The Merry Month : Contracts (continued)
Robert Merry is an independent stone consultant and project manager who ran his own company for 17 years. He also acts as an expert witness. Here he presents his view of the stone industry now.
It’s all a bit risky, this building business.
The best form of contract is the one you sign and is then placed in a drawer and never referred to again. Such is the smoothness of the administration, the efficiency of the contractor, the brilliance of your work. Respect is mutual. Relationships are excellent. The co-ordination is effortless, perfectly in tune, like orchestra and choir, like piston and engine. The work flows, there are no interruptions, you are paid on time and receive every penny you ask for…
…And then you wake up.
It’s Monday morning. The delivery is late. You have men standing around on site thinking about how long it is to the next full English and then lunch and then home at 4.00… 4.30 worst case.
Progress is non-existent and the phone will ring in exactly 30 seconds with an irate site manager. “You’re late…blah…blah…not enough resources…blah blah…this must be costing you a fortune…blah blah….standing around scratching their…blah blah…you need to come down here and sort this out…blah blah.”
Welcome to the real world. Contracting, contracts and risk.
We open the desk drawer and rummage around for the contract and slap it heavily on the dusty surface and read. Read, read, read. A blur of “insert new clause”, “omit”, JCT, DB, Amendments, Sub-contract agreements, Bonds, Guarantees, Construction Phase plans, Collateral Warranties. Who writes this stuff?
More importantly, why do they write it when neither you, nor I, nor the man on the Clapham Omnibus have the foggiest idea what it all means? Will people work harder because of it?
Contracts are about the allocation of risk, responsibility and obligation. By re-writing certain parts of a standard contract the authors are trying to eliminate the risks for the client as far as possible and push as much as possible on to the other party – usually the contractor.
The contractor, likewise, will spend time and a considerable amount of money scrutinizing the contract and resisting amendments that leave them with too much risk.
There is a fine balance between onerous contracts that attract higher bids (and therefore costs to the client, because the risks are disproportionate), and contracts that are not robust enough to proportion risk and obligation properly, leaving areas open for dispute.
And the dispute is what everyone is trying to avoid. We’re not very good at it. So bad in fact that we have our own Technology & Construction Court as well as armies of arbitrators, adjudicators and mediators. We even have alternative dispute resolution (ADR) written into contracts as a first step to resolving arguments.
It’s a wonder anyone ever enters into a contract or buildings ever get built. An American friend who has spent years in construction told me that across the pond you start the contract with two sets of records – those for the day-to-day running of the contract and those for the dispute at the end. Why? I asked. Because there’s always a dispute at the end. This is America. Something else we should copy?
When the client and contractor have agreed contractual terms and the project is up and running the contractor spreads its risk among the rest of us – the sub-contractors.
The type of contract agreement between the client and the contractor is often reflected in the contract with the subbies. This is often called “back to back” contracts, transferring the same or similar obligation and risk between client and contractor to contractor and sub-contractor. The organisation that writes and produces the greatest number of contracts used in the UK – more than 70% – is the Joint Contracts Tribunal, or JCT. Most of us have been involved in one of their contracts.
The aim of the seven members of the Joint Contractors Tribunal, who write the contracts, is to “represent a balanced allocation of risk between the parties”.
How balanced is that risk really? How do we identify and cost it in our tenders? Do we even want to take that risk?
Next month I shall delve into the deep and murky waters of the contract itself. From Contract Particulars through third party rights and on to collateral warranties. Could be a risky business. Bring waders.