I’m not sure which is worse: using hope as your contract strategy or gambling on whether your contract terms apply.
Contract strategy requires your company to manage its risks – it is not like the throw of the dice or dealing a hand of cards!
There are elements in the contract process that will involve a degree of informed gambling:
- deciding if the works as designed will be fit for the client’s intended purposes
- agreeing a price which represents a fair profit based on the works to be provided and the risks that may be encountered
- choosing a competent and trustworthy supply chain
- checking that the client can (and will) pay what you are owed under the contract…
Construction involves risk. Once, when I was running an activity that required delegates to bet with fake money, a delegate objected saying he didn’t like risk. My response was “if you’re in construction then you are taking calculated risks daily. If you don’t like risk then you’re in the wrong industry“.
One of the things you should not gamble over is whether your terms and conditions apply. There seems little point in having your preferred standard form or in-house T&C, if you then forget to use them as part of your contracts. Typically this happens with the lower tier contractors in the supply chain who end up in what is known as a ‘battle of the forms’ (explained here) ie when two companies both send contract documents with their T&C attached, but never actually agree or negotiate or sign one single contract.
When Bad Stuff Happens
Being over-confident (whether in a card game or in construction) can result in you believing you have the upper hand. But construction is not a winner-takes-all game. It requires the client, contractor and supply chain to work together to achieve a common goal. You need to agree suitable terms and record them, not ping documents electronically to each other, hoping yours ‘wins’ if it ever goes to court.
In a case relating to a popcorn factory, the supplier of a fire suppression system wanted to limit its liability in the event of a claim. As the contract price as under £10,000, the supplier’s profit was at most a four-figure sum. The profit made from the popcorn factory simply in the run up to Christmas (supplying to cinemas) was considerably more for each year that the factory successfully operated. Limiting the supplier’s liability was a sensible way to manage its risks.
Sadly, they never actually got their limit of liability into the final contract and faced a claim for damages exceeding £110m. This is not a gamble your company can afford to take.
You can protect your company by adopting a contract strategy which requires you to agree one simple contract or set of T&C that meets your needs and protects the interests of both the client and the contractor.
Case: Trebor Bassett Holdings Ltd (2) The Cadbury UK Partnership v ADT Fire and Security plc  EWCA Civ 1158