With the help of a little history, some basics of contract law and a touch of cognitive psychology a new light shines on the beauty and benefits of standard form contracts in underpinning successful building project outcomes.
Philip Wood CBE, KC (Hon) published his book Survival Codes: World Law and the Future of Humanity earlier this year, in which he covers 4,000 years of history, showing how laws are by far the largest, most comprehensive and ambitious codes of conduct crafted by humanity for our survival.
He rates 12 different legal domains like a song contest based on their importance, how just and moral they are and those that protect against catastrophic risk. Number one is family law and inheritance. Number two is contracts. Every day around 2 billion contracts are made in the world, from something as simple as buying a loaf of bread to the major contracts that govern our behaviour.
Since 1866 the building industry has been blessed with a range of standard form contracts, which are accepted as being fair and balanced for the projects for which they are designed. There are at least 6 powerful reasons for using them, and there are no disadvantages.
- No delay getting into contract
- Efficient operation of the contract – everyone is literally on the same page
- Minimise cost
- Save time
- Parties have clear oversight of contract terms
- Balance risk fairly
But over many decades these benefits have been eroded by amendments, added complexity and bespoke drafting.
What a contract really is
Lawyers often use the term contract to describe the legal wrapper that makes the underlying agreement enforceable. It is not the agreement itself. To have an agreement there must be understanding by the parties of what has been agreed, otherwise, there is no matching offer and acceptance.
Standard form contracts like the JCT have a standard set of conditions which are understood by the parties using them. They are therefore effective to govern the behaviour of the parties. The Contract Particulars of the JCT are the commercial and project-specific aspects, and they will change for each project.
Traditionally lawyers see their role through a narrow lens focussing on the wording of clauses, but they do not see the bigger picture that Philip Wood so eloquently describes in his book. In practice the challenge we have as in-house lawyers to the contractor is how to equip our delivery teams with the knowledge needed to administer and operate the contracts, when those contracts are heavily amended from the industry's standard forms.
Amendments destroy the fundamental purpose of the contract to govern behaviour because the parties do not understand how the amendments change the operation of the contract. Evaluating a schedule of amendments in isolation is like inspecting a load-bearing beam without looking at the building it supports. The reality is that whatever amendments are made to the standard form, the parties will follow the process they already know.
Speed to contract
The in-house legal team at a main contractor has two main functions. To help the business get into contract quickly and safely, and to act as revenue protection officers to ensure the business gets paid in full and on time and to defend improper claims made against the business. The second function follows on from the first. If the contracts are clearly understood, conflict and disputes are largely avoided.
All our projects have short programmes so speed to contract is critical. Each project is like a 4 x 100 athletics relay. The business development team is on the starting line and runs the first leg to hand over to the pre-contract team. When the project is ready to go into contract the pre-contract team passes the baton to the legal team. Our job is to get the baton round the last bend as quickly as possible, to hand over to the delivery team who run the final leg and cross the line with a successful finished project.
When routine amendments are made to the standard form, it feels like the baton is being snatched away and replaced with a brick. A swathe of industry professionals, stakeholders and the contract-producing bodies themselves advise against doing this. Conversely, there is no organisation, body or group that advocates for amendments.
The common knowledge problem
This is where cognitive psychology comes in. At the end of the summer, the clocks go back by an hour. This happens every autumn, as the colours change and the leaves fall at that glorious time of year. Knowing we return to Greenwich Mean Time in October is definitely a thing to know. Of course, everyone does know it and everyone knows that everyone else knows it, and everyone knows that, and so on. This concept of common knowledge is examined and explained in Professor Steven Pinker's book When Everyone Knows That Everyone Knows . . .
Everyone in the construction industry should know that standard form building contracts are fair and balanced and are designed to be read as a whole. If this became common knowledge, the parties to those contracts would understand each other a lot better, and amendments to them would be kept to the minimum.
The reality is that nearly every contract we enter into is amended, and it is a lottery as to which clauses are amended. There is no substitute for having to read the whole schedule of amendments from scratch, on a project-by-project basis, to understand how the amendments have changed the meaning of a specific contract.
The most frequent reason given by law firms for amending standard form building contracts is market practice. The market for these amendments is unlike any other. The only participants are lawyers, it is not regulated in any way, and it has no means of correcting itself. The lawyers are not competing with each other; they are cooperating with each other. Mistakes build on mistakes and contracts become ever more complex and confusing.
It is perhaps no surprise, then, that the Competition and Markets Authority has, in its recent final report on the delivery of road and rail infrastructure, criticised the practice of making amendments to standard form contracts which add unnecessary complexity and cost, and that shift risk to the supply chain.
The majority of disputes in construction would be avoided if we refrained from making amendments. Misunderstanding about who is responsible for what under the contract is at the heart of most disputes.
A better way forward
The 2024 editions of the JCT are remarkably similar to the 2016 editions. That shows us the contract is in good form, it is tried and tested, and it is easy for all parties to interpret and understand. Everyone knows what they are agreeing to. The principal new feature of the 2024 edition is the emphasis on collaborative working and early notification of emerging disputes. The change is achieved by shifting two optional supplemental provisions from the 2016 edition to the main terms of the 2024 edition.
The relocation of clauses in this way may not appear significant, but one effect of making them mandatory is to bolster the efficacy of the accompanying Guide. The Guide explains how these provisions have been brought to the fore as a reflection of key industry focus areas, and as part of JCT's response to the Construction Playbook, a powerful Government publication to drive collaboration and eradicate poor practices in public procurement.
It is worth reiterating that the actual wording of the JCT conditions themselves has hardly changed since 2016, indicating that while the principles have stood the test of time and do not need updating there has been insufficient take-up of those good behaviours.
It does not matter how many analogies we give, how hard we negotiate, or how rational we are, it is never less than an adversarial battle on every negotiation, conducted amended clause by amended clause and always in isolation from the contract itself.
We figured there must be a better way. Our solution is a training and development programme. Each occasion allows the participants to share insights and lessons learned from the contract negotiations and the operational activities during the build. We extend the invitation to the law firms. For the first time lawyers see themselves as part of a harmonious whole with a shared vision.
In 2024 I wrote an article for Solicitors Journal with the title JCT Building Contracts: what's the point of amendments? I opened with a quote from Charles Dickens' Bleak House: 'The one great principle of English Law is to make business for itself'. The case of Jarndyce and Jarndyce lasted decades until the estate was entirely consumed by costs.
Today I am asking the alternative question: What is the point of the Standard Form? It is a much more uplifting concept, and it sets the stage well for a constructive new dialogue on how lawyers can add real value to the contracting process and the successful delivery of building projects.
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