A CLAYTON UTZ lawyer has warned construction industry leaders that they must secure the right contractual arrangements if they want to avoid being caught out in the current “fraught” construction market.
Head of the firm’s major projects group, Doug Jones, found that traditional contracting arrangements often add to the uncertainty in an already volatile industry.
According to Jones, the way forward is a relationship partnering approach, whereby the construction contract or deal should be designed to match the market. “The whole structure of the commercial transaction should take account of the market into which it is being let. Given today’s unusual market conditions, the need to find innovative ways of dealing with the risks of time and cost in contractual arrangements has only increased,” he said.
“The required instruments of commercial engagement already exist, but what is needed is an innovative approach to the risks of time and cost. Fundamentally, it’s about devising contracts with reference to the market situation, in such a way that meets the needs of both the purchasers and the providers.”
Commercial building costs have increased 10 per cent above CPI inflation in the past year, Clayton Utz said in a statement, which represents the fastest growing relative increase on record, taking off CPI inflation.
Jones noted that in this rapidly changing environment, the risk of cost is particularly significant and standard contracts can fall short of the industry’s needs. “Even if a fixed sum has a provision for the escalation of costs, these clauses simply don’t address the commercial issue of these huge spikes in the cost of labour, materials and subcontractors, which are there in the market and which are likely to continue to appear,” he said.
An awareness of market conditions is essential, as is a flexible and innovative approach to drafting contracts in order to better manage the risks carried in the current construction market.