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Standard Form Construction Contracts

Date: 09/11/2018 | Construction, Real Estate, Residential Development

The use of standard form contracts in the construction industry is commonplace.  One advantage of this is that there is no need to create bespoke terms and conditions of contract afresh for every project or piece of work.  This introduces efficiencies into what can be a complex process.  This can be particularly beneficial for smaller projects.

However, it is important to understand the nature of those standard construction contracts and where pitfalls may lie.

Standard forms of professional appointment are invariably produced by the professional body representing the consultant involved.  So for instance, the Royal Incorporation of Architects in Scotland produce the Scottish Conditions of Appointment of an Architect.  Similarly the Association for Consultancy and Engineering produce a raft of forms of standard forms of appointment for consultants and engineers.   It is essential to appreciate that, whilst such standard forms may not be designed to actively prejudice clients, they are nonetheless written for the benefit and protection of the professionals concerned. 

Standard forms of construction contract are, by contrast, typically produced by industry-wide committees.  As such they are compromise documents seeking to balance the disparate positions of employers, consultants, main contractors and sub-contractors/specialist suppliers.   The intention is that no one group should be advantaged to the detriment of the other.   The result is that each group will find aspects of such standard forms disagreeable.

The risk allocation under such standard forms will not necessarily reflect the risks being taken on in other contracts such as development agreements, agreements to lease, forward sale agreements or funders’ facility letters.   For instance, your facility letter from the bank may provide that no monies may be drawn down until certain milestones are achieved whilst your professional appointments and/or construction contracts may provide for monthly payments based on such work as may have been carried out.

Even where there is not a raft of other contracts involved, the risks being taken on may not reflect what your client understands the position to be.  Is the “fixed price” contract really that?  Most so-called fixed price contracts can in fact increase in price for surprisingly innocuous events.

Some standard forms may not in fact be “bankable” unless they are amended to adjust the risk allocation in favour of the client.

There are pitfalls even when it comes to filling out the blanks in the standard form.   For instance far too few experienced professionals seem to appreciate that if, when the standard form is filled out, the client (or the architect or QS) writes “nil” against the entry for “pre-agreed damages for delay” that is not an agreement that the pre-agreed damages provisions do not apply.  Quite the contrary; it is an enforceable pre-agreement between the client and the contractor that in the event of delay no damages are payable. 

Carrying out a careful analysis of the risk allocation under contractual documents to ensure that each is “back-to-back” is a highly skilled and technical task.   It requires a deep understanding of standard form construction contracts and appointments as well as experience of construction projects.  It requires to be carried out by someone legally qualified and experienced in contract law; by a solicitor.

At Davidson Chalmers we have an experienced construction team.  We deal with non-contentious construction law; reviewing and revising appointments and contracts before they are entered into to ensure that they protect the customer concerned be they client, contractor, consultant or sub-contractor.  We have specialists whose job it is to assess whether suites of contracts are “back-to-back”.   We also deal with contentious construction law advising on how to deal with matters when things have gone wrong. 

For more information contact Simone Young, Head of Construction.

The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.

Written by

Simone Young | Davidson Chalmers Stewart
Simone Young

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