The Shetland blog: The cost of contract conditions in construction projects

Every month, lawyers from Harper Macleod - the biggest Scottish law firm with an office in Shetland - share their insights on issues which can affect local businesses and individuals.

Michael Conroy is a partner at Harper Macleod and a specialist in construction law.

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We regularly advise employers of contractors and construction professionals in drafting contracts for projects, as well as providing advice to those other parties on proposed contract terms which they have been presented.

However, very often employers, contractors and consultants will enter into contracts without legal advice, relying instead on their general understanding of industry standard forms and contract procedures.

Whilst we are unhappy at missing out on that business, the silver lining – for us lawyers at least - is that almost inevitably the resulting differences between the parties are less easily resolved leading to our future involvement in dispute resolution.

 

Reliance on Standard Forms

Often employers won't see a value in employing solicitors to prepare contracts when they know there are available standard forms of contract which can easily be completed with details for particular projects and which take account of a variety of procurement options.

We also appreciate the value of such standard forms. However they remain contracts to be properly completed, generally represent compromises on key provisions and in the worst cases can be completely inappropriate to the particular circumstances.

For example, we were recently involved in a dispute relating to a defect in a newly constructed building. Our client has been confident that the contractor was responsible for remedying the defect irrespective of whether it was due to a bad design or poor workmanship. He was disappointed to learn that this was not the case under the SBCC standard form of design and build contract which had been applied without amendment.

Such a failure to make a simple amendment of the standard form terms, which would have transferred the risk of the design, resulted in a six-figure cost of remedying the defect having to be met.

 

Understanding Contract Risk

In many cases parties will not involve lawyers, if at all, unless a tendering process has been completed and a contract is to be awarded by them or to them. Sometimes it is only at that stage that there is a realisation of the risk associated with the particular conditions upon which the contract has been tendered and possible cost implications.

For contractors, while they may have properly assessed the direct cost of the works and associated technical risks very often we see they have not understood the value or risk which may be inherent in the particular contract terms so that when this is pointed out to them very often their tender price may be seen as inadequate.

 

Keeping up to date

Construction is a fast moving area of the law with a constant flow of new case law and statutory provisions affecting contracts. These developments lead to regular publication of new and revised standard forms of contract.

Making sure that you and your contract are up to date is critical. A recent case where a client had applied a 1973 standard form with War Clause and Decimalisation provisions is an extreme example of being behind the times!

 

Staying sharp

Every construction project has risk and there will inevitably be differences and problems so the rule book for resolving these is a very important and valuable tool. Keeping it sharp is generally money well spent.

The relatively small cost of proper legal review or preparation of the correct contract terms is the best way to avoid the risk of losing large sums later.

 

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This article originally appeared in the Shetland Times