Covid-19 sent many construction companies in a hurry to review their contracts only to find them complex and confusing. Sarah Fox, construction attorney and writer of Small Works Contracts in just 500 words, believes the time is right for simpler contracts and a more collaborative approach to projects

I have not yet found a single construction company that has enjoyed the clarity of their contracts in negotiating the pitfalls of Covid-19. Construction contracts are not a roadmap for success, but have exacerbated an already difficult situation.

How can this be possible? JCT informs us that their contracts are comprehensive. NEC is specifically designed to help parties collaborate and manage their projects. And with 150 pages, does FIDIC have the situation under control?

Legal instruments

The biggest problem with contracts isn’t the suite, the terms of the contract, or the users. It is the basis on which they are written. Rather than being tools for managing a project, most contracts are written as legal enforcement tools – either in their original unmodified form or after the lawyers slaughter them.

After the pandemic hit and the UK government promoted the lockdown, the parties had to dig up their building contracts, blow the dust off and dive deep into the clauses to see if there was an answer … or ideally THE answer. Many of those who managed to snag a copy and read it found their contracts difficult to understand – it’s almost like they were written only for lawyers, not mere mortals, aka site- Employee. Most of the users who understood their lawyers’ clauses or translation were surprised, frustrated, or confused by what they found.

Effects of Covid-19

The contractual impact of Covid-19 has been characterized as force majeure, epidemic, preventive measure, illegal or impossible act, government intervention or sometimes (depending on your home country) a change in the law. Many of these are trigger events that can entitle the contractor to have more time to complete the work, but few contracts allow the contractor to reimburse their additional costs.

Surely this new normal is “not what we contracted for”?

Although the initial response focused on a short embargo and a quick return to work, the real long-term impact of construction projects is a mix of extended working hours, new health and safety regulations, travel restrictions, supply issues and local restrictions, unforeseen changes in work practices and a significant one Loss of productivity. No contract had included all of this in its time and cost procedures.

And yet … all these contracts contain far-reaching mechanisms of change. We need every project partner to renegotiate the future of the project so that the customer receives an asset someone wants to pay for and the utility grid receives a fair reward for the value it undoubtedly offers. The parties should act responsibly and collaboratively (directed by the UK government if not by their contract or conscience) to resolve the effects of Covid-19 in a fair manner and this requires the parties to use the amending mechanism to reverse the original renegotiate deal.

It would be kind of madness to expect that the original treaty would either provide for, or provide in full, what actually happened in 2020.

Simple procedures

JCT 2016 DB lists more than a dozen separate events that trigger the contractor’s right to adjust the completion date. NEC4 lists 20 compensation events. Without exception, the parties’ lawyers play with this list, deleting some and adding others. Despite all of these changes, the global pandemic was not on the list.

If this was not complex enough, the NEC and FIDIC require the contractor to notify the contract manager within a specified period of time if they wish to retain their right to renewal and be exempt from delay damages. Contractors, for example, creatively announced as soon as the lockdown occurred, although it was not yet clear what the triggering event was and no contract administrator could possibly determine an appropriate extension in March 2020.

Had we had simpler and more flexible procedures, the parties might have been able to notify (and acknowledge) one another that project results needed to be reviewed and agree on a process that would work given the massive uncertainties we faced. The problem with regulation procedures is that there is no room for maneuver – some contractors receive a nod of sympathy from their employer, but little else.

collaboration

UK government reports for decades have called for greater collaboration with no real impact on our dog-eat-dog culture. Maybe the winds of change will blow … The International Association for Contract and Trade Management found that 88% of business owners want more collaboration and confidence in the future. It seems to me that the construction companies most likely to succeed after Covid-19 are those who have worked with their utility network and customers, not the ones who have worked for them. They were able to look beyond the strict terms of the contract and focus on the goals of both the parties and the project.

Lack of cooperation and trust is exactly why the procedures in construction contracts are so strictly written – but these procedures lead the customer to believe it is being cheated somehow, and the contractor to play them just to make a decent profit . Does it really benefit the project if we micro-manage everything? Surely more trust would have encouraged a more adult, joint solution to the thorny question of how everyone in the project would get away solvent and relatively unscathed.

The future of construction contracts

My research on global contracting shows that fear is a major barrier to change. Changes are usually slow, especially in construction, but in this case overnight. We went digital, changed the way we work and adapted. Perhaps companies that have faced massive uncertainties and direct fears will realize that significant change is possible. That is a welcome side effect of this crisis.

At the same time, we’ve learned a costly lesson: the contracts that we thought would help us get through the unknown together are actually supposed to drive us apart.

I hope the construction industry will wake up to the dysfunction of their contracts and try to come up with contracts that really help the parties manage a project – contracts that are simple (to allow flexibility), digital (to facilitate remote working) and collaborative (to build sustainable supply networks).

Or would you rather continue to invest your hard-earned money in the existing contract publication and modification industry that didn’t even serve you when you needed it most? You decide.

Sarah Fox

Author, speaker and consultant

500 words

+44 (0) 7767 342747

sarah@500words.co.uk

www.500words.co.uk

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