The standardisation of contracts for construction
Will Hughes, Department of Construction Management and Economics, University of Reading, Whiteknights,
Reading RG6 6AW, UK.
David Greenwood, Department of the Built Environment, University of Northumbria at Newcastle, Newcastleupon-Tyne NE1 8ST, UK.
Published in International Construction Law Review, April 1996.
Abstract
Contracts are put to a wide variety of uses. Those who draft construction contracts in the UK
rarely consider all of the potential uses and therefore may produce documents that are less
than ideal. The various uses are considered in their theoretical background before turning to
the practical difficulties often encountered in trying to fulfil such diverse aims. The question
of standardisation is examined within this context. Existing standard forms of contract in the
UK are found to do little to overcome these difficulties, and this encourages either a
significant level of amendment to the standards or experienced clients to draft their own
forms. The solution is an approach to contract drafting which is designed to offer a
compromise; better standard forms, based on the lessons learned from the drafting of nonstandard forms and a pooling of experience, including that of lawyers, in the drafting
process. Although this paper is based upon the experience of the UK, these conclusions are
relevant for contract-drafting practice in general.
Keywords: Contract drafting, standard forms, amendments, in-house forms.
Construction contracts in theory
Within the UK construction industry contracts can have a variety of purposes:

to record a business deal

to plan for the effect of contingencies by allocating risks

as a management procedures manual

as an agenda for litigation

as an industry reference point.
It will be argued that some of these roles have proved difficult to accommodate. Clearly, if
contracts are not going to compromise the achievement of project objectives, then all parties
concerned need to be clear about the particular use to which they are putting their contracts.
Recording a business deal
It is well established contract doctrine that the processes of negotiation and selection result in
an offer to undertake something in return for a consideration. Once the offer is accepted
clearly and unambiguously a contract is said to exist. The law of contract has evolved over
many centuries of commerce and produced a number of contract doctrines which help to
interpret and give effect to what has been agreed by the parties.
1
Planning for the effect of contingencies
Another advantage of a formal contract, particularly in the case of complex transactions
executed over long periods of time, is that it allows for the planning for contingencies. Put
another way, the contract allocates risks. Some argue that this is the principle purpose of the
construction contract.1 Parties have the choice between negotiating detailed terms of the
transaction or using standard forms. Effective standard forms should, as far as possible,
reflect what the parties would have arrived at by protracted bargaining.2
A management procedures manual
UK construction contracts, particularly standard forms, have acquired the rather peculiar
status of management procedures manuals for the projects to which they attach. These
manuals contain mechanisms for prescribing and controlling the behaviour of the parties. A
glance at the structure of the UK industry and the nature of the typical construction process
reveals why. There are many other business environments in which projects or processes are
carried out by single hierarchical organisations with its own procedures for decision-making.
This is not normally the case in the UK construction industry. The powers of decision making
are not wholly invested within individual organisations but at the interfaces between them. It
is at these interfaces that contracts are formed, making the contract a crucial management
document.3 The contract has acquired the status of a management procedures manual
incorporating control mechanisms. In the absence of any other, the contract becomes the
definitive document for guiding the various contributors through the project. Perhaps the
ultimate example of this is the New Engineering Contract (NEC)4 which is clearly and
deliberately set out to provide guidance in simple, non-legalistic English, as to the procedures
to be followed throughout the project.
An agenda for litigation
Ultimately a contract is an enforceable promise. If one of the parties fails to meet contractual
obligations at the expense of the other, sound business practice demands that there is some
recourse available to an aggrieved party; there must be remedies for defective performance. In
this respect it is essential that contracts are drafted in a way which reflects the approach of the
courts to contract doctrine.
A tight contract is a defensive mechanism. Although the industry would be much better if
there was no need to rely on enforcement of contractual duties, merely writing contracts that
disable litigation is counter-productive.
An industry reference point
Standard forms provide a useful point of reference for those inside and outside the industry.
For practicing professionals there is a need to maintain consistency between projects to
enable them to build up a portfolio of expertise. For the purpose of professional indemnity
1
McGowan, P.H., Horner, R.M.W., Jones, D. and Thompson, P.A. Allocation and Evaluation of Risk in
Construction Contracts, CIOB Occasional Paper No 52, Ascot; The Chartered Institute of Building, 1992.
2
Posner, R.A. and Rosenfield, A.M. Impossibility and related doctrines in contract law: an economic analysis,
Journal of Legal Studies,1977, 6, 83-118.
3
Wearne, S.H. (1992) Contract administration and project risks, International Journal of Project Management,
10(1), February 1992.
4
Institution of Civil Engineers (1994) New Engineering Contract. Thomas Telford; London.
2
insurance they need to restrict their activities to those for which they are covered. Standard
forms, developed through various consultation processes, enable consistency of roles from
one project to another. In this sense, the standard forms lay down the duties that can be
expected from various professionals in the process. It is then a fairly easy step to refer to the
standard form for guidance about roles, duties and responsibilities.
Those at the periphery of the industry benefit from the continuity provided by standard forms:
insurers have identified their products by reference to the provisions of a particular standard
form (as in the case of the UK’s JCT 805 clause 19.2a on insurance); funders often relate to
the process through their understanding of a particular standard form; accumulated judicial
precedents related to particular standard forms of contract help to develop an established view
of contract practice.
Construction contracts in practice
The previous section of the paper has outlined the variety of roles which contracts are
expected play in the construction industry of the UK. In a review of the UK construction
industry, Latham6 commented upon the use of standard form contracts in practice and made
recommendations for legislation to prohibit certain “unfair” clauses. Since no such
legislation was enacted at the time of writing this paper, discussion of the practical
consequences is best left to another time. Whatever flows from the current re-think of the
role and content of construction contracts, it is clear that all of the roles identified in the
previous section involve inherent contradictions or tensions. It is unlikely that these
fundamental tensions can be resolved by legislating against some unfair clauses or by
recommending just one contractual approach. The practical problems in the various uses of
contracts are now examined in more detail.
Recording a business deal: a meeting of minds or coping with confusion?
The legal assumption of consensus ad idem appears to be rarely true in practice. Beale and
Dugdale7 and other critics argue that the language used in contracts is not only frequently
ignored or misunderstood, but often of little relevance in describing the intended behaviour of
contracting parties. A disturbingly large proportion of contractors, consultants and
subcontractors have very little real understanding of the contracts they are using. Yule8 cites
examples where even the identification of the standard form that the parties they were
supposed to be working to is a matter of total confusion. It is important for all involved in the
construction process to be more aware of the relationships between the business deals they do
and the contracts which purport to record their deals.
5
Joint Contracts Tribunal Standard form of building contract, 1980 edition. London; RIBA publications.
Latham M. Constructing The Team. The final report of the Government /Industry review of procurement and
contractual arrangements in the UK construction industry. London; HMSO, 1994.
7
Beale, H. and Dugdale, A. Contracts between businessmen: planning and the use of contractual remedies.
British Journal of Law and Society,1975, 2, 45-60.
8
Yule, I.R. Back to Back Contracting. CIOB Construction Paper, 48. CIOB. Ascot, 1995. The examples given
are Brightside Kilpatrick Engineering Services v Mitchell Construction (1973) Ltd [1975, 1 BLR 62] and
Lexair Ltd. (in Administrative Receivership) v Edgar W Taylor Ltd [65 BLR 1993].
6
3
Planning for contingencies: some impossible tensions
Contracts are supposed to allocate risks. But in practice the way in which risks are spread is
complex. Standard contractual terms do not often readily demonstrate which party is to be
regarded as bearing a risk9 and may thus be a barrier to effective risk allocation.10 This is
witnessed by the increasing number of projects which are commenced, progressed and even
completed under letters of intent, while negotiations continue.
Standard forms suffer from two fundamental conflicts. The first is the inevitable tension
between clarity and flexibility; two requirements which unfortunately appear to be
irreconcilable. Standard forms represent a compromise: when they attempt, through revision
to become more flexible and accommodating they merely become ambiguous, encouraging
opportunistic behaviour by the parties. The second comes with the introduction of the
concept of fairness. A clause which unequivocally allocates liability to one party might be
vexatiously or arbitrarily enforced. Similarly, a clause which is flexible and fair is usually
vague as to precise liability. For example, clause 12 of the UK’s ICE contract11, like clause 12
of the FIDIC Red Book,12 seems fair in that contractors are liable to a certain extent, but not
without limit: but this clause generates more claims and disputes than any other in civil
engineering projects. Absolute liability can only be construed as fair when the parties to a
contract have had time to negotiate the terms and identify the full extent of their liabilities.
So construction contracts are usually based upon industry-wide standards, either hastily
modified and executed during a hurried tendering process or held at arms length while works
proceed on a letter of intent.
A management procedures manual or a blunt instrument for bullying?
Contracts in UK construction seem to have acquired the status of project management
manuals. They not only define performance but prescribe the management procedures to
achieve it. These aims are entirely laudable but there is a severe distinction between
efficiency and effectiveness. The use of standard forms offers no facility to question whether
the management approach offered is the most effective way of satisfying a client’s
requirements. The NEC approach, for example, results in a manual that is a user-friendly
guide to the successful management of a project. This is a welcome departure from some of
the standard contracts that have been produced in the past but it relies very much upon
continuing good relations throughout a project. Some of the procedures imposed by contract
forms are effective control mechanisms, as in the case of contract payment regimes. There is a
lot of sense in this; the payment mechanism can be a most valuable basis of project control.
But what is intended as a tool for project efficiency regularly becomes a blunt instrument for
bullying. There are unscrupulous parties who seek deliberately to exploit weaker contracting
parties by withholding payments rightfully due, producing spurious counter-claims and so
on.13 Such tales are not confined to building and civil engineering contracts but are also
emerging in consultancy agreements. The economically dominant party includes onerous
9
Uff, J. (1994) Contract Documents and the Division of Risk, in Risk Management & Procurement in
Construction: Proceedings of the 7th Annual Conference, Centre for Construction Law and Management,
King's College, London,1994.
10
Thompson, P.A. and Perry, J.G. (eds) Engineering construction risks: a guide to project risk analysis and risk
management. Thomas Telford. 1992.
11
Institution of Civil Engineers. ICE conditions of contract, 6ed., Thomas Telford; London, 1991.
12
Fédération Internationale des Ingénieurs-Conseils. Conditions of contract for works of civil engineering
construction, 4ed. FIDIC; Lausanne, 1987.
13
The practices are examined at some length in Huxtable, J., Corruption of the Commercial Process. Report
from the Confederation of Construction Specialists, CCS Services Ltd, 1983.
4
clauses, usually designed to reduce or delay payment or increase liability. The weaker party
theoretically has the option of rejection but when faced with the choice between giving up
usual contractual rights and not working at all, most will accept modified clauses forced upon
them by stronger parties. Perhaps there is a case here that departures from standard form
contracts should sound warning bells, but some of the surveys of sub-contractors have
revealed that standard forms are rarely used unamended anyway.14
An agenda for litigation or something consigned to the bottom drawer?
The contract should clearly indicate what is to happen if either party fails to perform their
obligations. The clearer this is, the greater will be the parties’ incentive to avoid or mitigate
non-performance.15 But if a contract is unclear, the parties will not be in a position to make
rational decisions about preventing or mitigating risks for which they may be held
responsible. None of the UK’s standard contract forms are drafted in a way that makes
litigation straightforward. Various cases16 illustrate the impossibility of working out what the
JCT forms really mean. The most important recent example is the confusion resulting from
the Court of Appeal's ruling in Crown Estate Commissioners v John Mowlem & Co Limited17
which the JCT described as “at variance with the intention with which the conditions were
issued”. If a contract is ever intended to stand up in a court, then it must be drafted with this
purpose in mind. It should allocate responsibility clearly and unambiguously. This would be
fairer than concealing responsibility within forms of words that are either impossibly opaque
or too soft to have any bite. As Posner and Rosenfield18 argue, if the purpose of standard
contract terms is to economise on negotiation, it will be poorly served by a standard so vague
and general that contracting parties will encounter great difficulty in trying to ascertain the
judicially implied terms of their contract. Thus, the laudable desire to avoid lawyers and
litigation, sadly, can result in a greater dependence on lawyers and the courts to discover and
clarify the parties’ intentions so that liabilities and responsibilities can be identified.
Many commentators on the construction industry feel that contracts have become excessively
adversarial and that too many people rely too much upon the threat of litigation. In a way,
this is a manifestation of nostalgia for a time when people conducted their deals on a
handshake. Such deals can still be done. They rely completely upon a very complex shared
understanding between the parties. If a project is to be concluded satisfactorily, then contracts
executed on a handshake must be backed up by years of common experience between the
parties. It seems that there are too few people around these days with sufficiently extensive
experience to be able to do business in this way. In any event, the modern construction
industry is characterised by multi-party projects with extensive chains of sub-contracting
which mean that the person who is paying for the work is rarely in direct contract with the
person undertaking the work. In such a situation the opportunities for misunder-standings and
mis-matched perceptions are rife. The often cited attitude of “the best contract is one that is
14
Greenwood, D. J. Contractual Arrangements and Conditions of Contract for the Engagement of Specialist
Engineering Contractors for Construction Projects. University of Northumbria at Newcastle. 1993.
15
Cooter, R. Unity in tort, contract, and property: the model of precaution. California Law Review, Jan 1985,
73(2), 1-51.
16
Bickerton v N. W. Metropolitan Hospital Board [1977] 1 All E.R. 977. The contract was described as
showing "a calculated lack of forthright clarity". In English Industrial Estates Corporation v George
Wimpey & Co Ltd [1973] (1 Lloyd's Rep 118 at 126) the phrase used was "a farrago of obscurities".
17
Crown Estate Commissioners v John Mowlem & Co Limited [1994] 70 BLR 1
18
Posner and Rosenfield, op. cit
5
left in the bottom drawer”19 is a recipe for disaster in modern complex projects. The fact that
standard form contracts can be used is not a cause of this problem. But people with such an
attitude are risking a lot if they use a standard form contract which has been negotiated by
others. If they do not know the contract, how can they possibly have any protection against
being sued for failing in a contractual obligation of which they were unaware? Such an
attitude is open to accusations not merely of arrogance but of utter recklessness.
An industry reference point or a prescription of institutionalised roles?
Several UK contract forms, particularly the standard forms, have provided a useful point of
reference within the industry. To the extent that standard procedures help professionals to
discharge their duties efficiently, this is fine. However, all drafting committees face the same
charge: that they consist of powerful institutional interests whose main aim is to ensure the
continued influence and future work of the people whom they represent. Now there is
nothing wrong in a representative trying to get the best deal for those who sent him or her. To
do otherwise would be irresponsible. But to use this as a basis for negotiating contract forms
is to miss the fundamental point about the basic purpose of a contract. A form created by a
committee can only ever represent the balance of power between the people on the
committee. It can never represent the particular business interests of the parties to a specific
project.
Standard form contracts
Beyond the area of contract drafting, standardisation per se can be beneficial in complex
environments. It is a useful procedural technique for improving co-ordination20 and is an
efficient way of reducing information and documentation requirements.21 Construction is no
exception to this general rule: the standard methods of measurement22 enable contractors to
bid on an equal footing; there are standard tests for determining the strength of concrete.23
Standard contracts minimise the transaction costs of detailed negotiation24 and are routinely
used in the industry. But the aim of the standard form must surely be to overcome the
difficulties outlined in the previous section. It appears that the standard form should
simultaneously:

facilitate the clear recording of the business deal and avoid confusion,

allocate risks not only appropriately but fairly,

provide a clear, yet flexible management procedures manual,

avoid opportunities for contractual bullying,

provide a clear agenda for litigation,
19
For example Gray, C., and Flanagan, R. The changing role of Specialist and Trade Contractors. Chartered
Institute of Building, Ascot 1989.
20
Galbraith, J., Designing complex organisations. Reading, Mass., Addison-Wesley, 1973.
21
Bennett, J. International Construction Project Management. Butterworth-Heinneman. London, 1991.
22
The Institution of Civil Engineers, Civil Engineering Standard Method of Measurement, 3rd Edition. Thomas
Telford. London, 1991; also see The Standard Method of Measurement of Building Works: Seventh Edition.
Authorised by agreement between the Royal Institution of Chartered Surveyors and the Building Employers
Confederation. NBS Services Ltd. Newcastle-upon-Tyne, 1988.
23
For example BS 8110 (1985) The structural use of concrete and BS 5328 (1981) Methods for specifying
concrete.
24
Posner and Rosenfield op. cit.
6

act as a good practice point of reference for the industry and others.
The evidence does not support its success. In Yule's examples the existence of standard forms
appears to have actually contributed to the state of confusion.25 If there were no standard
forms, people would be forced to address questions about roles and responsibilities at the
outset of the project instead of merely duplicating their experience from their most recent
project. Thompson and Perry26 held standard contractual terms to be a barrier to effective risk
allocation. As management procedures manuals, how can they be simultaneously clear,
flexible and fair? How easily can a contract which has been negotiated by a committee result
in a document which will stand up in court? And finally, how can that committee, drawn
from among the industry interest groups, readily represent the interests of the parties to a
particular contract?
Nothing reflects these difficulties more clearly than the way in which standard form contracts
are used in practice. They are regularly mis-used or amended.
Mis-use of standard forms
One of the perennial problems of standard forms in the UK is that they are mis-used and
misinterpreted. An example of the mis-use of the sub-contract forms associated with JCT 80
is the way that main contractors usually enjoy a cash discount for prompt payments and often
deduct the discount even when payment is not prompt. They insist that the discount is for
“cash”, although the words of the clause quite clearly intend to allow discounts only for
prompt payment.27 A regular mis-use of JCT 80 involves the liquidated damages clause
which allows employers to deduct liquidated damages for the period of time between
certificate of non-completion and certificate of practical completion. It is common practice in
the UK for employers to deduct liquidated damages as soon as a contractor fails to meet the
completion date, even though neither of the certificates has been issued.28
Amendments to standard forms
Despite the wide diversity in the standard forms available in the UK, surveys have shown that
these forms are rarely used unamended. Between the 8th and 29th June 1995, Gallup
conducted a poll of 400 UK clients with a combined £10bn annual construction spending.29
Only 32% used standard forms whereas 44% used customised standard forms (against only
18% who used their own documents). This is not dissimilar to the findings of a 1987/88 UK
survey commissioned by the JCT30 in which it emerged that 70% of employers surveyed had
used standard forms while the remainder had drafted their own. However, of those using
JCT80, the most popular standard, 72% had made amendments of some kind. Amendments
may often be trivial, but they frequently result in an employment regime not contemplated by
those who originally drafted the standard forms.
In numerical terms, the majority of contracts entered into in construction are not between the
client and the contractor but at the sub-contract level. Here some industry-negotiated forms
do exist but they are not the norm and they are typically not negotiated by the same groups
25
Yule, op cit.
Thompson and Perry, op. cit
27
Bingham, A. Discount miscount. Building. 4 August 1995, 34.
28
Lloyd, H. Time extensions and damages for delay. Building. 2 June 1989, 32.
29
Bill, P. Customer services. Building 28 July 1995, 26-27.
30
Joint Contracts Tribunal. The use of standard forms of building contract. RIBA Publications; London, 1989.
26
7
who produce the main forms of contract. In the UK, the principal standard forms of subcontract are drafted by the organisations representing main contractors at industry level and
approved by the representative subcontract bodies. However, the use of amended or nonstandard forms is, if anything, more prevalent than with main contracts.31 Amendments to
contract clauses arise for two reasons. First, contractors and clients are sometimes guilty of
arbitrarily shifting the burden of risk on to the weakest contracting party. Second, contract
practice should be revised continuously in order that the documents reflect the rapidly
changing technological and commercial nature of the construction industry. In other words,
some of these changes to the standard forms are bad practice and others are good practice.
Since amendments to standard forms are so widespread, the approach taken by FIDIC in the
Red Book seems eminently sensible. This involves separating the contract into two parts;
part I being conditions of general application intended for most projects and part II being
project-specific clauses including amendments to part I. The idea of this approach is that
contracting parties have the use of a familiar document while exceptions to the standard form
are highlighted in part II.
Client-based approaches
UK clients who frequently engage with the industry have started to produce their own
alternative standard forms of contract. This movement coincides with the rejection by some
clients of the procurement systems upon which standard forms were based. The UK drafting
committees responded, often slowly: the seven years taken to produce the JCT Management
Contract (JCT 87) being an example. However the larger clients took to looking after
themselves, either collectively in the case of developers (e.g. British Property Federation in
1984)32 or independently, in the case of the larger owner-occupiers, by commissioning lawyers
to draft their contracts.
Conclusion
There are now two fundamentally different approaches to contract drafting. First, the UK
industry’s approach is to negotiate a form for all occasions and draft clauses with minimal
recourse to legal advice. These forms are widely used, sometimes mis-used, and are
frequently amended. Subject to some reservations they continue to enjoy influential
support.33 The second approach is for experienced clients to instruct experienced commercial
lawyers to draft contracts which express their needs as well as having some efficacy in a
court. The extent to which standard form contracts help or hinder the situation is a difficult
question. Certainly, there is a lot of confusion and uncertainty surrounding contractual issues
in the construction industry. This cannot be helpful. A standard form contract for all
occasions would probably not be a useful concept. There is a clear need for each project to be
subject to its own agreement. Too much is unique within each project for a standard approach
ever to work. On the other hand the alternative course of action is to force contracting parties
to negotiate their agreements from scratch for every project. However appealing this may
appear on the face of it, the complexity of a construction project makes it impracticable and
expensive to negotiate from scratch. Another solution, a middle way, is to build up a library
of approaches and alternatives that can be used by clients who do not wish to commission
their own contract drafting process. The FIDIC Red Book is based upon this philosophy with
31
Greenwood, D J, op. cit.
British Property Federation. Manual of the BPF System. British Property Federation; London, 1983.
33
See, for example, Latham M. op. cit.
32
8
its Part I conditions of general application and project-specific Part II conditions. The NEC
contracts take a similar approach. However, in the light of the non-legalistic approach to
drafting, it has been suggested that the current NEC models will cause as many problems as
they solve.34 Perhaps the courts will have even more difficulty with them than they have had
with JCT style approaches. It is clear that these new approaches rely upon trust. But trust is
like respect: it cannot merely be demanded, it must be earned. There is no doubt about the
excellence of project management skills available in construction. Unless this expertise is
matched by first rate contract-drafting, the construction industry will grow even further away
from the legal professions, making litigation even more expensive, difficult and, ironically,
common. The best way to increase our collective expertise in drafting, is to involve ourselves
in more of it, not less. Therefore those who wish to draft their own contracts should be
encouraged. It makes good business sense to ask searching questions about responsibility and
liability before you start to build rather than argue about it half way through!
34
See, for example Cornes, D. New Builder, 31 January 1991, p.20.
9