Benefits of Standard Form Contracting

There are many benefits of standard form contracting and there have been calls for the industry to adopt the use of a standardised contract (HMSO). Most obvious would be reducing costs as bespoke contracts are not required for individual tenders. Especially when using the “New Engineering Contract” (NEC) which is a set of standardised clauses that can be combined to form a more relevant and suitable contract for every employer (O’Reilly).

A standard form contract leaves no room for negotiation between parties and speeds up the process of tendering a bid by reducing costs and encouraging future commerce (O’Reilly). As standard contracts are more regularly used, the industry’s familiarisation and confidence in the terms grow (O’Reilly). The consistency in contracts reduces the number of “unforeseen anomalies” as employers are prevented from inserting changes to the contract without informing the client. This is so long as the attorneys drafting the contract appreciate that unfair terms could be struck out by a court (Owen). This improvement in legal protection is beneficial to all parts of the industry as it has also allowed an established body of case law to be available for reference in future disagreements.

The risks involved in proceeding without a contract is the same as using a payment scheme which was incoherent to the Construction Act (OPSI). The non-compliant provision is removed and the payment scheme continues or if no contract is in place, a standard scheme is used (DETR). Should the scheme be required, then the parties involved would be disadvantaged as any agreed payment mechanisms would be invalidated. This disestablishes any certainties created by the employer or client.

The greatest advantage of both the ICE & NEC contracts is their payment schemes. Their stage payment mechanisms were permitted in statute 109 of the Act (OPSI). These ensure that all parties are attempting to finish works with respect to short construction times and low costs. The Scheme (DETR) has no “stage payment” system, instead using a payment interval of 28 days. It uses a measurement of the construction costs to date, which tends towards being abused by the industry.

Such abuses have been common in the construction industry, the main being the use of “pay when paid” clauses within the contracts. The Act (OPSI) banned the clauses, however, they are still effective when the third party payer becomes insolvent (OPSI). When taken to court however, the judiciary system’s distaste for the clauses becomes obvious (Brewer). These abuses of the industry lead to the Egan Report (HMSO) and other subsequent initiatives designed to improve the industry’s payment schemes.

Within the Act (OPSI) there are no mechanisms to deal with extensions of time [1] . The ICE contract deals with extensions of time, allowing for extensions only in extreme conditions [2] . The ICE [3] encourages early confrontation of time extensions”the contractor shall within 28 days after the cause of the delay has arisen or soon thereafter as is reasonable in all the circumstances” (Bramble & Callahan). The NEC contract deals with extensions of time [4] with respect to compensation for the extension [5] (Brewer). The NEC has avoided using an “extension of time” clause by instead using a “delay to Completion date” (Trebes & Mitchell). The NEC contract also remains the only contract with a formal acceleration programme [6] , allowing time lost to be “caught up” (Joyce) by offering a “bonus for early completion”. Under the ICE, if an extension is requested when the project is ahead of schedule then an extension of time will not be granted until the project is behind schedule [7] . However, the ICE will allow a review of the extension at a later date [8] .

When a project overruns it is usually due to a number of reasons and therefore the difficulties lie in finding the responsibility. When a delay has been made which affects the contractor, the contractor is entitled to an extension of time [9] . Under the ICE 5th and 6th editions, the responsibility of delays is placed on the main contractor and no extensions of time are permitted for delays by the nominated sub-contractors (Eggleston). Under the NEC contract, this type of blame is not used; the NEC contract is more conducive to effective partnering and the optional clauses result in a specific contract that is more suitable for each individual project.

Disputes can be solved by litigation, arbitration or by Alternative Dispute Resolution (ADR) methods. With litigation and arbitration the involved parties have very little control of where the outcome of their dispute will take them once they start the dispute. With ADR the parties have a greater control which varies depending on the procedure used. The methods of ADR are wide and range from negotiation, mediation, conciliation, expert determination and adjudication. Adjudication was introduced with the Act (OPSI) in 1998, “it made a temporary decision of an adjudicator enforceable in the courts pending final resolution by arbitration, litigation or agreement” (Cottam).

Dispute Resolution under the ICE Contract allows the parties to discuss and resolve the issues outside of the legal process. It has been newly adapted to include the right to refer to adjudication. However, there have been claims that it “does not sit easily within clause 66″ [10] (Atkinson) [11] . Clause 66 provides an “advance warning procedure” (Murdoch & Hughes) which operates by forming an agreement between the parties involved; stating that a contest cannot exist unless both parties have informed one another “of any matter which if not resolved might become a dispute” [12] . The Clause also offers different methods of dispute resolution outside the legal process. It proposes that the parties take the opportunity to resolve issues using the negotiation and by “other means including conciliation or mediation”7. When this option is taken, the ICE procedures apply [13] . Benefits within the clause allow parties to refer to an engineer, or expert for a decision. An arbitrator can review and revise an engineer’s decision but cannot review and adjudicator’s decision so using an engineer rather than an adjudicator allows the parties to come to an agreement without having to enter into the costly adjudication process.

Under the NEC Contract litigation, arbitration or adjudication are offered as methods of dispute resolution, with adjudication used as the primary method (Woodward) [14] . Within the NEC 3 there is no reference to mediation or any form or ADR; “NEC 3 has not kept pace with the growing trend for fully structured dispute resolution procedures such as negotiations at various levels, expert determination, conciliation and/or mediation, dispute resolution boards, adjudication, and, only finally, arbitration and litigation.” (Eggleston). The NEC may have fewer method of Dispute Resolution because it aims to avoid disputes (Anderson), ensuring that the parties involved in the contract “shall act as stated in this contract and in a spirit of mutual trust and cooperation” [15] .

Having looked in detail at both the NEC contract and the ICE contract, it is clear that the two are very different and both would suit different situations. The ICE offers a contract which is designed specifically “for use in connection with works of civil engineering construction” [16] whereas the NEC contract offers a wider range of options which can vary the contracts terms therefore making it accessible to all other “allied industries” (Fullalove). The optional additions to the contract mean that whilst it is still termed a “standard contract”, the contracts in use are anything but standard. The benefits of such a contract allow the contracts to be more specifically applicable to each individual case, this however means that the period of time required to draw up the contract becomes extended and more drawn out.

The standard contracts ICE and NEC both follow the same principles on many of their clauses or options, as the NEC has developed from the ICE contract. This implies that the NEC contract should be a development and therefore should possess qualities which are better suited to the industry and allow a more stable solution to the industry’s issues. However, I have found that whilst looking at both the contracts, the NEC has not included many of the clauses which have made the ICE contract so successful, in particular the option to use ADR. It has also not enhanced the industry’s ability to advance with respect to the reports made (HMSO). Although the NEC contract has not fulfilled its potential to solve more of the industry’s key issues, neither does the ICE contract attempt to find a solution to the same issues.

Therefore the decision whether to use the NEC contract or the ICE contract comes down to the particular company. If, for instance, it hosts a wide range of departments, it would benefit from the ability to alter the contract by using the NEC and the additional options. In the case of the company being a small establishment then it could benefit from the use of Alternative Dispute Resolution which would be more effective on a smaller budget. In this instance, the ICE contract would be the chosen preference.