Can You Understand Your Contract?

I hate to make assumptions or to speculate wildly, but… I have a sneaking suspicion that you don’t always understand your contracts.

My hunch?

When I wrote this blog in 2013, my evidence was largely anecdotal. It came from:

  • lawyers’ websites which state that ‘clients do not understand exactly what is expected of them’;
  • legal blogs, construction articles and books which state that contracts are confusing or difficult to understand;
  • guides which state that ‘very rarely do both parties know what the terms really mean‘.

Does it matter?

Although I’m rarely in total agreement with Tony Bingham, a columnist in Building, I think he may have a point:

‘Not only are there too many forms…it is a truism that the industry does not understand these ‘legal’ documents [and] sees no point in trying to understand these legal documents…if you spent time trying to fathom the true intention of the contractual bumf, you would have no time to build the building.’ (Article)

‘…no one understands contract documents, not even the lawyers. That’s why there are arguments. What chance my plasterer and drain layer friends?’ (Article)

We believe that the people doing work understand contractual stuff when in fact it’s gibberish to almost all of them. That’s why contracts get put in the bottom drawer. Lawyers don’t understand that the industry doesn’t understand. They genuinely believe that homemade contract documents and/or changes to standard form documents are fully understood. They are not. They genuinely believe the standard form contract documents are understood. They are not.’ (Article)

The ARCADIS Global Disputes Surveys regularly show that the top 5 causes of construction disputes worldwide can be summarised as contract users nor reading, understanding or using their contract. My own 2014 Contract Users Survey showed that less than 50% of contract users found construction contracts easy to understand.

How did we get here?

There are a number of prime culprits which make it harder for users to understand their contracts:

  • Jargon and terminology: very few standard forms are written in plain language and few popular contracts have been awarded the Crystal Mark
  • Length: the JCT SBC 2016 contract is over 100 pages long and comprises 50,000 words.
  • Complexity: even the simpler standard forms contain multiple sections (core clauses, contract particulars, supplementary provisions, annexes, optional clauses); and there are legal requirements in other documents (preliminaries, specifications).

What should we do?

I think the role of any contract drafter, is to make sure users do understand their contracts.

Is it better to do as Peter Hibberd, chairman of the JCT says, and develop detailed contracts? In his 2014 paper to Arbrix he says: “complexity itself is not a problem; it may be inevitable…However, complexity without understanding is something that must be avoided.”

Or is is better to aim for simplicity, where understanding is far more likely, and rely on explaining only the occasional complex element (if any)?

 

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