Never Shove Your Contracts in a Drawer

Ever since the first standard form contracts were published, there has been a plague on the construction and engineering industries… a plague of contracts.

The first construction standard form appeared in 1879 and the first engineering contract in 1903.

Fast forward 100 years and we have industries which are unrecognisable from their predecessors.

Over 50 years ago, the 1964 Banwell Report recommended the adoption of one standard form for the construction industry and one for engineering – a plea repeated in the 1994 Latham Report. Naturally we ignored that advice and now we are living through the equivalent of a ‘contract boom’.

We could count ourselves lucky to have access to such a wide variety – in principle it means any company can choose a standard form which meets its precise needs, from one of the nearly 150 standard forms in the construction industry. But this choice is not setting us free.

My experience of working with a range of construction companies is that many do not have the time, tools, knowledge or processes to take a strategic approach to contracts. Admittedly, the long standard form contracts positively discourage you from opening them – jargon, poor structure, lack of diagrams, and the small print size. Even if you do make it past pages of definitions and checklists, many users simply find themselves bogged down in the nuances, and their hypothetical flag of surrender is to shove it into a drawer and cross their fingers that nothing goes wrong.

Rather than deciding the ‘right’ contract, your company may fall back on the safe option of recycling one from a similar project. The time to weigh up the options is a luxury many companies have dispensed with in the interests of keeping their business afloat.

And who would blame them? When you do try and decide which contracts best suit your business’ needs and the services you offer, there is simply too many options. There are more than 10 publishers, who may appear like Victorian showmen peddling their ‘miracle cure’ – they can offer no proof of their wares as there is no evidence that one contract suite is any better than another. The surveys consistently show that it is behaviours, not content, which result in successful projects.

Bedazzled by choice, we may give up analysing what is best for us and end up with a tick-box approach to contracts, i.e as long as we have a contract it doesn’t really matter which!

20 years ago, a whopping 58% of the construction industry said standard forms encouraged conflict and 38% said they created mistrust (Latham Report 1994). My 2015 Survey showed that a pitiful 14% of contract users said current UK standard form contracts create trust.

This does not bode well for the government’s Construction Strategy 2025 with its aim of a strong, integrated supply chain thriving on productive long-term relationships… while simultaneously lacking trust in each other…

Call me cynical, but it is self-evident that you should not do business with a company you don’t trust. Yet trust is not a core component of many of our suites of standard form contracts – a single optional clause (like JCT) is not the same as the NEC approach of weaving trust into the very ethos of the contract.

There are two key ways to create long-term relationships: first, to act collaboratively (and ensure this is reflected in your processes and your contracts), and second, to avoid disputes which damage those relationships.

The annual ARCADIS Global Disputes Surveys have consistently shown that the most common causes of construction disputes are failures to read, understand and use the contract and its terms. Many of the failures to administer the contract or operate its procedures effectively result from users being unable (or unwilling) to read and understand the minutiae of their contracts.

Surely developing processes and contracts that help avoid disputes should be on everyone’s urgent and important to-do list?

If our industry is to learn from fast-moving changes in the business world, then perhaps we can adopt principles from Uber to create digital contract processes. We could adopt the principles of AirBnB to understand the role of trust in contracting. We could adopt blockchain ideas from Bitcoin to create user-generated and user-controlled contracts that enhance trust.

We would, however, need to move a long way from our current obsession with unwieldy hard copy contracts. Perhaps we should tear up the rule books and start with a large dose of trust. Only then can we decide on strategies, processes and contracts that the construction industry needs to complete in the 21st century.

Orignally published in Construction Manager 18 October 2016

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