We all remember the story of Little Red Riding Hood – the young girl warned by her mother not to stray off the path or talk to strangers, the wolf, the grandmother, alternatively eaten or put in the cupboard, and the rescuing woodcutter. Oh my, grandmother, what big teeth you have!
Every contract is a construct of various strangers in a cottage constructed of paper amongst a forest of legal teams. Every contract is like a marriage, but the choices are not quite as clear, and the legal manipulation of contracts has now made the alternative roles of girl, wolf, grandmother and woodcutter less than easy to understand.
The clearest description I have heard about good procurement is that the best contracts correctly allocate risk to the parties best able to control them.
Good contracts also balance risk and reward, and do not allocate risk without expecting a cost impact to the client.
Traditional contracts such as AS 2124, AS 4000, our ABIC suite of contracts, and most older forms of lump sum contracts, have a very clear delineation of risk allocation to the client, the builder and the responsibilities of the superintendent or Architect.
Increasingly, it concerns us to see clients and project managers employ legal advice to reallocate risks away from the client and increase the risk burden on the builder and the consultant team. Often the terms warranty and indemnity are introduced to strengthen the legal position of the client in the case of dispute – these terms are unequivocal in favour of the client, and uninsurable – we encourage all members to obtain the advice of your insurer and to strike them out of any professional services contract.
As another example, the risk of latent conditions of the site, be they contamination or subsurface soil conditions, have traditionally been allocated to the client, as the client owns the land and rightly all the risks attached to it. However, increasingly in design and construct contracts, project managers are attempting to allocate the risks of latent conditions to the builder – for dubious reasons and for risks which are often impossible to price or insure.
Clearly there are good reasons for these changes over time – mature clients feel that the traditional lump sum contract has not always served them well, it is too easy for the builder to manipulate for variations and too many risks are allocated to the client which can be written across to other parties. Unfortunately, too often, consultants and builders will take on this additional risk without understanding it fully, without investigating the insurance implications, and without pricing the risk adequately.
In effect the grandmother has become the wolf – the client who once was a trusted and trusting person with kind intentions, has, through the insidious influence of the legal profession, become the one not to be trusted.
Clauses are written for us to sign, which will trick the unwary youngster into forgoing their innocence in the most horrible way – a legal dispute with uninsured terms.
The moral of the tale should be heeded, do not stray from the path your colleagues well before you have trod, lest your innocence be lost. The thrill of discovery with strangers may be tempting, but the loss of your innocence as the tale implies, may be sudden and painful. And there are no rescuing woodcutters in legal disputes.
Beware the amended contract, the wolf is never far away and has your pretty face fixed with a beady eye.