Your Contract Strategy Should Be Deliberate

Contract strategy is just a fancy way of saying choosing the type of contract you want. There are various issues to take into account:

  • your procurement strategy: traditional, design and build, prime cost, management contracting
  • your payment strategy: lump sum, remeasurement, target price
  • your risk strategy: pro-active or reactive; transfer, share or dump
  • your preferred publisher: JCT, NEC, ICC, ACA, IChemE, RIBA
  • your project or task: construction, civil engineering, mechanical/electrical, services or supply of goods

Choosing Your Contract

Once you’ve decides the options open to meet those factors, you should choose a contract which most closely reflects your agreement with your contract partner. Even ignoring those which don’t meet these needs, the remaining off-the-shelf standard forms will provide a bewildering array of choice!

In practice, contracts are often chosen based on:

“prejudice, doctrinaire allegiance or just lazily clinging to the familiar”

I have worked with all tiers of the supply chain. When I ask why the use a specific standard form contract or T&C, the answer is too often a depressing ‘don’t know’ or ‘my boss made me’ or ‘it’s just what we do’. That’s not really good enough if this contract is meant to help you do business.

I’d rather you followed the advice from ‘Which Contract’ and choose a contract as a result of:

“a thoughtful and logical analysis of the situation [that is] an exercise in professional judgment”

Choosing a Letter of Intent?

If leaving your favourite contract to chance is depressing, then abandoning a clear contract strategy after all the initial briefing and tender stages, and using a letter of intent is even more bonkers. Surely very few construction specialists could honestly say that the choice of a letter of intent was:

  • is based on a thoughtful and logical analysis of your situation: do you even understand the risks involved?
  • is based on comparing alternative options: there are better ways to start works early, even when they have to start tomorrow!
  • reflects the procurement, payment and risk strategies set out in the tender documents.

A letter of intent is not a contract strategy. It is just an example of clinging to the familiar…without knowing why!

“Which Contract?” by Clamp, Cox, Stanley and Udom (2012, 5th edition, RIBA Publishing)

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