A Rising Trend in Construction Contracts.

Lately, I’ve been seeing a trend that’s growing in our industry - it’s about projects getting the green light before the contracts are properly set in stone. From conversations I have been having recently with fellow professionals in the industry, it’s evident that this isn’t just a local issue but one that seems to span the sector.

At GW Power, we're increasingly encountering eagerness to push projects forward on the strength of a nod, a vague letter of intent, or just a PO number. It's often explained that it is delays with legal teams as the reason for not having signed contracts ready. This practice can place significant risk on us and others in the supply chain, who find themselves committing to projects without the usual legal safeguards.

Understanding the Risks

The risks of this approach could be huge. For starters, without a contract, the scope of work can often expand and evolve, which in the industry we call 'scope creep'. This can lead to disputes over what was originally agreed upon, especially in terms of costs and deliverables. There’s also the ever-present danger of payment disputes when the terms aren’t clearly defined from the outset.

I heard from one of my contacts not too long ago talk of a project recently where work had commenced based on a preliminary agreement with no formal contract. As the project evolved, so did the client's requirements, but without the contract in place, this led to financial losses for their company.

Industry-wide Challenges

Talking to my contacts in the industry, I’ve found that the pressure often trickles down from end-user clients and funders. It seems they might not allocate enough time for adequate legal preparations in their project timelines. Everyone's rushing to move forward, which can lead to bigger problems down the line if things go awry. By the way, on similar lines, check out my article on Design issues.

Strategies for Managing Pre-Contract Commencements

So, how do we tackle this issue? The key is firm communication from the start. At GW Power, we make it a point to discuss the importance of contracts with our clients early in the negotiation phase if we can. We work with them and talk about the risks involved in unclear agreements and stress the benefits of having everything in black and white.

Another strategy is the use of detailed letters of intent that outline specific terms under which preliminary work may begin, with clear stipulations that a full contract must follow by a set date. Not ideal but this provides a temporary safeguard and a clear timeline for both parties.

However, if you speak to people like your solicitors, bank, credit insurers and the like, I would wager they will tell you not to touch the project with a barge pole until a formal contract is signed

Ultimately it's us as business owners that have to make a commercial decision how to proceed and for me, it's about knowing your customer.

Pushing for Better Practices

Yes, the market is competitive and time is always pressing, but all of us throughout the supply chain need to hold each other to account and push to ensure that contracts are signed and clear which can prevent a lot of trouble later(for all parties).

As industry professionals, it’s on us to champion the cause of due diligence and encourage a culture where fair practice is the norm, not the exception. By fostering open dialogue and collaborating and maybe sharing the risks of premature project starts, we are not only protecting our operations (and our people) but also contributing to the overall health and integrity of the construction industry.

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