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Golden rules while issuing instructions

Human Resources, Comment

One of the more common “I’s” in construction contracts is the concept of “Instructions”. Instructions are slightly problematic for employers and contractors. From the employer’s point of view, an instruction issued by him (under a design and build contract) or one issued by his engineer (under an employer’s design contract) has the potential to expose the employer to a claim for variations – possibly involving additional time impact and most certainly a cost to the employer. For the contractor, on receiving an instruction he has to assess if it is for him to do something that he is already obliged to do under the contract or if it amounts to a change or variation. If it is the latter, most contracts place obligations on the contractor to inform the employer that the contractor considers the instruction to be a change (primarily to cater to the ‘surprise’ element for the employer if the contractor says nothing then and raises a claim based on the instruction later).
Some golden rules to be observed when giving and receiving instructions are: First, if an employer (or an engineer, on his behalf ) issues an instruction to the contractor, it is a good practice to put it in writing. There is always a temptation on the part of the employer (more commonly the engineer) to urge the contractor “verbally” to carry out an instruction in the hope that the contractor will not have a record of it and will not be able to make a claim. For some engineers, the reason behind giving a verbal instruction is sometimes more insidious – if the engineer realises that his initial design was an error,
he may not want to put a correction instruction to the contractor in writing and attract a claim from the employer when the contractor makes a claim to the employer. Regardless of reasons and motivations, it is advisable to have written instructions. From a contractor’s perspective if he receives an oral instruction, it is critical that before he acts on it, he records the instruction back to the employer/engineer in writing.
Second, an assessment should made when the instruction is given and received if it amounts to a change in scope of work or is merely a reminder to the contractor to carry out his original scope of work. For the employer, identifying which contractual provision the instruction is being given under is a good discipline – as it helps address everyone’s mind at the time as to whether or not this properly falls within that contractual provision. Of course, this is somewhat limiting for the employer as he has to spend time thinking about the appropriate contractual basis for his instruction – but it puts the contractor on notice and if the contractor does not contest the basis of the instruction at the time it will be difficult for him to contend later that the instruction was a change. At the contractor’s end, he is sometimes in a better position than the employer to assess if the instruction is a change to the scope of his work. So, a response to an instruction that the instruction amounts to a change – but that the contractor will still continue to execute it – is a worthwhile protection of his future right to make a claim.
Third, if the contractor believes that the instruction amounts to a variation under the contract, the sooner he intimates the employer of the likely time and cost impact of the instruction, the more secure will be his position in any future negotiations.
There will be occasions where the contractor cannot fully assess the impact at the time he is carrying out the instruction – that is understandable, but flagging up the prospect that the instruction may have a time and cost impact and following that up later with an assessment of the time and cost impact is the most ideal strategy for the contractor. If the employer wants the contractor to only execute the employer’s instruction provided there is not going to be any time and cost impact to the project, instead of stating in the instruction that “this instruction shall not have any time and cost impact” (which many employers like to do), it would be better protection for the employer to invite the contractor’s view as to whether the instruction will cause such an impact and have a discussion with the contractor to test the contractor’s position before confirming the instruction. That can reduce the risk of a ‘surprise’ claim later on in the project. Instructions are potentially disruptive to execution and time and cost of a project and should therefore be used with care, particularly in a design-build project where the basis of the contract is that there should be little need for active interference from the employer during the execution of the work.

Shourav Lahiri is the principal at Lahiri LLC, a Singapore-based law firm specialising in construction and engineering law and arbitration. He can be reached at shourav.lahiri@lahirillc.com

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