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Sat 15 Aug 2009 04:00 AM

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Modifying standard form contracts

Our legal guru Dennis Brand from HBJ Gateley Wareing takes a closer look at the issues surrounding standard form contracts.

Our legal guru Dennis Brand from HBJ Gateley Wareing takes a closer look at the issues surrounding standard form contracts.

In the construction and engineering industries there are various industry bodies that publish standard form contracts - for example, FIDIC, IChemE, ICE, JCT and NEC3. While some publish standalone contracts, others publish full suites of contracts, allowing a varied choice of contract procurement.

There is also what might be termed ‘company standard' contracts; these are not to be confused with a company's standard terms and conditions of trading, which might be appended to a purchase order, but are contracts not dissimilar to the industry standard forms, with terms and provisions that a company will seek to impose on the other contracting party. These types of contract are difficult to change; the issuing company often fiercely resists any changes, even those that do not alter the basic terms of the contract.

As to the industry standard form of contracts, these frequently comprise two main sections, namely ‘General Conditions' and ‘Special Conditions'. The ‘General Conditions' are the main terms and conditions of the contract. The ‘Special Conditions', sometimes called ‘Conditions of Particular Application', is the section of the contract which allows for changes to be made to the ‘General Conditions'.

Important section

This is not to be confused with another important section of the contract being what FIDIC describes as the ‘Appendix to Tender', or JCT as ‘Contract Particulars', or NEC3 as ‘Contract Data'. Those sections do not in anyway change the ‘General Conditions' but, because the ‘General Conditions' (as the term implies), are non-specific to the parties or the subject matter of the contract, they allow for both contract and project specific information to be included - for example, the amount of an advance payment or performance bond, the duration of the contract and length of the defects liability period, etc.

The ‘Special Conditions' change the ‘General Conditions' - that is, should the parties wish to change any of the ‘General Conditions', then this can be done in the form of ‘Special Conditions'. So why would anybody want to change the ‘General Conditions'? The answer is that the ‘General Conditions' of a standard form contract are prepared on what might be termed a ‘one size fits all' basis.

The FIDIC suite of contracts, for example, is used in many countries throughout the world, and therefore will be used in different jurisdictions, where it may be necessary to change the ‘General Conditions'. One reason for making changes to the ‘General Conditions' may be because of a legal requirement - for example, payment of interest being contrary to the applicable law, or perhaps because the existence of exchange control or other currency restrictions.

Culture or religion

Perhaps there is an aspect of the culture or religion of the country where the work is to be performed that requires a change to be made to the ‘General Conditions', or perhaps there is something missing from the ‘General Conditions', or a particular project requirement that requires a change to the ‘General Conditions' - for example, a particular method of importing or exporting equipment and materials or obligations in relation to import duty, sales tax or withholding tax.

It may also be that the parties have determined that a provision within the ‘General Conditions' can be improved upon, and make that improvement by way of an amendment included in the ‘Special Conditions'. I am careful here to refer to the parties wishing to make the change to improve the contract and not just one party making the change, because in such a case that party will simply be trying to improve his position rather than the contract itself.

Not thrown together

It must also be said that standard form contracts, particularly those being industry standard forms, are not simply thrown together, but are prepared after considerable discussion and consultation within the industry, so that the final version which is published as an industry standard form is as fair and reasonable as possible as can be between the contracting parties.

The preparation of ‘Special Conditions' should only be undertaken by those who are well experienced in the preparation of contracts. All standard forms are intended to be balanced documents, and a change to one section, if not done with care, could well result in an imbalance elsewhere or, worse, ambiguity or misinterpretation, the stuff of which disputes are made.

Standard form contracts are usually subject to copyright, and therefore the practice of taking a standard form contract and having it retyped with changes should be avoided, as using and amending a standard form in this manner could be in breach of copyright.

Therefore when one is considering modifying a standard form contract, be it an industry standard or otherwise, one should only make those modifications in the form of ‘Special Conditions' or ‘Conditions of Particular Application'. Where possible, the standard form - that is, the ‘General Conditions' - should remain unchanged.

Minimal changes

However, where changes are necessary, they should be kept to a minimum, and where changes are made, one should not be deterred from challenging those changes - that is, ask why such change is necessary. We all have our preferred method of writing - be it language, phraseology or style - and just because we may prefer a different phrase or word is not of itself a good enough reason to change a standard form.

Where there are suites of contract, as in the case of FIDIC, IChemE or NEC3, etc., one will often encounter other standard forms from the same suite being used in a project - for example, consultancy contract, contract and subcontract.

Where standard forms are used that are published by the same industry body there will be consistency of language, terminology and definitions, and therefore one should take care that, when making changes, albeit changes properly made through the ‘Special Conditions', that those changes do not conflict with other contracts which may be used in respect of the same project and client.

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