When a contract goes wrong

How many times have you had to put a contract together quickly? Time is running out and you need to get something signed. Have you really read every page fully, the whole contract from cover to cover? And do you understand it? And do all the various parts of the contract work together? Or do they totally contradict themselves? Never mind eh, we won’t need that contract, will we….. we will all stay friends and things will be fine…….

When Contracts Go Wrong
A client wants a contractor to dig a tunnel, so issues a tender.
The contractor’s tender response includes a price for the tunnel, based on a clear route, and specifically excludes breaking out of rock or dealing with obstructions.
The client produces the contract and includes text that states contractor is responsible for everything, and will receive no more money nor time, regardless of what is encountered.
The tender response is included as a contract document, but is bottom of the order of precedence. As is a whole load of pre-contract communication where the contractor further clarified the price was based on a clear route.
The contract is signed, and the contractor sets to work.
The contractor encountered rock, and a whole manner of other obstructions.
The client shrugs their shoulders and points to the contract.
The sorry mess winds up in court.

And Then It Gets Interesting

The Court finds in the Contractor’s favour.
Now this strikes me as fair and reasonable, but utterly mad. The contract signed by both parties said the Contractor was liable. The order of precedence clarified that where there were contradictions the conditions had precedence. So on what grounds did the Court find in the Contractor’s favour?
They applied Common Sense. And this should act as a warning. The Contractor clearly excluded something from their price. A contract was written including the excluded work, and included the text where the excluded work was excluded (ha, still with me?). And the price wasn’t increased, if it had it could be argued that the originally excluded work was now included!
Why oh why would you include all the back-and-forth pre-contract communication? It appears this has been the downfall of the client. And why, when the Contractor is specifically excluding something, would you try and simply ram it through in a contract?

Lessons To be Learned

Don’t rely on “order of precedence” clause to solve contradictions – simply make sure there aren’t any!
Don’t over complicate contracts – keep the documents simple – it makes it easier to read and understand.
If your contract ends up in court then your whole tender process, and all related communications can end up being aired in public.

For the full detail, read here

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