Basic Contract Law for project managers webinar series, Part 1: Contracts – what are they all about, 20 May 2021

Basic Contract Law
for Project Managers
Webinar 1 of 3:
Contracts –
What are they all about?
by Sarah Schütte
of Schutte Consulting Limited
For APM
May 2021, updated from original series of 2018
© 2021 Schutte Consulting Limited
1

Webinar 1 topics
— Contract formation (5 components);
— Letters of Intent;
— Express vs. Implied Terms;
— Freedom of Contract and boundaries;
— Special contracts
Ø1 hour CPD
2

Background
to the webinar series
SCL’s mission: “make law work for the construction and engineering industry”
Common pressures for PMs:
— Centrality to project
— Need for broad skillset
— Dependency by others
Why should PMs learn about contracts?
— 2 main risks:
— To the project “success”
— To yourself and your organisation
Ø Get the basics, but know your limitations and seek legal advice
3

Background
to this webinar
Start with the foundations for learning:
— We deal with contracts every day, but what is a “contract”
— We deal with relationships that look like contracts, but may not be
— We are asked to work with others, and therefore there is an
“arrangement”, which may or may not be a contract
— Risk exists where there is uncertainty in the relationship
— Being “at risk”: money, time, quality of work and reputation
Ø So this series will enable the PM to do their job better!
Ø Let’s start the journey …
4

Contract formation
A “contract” needs to have 5 essential components:
— Offer
— Acceptance
— Consideration
— Intention to Create Legal Relations
— Capacity
Ø Without any one of these, there is no “contract” in law
Ø Uncertainty: e.g. (1) the Court will determine the arrangement e.g. fees
on quantum meruit basis = what is deserved on objective view; (2)
statute may impose terms e.g. Scheme payment period
Ø Let’s look at each in turn…
5

“Offer”
— = clearly an “offer” i.e. contain terms capable of
“acceptance”
— Compare with “invitation to treat”
= an request to enter into negotiations
e.g. RfP, advertisement for tradespeople
ØDistinguish between them early, as you can’t go
any further without an “offer”
6

“Acceptance”
— = clear acceptance of offer.
— But: “Battle of the forms”
— Each party’s T&Cs are attached to their email – whose
applies?
— Part acceptance of some terms - where do you stand?
— Court/ adjudicator approach
ØTake care to map out obligations
ØCompare multiple offers
ØMitigate risk using “subject to contract” until
agreement made
7

“Consideration”
— = Money or money’s worth for services and/or works
— Use this checklist to set out:
— Basis for calculating sums due (payment mechanism)
— Timing and method (payment procedure)
— Any conditions e.g. provision of security or programme
— Amendments to standard forms?
— HGCRA (as amended) compliant?
— Fair Payment Code, Prompt Payments etc
Ø Flow appropriately to supply chain
Ø Comply with regulation
8

“Intention to Create Legal
Relations”
— = Statement why the parties are making the contract
— Use this checklist to set out:
— Background to project (known as “Recitals”)
— What each party is bringing to the project e.g.
— “X owns the land and wishes to build a 100m tall skyscraper…”
— “Y is a experienced skyscraper constructor…”
— Joint statement of “agreement to enter into this contract”
ØDraft simply but properly
9

“Capacity”
— = Legal ability to enter into contract
— Personal contracts = mental wellness
— Commercial contracts = signatories with right to bind
ØObtain confirmation from each party prior to
execution
10

Letters of Intent (LoI)
Why use a LoI, not a contract?
— Useful legal device to enable works / services to start without
waiting for contract negotiations to conclude
— Easy, quick and cheap to set up
— Risk = contract is never entered into, LoI expires but works
continue
— Be careful to state clearly:
— Limitation in time – expiry date and termination
— Limitation of sums due/ authority to spend
— Specifying the terms on which the LoI is made – best to refer to the
planned form of contract
Ø Very useful, but don’t let things drift!
11

Express v implied terms
— Terms of a contract = clauses
— Terms may be express or implied
— Express terms – stated in the contract
— Implied terms – not stated in the contract
— Risk = their invisibility
— Often negative e.g. don’t break the law
— Can be positive e.g. C has a reasonable time to fix a defect
before E can call a 3rd party
— Often use “reasonableness” = legal test
— May be more favourable to one party, but you won’t know until
the dispute arises!
Ø Minimise use of implied terms – BUT don’t make a contract
too lengthy!
12

Legal frameworks
— In every jurisdiction, law is a “straightjacket”
— = framework for lawful behaviour
— Mandates boundaries for “dealings” in an otherwise free
market
— “Dealings” include contracts… and terms of contracts
— Underpins professional association codes of conduct etc
13

UK law
Rich legal history!
— Common law of contract and tort
— Supplemented by codification (statute) e.g. Construction Act 1996
(amended 2009), Unfair Contract Terms Act 1977, Supply of Services
and Goods Act 1982, Late Payment of Commercial Debts (Interest) Act
1998, Bribery Act 2010, Insurance Act 2015, Building Regulations
— Supplemented by regulation e.g. HSE, EA, ORR, ICO
— Supplemented by compliance e.g. FCA, Data Protection Act 1988,
Freedom of Information Act 2000
— Supplemented by EU law e.g. BSEN, ECHR, Procurement Directive
— Optional Codes of Practice e.g. Prompt Payment Code, Considerate
Constructors Code
— Bolstered by case law (judgments of the Court) and decisions by
tribunals having devolved jurisdiction (e.g. Competition Commission,
adjudication, arbitration)
Ø Complex and ever-changing, so take legal advice
14

Freedom of contract and
boundaries (1)
— UK: “freedom of contract” within legal framework
— A range of powers and duties for PMs:
— Managing contractual risk allocation in live environment
— Managing parties’ expectations of each other (‘broker’)
— Nipping problems in the bud e.g. binding assessment
— Checking QC/QA e.g. industry, organisation’s own
— Administering contract change e.g. award £ and time
— Addressing missteps as between the parties e.g. missed timescales
— Independent certifier duties e.g. payment
Ø Take away: What can you as PM bring to a conversation
about a project contract – now, and after this webinar?
15

Freedom of contract and
boundaries (2)
A PM is not responsible for getting the contract right. But you can and
should ask questions if something does not look right!
Why? Risk in uncertainty
— To project
— Contract is judged “unfair” and ends
— Term is struck out as “unfair” & Court implies a fair term instead
— Statutory terms take effect automatically e.g. Scheme
— Procurement has to be repeated (££)
— Relationship strain or breakdown, mistrust
Ø Harm to project progress / chance of success!
— To self
— Professional negligence claim (employee or not?)
— Removal from project requested by Client
— Possible stripping of accreditation / discipline
Ø Reputation damage/ earning capacity
16

Good faith
— Not part of UK legal framework except in special cases
• Other jurisdictions do, and some require it
• However, Court will consider contract clauses requiring GF,
or something approaching GF
• Construction: NEC clause 10 “mutual trust and cooperation”;
JCT SP5 (optional) “collaboration”
• Special contracts imply GF - in your project structure?
— Insurance;
— Partnerships and trusts
17

Summary of this webinar
• Not all contracts are the same…
• Do you have a contract or an LoI, or something else?
• Is the arrangement set up properly? If not, what to do?
• Next time, Webinar 2: Building a Contract
• Thereafter Webinar 3: What to do when things go wrong, or the
unexpected happens
Ø Do join us!
Ø Please give feedback!
Ø Any questions?
18

Contact:
T: +44(0)7970101188
E: sarah@schutteconsulting.co.uk
W: www.schutteconsulting.co.uk
Sarah Schutte and Schutte Consulting Limited
@sarahschutte1 and @schutteconsulting
schutteconsulting
SchutteconsultingSCLGlobal
Sarah Schutte Sharp
#SCLGlobal
#SCLatSW11
19

Basic Contract Law for project managers webinar series, Part 1: Contracts – what are they all about, 20 May 2021

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Basic Contract Law for project managers webinar series, Part 1: Contracts – what are they all about, 20 May 2021