Basic Contract Law for project managers webinar series, Part 2: Building a contract, 14 September 2021

Basic Contract Law
for Project Managers
Webinar 2 of 3:
Building a contract
by Sarah Schütte
of Schutte Consulting Limited
For APM
September 2021, updated from original series of 2018
© 2021 Schutte Consulting Limited
1

Webinar 2 topics
— Components of a contract;
— Types of terms
— Sources of terms
— ‘Boiler plate’
— Standard forms
— Negotiated terms
— Risk and (un)certainty
— The team: getting a contract over the line
— Project managing a contract’s development
Ø 1-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
— Webinar 1 (catch up): how to make a binding contract
— Webinar 2: key terms to look out for in 2 situations:
— Drafting a contract; or
— Reviewing a proposed contract from your client or supplier
— Are the terms…?
— Desirable (and avoid the risk of implied terms (Webinar 1))
— More risky, but commercially acceptable (how to manage the
risk becomes the important thing)
— Unacceptable to your organisation as a matter of policy (so you
have to walk away from the deal)
Ø Awareness enables the PM to do their job better
4

Components of a contract
Date: This contract/deed is made on XXXXXXXXX
Parties: Between (1) AAAAA and (2) BBBBBBBB
Recitals: A description of the background and why the parties are
making the contract
Consideration: value of the contract works or services. If nil value
(e.g. framework or collateral warranty) insert “in consideration of
£1 being paid by A to B” (Webinar 1)
Terms: conditions, conditions precedent, warranties, undertakings,
indemnities, ordinary terms
Authorised persons: Signature / execution blocks
5

Spotlight: types of terms
SIMPLIFIED
VERSION
Conditions Warranties Innominate
(ordinary)
Importance 1st class 2nd class 3rd class
Breach =? Repudiatory* Not repudiatory Not repudiatory
Remedy Right to
terminate + claim
damages
Damages; or
Losses on
indemnity basis
Damages
Example/ Look
for:
“Condition
precedent”
“Subject to ”
Promises
“Undertaking”
“Warrant”
“Indemnify”
Other obligations
(verbs), breached
or unfulfilled
Repudiatory = entitling other party to avail of ultimate remedy
6

Types of terms
— Take advice on drafting of content and categorisation
— Does the term have the effect you want
Ø Legal tests, so take advice
— Court is ultimate arbiter of categorisation upon evidence
— The “face” of the term
— Intended purpose
— Centrality to the contract and links to other terms
— Workability in practice
7

Sources of terms:
“Boilerplate”
= Terms commonly found in a contract
— Subject matter and content
— Avoid a cursory glance: they may look familiar but
everyone drafts them slightly differently!
— They could change the underlying (default) legal
position (i.e. implied term – Webinar 1)
Ø Use the sample SCL Boilerplate Bingo © as a checklist
8

Sources of terms:
“Boilerplate”
—
Ø If a boilerplate is missing, use the opportunity to suggest
your organisation’s standard term (and check it fits)
9
SCL Boilerplate bingo ©
Law and jurisdiction IP/ Title Dispute resolution
Confidentiality Insurance Definitions
Entire agreement /
Representations
Force majeure Construction/ order of
precedence
Termination Notices 3rd party rights
Assignment Severability Others…

Sources of terms:
Standard forms
— “Starter for 10” + boilerplate
— Save negotiation time and ‘blank sheet’
— = market acceptability of certain terms (or do they?)
— Watch out for addition of bespoke clauses
— Altering ‘set’ words, therefore inherent risk balance
— OK = specific industry codes of practice etc
— What is the other party trying to achieve?
— Voluminous / significant? Do you really want this contract?!
10
Why?

Sources of terms:
Negotiated terms
How to approach negotiation?
— Organisation’s standard term/ policy = starting point
— Authority to negotiate +/ or to bind? Check protocol/ thresholds
— Skill in negotiation to get to (truly) “workable”
— Translation of agreed commercial position into suitable words
— Drafting: contra proferentum “against the proposer”
Ø PM confidence to deliver derives from certainty and
confidence in contract as underpinning the project
11

Risk and (un)certainty
— Webinar 1: Contract = agreement to share risks in ventures
— Terms agreed should be clear and certain
— Often, they are fudged in negotiations
— Consider early how the risk horizon would look:
— What is your exposure if you take on a risk?
— How will you avoid, manage (incl. insure) the risk?
— Subcontracting may help, or not…
Ø Impact on PM and team
12
What if?

Risk and (un)certainty
Drafting terms to address and allocate risk
13
Term/ Example
Sits outright with one
party
“X shall design and construct the Works”
“Y shall not cause or procure its contractors to
cause IP infringement”
Share in £ outturn NEC “pain-gain” in Options C and D
One party holds the risk
to a certain level, then
the other holds it
“C is liable for any Losses up to £1m but above
that then E is liable”
“E is responsible for ground risk to 2m depth from
Ground Level and thereafter C is responsible”
Shared Each party bears its own costs if any Shared Risk
occurs

Team effort:
Getting over the line
— Contract value ≠ indicator of risk or of potential liability
— Try to avoid a last minute “quick look” request to your go-to
lawyer!
— Satisfy governance and compliance queries before signing
— PM perspective
— Need to know what is expected = the obligations (terms)
— What’s different from ‘normal WOW’/ prior project
— Go Go Go mode: preparation for delivery lacking
— How can you “give” a contract to a PM, & expect excellence?
Ø Speak up and contribute – you’re managing it!
14

Project managing a
contract’s development
— Pre-contract phase as a “project”
— Temporary: contract will be signed or not
— Purpose: to agree the terms of the ‘deal’
— Strategic plan and timetable gearing up for Day 1
— Agility and change of direction / pace e.g. LoI (Webinar 1)
— Intended/ proposed PM should be involved = “face of the project”
— Some terms can be agreed quicker than others
— Agree the principles first
— check back in negotiating each term – and take legal advice
— Be careful about “trade-offs” – why is the clause important to you/ them
Ø PM should read contract holistically before signing = the jigsaw
15

Summary of this webinar
• Take care when building a contract, or reviewing a proposed contract
• Terms relate to risk and (un)certainty
• Boilerplate looks familiar, but is not universally the same…
• Standard forms give you ahead start
• Negotiated clauses are all about which party carries risk of outcome
• Take advice on the type of term due to their legal consequences
• Get involved pre-contract: PMs run projects whose foundations are contracts!
• Next time, Webinar 3: What to do when things go wrong, or the unexpected happens
Ø Do join us
Ø Please give feedback
Ø Any questions?
16

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 2: Building a contract, 14 September 2021

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Basic Contract Law for project managers webinar series, Part 2: Building a contract, 14 September 2021