Not So Standard Contracts

Blog author: Peter Hibberd

After Brexit, the UK is to go its own way regarding procurement and contracts but it will still have to work within parameters set by others if it is to trade internationally – something which JCT will continue to pursue regardless of the UK’s membership of the EU.

During the past year, few subjects have created as much angst and foreboding as Brexit even though its definition is unclear– perhaps that is the problem. This article does not repeat the well-trodden arguments over European Union (EU) membership but considers standard construction contracts in the context of the EU and the UK’s decision to leave.

Each EU member state has primary responsibility for the regulation of most matters within its jurisdiction and, consequently, each has its own laws. This is equally true in respect of construction contracts, which are a matter of private law albeit often reflecting public law, such as that around procurement. This means conflict can arise between the laws of a member state and those of the EU and, should this happen, the law of that member state may be held inapplicable because EU law has supremacy. On leaving the EU, this would no longer apply.

Much EU work in terms of trade has concerned harmonisation. It has aimed to achieve consistency in laws, regulations, standards and practices to create fairness and efficiency and overcome trade barriers created by differences between national laws, and is implemented through EU directives.

There are limits in designing a system to incorporate different legal systems and conflict can emerge. However, this has not prevented the EU from endeavouring to set up such a system, for instance in its work on contract law. This confirms its longer-term objective to achieve uniformity in member states’ laws, whether through legislation or by convergence. A passive approach arising through custom and usage is a pertinent issue.

The overall objectives of reducing trade barriers caused by fragmented national systems and of reducing transaction costs are laudable. Such objectives are identical to those of the Joint Contracts Tribunal’s (JCT) sphere of operation.

To get many members to agree is always difficult, more so where different legal systems, cultures and languages exist. JCT is constituted, albeit UK concentric, in a similar way to the EU, with members seeking solutions and outputs through collaboration.

Even in the narrow area of construction contracts, priorities are different and reaching agreement, even where achievable, can be lengthy. Not everyone in the UK is prepared to sign up to a single contract or even to adopt contracts from a single authoring body. What chance therefore for either to be achieved across the EU?

The UK is to go its own way now and adopt its own solutions – as far as it can. That is the crucial point. We all work within parameters, many set by others. JCT seeks views and requirements from across the property and construction industries to provide standard contracts that reflect good practice for a particular procurement route. In doing so, it is cognisant of many other factors both internal and external to the UK – these factors will remain after Brexit.

Once a JCT document has been published, it is up to the market to decide whether to use it. Practitioners may amend it to address specific issues without destroying the principal benefits. In contrast, an EU directive becomes law and, while member states can choose the form and method of its implementation, they must comply.

After Brexit, new EU law will not apply to the UK existing law will remain and affect construction until it is changed or repealed. That process is likely to be ad hoc with pleading from interested groups, and much may be left as it is. Either way, this will not unduly affect standard construction contracts but it will affect procurement, specifically framework-type agreements.

Leaving the EU will mean that, while operating in the UK, one is subject only to laws enacted by the UK parliament; it does not mean we can ignore laws other than our own if we are to continue to take a global perspective.

The impact of Brexit on construction contracts, compared with procurement and the sale of goods, will be small. However, if the UK had not decided to leave, the EU’s desire to establish EU contract law would have brought another type of uncertainty and had far greater effect. Even so, that might be a small issue compared with the difficulties presented by the greater involvement that will be needed with many other jurisdictions throughout the world. Clearly, properly formulated standardisation, wherever achieved, offers transactional benefits and improves efficiency.

This article was first published in Building Magazine on 9th December 2016.