A contract clause is a specific provision in a contract that addresses a specific aspect related to the contract agreement. Contract clauses basically define the duties, rights,privileges and allocates risk to the parties under the contract.
These clauses come in many forms and can vary wildly from contract to contract, however, some clauses which are very important and are usually found in most construction contracts (standards or ad-hoc) which includes:
Force majeure (exceptional events)
Force majeure is defined in FIDIC redbook as:
an exceptional event or circumstance:
- which is beyond a Party’s control,
- which such Party could not reasonably have provided against before entering into the Contract,
- which, having arisen, such Party could not reasonably have avoided or overcome, and
- which is not substantially attributable to the other Party.
This important clause protects either party in case of such event, and ensures that failure to perform an obligation due to such event is not considered a breach of contract.
Claim notification precedent
Another critical, and rather controversial, clause, these clauses provides that a contractor waivers his right in any additional cost and/or time if he fails to notify of the event within a set time frame. This could cause an unwary/inexperienced contractor could easily lose rights to claim under these circumstances, and thus warrants a strict contract administration on his part.
Normally, any change, however minor, to the scope of works of the contract warrants a new contract document to be drafted (for example a MOU or a contract amendment). Variation clauses gives the owners/engineers a unilateral powers to change or amend the scope of works, which is an incredibly powerful right, but may give rise to future disputes over the time and/or cost impact of variations.
Although not as common, these clauses are very important, as it protects a party that excuses the other party's non-compliance with its obligations under the contract. In other words, the non-breaching party does not waives its rights under the contract in excusing or accepting the other party's non-complying action.
The cases in which either party is entitled to terminate the contract. These clauses must very clearly list the circumstances and the procedures of terminating the contract by either parties.
An important clause that are usually included where valuable intellectual properties are involved in the scope of works, which prohibits either party from disclosing any sensitive information to other third parties. This clause should be strongly worded.
Payment clauses should be very well defined along with time frames for submission, approvals and payments and may include how claims, variations and any deductions/retentions and amortizations are certified. One is surprised at some contracts' rather anonymous and generic payment clauses which, in most cases, cause disputes at some point during execution.