What is an entire contract, and how relevant is the inclusive price principle to construction payment?
An entire obligation may require complete performance before the agreed payment becomes due. Price risk is a separate question governed by the scope, pricing terms and adjustment machinery. Whether a construction contract is entire, and which way the inclusive price principle cuts, decides who pays for work that was more, or less, than expected.
Whether the contractor must complete the stated scope for the agreed sum depends on the whole contract, including its pricing basis and adjustment provisions. An entire obligation should not be treated as synonymous with every lump-sum contract
Where the contract imposes an entire obligation for an inclusive sum, the contractor must complete all the work the contract describes, including whatever is indispensably and contingently necessary to finish it, for the agreed sum, and gets no more for completing that scope. Most construction contracts are not entire, because the standard forms share risk and let the price move for defined events such as unforeseeable ground conditions, employer design errors and changes in law. Where a contract is entire, the principle cuts both ways. It bound a house-builder to carry out unforeseen work for no extra, and it entitled a fixed-price subcontractor to the full price even though about forty thousand pounds of work was not done, because the paying party could not unilaterally reduce the scope. An entire agreement clause is different again: it controls what evidence can be used, not whether the price is fixed.
| Entire contract | Fixed price; contractor completes the described scope for the agreed sum |
| Standard forms | Generally not entire; the price moves for defined risks |
| Favours the contractor | Full price payable even if some work is not done, absent a variation mechanism |
| Favours the employer | Contractor must complete unforeseen work within scope for no extra |
| Entire agreement clause | Controls admissible evidence, not whether the price is fixed |
The problem
Employers like a price fixed at the outset that does not move. Lawyers call a contract of that kind an entire contract, one governed by the inclusive price principle, under which the contractor must carry out everything necessary to complete the described work for the agreed sum. Construction contracts are rarely drafted that way. The question is when a contract is entire, what the inclusive price principle requires, and which way it cuts when the work turns out to be more, or less, than expected.
The standard forms are not entire
The standard forms are not entire contracts. They share risk between the parties and let the price move when a defined risk falls in. The engineering conditions and FIDIC add the cost of physical conditions an experienced contractor could not have foreseen. Building forms add the cost of correcting the employer's design where the employer designs. Almost all of them adjust the price for a change in law that was unknown when the contract was made. Because a standard-form price can move in these defined ways, a contract on a standard form is generally not an entire contract.
The inclusive price principle
Where a contract is genuinely entire, the inclusive price principle governs. The agreed payment covers the work described by the contract, and that work is taken to include everything indispensably and contingently necessary to complete it. Indispensable work is what must be done, by implication or on a fair reading of the contract as a whole, for the finished work to meet the contract's requirements. Contingent work is whatever else is needed to complete the described work, whatever difficulties arise. On an entire contract, any extra work needed to finish the described scope is done at the contractor's expense, unless the contract says otherwise.
Where it favours the contractor
The principle can favour the contractor.
The subcontract was a fixed-price lump sum with no rates and no mechanism for varying the work. The paying party reduced the price to reflect work it said had not been done, agreed by a joint expert at some forty thousand pounds. On appeal, the Court of Appeal held that the full price was payable. Under a fixed-price entire contract the paying party cannot unilaterally cut the work and pay less: the contractor had quoted a price to do the work and was entitled to that price.
Where it favours the employer
The same principle can bind the contractor.
A builder agreed to construct a house for a lump sum to the employer's architect's drawings, then claimed extra for additional and ill-defined work and for meeting building regulations. That claim was rejected. The court treated that agreement as an entire bargain for an inclusive lump sum, so the builder had to carry out all the work needed to complete the house, including work not foreseen at tender, for no additional payment. An entire contract puts the risk of the undefined and the unforeseen on the contractor.
Entire agreement clauses
Separate from the entire contract is the entire agreement clause, also called a four corners or zipper clause. It provides that the contract sets out the whole of the parties' obligations and that correspondence, discussions and the like are not admissible to add to or vary them. Its purpose is to shut out extrinsic material that might be used to enlarge a claim. An entire agreement clause is about the completeness of the written terms; it does not, by itself, make the contract an entire contract in the fixed-price sense.
Practical steps
Decide whether the contract is entire by reading it. A standard form with price-adjustment mechanisms is generally not an entire contract.
On an entire contract, price the risk of the undefined and the unforeseen into the lump sum. There is no route to extra payment for completing the described scope.
As the paying party on a fixed-price lump sum with no variation mechanism, do not assume you can reduce the price for work not done. You may owe the whole sum.
If you need the right to omit work or adjust the price, put an express variation and valuation mechanism in the contract.
Do not confuse an entire agreement clause with an entire contract. The first controls evidence, the second controls payment for scope.
Record the agreed scope precisely. On an entire contract the description of the work defines both the obligation and the entitlement.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| SWI Ltd v P&I Data Services Ltd | [2007] EWCA Civ 663 | On a fixed-price entire contract the full price is payable and the paying party cannot unilaterally reduce the work |
| Safe Safe Homes Ltd v Massingham | (2007) | An entire obligation for an inclusive lump sum required, on the reported facts, the contractor to complete all necessary and unforeseen work within scope for no additional payment |