Paul Brampton, a partner and the head of the Construction and Engineering Team at IBB Solicitors, defines the risk relationship between developer and builder.
I am often asked to unravel the mess and uncertainty generated when parties find themselves in dispute without a properly drafted contract in place, or worse still, no written contract at all. It can be a time consuming and costly exercise.
The allocation of risk and responsibility is always a matter best worked out between the parties and properly committed to writing. It should never be left to chance.
Common Law
The common law will come to the rescue and plug some gaps to make a poorly drafted contract work, but the law will only imply essential terms. Examples include:
• Materials are of good and proper quality
• Design and/or workmanship are fit for purpose
• To exercise reasonable skill and care
• Not to hinder the performance of the other party
• To complete the works in a reasonable time
Moreover, implied terms are, by their nature, more open to interpretation and so are a rich source of dispute.
Building Contracts
By contrast a well drafted building contract clearly allocates risk and reward between the developer and the builder, thereby reducing the scope for interpretation and dispute.
In addition, a good building contract can serve as a useful management tool, which can prevent issues from growing into full blown disputes.
Standard Forms
A formalised approach to contract management and risk allocation has arisen through the widespread adoption of standard form building contracts such as those drafted by the Joint Contracts Tribunal (JCT). An advantage is that there is greater consensus on their interpretation, aided by a body of case law. Many of the publishing bodies issue guidance notes, and text books have been written which devote pages to the interpretation of the more common standard forms. Standard form contracts typically tackle:
• the allocation of design risk, and the risk of unintended design discrepancies
• the risk of specified events causing delay, loss or expense
• the risk of defects appearing in a specified period after practical completion of the works
• the risk of market fluctuations in the price of materials
• Insurance of risks
• The risk of insolvency of one of the parties, and
• The risk of dispute between the parties
Bespoke Forms
Equally, it is commonplace for parties to instruct solicitors to draft bespoke forms of ‘development agreement’ especially where there is a need to address site specific considerations. Drafting will commonly address:
• The risk associated with securing a satisfactory planning permission, environmental survey, or financial viability report
• The risk associated with site assembly i.e. acquiring the necessary parcels of land to facilitate a development
• Problematic site conditions
• Responsibility for the Community Infrastructure Levy
• Sharing of proceeds and expenses
• Managing the risks associated with the purchase of the development (for example a forward purchase agreement or a golden brick agreement)
• Managing the risk associated with the letting of development on completion of the building works (for example a pre-let agreement or an agreement for lease)
• The risk that the development might never get off the ground or achieve completion.
Failure to properly manage these types of risk, especially on large scale project, can represent an existential risk to developer or builder, and a one-way trip to Carey Street.
So get stitching early and put your contracts in place.
