Contractual - Onerous Terms & Conditions
In the construction and facilities management sectors, other than in the consumer market, 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.
- 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 place unmanageable and overly onerous risk on to the party carrying out the works.
ECA has used its collective experience to assimilate a guidance document that:
a) 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 members’ detriment;
b) outlines the risk of those types of clauses;
c) 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’ decision 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.
This resource will be updated as the law evolves and as terms and conditions revise to reflect a change in the working environment.
Onerous Terms - Index
1. Main Contract Discount
2. Reduced Scope for extensions of time / loss and/or expense
3. Compliance with the Main Contract
4. Compliance with ancillary documents not previously seen
5. Loss of profit on termination
6. Cross contract set-ff
7. Late Payment of Interest
8. Conditions precedent
9. Extended Payment Period
10. Variations (i)
11. Variations (ii)
14. Exclusive Remedy Provision
16. Insolvency under a third-party contract. Pay-When-Paid
17. Ownership of the Sub-Contractor’s Equipment
19. Payment of adjudication costs by referring party
20. Termination at Will
21. Sub-Contractor’s Equipment on Termination
22. Fitness for Purpose
23. Variations In Writing
24. Termination At Will
25. Termination Restrictions Imposed by a Collateral Warranty