Contracts play a pivotal role in construction , but many are characterised by vagueness as to responsibilities and timelines - the two essential features of a contract .
INCORPORATING COLD CHAIN
BUSINESS AND TRAINING
How robust contracts and construction insurance go hand in hand Edited by Eamonn Ryan
Contracts play a pivotal role in construction , but many are characterised by vagueness as to responsibilities and timelines - the two essential features of a contract .
Contracts serve as the backbone of any insurance agreement , clearly defining the responsibilities and obligations of each respective party involved . Vague contracts or a lack thereof can lead to difficulties in quantifying losses and processing claims . In addition , without a robust contract , disputes can arise , leading to costly legal battles , delays in project completion as well as claim settlements .
According to Jan-Hendrik Botha – head of underwriting at Western National , the construction sector faces both risks and opportunities as government seeks to boost its investment in infrastructure , stimulate job creation in construction and encourage foreign investment .
“ These are times of unprecedented change . As South Africans we are innately optimistic , but as insurers , we remain acutely aware of emerging risks which are a sign of the times – the influence of the construction mafia , escalating economic pressures and the increasingly evident impact of climate change .
Despite these very real challenges , there are also opportunities for construction firms to tighten their risk mitigation strategies and revisit some of the tried-and-tested ways of protecting their investments and ensuring business continuity .
Contractual agreements are designed to hold parties accountable and safeguard their interests , but they are also effective ways of promoting transparency . In the construction industry , these are the building blocks of valuable relationships and ultimately , resilient businesses ,” says Botha .
Western has observed several reoccurring issues involving the use of construction contracts over the past few years . These include vagueness and a lack of specificity , which can lead to disputes over the interpretation of roles and responsibilities , and terms and conditions . This in turn , can also lead to the parties involved shirking their responsibilities due to lack of accountability .
Another issue identified by Western is inaccurate timelines – unrealistic or poorly defined timelines that are not built around the potential of unforeseen events can cause unnecessary delays , circumvention of risk mitigation measures and ultimately financial losses . Addressing these issues using precise and detailed contracts can significantly reduce the likelihood of disputes and enhance project efficiency .
WHAT CONSTRUCTION CONTRACTS SHOULD INCLUDE
Formal contracts should outline several key details , including the scope of work , with all details regarding specifications , timelines and milestones being clearly communicated . They should also include the relevant payment terms , including agreed amounts and due dates to prevent unnecessary disputes over financial matters .
To guard against lengthy disputes and legal processes , contracts should provide a clear path for addressing conflict , whether through mediation , arbitration or litigation . It ’ s also vital to include details regarding risk allocation and to define who is responsible for various risks , such as contract works damage , third-party damage and delays .
In providing clear guidelines on what each agreement entails , contracts can lay the groundwork for deciding what kind of insurance cover would be best suited to each project . Some of the most common forms of insurance requirements include public liability cover , workers ’ compensation cover and contract workers ’ cover . These protections serve as a financial safety net in the event that the unexpected occurs .
Botha warns against trying to sidestep or rush the formal processes involved with the drawing up of contracts and instead , urges construction companies and developers to seek legal counsel to ensure that contracts are clear and valid . Alternatively , they can consult contract and construction committees such as the Joint Building Contracts Committee ( JBCC ), the Master Builders Association , and others .
“ Consulting with an attorney who specialises in construction law or a committee that provides standardised
Contracts should provide clear guidelines on what each party agrees to , or there ’ s not much point .
forms of construction contracts like the JBCC , will ensure that the contract adheres to all relevant laws and regulations . Lastly , building developers and contractors need to understand that contractual agreements are dynamic rather than static and need to change and be updated as circumstances evolve and the project progresses .
“ As standard best practice therefore , they should conduct regular reviews of their contracts to check for relevancy , accuracy and comprehensiveness . Proper contracts , coupled with timeous premium payments , compliance with engineering specifications , regulations and standards will ensure that insurance cover remains in place ,” adds Botha . CLA
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