The Responsible No: New guidance – don’t risk it all on an amended contract

Establishing clear contractual arrangements from the outset of any construction project is critical.  This is a core conclusion from virtually every review of the construction sector.  As far back as 1866, The General Builders Association put out the following statement:

“It is not right to bring under the builder’s consideration legal conditions, the effect and value of which he cannot rightly estimate without consulting it’s solicitor”.

JCT was established nearly 100 years ago to address concerns and help create a standard set of terms.  These contracts address the complexity of multi-tier supply chains, mutually dependent relationships and different parties joining the contractual chain at different times.  Other standard form contracts, such as NEC, are now commonplace.  Yet recent research from Reading University into Procurement and Contracting Practices in the Finishes and Interiors Sector highlight that 64% of businesses in the supply chain regularly start a project without a contract in hand and the norm is to work on amendments that effectively bespoke relationships and seek to pass down unreasonable amounts of risk.

It is this culture that the Duty Holder Regime (now enshrined in the Building Regulations) seeks to address and puts under additional scrutiny attempts to shift risk through contract.  This change to law potentially resets legal precedence for passing down risk.  Significantly too, recent advice from the Construction Leadership Council (CLC) should not be dismissed as a token effort to restate the problem.  The Grenfell Inquiry made clear the risks in the following finding:

“Studio E (Architect), Rydon (Main Contractor) and Harley (Cladding Specialist) all took a casual approach to contractual relations. They did not properly understand the nature and scope of the obligations they had undertaken, or, if they did, paid scant attention to them.

They failed to identify their own responsibilities for important aspects of the design and in each case assumed that someone else was responsible for matters affecting fire safety. Everyone involved in the choice of the materials to be used in the external wall thought that responsibility for their suitability and safety lay with someone else.”

In a rare open Statement, the CLC highlights another serious concern that all in the supply chain (particularly clients) need to be alert to:

“Many Professional Indemnity Insurance policies only cover claims for contractual liabilities to the extent that those liabilities would exist in the absence of the contract. … Clients have no control over whether contracting parties can secure PII cover that will respond when the client suffers a loss and wants to recover that loss.”

In plain terms CLC has made it clear:

“if a client seeks to claim for loss or damage, it cannot be relied upon that it will be settled by the PII insurers, and the consultant/contractor potentially faces financial ruin, and the client left with a claim that cannot be recovered.”

To help members bring these points together, improve understanding of where and how template contracts can and should be amended, highlight areas of particular concern and support negotiations with clients FIS has produced a new Using Standard Form Contracts.  This has been made available to FIS Members through the Contractual and Legal Toolkit and has been designed to support the Responsible No Campaign.  

Blog post written by Iain McIlwee to launch new FIS Factsheet: Using Standard Form Contracts.