Balancing Express and Implied terms in construction contracts

Construction contracts are fundamental in defining the obligations and expectations of the parties involved. These agreements contain express terms, which are explicitly stated provisions, and implied terms, which arise by law, custom, or necessity to make the contract workable. The balance between these two types of terms is crucial, as disputes often arise when implied terms are invoked to supplement or modify express provisions.

With construction projects becoming more complex and contract values increasing, the risk of contractual discrepancies has also grown. Courts have repeatedly clarified the principles governing when terms can be implied, and how discrepancies should be resolved. Recent case law has reinforced the importance of precision in drafting, ensuring that express terms are clear and comprehensive. This article explores these key legal principles, examining their implications in construction contracts.

Express terms in construction contracts

Express terms are the clearly stated provisions within a contract that form the legally binding commitments agreed upon by the parties. These terms define key aspects of the agreement, including the scope of work, which outlines the specific tasks or services the contractor is responsible for, and material specifications, detailing the required quality and type of materials to be used. 

They also establish the project duration, setting deadlines for completion along with any agreed mechanisms for extensions. 

Payment schedules are another crucial element, specifying the structure of payments, including instalments and retention provisions. 

Additionally, express terms address variation and dispute resolution mechanisms, outlining how contractual changes will be managed and how any disputes should be resolved.

1. Example of Express Terms in Construction Contracts

Consider a contract for the construction of a commercial office building. It may include express terms stating that:

• Scope of work: The contractor must construct a reinforced concrete staircase, ensuring structural compliance.

• Material specifications: The staircase must be built using high-strength concrete (C40/50 grade).

• Project duration: Completion must occur within 20 weeks, subject to agreed delay provisions.

• Payment schedules: Payments will be made in four instalments, with 10% retention until project handover.

These explicit provisions ensure clarity in contractual obligations, leaving little room for ambiguity. However, disputes may still arise when issues occur that were not expressly accounted for.

Implied terms in construction contracts

1. Implied terms fill contractual gaps where express terms are absent or unclear. They may arise from statutory provisions, industry practice, common law precedent, or business efficacy requirements. Courts will only imply terms where necessary, ensuring that they do not override or contradict the express agreement between the parties.

Sources of implied terms

Statutory Imposition

The Supply of Goods and Services Act 1982 requires that services be performed with reasonable care and skill, ensuring a standard of professionalism and competence. The Sale of Goods Act 1979 implies that any materials supplied must be of satisfactory quality and fit for their intended purpose. Meanwhile, the Construction Act 1996 includes provisions to promote fair payment practices and grants parties the right to adjudication in the event of a dispute.

Common Law and Industry Standards

Courts may imply terms where a longstanding industry practice exists, provided it is not inconsistent with express terms.

Business Efficacy and the “Officious Bystander” Test

A term may be implied if it is essential to making the contract work effectively. The “officious bystander” test asks whether the term is so obvious that both parties would have agreed to it had they thought about it.

Applying these principles, courts will imply a term only when it is essential to making the contract workable or so obvious that both parties would have unquestionably agreed to it. This can be illustrated with an example from construction contracts. Suppose a contract requires a contractor to install steel beams in a commercial structure but does not specify the quality of steel to be used. 

While the express term obliges the contractor to provide steel beams, an implied term under the Sale of Goods Act 1979 may ensure that the materials supplied are of merchantable quality and suitable for the required load-bearing capacity. Without such an implied term, the contractor could argue that any steel would suffice, even if it were structurally inadequate.

Judicial approach to implied terms: recent case law

When considering implied terms, the following cases provide key guidance:

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72
This landmark case established clear rules on when courts should imply terms into contracts. The UK Supreme Court ruled that a term should only be implied if it meets one of two conditions:

• It is necessary to give the contract business efficacy—meaning that, without the term, the contract would not function as intended.
• It is so obvious that it goes without saying, satisfying the “officious bystander” test.

Crucially, the court emphasised that reasonableness alone is insufficient to justify implying a term. This ruling reaffirmed that courts should not rewrite contracts but only imply terms that are essential.

Barton v Morris and Another [2023] UKSC 3

This case further clarified the limits of implied terms. The Supreme Court refused to imply a term that would alter the express contractual provisions, even if it seemed commercially fair to do so. This highlights the principle that courts will only imply terms where strictly necessary and not merely to correct perceived unfairness in an agreement.

These rulings underscore the importance of precise drafting, as reliance on implied terms introduces legal uncertainty.

Resolving Discrepancies Between Express and Implied Terms

While implied terms play a crucial role in filling contractual gaps, conflicts may still arise when they appear to contradict or modify express provisions. In such cases, determining which terms take precedence and how discrepancies should be resolved is essential to maintaining contractual clarity and preventing disputes.

Hierarchy of Terms

• Express Terms Take Priority – Courts will always enforce express provisions where they exist.
• Implied Terms Fill Gaps – They cannot override an express agreement but can supplement it where necessary.
• Legal Interpretation Follows Contractual Intent – If ambiguity arises, courts will consider the contract as a whole, alongside industry practices and statutory provisions.

Example of a Discrepancy in a Construction Contract

• A contract expressly states that “the contractor must use high-grade reinforced concrete.”
• The contractor, citing cost efficiency, supplies a lower-grade mix that technically meets minimum building standards.
• Although the contract does not define “high-grade,” an implied obligation under statutory and common law principles may still require the concrete to meet industry best practices and durability standards.
• In such cases, express terms take precedence, but implied obligations may still be invoked to ensure quality and compliance.

Practical Considerations for Construction Professionals

Given the complexities surrounding implied terms and discrepancies, construction professionals should adopt best practices to minimise risks:

Detailed Contract Drafting

• Clearly define all obligations, materials, and performance standards.
• Avoid reliance on vague terms that may require court interpretation.

Periodic Contract Reviews

• Regularly review contracts to ensure compliance with legal updates and industry changes.

Proactive Dispute Avoidance

• Engage in early negotiations to clarify ambiguities before signing the contract.
• Use alternative dispute resolution (ADR) to resolve issues efficiently without litigation.

Understanding Recent Legal Developments

• Legal professionals and contractors should stay informed about judicial trends to anticipate how courts may interpret contract terms.

Conclusion

Express and implied terms are both essential in shaping contractual obligations within the construction industry. While express terms provide certainty, implied terms ensure that contracts function effectively when unforeseen issues arise. However, courts have consistently ruled that implied terms should not override or alter clear express agreements. The best protection against contractual disputes is precise drafting, clear risk allocation, and regular legal reviews. By ensuring clarity in contractual provisions, construction professionals can mitigate disputes and maintain project efficiency.