Business Construction Contract Fluctuation Risks

Question: Discuss about the Report for Business Construction Contract of Fluctuation Risks. Answer: 1: A construction contract should always be in written form and thus drafting of the same holds utmost importance. Since a construction contract is subject to varying uncertainties and ambiguities, hence its drafting should be done carefully. Hence a construction contractual agreement should contain some important clauses such as the legal implications, performance of the contract, remedies in case of breach of contract, escalation clause and if the contracting parties belong to different countries then an exchange fluctuation clause is a must. Since the nature of construction contract is highly uncertain and vague in nature hence there are some terms and conditions which automatically become a part of the contract if not detailed explicitly. . One such terms that should be mentioned is the exchange fluctuation clause if the contracting parties belong to different countries. However if the same is not a part of the written agreement then it is deemed to be a fixed price contract (Construction Industry Council. 2011). Those contracts which take a long time to mature are often vary to currency fluctuation risks. Thus if such a clause is not a part of the agreement then the person performing the construction of the asset does not possess the right to halt the construction claiming the exchange difference. But a deviation to the said rule is that if the other party agrees for the exchange difference and there exists mutual consent between the two for the same then the said contract becomes a valid one. Similarly in the said case the contractual agreement signed between the ship builder and the North Ocean Tankers does not mention the exchange fluctuation clause separately. Due to currency fluctuation, there was a devaluation of the currency by 10% and the contractor immediately stopped the performance of the contract stating that he would resume work only once he has been made good for the exchange fluctuation. Since the buyer had already taken a charter basis the same he agreed for the payment and the tanker was hence forth delivered to North Ocean tankers on time, It is a clear case of breach of contract terms and conditions since it was a fixed price contract and hence the builder had no right to halt the work. But the buyer came under the influence of the ship builder and ended up paying him the amount demanded (Petter, Leyland, 2012). Thus the very crux of the situation gets defeated because of the acceptance of the condition laid down by the builder. Therefore had the buyer filed a legal suit against the builder then he would have become liable for the compensation from him for the loss that he would have suffered due to non-fulfilment of the contract but the fact that he had agreed to the terms and made the requisite payment diluted the position of the buyer. Therefore in the said case it is difficult for the buyer to get any claim since considerable time had passed since the delivery of the tanker. Secondly it would be very difficult for him to prove in the court of law that there was a breach of contract since he had also agreed to the same and fulfilled the demand. Thirdly, the builder had not delayed the performance of his act and provided the tanker to the buyer on time (Forrester, 2015). Therefore on viewing the issues practically it is understood that the buyer has delayed in bringing any kind of legal proceedings against the ship builder, hence it seems to be difficult for him to succeed as the case shows that both the parties have performed their duties in good faith. References: Construction Industry Council.( 2011), Guidelines on Contract Price Fluctuation System, Available at : https://www.cic.hk/cic_data/pdf/about_cic/publications/eng/V10_6_e_V00_20111219.pdf [ Accessed 12th August 2016] Forrester, J.(2015). Shipbuilding Contracts- How much Wiggle Room Do Buyers and Their Banks Have, Available At : https://www.marinemoneyoffshore.com/node/4652 [Accessed 11th August 2016] Petter, T., Leyland, T.(2012). Exchange rate risk- lessons when drafting and interpreting Contracts, Available At: https://www.lexology.com/library/detail.aspx?g=89e032ed-9c7b-42ea-b8bc-633a4753884b. [Accessed 11th August 2016]