Contracting
confusion
Peter
Solari LLB(Hons) FRICS FCIArb
is a Chartered
Surveyor, a Chartered Arbitrator, and a partner of PSP Construction Consultants,
and practises as both quantity surveyor and arbitrator. He is a CIArb approved tutor and lecturer at
the SE Branch associate-level entry courses.
Architects, surveyors and others
engaged in the construction industry (at least those longer in the tooth) may
well be rather confused. At least, if they are not confused they jolly well
ought to be. Look at it this way:
Years ago there was a standard form
of contract which was issued by the Joint Contracts Tribunal (JCT) and was commonly known as JCT63. The majority of
building contracts, large or small, were let on it. Architects and surveyors
generally knew their way around it, clause by clause. It was a well tried
contract, which through use and abuse largely survived and served all parties
moderately well. The contract was long (but not too long) being about 17,000
words. Yes, there was litigation concerning certain clauses, which led to
amendments being made; but generally the allocation of risk as between Employer
and Contractor seemed fair, and we all felt there was a sureness as to the
relationships between architect, surveyor and contractor and as to the
day-to-day procedures adopted.
The reference to arbitration was
contained in five paragraphs totalling about 500 words. One provision was that
no arbitration shall be commenced until practical completion of the works was
achieved. Very sensible - let the
building works get completed before the arguments start.
What has changed? Seemingly
everything. In 1980 the JCT decided, partly because of the volume of amendments
being published to JCT63, to issue an entirely new contract. So
was born JCT80 (the successor of which is now JCT98) both of which are at least
triple the size of the old contract, with annexes and appendices included for
good measure
The reference to arbitration now
incorporates by reference a whole set of separate rules (CIMAR). Adjudication
clauses are of course also included.
There is no longer a provision that arbitration proceedings should await
practical completion.
All parties were (and are)
represented on the JCT, including consultants, employers contractors and
subcontractors. The resultant new contract was inevitably going to be the
lowest common denominator of agreement. In other words, a compromise. Moreover a compromise which many would say
re-allocates the risks to the detriment of the Employer. No matter.
Then we had the plethora of new
subcontract forms NSC1-4, DOM1, TNS 1 and 2.
Collateral warranties then came into their own. How many of us even now
truly understand the complex interrelationship of rights, duties, powers and
liabilities these create?
Together with the Minor Works Form
and the Intermediate Forms, the Prime Cost Form and the Design & Build Form
of contract, we were supposedly given a contract for all occasions. But how
many times are you, like me, left wondering which contract is truly appropriate
because in truth, given the circumstances you are faced with at the time, none
of them really is.
Moreover, it was clearly felt by the
drafters of those (now not so new) contracts that those involved in the
administration of building contracts were not generally conducting their
relationships in a contractually proper manner, so that a large part of the
increased size of these contracts springs from the incorporation of a series of
rules governing procedures and telling users how they should act in various
circumstances. Something likened to a
good practice manual, which, we are told, they should always have been doing anyway.
As a single example look at the heading governing clauses 35.3-9 of JCT98 ‘Procedure
(my emphasis) for Nomination of a Sub-Contractor’.
So those of us longer in the tooth
were being told that our lifelong practices were inadequate: we had to mend our
ways and conform to the new procedures; these procedures were described as
contractual and we were therefore obliged to conform to them.
Faced with these innovations is it
any wonder that JCT80 was initially greeted with less than exuberance and that
there has been considerable resistance to its use?
Does this new order lead to less
litigation? Not a bit of it. Just read
the law reports. Look also at the
armada of contract consultants and legal advisers that have sprung up to handle
the new work. Very convenient. Create a new order of things, disturbing the old
satisfactory order; then introduce a new form of expert to tell us how we
should be conducting our business.
That, oh long-in-the-tooth one, is
why you are confused.
Let me now digress and tell you of a
legal philosopher of the late 19th early 20th century called Eugen Ehrich. He
sought to discover the origin of law in society. His thesis was called
“Fundamental Principles of the Sociology of Law”. What he says, effectively, is
that what matters in society is not the formal law (what he called ‘Norms of
Decisions’) but how people actually conduct themselves (‘Norms of Conduct’).
Law, he said, is formed by the norms of conduct and the formal law will
eventually adapt itself to the way people act in society, which is the “living
law”. This is shown for example in the extent that trade practices formed the
basis for the development of mercantile law.
Now draw the analogy of the way the
Standard Forms of Contract are being drafted. Admittedly this is private and
not public law, but the principle is the same in accordance with Ehrich’s
thesis. The new forms of contract should have been written to reflect the way
those involved in the administration and carrying out of building contracts
have habitually conducted themselves. What the JCT have tried to do is to
create a new order of conduct which those involved in the industry should
follow. To the extent that this new order is not followed, Ehrich would say
this is bad law and should be adapted to conform to the living law, i.e. the
norms of conduct.
But what are the norms of conduct
actually practised within the building industry? I suspect they have changed
little despite the advent of these new forms and these mandatory procedures. We
all know how we proceed individually; but there is, to my knowledge, no common
fund of information which provides a source of data on the common practices of
the industry. Herein lies a source of research as yet untapped, for some
enthusiastic student to explore.
Once that has been done and the
results obtained, I suggest the authors, myself and a representative Employers’
body get together to produce a new form of building contract which reflects,
rather than tries to reform, practices within the industry. It will also adjust
the allocation of risks less to the detriment of the Employer.
This form will then become a best
seller. The student will earn a
lucrative living on the lecture circuit, and I shall retire to sunnier climes.
All of course on ―the royalties on the
sales which will continue forever. Arbitrators will be largely redundant
So who is going to volunteer?
Oh yes, and those long in the tooth
will become less confused.
Those in favour please say aye.