Working closer with lawyers could end the Z clause curse

Working closer with lawyers could end the Z clause curse


In my editorial in March 2016 I had less-than-complimentary words to say about my fellow construction lawyers.

I accused the legal fraternity of being responsible for including countless Z clauses in NEC contracts because they feel the need to turn them into the traditional contracts they are used to. In support of this contention I referred to the myriad occasions where clause 10.1 on mutual trust and cooperation, the hallmark of NEC, is deleted.
 
I should have added that some lawyers fail to understand that the NEC mechanisms for managing risk provide protection for all parties. As long as these mechanisms are operated as they should – including risk registers, early warnings and risk reduction meetings – it is more likely that the client will achieve its goals for the project and the supply chain will receive all its entitlements.

A lawyer responds
In the May 2016 newsletter and in the June 2016 issue of the Institution of Civil Engineers’ Construction Law Quarterly (Higgs et al, 2106), solicitor Mark Lynch delivered a riposte.

His newsletter article concentrated on my oftstated position that NEC should be proactive in withdrawing its brand from contracts that are heavily reliant on Z clauses. In other words, those responsible should be warned that they cannot use the NEC brand – and furthermore public bodies resorting to use of countless Z clauses should be named and shamed.

Lynch’s argument was that NEC should focus on, ‘understanding the particular cultural and behavioural aspects of NEC and the UK construction industry that fuel Z clauses’. He said punishment was not the answer; the solution was, ‘likely to comprise a number of small and simple measures that, when aggregated, could nurture best practice.’

Radical change needed
However, we have been through many processes and initiatives over the years aimed at fairer risk allocation and improving procurement strategies, and we have not made any significant advances. The October 2016 government commissioned review of the UK construction industry, Modernise or Die by Mark Farmer (2016), says the solution lies in radical procurement change allowing for earlier supply chain engagement. But this has to be driven by clients.

As Famer says, ‘Clients tend to fixate on lowest initial tendered price and this is often perpetuated by their advisors, who, in a traditional procurement model, are implicitly employed (at least partly) to manage a fixed and adversarial transactional interface between clients and industry. Clients and their advisors…need to assess value in a different way and drive procurement away from project specific competitive tendering to more collaborative long-term approaches.’

Greater role for lawyers
Nevertheless I very much agree with a point made by Lynch in Construction Law Quarterly. There he argues that many lawyers will resort to converting NEC contracts to traditional contracts by using Z clauses where clients are not prepared to pay any more in legal fees than they pay for traditional contracts.

As he says, ‘to design and make an NEC contract – with a subtler and more bespoke risk allocation – requires more time and involvement than a contract that simply allocates all the risk in a traditional way to the contractor/consultants’.

He also suggests that lawyers should be a part of the NEC project team to add the most value. Furthermore he believes there should be a system of accrediting NEC lawyers, as already exists for project managers, service managers and supervisors. I think these are very helpful proposals and deserve more consideration within the NEC Users’ Group.

References
Farmer M (2016) The Farmer Review of the UK Construction Labour Model – Modernise or Die: time to decide the industry’s future http://www. cast-consultancy.com/news-casts/farmer-reviewuk-
construction-labour-model-3/ (accessed 22 November 2016).
Higgs N et al (2016) Construction Law Quarterly, Proceedings of the Institution of Civil Engineers
– Management Procurement and Law
, 169(3): 131–139.
 
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