ACE agreements consultant Rosemary Beales explores how standard agreements can help to prepare for the unexpected.
It is fair to say that the business environment we all work in has delivered its fair share of uncertainty recently. The pandemic has obviously been a huge factor, but broader issues around risk and pressures on the supply chain have been building up over the last few years too.
Needless to say, in the face of such an almost continually challenging and changing business environment, ensuring your project is working to a clear legal framework is vital for a positive outcome for all.
In many instances standard forms of contract can provide the cost-effective, transparent and accountable agreement required for both the end-client and consultant, especially important in a world where risk factors and material costs are constantly changing.
More than this, however, standard agreements and contracts provide the legal backbone for collaborative approaches. These can sometimes become strained owing to this challenging business environment where all parties are under increased pressure.
The Association for Consultancy and Engineering’s (ACE) Professional Services Agreement (2017) provides not only the standardised approach necessary to build trust, but has flexibility built in to ensure a positive outcome – no matter the challenging project or circumstances in which it is being delivered.
Communication is key
Clearly setting out the rights and obligations of both the Client and Consultant – including joint obligations – the Professional Services Agreement (2017) creates clarity between all parties. With this in mind, and in the face of continued ongoing business uncertainty, it is important to discuss issues which can materially affect the performance or delivery of services as soon as possible.
With dedicated clauses outlining approaches to this and other matters including payment practices and risk management, the agreement provides a clear structure to be prepared for the unexpected. However, ensuring an ongoing conversation around concerns can help all parties be best prepared.
The uncertainty of the pandemic forced many projects to address this head-on, increasing conversations and communication between all parties in a world that was changing on an almost daily basis. This is something we should not be afraid to continue post-pandemic where the challenges might not be as fundamental, but can still cause rising tensions between the client and consultant.
Ensuring a truly collaborative approach
It seems hardly possible that it is over 25 years since Sir Michael Latham in Constructing the Team emphasised the key role that teams working together collaboratively could play in the delivery of projects, thereby helping to avoid the disputes that plagued the construction industry at that time. A growing recognition that working together and identifying and managing potential risk was beneficial to all involved in the delivery of a project. This started a change in attitudes across the industry and recognition within the terms of standard forms of agreement contractual, as well.
In 2017, ACE concluded its fundamental review of its main agreements, embedding the principle of collaboration and early warning of potential problems within the text of the ACE Professional Services Agreement 2017.
The agreement now states that the parties “shall in the performance of their obligations under this agreement collaborate in a spirit of trust and mutual support” the objective being the successful completion of the project. Early warning of issues likely to affect the provision of the services is also a requirement with a clear mechanism to underpin this.
The benefits of collaboration need to be embedded in the delivery of the services/project as early as possible. ACE’s Schedules of Services published to complement the new agreement play a vital role in underpinning this collaborative approach by encouraging the discussion of the prospective project’s strategic goals, the role of the consultant and potential risk. The implementation of BIM is also provided for.
It is viewed as essential that the client be fully aware of the risks that may arise during the course of the project and, should they do so, how they should be best managed.
Managing an ever changing risk environment
Within the insurance industry there is an increased focus on risk management and the professional indemnity market’s capacity has shrunk significantly in recent years. As yet an increase in capacity is not on the horizon. There is an increasing frequency of high value claims and global issues also play a part in this decline. Some of the issues are almost impossible to manage at a project level, and it is therefore imperative that those that can be are effectively managed – which means not passing the risk to the consultant, but working with them to define a way forward that positively acknowledges the challenge.
Some brokers will work to assist consultants to manage their exposure to risk and improve their risk profile. Entering an agreement using a standard form can be a positive in demonstrating effective management of liability and contractual risk. This should not be underestimated when considering the availability, cost and extent of cover. It is regrettably the case that some clients seek to impose disproportionate risk on consultants in the misguided belief that this saves costs and is beneficial. This approach needs to be rigorously challenged – not only by the consultants but by the industry as a whole.
It unfortunately remains the case that “ad hoc” terms and conditions are offered by consultants or required by clients which either deliberately seek to place undue risk on one party, or fail to recognise what the content of the proposed agreement actually means. There are also occasions where amendments are made to standard forms distorting the balance of risk which can remain unrecognised or misunderstood.
All too often the focus is on the pricing of services rather than reading the agreement. Incorporation by reference – where the terms and conditions are not set out – are not clearly identified or merely referred to as being available to view which often leads to unnecessary risks being undertaken. Unfortunately this approach is often accepted, and not questioned.
A transparent approach to risk and clearly laid out terms and conditions using standard forms can go long way in mitigating the many negative impacts of a challenging insurance market.
Rosemary Beales is agreements consultant at the Association for Consultancy and Engineering (ACE).
This blog originally appeared as an article in the 2022 Contracts and Law Survey report, published by RIBA.