Benefits of Bespoke Construction Contracts - Term Paper Example

 «Benefits of Bespoke Construction Contracts» 1. Introduction One of the most important criteria for the success of projects developed in various industrial sectors is the clear description of the terms under which these projects will be developed; commonly, this description has the form of a contract which is likely to be differentiated – in its structure and its content – in regard to the activities involved. In construction, the above procedure can be a challenging task; construction is a complex sector – referring to the demands of the projects involved, the funding and the skills required but also the consequences of a potential failure – in one or more terms of the relevant contract. Current paper focuses on a specific type of construction contracts, the Bespoke Contracts; emphasis is given on the benefits that Bespoke Contracts can offer compared to the existing forms of construction contracts; another issue explored in this paper is the difference between the Bespoke Contracts and the other construction contracts in regard to the allocation of risk. One of the most important findings of this study is that Bespoke Contracts are preferred by the parties involved in construction projects mostly because of their benefits – as presented analytically below; however, these contracts are also likely to bear certain risks – compared to the existing construction contracts. For this reason, it is concluded that the potential use of Bespoke contracts in specific construction projects should be carefully examined in advance ensuring that the risk involved is not high; another form of construction contract could be used instead. However, the value of Bespoke contracts in the development of various construction projects cannot be doubted – a fact, which is also indicated in the benefits that Bespoke Contracts can offer, compared to the other forms of construction contracts. Like in all forms of contracts, the effectiveness of Bespoke Contracts is related with the conditions of the organizational environment – referring also to the willingness of the parties to meet their obligations as these are defined in their agreement but they are also described in the relevant legal texts, mostly the Construction (Design and Management) Regulations 2007 and the Contracts (Rights of Third Parties) Act 1999. 2. Bespoke construction Contracts – description, role and characteristics Bespoke Contracts are core parts of the construction industry. The contractual agreements developed in the context of the specific industry are usually based on general contracts – which refer to all tasks usually developed in the context of construction projects; however, a construction project may be quite complex and it need to be based on a contract developed especially for it: a bespoke contract will be used in this case to cover all aspects of this project; in other words, Bespoke construction Contracts are contracts tailored to the needs of a specific construction project. It is possible that the development of a construction project is primarily based on a general construction contract; during the development of the project it is made clear that certain aspects of the project are not appropriately or adequately addressed; a Bespoke Contract will be used to cover any gaps in the provisions necessary for the successful development of the project; in the above case, the Bespoke Contract will have a supplementary role in the project’s completion (O’Reilly, 1999, p.37). In order to understand the value of Bespoke Contracts compared to the existing construction contracts, we should refer primarily to the role of Bespoke Contracts within the construction industry. Bespoke Contracts can be characterized as contracts of specific characteristics; their structure and their content are likely to be influenced by the conditions of the market, the willingness of the parties but also the demands of a particular construction project. All the above factors can influence the effectiveness of Bespoke Contracts – either in the short or the long term. In the study of Cox et al. (1997) the contractual environment of UK is set under examination; it is noted that in the contractual relations developed in the context of the above industry are likely to include the following elements: ‘the relationship, the risk apportionment, the division of responsibilities and the reimbursement mechanism’ (Cox et al., 1997, p. 127). On the other hand, like in all projects, the teams of persons involved in Bespoke Contracts need to be appropriately skilled – high level of integration and communication – also flexibility – in the workplace is required for the effective development of Bespoke Contracts – which can include quite complex guidelines and suggestions in regard to the development of a construction project (Baiden et al., 2006, p.13). 3. Benefits of Bespoke construction Contracts compared to existing forms of construction contracts As explained above, Bespoke Contracts reflect the will of the parties in regard to all potential aspects of a construction project; in this way, it is ensured that the requirements of a construction project can be met – the risk for potential disputes is also reduced. In order to understand the value of Bespoke Contracts in regard to the construction industry it would be necessary to explain the existing forms of construction contracts; at the next level, the benefits of the Bespoke Contracts should be analyzed aiming to show the superiority of these Contracts over the other forms of construction contracts. The characteristics of Bespoke Contracts – as analyzed above – could be also used in order to support the advantages of these Contracts compared to their rivals, i.e. the other forms of construction contracts. 3.1 Common forms of construction contracts The standard forms of construction contracts available to those interested in involved in a construction contractual agreement are the following ones: a) the Standard Form of Building Contract JCT 98, b) the JCT Intermediate Form IFC 98, c) the Standard Form of Building Contract with Contractor’s Design WCD 98, d) the JCT Major Project Form of Contract 2003 MPF 03, e) the JCT Construction Management Contract CM 02 and f) the ACA Standard Form of Contract for Project Partnering PPC 2000 (Cooke et al., 2004, p.20); the last form of standard construction contract (ACA Form of Contract) is used ‘in projects where a partnering arrangement is intended’ (Cooke et al., 2004, p.20); this form of standard construction contract would be appropriate for construction projects developed by the state or in the context of a PFI scheme. Another known form of construction contract is the New Engineering Contract (NEC) which has been introduced in order to support the development of construction projects the terms of which will be clearly clarified (Forward, 2002, p.6); however, through the years, the effectiveness of the specific form of construction contract has been strongly doubted; an alternative form of construction contract, was developed, the Engineering and Construction Contract (ECC) which managed to respond to the need for increased clarity in the construction sector (Broome et al., 1997, p. 255). The choice of the contract used in a construction project is usually based on the project’s needs but also on the willingness of the parties to enter a strict contractual agreement, i.e. a contract that include strict regulations/ obligations (a characteristic of the Bespoke construction Contracts). The potential combination of a Bespoke contract with a common (standard) construction contract is also possible; this is the case of many international construction contracts which may be characterized as Bespoke contracts but they have been developed using as a basis a standard form of construction contract (Cushman et al., 2000, p.475). 3.2 Benefits of Bespoke construction Contracts compared to the other forms of construction contracts The benefits of Bespoke construction Contracts compared to the existing construction contracts could be summarized as follows: a) The ‘fitness of purpose’ obligation: an important advantage of the Bespoke construction Contracts towards the other forms of construction contracts is the fact that in the former there is reference to the contractor’s ‘fitness for purpose’ obligation; in the context of this obligation, the contractor of a construction project has to warrant that ‘the completed works will be fit for their intended purpose’ (Ramsey et al., 2007, p.297); on the contrary, in the common construction contracts – reference can be made indicatively to the ‘Joint Contracts Tribunal (JCT) standard form of design and construct contracts’ (Ramsey et al., 2007, p.297) there is no such requirement; the above term offers a significant advantage to Bespoke Contracts leading to the increase of engagement of the contractor and helping to reduce the risks in regard to the project’s failure; even in such case, the beneficiary of the work can ask for compensation using the common rules of Contract Law referring also the ‘fit for purpose’ obligation of the contractor. b) Through Bespoke Contracts the obligations imposed to the parties are usually strict; in this way, the risk of failure – referring to the breach of the terms of contract – of these contracts is minimized; all aspects of construction projects are appropriately described and covered without leaving space for misinterpretations or misunderstanding. In this way, the effectiveness of Bespoke Contracts – compared to the traditional construction contracts is increased (Ramsey et al., 2007, p.298). c) Use in projects of specific demands, like the governmental construction projects and the PFI projects: as noted above, each Bespoke Contract is developed in order to meet the requirements of a particular construction project; this means that for construction projects of high importance – especially those aiming to serve the needs of the public – Bespoke Contracts would be preferred for the following reasons: a) through the ‘fit for purpose obligation’ included in the Contracts of this type, the quality of the construction work is guaranteed – as possible; otherwise, the right for appropriate compensation is established for breach of the contract, b) in Bespoke Contracts all requirements of a construction project can be analytically described; this means that the time required for the completion of a construction project can be more precisely estimated – there are little chances for additional tasks to appear up to the completion of the project, c) at the next level, in Bespoke Contracts it is possible that the time of the project’s delivery is not set – the average period of completion can be estimated but without the exact time point of the delivery to be mentioned in the Contract; in Bespoke Contract the lack of reference to the time of the delivery can be accepted even if there is qualification (Ramsey et al., 2007, p.298); in this way, there is greater flexibility in regard to the progress of the work; if the project is funded by the state or by the private investors (PFI) the terms of Bespoke Contracts would be appropriately customized – in case of a Contract that doesn’t include time of delivery – ensuring that there will be no extra cost for the delay, i.e. a term for pay up to the completion of the project, and not up to a specific date, should be included. d) Bespoke contracts can include terms that are not part of the existing construction contracts: for instance the provision for adjudication that can be included in a Bespoke construction Contract (Speaight, 2010, p. 272); this provision can be particularly valuable in case of violation of the terms of the Bespoke Contract – a benefit that is not available to the parties of existing construction contracts. e) In accordance with Jenkings et al. (2006, p.8) the use of the Bespoke Contracts in the construction industry can minimize the chances for disputes during the development or after the completion of construction projects; the above benefit of Bespoke Contracts involves also in construction projects developed internationally – usually those construction contracts that refer to construction projects developed out of the country of residence of the parties. 3.3 Differences between the Bespoke construction Contracts and the other forms of construction contracts regarding the allocation of risks As explained above, Bespoke construction Contracts are aligned with the needs of each construction project; however, they may bear risks the effects of which may be difficult to be controlled; an indicative example is the provision for payment of a construction project; it was made clear that Bespoke Contracts may not include the time of the work’s delivery; this fact leads to the following risk: employees in construction projects based on Bespoke Contracts cannot ask for payment on a specific day – moreover, they may not be aware of the level of their payment (Pettigrew, 2005, p.76). In case of common construction contracts there is not such risk: the date of the project’s delivery – and the cost of the project – is clearly described. In this way, the risk for the delay in the project’s payment is distributed among the parties where in Bespoke Contracts there is no such case – the contractor may delay in the project’s delivery and may not be responsible to compensate the employees – only the ‘fit for purpose’ obligation of the contractor is usually included in Bespoke Contracts. In accordance with Cottam (2002, p.2) the claim of the contractor towards the employees that he is not obliged to pay them immediately when the project is completed could be characterized as invalid; even the claim of the contractor that ‘pay when paid’ conditions exist in regard of a specific contract are characterized by Cottam (2002, p.2) as unfair. Bespoke construction Contracts are also differentiated by the common construction contracts in regard to the allocation of risk related with weather conditions. More specifically, Bespoke Contracts may ‘lay the risk of weather conditions at the door of the contractor’ (Davison et al., 2008, p.59); this means that in case of bad weather conditions – always referring to weather conditions that can prohibit the continuation of a construction project – the contractor may not be obliged to continue working on the specific project without his remuneration to be affected; in this way, the cost of a construction project can be increased at such point that the other party will not be able to meet his financial obligations in regard to the particular project; in this case, a risk of breach of a Bespoke Contract exists if the repayment of the project is not possible (as a result of the extreme increase of the project’s costs due to adverse weather conditions). In general construction contracts there is no such risk; the cost of a construction project based on a general construction contract may be increased but this increase will be within specific limits – the level of this increase is usually pre-set in the construction project; in this way, the risk for breach of the contract because of the extreme increase of its cost is reduced. On the other hand, Hughes et al. (2006, p.141) notes that Bespoke Contracts may be related with increased transaction costs – compared to the general construction contracts; however, it is not made clear under which conditions Bespoke Contracts could lead to the increase of transactions costs involved in a specific construction project; moreover, it is not mentioned whether this increase can result from the structure of the Contract itself or it is depended on the policies adopted by the parties in regard to the selection of the suppliers. It should be noted that in case of disputes related with the allocation of risk involved in a construction project, the provisions included in the relevant contractual agreement would be used as the basis for the dispute resolution (Chappell et al., 2005, p.9); the same practice should be followed in disputes involved in Bespoke construction Contracts. 4. Conclusion The development of a construction contract needs to be based on specific criteria: the resources available should be taken into consideration especially if the completion of the project is expected to last for a long period of time; the needs of the project – in terms of materials, skills of employees and environmental conditions – should be also taken into consideration. The type of the contract chosen by the parties has been proved to have a crucial role in the success of construction projects. The role of Bespoke Contracts in the construction industry can be characterized as important – an assumption based on the benefits of these contracts as described above; however, because these contracts are also associated with a series of risks – as presented in the previous section – it is suggested that specific measures are taken by those who have decided to enter a Bespoke Contract in the context of a specific construction project: a) all risks related with the completion of the project should be clearly allocated and distributed among the parties – attention should be paid on the weather – conditions risk which could affect the time of delivery of the project and its cost – as noted above, b) the terms of the dispute resolution process – if required – should be also clearly defined, c) alternative schemes should be also established – referring for instance to the case that the completion of the project may become impossible under the influence of specific events, extreme weather conditions or severe health problem; these schemes would define the procedure followed in case that the project would have to be terminated before its completion. All the above terms could be added in a Bespoke construction Contract – which is one of the most important benefits of the specific type of construction contracts; however, may certain of these terms have different form or functionality when used in the context of such contracts – for instance in Bespoke construction Contracts the weather – conditions clause commonly favours the contractor; for this reason, the Bespoke construction Contract used in a particular construction project should be carefully reviewed as of its appropriateness, its content and its flexibility; general terms would be avoided and specific provisions should be preferred – even they seem strict. In this way, the interests of all parties will be adequately protected. References/ Bibliography Ashworth, A., Hogg, K. (2007) Willis's Practice and Procedure for the Quantity Surveyor. Wiley-Blackwell Baiden, B., Price, A., Dainty, A. (2006) The extent of team integration within construction projects. 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