The University of Auckland Engineering School in partnership with MinterEllisonRuddWatts, a leading New Zealand law firm, is offering an exciting way for professionals in the construction industry to upskill. The Engineering Contracts for Project Managers is a fully online course which covers construction law concepts for engineering and construction projects.
Find out below why contract law is an important skill for current and aspiring project managers.
Why Contract Law Matters for Engineering Project Managers
If you want to be a successful project manager in the construction industry, you need to know contract law. Well-thought-out contracts ensure the smooth and successful execution of projects.
Whether you’re an aspiring project manager or a seasoned professional, a strong understanding of the law governing construction contracts is essential and will empower you to make informed decisions, minimise risks and disputes, and foster strong relationships with project stakeholders.
Contracts are the foundation of any engineering project: outlining the rights, obligations, and responsibilities of all parties involved. Well-structured and well-understood contracts provide clarity, ensure accountability, and minimise the potential for lengthy and costly disputes.
For engineering project managers, a good understanding of the law governing construction projects is crucial for effectively managing project risks, preventing costly delays, and protecting the interests of their clients and organisations. By possessing a strong grasp of contractual principles, project managers can effectively:
- Understand the appropriate contract type for the project: Engineering projects encompass a wide range of scopes and complexities. Understanding different types of procurement models, such as design and build or build-only, enables project managers to choose the most suitable contract structure for each project.
- Interpret and negotiate contract terms: Contract negotiations require knowledge of legal principles and an understanding of the implications of each clause. Project managers with a strong grasp of contract law can effectively negotiate favourable terms, ensuring that their organisation’s interests are protected.
- Effectively manage project scope and change: Clear and enforceable contract provisions allow project managers to effectively manage project scope changes, preventing or minimising unforeseen costs and delays.
- Resolve disputes efficiently: In the event of disputes, project managers with a strong understanding of contract law can negotiate settlements or initiate legal action with greater confidence.
Contract law is not merely a legal formality for engineering project managers; it is a fundamental tool for ensuring the successful completion of projects. By gaining a comprehensive understanding of the relevant law governing construction projects, engineering project managers can navigate the complexities of their projects with greater confidence.
Case Study: Fletcher Construction Company Limited v Spotless Facility Services
A recent case from 2020, Fletcher Construction Company Limited v Spotless Facility Services, demonstrates the crucial need for engineers and project managers to understand the law and to comply with it. Otherwise, they can face significant costs in time and money.
Spotless was the mechanical services subcontractor to Fletcher for the Commercial Bay building in Auckland. Spotless issued a usual payment claim of $2,067,715.86 (plus GST); and Fletcher responded with a payment schedule that due to deductions and claims against Spotless, totalling $6 million, showed Spotless owing Fletcher $4,058,704.65.
Spotless argued that Fletcher’s payment schedule was invalid as Fletcher did not show how all deductions were calculated or provide reasoning for their deductions. Spotless then suspended performance of the contract on the basis of non-payment by Fletcher. The payment schedule had to be valid, otherwise Spotless’s suspension would be wrongful.
The High Court upheld Spotless’s arguments and the suspension of the contract was held to be valid. Fletcher was then ordered to pay the amount Spotless had issued to them. This is because the payment schedule did not comply with section 21 of the Construction Contracts Act 2002. Specifically, this was because it did not indicate how all deductions were calculated and did not provide reasoning all the deductions.
When issuing payment schedules, it is crucial to know the core legal principles, such as providing reasons for deductions to comply with s 21, so that they are valid and do not become a ground for the suspension of a contract.