A company commissioning a factory, a warehouse, or a commercial building usually spends months on the design and the price, and days on the contract. The contractor's standard form is signed with a few changes to the payment schedule.
The disputes that follow are almost never about the price. They are about delay, changes, defects and termination, and they are decided by what the contract said, or did not say, about those four things.
Scope: the documents that define the work
The contract should list every document that defines the work and say which one wins when they conflict: the agreement, the specification, the drawings, the bill of quantities, and the tender clarifications.
Without an order of precedence, a missing item in the drawings becomes a variation claim, and a gap between the specification and the price becomes an argument you pay for.
Price basis and payment
- Lump sum or remeasurement. Be clear which it is. A lump sum still needs a clear scope to mean anything.
- Payment against certified progress. Pay on the basis of progress certified by the owner's engineer or project manager, not on invoices alone.
- Advance payment. If you pay an advance, secure it with an advance payment guarantee from a bank, reducing as the advance is recovered.
- Retention. Hold back part of each payment until completion and the end of the defects period, or accept a retention bond instead.
- Credits and set-offs. Anything agreed informally, such as a design fee credited against later works, must be written into the contract.
Performance guarantee
A performance bond from a bank, callable on the contractor's default, is the owner's main practical remedy when a contractor walks away. Check the wording. An unconditional, on-demand guarantee is far more useful than one that requires proof of default first.
Time, delay and extensions
- A programme with key milestones, attached to the contract
- Delay damages at a daily rate, with a cap
- Extensions of time only for defined causes, and only if the contractor notifies within a fixed period
- Owner delays, such as late drawings, late site access or late payment, dealt with explicitly, or they become the contractor's defence to every delay claim
Thai courts generally enforce agreed delay penalties, but can reduce a penalty that is disproportionately high. Set a rate based on what delay actually costs you.
Variations
Every change to the work should be instructed in writing, before it is carried out, with the price and time effect agreed or determined by a fixed mechanism. Oral instructions on site are the most common source of construction claims.
Permits, safety and subcontractors
- Permits. State who obtains which permits. The building permit is usually the owner's responsibility; site-level permits and notifications are often the contractor's.
- Site safety. The contractor controls the site and should carry responsibility for safety and for its workers' legal compliance.
- Subcontracting. Require consent for subcontracting key packages, and make the main contractor responsible for its subcontractors.
- Insurance. Contractor's all-risks insurance and third-party liability, naming the owner.
Defects
The law makes a contractor liable for defects that appear within one year of delivery, or within five years for a building or structure on land other than a wooden one, unless the contract provides otherwise, and a claim must be brought within one year of the defect appearing.
The contract should add a practical process: a defects list at handover, a defects liability period, a deadline for the contractor to rectify, and the owner's right to fix defects at the contractor's cost, using retention or the bond.
Termination
Two rights matter most:
- Termination for contractor default. The law allows an owner to terminate where the contractor fails to start on time or delays so badly that it evidently cannot finish on time. The contract should add a written notice and cure period, and the right to call guarantees.
- Step-in. The right to take over the site, materials and designs, and to finish the work with another contractor, charging the extra cost to the defaulting one.
Terminating without following the contract's own procedure is how an owner with a strong case ends up paying the contractor's claim.
Disputes
Choose arbitration or court, not both. For arbitration, state the institution, the seat, the language and the number of arbitrators. Include a short escalation step, such as senior management meetings within a fixed period, before formal proceedings.
Foreign contractors and bilingual contracts
- Construction is generally a restricted business for foreign-majority companies, so check how a foreign contractor is licensed to work in Thailand
- Use a bilingual contract and state which language prevails
- Make sure the person signing for the contractor has authority to bind it. See who can bind a Thai company
Owner's pre-signing checklist
- Order of precedence of contract documents
- Payment against certified progress, with retention
- Advance payment guarantee and performance bond from a bank
- Programme, delay damages with a cap, and a notice-based extension procedure
- Written variation procedure
- Permits, safety, subcontracting and insurance allocated
- Defects process backed by retention or bond
- Termination and step-in rights with a clear procedure
- One dispute resolution forum
For disputes on residential building work, see contractor disputes over unfinished or defective work.
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If your company is about to sign a construction contract for a factory or commercial building, talk to our team before the contractor mobilises.
This article is general information, not legal advice for a specific case.