How to Make a Proper Fit Out Contract

Substantial amounts of money are often spent on fit out contracts to align the appearance of offices and shops with the image that the owners wish to convey and creating a conducive environment. Despite this, fit out contracts are not always given the attention that they deserve. This can result in the execution of contracts under which the contract obligations of the employer may be ambiguous or fail to correspond to the rights expected given the substantial sum of money at stake. Employers should ensure that some of the critical issues are properly addressed.

Procurement

The first step is to identify the contractor and employers should employ a tender process, the shortest the most competitive offer after taking into account issues such as quality, price and experience. The tender process should be completed speedily to give the contractor the opportunity to mobilise and place orders for materials and identify responsibility for who will play the necessary approvals, such as a building permit. Another important consideration is to decide the role the contractor is expected to play in design, though, in general, intricate and complicated designs are left to specialist designers, while overall responsibility will probably be left to the contractor. It is quicker to have the fit out responsibility for both design and construction to the contractor. Once the design work is complete, construction can begin in accordance with the agreed contractual obligations of the contractor.

Payment

The scope and nature of the fit out is usually pretty certain and can lend itself to pricing structures involving lump-sum payments, which in turn increases the certainty of the price for the employer. However, no contract price can ever be completely frozen because, for example, it will be increased if the employer instructs the contractor to perform additional work or changes the scope of work. Like any construction contract, the employer should have the right to request variations subject to a clear mechanism for pricing. However, it is preferable for pricing not be subject to contractor approval. I otherwise the contractor may be in a position to apply pressure.

Timely completion

Because the employer will normally be prevented from conducting business as usual when the fit out is in progress, fit out contracts must specify a different commencement date as well, as a fixed completion date. If the contract is not completed on time, consideration can be given to seek damages from the contractor for every specified period of delay (such as days or weeks). It is important that the rate of the damages is sufficient to provide the contractor with an incentive to complete the work as quickly as possible. The employer should also have the right to terminate the contract if the cap on damages is exhausted. In addition to penalties, it is not uncommon to pay bonuses if completion is before the stipulated date, especially when it is of commercial importance. Because aesthetic appearance is important, the employer must be satisfied that the fit out, has been completed in accordance with the agreed design using the specified material.

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