Publish date

23 February 2024

An overview of effective construction project structures

At the onset of a construction project, the need to negotiate and put in place the relevant documentation may seem like a potentially time-consuming exercise, particularly when you are keen to just get started on site. It is important for developers to have an effective construction project structure that is suitable for that particular individual project in place, to minimise any potential problems along the line.

It is essential that the parties in the project ensure that the relevant construction contracts and appointments are properly set up from the start, particularly as construction projects are a fertile ground for disputes to arises. In our series of resolving construction disputes series, my colleagues explore why construction disputes happen.

In this article, we will explore what documentations should be considered and incorporated to ensure an effective construction project structure.

Construction project structures and documentations

The “employer” (also known as the “developer” or the “client”) is the party who wants to have the works carried out. There are several different contractual routes that an employer may choose to take when starting a construction project. The chosen route will determine responsibility for design, and which party will be responsible for engaging certain consultants. The employer’s decision will be based on a number of factors such as time and quality control, The chosen procurement route will be reflected in the contract documentation.

Construction contracts can be voluminous and comprise various technical and commercial schedules, as well as a lengthy main body of conditions and contract particulars to set out when, where and how the works  are to be carried out. The documents which are required to create the construction contract will be influenced by a number of factors including but not limited to:

  • The type of procurement route (for example, traditional construction or design and build)
  • Whether you are using a standard form or a bespoke form of contract
  • The size, nature and complexity of the project in question.

Key construction documents

Construction contract documents usually include, but are not limited to, the following:

1.Building contract

This is entered into by  the employer and the contractor and will set out the legal terms  in relation to the project between the parties. Over the years, industry bodies have developed a suite of standard forms of building contracts which most contractors and employers are familiar with.. These include the JCT, NEC, FIDIC standard form of documents.

The range  of industry standard forms is quite vast and different forms which are best suited for one project over another. The key points to consider when choosing which standard form to incorporate will be: the size and value of the project, the procurement route and the particular type of works being carried out.

The industry standard forms have gone through several editions and have been amended and updated over the years.  It is therefore essential that you check that you are using the correct form of standard form, edition and whether that version or type proposed is the best one suited for your project.

It is unlikely that each and every construction project will be identical and ”one size will fit all”. Whilst these industry standard forms are a good starting point for parties to start off with, they will often be adapted and amended to suit each individual project by way of negotiating and agreeing a schedule of amendments  to the standard form.

Building contracts can be complex and lengthy, and it is recommended that you  seek advice to understand the full extent of the legal terms. In particular, care should be undertaken to ensure that the contract covers what you want it to and that you are not exposed to any unnecessary risks.

2. Sub-contracts

Sub-contracts are entered into between the contractor and the sub-contractors, and are the next step down the contractual chain after the building contract. The contractor will want to pass down the obligations it has to the employer under the building contract to its sub-contractors.

The employer does not have any direct contractual rights against the sub-contractors under the sub-contract, but may receive a collateral warranty or be granted third-party rights which confer certain rights upon the employer as a third party beneficiary.

3. Letters of intent

Often, it will not be possible to agree the entire building contract terms and in particular before the project is due to commence. In this case, the parties could agree to enter into a letter of intent. This sets out the parties’ intention to enter into a building contract at a later date but in the meantime, it sets out the scope of a number of activities that the contractor will carry out thereunder (subject to an agreed financial limit), describes any granted access arrangements and gives the contractor permission to carry out works whilst the building contract is still being finalised.

Letters of intent, though popular in the market, do not present a watertight legal solution and advice from a construction practitioner should always be sought if you are considering using them.

4. Consultants’ appointments

The key consultants that you might expect to see on a construction project include but are not limited to: architects, structural and civil engineers, mechanical and electrical engineer, project manager or employer’s agent.

As with building contracts, over the years a number of standard forms of appointments have been published by various industry bodies. These are, again, usually a good starting point but are usually amended and adapted to suit the individual consultants / project and to allocate risks, as appropriate. Allocation of risk in construction contracts is explored further in our article which can be found here.

It is therefore recommended that care is taken when reviewing these to ensure that you are not exposed to any unnecessary risks.

5. Collateral warranties

Collateral warranties are an essential part of the construction project documentation as this creates a contractual link, where there otherwise would not be one, to a third party. Creating this link will enable a third party to have direct contractual relation with a member of the construction team. A collateral warranty is a contract that sits alongside an underlying contract.

6. Other security documents

Other security documents that might be sought are performance bonds or parent company guarantees.

Performance bond

A performance bond is a surety bond which is usually issued by a bank or an insurance company by which the guarantor (or surety) guarantees the satisfactory completion of a project by a contractor. The bond underwrites the performance of the  contract or up to a maximum value (normally 10% of the contract sum) and will pay out in the event that the contractor is in breach of its obligations under the building contract or becomes insolvent.

If the contractor is required to provide a performance bond, it is likely to factor the cost of taking out the bond into the price for carrying out the works, so the employer will need to consider whether the additional cost is justified given the particular circumstances.

Parent company guarantees

A parent company guarantee is a contract between a parent company and a beneficiary, by which the contractor’s parent company guarantees its subsidiary’s performance under the building contract between the subsidiary (the contractor) and the beneficiary (the employer).


Construction documentations can be lengthy and complex but the proper drafting and review of the same is an invaluable exercise to undertake before works are carried out on a project. This ensure that there is certainty of rights and obligations, and all parties are working off the same page. Whilst one can never guarantee a project will go 100 percent to plan, with the support of an effective construction structure in place this will go some way to ensure that  projects can run as smoothly as they can do, in the circumstances.

If you have any questions about the topics raised in this article, please get in touch.

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