Bespoke choice

Are bespoke construction contracts really an expensive luxury? Dennis Brand outlines the issues to consider with contract selection.

COMMENT, MEP

Are bespoke construction contracts really an expensive luxury? Dennis Brand outlines the issues to consider with contract selection.

A suit made by a bespoke tailor will fulfil all of a customer's expectations regarding style, cut and fit, but it will be expensive. For this reason, most suits are purchased off-the-peg.

Today for the construction and engineering industry there are numerous off-the-peg or standard form contracts available from the UK and Europe. These are published by professional organisations and bodies including the Joint Contracts Tribunal (JCT); Institution of Civil Engineers (ICE), which publishes both the ICE and the New Engineering Contract (NEC); and the International Federation of Consulting Engineers (FIDIC).

Choosing standard contracts

The arguments for using standard form contracts include:

  • The standardisation of contract terms throughout the industry - a good idea in principle, but in practical terms this is hard to achieve. The varying definitions and provisions in the different types of standard form contracts mean that in order to achieve standardisation these terms would need to be amended so that they all read the same, which is hardly realistic.
  • Balanced contract terms - it is said that the standard form contract is more likely to result in reasonably balanced terms than a bespoke version because the drafting of the terms are the result of a consensus effort of representatives from across the industry.

This may be true, but taking FIDIC as an example, the Fourth Edition was published in 1987 as it was said to be fairer and more reasonably balanced than FIDIC Third Edition, yet the 1999 Red Book was also stated as more balanced than the Fourth Edition.

  • Standard form contracts are provided with guidance notes and instructions for use. Why is this necessary? If a standard form is prepared using clear and unambiguous language for use by construction professionals, there should be no need for such notes.
  •   Because of their wide use throughout the industry, they will result in the development of a substantial body of case law arising from the many disputes that are part and parcel of construction projects. However, while case law is of help in dealing with a dispute, in the UAE the body of case law is currently limited.

 

  • They are a cheaper and reliable alternative to bespoke contracts - preparation of a contract using a standard set of conditions often amounts to little more than form filling, completing a simple form of agreement, filling in the blanks in the special conditions schedule, then attaching the printed form of standard conditions and the technical specifications.

But even that on occasion is done without sufficient care so that disputes arise over interpretation during the contract execution.

The result is that although the contract preparation may be less labour intensive or costly than that of a bespoke version, any savings will be eroded by additional administration or in resolving contract disputes.

Considering local practices

Standard form contracts are a useful tool when projects are straightforward, but not when they are technically complex or involve a number of parties. Use of a standard form is exactly that; it is a form that generally cannot be modified.

However, standard form contracts developed for the international construction and engineering industry cannot take account of the laws, customs or conventions of a particular country.

In the UAE, most construction and engineering contracts are based on UAE law and that of the Emirate in which the project is to be built.

In such cases the contract is subject to Federal and local laws plus Islamic Shariah law, customs and practice, which means that the contract terms should be fair and consistent with the requirements of good faith.

Only the philosophy of the NEC standard forms ie that the parties "...shall act as stated in this contract and in the spirit of mutual trust and co-operation" comes close to the needs of UAE law in this regard.

Another point that is peculiar to both the UAE and the Gulf region in general is the joint liability of the designer and main contractor for the stability of a building for ten years from the time of handover. I have yet to see a standard form of contract that addresses the matter of decennial liability.

Bespoke practice

It is interesting that in the oil and gas industry where standard forms of contract are provided by IChemE and the Energy Institute, both BP and Shell, even though they have representatives serving on the original CRINE contracts committee, often use bespoke forms of contract.

Moreover, in the UAE the Dubai Municipality, major developer EMAAR and ADNOC operating companies have all chosen to use their own bespoke forms of contract rather than follow one of the more recognised standard forms.

Therefore, when UAE construction and engineering contracts are today regularly awarded for hundreds of millions of Dirhams, surely the cost and time to prepare a bespoke contract can no longer be described as an expensive luxury.

Dennis Brand is senior legal advisor with HBJ Gateley Wareing.

Bespoke vs standard forms of contract
  •  Standard form contracts are a useful tool when projects are simple, but not when they are technically complex or involve a number of different parties. The form generally cannot be modified.
 
  •  A true standardisation of contract terms throughout the industry is hard to achieve in practice due to the varying definitions and provisions included in each standard contract.
 
  • In the UAE, most construction and engineering contracts are based on UAE Federal law; the local laws of the Emirate in which the project is to be constructed; plus Islamic Shariah law. Only the NEC comes close to the region's legal needs in this regard.
 
  • Within the Gulf the designer and main contractor hold joint liability for the stability or collapse of a building for ten years from handover; no current standard form of contract addresses decennial liability.
 
  • The lack of existing case law in the UAE negates the advantages gained by using standard contract forms for projects when disputes arise.
 
  • Standard form contracts developed for international use do not take account of the laws, customs or conventions of individual countries.

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