{"id":512987,"date":"2025-03-03T12:40:25","date_gmt":"2025-03-03T12:40:25","guid":{"rendered":"https:\/\/www.constructionnews.co.uk\/?p=512987"},"modified":"2025-03-03T12:40:25","modified_gmt":"2025-03-03T12:40:25","slug":"standard-deviation-reining-in-standard-contract-changes","status":"publish","type":"post","link":"https:\/\/www.constructionnews.co.uk\/sections\/long-reads\/features\/standard-deviation-reining-in-standard-contract-changes-03-03-2025\/","title":{"rendered":"Standard deviation: Reining in standard contract changes"},"content":{"rendered":"

Construction leaders are calling on clients to stop placing more risk on contractors by amending standard contracts. CN examines what drives the practice and how it might be reined in<\/strong><\/em><\/p>\n

It\u2019s not unusual for details of amendments to construction contracts to run to the same 100-page length as the original contract, says Anthony Armitage, general counsel at fit-out contractor Thirdway.<\/p>\n

\u201cStandard form contracts were designed to be a balanced and fair, oven-ready document [where] you could just fill in the contract particulars, sign and start on site.<\/p>\n

\u201cBut some clients\u2019 lawyers appear to make it as onerous as possible for the contractor and as beneficial as possible for the client. The schedule of amendments become massive, and it\u2019s not actually in the best interests of either party, or in the best interests of getting the best outcome for the project,\u201d he says.<\/p>\n

\u201cSome clients\u2019 lawyers appear to make it as onerous as possible for the contractor and as beneficial as possible for the client\u201d<\/p>\n

Anthony Armitage, Thirdway<\/h4>\n<\/blockquote>\n

Armitage believes the amendments \u2013 which can take a day or more to examine \u2013 are introduced by lawyers to impress, rather than protect, their clients.<\/p>\n

In October last year, the Construction Leadership Council (CLC) released a statement condemning clients and their solicitors for introducing contract terms that \u201care onerous and\/or difficult to ensure\u201d.<\/p>\n

It warned that onerous terms \u201cmake contracts unviable, reduce competition, increase risk and lead to unnecessary legal costs\u201d.<\/p>\n

The organisation called for standard contracts issued by contract-producing bodies to be used by clients with no amendments, except \u201cwhere necessary in the context of project-specific risks and relationships\u201d.<\/p>\n

Such a change, Armitage says, \u201cwould be better for us, the clients and the project as a whole. The only party that might feel aggrieved could be the lawyers because they would lose fees.\u201d<\/p>\n

\u201cThe mere fact that there\u2019s an infinite variety of contract variations cannot do anything but confound and complicate the outcome of indemnities intended in good faith by the insurer\u201d<\/p>\n

Roger Flaxman, Flaxmans<\/h4>\n<\/blockquote>\n

But the CLC\u2019s intervention is not the first attempt to change contract practices.<\/p>\n

So, are amended terms here to stay? Are they really the issue damaging contractors and clients, or are they a symptom of other underlying problems in the industry?<\/p>\n

Passing risk<\/h3>\n

Standard forms of contract, like those issued by JCT and NEC, have been available in the US since the 1800s and in the UK since 1903. They are ostensibly designed to allocate risk fairly between different parties in a project.<\/p>\n

Armitage believes that solicitors for clients often want to change terms to appear as if they\u2019re acting in their clients\u2019 interest, but such moves can actually threaten the viability of projects.<\/p>\n

\u201cAll they are doing is passing risk down the supply chain, which ultimately is never going to be in the interests of anyone because it cuts margins. Projects can be made completely unviable because of some of the penalties and other provisions that are put in there by the law firms to try and impress their client. The whole spirit of collaboration and cooperation can be completely lost,\u201d he says.<\/p>\n

\u201cThere are, unfortunately, many smaller contractors who will sign almost anything and keep their fingers crossed that nothing goes wrong\u201d<\/p>\n

Rob Bradley, Consultant<\/h4>\n<\/blockquote>\n

Examples of commonly used \u201conerous\u201d provisions include those that extend the final due date for payments, or the time limit for issuing a pay-less notice \u2013 where a client can say they\u2019re going to withhold some of the money due.<\/p>\n

The provisions may also reduce the grounds on which a contractor can apply for an extension of time before having to pay damages, or introduce stiff financial penalties if paper warranties are not issued. And the economic power balance often means such demands only flow in one direction.<\/p>\n

\u201cWe\u2019ve had to accept substantial schedules of amendments with very few changes on the majority of contracts I\u2019ve negotiated. The law firm might give you a few changes you ask for [on behalf of the contractor], but they then say, \u2018my client is not prepared to accept any more\u2019.<\/p>\n

\u201cIn an extreme case they might even say if you\u2019re not prepared to agree that [amendment] we\u2019re going to tell our client that the contractor is causing a delay and extra costs, so we\u2019ll recommend our client withdraws unless you agree to it,\u201d Armitage says.<\/p>\n

Trade body the Finishes and Interiors Sector (FIS) is campaigning to encourage its members, which often act as main contractors, to reject onerous contract terms.<\/p>\n

Its chief executive Iain McIlwee cites a statistic from a 2020 report published by the Confederation of British Industry as one of the reasons they should. \u201cWhy do we, as a construction industry, spend 1.6 per cent of our total turnover \u2013 not far off the total profit [margin] we make at main contractor level \u2013 on paying lawyers to write something that most people don\u2019t understand, to pay for lawyers to interpret it for us, and then eventually pay lawyers to argue about it at the end? It\u2019s just so much waste,\u201d he tells Construction News<\/em>.<\/p>\n

Professional indemnity<\/h3>\n

One of the key themes of the CLC\u2019s statement last October was that onerous terms often fall outside the scope of a contractor or consultant\u2019s professional indemnity insurance (PII) coverage, meaning that in the event of a claim against them they could face financial ruin.<\/p>\n

Rob Bradley, a consultant and former chief executive of Bouygues UK, says: \u201cSince Grenfell and the Building Safety Act (BSA), and as a result of the huge amount of claims around building safety, insurance premiums have gone through the roof and the extent of cover has diminished significantly.<\/p>\n

\u201cIt\u2019s a real mess and makes the selection of projects to bid on or build very critical for contractors. This in turn leads to a less competitive market and higher costs, especially for BSA-impacted projects.\u201d<\/p>\n

While at Bouygues, Bradley was involved in a 2023 Build UK report that called on clients to offer fair contract terms. Build UK released a new version in August 2024.<\/p>\n

PII only covers liabilities that are not explicitly stated in a contract, as otherwise there might be incentives for parties not to fulfil their contractual obligations and just claim for them on insurance instead, explains Roger Flaxman, chairman of insurance advocates Flaxmans.<\/p>\n

\u201cThe mere fact that there\u2019s an infinite variety of contract variations cannot do anything but confound and complicate the outcome of indemnities intended in good faith by the insurer,\u201d he adds.<\/p>\n

Flaxman believes that one insurance policy covering an entire project would be ideal, rather than each individual party taking out its own, but adds that this concept is currently too complicated for the fragmented construction industry. McIlwee points out that the new responsibilities taken up by the industry due to the BSA make it more important than ever that contract terms are fair. \u201cWe\u2019ve got a new set of regulations that focus on competence and on duty, and then we\u2019ve got a contract process that tries to do the exact opposite,\u201d he says.<\/p>\n

The client voice<\/h3>\n

However,\u00a0 one client tells CN<\/em> that amendments are usually made for good reason.<\/p>\n

\u201cContracts have typically been written by consultants for the benefit of consultants and contractors. After the JCT and NEC contracts were drafted and put into use, clients started to realise that they were taking on a lot of risk, and therefore evolved the use of schedules of amendments,\u201d says a Chartered Institute of Building (CIOB) fellow, who works with the body on good practice policy. The source asked for their name not to be used in this article as they now work in the public sector, having previously led developments for private companies.<\/p>\n

\u201cPeople working in the private sector have to make a return on their investments and it\u2019s important for them at the start of the project to understand exactly what their financial exposure is, to make sure that a return on investment actually takes place. Otherwise there\u2019s no point embarking on the project. A lot of the schedule of amendments are there because the contractor is probably best placed to de-risk a particular issue,\u201d the source says.<\/p>\n

One example the CIOB fellow gives of a risk that should be shared between the parties is the condition of an existing building. \u201cOtherwise, what tends to happen is you have a two-year project and as you come to the end of the second year the contractor says, \u2018Actually, when I was doing the first floor, I found some items on there I was not expecting, now I want to claim for it\u2019.\u201d<\/p>\n

The source agrees that lawyers are not always best to lead on the schedule of amendments and says they are better drafted by technical experts, adding that clients are too often left out of conversations on contract practices.<\/p>\n

Business model<\/h3>\n

The CIOB fellow adds that contractors often do not feel confident enough to be honest with clients about their margins, meaning the client may not understand how far they can attempt to de-risk a project before the contract becomes unviable. \u201cAs long as we continue to have that then the industry is going to continue to have problems,\u201d they say.<\/p>\n

McIlwee agrees, citing a \u201ccancerous culture\u201d of contractors on low margins taking on too much risk. \u201cWe\u2019ve allowed [the practice] to become acceptable and normal, even though in 1866 [when the first standard terms fee schedule was drawn up in the US] we said that was unreasonable,\u201d he says.<\/p>\n

Bradley warns that, amid a difficult economic environment, there remains a large pool of contractors willing to work under poor terms. \u201cSupply and demand will impact whether clients can get away with imposing onerous terms,\u201d he says. \u201cThere are, unfortunately, many smaller contractors who will sign almost anything and keep their fingers crossed that nothing goes wrong.\u201d<\/p>\n

Flaxman says the issue is that clients have no obligation to not focus only on low costs in their procurement. \u201cWhen people may have a financial incentive to cut corners and just hope they don\u2019t get caught, why wouldn\u2019t some just risk it? We create a moral hazard by demanding the cheapest price,\u201d he says.<\/p>\n

He is sympathetic to the CLC\u2019s suggestion that clients only amend standard contracts where necessary, but he doesn\u2019t think it is commercially feasible. \u201cWho is going to be the first person in the chain to say \u2018yes, I\u2019ll do that\u2019?\u201d he asks.<\/p>\n

Perhaps change of a more radical kind is needed beyond the call to avoid amending contracts.<\/p>\n

\n

Disputing asbestos on Manchester\u2019s City Tower<\/h3>\n

Disputes over amended contract terms regularly end up in court. In one such case in November, the Technology and Construction Court ruled against building services firm Briggs & Forrester after it suspended work on asbestos-ridden ducts in City Tower in central Manchester.<\/p>\n

The firm had been appointed in February 2021 on a design-and-build contract to deliver stair pressurisation systems in two risers within the 1960s-built office skyscraper.<\/p>\n

Briggs knew it had to remove some asbestos-containing materials from the risers but more of the material was found than was flagged in a pre-works survey commissioned by client BNP Paribas.<\/p>\n

BNP\u2019s advisors insisted that any surveys beyond the initial quotation were the responsibility of the contractor, to be carried out under its own instruction and at its own cost.<\/p>\n

Work ground to a halt in December 2021, and Briggs issued a termination notice in February 2023, stating BNP was preventing it from completing the works. BNP then began legal action in November 2023, claiming a \u201crepudiatory breach of the contract\u201d. It argued that Briggs had no right to terminate its work.<\/p>\n

At the start of the project, the parties agreed a JCT Design & Build Contract 2016 with a schedule of amendments.<\/p>\n

One amendment stated that the contractor would not be entitled to an adjustment of the contract sum or date of completion due to a failure to anticipate any site conditions whether they \u201cought reasonably to have been discovered or foreseen or not\u201d.<\/p>\n

Briggs said in court that the amendment should not apply to its experience in this case, but the judge rejected its arguments.<\/p>\n

\u201cThe contract terms make it plain beyond serious argument that the risk lay firmly on B&F,\u201d he concluded.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Construction leaders are calling on clients to stop placing more risk on contractors by amending standard contracts. CN examines what drives the practice and how it might be reined in It\u2019s not unusual for details of amendments to construction contracts to run to the same 100-page length as the original contract, says Anthony Armitage, general …<\/p>\n","protected":false},"author":53981,"featured_media":512996,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false},"categories":[79553,578,559],"tags":[],"yoast_head":"\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n