THE NEW RIAI BUILDING CONTRACT: A MUCH NEEDED FACELIFT FOR AN OLD DAME? BY MARTIN COONEY

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1 The Construction Bar Association of Ireland The Law Library Distillery Building Church Street, Dublin 7 THE NEW RIAI BUILDING CONTRACT: A MUCH NEEDED FACELIFT FOR AN OLD DAME? BY MARTIN COONEY CONSTRUCTION BAR ASSOCIATION OF IRELAND ANNUAL CONFERENCE, 27 TH APRIL Introduction the development of Standard Form Contracts in Construction 1.1. Freedom of contract is a long established principle of the common law. This refers to the ability of parties to agree contracts without unnecessary interference by the legislature or government. The logic behind the principle is succinctly summarised as follows: the fact that all persons whose interests are affected by an arrangement have freely and with full knowledge agreed on that arrangement, is, in general, cogent evidence in favour of its justice. When all persons interested in a particular transaction have given their consent to it and are satisfied, the law may safely step in with its sanctions to guarantee that right be done by the fulfillment of reasonable expectations The courts in England were particularly supportive of the concept in the nineteenth century and, as such, parties were free to agree contractual terms 1 Sir David Hughes Parry, The Sanctity of Contracts in English Law, The Hamlyn Lectures, Tenth Series, (The Hamlyn Trust London, Stevens & Sons Limited)

2 without significant interference or restrictions. As a result, standard form contracts were developed which set out the rights and responsibilities of the parties. Uff highlights that their obvious advantage is that they become well-known and predictable, and their provisions can be interpreted by the courts thus providing additional guidance for users. 2 He traces standard forms of construction contracts to the nineteenth century when most major building projects were undertaken by local authorities. 3 As standard forms developed, however, concerns arose that they allowed stronger parties take advantage of weaker parties. Lord Denning pointed out: Faced with this abuse of power- by the strong against the weak by the use of the small print of the conditions the judges did what they could to put a curb upon it. They still had before them the idol freedom of contract. They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called the true construction of the contract. They used it with great skill and ingenuity Thus, slowly but surely, the concept of freedom of contract came to be restricted by the courts. As trade and commerce developed, particularly in terms of consumers, the legislature introduced statutory provisions which implied rights and obligations on parties to contracts. Construction contracts were no different, although a sector specific piece of legislation was not introduced in the UK until the late twentieth century in terms of the Housing Grants, Construction and Regeneration Act Nevertheless, the use of standard form contracts in the construction industry in the UK became widespread. Standard forms were developed by a number of professional bodies which gradually extended to the production of suites of contracts to deal with different circumstances and procurement methods. Ireland was no different, with the RIAI having 2 John Uff, Construction Law (10 th edn, Sweet & Maxwell 2009) Uff (n 2) George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] QB 284, 297 2

3 decided to develop a standard form contract in the late nineteenth century, which was ultimately first published in 1910 in agreement with the Master Builders. 5 Keane identifies that this first edition appears to have been used up to 1939, when a revised draft of a new edition was circulated. This led to a disagreement with the precursor to the CIF (the Federation of Building Contractors and Allied Employers of Ireland) and it was not until 1950 that matters were resolved. 6 In order to avoid such disputes in the future, a Liaison Committee was established with representatives of the RIAI, CIF, SCSI and ACEI to interpret and review the standard form The latest edition of the standard form is the RIAI Construction Contract August 2017 Edition which is identified as an amended version of the 2012 edition. 7 The focus of this paper will be on the amendments, however, it is worth providing some information on the nature of the RIAI Construction Contract so as to give some context to the discussion. 2. The RIAI Contract 2.1. The RIAI publishes four standard form construction contracts which are: The RIAI Construction Contract where Quantities form part of the contract (the Yellow Form ); The RIAI Construction Contract where Quantities do not form part of the contract (the Blue Form ); Articles of Agreement SF88, 1999 Edition (the Short Form ); and RIAI Building Contract, August 2002 (the White Form ). This paper will focus exclusively on the first two standard forms, the Yellow and Blue Forms, which are essentially two versions of the one standard form. They will be referred to collectively hereafter as the RIAI Contract The RIAI Contract is the most widely used private sector contract in Ireland and, as such, may be considered the Grand Dame of standard 5 David Keane, The RIAI Contracts: A Working Guide (4 th edn, The RIAI 2001) 26 6 Keane (n.5) 27 7 RIAI Construction Contract August 2017 Edition, cover page. 3

4 forms in Ireland. It has been produced by the RIAI in agreement with the Construction Industry Federation and the Society of Chartered Surveyors Ireland. Therefore, it is believed that all parties interests are represented i.e. those of the client, the construction industry and the professions. As a result, it is generally considered to be a fair contract with a level balancing of risk allocation. Nevertheless, it is common that this standard form contract is heavily amended and, so much so, that there are what are considered to be industry standard amendments Both the Yellow and Blue Forms are designed to be used in a traditional project procurement context i.e. where the client/employer has carried out the design The Yellow Form is a remeasurement contract which means that the work is measured and paid on the basis of rates identified in a Bill of Quantities. It anticipates that the design will be completed before the contract and a full measured Bill of Quantities has been prepared. The contract consists of the form of contract, contract drawings and contract bills By contrast, the Blue Form is a lump sum fixed price contract. This means that the contractor is expected to complete the works for a fixed price. Therefore, a Bill of Quantities is not required as the cost of the work is encompassed in the fixed price. There is, however, a schedule of rates which is to be used a basis for pricing variations under the contract. The contract documents consist of the form of contract, contract drawings, specifications and a schedule of rates. Lump sum fixed price contracts are popular as they are believed to give an employer/client greater certainty over costs and more cost control The RIAI Contract is divided into sections: the Articles of Agreement, Conditions of Contract and the Schedule. The Articles of Agreement provide the essential details in relation to the contract and the fundamental agreement between the parties. They contain the details of the parties, the Works, the contract documents, the Contract Sum, and the parties 4

5 agents. It also contains the execution blocks so that the contract can be signed as a simple contract or as a deed. It is designed so that the parties can fill in the requisite blanks so as to complete the agreement between them Details of the operational and management mechanisms are provided in the Conditions of Contract. There are 38 clauses in the Conditions dealing with everything from management, variations, payment and dispute resolution. The dispute resolution clause provides for negotiations, conciliation and arbitration The Appendix provides a mechanism for inserting details which vary from project to project. Similar to the Articles of Agreement, it has specific blanks that must be completed by the parties. There are now eighteen items relating to specific clauses in the contract which can be completed by the parties according to the agreed commercial arrangements Whilst it is considered to be balanced, the RIAI Contract is amended practically as a matter of course. Employers/clients will amend clauses to make the terms more favourable to them and to push more risk on the contractor. Similarly, contractors will seek to do likewise with employers/clients. Funders will also require that amendments are made to give greater cost certainty, to provide for certain deliverables during the course of the contract and on completion and to ensure the provision of access and information to their representatives Amendments are usually prepared as a separate document which incorporate the RIAI Contract and then identifies the amendments to specific provisions of the RIAI Contract. This means that any amendments must be read in conjunction with the RIAI contract, usually with the two documents side by side as you work your way through them. Hence, it can be a difficult job to ascertain what the actual contractual provisions are when you have a schedule of detailed amendments. Nevertheless, it remains the preferred standard form contract in the industry. 5

6 3. The 2017 Edits to the RIAI Contract 3.1. The RIAI Contracts Drafting Group (the CDG ) is working on a complete overhaul and modernisation of the RIAI Contract whilst engaging in liaison with the various stakeholders in the industry. 8 The wider scope of the CDG s work includes: a complete overhaul of the RIAI Contract this will include the use of plain English; a revised structure for ease of navigation; provisions on building control and building regulations; revisions in respect of the use of Nominated Sub-Contractors; a revision of the insurance provisions; time bars; optional provisions to deal with common funders requirements; related documents and forms; and an extended Practice Note and Guide; a new Short Form 2018 (SF18) to replace SF88; a new Design & Build standard form; and accompanying Project Management Guides, forms and certificates Whilst the CDG is still working on the overhaul of the suite of contracts, the 2017 edition of the RIAI Contract was produced and published mainly as a response to the introduction of the Construction Contracts Act 2013 (the 2013 Act ) and the Building Control (Amendment) Regulations It was felt that this was urgently required so as to reflect the current legislative framework and changing practice since the 2012 edition As previously noted, the 2017 edition is an amended version of the 2012 edition with seven main amendments ( Edits ). Therefore, the 2012 edition has been given a facelift as opposed to a complete overhaul. These Edits are as follows: Edit 1 The Execution block in the Articles of Agreement dealing with the identity of the parties; Edit 2 An expansion of the definition of the Works provided in clause 1 of the Conditions of Contract; 8 RIAI, Practice Note for RIAI Constructions Contracts (RIAI 2017) 2 6

7 Edit 3 Redefining clause 38 of the Conditions of Contract to focus on avoiding and resolving disputes; Edit 4 there is a proposed amendment for the way VAT will be dealt with, however, this has been postponed pending further liaison with industry stakeholders; Edit 5 amendments have been made to reflect the provisions of the 2013 Act. This includes adding a new Article 5 to the Articles of Agreement, amendments to clause 35 of the Conditions of Contract and the inclusion of an additional item in the Appendix; Edit 6 the terms of the RIAI Contract have been amended to make them gender neutral; and Edit 7 this relates to updating the text of a retention bond. This was postponed in the first print run of this edition but will be included in the second print run (March 2018) It is worth considering each of the Edits which have been introduced in some more detail. Edits 4 and 7 are excluded from consideration at this time The amendment of the execution block of the RIAI Contract by Edit 1 is designed to avoid any doubt as to the identity of the parties. 9 The execution block has been expanded to provide for the inclusion of a company s registration number and its CRO registered address. It also includes wording to identify that the contract is being signed by an authorised partner, if one of the parties is a partnership Edit 2 involves the addition of two new sub-clauses to clause 1 (Definitions) of the Conditions of Contract. Clause 1(d) has been added which identifies that references to the defined term Works in the contract shall include the Contractor s compliance with the Building Regulations, the Building Control Regulations under the Building Control Acts and with the provisions of the Code of Practice for Inspecting and 9 RIAI (n.8) 2 7

8 Certifying Buildings and Works. 10 The second addition, Clause 1(e), deals with the delivery of notices and when they will be considered validly delivered Clause 38 has been amended by Edit 3. The title has been changed from Disputes Resolution to Avoiding and Resolving Disputes and the stated intention of the revised wording is to support the culture of negotiation by the parties so as to limit the avoidable escalation of disputes and to promote early resolution. 11 Clause 38(a)(i) has been amended to refer to disputes being resolved through negotiation, albeit it does not oblige the parties to attempt negotiation as a first step. The language in respect of referring a dispute to conciliation has moved from mandating conciliation ( shall be referred to conciliation ) to recommending it ( the parties should enter into conciliation ). As a result, the default mandatory dispute resolution process under the RIAI Contract is arbitration clause 38(b). Additional provisions have been added at the end of clause 38 to deal with Conciliation and the Conciliator s Recommendation Edit 5 deals with the impact of the 2013 Act. The first amendment is to the Articles of Agreement whereby a new Article 5 has been inserted. This identifies that all notices arising under the 2013 Act shall be delivered by registered post except for payment claims which may be delivered by . It notes that the Architect may notify the Contractor of a change of address after the contract is formed. The Appendix has been amended to require the parties to identify the Architect s address for the purpose of Article 5. Clause 35 (Certificates and Payments) has been amended to identify the first payment claim date as being one month from the actual date of possession of the site clause 35(b). It also now provides that a detailed progress statement may include a payment claim notice pursuant to section 4 of the 2013 Act. The Architect is obliged to provide reasons for any difference between any amount certified and the amount 10 Published by the Department of Housing, Planning, Community and Local Government current at the Designated Date (as defined in the RIAI Contract) 11 RIAI (n.8) 6 8

9 applied for in a progress statement. The 2012 edition only obliged the Architect to explain the difference if the Contractor requested an explanation Finally, Edit 6 involved removing any reference to gender specific wording such as him/he/his throughout. 4. Was the facelift required? 4.1. So did the Grand Dame really need the facelift or should she have been allowed to retire gracefully in the near future? Whilst I believe the amendments are laudable and the intentions are good, I submit that the Grand Dame should have been allowed to retire when the new suite of documents are published. My views should be considered in the context of the CDG s current significant undertaking, which will ultimately result in a revised suite of contracts. I have great sympathy for the position of the CDG and the RIAI whereby they are seeking to maintain a market leading standard form contract which can be used by a myriad of parties with a varying range of knowledge of contract administration and legal requirements. I also acknowledge that it can take some considerable time for all stakeholders to agree on the wording of a standard text. They have succeeded in keeping the Edits straightforward and to a minimum and I would suggest, have addressed any immediate pressure the various stakeholders have brought to bear. Nevertheless, I believe there was merit in leaving the 2012 edition as it was with a view to allowing the CDG focus on its current mandate and to avoid confusion in the industry The 2012 edition has continued to be used since the Building Control (Amendment) Regulations 2014 were introduced and the 2013 Act was commenced in Parties have generally altered their standard amendments to reflect the position and the 2012 edition continues to be used successfully today. Indeed, I am finding that parties are requesting that the 2012 edition be used as the base document for current projects; otherwise the instructing party will have to pay the costs of the preparation 9

10 of a new suite of amendments, where their existing amendments already provide for many of the Edits in the 2017 edition This also ties in with the fact that a new suite of standard form contracts are expected in the future. Clients are reticent to incur the costs of creating amendments to the 2017 edition where they will have to bear those costs again when the new suite is published. They appear to be happy to proceed on the basis of the 2012 edition with their own amendments Let us also look at the Edits themselves and what they seek to achieve. Edit 1 amends the execution block to provide certainty of the identity of the parties. I have found, in practice, that either: (i) the parties will be specifically identified in the opening provisions of the Articles of Agreement, including their registered numbers; or (ii) amendments will have been made to replace the Articles of Agreement with a client form that includes provisions identifying the parties I believe that the addition of two new sub-clauses in clause 1 of the Conditions of Contract, provided for by Edit 2, was unwarranted. The extension of the definition of the term Works serves to cover obligations which the Contractor is statutorily required to comply with in any event. These obligations are implied by law and, if the Contractor did not comply with them, the Employer could mount a claim for breach of an implied term and/or breach of statutory duty. In any event, the Architect has a policing function under both the contract and the legislation so that any lack of compliance should be picked up at an early stage The addition of clause 1(e) in relation to validity of delivery of notices is a nice to have but I am not sure it needed a specific amendment at this stage. One could have regard to the provisions of clause 1(b) to see that Saturdays, Sundays, Statutory Holidays and Good Friday were not to be counted where any act, matter or thing is to be done in a stated period of working days. I submit that the delivery of a notice would be deemed to be an act, matter or thing to be done under the contract. 10

11 4.7. I am not convinced that the amendments made by Edit 5 for the purpose of the 2013 Act were required. The relevant sections of the 2013 Act provide: 3(1) A construction contract shall provide for (a) the amount of each interim payment to be made under the construction contract, and (b) the amount of the final payment to be made under the construction contract, or for an adequate mechanism for determining those amounts 3(2) A construction contract shall provide for (a) the payment claim date, or an adequate mechanism for determining the payment claim date, for each amount due under the construction contract, and (b) the period between the payment claim date for each such amount and the date on which the amount is so due.... 4(1) This section applies where, not later than 5 days after the payment claim date, an executing party to a construction contract delivers a payment claim notice relating to a payment claim to the other party or another person specified under the construction contract. 4(2) A payment claim notice is a notice specifying (a) the amount claimed (even if the amount is zero), (b) the period, stage of work or activity to which the payment claim relates, (c) the subject matter of the payment claim, and (d) the basis of the calculation of the amount claimed. 4(3) If the other party or specified person referred to in subsection (1) contests that the amount is due and payable, then the other party or specified person 11

12 (a) shall deliver a response to the payment claim notice to the executing party, not later than 21 days after the payment claim date, specifying (i) the amount proposed to be paid, (ii) the reason or reasons for the difference between the amount in the payment claim notice and the amount referred to in subparagraph (i), and (iii) the basis on which the amount referred to in subparagraph (i) is calculated, and (b) if the matter has not been settled by the day on which the amount is due, shall pay the amount referred to in paragraph (a) to the executing party not later than on that day It is my view that clause 35 (Certificates and Payments) of the 2012 edition provides a mechanism for determining the amount of each interim payment and the final payment to be made under the contract and thus complies with section 3(1) and 3(2) of the 2013 Act. Clause 35(b) of the 2012 edition identifies that the Contractor must submit, at the period of Interim Certificates identified in the Appendix, a detailed progress statement to entitle it to a certificate from the Architect of the amount due from the Employer to the Contractor. This certificate must be paid by the Employer within seven working days of presentation of the Certificate by the Contractor to the Employer. Thus the existing provisions of the 2012 edition identify how to determine the payment claim date through the use of the period of Interim Certificates. It also identifies the period between the payment claim date and the date on which the amount is due by specifying the time period for provision of the Certificate by the Architect and the period for honouring it by the Employer Clauses 35(h) and 35(i) identify the mechanism for determining the final payment under the contract through the final account process and the issuing of a Final Certificate. It also identifies when the Contractor is to 12

13 submit its documents for the purpose of calculation of the Final Certificate, the time period within which the Architect must complete measurement and valuation of the Works, when the Final Certificate shall be issued and when the amounts identified in the Final Certificate become a debt payable to the Contractor I would note that the RIAI Contract is generally used as the main contract and, therefore, section 3(3) and the schedule of the 2013 Act do not then apply In relation to section 4 of the 2013 Act, I believe that the Architect fulfils the role of another person specified under the construction contract as required by section 4(1). The Architect is identified as the person to whom the Contractor s applications for payment are made. Further, I find that, in practice, the Contractor s detailed progress statement provides the information required pursuant to section 4(2). The Architect s Certificate acts as the response required by section 4(3) although the 2012 edition does not require the Architect to provide reasons for any difference. Nevertheless, it only requires an agreed contract administration process to ensure the Architect provides reasons with every Certificate and which would ensure compliance with the 2013 Act without the need for amendments to the contract. This may also be said for any notices to be provided so as to remove any doubt about compliance with the 2013 Act The means by which notices are given under the contract, including in relation to payment applications, is a matter for the parties. Therefore, it should be up to the parties to agree whether they want payment notices to be exchanged by . In general, payment claims are completed by so I would submit that the insertion of Article 5 was not required as a specific provision. Or if you are going to make such an amendment, why not provide the parties with a range of options? I am conscious that the CDG and RIAI is trying to cover a broad spectrum of parties when drafting the amendments and, therefore, these amendments 13

14 also serve to educate and highlight key legislative provisions. In experience, I find that if parties are not sophisticated enough to be aware of the legislative provisions, then they rarely operate the contractual mechanisms. I also have experience of sophisticated parties taking advantage of less knowledgeable counterparts but, in those circumstances, I have found that the less knowledgeable party failed to read or administer the contract so it did not really matter what the documents said in any event Finally, whilst equality and diversity are big issues in the industry at the moment, I am not sure that Edit 6, which makes the 2012 edition gender neutral, was a burning issue at this point in time. Suffice it to say that, from my point of view, there are other areas of the industry that could be looked at first! 5. Conclusion 5.1. This paper is in no way meant to denigrate or take away from the colossal work that has been, and is being, carried out by the CDG and the RIAI. I accept that they are in a damned if you do, damned if you don t situation where they have likely been under pressure to revise the 2012 edition for some time. There has been a great deal of publicity and a certain amount of media panic surrounding the introduction of the 2013 Act and the Building Control (Amendment) Regulations 2014 and I think that many parties may have unfairly criticised the 2012 edition without fully understanding it or the legislative provisions I think it is a testament to the RIAI that the 2012 edition is such a good document and is so widely used. As the Grand Dame of standard form contracts in Ireland, it has a sterling reputation, is well liked and is first recommended. Perhaps I am being romantic but my view is that if you are going to retire the old lady, then let her go in dignity without trying to knock years off her. Let the successor take the mantle when it is ready. 14