Engineering, Supply and Construction Contracts

Abstract

Project conflicts are often caused by the parties’ differing interpretation of the contract provisions. Some provisions deal with the obligations of the parties, and if the specifications are ambiguous they give rise to disagreements and conflicts. Other provisions deal with procedures for approvals, plant acceptance, etc. and, if they are impractical or unclear, conflicts may arise. Finally there are contract provisions about how to resolve conflicts, mostly relevant when a conflict has materialized.

Contracts are binding for the parties (pacta sunt servanda, as the Romans said) once signed and enforced e.g. by down payment received etc. An effective contract cannot be cancelled without major compensation to the other party, to the extent that this way out is generally not feasible. The contract execution normally ends by commercial use and signing the acceptance certificate etc. The warranty period then starts but it normally does not cause major problems.

With respect to conflict handling the contracts of most interest are the ones, where “time is of the essence”. Time is by far the most important factor for the success of a project. Combined with a fixed price, advanced technology and fast track schedules these contracts simply do not allow for conflicts, defined as serious disagreements, hampering the daily project cooperation and progress.

Most Engineering, Supply and Construction project conflicts are related to the interpretation and the use of the Contract. In our opinion the number and the extent of project conflicts can be reduced by improving the contracts in terms of clearer definitions, specifications, procedures etc. and therefore this handbook deals with how to improve a Contract.