Ann Minogue recently criticised construction’s “Neanderthal” attitude to legal reform. She pointed to an editorial comment in a law letter that urged parties to exclude from industry contracts legislation protecting the rights of third parties. This is the editors’ response.
Sir: As editors of Construction Industry Law Letter, we read with dry amusement Ann Minogue’s piece on the Contract (Rights of Third Parties) Bill (28 May). For the record:
  • Minogue says that, but for the robust approach of the Lord Chancellor’s department, the history of this legislation would be as protracted as the Scheme for Construction Contracts. In fact, this legislation has been some eight or nine years in gestation, much longer than the consultation process of a year or so on the Scheme for Construction Contracts.

  • We do not seek to defend “the cascades of collateral warranties that flow in torrents down the construction industry supply chain”. Indeed, anything that reduces the amount of paperwork in the industry is a good thing.

    Our point is that occupiers and funders are unlikely to be content to rely on the bill as it stands, and are likely to continue to seek warranties. There is an irony here: an awful lot of warranties over the past years have had the name of Minogue’s firm on the bottom of the first page.

  • Minogue says that the bill allows the parties to craft the terms of the benefit to be conferred on third parties. That is no doubt true, but if parties are going to do anything much more sophisticated than excluding the bill altogether, they are going to need a legal input. Is it really moving forward in a way helpful to the industry if, every time anybody wants to make contractual arrangements, they have to turn to their lawyers for the appropriate words? It would make much more sense for the law to provide sensible commercial solutions for parties that enter their arrangements in good commercial faith and without the need for lawyers at their elbows.

  • Minogue acknowledges that clause 2 is “difficult”. Clause 2, as presently drafted, is worse than just difficult, since it potentially requires the parties to make an application to the High Court if the circumstances are such that they want to vary the arrangements they have made themselves.

    Faced with that risk, parties can either put in one line excluding the bill altogether, or go to their lawyers and try to work out how that trip to the court could otherwise be avoided. Of course, parties would be well advised to exclude the bill in such circumstances.

    There is an irony here: an awful lot of warranties over the past years have had the name of Minogue’s firm on the bottom of the first page

    As matters currently stand (the bill reached the report stage in the House of Lords on 27 May), the Lord Chancellor has confirmed that it is not the intent of the bill to impact on a contractual right to vary the works within the context of construction contracts. The Lord Chancellor is considering an alteration to the explanatory notes to give comfort to the construction industry. That comfort is likely to be less than complete.

  • Minogue refers to the “arcane doctrine of privity”. In the context of contracting parties within construction, what is wrong with the commercial certainty and clarity that contractual privity provides? Following the bill, parties will not know with certainty whom they may have to deal with in the future.

  • We do not accept that the bill, which is not in any way tuned to the needs of the construction industry, can be regarded as “hugely helpful”. In particular, we fail to see how the bill will do anything other than increase speculative litigation.
What is needed, we suggest, is a much more comprehensive and focused approach. For years, the construction industry has suffered from a lack of the properly codified construction law that would remove the legal uncertainties that recur time and time again.

Such a construction act could provide a code on matters such as extension of time, determination and so on, and would replace the tortuous liability for defects with third-party protection. Such an approach would leave the industry to get on with tackling its real management objectives, and would provide an answer to the ever-increasing number and length of contracts.

Now that really would be a constructive thing to do.