Furtive behaviour

One of the recommendations of Sir Michael Latham’s review of construction was that the industry should use standardised contracts more often. This was intended to save the unproductive time and resultant cost of one party writing contract terms, the other party having to check what they meant and finally for the two to negotiate an agreement. The recommendation was intended to save clients money, as they are always the ones that pick up the bill.

Has it happened? Not really. A wide variety of contract forms are still proliferating, the most recent to be issued being the Be Collaborative Form and the JCT Major Works Contract. Eagerly awaited is the wholesale revision of the JCT suite of contracts, which is rumoured to be intended to bring them into line with the major works form.

But perhaps more worrying is the rise in the number of bespoke contracts around. There are two points to be made here. First, you can be pretty sure that that careful work will has gone into the new standard contracts and that they are therefore likely to hang together well. Bespoke contracts may be flawed in their execution, sometimes quite significantly. Second, although the standard forms vary in respect of the balance of risk held by each of the parties, they tend not to be particularly extreme. Bespoke contracts are frequently custom-designed for the purpose of shifting risk onto the other party.

Take a look at a couple of recent examples:

• A subcontract that stated that practical completion would be achieved when the subcontract works were finished. However, no release of retention was to be made until completion of the whole development. As this was a large urban regeneration scheme, this meant that the subcontractor would wait for perhaps five years.
• A contract that contained set-off provisions enabling one party to deduct estimated costs for a purported breach that had been notified – even when no costs had been incurred.
• Subcontract terms that stated that a change is only a valid variation if it is also a variation under the main contract. There was no provision in the subcontract or main contract for the subcontractor to be able to request a variation under the main contract. The subcontractor could be faced with being instructed to change the works at extra cost, but not be able to recover extra money.
• Term contracts that give no guarantee as to the value of the work that will be let. It might be reasonable not to guarantee any particular value under a contract, but when the contractor will incur substantial set-up costs (such as renting, fitting out and equipping an office and hiring and sign-writing vans), it cannot be right to expect the contractor to incur this cost with no expectation of return.
• A contract that takes away the contractor’s right to claim an extension of time and associated costs for an employer event where there is any concurrent delay caused by the contractor. This moves away from the position under the Society of Construction Law protocol and at common law.

This is a diverse list of onerous obligations, but with common themes. All were included by the party writing and imposing the contract in an effort to mitigate risk. None had been spotted by the contracting party, which only discovered the position when it was too late to do anything about it.

Check the terms of a bespoke contract, look at how they relate to one another and look at the risk allocation

So what should you do when you get a bespoke contract through? First, ask yourself why your potential client would want to move away from a standard form. Is it for your benefit? I doubt it. Check the terms, making sure you look at how they relate to one another and look at the risk being allocated. You then have three choices: accept that you are in a position of weakness and take the job, negotiate, or walk away and leave someone else to pick up what is likely to be a problem contract

Whatever you do, do your homework and know what is being asked of you.

Andrew Hemsley is managing director of consulting at Cyril Sweett, andrew.hemsley@cyrilsweett.com