the Singapore Institute of Architects Building Contract 2016 (the SIA Form), it is stipulated amongst others that the contract document shall be read and construed as a whole and that no special priority other than accorded by law shall apply to any one group of documents. The public sector forms of contract on the other hand prescribes that the conditions of contract shall take precedence over other documents forming the contract. Amongst the conditions of contract, the particular conditions shall take precedence over the standard conditions. In other words, one group of document shall take priority over other group of documents in case of conflict or inconsistencies. There are also LOA which prescribes that the terms included in the LOA shall prevail and in case of inconsistencies in other parts of the contract document, then succeeding correspondence and documents in terms of date shall override and take precedence over the preceding correspondence and documents. In this case, the chronology of events shall have priority over groupings of documents.

As alluded to earlier, the various parts of contract document are arranged in a manner similar to the tender document. The information, details and particulars submitted by the selected tenderer which were populated in the tender document becomes the basis of the contract document. Various material correspondence exchanged and documented after the tender document was submitted by the selected tenderer are usually populated separately at the penultimate section of the contract document. These are usually known as ‘contractual correspondence’.

Using the earlier hypothetical example pertaining to the alternative design of steel beam structure, prior to compiling the contract document, the obsolete portions of tender document that were superseded by the adoption of alternative design shall be removed. If this project adopts the public sector form of contract, one should include a particular condition documenting this incorporation of alternative design as the mere reference to the letter from the contractor documenting this agreement is arguably insufficient. On the other hand, if the LOA adopts the rule of construction based on chronology of events, the adoption of particular conditions may not be necessary.

What Should be Excluded From Construction Contract Document

Clearly only documents that are essential and material should be included in the contract document. Emails, letters or correspondence that are administrative or even perfunctory should be excluded. Occasionally, tenderers do include catalogue, brochure or marketing materials in their tender submissions. The general rule is to exclude these documents since the contractor are still required to adhere to the specification regardless of their proposals. The deliberation and assessment of any specific model of equipment or finishes are usually considered part of post contract submissions that are subject to the relevant consultants’ approval. The inclusion of such catalogue or brochure opens up the debate as to whether such proposals supersedes and overrides the original specification on the basis that tender document precedes the dates of submission of these proposals.

The same argument applies for construction method statement which are usually required for submission by the tenderers for demonstration of their approaches and their general competence. Whilst the method statements are useful for the purposes of tender evaluation, it is by no means an accurate representation of the actual site condition. Any accidental inclusion of method statement may open up the debate as to whether additional cost or time incurred resulting in departure from the prescribed method statement may entitle the contractor to legitimate claim. 

Similar to method statements and marketing materials which are frequently subject to change, an initial proposed construction programme which depicts the various timelines, milestones and critical path should also be excluded from the contract document. Construction programme is arguably one of the most dynamic document that is subject to frequent changes. Whether these changes entitle one to extensions of time should be a matter reviewed and assessed carefully by the independent certifier appointed under the contract. Any inclusion of programmes into the contract document similarly attracts the debate on the basis of any entitlements to extension of time, and also potentially the associated loss and expense claims. 

Conclusion

Contract document is arguably one of the most important document in any construction project since it sets out the rights and obligations of the parties. Naturally, one should dedicate sufficient time and care in the compilation of contract document so that any agreements made as a result of long drawn negotiations are accurately documented and recognised.



Koon Tak Hong Consulting Private Limited