REUTERS | Stephen Hird

What to give a client for Christmas? Or risk allocation and contract management

“You can’t always get what you want, but if you try sometimes you might find you get what you need.” Or so the song goes. It’s good advice in the run-up to Christmas, lest a lovingly gift-wrapped jumper fails to meet with your immediate approval.

So, as the festive season looms, what goodies are stacked in the aisles of the Construction Land Pop-up Store? And which of them is worth snapping up for our significant others (I’m thinking here of clients and contractors)? The choice is legion, so I shall pick out only a few of my favourite things.

No room at the City Inn

First up is the Court of Appeal’s decision in North Midland Building Ltd v Cyden Homes. Others have focused on its key features. Chief among these is confirmation that the concept of employer prevention isn’t a supervening principle: it is incapable of overriding an express provision that a contractor is not entitled to time in the event of concurrent delay. Hardly a surprise in a post-Arnold v Britton world: the rubric’s rubric is that the court gave a plain meaning to a pretty plainly worded clause. Despite Coulson LJ’s helpful clarifications, North Midland inevitably gets low marks for product innovation.

But my “grinch” with this case is really to do with those who initiated the clause. Whoever thought it was really necessary to include it in an English law building contract in the first place? What pressing need did it address? We are told that real instances of concurrency (applying something like the Marrin definition) occur only slightly more often than I’ve spotted Santa in the wee small hours of Christmas Day.

Perhaps the best argument for the clause is that it prevents (pardon the pun) some of the arguments beloved of claims consultants. You’ll know the thing: one concluding with a claim for time and money, having roped in some concept of concurrent delay. Often the concurrency is sensed – but not seen – lurking round the corner, in much the same way as a five-year-old might believe that Santa is about to shimmy down the chimney (or perform a similar miracle between cavity walls).

But what might the reasonable client on the Clapham omni-sleigh say, if asked how to deal with concurrent delay? Would they take a score draw approach? Under that method, where both the contractor and employer have failed to avoid delaying events at their risk, the contractor gets an extension of time for the period of concurrency. The obvious alternative is the “home goals” approach, featured in North Midland: both parties have scored once (been in delay), but as it is a home game (on the employer’s North Midland-type terms) the contractor doesn’t get time.

Now, I completely accept the Court of Appeal’s view that, as a matter of negotiation and risk allocation, parties can decide a match on home goals. Still (for me, anyway), it just doesn’t feel very fair, when each party is equally in the wrong.

Did anyone discuss all of this with the client? Did it really want such a clause, likely to deliver little practical dividend, other than perhaps set a crude tone for risk allocation and management under the contract? Or was the clause a clever piece of work by a zealous adviser keen to safeguard the client’s interests? And why on earth did the contractor agree to it, unless it also thought that concurrency hardly ever arises? Sadly, the report gives no clue as to the background, which to me is the most interesting thing about North Midland.

For what it is worth, my feeling is that (having spoken to some) many clients would endorse the score draw approach. And some might puzzle over suggestions that the home goals approach should (perhaps) be tried on, now that North Midland has confirmed that it is legitimate. Haven’t we got much more urgent points to address in procuring contracts in any sector?

Goodwill to all men?

What else is on offer? The last time I blogged, I quipped that NEC4 (likening it to the less revolutionary generations of Apple products) was a “tock” rather than a “tick”. Well, since then, NEC’s drafting committee has ticked, handing down the Alliance Contract (ALC).

Unlike the knockabout fare of the North Midland clause, the ALC is a premium product, more suited to that major public programme or utility company in your life. Its approach to risk allocation and contract administration is, naturally, very different: in fact, the ALC is a full fat alliancing model, with most risks (initially, anyway) shared between the parties and most decisions to be taken unanimously.

While the ALC may puzzle some on unwrapping, it does repay study, even if passing through the looking glass of alliancing is not for all. It promotes a defined and transparent way of managing project risk on a multi-party basis, hopefully to the benefit of all. Fundamentally, it prompts serious reflection on whether it is practicable (or even ultimately worthwhile) to ask the supply chain to underwrite risk to any significant extent in all cases.

Not a holy or silent knight

Passing to the seasonal ready meals, we spot a McAlpine’s turkey (or is it a pizza?), duly roasted by the TCC. The ingredients are from Almacantar (Centre Point) Ltd v Sir Robert McAlpine Ltd.

McAlpine contended that it was entitled to the balance of a pre-construction services fee, payable once the main contract had been signed. This was despite deciding that it wouldn’t enter into the intended lump sum design and build contract. Instead, it wished to proceed under construction management. When the contract was signed, it was with an entirely different contractor.

Unsurprisingly, the court had little truck with McAlpine’s case, including a longshot attempt to argue that “main contract” included a contract for the project with another contractor. A finding to the contrary would be a pantomime-like defiance of commercial logic, leading to McAlpine being paid in full for a failed process. No surprise there.

What Almacantar really illustrates is that two-stage tendering cannot ever guarantee that its promise will be delivered. If the construction market – or the risk appetite of the selected contractor – materially shifts, the client’s procurement strategy may end up derailed. This holds, no matter how well the process leading up to the second stage tender is run. And from what I’ve seen and heard, I do wonder just how well that always is.

Still clients are frequently (if often reluctantly) voting for two-stage tendering, though perhaps appreciating it may just set the stage for what is really a protracted negotiation. How much longer will that continue? Both the purchase and supply side grumble about two-stage tendering in the commercial construction sphere. But it remains with us, in what can seem an unfortunately debased form.

Wrapping up for the present

So what should we gift our clients? For my money, the main present is obvious, at least for those of us working in front-end procurement. It is a renewed focus on working with clients to identify and articulate material commercial and contractual risks. And that doesn’t mean back-covering for construction professionals or too-clever drafting. It means challenging our clients to think differently – where they aren’t already doing so – about what efficient risk allocation and management might mean on a job.

Perhaps that way we’ll all find we get a little bit more of what we need, even if we each give something away in the process.

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