Build UK has set out its list of six unacceptable terms for UK construction contracts:
- fitness for purpose – should not be included except in the process sector [where it is modified by testing and limits on liability]
- unquantifiable risks – certain items should not be a contractor risk where they are not reasonably ascertainable (before the contract date)
- specified perils – should entitle the provider to apply for more time, even where caused by that or other providers
- indemnity for breach of contract – contracts should not include blanket indemnities for breach of contract
- uncapped supplier liabilities – should be avoided
- performance securities – should include restrictions such as ‘no greater liability’ clauses.
What's the issue?
As the background to this list explains:
Current contractual practices often inhibit a spirit of collaboration and lead to the creation of systemic risk in the industry…which leads to a downward spiral of extra costs, lower margins and widespread disputes.
Whilst the recommendations are not binding, they reflect a more mature approach to risk management and a move away from risk dumping. The side benefits are listed as: accelerated negotiation cycles, dispute avoidance, and improved productivity, innovation and profitability.
What should you do?
As client (setting the terms): consider carefully whether any of these terms are necessary to manage risk, promote collaboration or meet the needs of stakeholders. Check if stakeholders require or would prefer these terms, and only pass them on where strictly necessary.
As contractor (negotiating with client): reject any imposition of these terms as early as possible in the contract process ie in your tender response. It is only by refusing to accept these terms for your company that you can avoid feeling obliged to pass them onto your own subcontractors. Even if you do accept them, consider carefully whether you want to perpetuate this poor risk practice within the sector – you could accept the risk without transferring it.
As subcontractor (negotiating with contractor): reject these terms. Just because the contractor has agreed to accept them does not mean you have to. Just because it is desirable aka in the contractor’s interests for you to accept them, it is not necessary.