Alan Sugar once said:
I have always been an honest trader. I come from a school of traders where there was honour in the deal. No contracts, just a handshake and that’s it, done. That’s the way I prefer to do business…
My post from 2013, What If You… Relied on a Handshake looked at the perils of this approach aka the gentleman’s agreement. I suggested that even a simple contract is better than none.
Is There Room for Trust in Construction?
Over the last 20 years, I have written, adapted, reviewed and negotiated many construction contracts. My experience is similar to that outlined by David Mosey in Early Contractor Involvement (p43)
The creation and negotiation of many building contracts is based on the premise that the other party is the opposition and cannot be trusted, and that consequently there is little or no room for allowing flexibility or achieving harmonised interests…
Those who draft construction contracts seem to believe that the contract has to protect one party at the expense of the other. Contracts also focus on the minority of bad pennies not the honest trades referred to by Alan Sugar.
But as disputes continue, legislation expands and cases provide precedents, contracts that seek to pre-empt disputes just get longer. That’s why shorter contracts appear to be an anathema to the industry. Peter Hibberd, then Chairman of JCT, argued in his 2014 paper How Difficult is it to Write a Standard Form Contract?
At the simplest level all that is required is a description of the works to be carried out and a price or price mechanism; the rest of left to common law and statute … The advocate of the one sheet of A4 standard contract is easily satisfied – indeed a whole page is too much. That might have worked two hundred years ago… because trust was more obvious…
Should we really be stuck with an image of our industry that is based on low trust?
An Alternative View
Stephen MR Covey in Speed of Trust says:
Someone once asked me why we put business agreements in writing if we trust the other party. My response is that agreements identify and clarify expectations, which actually help preserve and even enhance trust over time… I’m not against handshake agreements, but I prefer that they also become written agreements so that expectations regarding both parties are clear.
However, even written agreements have their limitations and are not able to replicate trust. In fact, where I have problems with legal agreements is when they are written in one-sided, adversarial, non-trusting language, or where they are intended, de facto, to serve as a replacement for a relationship of trust
Clarity is critical to the success of your contract. But trust is critical too. Your contracts can make space for both these concepts.
For action: Analyse your next contract to see if it spends more words, clauses and effort dealing with the very real possibility of disputes arising – focusing on remedies for default (extensions, LADs, termination etc) – than it does on incentives for effective performance.