Sign of the digital times
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How would electronic signatures and smart contracts impact on construction law? In the first of two articles, Sarah Fox considers the move towards digital contracts.
The 13th programme of law reform launched by the Law Commission in December 2017 includes two reviews which could help Britain lead the way in digital contracting: electronic signatures and smart contracts.
In construction, the vast majority of contracts are wet-signed: printed on paper and signed by pens. Although there are apps, online purchasing, and contracts created by email, the UK has no legislation that explicitly sets out that documents executed electronically are legally valid or how they should be witnessed.
I suspect this explicit sanction of e-signing would be a small nudge in the right direction.
Let’s assume the industry managed to move from hard copy wet-signed contracts to electronic e-signed contracts. After that, we could consider digital or even smart contracts.
Digital contracts are those created, negotiated, signed, and recorded digitally as part of a digital information solution. They would encompass the documents and data exchange required for BIM and other facets of project and contract management.
They are displayed in a format humans can read, not just experts: they are supported by and populated with code but implemented by humans. One of the first steps in creating digital contracts is to create a human-readable contract.
The main causes of global construction disputes fall into two categories. First, not reading or understanding the contract.
Second, not implementing or using that contract, in other words, not executing the contract processes and provisions. Digital and smart contracts can only help with the second aspect if we get the first aspect right.
In my workshops, I rarely come across a single person who admits to having read and understood the contract most commonly used by their organisation. Instead we rely on a mixture of standard forms, emailed forms, business relationships and a sprinkling of luck.
Most of these work most of the time, but when disputes happen, businesses are unprepared for the complexity of the contract they signed.
Simple, readable contracts have several benefits. They lead to fewer disputes, as users can read, understand and use them. They create more trust, as anyone can spot unfair terms. And they encourage openness, in legal and information terms. Even if we never go digital, the industry would benefit from them.
Sarah Fox is an author and founder of contracts business 500 Words