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Matching objectives with contractual outputs 

Is your contract a breeding ground for disputes?

The Employer's brief sets out a list of objectives it wishes to achieve from the contract, identifying whether time, cost or quality takes priority. The Employer often attempts to amalgamate the three, which in practice do not always align.

 

Within its brief, the Employer commonly sets out the type of behaviours expected from the supply chain, with the desired intention of creating a collaborative culture that encourages cooperation and conflict avoidance to mitigate the risk of costly disputes and potential delays. 

The Employer, who may not be an expert in writing contracts, often outsources the drafting of the contract to a legal firm, who may not fully appreciate the Employer's desired outputs, behaviours or environment it wishes to create from the contract. Lawyers often take a standard, neutral contract, written to be reasonably balanced for all parties, and heavily amend the vanilla terms and conditions with boiler plate clauses that seek to pass down risks or curtail the Contractor's entitlement, in favour of the Employer. The amended clauses are designed to provide cost certainty for the Employer, tipping the balance.

 

Lawyers often bolt on a supplemental section to the contract that describes the types of behaviours expected by the Employer, as an after thought.

 

In our experience, due to their lack of experience operating contracts, legal firms may overlook the impact of the amended clauses upon the contract as a whole, rendering certain contractual machinery inoperable or producing the wrong types of behaviours, in conflict with the Employer's expectations.   

The Contractor, usually the most competitive tenderer, does not always fully understand the additional risks and limitations to its entitlement that the amended clauses pose, nor has it sufficiently priced for those new risks. The Contractor is either unaware or is taking a high stakes gamble to win the work, often discovering too late that it faces unrecoverable costs and significant erosion of its already lean profit margins. The Contractor may be placed in an unsustainable, loss making financial position whereby out of desperation it attempts to claim for everything. The Contract Administrator may assess the Contractor's claims as 'inflated' or 'operating a culture of entitlement' and adopts a combative stance (rather than conducting a root cause analysis) increasing the probability of a dispute crystallising.

The misalignment between the Employer's brief and the express terms and conditions of the contract gives rise to precisely the opposite behaviours than what the Employer originally intended.

Legal firms can make mistakes...

What sets us apart...

By integrating Contractual Insight at pre-contract stage, we will embed ourselves with the Employer to fully understand its brief and desired outputs. We will utilise our extensive experience drafting and operating construction contracts to produce a set of refined terms and conditions, that are developed from and can be derived back to the Employers brief. We understand the types of behaviours that particular clauses generate.

From our experience, creating a fair and balanced contract that incentivises and motivates the supply chain to innovate and go the extra mile, is far more likely to produce collaborative and positive behaviours, compared to disincentives, penalties or passing down hidden risks.

In pursuit of continuous improvement, we will design incentives to supercharge the supply chain alongside a set of workable procedures to support the contract, with regular 360 degree feedback from all stakeholders to foster a truly collaborative culture. This will drive a positive contractual environment producing tangible benefits for all parties.   

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