They say that no plan ever survives first contact with reality. This can also be true of your contract process. You need to be flexible with what you want as any contract requires both buyer and seller to agree to the terms.
A £40m construction dispute amply demonstrates the pitfalls of failing to follow a clear and effective contract process.
Deal or no deal?
In Arcadis v Hyder the courts had to decide if the designer of a (now defective) car park had managed to limit its liability.
The consultant’s contract strategy was for its contracts to limit its liability. The client’s strategy was to use an umbrella agreement and then instruct specific services for each of its projects.
Despite repeated attempts, over a period of nearly 12 months, to agree a contract for the services, no contract relating to the car park was ever signed. When the client applied pressure and asked the consultant to start providing its services before the umbrella agreement had been signed, the consultant capitulated.
The consultant’s usual process for planning, creating, and negotiating a suitable contract was ditched in an attempt to please the client and do the work.
Lesson 1: your process should ensure you have a signed contract before you provide works or services.
Delays led to 'no deal'
The High Court judge decided there was no limit on the consultant’s liability despite its repeated insistence on such a term.
He said “I am bound to conclude that this was the inevitable consequence of [the consultant’s] dilatory and often uncooperative approach to the proposed… agreement and the negotiation of the terms and conditions. This case starkly demonstrates the commercial truism that it is usually better for a party to reach a full agreement (which in this case would almost certainly have included some sort of cap on their liability) through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all.”
Lesson 2: your process needs to be flexible enough to overcome negotiation hurdles and iterative so it continues until everything critical has been agreed.
Devil is in the detail
Two years later, the Court of Appeal reviewed the facts.
It overturned the ‘no contract’ decision, and decided that the letter of intent was a contract between the parties, accepted by the consultant’s conduct. That letter of intent referred to terms they were working under on another project, which were held to apply.
These terms included a limit on the consultant’s liability to slightly over £600,000.
Lesson 3: Use letters of intent wisely and understand the risks.
What should you do?
The failure to conclude a contract was an expensive lesson for all of those involved in this project – even though the consultant had limited its liability, the costs and time involved in the legal proceedings could have been avoided by following its own contract process properly.
Once you have a clear simple contracting process, you need to implement it fully and consistently. No excuses!
Case: Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2018] EWCA 2222
