The Construction Leadership Council (CLC) has issued a stark warning against amendments to standard industry contracts by clients and their legal teams.
- Alterations to contracts are leading to unviable agreements and increased project risks.
- Onerous modifications can inflate legal costs and complicate insurance claims.
- There’s a critical need to adhere to industry-accepted contract forms to mitigate risk and ensure clarity.
- The CLC suggests using unamended templates for contracts unless project-specific risks justify changes.
The Construction Leadership Council (CLC) is addressing the concerning trend of clients altering standard industry contracts with their own amendments deemed ‘mucky fingerprints’. These modifications introduced by clients and their solicitors often result in terms that are burdensome and challenging to insure. It is the opinion of the CLC that standard contracts for building, engineering, and professional services should remain unamended unless specific project risks and relationships dictate otherwise.
Modifications that are considered to be overly burdensome render contracts non-viable, diminishing competition and escalating risks. This leads to surging legal costs as parties are compelled to scrutinise legal liabilities produced by these alterations. Furthermore, the CLC posits that a more straightforward approach to contractual liabilities, alongside clarity in roles and responsibilities, especially regarding fire safety design, aligns with recommendations from The Grenfell Tower Inquiry: Phase 2 Report Overview.
Amending standard contract terms often extends beyond the indemnity coverage offered by contractors’ and consultants’ professional indemnity insurance (PII) policies. These policies typically cover claims to the extent that obligations exist absent of the contract. Increasing indemnity limits contribute to a dissonance between exposures faced and insurances that can be reasonably secured. Consequently, if a client suffers a loss, they may find recovery elusive due to inadequate insurance coverage, forcing consultants or contractors into financial jeopardy.
The CLC’s insurance working group highlights the frequent tampering of standard contract forms to include liabilities disproportionate to the contractor’s and sub-consultant’s nature of work and PII coverage. Failure to align these elements risks clients being unable to recover claims in adverse circumstances. The CLC advises that initial contracts should predominantly use unamended templates, with any necessary modifications clearly documented and justified for specific schemes.
In efforts to alleviate confusion, the CLC suggests changes should be explicitly itemized within contract documents. This includes preserving original clause text with strike-through markings for deletions and highlighted additions. Preparing a schedule that explicates the reasons behind amendments helps all parties comprehend their insurance risk profiles. This approach is deemed particularly beneficial for SMEs lacking in-house legal resources to evaluate changes, ensuring that risk transfer is equitable and assigned to competent, well-resourced entities, with a Design Responsibility Matrix as a valuable tool.
Samantha Peat, chair of the CLC’s professional indemnity insurance working group, advocates for a grounded approach to risk allocation. “A sensible approach will simplify risk allocation, give clarity to the project team and their PII providers, and address the concerns for which the CLC PII Working Group was originally formed,” she states, pointing to broader systemic changes mandated by reforms such as the Building Safety Act.
This decisive stance by the CLC underscores its commitment to safeguarding all stakeholders from undue risk, ensuring fairness and efficiency in contract use.
