Deciding on the best contract for the particular requirements of a project is always a difficult decision, dependent upon a variety of project variable (price, time, quality requirements and legal issues)
We always try and recommend one of the many Standard Form Contracts where possible, unless there is a specific legal requirement to revert to a bespoke Form of Contract, usually written by a construction lawyer.
A traditional procurement route separates design from construction with design led consultants being employed and contractor taking on the full responsibility for the management and execution of the contract works. Under these contracts there is a separation of the parties and their rights, obligations and risks. This sometimes results in a lack of cooperation and can encourage defensive and adversarial behaviour. Risk is passed down the supply chain to contractors and subcontractors and there can be a ‘sort it out later’ mentality where time and cost problems are left to the end of the project resulting in protracted final accounts and disputes.
There is usually an opportunity for overlap of design and construction stages by the use of contractor design elements.
Non-traditional / Collaborative Contracts
Over the past 2 decades we’ve seen the proliferation of new construction forms of contract that claim to overcome many of the problems of traditional contracts and traditional procurement. Sometimes referred to as ‘collaborative’ or ‘partnering’ forms of contract, these forms are very different to traditional contracts.
They attempt to overcome the problems of traditional contracts often by introducing some form of collaborative working and trying to unite the various project parties so as to avoid polarisation. The theory appears to be that teamwork results in greater efficiency resulting in an increased cost and time certainty and the removal of traditional construction inefficiencies.
Non-traditional forms include the NEC4 suite, the ACA forms and the new (in 2008) JCT Constructing Excellence form.
Target Cost Contracts
Target Cost Contracts are a risk-sharing form of contract. They are very different to traditional contracts, which tend to be lump sum forms with much of the project risk carried by the contractor. Although these contracts have proved popular in recent years they should only be used where appropriate (this is discussed in more detail in the NEC section). Under these contracts the Employer shares more risk with the Contractor in return for a more collaborate approach to the project. No longer is the contractor totally free to manage the works, procure its subcontractors and suppliers and manage its costs. The contractor now has to be open and transparent and allow the client to see what it’s doing.
Design and Build is probably the most popular form of procurement at present.
Management Forms of contracts are specialist forms of contract and not used very often in the UK although were very popular in the 1980s and early 1990s. They are recommended by some specialist consultants and contractors and may be appropriate on large, complex and fast-track projects. Specialist advice should always be taken if you wish to use this type of contract. Two stage tendering has some similarities to management contracting.
Subcontracts many of the bodies that produce construction standard forms also produce corresponding subcontracts that are contractually back-to-back with the main contracts. In practice, these subcontracts are often heavily amended or not used probably because contractors prefer to contract on their own in-house terms. This can cause difficult interface problems between main contractor and subcontractor and often leads to dispute.
Framework and Term Contracts where a client has on-going or rolling construction programmes, such as planned maintenance work by a local authority or the building of houses by a housing association, then a framework or term service arrangement is often used. Such contracts have many advantages including introducing an element of continuity for those contractors on the framework and avoiding repeated tendering (a particular problem for public sector clients subject to public procurement regulations). For the client, there is probably more cost certainty, in that prices are agreed upfront, and there are savings on tendering costs.
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