Contract flexibility: How far can it bend?

In certain quarters of the construction industry there is a belief that contracts need to provide flexibility and encourage good management. Nothing wrong with that, you might say, but what does it really mean? Associate those words with a particular way of doing things, in the mistaken belief that it does it best, and a potentially dangerous myth emerges. This article looks at what “flexibility” and “encourage good management” mean in practice.

Flexibility in terms of contracts could mean that different procurement approaches can be readily facilitated by the use of a standard form.In terms of the contract conditions, flexibility could mean one of at least three things:

• There are options that can be selected to meet the varying and particular needs of projects – for example, insurance or sectional completion
• There are options in terms of the operation of procedures
• There are options in terms of interpretation of the provisions.

In terms of procurement approach

Over the years the construction industry has developed a range of procurement approaches to meet different circumstances. Contracts can respond to this in two distinct ways, either by providing core clauses and specific documents for each procurement option, or alternatively by producing a self-contained contract to reflect a specific procurement route.

Contracts should not, indeed cannot, be used to educate managers, and nor should they inhibit good management

Either way the offerings provide flexibility of choice, but whether one is better than the other is a matter of opinion. The former uses exactly the same wording across the options and consequently there are those that believe it promotes good communication.

On the other hand, as the document is not self-contained it is difficult to see what conditions apply without a good deal of effort. Furthermore, common provisions across procurement options have limitations. They do not always work as clearly as provisions in a contract that has been specifically drafted for the particular procurement option; one can never be entirely sure what changes are necessary.

In terms of the contract conditions

Flexibility in terms of the contract conditions is sensible because no two projects are the same. But allowing for flexibility in the operation of procedures is a complex matter. Some practitioners criticise contracts for containing too much procedural content because, among other things, it is frequently ignored. Ignoring it is probably not a good idea - the procedure has been written and provided for a purpose. But overly prescriptive procedures that do not provide for the review of decisions and the exercise of professional judgment at the most appropriate time will create problems.

Flexibility in terms of interpretation of the provisions is something to be avoided; after all, they are setting out the rights and duties of the parties so as to avoid problems. However well the drafting is performed, it cannot prevent disputes where people are so minded, but it can and does assist their resolution should they arise. The fact that disputes arise is no reason to adopt woolly language. What is sought is language that provides legal certainty while being readily understood by non-lawyers.

Encouraging good management

Insofar as they can, I would agree with the idea that contracts should encourage this, but the reality is they can only have a limited effect. The view that contracts should encourage good management implies that good management arises because of the procedures the contract contains. Good management is much more about good managers; people who have been properly educated and gained experience of construction projects and contracts. Contracts should not, indeed cannot, be used to educate managers, and nor should they inhibit good management. Management procedures should never usurp proper contract provision but they can be used in varying degrees to supplement it.

The inclusion of procedures in a contract should be proportionate to its purpose (Minor Works, Design & Build, Major Project and so on) and should provide for the fullest level of professional judgment so that equitable solutions are provided rather than artificially hard-nosed positions that cause disputes.

JCT standard form contracts provide procedures that have an in-built flexibility so that such judgment can be used. They also use words that enable precise interpretation. They are about reflecting good practice, and are able to achieve this through the collective inputs of the construction industry.

Peter Hibberd is chairman of the Joint Contracts Tribunal