Legal

Fit for the future or pandering to the past?

17 July 2017

Standard form contracts just aren’t working, says Sarah Fox.

Sarah Fox

How did we get here? How did we get to the point where contracts in the industry no longer help companies do business?

One of the aims of standard forms was to reduce the time you spend writing, negotiating, assessing risk transfer and pricing responsibilities. They were intended to create a framework on top of which niche or project-specific issues were varied. Frankly, that worthy aim no longer holds true.

For any project there is a wide choice based on project type, philosophy, drafting, payment, design responsibility and risk transfer. Knowing the twists and turns of these long and complex standard forms, which change every five years or so, is a Herculean task for lawyers and clients alike – made harder as each standard form attracts changes (butchering, according to one of my subcontractor clients) in the form of lengthy schedules of amendments.

Those schedules don’t merely refine project-specific issues. Instead they attempt to close loopholes, protect clients from recent cases, refine ambiguous obligations, and pass more risk to an unsuspecting contractor. Clients, funders, commentators and judges promote these changes and lawyers fall into line, like obedient sheep.

What are we left with? A set of core obligations, remedies, procedures and rights that work across all contracts and all projects? Not even that. There are no actual “standard forms” left.

You face Hobson’s choice: you can try to review each contract in minute detail to see what remains of the baseline standard form and work out what the changes mean for you; or wing it and sign without reading. Neither is practical or palatable, yet they represent the ends of the construction contract negotiation spectrum. Where does your company sit?

Instead, we could look at contracts based on trust. These would provide a framework for success by sharing risks, limiting contractor liabilities and defining a project success for the whole supply chain. This is not foolproof, but neither are our current contracts. The Government Construction Strategy believed contracts based on partnering and long-term relationships could reduce project cost. 

When a senior Technology & Construction Court judge recommends that those who draft standard form contracts go back to the drawing board, isn’t it time to develop contracts fit for the future, and stop pandering to the precedents of our past?

Sarah Fox is a lawyer and founder of contracts business 500 Words

Comments

The standard contracts in themselves are not the problem!

Quote from your article: "(butchering, according to one of my subcontractor clients) in the form of lengthy schedules of amendments."

If the people drawing up the 'standard' contract kept the amendments to a minimum; AND if the clients & contractors each accepted their own risks; then 90% of the contractual problems would actually disappear!

Maybe something for you to expand on in another article...

Andy, 18 July 2017

Andy
Unfortunately the evidence shows otherwise. Both the NBS and Arcadis surveys shows that it is not often the terms of the contracts (standard or butchered) that cause disputes but human behaviour such as failing to administer the contract fairly, not using the procedures to apply for and grant extensions or value variations, or incomplete information at the start. None of those would be avoided by simply using the standard contracts.
A future article will look at contract administration.
Sarah

Sarah Fox, 1 August 2017

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