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In the second of a series of 4 articles looking at key issues that arise when drafting and agreeing contracts, Simon Tolson questions why there is a need to amend standard contracts in the first place.

Amending Standard Contracts - Why Do It

Why is it that lawyers feel the need to add reams of amendments sometimes as long as the standard forms themselves; the clear message should be "if it ain't broke don't fix it". Well, partly clients have a lot to answer for here, but so have my brethren.

The purpose of a written contract is after all to record accurately the terms of a business agreement. This always involves two opposing tensions: first, there is a need for contracts to be fair and flexible and second, they need to be unequivocal. Unfortunately, these two requirements are not good bedfellows. A clause, which unequivocally allocates liability to one party, might be capriciously or arbitrarily enforced. Similarly, a clause, which is flexible and fair, is usually vague as to precise liability. Absolute liability can only be construed as fair when the parties to a contract have had time to negotiate the terms and identify the full extent of their liabilities. Although the legal doctrine of consensus ad idem (a meeting of minds) assumes that this is indeed the case, it is rarely true in the practice of construction contracting. Usually, construction contracts are based upon industry-wide standards which often are hastily modified and executed during a hurried tendering process.

Spare a thought for the disparate interested parties, as positioning in contracts generally depends on whose point of view is taken, lets look at a few generalisations which will help put this in context:

Employer's perspective:

  • Often pay lip service to effective risk allocation
  • Need for control without responsibility
  • Likes 'idea' of single point responsibility
  • Loves to haggle price to the bone

Designer's perspective:

  • Talking out of both sides of their mouth
  • More an end man than a means guy
  • Stretched on detailing
  • Resists getting 'muddy' on site
  • Cost planning implications for managing change best done by others in team
  • Fees pared to the bone

Contractor's perspective

  • Wants job/turnover
  • Margins low so always looking for next job and now window shopping
  • Invariably more a design/builder than just contractor and does not like fact not left on own to get on with it
  • Not always resourced enough to effectively risk manage pre contract and on the hoof not much better!
  • Prepared to fight for entitlements when chickens come home to roost and make up for lost ground on the swings or roundabout

So getting those mixed 'wants' sorted contractually into one happy medium inevitably leads to compromises and that is usually won by the strongest at the table or the hungriest! Getting the form of contract right is an essential starting prerequisite to the success of a project and establishing clarity of obligation, particularly as to design duties and temporal considerations. For example, in practice entering into a contract and commencing construction based on a design that is incomplete can significantly increase the risk of 'problems' arising where ambiguity exists over the scope of design responsibility and interfacing with others taking a design role. The acceptance of "design responsibility" by a contractor of course affects not only the provision of design resources but presents risks and opportunities: there is a risk of design liability and an opportunity to design a structure which can be built more quickly and cheaply by use of the contractor's know how and therefore more profitably. The other side of the fence for the employer is that the more generic and unspecific his design brief, the less influence he has on the finished works and the aesthetic – ever the tension.

In the early years of the humdrum life of a construction solicitor amendments to standard forms seem to be the centre of their commercial world; it was mine, the making of them and the disputes they cause. It was much of what we did as we observed our principals at work and heard their pronouncements. All the non-contentious lawyers were busy drafting while the litigators were arguing about what they meant and I happily slid onto the latter side of the see saw. With a bit of luck, the litigators were not arguing over their own colleagues' drafting. My own non-contentious lawyers back at base will no doubt see the irony given the contentious 'litigators' they share the floor with like me earn their crust from the peccadilloes and worse of their drafting brethren. We know these touch stones well:

  • the language cannot be read in a manner that "flaunts business common-sense" Antaios Compania Naviera SA v. Salen Rederierna (AB [1985]);
  • that the tribunal will attempt to give effect to the whole of the document and to try to give meaning to every word;
  • that under English canons of interpretation whilst there is still scope for interpretation, it is not generally permitted to find meaning when none exists or to look behind the words to find the true intentions of the parties is not permitted;
  • the general principles identified by Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society approved by Lord Bingham in BCCI v Ali ([2002] AC 251) at Para.8 where he said:

    "...To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties [the factual matrix]. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified".

In all this I must remark:

  • It is a general principle in English contract law that commercial parties may make, within very broad parameters, whatever agreement they wish. They are masters of their own contractual fate.
  • Where risk allocation is not dealt with expressly, the law takes a firm view on the allocation of risk...
  • The risk allocation function of a contract is best satisfied by:

    Writing terms that control risk situations such as: who has what design responsibility for say wind load or poor ground conditions, or the risk of exceptionally inclement weather or fluctuations in the cost of labour plant and materials.
  • Where such matters are not dealt with expressly, the general law takes a view on the allocation of risk...

The general law principle is succinctly stated in Halsbury's Laws of England as follows:

  • "It is no excuse for non-performance of a contract to build a house or to construct works on a particular site that the soil thereof has either a latent or patent defect, rendering the building or construction impossible. It is the duty of the contractor before tendering to ascertain that it is practicable to execute the work on the site..."

Of course as lawyers we do not amend contracts for the hell of it, "we receive instructions" we react to 'need' as usually the employer wants us to pass on risk and beef up the ante as does the main contractor. Sometimes we counsel moderation and our clients ignore that advice at their peril. Contracts are not fashioned simply to pass the time of day. It is true some lawyers feel the need to dabble with the wording when presented with a draft but no more than an architect when presented with a plan or a dentist with a patient's 'nashers'.

The biggest sin my profession is guilty of is sending amendments out with a tender, without the amendments having ever been properly reviewed or mentored in any detail by the client to discuss why they are there, what they go to and whether they are needed. Clients' instructions are very often for the solicitor to issue their "standard amendments" to a particular form of contract. The only other clue as to what form these amendments are to take is that some need to be "bankable" or "employer friendly" or very occasionally "subbie friendly".

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