The importance of using standard forms of contracts in construction industry

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The Importance of Using Standard Forms of Contracts in Construction Industry

Harmonizing to the 1996 Act of UK jurisprudence building contract has been defined as an understanding in authorship or evidenced in authorship, under which a party carries out building operations, arrange for others to transport out building operations or/and supply labour for transporting out of building operations ( Zaghloul & A ; Hartman, 2003 ) . The contract forms set up the legal relationship between the parties, in footings of rights, duty and responsibilities and modulate the commercial relationship between the parties ( Robinson & A ; Lavers, 1996 ) . There are two chief categorizations of contracts, viz. standard and non criterion contracts ( Murdoch & A ; Hughes, 2007 ) .

In the recent times, the commercial activities associated with the building industry are extremely complex and the standard signifiers of contracts have integrated into the daily minutess of most understandings ( Bunni, 1997 ) . It is non mandatory to utilize standard contracts in the building industry ; nevertheless it has become the common pattern in securing contractors, advisers or designers. There have been legion recommendations by writers and research workers to follow standard signifiers of contracts in the building concern. Harmonizing to Banwell Report ( 1964 ) , the building industry should explicate and utilize a individual standard-form contract for its full undertakings. The Latham Report ( 1990s ) besides supported the construct as recommended the Engineering and Construction Contract to be adopted as cosmopolitan standard building contracts. The usage of standard signifier of contract for all type of building undertakings is non realistic, but for similar type of undertaking has been seen to be so is really good ( Murdoch & A ; Hughes, 2007 ) .

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The intent of standardizing contract signifiers is chiefly to stipulate the head variables refering the building processes and activities ( Clegg, 1992 ) . For illustration, it so happens in most undertakings that existent work done by the contractor differs from as specified in the contract. And these changes are a major beginning of many struggles and differences ( Othman, 1997 ) . In such instances, standard signifiers contain agreements as to how to pull off these fluctuations.

Standard signifiers of contract are largely published by an important organic structure of the industry, recognised by all the parties involved, sketching the footings and conditions which sets the parametric quantities for the proceeding of the work. In the right spirit of standardisation, these signifiers are non subjected to any dialogue and amendments and are suited for broad array of similar undertakings and plants. The initial set of standard signifiers was formulated by the authorities section of UK for plants in the populace sector. Inspired by their construct, many other professional organic structures besides devised their versions of standard signifiers ( Bunni, 1997 ; Ismail, n.d. ) . Among assorted standard signifiers of building contracts are ICE 7 ( Institute of Civil Engineers ) , NEC 3 ( New Engineering Contract ) , JCT ( Joint Contract Tribunal ) , FIDIC ( International Federation of Consulting Engineers ) , AIA ( American Institute of Architects ) , EJDC ( Engineers Joint Contracts Documents Committee ) , etc. ( Murdoch & A ; Hughes, 2007 ) .

There are several advantages associated with the usage of standard signifiers of building contracts. Basically, standard signifiers originate from different sectors of building industry for assorted grounds ( Murdoch & A ; Hughes, 2007 ) . They have been devised as an end product of a procedure of dialogue between assorted sectors of the industry ; hence, they represent a via media between the involvement groups of the industry ( Murdoch & A ; Hughes, 2000 ) . Besides, as Numberss of involvement groups are involved and considered in the preparation of standard contracts, there is better possibility of just and balanced hazard allotment among the parties involved ( Murdoch & A ; Hughes, 2007 ) .

The premier ground that inclines building forces to follow standard signifier of contracts is acquaintance. The major advantage of utilizing a standard contractual signifier is that by insistent usage of the papers one becomes familiar with its content, and hence is witting of both its strengths and drawbacks ( Broome & A ; Hayes, 1997 ) . The contractual complexnesss associated with any type of contract are frequently instead typical to understand. The usage of standard contractual paperss AIDSs in familiarizing the assorted contractual clauses and commissariats to the users ( Murdoch & A ; Hughes, 2007 ) . This acquaintance with the content and clauses of the contract leads to lesser figure of differences and misinterpretations. The possibility of redundancy is besides removed ( Broome & A ; Hayes, 1997 ) . In add-on, the insistent usage of these signifiers leads to development of experience bank and consequence in increased efficiency ( Bunni, 1997 ) .

Precedent is another of import factor which generates from being similar with the contract and is favourable to the involved parties. In the scenario when a disputed undertaking is taken to tribunal, the criterion contracts enable the attorneies to advice their clients sing the likely consequence of the instance, as Judgess are bound to follow the old determinations ( Broome & A ; Hayes, 1997 ) .

Standard signifiers of contracts have been reported and observed to help the behavior of trade ( Murdoch & A ; Hughes, 2000 ) . Another factor which attracts forces towards standard contracts is that it reduces the focal point on specific contractual footings during the bargaining procedure ( Murdoch & A ; Hughes, 2007 ) . These signifiers are helpful in cut downing the cost linked to tendering and contract disposal. This is contrary to the amended signifiers of contracted which require the clients and tenderers to seek extra legal advice and the chance of the differences ensuing from unfamiliar footings besides increase ( OGC, n.d. ) . These signifiers lead to salvaging in clip as pulling up of contracts from abrasion is a boring undertaking ( Ismail, n.d. ) .

Standardization of the contract forms provides basic legal models which recognise the rights, duties and responsibilities of the parties and high spots the scope of the powers and responsibilities of the contract decision maker ( Nayagam & A ; Pathmavathy, 2005 ) . Furthermore, standardization of contracts leads to higher grade of certainty and equity during tendering procedure. They become the footing of comparing and rating and acquaintance with the content makes it convenient and faster in pricing every bit good ( Bunni, 1997 ; Ismail, n.d. ) .

As aforementioned, there are assorted establishments which have developed standard signifiers of contract. One of the most used and popular set of standard signifiers of contract have been developed by International Federation of Consulting Engineers ( FIDIC ) . These signifiers have been in usage for international building undertakings of all time since their preparation in 1957. The FIDIC contracts provide a comprehensive codification which can be applied with easiness in any legal system. The input has been provided from both applied scientists with experience of many technology undertakings and attorneies with broad array of experience outlining building contracts. The familiarity with these contracts has offered the building industry benefits in both tendering and undertaking direction. The contracts offer balanced and clearly defined hazards between the catching parties. FIDIC believes that it merely a just and balanced contract which is in the lasting best involvement of all concerned. The contracts account for all possible and likely hazard factors every bit good as clearly define the function of all involved parties. These facets of the contract facilitate in cut downing the figure of indefensible differences and judicial proceedings ( Thomas, Glover & A ; Hughes, 2006 ; Wade, 2005 ) .

FIDIC and other similar criterion signifiers of contract are favorable to the building industry as they facilitate the economy of both clip and cost – two success standards for any type of building undertakings. With the exclusion of few wholly alone undertakings, building undertakings frequently portion their chief features and these standard signifiers are devised sing the same.


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ICC-FIDIC Conference Paris 2005

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