ECA has long maintained a view on what constitutes standard industry practice in contracting.
Our perspective is informed by enquiries from nearly 3,000 specialist contractors. We are therefore able to highlight ostensibly onerous practices within an industry where contracts can be unforgiving.
In the construction and facilities management sectors, clients attempt to dictate the terms and conditions upon which ECA Members are engaged to carry out their works.
There are two ways in which ECA Members are commonly asked to enter into contracts with their clients, namely:
1. Modified standard form contracts i.e. JCT or NEC.
2. In-house bespoke terms and conditions which are procured as an investment in commercial risk protection by the client in question.
There are two reasons why modified standard forms or bespoke forms of contract come about:
1. To recognise specific project risks, e.g. if the project is on a high security risk site, there may be additional contractual requirements surrounding security.
2. Commercial risk transfer – in order to de-risk the commercial model of their own business, clients will often seek to push, either through the standard form modifications or the bespoke terms, as much commercial risk downwards within the contractual chain as possible.
The latter approach is intended to safeguard the profitability of their businesses, but it will often pass unmanageable and overly onerous risk on to the party carrying out the works.
ECA has published a guidance document that identifies common areas of standard form contracts – which broadly represent the industry norm for what is acceptable risk allocation – and/or bespoke terms and identify where those issues are modified to an ECA Member’s detriment.
The document also outlines the risk of those types of clauses and suggests a risk-proportionate approach and rationale for finding and negotiating a compromise which aligns the risks involved with the parties who are realistically and proportionately in a position to manage those risks.
ECA wishes to identify and inform the engineering services sector and ECA Members’ decisions on what ‘fair, reasonable and good contractual practice’ looks like. ECA remains committed to fair and open competition and this document is not designed to in any way dictate what may be an appropriate risk allocation for a specific project, or act as a substitute for ECA Members obtaining project and context specific legal advice.
ECA Members can click here to view our guidance on what are considered onerous contractual practices and how to handle them.