Contracts - the importance of selecting the best form of contract for the job

Ann Minogue writes on the importance of selecting the best form of contract
for the job.

The industry is obsessed with procurement structures and forms of contract.
The proliferation of different standard forms coupled with the endless
debate about them is testament to this. At the
outset of many construction projects there is extensive debate as to
whether, at one end of the spectrum, design and build is the appropriate
procurement
route or whether, at the other, construction management is more likely to
deliver the building on time, to cost and quality.

Whilst all of this is going on, the demolition contract is entered into.
Because it is perceived as being a relatively simple contract with limited
affect on the overall project, there is little debate about it. The
quantity surveyor recommends JCT 1980 or IFC 1984 and tenders are invited on
that basis. But of course these forms are totally inappropriate for the
execution of demolition works (unless - arguably - the package also includes
a significant amount of temporary works to remain in place on the site
during the main construction package). Obligations to use materials of the
quality and standard specified in the contract documents and to remove
defective materials from the site are irrelevant. Defects liability periods
are hardly appropriate when the site is being cleared altogether. Retention
similarly seems superfluous and the obligation to insure the works seems to
lead immediately to a claim under the insurance policy as soon as demolition
commences. It is undoubtedly preferable to start from the form of direct
contract produced by the National Federation of Demolition Contractors
Limited. At least this is
suitable for demolition works albeit somewhat partisan given its source.
This inappropriate use of forms of contract is strikingly prevalent in the
construction industry. Perhaps a few examples might assist.

Supply Only Contracts

Where stone granite or steel is being purchased for delivery to the site or
to another location, then no form of contract for the supply of goods and
services is appropriate. IFC 1984, for example, is pre-occupied with the
execution and completion of works at the site, with inspection by the
architect, practical completion certificates and defects liability periods
together with indemnities against third party liability and insurance
obligations. These are all irrelevant in a contract for the sale of goods
where key issues relate to the quantity and quality of what is to be
supplied, the price, delivery dates, passing of property and passing of
risk. It should also be borne in mind that sale of goods legislation
implies many terms into contracts for sale of goods dealing with these
issues if the contract is silent.

Supply of Good and Services

This is where standard forms are relevant but it is amazing how often small
works contracts are let on printed order forms with purchase only conditions
printed on the reverse. Those provisions noted above which are irrelevant
in the case of contracts for the sale of goods must obviously be included in
contracts for the supply of goods and services and that is the reason why
these purchase order conditions are inadequate.

Hire Contracts

This seems to be where the most serious confusion arises. A contract for,
say, the erection of scaffolding on a site, the payment of a hire charge for
it whilst it remains there coupled with an obligation to dismantle and
remove the scaffolding when it is no longer required can neither be
accommodated by standard purchase conditions nor by standard building
contracts. The completion provisions in building contracts are, for example,
inappropriate; the payment provisions likewise since there is no fixed lump
sum if the hire charge is calculated at a rate per week; there must be
obligations included to make good damage by others as required. The
provisions of these hire contracts become still more complex where an
operator is part of the package as happens, for example, under some plant
hire contracts. Again, the CPA Conditions might be better starting point
although these too might be regarded as less than wholly balanced given the
extensive exclusions and restrictions on liability contained in them.

Any proper purchasing department needs to have sets of purchase order
conditions, minor works contracts and hire conditions. It also needs to
have commercial managers who understand the fundamental difference in the
commercial nature of these transactions. There is little point in
documenting contractual relationships on terms
which are wholly inappropriate.

The purchasing department then needs to consider when it is appropriate to
use the smaller printed forms and when, because of the size or nature of the
project, it is necessary to move on from them and to use more weighty
contractual documentation. This is obviously particularly the case for
contracts for the supply of goods and services rather than supply only
contracts. For a main contractor, the appropriate standard forms might be
based on DOM/1, DOM/2, the NSC documentation or IN/SC documentation
depending on the form of main contract used.

The Contractor's first thought should be the main contract - it may dictate
a requirement to use a particular form of sub-contract. Under JCT
Management Contract 1998, for example, the management contractor must use
Works Contract documentation unless otherwise agreed. If he does not, he is
in breach of contract and may be deprived of some of the protection offered
to him by the terms of the Management Contract. Similarly, in relation to
the use of nomination under JCT 1980. Commonly, too, schedules of
amendments to standard documents require the use of particular forms of
sub-contract often because the employer is trying to encourage use of
standard form documentation in the industry and is anxious to avoid
increased tender costs caused by very onerous sub-contract terms.

Beyond that the question of whether he uses short form printed contracts for
his sub-contractors or whether he uses the more extensive standard form
documentation will largely be governed by the complexity of the project
rather than the value of the sub-contract package.