Do we have a deal part 2: Putting documents together
Owen Hayford, Partner, and Stuart Connor, Senior Associate, Construction and Major Projects
Owen Hayford
The second issue that you and I both see a lot is the way contracts are put together, particularly in the construction industry where the owner will go out with a tender, he'll issue perhaps addenda to his tender, he'll issue general conditions of contract, the tenderers will respond with their concept designs, their qualifications to the technical specifications, perhaps qualifications to the general conditions and assumptions and what not that they've made in putting together their tender. There might also be issues which are the subject of subsequent correspondence, and perhaps a number of letters before a resolution is reached.
I've seen scenarios where instead of trying to reconcile all of those issues and put together a contract which just comprises the conditions amended to reflect the actual agreement and the specifications, again amended to reflect or incorporate the contractor's concept design, and any other issues that have been discussed, the parties often just try and bundle everything up - the tender, the response, the whole lot - and put it into a contract and proceed on their merry way. That approach is fairly fraught with difficulty, as you'd know Stuart.
Stuart Connor
Yeah, absolutely. Look, the feeling I get is when things come across my desk, the commercial and the technical people have been through a process of each trying to squeeze from the deal what they want and need from it for their respective parties, and there's almost a sense of exhaustion when it comes to us. And they just want to take what they've done, which they now feel has come to a certain level of completion, bundle it all together and call that a contract. The problem is inevitably that when you get into the detail, you see the holes and the gaps between the agreement that they've actually reached.
Owen Hayford
It's a high-risk strategy because if an issue does arise, you're trying to work out how to reconcile the conflicting statements or positions within the contract with respect to that issue. You're also doing that in an environment that's much more tense where there's real money hanging off the resolution of that problem, and each party will have taken a position which will tend to favour them commercially. At that point, it can be much, much more difficult to resolve those issues - if they're resolvable at all.
Stuart Connor
So what can you do in your contract to reduce those risks?
Owen Hayford
Ideally, iron out the discrepancies and make the amendments. If you can't do that, there are a few steps you can take to minimise or reduce the risks.
Firstly you should consider an order of priority clause which sets out the order in which the various documents comprised in your contract are to be interpreted and which documents will have priority over others in the event of any inconsistency.
The other thing is the parties really need to turn their mind to the assumptions and qualifications that the contractor has included in its bid This is an important point, especially for the contractors, because those assumptions and qualifications will contradict the principal's requirements in the conditions and the tender specs. The contract should explain how those assumptions and qualifications are to be reconciled with the rest of the contract.
Stuart Connor
So if there's an assumption that the air-conditioning will be able to be put in in this way, what happens if that assumption turns out to be wrong, that sort of thing. It reminds me of a case which I saw recently. It was a remediation case and the parties agreed that the contractor would do some remediation work on behalf of the principal and the terms of the contract were actually quite strict: they required 100 percent remediation of all the pollution that was on the site.
Owen Hayford
Sounds expensive.
Stuart Connor
Well, that's exactly what it turned out to be. The contractor found out that it was going to cost multiple times what they thought it was going to cost and was looking to see whether he would have full responsibility to carry out that work, and the case ended up in court as these things do.
The contractor sought to point to what was called a remediation plan. It was a plan that wasn't really prepared for the contract, and it was almost as though it had just been sort of blue-tacked on the back of the contract. But it had some terms in it which sort of hinted at a reduction of the obligation to achieve 100 percent remediation. For example, it talked about contingency plans if it's not possible to achieve 100 percent remediation. So the court looked at that but it said it had difficulty, in light of the clear words of the contract, giving that schedule the meaning that perhaps the contractor when it asked for it to be put into the contract wanted it to have. This was because nothing in the contract properly caught up that remediation plan so as to otherwise reduce the strict obligations in the contract.
Owen Hayford
Well, if your remediation plan was originally prepared with an intent other than it being a contractual document, it's probably not going to sit very comfortably with the provisions in the contract. There's a great example of a situation where it would have been in the contractor's best interest to spend the time now with the client, work out exactly what's required, and document that clearly within the main provisions of the contract, rather leaving it in some plan that's, as you say, tacked on the end of the contract with a whole stack of other technical documents.
Stuart Connor
It's not only the principal that's got things to lose with unclear contracting.
