Two stories about contractors who got themselves into deep trouble because they failed to take some simple precautions before signing on the line
I have just returned from a company medical check. I suppose there must be some people who like the idea of a rubber-gloved doctor delving into the parts that other people are not allowed to reach, but I am not one of them.

So why do we subject ourselves to these things? For me there are two reasons: firstly, I would rather know what is wrong with me so they can cure it; secondly, and more importantly, I would quite like to know whether I am at risk of developing any illnesses so I can take avoiding action.

Don't put the magazine down yet; you haven't picked up The Lancet by mistake. This is about construction. Wait a while and you will see the connection.

A review of the disputes we are involved in at the moment shows that they split roughly equally into two types 鈥� those relating to changes, delays and other issues occurring during the works, and those that result from problems with the original contract obligations, scope of works and so on. Disputes in the latter category generally arise for contractors and subcontractors because of such reasons as a less-than-clear knowledge of the documentation, a misunderstanding of the contract obligations, or a simple failure to get to grips with what is required.

Let me give you a couple of anonymous examples to show what can go wrong:

  • A subcontractor has the opportunity to negotiate a price for some work that the main contractor has failed to arrange at the right time. It therefore needs to be carried out at very short notice. The price is right, the go-ahead is given, and a bit later the subcontract documents are issued and signed (without too much thought on the part of the subcontractor).

    Only later, when the work is behind programme, does the subcontractor realise that it has tied itself to an impossibly short subcontract period and 鈥� worse still 鈥� an unbelievably high level of damages. Why? Because nobody checked the details inserted by the main contractor in the subcontract documents before it was signed.

    The subcontractor had tied itself to an impossibly short contract period and unbelievably high damages

  • A contractor enters into a design-and-build contract for the conversion of an office building into flats. The contract is based on a defined scope of work, but in addition requires the contractor to achieve compliance with statutory requirements.

    When the flats are occupied, the party walls fail to meet the required sound transmission performance. Result? The contractor has to carry out expensive soundproofing work in an occupied building at its own expense. Why? Despite pointing out the lack of soundproofing in the contract works at the time of tender, it entered into a contract that required it to do whatever work was necessary to achieve statutory compliance 鈥� and this included soundproofing.

    Clearly there are some pretty important contract law issues that would need to be looked at in both these cases. For instance, you would want to see whether there had been any mistake or misrepresentation and whether there was any possible redress.

    Setting this aside there is, however, a common theme. Nobody in these cases carried out a proper review of the contract, its scope, the obligations and the risks. They put together a tender price, a programme, and a methodology; they carried out a director's commercial tender review and won the job. Despite all this, they failed to grasp what they were getting themselves into.

    There is an encouraging move by some contractors, particularly the larger ones, to carry out risk reviews. Unfortunately, this only tends to be at the second stage of two-stage contracts. Because these are, essentially, negotiated there is an opportunity to price the risk and include it in the contract sum. Most contractors do not seem to apply the same processes to normal tenders.

    Ultimately, this is about money. Is it better to spend it on reviewing the contract documentation and getting the offer right or to spend it later on the external fees and internal costs of running and managing a dispute?

    • Postscript

    Andrew Hemsley is managing director of consulting at Cyril Sweett and can be reached on 020-7242 9777 or at andrew.hemsley@cyrilsweett.com.