Avoid disputes with clear contracts

In the first of series of 3 posts, Susannah Lee, an expert disputes solicitor,  looks at how clarity in your contract can help avoid disputes – which cause long term damage to your skilfully nurtured business relationships.  Construction projects are prone to disputes because of their technical, procedural and managerial complexity, lack of detailed knowledge about the project, site or stakeholders; and wide range of barriers to success, not all of which are easy to foresee and control.

Choose Clarity

At the risk of sounding like a broken record, Sarah has repeatedly focused in her posts on the importance of being able to read, understand and use your contract. Although it’s obvious, and somewhat trite, it is far from universally followed. You should fully understand what you have agreed to do both from a technical and from a procedural perspective.

Technically, make sure you your contract clearly sets out exactly what works you have agreed to undertake, by when and to what standard.  Use Sarah’s STAR analysis to focus on these four key aspects:

  • Scope: precisely where do your obligations start and end? what goods, works and services are you providing/not and what you will be paid?
  • Trust : what duties do you have over sharing/using information? is your liability limited? does the contract enable you to work together?
  • Aims: what time, cost and quality are you aiming to achieve? which is the most important? are there other objectives that you should be working towards?
  • Risks: what happens when those aims are not met? who bears the risks of ground conditions, poor quality materials, unforeseen events or the budget spiralling out of control?

Disputes often arise because of misunderstandings of the scope and lack of clarity over what is an extra; lack of trust due to bad contract drafting mixed with poor communication protocols; unclear expectations or failures to meet impossible combinations of technical requirements; and late risk management. All these possible disputes can be reduced by clear and fair contract drafting. Sarah’s 2015 Survey showed a preference for simpler contracts with fairer risk allocation (see Sarah’s slides from the CoMIT conference).

Procedurally, you need to understand:

  • why you need to notify/apply (what’s happens if you don’t?)
  • when applications need to be made (how soon after an event),
  • who they need to be sent to (the name, address and method of sending)
  • in what format (although prescribed forms are rare), and
  • accompanied by which supporting documents.

Ideally get these processes embedded before you start the project, and make sure your internal systems are set up for complying. Certain procedures may be conditions precedent and if so compliance is mandatory within the specified criteria (time, documents or other) if you want to retain your rights and remedies. Read Sarah’s post about conditions precedent.

On almost every project, something unexpected may happen, or you will need to provide extra goods, works or services, or the timetable may need to change for delayed supplies…you should arm yourself with the information you need to send the right notice to the right person at the right time. You should diarise when you expect the recipient to reply (eg under NEC4 the period for reply is stated in the Contract Data) as you may need to nudge the recipient – some contracts provide that no reply means their approval can be deemed. If the contract says nothing, the recipient has a reasonable time to reply.

Your contract needs clear procedures if, in the general hub-bub of delivering a project, the team is going to be able to comply with them. So make them simple and fair, not complex and lawyerly. Once you have clear procedures, following them will minimise disputes. Any dispute left remaining will be confined to the merits of the claim and not complicated by procedural technicalities.

Susannah’s next post will focus on records to avoid disputes. If you would like more tips, techniques and tools to help you avoid disputes, Susannah and Sarah can deliver an interactive practical in-house workshop focusing on your contracts, your projects and your business. Just get in touch.

Susannah Lee, consultant solicitor specialising in the construction and engineering sector (susannah@sjleelegalservices.com)

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