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The order of precedence clause is extremely significant when dealing with multiple linked contracts or task orders/delivery orders on base agreements. Also, many agreements may constitute the terms and conditions while associated orders/contracts provide the funding and performance end date. In the event there is a question of interpretation or application or conflict between terms the order of precedence clause should uphold the terms of one document as controlling over another document.
An example from recent experience:
An agreement signed with a customer contained an order of precedence clause which stated that the terms of the Agreement took precedence over the terms of every other instrument. The customer issued a purchase order which contained funding matching the funding of the Agreement. However during performance the customer decided to extend the end date and increase the contract value, simply providing more funding through the purchase order. The customer refused to amend the Agreement which contained the funding cap (currently increased by the purchase order).
Here is the issue. When a third party takes a look at the Agreement versus the PO, they will notice that the Agreement value is lower than the PO value and if there is ever a question of true contract value, the value may be decremented because the Agreement value takes precedence over the PO value. Time will tell whether or not problems will arise from this.
It is extremely important and we always make sure the right OoP is there hecause if any discrepancies or conflicts happen, then the OoP will govern.
For example if there is a discrepancy in drawings and something was executed wrongly on site then a claim was raised, the OoP will show if the drawings govern or for example the specification take more precedence. This is just a quick example.
Concur with 100% Michael and Rami.
In general, order of precedence for the contract documents might work but frequently there might be misunderstandings between contract parties. It is not because they are confused on which documents are on priority to interpret the situation but because they don't agree the implicit of contract clauses which are conflicting one another.
Since commencement of the Works it be necessary to notify the contractor's interpretations to the client in writing whenever conflicts between contract documents are found, in pursuit of the client's understanding or interpretations before any adverse events occur.
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