Legal

Contracts, like climbing, require an escape route

16 May 2017

Always be firm on your walk-away point, advises Sarah Fox.

Sarah Fox

At high altitude our brains are less effective so, as any aspiring climber of Everest will tell you, it is critical to have a simple plan that categorically defines the walk-away point – however close the group is to the summit. Climbers talk of summit fever when simple plans get ignored and overridden.

It’s not such a matter of life and death, obviously, but when negotiating a contract, it is critical to have a simple plan too.

Agree and understand your walk-away position and stick to it. Otherwise, your company can get slowly dragged into a situation you would never have agreed to at the start. Once you have committed time and effort to a project, it becomes harder and harder to stop.

A good example of this is when letters of intent are used. Would you really agree to that type of contract in the cold light of day?

A letter of intent typically follows a long series of processes such as pre-qualification, tendering, evaluation and selection. You are so close to signing the contract, you can nearly see it.

As you really want to be part of the project team – like planting your flag on the top of the world – it’s hard to walk away. However, if you behave objectively and stick to a simple plan of “contract first”, walking away is exactly what you really should do.

As a designer, Hyder (subsequently bought by Arcadis) found starting work without a proper contract in place to be very costly, as was revealed in a high-profile legal case towards the end of last year: Arcadis Consulting (UK) Ltd v Amec (BSC) Ltd.

Throughout the negotiations, Hyder insisted that it wanted to limit its liability, but never quite closed the deal. Hyder bet its business on this project because it started work under a letter of intent and is now facing a claim for £40m. Its simple plan to limit its liability was ignored as Hyder focused on doing the work. This is the equivalent of reaching the summit but not returning safely.

Contracts are tools to help you do business, but they can’t help if you don’t get them agreed. If you can’t negotiate a fair deal, don’t start work with your fingers crossed that the contract will somehow magically sort itself out (it won’t) – just walk away.

It’s about time the construction industry adopted a more mature contract strategy. Next time you are negotiating a contract, decide your walk-away position before you take the first step to a bad contract.

Sarah Fox is a contract strategist, author and speaker at 500 Words Ltd

Leave a comment