Contract law: the battle begins

The initial reaction from both main contractors and subcontractors to the publication last week of the government's long-awaited consultation paper on Fair Construction Companies has been one of disappointment at its 'watered-down terms' and a feeling that it fails to address the crucial problem of bespoke forms.

There have also been mixed interpretations of the extent to which the paper gives support to trust funds.

The Building Employers Confederation, in particular, has expressed deep concern at a perceived failure to back trust funds sufficiently. Specialist subcontractors seem more confident about the trust fund provisions. However, the document does put forward firm proposals for legislation to underpin standard forms of contract.

And, while it draws attention to various problems concerning statutory constraints on bespoke forms, it does not actually make any recommendations in this area. In short, all is still to be played for. And the industry has until 30 June to give its response.

Rudi Klein, legal adviser to the specialist Constructors Liaison Group, summed up this week: 'The battle now is not whether there is going to be legislation. I think that one is won.

'It is a question of what is going to be in the legislation. We don't want something that is going to be totally useless,' he added.

Sir Michael Latham, whose report on Constructing the Team prompted the consultation paper, added: 'The Government has given clear signals that legislation is probable. A recent all-party Parliamentary meeting showed very strong support from serious and experienced MPs.

'At the end of the day, legislation is a political matter. It is up to companies to apply the political pressure.'

Allan McDougall, chairman of the Constructors Liaison Group, has nonetheless commented: 'We are extremely disappointed that a Government department should produce a document that approaches the implementation of the Latham recommendations - and especially those which require legislation to underpin them - in such watered-down terms.'

McDougall cited a number of instances where he felt the consultation paper fell short of the Latham proposals.

These included: the omission of trust funds from bespoke contracts; the lack of effective measures to discourage the use of bespoke contracts; the restriction of adjudication to disputes over fair terms; the limited assistance offered on late payment.

On the latter point, the document says it is unlikely that pay-when-paid clauses would be recognised in statutorily-backed standard forms. It notes that the Government is pledged to review next year the general case for a legal right to interest on late payment.

John Huxtable, chief executive of the Confederation of Construction Specialists, has similarly expressed disappointment at the document. 'My first reaction on reading it was that it was like drowning in a bath of warm water,' he declared. 'There are some constructive elements on which we can build. But I get a pretty clear impression that the authors do not want statutory restraints on bespoke forms.'

That, according to Klein, is the principal objection to the consultation paper. 'They just do not seem to want to deal with bespoke forms,' he said.

'And it is bespoke forms and amended standard forms that are the crux of the problem and that are giving rise to all the disputes. All we are asking is that bespoke forms should be required to include certain basic minima. Otherwise, legislation to back standard forms could simply encourage the greater use of bespoke contracts.'

The document argues that it would be a radical step for the State to intervene in individual contractual relations. It concludes: 'Views are sought on the extent of the threat to the main proposals from the use of bespoke forms, on the best way in which bespoke forms could be regulated, and the practicability and acceptability of any attempt to regulate bespoke forms.'

In the light of Government policy on deregulation, it similarly concludes that 'the Government will need to satisfy itself that there is broad agreement within the industry and its clients with the proposals on contract conditions, and that legislation is the most appropriate way of achieving the benefits sought.'

Just how far any broad agreement can be achieved by contractors will be the key question during the next five weeks.

n Copies of the consultation document are available from Mike Metherall at the Department of the Environment, 2 Marsham Street, London (Tel: 0171 276 6596).