MDA Law
Contract document hierarchy and document conflict – what are the remedies provided under construction contracts and common law?
Working on construction projects and specifically with the construction contracts, whether large and/or medium to small scale projects, every so often, you come across conflicting clauses. This is not uncommon. There will always be contract documents, consisting of several documents (more so on larger projects), where the volume of details found in the contract, provides for plenty scope for discrepancies and inconsistencies.
Most standard form construction contracts utilised in South Africa, contains clauses which makes express provision on how conflicting provisions contained in different documents can be dealt with and be resolved.
Generally, if any such inconsistency or discrepancy is to be found, some contracts provide that the contract administrator (known as, the engineer, principal agent and employer’s representative etc.) is the party that can be approached to resolve. The contract administrator would then usually issue an instruction setting out the explanation and / or details that resolves the discrepancy. By doing so, the contract administrator should inter alia act pursuant the general principles of law that governs interpretation of contracts.
Also, when dealing with conflicted conditions in contract documents, some common law rules can be applied as guidance to assist a contract administrator and even the courts. An example being that, (i) written words would prevail over typed words, and (ii) type words in turn prevail over printed words.
The aforesaid considered, hereunder follows few examples of contract provisions from standard form constructions contracts used in South Africa, which specifies what contracting parties can do to clarify any inconsistency and or discrepancies.
Clause 2.4 of the GCC2015, provides that in the event of any ambiguity and/or discrepancy between documents, the “Employer’s Agent” shall provide the necessary clarification. It further provides that the contractor can become entitled to an extension of the date of practical completion and/or additional costs, should the instruction by the employer’s agent that resolves the ambiguity / discrepancy, result in a delay.
Clause 5.6 of the JBCC Principal Building Agreement, edition 6.1 March 2014, states it differently in the sense that it does not provide that the Principal Agent should clarify. It simply provides that “The contract documents shall be deemed to be mutually explanatory of one another. In the event of ambiguity, discrepancy, divergence or inconsistency in or between them, this agreement shall prevail over all other contract documents.” This can be interpreted that the general conditions of the JBCC, would prevail over all other possible contractual documentation, unless the true or clear intention of the contracting parties can be established to know what condition is gets a higher level of priority over the other.
Under the NEC3 (2013), Clause 17.1, provides that the “Project Manager” or the “Contractor”, can notify “the other as soon as either becomes aware of an ambiguity or inconsistency in or
between the documents which are part of this contract. The Project Manager gives an instruction resolving the ambiguity or inconsistency.”
Clause 1.5 of the FIDIC Red Book 1999, expressly provides for a listed priority of documents to avoid possible uncertainty. It states that:
“The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be in accordance with the following sequence:
(a) The Contract Agreement (if any);
(b) The Letter of Acceptance,
(c) The Letter of Tender,
(d) The Particular Conditions,
(e) These General Conditions,
(f) The Specifications,
(g) The Drawings, and
(h) The Schedules and any other documents forming part of the Contract.
If an ambiguity or discrepancy is found in the documents, the Engineer shall issue any necessary clarification or instruction.”
Over the years and to date, the courts must decide on interpretation issues and are approached to give their decision to clarify an inconsistency or discrepancy between conditions in contract documents that can govern the relationship between an employer and contractor.
In a few English cases, one being a 2009 case, Bovis Lend Lease Ltd v Cofely Engineering Service, the courts have stated that in the event of conflict or discrepancy, the special conditions or amendments to the contract are to prevail over the general conditions.
In this Bovis case, a few clauses were highlighted. Clause 2.1, which provided for a hierarchy of documents (like that as the listed priority of documents under the general conditions of Clause 1.5 of the FIDIC), stated as follows:
“2.1 The Subcontract Documents…
(a) the Articles of Agreement, including the Appendix;
(b) the Schedule of Subcontract Amendments;
(c) the DOM/2 standard conditions; and
(d) the Schedule of Main Contract Amendments.”
An article 12 was introduced under the above listed Schedule of Subcontract Amendments, which provided:
“Without prejudice to clause 2, this Subcontract shall be amended in accordance with the Schedule of Amendments at DOM/2 attached hereto and if there is any discrepancy between the terms of this Subcontract and the Schedule of Amendments, the wording of the said Schedule shall prevail.”
The court further in their judgment, referred to other documents and confirmed that the Appendix to the subcontract was the most important subcontract document. It was the case for two distinct reasons. First, because clause 2.2 of the DOM/2 standard conditions stated the following terms:
“If any conflict appears between the DOM/2 conditions and the Appendix then the Appendix shall prevail. If any conflict appears between the terms of Subcontract DOM/2 and the numbered documents the terms of Subcontract DOM/2 shall prevail. If any conflict appears between the provisions of the Main Contract and the terms of the Subcontract documents the terms of the Subcontract documents shall prevail.”
Based on the aforesaid, the court was of the view that “it is clear therefore that the Subcontract itself provides that the Appendix is the most important document.”
The court’s second reason for concluding that the Appendix is the key document, was “because it is the one document included in the Subcontract which the parties have filled out themselves.” The court viewed that “where there is a clash between manuscript and standard printed words, the former must prevail.” The latter sounds similar and in line with the common law rules that can be applied.
In considering the respective contract clauses stated in this article and seeing how the courts can approach to deal with contract interpretation issues where parties cannot find common ground on resolving an inconsistency or discrepancy in documents, it is safe to conclude that there is a standard rule of interpretation when it comes to contracts. In circumstances where an order to documents is clear (i.e. expressly provided for), it serves to ensure that a condition higher in the hierarchy (a higher listed priority), would take precedence over one that is listed lower. As a result, it would not be uncommon where tender conditions prevail and can amend the contractor’s rights or obligations as stipulated under the general conditions of a standard contract. Especially, if such tender conditions are given a higher priority.
Contracting parties must pay clear attention to these various pitfalls and rather seek and obtain specialist and expert advice and services, when negotiating and entering contracts. It can assist a great deal, and even possibly avoid the parties to incur future costs related to dispute or litigation proceedings to resolve a contractual interpretation issue.
Author: Barry Herholdt, Senior Associate
