What are the most popular standard forms of contract? Do parties commonly amend these standard forms?
Construction (2nd edition)
Whilst parties are free to use any contract, standard form contracts are commonly used as base documents for construct and design-and-build projects. These are generally modified to make them 'principal-friendly'. Large PPP and other infrastructure projects will commonly use 'bespoke' forms of contract.
The most widely used standard form contracts are published by Standards Australia. Other commonly used forms are published by the Master Builders Association and Australian Institute of Architects. For major projects, traditional construct-only and D&C/EPC/EPCM contracts are common, along with BOOT/DCM style contracts for major economic public-private partnerships.
In private construction contracts, the use of standard forms (e.g. FIDIC-contracts and the like), is not very common. Standard forms are mostly used in more international settings. A multitude of different contracts is in use (based on templates provided by i.a. professional associations).
In public construction projects, public authorities are obligated to apply the Royal decree of 14 January 2013 on the general rules of performance of public procurement contracts. This royal decree establishes a set of rules dealing with all kinds of execution issues, normally dealt with within a construction contract (payment clauses, completion mechanisms, contractor liability, etc.). Deviating from these rules requires specific motivation and justification in the tender documents and is even excluded for certain rules.
There are three main standard form contracts in use on the market: (1) legally required standard contracts: for a project where bidding is required by law, the standard contract form produced by the National Development and Reform Commission (“NDRC”) shall be adopted; (2) standard contracts made by housing and urban-rural development departments: other than the standard contracts made by the NDRC, the Ministry of Housing and Urban-rural Development (“MOHURD”) and the housing and local urban-rural development departments have their own set of standard contracts recommended for employers; (3) third party standard contracts: besides the foregoing, it is common practice that foreign invested employers use FIDIC contracts or other standard contracts composed by a third party, in which respect the broad application of FIDIC contracts dwarfs that of AIA, NEC or JCT contracts.
Today, the Chinese construction market is still dominated by employers, causing the competition among contractors to become ever intense. Consequently, from the perspective of risk allocation, employers are in a distinctively advantageous situation compared to contractors. The foregoing three standard forms of contracts, on the other hand, differ in terms of stipulation of risk allocation. FIDIC contracts place more emphasis on equality and reasonableness, while the contracts produced by NDRC and MOHURD have a partiality towards contractors in terms of protection of interests due to the power imbalance between employers and contractors. As a result, the employer tends to make considerable adjustment to the standard contract by wielding its market dominance. Nevertheless, in case of a project that is required by law to invite bids, if the contract as amended provides too much preference to employers, the competent construction authority, in order to participate in and regulate risk allocation, will require contractual parties to make further change, otherwise such contracts will not be accepted to keep record with the authority as required by law.
The most popular forms of contract are the FIDIC forms of contract, Conditions of Contract for Construction and Conditions of Contract for Plant and Design-Build. These forms of contract are used in infrastructure projects financed through development banks and EU funds. In other projects, various forms of construction contracts have been used, based on the provisions of the Croatian Civil Obligations Act, which Act is, in prevailing provisions, in compliance with FIDIC forms of contract.
Contracts based on the FIDIC General Conditions always contain Particular Conditions amending the General Conditions where appropriate due to the specific circumstances of the particular project, for clarification purposes, or because of necessary amendments required by the mandatory provisions of the Croatian contractual law.
Any construction project is unique. So standard forms can not sufficiently address the particular situations occurring in the course of a construction project. However, experienced legal advisers have a great deal of experience in contract drafting and in finding adequate contractual solutions for their client’s construction projects.
Due to the fact that many construction contracts incorporate the Standard Building Contract Terms (Vergabe- und Vertragsordnung für Bauleistungen – VOB/B), there is some standardization in German construction contracts.
Pursuant to Art. 681-702 of GCC, a works contract is defined as a contract where the contractor undertakes to conduct a specific scope of work assigned thereto by the employer, whereas the latter undertakes to pay the stipulated remuneration. As a general rule, the parties to a commercial contract may agree any terms they wish, based on the freedom to contract (361 GCC), which is primarily enshrined in the right to develop a person's personality (Art. 5 paragraph 1 of the Constitution). Such freedom, however, is restricted by the mandatory law provisions (such as criminal or competition), as well as the general principles of civil law (such as good faith).
As opposed to private contracts, public contracts of a value exceeding the amount of EUR 2,500 are subject to the written formality requirement (Art. 130 of Law 4270/2014). Pursuant to Art. 53 and 181 para. 5 of the Public Procurement Law in combination with Art. 2 para. 2 (e) of Law 4013/2011, the Single Public Procurement Independent Authority (the 'Authority'), upon consultation with the competent public bodies, issues mandatory contract documents for contracts falling within the scope of Directive 2014/24/EU ('Book I Contracts') and provisional model contract documents for contracts falling under Directive 2014/25/EU ('Book II Contracts'). In implementation of the above provisions, the Authority from time to time issues model tender documents, which differ depending on the scope and legal procedure observed.
The standard form regulations issued by the SIA (www.sia.ch) are the most popular standard forms of contract used in practice, in particular by architects, engineers and contractors.
The blanks of the standard forms and the multiple choices questions have first to be completed by the parties, so as the standard form be adjusted to the relevant construction project.
In view of the multiple possible types and characteristics of construction projects, the standard forms are usually amended by the parties in order to fit the actual construction project or to balance-out standard clauses that may be deemed too favorable to architects, engineers and contractors.
The most popular standard form contract in the United States is produced by the American Institute of Architects (“AIA”). AIA publishes a wide range of contracts for small, medium, and large projects. AIA documents cover a large variety of contract types, including fixed-price, cost-plus, and design-build. The most commonly used AIA contract for large or complex fixed-price projects is A-101, while A-102 is used for large or complex cost-plus (time and materials) projects with a guaranteed maximum. Both A-101 and A-102 are accompanied by the General Conditions (A-201) which set forth the general conditions for the contract, including the rights, responsibilities, and relationships of the owner, contractor, and architect.
Aside from the widely used AIA contracts, ConsensusDocs, Design Build Institute of America (“DBIA”) and Engineers Joint Contract Documents Committee (“EJCDC”) publish the most common forms used in the United States. Most of these organizations draft the forms in part to protect the parties that they represent. For example, the Association of General Contractors (“AGC”) publishes a series of standard form contracts that tend to favor contractors (The AIA contracts are considered to favor owners). For international projects, the International Federation of Consulting Engineers (“IFCF”) and the International Chamber of Commerce (“ICC”) offer forms that are frequently used.
Standard form contracts are typically amended by the parties during a negotiation process to protect the rights of both parties and to better align the contract requirements with the particular project being procured. For example, AIA contracts are written with the assumption that the owner has retained an architect to not only design the project, but to supervise construction and otherwise administer the contract. However, if the owner elects to use a construction manager to perform these tasks, the standard language will need to be amended. Additionally, certain types of projects may not be suited for the standard allocations of risk in form contracts and need to be amended to add protective clauses and other carve outs to account for proper risk allocation. The most highly modified and scrutinized provisions include those clauses dealing with payment, notice, changes, termination, indemnity, and liquidated damages.
Construction contracts, as a rule, are unit price contracts or lump-sum price contracts. On the unit price contracts, the client is charged based on the quantities actually used. On lump-sum contracts, there is no charging by quantities. There is also the option of agreeing to an hourly rate. On contracts with an hourly rate, the client is charged based on the actual hours expended (this type of contract is rather uncommon for large construction projects).
The form of construction contract chosen by the parties and especially by the employer who is the grantor of the project/sponsoring authority in the project financing, defines the allocation of risks during the installation of the project.
The most commonly used forms of contract in Cyprus are the FIDIC, the AIA, the NEC3 and the JCT Standard Forms. These forms tend to place the majority of the construction risks on the construction contractor and ensure a fixed price for the implementation of the works.
On large, complex projects, the standard forms of contract are usually subject to extensive amendment by the parties.
Standard forms of contracts are historically not frequently applied in construction projects in Brazil. Only recently, possibly as a result of a rearrangement of the market forces, with a deeper involvement of foreign companies in the contractor’s side, standard forms are becoming more usual. From our experience, the FIDIC Rainbow (particularly the Silver Book) is the one more widely applied form in Brazil.
There are various Irish standard forms of contracts.
For building works in the private sector, the most common forms are the RIAI (the Royal Institute of the Architects of Ireland) forms of contract, with quantities (printed on a yellow form) or without quantities (printed on a blue form). Frequently, especially for larger projects, parties will also agree amendments and special conditions to those forms.
The Construction Industry Federation in conjunction with the RIAI, has prepared a form of subcontract for use with the RIAI form of main contract.
There is also the Engineers Ireland (formerly the Institution of Engineers of Ireland or “IEI”) Third edition form of contract, which is generally used for civil engineering works. This had been the principal form used for most publicly-funded roads and water projects until the advent of the Public Works forms (see below). There is a standard form of subcontract for use with the IEI Third edition.
In 2007, the Government Construction Contracts Committee (GCCC) developed a number of contracts for use in public sector building and civil engineering works for contractors. These include traditional and design and build forms, as well as a minor works contract and a short form of contract for smaller projects, a contract for investigation works, a framework agreement, a contract for early collaboration with the Contractor on complex projects with a high value, and a term maintenance contract. These contracts replace the Government Departments and Local Authorities (GDLA) form of contract (similar to the RIAI form and prepared for use in the public sector) as well as the use of the IEI Third Edition for civil engineering works. The public works contracts are mandatory for all public works.
There are also standard forms for construction professionals developed by the representative bodies for construction consultants (the RIAI, IEI and the Society of Chartered Surveyors (SCS)). The GCCC has also developed standard conditions of engagement for construction professionals in public works.
UK and international forms are also used. The FIDIC (International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils)) suite is well known and frequently used, particularly in the energy sector. Other forms used include:
- Institution of Civil Engineers;
- Joint Contracts Tribunal;
- New Engineering Contract forms;
- Institution of Chemical Engineers (IChemE); and
- Institution of Engineering and Technology MF/1 (amended for the Irish market).
There is no standard form of Management Contract; however, a bespoke form is often produced based on one of the RIAI contracts referred to above.
In Mexico, the public contracts that are governed by the Public Works and Related Services Law, does not have a “standard” form for the contract; however, it does provide the minimum of requirements that the contract shall have, and the contract might change from one contract to another.
In the case of private contracts, the Parties can choose the type of contract provided in the legislation (Civil and/or Commercial Code) that can be lump sum contracts, unitary prices contracts, or even FIDIC contracts. Those kinds of contracts are not “generally” used, but it will depend on the specific case.
The most commonly used forms of contract for large, complex projects in the UK are undoubtedly the JCT Standard Forms and the NEC4 suite of contracts.
JCT is typically used by developers for commercial and residential schemes, while NEC4 is more suited to civil engineering, infrastructure and public sector projects.
FIDIC is not as popular in the UK as it is in some jurisdictions (largely because it is seen as international, rather than UK specific), but it is still sometimes used for complex engineering projects.
For process plants, the IChemE form of contract is generally used. The MF suite of contracts is often utilised when the works entail the supply and installation of a specific piece of electrical or mechanical plant.
On large, complex projects, the standard forms of contract are usually subject to extensive amendment by the parties.
There are standard contracts:
- Sale contract of the home or premises, entered into between the consumer and the developer.
- Construction contract, entered into between the developer and the construction company.
- Of project contract, entered into between the developer and the designer.
- Work management contract, entered into between the developer and an architect - usually the same person who drafts the project.
- Management of execution of work contract, entered into between the developer and a technical architect.
Use of international standard forms of contracts is not a common practice in Turkish construction industry. However, when parties would like to use a standard form of contract, they usually prefer FIDIC forms and substantially amend them in order to make it in line with Turkish law and to meet the expectations of the parties.
The most popular standard form contracts used in South Africa for large construction and engineering projects are as follows:
(i) The Fédération Internationale des Ingénieurs-Conseils (“FIDIC”) Conditions of Contract published by the International Federation for Consulting Engineers.
(ii) The New Engineering Contract (“NEC”) April 2013 edition (“NEC 3”), published by the Institution of Civil Engineers through its NEC Panel.
(iii) The Joint Building Contracts Committee (“JBCC”) 2000 suite of contracts produced by the JBCC, mainly used for commercial building projects.
(iv) The General Conditions of Contract for Construction Works 2004 (“GCC”) produced by the South African Institute for Civil Engineering.
These standard form contracts are commonly amended by way of particular conditions agreed between the parties to suit the respective project’s needs. The CIDB Regulations require that public sector construction procurement be undertaken on the above standard form contracts.
For public contracts, the public authority often refers to official standard general terms (called Cahiers des Clauses Administratives Générales or CCAG) which are official forms regularly updated by the French authorities. The parties will complete these general terms and amend them through the specific terms of their agreement (generally called the Cahier des Clauses Administratives Particulières or CCAP).
For private contracts, AFNOR, the French national organization for standardization, issued and updates from time to time a specific norm (the NF P 03-001 Norm) applicable to contractor agreement for private works. This norm, which was recently updated, is often used as general terms for the basis of contractor agreements. Here again the parties will complete and amend these general terms in the specific terms of their agreement.
For large infrastructure or industrial projects involving international investors, the standard forms of contracts issued by the FIDIC organization are also sometimes used. However, considering the important number of specific and mandatory rules provided by French law, the use of these international template requires numerous adaptations.
As mentioned in question 1 above, the Construction Contracts Committee, BKK, has the responsibility to conceive and administer a number of agreed standard forms. Since the BKK is comprised of representatives from across the construction sector, the following General Conditions are commonly accepted and their provisions are used in a majority of construction contracts on the Swedish market:
- The General Conditions of Contract for Building and Civil Engineering Works and Building Services, AB 04, which places the responsibility for the performance of the works on the contractor, but with no obligations concerning the design. General Conditions for subcontractors, AB-U 07, is usually annexed as a supplement if the specific contract is between a contractor and a subcontractor.
- The General Conditions of Contract for Design and Construct Contracts for Building, Civil Engineering and Installation Works, ABT 06, which places both the responsibility for the design (or at least parts thereof) and the performance of the works on the contractor. General Conditions for subcontractors in design and building contracts, ABT-U 07, is usually annexed as a supplement if the specific contract is between a contractor and a subcontractor.
- The General Conditions of Contract for Consulting Agreements for Architectural and Engineering Assignments for the year 2009, ABK 09, which usually assigns the responsibility for the design to a consultant.
These three agreed documents are harmonised, regarding, e.g., liability and guarantee commitments, to function side by side in any constellation of parties by which the employer wishes to procure the needed works. Therefore, there is a wide possibility to assign obligations to either one or several contractors, based on expertise and/or working areas of the contractors and the needed works. Furthermore, the General Conditions allow alterations and additions to ensure an even better harmonisation in each specific construction contract.
The vast majority of construction contracts in Denmark are based on one of the national general conditions of contract (AB Standards). The AB Standards are agreed documents that have been negotiated by various stakeholders in the Danish construction industry. The standards (except for AB-Consumers) have recently been updated and two abridged versions have been introduced. The six AB Standards are:
- AB 18 (General conditions for building and construction works and supplies), in replacement of AB 92.
- ABT 18 (General conditions for design and build contracts), in replacement of ABT 93.
- AB-Consumers (General Conditions for Provision of Building Works for Consumers).
- ABR 18 (General conditions for consultancy services for building and construction works), in replacement of ABR 89.
- AB Abridged (Abridged general conditions for building and construction works and supplies)
- ABR Abridged (Abridged general conditions for consultancy services for building and construction works)
Public authorities and other public-sector employers are obligated to use the AB Standards.
The AB Standards are commonly amended by the parties.
- There are several standard forms of contract used for construction projects in South Korea. For construction contracts involving the government, which are governed by the Act on Contracts to Which the State is a Party, a standard form contract contained in the enforcement rules promulgated pursuant to the act is often used. If it is deemed impractical to use the standard form, the government party may elect to use a different contract form. A similar set of standard terms is also published for local governments pursuant to the enforcement rules of the Act on Contracts to which the Local Government is a Party.
- The Ministry of Land, Infrastructure and Transport issues a standard form contract for construction projects, for use between private sector parties. The Korea Fair Trade Commission also provides a standard form contract for subcontracting in the construction industry.
- On larger projects, parties may amend these standard form contracts or use amended versions of international contracting forms such as the FIDIC suite of contracts.