Dangers Associated Supplementary Agreements to Construction Contracts

Dangers Associated Supplementary Agreements to Construction Contracts

In the event that during the progress of the Works, the Employer decides that additional work is required which is so substantial or of such a nature that he considers that it is not appropriate to simply issue an Architect’s instruction he may wish to address this with a supplementary agreement.

It maybe that the Contractor too is willing to agree to this proposal as the terms and conditions appear favourable having no need to tender the additional or varied works. Both parties however should be beware of the potential pitfalls.

In such instances, it is not uncommon for the Employer’s solicitor or legal advisor to prepare a supplementary agreement for the Contractor and Employer to sign in order to deal with the additional works. Where work is incorporated by means of an Architect’s instruction, there is no problem, because the work becomes part of the Works and all the terms of the existing contract which the parties have already executed covers the additional work. Where the work is added by means of a supplementary agreement, it is essential that the supplementary agreement has the effect of bringing the additional work within the terms of the original contract. If this is not done, the supplementary agreement may be viewed by the courts as simply a stand alone contract with no direct relationship to the original contract. The effect of that would be that, unless special provisions were written into the supplementary agreement, the Architect could not:

• issue instructions in relation to the additional work,

• vary the additional work,

• certify the value of the additional work,

• deal with defects in such work,

• certify practical completion,

• certify making good of defects,

• issue a final certificate which would cover such work,

• have any powers or duties whatsoever in respect of the additional work,

• certify payments.

Any supplementary agreement should specify the extent of the additional work, make clear that it is to be considered as part of the Works under the original contract and make any adjustments necessary as a result of adding the work. For example, it will be necessary to adjust the amount of the Contract Sum and to amend the date for completion of the Works. There may well be other minor things to include, but the essential principle to keep in mind is that the additional work should become part of the original Works. Too often, a supplementary agreement which ignores these points leaves the Architect in an impossible position, having no powers under the supplementary agreement, but with an Employer expecting contract administration to be carried out in regard to both original Works and additional work in the usual way. It is important that, if a supplementary agreement is contemplated, the Employer and Contractor engage legal representative who are experienced in construction contracts to draft and agree the content of any supplementary agreement.

MALCONLAW 2011