We Need Get Better Contracts

The latest survey results suggest the industry still has a lot of work to do if we want to avoid more disputes, says Chris Scott

The NBS National Construction and Law Survey for 2013 is out, and shows that almost half of those taking part had experienced an upturn in disputes in the previous 12 months. Apparently some 81% of these disputes arose between the client and main contractor, and the assessment of delay, extension of time and contract variations were cited as the primary causes of contention.

The survey also suggested that the use of industry-standard contracts was not increasing. Less than half of respondents used collaborative methods of contracting, and even those that did generally only used them 10% all the time.

I have to question some of this. The news that disputes are on the increase does not sit well with my experience of the construction sector in the North West of England, where I am told that the TCC Judges have less work and that arbitrators have more or less no work, with many not having seen an arbitration for years.

The difference may be explained by the survey population: according to its own terminology, the type of dispute included involved “client and main contractor”. In my experience, there are far more disputes involving sub-contractors arising during the works. These are in the main settled by negotiation and do not appear on a lawyer’s radar as disputes at all.

In its write up, the NBS survey suggested that more collaborative agreements are needed to avoid disputes arising in the first place. It also underlined that using bespoke documents does not lessen the chance of disputes occurring.

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I would say that too many contracts are concluded on a purchase order on a piece of A4. Many are concluded without a formal agreement at all.
Such practices have already led to the Construction Act, which has allowed adjudication of disputes arising from agreements that are not wholly in writing. But even with this act in place, contractors and sub contractors need to change their behaviour so that the primary tool used to reduce the risk of disputes is a written contract, bespoke or otherwise.

This written contract should clearly define what is needed and expected of all involved, and how the project should look and perform when completed. All parties should clearly spell out cost and risk allocation and how issues are to be resolved before they become disputes and threaten to derail the project. Not to set out such things is inviting argument between the parties.

It is often said that if a tool is simple to use it is frequently employed. It is the same with contracts. They are not used enough because the industry standard documents are not readily available, are heavy reading, and when used, have attached the same volume of paper in amendments.

A simple contract aimed at getting the job done on time and on target is what the industry has strived to produce. But this aim has been obstructed by wordy and tendentious drafting or amendments. The industry has been driving towards collaboration, but this seems to be impossible to achieve because of the procurement routes that have been forced upon the public sector – and because of how the contracts in use are adulterated.

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JCT does promote collaborative contracts, and NEC suggests it provides a successful partnering and collaborative suite of documents. They are also predicated on declarations that the parties act ‘in good faith’, in ‘a spirit of mutual trust and co-operation’ or ‘trust and respect’.

So why are we still seeing disputes? I believe it’s because these declarations are so much window dressing and in the main are not enforced by the courts.

I do not see that NEC, as used, is truly collaborative – and I don’t believe the industry does either. We could still wait and see if the promoted benefits are real or imagined as people more familiar and comfortable with using them. But if the increase in disputes is anything to go by, they are not currently achieving the desired outcomes.

While I advocate use of the written word, documented collaboration will only go so far. A document cannot force parties to co-operate and, in reality, will fall down when there are provisions in the agreement allowing one party to subjugate the other. Real collaboration takes some to work out and needs early input from everyone in the supply chain. If all parties were to engage early, provide constructive input, and relay that to the draftsman, there would be fewer changes and delays.

If changes in requirements were properly provided for, risk and reward fairly addressed, and if appropriate dispute resolution methods were tailored to the complexity of the issues, there would be fewer real disputes – or at least fewer disputes that could not be solved through mediation.

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In the real world the best we can hope for is that contracts continue to evolve. That starts with everyone insisting on written agreements, and employers obtaining early input from all.

Chris Scott is head of construction and engineering at Taylors

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