You are a senior manager in a government department. Your job is to advise politicians on how to control the civil and building sectors in your country.
A large company, which managed many construction projects from public and private funding, collapsed due to unmanageable large debts.
This has led to many smaller companies being left with large amounts of unpaid bills. It has also caused major disruption in the country’s construction industry as well as internationally.
Industry commentators are studying the causes of the collapse and their impact on the supply chain.
They suggest that the reason for the collapse could be due to the use of amended or bespoke contracts, both between the client and the main contractor and between the main contractor’s supply chain and clients.
Some politicians call for new legislation to require that all construction contracts, including subcontracts be agreed upon on standard conditions without any special clauses. Additionally, your department has been asked by the government to produce a consultation paper on the collapse.
You will need to create a report based on the consultation paper.
Your report should contain a rationaled and supported recommendation about whether legislation should or not be enacted to limit the parties’ ability to use unamended construction contract forms.
Your report may include any aspect of contract administration.
Indicative word range
* Why should parties amend standard forms of contracts?
* What types of contracts are most appropriate for the construction contracts in your country’s jurisdiction?
* Are the standard contract forms compatible with subcontracts?
* Does the legislation have any negative impact on the construction industry
Case studies, case law, and any other appropriate authority are required to support your reasoning.
What is the reason parties choose to modify the Standard Forms of Contract?
SFC stands for Standard Forms of Contracts. These are agreements that include standardized and non-negotiated terms in a printed form.
SFC’s primary goal is to save time and money when negotiating contracts.
Because these SFCs are uniform, it is easier to negotiate contracts and saves time and money (Designing Buildings 2018).
These SFCs have been created to benefit both the customers and the suppliers.
This is to make sure that consumers have some protection.
However, these SFCs are said to give unfair advantage to suppliers (Upcounsel 2018, 2018).
This is because most consumers don’t read these contracts and pay little attention to the details. Fair Contracts (2014) also states that there are other factors that could have an impact on the contract.
Many times, it has been observed that the parties attempt to amend the SFCs based on their own choices.
This is considered risky, as it can affect the contract’s balance and cause legal uncertainties.
Many experts have criticized SFC amendments, such as Lloyd QC in Royal Brompton Hospital National Health Trust v Hammond and Others.
Because these SFCs were developed by representatives of different industries who are familiar with the common problems that arise from a particular project.
It is not possible to develop a standard form contract that meets all construction contract needs.
To meet client and contractor expectations, amendments to the standard contract form are necessary.
Some situations may require that an amendment be adopted by both parties in the standard form contract.
SFCs can be modified in certain cases, like when any clause is changed or becomes obsolete or a specific industry has added new terms.
SFCs should be modified in these situations (Designing Building 2017, 2017).
In order to redistribute the risks associated with contracts to contractors, employers often make amendments to standard forms of contract.
Sometimes, the contractor may amend the contract’s general conditions to avoid any liability.
These amendments are made with the help or special conditions of the contract, or by using correspondence that was exchanged between parties at the time they were negotiating the contract (McMullan (2018)
The standard form of a contract allows parties to adopt amendments that allow them to gain additional benefits.
Parties can take advantage of such amendments to get additional benefits beyond those provided by the accepted standard form.
It is recommended that amendments be done with great care.
Modupe’s research revealed that there are three main reasons why standard contracts need to be amended: altering the risk allocation, adding an additional obligation or adding another one; and changing something that is no more applicable.
These three factors are the most important for amendment.
It is impossible to create a contract that suits all the requirements of each project.
Therefore, amendment is an integral component of any standard contract. No standard contract can be considered appropriate without significant changes.
According to Mewomo and colleagues (2018), some modifications may be necessary depending on the nature or characteristics of the projects.
Therefore, amendments are often adopted in order to maximize the benefits of a contract.
What standard forms of contracts are most suitable for your country’s construction contracts?
United Arab Emirates is a civil law jurisdiction. Its cornerstone is the UAE Civil Transactions Law No.
5, also known as The Civil Code of the Country, was adopted in 1985.
Civil Code is one of several statutes that govern the country’s standard contract form. Other statutes include the Commercial Transactions Law and Federal Law No.
18 was passed in 1993, while adding to the civil code (Kanakri and al., 2017).
These provisions, such as the Civil Code, Commercial Law, and others, provide answers to many questions about contract formation, including what constitutes an offer and acceptance, how the agreement is interpreted, conditions that permit withdrawal of consent, the rights of the parties and remedies for breach.
The forms of contracts developed by the FIDIC (Federation International des Ingenieurs-Conseils) are often used by private contractors in UAE (Global Legal Group 2016).
In addition to this, the UAE standard contract is also heavily influenced by the Red- and Yellow-colored books that were published in 1999 (Kerr und al., 2014.).
According to the latest trend, FIDIC EPC/Turnkey Gold Book usage is on the rise in the country.
This is due to the book’s favorable risk allocation features that contractors can use for both delivery and design.
The FIDIC forms are also used to influence the structure of subcontract agreements.
It is important to consider the Articles 872-896 in the civil code when constructing the structure of a standard construction contract.
These articles address the basic rights of contractors, employers, as well as consultants who are involved in the construction contract.
This contract, also called muqawala is designed to accomplish a task.
The standard form of construction contracts that the FIDIC has developed for public sector construction is still used.
Abu Dhabi has adopted a separate standard form of construction contract, drafted in FIDIC’s capacity to carry out civil construction projects within the country (Global Legal Group 2016).
Schedules 1 & 2 of the Abu Dhabi Executive Decision 2007 have created their mandatory build-operate standard forms of contract.
Dubai Law No. 2 regulates the standard forms and contract.
6 in 1997 (Dla Piper 2018).
The UAE’s standard form of construction contract varies from sector to sector. It also depends on who is involved.
UAE has seen that personal and smaller construction contracts are often drafted by the contractor or engineer and not by lawyers or any regulating agencies.
The standard form for medium-sized and large-sized construction projects is typically of FIDIC.
It has been shown that, depending on the nature and scope of the project, necessary modifications are made to the standards forms published at FIDIC.
There are not many designs and build contracts in UAE.
These designs or build contracts can be included in development construction contracts or as specialized agreements that are undertaken for specific projects (ICLG 2018).
What are the compatible forms of subcontracts for standard contracts?
The provisions of subcontract can also be found in the standard form of subcontract.
1994 saw the publication by the FIDIC of a subcontract that was meant to be used in subcontract projects.
This form of subcontract can be used together with the Red Book standard form construction contract.
The Green Book developed a standard contract for contracts with a short length.
This Green Book also focuses on subcontracts.
Since its inception, The New Engineering Contract has focused on subcontracts.
NEC provides a wide variety of options to choose from the standard and subcontract forms depending on the nature or project (International Bar Association 2018).
The Institute of Chemical Engineers (IChemE), has given a particular emphasis to subcontracts in standard forms.
IChemE published many standard forms in conformity with the FIDIC. It has also used different colours to handle different types.
IChemE’s Brown Form of Contract is a standard form of subcontracts that can be used in civil engineering.
Another standard form is IChemE Yellow Subcontracts, (IChemE 2007, 2007).
Joint Contracts Tribunals have also published a standard form for subcontracts that may be used in a specific contract.
PPC2000, SPC2000, and PPC2000 both emphasize the importance of subcontractors being involved in contracts. This is to allow them to participate in the project design phase as also in risk management.
PPC2000, SPC2000, and PPC2000 stress the need to collaborate between subcontracts at all stages of a project.
The GC form of contract also has standards for subcontracts. This document discusses the general conditions of subcontracts, models of subcontracts, as well as guidance notes related to subcontracts (International Bar Association 2018).
What would be the impact on the construction industry if legislation was passed?
The construction industry is a vital part of the economy. However, it also has significant impacts on the environment.
Construction industry is one the biggest users of resources like water, energy and land use.
Environmental pollution from the construction industry can be either air, water, and noise.
To make construction activities more sustainable, and to control them, legislation has been a major task.
It will act as a guideline for and regulator of the construction industry.
It will regulate how equipment is used, water usage and energy are used by the construction sector.
This step will assist in strategic sustainability (Akadiri, et al. 2012).
Construction law is a common term.
This is due to the fact that some legislation governs construction activities.
Construction legislation usually covers safety and health, equipment, manuals used by contractors, safety at work, and workplace safety.
These are the major areas of construction that have an important role and any legislation related will have an immediate impact on the operation of the construction sector and its activities (Corneri, 2018).
This legislation is typically implemented to improve the sustainability of the construction industry.
It is a guide and regulator for the construction sector and helps to create sustainable construction practices.
Sustainability should be achieved in all three dimensions, which include the economic, social and environmental.
This legislation will enable the construction industry to attain this three-dimensional sustainability.
The legislation will enable contractors to make smart decisions and have the tools to measure their sustainability performance (Poveda& RyanYoung (2015)).
Legislation will be used to connect the national and local plans and policy with the construction activity, which will assist in achieving the economic goals of this industry.
As the legislation aligns with national economic strategies, it will help increase the viability for the construction industry.
Aligning with the economic strategy will not only improve the quality of the project, but also facilitate community development.
This will enable contractors to reach their social goals.
By allowing for planning policies that comply with the social arena requirements, the legislation can be a boon to the construction industry.
Contractors will be able create sustainable communities by following these guidelines.
Construction companies and contractors can prove their commitment to their work force by adhering to the health and safety guidelines.
This facilitates communication between the industry and the public (Constructing Excellence (2015)).
The legislation relating to environment allows construction companies to plan in a way that protects the environment.
Companies can use different assessment criteria provided by the government to help them assess their activities in a timely manner so that any negative effects on the environment can be avoided.
Environmental legislation is a way to efficiently manage construction waste.
It will also help to reduce noise pollution and air pollution.
The environmental legislation provides details about the construction industry, and how they can make it more energy-efficient as well as conserve water.
The construction industry will benefit from the adoption of all these legislations (Netregs 2018).
Construction companies that are successful for their economic sustainability will be able to maximize their performance.
Because they can provide maximum customer satisfaction, as well as job satisfaction to employees, this directly impacts the company’s productivity.
Legislation helps to reduce the number of construction defects and allows for faster completion.
Because of increased cost predictability, construction legislation facilitates lower-cost projects.
The main goals of legislation enactment are to increase economic growth, protect biodiversity, improve energy efficiency, and work closely with local communities while respecting staff (Akadiri and al., 2012).
These factors will improve the construction industry, so it can be said that legislation will not have a negative impact on the industry.
UAE has many laws which regulate construction activities. These laws aim to improve the construction industry.
The country’s construction industry is governed by both the Civil Code and Federal Laws.
The country has placed a special emphasis on health and safety standards while keeping in mind the labour force of the construction sector.
In addition to this, the country has technical guidelines that can also be used by the building industry (DLAPIPER (2018)).
The common law is not the only thing that applies to construction. Each emirate has their own laws.
Abu Dhabi has, for example, developed a specific law to regulate building activities. This was the Building Law, which was passed in 1983 (Dla Piper 2018).
UAE is currently working towards reducing its carbon footprint. It is also aiming to increase renewable energy use within the country. This law was passed in 1983.
This legislation will increase energy efficiency in the country, as it applies to the construction sector (Afridi & Angell (2012)).
However, it is likely that the enactment these legislations could put pressure on the construction industry to come up with innovative ways to deal.
This could lead to technological advances and improvements in construction equipment that will increase contractor investment.
However, these are not sufficient to prevent legislation being passed.
This is because the long-term benefits from this legislation far outweigh trivialities that are short-term.
Martin, 2018, says that if these laws are not in place and are not strictly enforced, there is a chance that the construction industry will continue doing whatever makes sense to them, regardless of whether it is economically feasible. They won’t think about the well-being of the environment or society.
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