The Nigerian Bar Association Section on Business Law had the Series 14 of the Business Law Weekly on the topic: Topical Issues in Construction and Infrastructure Law & Practice in Nigeria, which was facilitated by Andrew Odum, SAN; Vice Chair, Construction Project and Infrastructure Committee, NBA-SBL, and Mr Emmanuel Dike, Managing Partner, Jasmine Advocates.
Here are the key takeaways from the fireside chat:
1. THE DIFFERENCE BETWEEN CONSTRUCTION CONTRACTS & REGULAR CONTRACT
Mr Emmanuel Dike began by stating that every construction transaction begins with a contract between the parties (contractor & project owner) known as construction contract. Unlike the regular contract that is governed by a single legislation such as the Contract Law of various states, the construction and infrastructure sector is not governed by a comprehensive legislation but by diverse legislation, regulations and ethical guidelines. A fundamental disparity between these two forms of contract is the presence of specific industry/trade terminologies, the omission of which renders the meaning and intentions of the contract incomplete. He further said that a complete construction contract must cover the parties’ intentions and operations from conception of the idea to the commisioning/handover of the project without any complication arising from it. It is not a pre-requiste that all the terms and conditions of a construction contract must be contained in a single document. He posited that terms of the contract can be scattered across several documents so long as reference and referral is made to the various connecting documents. Construction deals with a lot documentation e.g letter of award, tender document, etc. He emphasized that all these documents must contain specific terms such as “lump sum” which indicate that the terms cannot be subjected to variation or “reimbursable contract” to indicate contracts that the entire cost plus a small margin may be refunded to the contractor. Other terms include “design contract ”, “design and build contract”, “engineering procurement contract” etc.
2. DISPUTE IN CONSTRUCTION AGREEMENT
Mr Emmanuel Dike, in discussing the factors that cause dispute and conflict in construction agreement, stated that the first and foremost factor is the issue of variation of order. This is the change in choice of design or terms by any of the parties usually the project owner. The second factor is the inability to meet deadline. This could be either on the part of the contractor or the project owner. Progress in construction is calculated in mileage. Failure of contractor to complete a specific work within the expected schedule of the work impacts on the speed of the work and that creates conflict especially when payment is based on the completion of each mileage. On the part of the owner of the project, Mr Dike opined that delay in payment can equally result in an inability to meet deadline. He suggested that to resolve these conflicts, contracts should provide for compensation in the form of liquidated damages (where costs is specified) or ascertainable damages using an independent valuer (if the amount is not included in the contract).
3. HOW TO LIMIT DISAGREEMENT ARISING FROM CHANGE ORDER (VARIATION)
Mr Emmanuel Dike hinted that change order, also known as variation, is an administrative issue usually between the contractor and the supervisor or project owner. This takes place when the project owner instructs the contractor to change either the scope or the terms of the project resulting in a party incurring exepnses and cost. The Learned Counsel proposed that, to avoid the incidence of change order, contracts should provide for remedies for variation. Where the variation is of a minor scope, an extension of time should be provided for. This would enable the contractor complete the project. He added that terms of the contract should also allow for employment of extra labour where necessary. However, if the scope is of a large nature to incur additional cost then compensation for additional cost is to be given to the party bearing the cost. Mr Emmanuel Dike mentioned that the absence of remedial measures can lead to an interpretation of the change order to be an alteration of the contract. He expounded that variations having such large scope is usually found in bespoke contracts. Bespoke contracts do not contain familiar terms as found in standard form contracts that are used as models by other contractors. Standard form contracts are pre-negotiated contracts which form has been tested and approved as a result of long and satisfactory usage, then further reduced into printed forms for subsequent use. There is an assumption of understanding of the terms contained in it by the parties. Two factors impact the choice of a standard form contract. They are:
•The nature of the work or project
•The parties involved, that is whether they are private persons or government entities
The Federal Government have contract forms for building works, roads & bridges. The Bureau of Public Procurement also have contract forms for public works. Where the parties are private persons, he advised that contract forms by the Joint Contract Tribunal should be adopted. He noted that every lawyer must understand the nature of his client’s work in order to advise correctly on the appropriate standard form to adopt. He further stated that contrary to the belief on the rigidity of standard form contracts, the terms of a standard form contract can be negotiated. This is to be done by drafting an additional agreement amending the standard form contract where the latter contain terms that cannnot be executed. Where there is conflict between the standard form contract and the additional agreement, the latter document prevails.
4. ADJUDICATION AS A MEANS OF RESOLVING CONSTRUCTION DISPUTE
Mr Emmanuel Dike enumerated the methods of resolving disputes in construction to include litigation, arbitration and adjudication. According to him, the most preferred method is litigation. He further stated that arbitration came to solve the inadequacies of litigation. Adjudication, on the other hand, is the bridge between negotiation and arbitration. It is the simplest, fastest and cheap method of dispute resolution. He emphasized that adjudication is necessary in a project to prevent abandonment of the project. The adjucator should always be present at the site to attend to conflicts at the site. After adjucation, the resulting decision is usually temporary and the duration to challenge it is short. However, if it is unchallenged upon expiration of the stipulated period, the decision becomes binding on the parties. He stated that in Nigeria, we practice contractual adjudication as opposed to statutory adjudication practiced in other jurisdictions. Contractual adjucation simply means that the decision of the adjudicator can be enforced as a contract.
5. THE PLACE OF CONSTRUCTION LAW IN PUBLIC-PRIVATE PARTNERSHIP(PPP) ARRANGEMENT
Mr Dike explained PPP arrangement as an investment by private individuals in public (government owned) infrastructures, to either build, renovate or complete such infrastructures. Where the infrastructure sought to be built is a new one, it is known as a green field. If it is an existing project, it is known as brown field. Where the infrastructure is a dilapidated project, it is called a yellow field. He highlighted that, at the core of every public-private partnership arrangement is the building of the infrastructure. Evolving into a huge dependability on construction law. For better emphasis, he pointed out that in carrying out projects on a green field, one must consider matters like acquisition of land, licenses and approval etc. He stated that after building, most contractors are expected to operate and maintain the project. At this stage there would still be issues of contractual agreement, hence the need for construction law at every stage of the project.
The Learned Silk, Andrew Odum, while rounding off the session, said that the key to building a great practice in construction law is networking and mentoring. He stated that this is where the importance of the NBA-SBL cannot be over emphasized. Young lawyers seeking to build a career in construction law must endeavor to be members of the Construction and Infrastructure Law Committee of the NBA Section on Business Law.