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Agree what you have agreed

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Agreeing on something starts with understanding what you will do and what the other guy is going to do.  When you agree, you have both decided that what the other guy and you are going to do is…well…agreed.

Contract is just another word for agreement.  Therefore, our contracts should reflect what it is we both intend to do.  This is so blindingly obvious that it constantly blinds people.  It is an endemic part of our dispute resolution business that people come to us because the deal that they have entered into either, in their own minds or in a way that they have always done business, does not align with the words written into a contract document.

This is not something restricted to those who tender for work, the contractors and suppliers, who might be forgiven for just going with what is being foisted on them; it is also a problem for those who put the tenders out and so, you would imagine, would put out what it is that they want to see happen.   However, many do not.  They issue contract documents that are littered with obligations that they neither want the contractor to do nor even understand themselves.

The obvious answer is to agree, not only what you hope to do, but what you actually intend to do.  The contractual test for a contract is the “objective intention of the parties”.  The first part of this, that it is the “objective”, is the area of the law.  The second part is the “intention” of the parties and is much more commonly the problem.

So, before you contract, make sure you understand what your real intentions are.  If you intend that all of the physical condition risk is passed to the main contractor, then you must be very careful to ensure where the edges of that will be and how a main contractor will react whenever something very large crawls out of the ground to bite them.  If your intention is to save up all your claims until a final account, then do not enter into contracts that require you to notify things in detail within two weeks of the event arising.

The problems arise, not just at the coalface, but at an institutional level.  There are often real tensions within a procuring organisation between the policy direction set by those at the very top, those in the middle who arrange for the procurements to take place, and those at the coalface who put the contracts into operation once they are concluded.  Often this can be crystallised by complaints from the operational staff about their legal team or vice versa, with neither understanding the purpose of the terms that they included, nor the full effect of them.

Another aspect of institutional difficulties which arise is the huge problem in changing the culture of a procuring organisation or indeed, an entire industry on the supply side.  “Business as usual” is something that causes all sorts of problems when change happens to the written contract documents.  If an industry carries very tight margins, it is unlikely to carry an overhead to examine contractual terms closely.  So, if the industry keeps changing things in a technical way, which a normal tendering organisation will not pick up on or understand the risk of, then we are destined for disputes.

Another institutional issue is the short-sightedness of some.   A recent quote I heard from a client who discovered themselves in problems with a contractor was, “this has never been a problem before”.  When pressed more closely, he explained that the particular issue that had arisen, had never been a problem on 80 per cent of the many jobs on which he had worked on.  The reciprocal being that on 20 per cent of the jobs, it had been a problem but they had never addressed it.  When things are issues, then they are issues and they need to be tied down.

We come at last to the inadvertent problems which lead to misunderstanding and lack of agreed intention.  Very often this comes from lack of knowledge when new terms and conditions are imposed from the top (as was often the case with the adoption of NEC forms of contract), or when terms are so well used that they are never read (as was the case with many JCT forms of contract before NEC was adopted!).  This lack of knowledge also leaks out where there are elements of the procuring organisation who draft specifications, scopes and works information and who do not understand the terms and conditions under which those will be implemented.  This is another example of the tension between legal departments and operational departments in organisations.

So, what is the solution?  The obvious solution is to think through, from top to bottom and one side to the other, what the terms of the contract should be and thoroughly train people in them.  That takes a determined and skilled contracting authority and it takes good advice early in the procurement process.  Something that we pride ourselves that we do better than anyone else.

James Golden is a Director at Quigg Golden

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