The UK Government’s Construction Playbook has 14 key policies for reforming and modernising aspects of public sector projects (and perhaps, with luck and trickle down, the private sector too). However, it will need some robust contract tools to bring those ideas to fruition.
In a series of posts, I consider how contracts will need to change to adequately respond to the Playbook’s policies or themes.
Fair Play
The introduction to the Playbook promises a new compact with the industry, including a more consistent and equitable approach to risk transfer and the promise of a fair return.
Fairness is a thread running through from ensuring no supplier gains an unfair advantage during preliminary market consultations, to fair margins/returns. It also talks about a fair commercial approach to deal with unexpected data errors; fair and effective payment; fair and transparent processes for evaluating suppliers; and fair treatment of bidders…
The fundamental principle is that contracts should be profitable. Fair returns and expectations need to be reasonable for suppliers to remain interested and for the market to be sustainable.
Onerous contracts
The government recognises that past practices included:
- unreasonable payment mechanisms
- unreasonable terms and conditions
- unsustainable cost reductions
- incorrect risk allocation
- incorrect pricing
These onerous contracts are often the ones that become loss-making for the supplier (which is unsustainable).
What does this mean for contracts?
Frankly, the impact on contracts of this aspect of the Playbook is hard to pin down. Where the government insists on using existing contracts and boilerplate terms (see standardisation) I’m unclear how the terms, payment/pricing, risk, etc will be any different from existing, onerous contracts.
But the themes of fairness, openness, transparency and flexibility can be drafted into contracts. It requires new ways of thinking, empathy with suppliers, and contract innovation. That’s perhaps more effort than the authors of the Playbook expect!
What should you do?
Call out onerous contracts. Both those you have signed and those being offered – so the client does investigate the causes of its one-sided nature.
Also, remember these government aims so you can identify clauses, process, provisions and terms in contracts which do not reflect the aspects of fairness noted above. Don’t sit idly by and let them continue with ‘business as normal’.
They want change, so let’s make sure they implement it!
