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Commercial Contracts, Construction Law

Commercial Project Relationships

In any discussion regarding Workplace Health & Safety, the Swiss Cheese Model of accident causation is often used to demonstrate the risk management principle of layered security against loss or adverse incidents. According to this model, when the holes in the various layers of defence line up, an incident will eventually occur.

Similarly, in commercial agreements associated with construction projects, the biggest failures don’t come from a single event, but rather from multiple failures in systems, processes, and relationships. Commercial Construction Project Management is a rigorous discipline and it needs to be. We’ve recently had the opportunity to assist several clients at both the front and back ends of their projects to either set up projects for success from the outset or to put projects back together when they run off track. At PBL, we believe that the parties to a commercial agreement ultimately want the same outcome, a successfully completed quality project delivered to a fit-for-purpose standard at a commercially savvy price. They often just don’t realise that they have the same goal!

At the front end of projects, this is all about managing and ensuring that all parties have the same understanding and expectation of what they are going to provide to each other – lawyers call it the consideration or the mutual promises between the parties. These promises are intangible but are defined with the help of contracts, documents, drawings, and specifications which set out the responsibilities of the parties before the execution phase of the contract. At PBL, when reviewing documentation, we place ourselves in the position of the client as either subcontractor, head contractor, or principal. We examine not only the legal issues, but also the commercial operational issues, to assist the client in delivering their part of the bargain. In a recent advice for a contracting client, we were presented with a service contract and associated documentation of over a hundred pages to review. The principal author of the contract had been quite reasonable in their approach and the legal issues for discussion with the client came to less than a few paragraphs, but the operational changes included in the advice covered almost three pages.

Commercial disputes after the execution of contracts are more difficult to repair and require bringing the parties back to the basics of what they could reasonably have expected of each other at the time the contract was made. We usually find that the Swiss cheese model applies and that commercial difficulties are multifaceted rather than the fault of any one party or event. They can usually be traced to failures by both parties to comply with their individual obligations under the contract, like not complying with details of specifications, not following contract processes, sloppy recording of time extensions and variations, and generally not managing the commercial relationship with the discipline required. Nevertheless, we usually find that once process improvements are implemented, the relationship between the parties improves as well!

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