Different kinds of contracts tend to give rise to different types of dispute. For instance, a contract to deliver some form of program on behalf of a municipality (e.g., child care) raises several concerns not directly relevant in relation to the supply of tee-shirts and swim suites for the city’s swimming pool staff.
As I have discussed in previous columns, outsourcing of government services is likely to cause dispute, due to the different perspectives on public services delivery held by the public and private sector. However, there are a few types of dispute that are common across almost all types of contracts. For instance, some of the most common areas of dispute relate to:
Variation/changes in work and their valuation: Construction contracts usually permit the owner, through its architect or consultant, to require that changes be made in the work, without invalidating the contract. The contract price and allowed time for completion are then adjusted accordingly by written order. Generally, any alterations, addition to, reduction from, or other change to the work to be done as detailed in the specification constitutes a variation. The contractor is entitled to additional compensation where a work order results in a change in the scope or nature of the work to be carried out.
What amounts to a variation depends in each upon the express terms of the contract and the type of work required to be done. On the other hand, remedial work carried out to correct a deficiency in the work is not a variation. Often, there will be a dispute as to whether work that is directed constitutes such remedial work or a variation. Even where the work is a variation, there will often be disputes as to how to value it, to determine the compensation to which the contractor is entitled. Complicating matters further is the fact that some types of variation have no impact upon (or may even reduce contractor’s cost — even when wholly outside the scope of the original contract.
Defects in construction, manufacture or installation, including warranty claims. Deficiency of work may arise either from poor design or improper execution. Since the owner may be responsible for design, while the contractor is responsible for execution, the possibility of dispute is clear. Owners naturally wish to acquire a filly functional and complete building. As a result, they often seek to withhold a substantial payment that is due unless and until minor corrective work is carried out.
Also, some considerations should be given to the following:
- Extension of time claims due to unexpected or other conditions.
- Claims for payment on a quantum meruit basis.
- The application of liquidated damage clauses, entitling the owner to deduct the amount specified from the payments to be made under the contract.
- Claims for extra work beyond that originally agreed.
- Claims for loses and expense arising from late completion.
Problems of this nature make it clear that it is vital to define not only each party’s obligations clearly in the contract documents, but also where the risk resides with respect to each type of problem that may be anticipated to arise. However, even this cautious approach can be problematic, as there may be disputes as to whether risks are being assigned to the party most capable of managing them.
It is certainly to be hoped, and there is good reason to believe, that most companies which supply to the public sector do so in an ethical manner, and provide good value for money with due regard for the fact that their contracts relate to the expenditure of public funds.
Stephen Bauld is a government procurement expert and can be reached at [email protected].
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
