Infrastructure contracts: tailor-made or off-the-shelf?

Deciding between using a standard form or a bespoke document is quite often a question of culture and business practice. Following the release of the FIDIC yellow book contract guidance publication, author Jakob B. Sørensen discusses the choice between standard and customised contracts.

[edit] Introduction

Deciding between using a standard form or a bespoke document is quite often a question of culture and business practice. However, using standard documents does have a significant advantage over drafting everything from scratch.

The above applies not only to legal documents but also when preparing budgets, business plans, and even love letters or Christmas cards. Most standard documents will cover all the relevant topics you need to cover and using a standard document as a starting point at least provides you with a checklist of issues to be addressed.

[edit] The benefits of a standard form

Many standard documents will also be seen as inherently fair or balanced and the parties will be more likely to accept risk distribution, liability etc as drafted rather than argue about these topics. If people are comfortable with the writing in the standard document, it will also save them time drafting as they can just use the text from the standard document.

If the standard document is industry-standard or at least generally accepted or used in the industry, the parties involved with have experience in drafting documents based on it. In respect to construction contracts, this will be a great advantage during execution as the parties involved will also have experience in managing projects based on the standard.

In respect to contracts, widely-used standard forms will, over time, establish precedence from arbitrations or court cases, further clarifying the scope and interpretation of these forms, providing a more firm basis for the parties.

Clearly, there is a strong case in favour of using a standard form as the starting point but, even if it is decided to modify a standard form (or even design a bespoke contract), a standard document can still be used as a checklist.

In addition, even with a heavily modified standard form (which is then no longer a standard form), if its structure is maintained, it provides some recognisable guidance to the readers and, therefore, presumably also leads to savings in cost and time, at least during the tender or contract negotiation procedure.

Construction projects frequently end in cost overruns, delays and disputes. Therefore, it is important that the contract prepared is tailored for the specific project - protecting the legitimate interests of the parties - and stipulates relevant dispute prevention and resolution.

[edit] A companion to the FIDIC forms

From the author's experience, it is usually beneficial to start with a generally recognised standard form of contract; FIDICstandard forms of construction contracts are widely used and recognised and so are the NEC standard forms prepared by ICE.

In more specialised areas, other forms will be industry standards, e.g for offshore UK construction work where the forms prepared by LOGIC are widely used.

If any of the FIDIC contract forms are used as a start, the author's companions to the forms will provide readers with a guide to draft the contract and they will also serve as a useful handbook when managing the contract during execution.

[edit] It is not all about the contract

Remember, the contract is not the only important aspect of a project. It could be argued that a carefully and diligently prepared contract is the best way to ensure that the contract supports the project’s requirements and that any disputes are resolved in an appropriate manner.

Although this is, generally speaking correct, far more important than the choice of contract paradigm or standard, is the choice of contractor, the general preparation of the project and the experience of the parties involved.

If the basic design is rubbish, it does not matter if the contractor is skilled and the contract is perfect. If the contractor is incompetent, it does not matter if the design and the contract are perfect. If the engineer is incompetent, little else matters.

Each contributor to the project should understand and respect the competences and contributions from the other disciplines.

To expand upon this information, infrastructure professionals are advised to consider which contract is right. Full, comprehensive information is available for review via the ICE bookshop:

• FIDIC 2017 Contracts Companion - 3 vol set
• FIDIC Yellow Book: A companion to the 2017 Plant and Design-Build Contract
• FIDIC Red Book: A companion to the 2017 Construction Contract
• FIDIC Silver Book: A companion to the 2017 EPC/Turnkey Contract

[edit] About this article

This article was written by ice.org.uk Jakob B. Sørensen, a partner at Holst, Advokater, a full-service law practice in Denmark. It was previously published under the title 'Infrastructure contracts: tailor-made or off-the-rack' on the website of the Institution of Civil Engineers (ICE) and can be accessed here.

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[edit] NEC (The New Engineering Contract): Engineering and Construction Contract)

• Option A: Priced contract with activity schedule.
• Option B: Priced contract with bill of quantities.
• Option C: Target contract with activity schedule.
• Option D: Target contract with bill of quantities.
• Option E: Cost reimbursable contract.
• Option F: Management contract.
• Option G: Term contract.
• For more information, see NEC3.

--The Institution of Civil Engineers