4 Problems with Contracts That Are Not Drafted by Lawyers

I see a LOT of contracts. I haven’t kept an exact count, but I reckon it numbers in the thousands now.??

They come in all shapes and sizes.

Sometimes my heart sinks when I see a contract from the top end of town. I know it’s going to be long, turgid and unnecessarily onerous. Often it means the relationship will get off to an awkward start because it’s impossible to negotiate.

But other times, I know I will be reading a document that has been put together carefully. Cross-references have been checked, contract processes are correctly linked, and all the schedules are in order. The contract might be long, but it caters for everything. The negotiation won’t be too bad because we’re nailing down project-specific management details rather than trying to claw back some tiny semblance of balance.

But what about when the contract is put together by someone who isn’t a lawyer? This happens quite a bit because a project management consultant often develops the tender package and makes decisions about the contract.

Many commercial managers have fantastic contract skills and will create an excellent document. However, their training and skills are sometimes in project management rather than contract drafting or law.

They might have some contracts lurking in their files from another similar project. Or they have a lot of experience managing contracts and hold strong views about what they should contain. But, strong views do not a strong contract make.

Here are?four of the biggest problems?I see with contracts drafted (or copied and pasted!) by the wrong person.

1. No logical structure

I like contracts to (loosely)?follow the project lifecycle. It looks something like this:

• Performance and warranties
• Party obligations
• Payment
• Change management (changes to scope and program)
• Liability and insurances
• Defects
• Suspension and termination
• Disputes
• IP
• Confidentiality

It’s a red flag for me when a random expert determination clause pops up right at the contract's start. Did the contract writer think about structure and what it would be like for someone to read and ultimately manage the contract? And if not, what else is going to be irrelevant? Or worse, missing?

2. Missing critical contract management processes

Recently, I reviewed a fixed-price engineering contract for a large technical facility with a capital value north of $50M. I was surprised to find that there was no variation clause. I asked my client if it was possible to get through the entire scope without a single design or project-initiated change to the design scope. He laughed so hard he nearly dropped the phone. The obvious solution would be to attempt to price a contingency for inevitable changes, which means either an uncommercial price or a big dent in the project owner’s budget. Or both.

It turned out that an inexperienced third-party project manager had put the contract together.?Trying to tactfully introduce critical contract management processes without throwing the PM under the bus was super awkward, since it would have made working with them during the project very difficult.????

3. Cross-references missing or wrong

This is a red flag for me. If cross-references are out of whack, someone who doesn’t know what they’re doing has been fiddling with the contract clauses. Plus, it may mean they’ve deleted important things or added other things that will clash with the original drafting.

Lawyers are either Word guns (?????if I do say so myself) or have a Word gun on their team. They will embed cross-references and check them rigorously to make sure they all line up. This may not feel that important at the start of the project. However, where contract processes are interdependent (e.g., variations to scope and extensions of time), understanding where they interact can be critical to protecting your margin.

4. Overly legalistic and filled with jargon

This is my least favourite trick of non-lawyers, bush lawyers and online template publishers. They think that if they fill the contract with words like “hereunder”, “in witness of”, and “the aforesaid” and make them twice as long as they should be with irrelevant clauses, everyone will think that they are legally watertight. NOT SO. All that does is confuse everyone, burn up time and costs and lead to ambiguity.

The SoundLegal “No Jargon, No Gibberish” philosophy: If you wouldn’t say the word or discuss the risk in a project control meeting, it shouldn’t be in your contract.

HOW CAN SOUNDLEGAL HELP

Contract Drafting

Don’t go it alone, or handball it to the project manager. We’re here to help. We’ll?prepare?a plain English, practical contract that makes sense to everyone and promotes a great project outcome.

Contract Reviews

Are you tendering on a project where you suspect a bush lawyer had a hand in the contract? Send it to us. We’ll review it, tell you the key risks and prepare a bid-ready clarification schedule, containing commercially-focused amendments to tidy up that messy contract.

GOING REGIONAL

I’ll be in Bunbury on 22 and 23 August.?Reach out?if you’d like me to call into your South West business.

Then, my family and I will be on our annual Pilbara and Kimberley pilgrimage from 12 September until 11 October 2023. I’ll be stopping in a few places, including Carnarvon and Broome. I’d love to catch up and chat North West contracts with you –?shout out?if you’re keen.

For Perth clients – I’ll limit my work time during that period. Let me know if anything needs to be done before I hit the road.

CONSULT AUSTRALIA COLLABORATION

I’m excited and proud to announce a new collaboration with?Consult Australia, Australia’s key industry association dedicated to the success of design, advisory and engineering consultants. During 2023 and 2024, SoundLegal will support Consult Australia to publish guidance notes on “hot button” contract risks for consultants. First cab off the rank: Set off clauses. I’ll let all Consult Australia members know when it goes live.

AIMWA

If you’re ready to up-level your contract management skills, or those of your commercial team, I’m facilitating the following upcoming workshop at AIMWA: Contract Law and Risk Management – 28 and 29 August 2023

About Gemma

I help construction, engineering and consulting businesses create and negotiate clear contracts so they can make more profit and achieve great project outcomes.

I founded?SoundLegal?to help SMEs in the engineering, construction, consulting and light industrial sectors manage their risk to support business growth, by finding practical, common sense solutions to contractual and other legal challenges.

Subscribe to the SoundLegal newsletter “No Jargon”?to hear monthly business insights from me.

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• Scope creep is the enemy of profit: what should be in your scope?
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