This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
We encounter many types of agreement in the construction industry but the vast majority have their basis in a standard form; an off-the-shelf document containing important legal terms and conditions. In the most recent report on construction contracts in useRoyal Institution of Chartered Surveyors by the more than 97 per cent of agreements surveyed fell into this category.
Standard form contracts have a deep history in the United Kingdom construction industry. Around 1870, the Royal Institute of British Architects joined forces with the Society of Builders (now the Chartered Institute of Building) to produce the first standard form of a building contract; a document that became the forebear of today's Joint Contracts Tribunal suite of contracts. Since then, the use (and the number) of standard forms has swelled.
This country now has a surfeit of construction agreements which can be applied to a broad range of projects, together with more specialist forms covering everything from demolition operations to trussed rafters. So to what can we credit standard forms' popularity?
Firstly, it's often easier to use them. While construction projects may come in all shapes and sizes their contractual requirements differ little. A contractor is engaged to perform a scope of work in compliance with a specification within an indicated period of time and for an agreed level of compensation. It would be wasteful for parties to prepare routine contract provisions afresh each time.
Market familiarity with standard forms makes it easier for parties to understand risk and liability allocation. Negotiations become more straightforward. Moreover, an established audience means that, as well as official user guides, there will be a variety of texts and articles offering helpful commentary on the clauses.
Finally, standard forms benefit, to varying degrees, from market testing. Some agreements can be considered even-handed in the sense that, when the terms were drawn up, the expected parties were either represented through industry associations or their views were deemed taken into account through working groups or consultation. Others make less of an attempt to reconcile both sides' perspectives. Neither viewpoint should be denigrated; organisations issue model contracts for varying reasons.
There is little point though in producing a new contract without a clear understanding of its proposed user-base. For long-term success, a contract needs an audience of sufficient size or standing. It also demands the continued support of its authoring team and backers (and it typically requires a team because this invariably ensures that the sum will be greater than its parts).
Drafting from scratch is a terrifically time-consuming exercise. Then there's the cost and effort of proofing, publication and promotion, the last of which will continue long after the launch date. We have a mature construction market so any contract for local use should be updated from time to time to reflect changes in legislation and market practice, such as the emergence of common data environments to share project information. Although the latter can be dealt with by supplemental documents or practice notes, employing new main or option clauses seems more effective in driving changes in behaviour.
Assuming that it's been determined that there is a market for a new contract, how would its authors and publishers go about establishing one in this day and age?
It may be sensible to dispense quickly with the issue of least importance - obtaining a financial return on investment. There are easier ways to make money than publishing a standard form agreement. Organisations launch contracts because they are consistent with their goals, they raise their profile or they deal with issues that they or their members regard as significant. Nonetheless, costs are not immaterial so it is preferable to recover as many of these as possible. Furthermore, lowered costs may mean that contracts can be sold for less. A degree of price inelasticity exists in relation to standard forms - their retail price is negligible compared with the cost of the construction works for which they will be used - but, even so, the outlay may be enough to discourage more people from acquiring the new form for evaluation, which may harm uptake.
A standard form is generally comprised of three parts:
- Agreement - this is where the binding contract between the parties is made and recorded;
- Conditions - usually the longest section of the contract, these are the main clauses comprising the contract;
- Schedules and/or appendices - project-specific information is incorporated here.
Since the conditions are not subject to change, one could reduce costs by selling only the agreement and the schedules/appendices in hard copy, while making the conditions available for download from a website free of charge. It's possible to go further and make the entire contract offered only in electronic format for users to print off. A number of shorter standard forms do this.
Much is made of contracts being written in plain English. For any modern contract, there should be no other option. It is not a matter of choosing between the judicial certainty offered by legal English over that of natural English. Rather, it is a process of drafting and editing to see that the end product is as concise and artless as possible while taking care not to sacrifice clarity.
Alternate procurement routes and pricing options have traditionally been addressed through offering variations of the same contract. More recent forms have attempted to cut down on the number of documents - for instance, the Institution of Civil Engineers' New Engineering Contract (NEC) and the Chartered Institute of Building's Complex Projects Contract leave it to the parties to identify the degree of project design responsibility allocated to the contractor. On the other hand, NEC retains "main options" to address different pricing regimes while the Complex Projects Contract, targeted for sophisticated clients and contractors, again leaves it to its users to stipulate. For any emergent contract, offering a number of variant documents risks increasing publication and inventory costs substantially although, of course, following a digital-only publication path would mitigate these.
Experienced practitioners know that two projects are not often the same and therefore it is rarely sensible to enter into a standard form for a major development without making bespoke amendments to the terms and conditions to a particular extent. The purpose of a standard form is not to achieve a perfect position for all projects but rather to offer staging post for the parties to work from. Against this background, it would be rational to not only acknowledge, as many engineering forms do, that parties may wish to incorporate special conditions but to offer a place within the document where they may easily do so.
As a final note, in the same way that law textbooks become ever less influential unless updated and endorsed on a regular basis, so it is the case with standard form agreements. The hard work and commitment do not stop simply because the contract has been locked-down and put into print. Additional time will need to be set aside to review user feedback and pilot studies, to prepare user guides and flowcharts of contractual processes, to organise conferences and forums all the while developing a list of points to consider for the next edition. It is a learning process and one that never ceases.
A version of this article appeared in the journal Construction Law in December 2014.
Francis Ho is Head of Construction at Olswang and co-author of the Chartered Institute of Building's Complex Projects Contract suite.
