Contract documentation

2. Why

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2.1 Acquisition

There are two ways of acquiring products:

• Pre-made.
• Custom-made.

Pre-made, or off-the-shelf, applies to most products. Once upon a time there was almost no such thing – nearly everything was custom-made to order, e.g. horseshoes, carts, or self-made, e.g. ale, rough clothing. Most buildings were vernacular – custom-made but to a standard or customary design.

During the industrial revolution this changed, such that most things are now pre-made. The supplier designs, builds, and sells the products. They reflect purchaser needs to the extent that the market operates efficiently. Monopoly suppliers are inefficient in this sense.

Custom-made, or bespoke, applies to items such as tailored clothes, hand-made bicycles, and most large buildings. This is generally the domain of the wealthy – individuals, organizations or the state. Commissioned artwork is another example. Generally, the purchaser needs some technical expertise to commission custom-made goods, but could buy it in if needed.

Restaurant meals are an interesting hybrid. Everybody buys them – but they are not custom made to the purchaser’s requirements. Rather, they are made to the restaurant’s own requirements, which the purchaser accepts. In this sense, they are pre-made.

Architecture may be defined as custom-made buildings. Speculative builders create off-the-shelf housing, industrial units and the like. The purchaser, or tenant, has had no input. Most buildings are not custom-made. For example, it is thought that architects design just 5% of houses in the UK. Buildings are the costliest purchase most individuals and companies ever make, whether they are custom-made or not.

2.2 Custom-made products

How do purchasers of custom-made products convey their requirements to the supplier or fabricator? Big or small, if made to the purchaser’s design (unlike vernacular buildings or restaurant meals), then that design needs to be conveyed somehow to the supplier. For very simple things, where the supplier is trusted, verbal communication may suffice. Otherwise, documentation of some kind will be needed.

The purchaser is in contract with the supplier (where offer and acceptance = contract). Contracts can be implied by actions, or explicit and verbal, or explicit and documented. The law of contracts, much of which is case law, allows all these things. Contract terms generally, and for buildings especially (given the size, cost and complexity), are better written than unwritten. Building contract terms and purchaser requirements therefore are conveyed to the supplier in written (and drawn) form – aka ‘building contract documentation’.

Early contracts often mixed up rules of play and the purchaser requirements for the product to be supplied, typically:

• Date and parties.
• Product description.
• Payment and program.
• Penalties for non-performance.
• Witnesses.

These days the two themes are usually separated. However, ‘contract’ is often used to encompass all the documents, and not limited to the ‘rules of play’ (called 'conditions of contract' to make this distinction).

2.3 Risk management

Documentation provides

• certainty for both parties;
• proactivity, solving problems & making decisions in advance, i.e. building is designed pre-tender;
• efficiency, e.g. for resource planning, logistics, by the builder;
• equity, e.g. risks identified and costed by both parties; and
• profitability, e.g. no need to weight prices for unknown risks.

This need to document things is, at bottom, a risk management strategy. Without documentation, the risks of procuring the building are high – chances are that scope, time, cost and quality targets won’t be met. However, all documentation is not equal. Thorough and sound documentation achieves all these objectives. Sloppy documentation (e.g. repetition, errors, silence, conflict, postponement of decision-making) does not.

Documentation is just one strand in risk management. Identification of risks (e.g. SWOT), quantification (e.g. actuarial statistics), avoidance, mitigation (documentation, site surveys), acceptance and allocation (e.g. insurance, single-point responsibility procurement, Abrahamson principles, contingencies), and design of risk responses (e.g. through contractual rules-of-play) are other strands.

Proactivity: Design is a proactive activity. Documentation is a part of the design process. In conventional procurement designers do most of this, at least on the fabric side. In design-build procurement, some or even most design is done after tender. The reduction in certainty at tender about the scope and quality of the product can be managed to some extent, and in any case may be offset by increased certainty about time and cost.

Efficiency: If the builder knows exactly what is wanted at tender, it can plan the whole process – otherwise the process evolves as the design is completed; or the process may drive the design – not usually a good thing.

Equity: Full documentation allows this, but partial documentation (e.g. for design-build) does not – the consequent uncertainties must be properly managed, e.g. through rigorous design submittals and approvals.

Profitability: The more open the design (e.g. ‘to approval’) the more varied will be the tenderers’ response – some will run the risk, some will cost it. Such tenders are not, then, directly comparable.

2.4 Pre-tender (proactive) documentation

Pre-tender documentation provides

• the greatest opportunity for minimising cost, by making decisions up front – fewer resources affected, less inertia, and design is more open to change;
• maximum benefit for minimum effort;
• avoidance of costly and problematic on-site decisions, which would affect more resources, requiring inertia to be overcome; and
• minimal risk, if taking contract documentation as far as practicable.

But sometimes time is of the essence. In which case design-build may be used, with documentation post-tender. Or fast-track (package-based) procurement might be preferred, in which some parts of the design are resolved and tendered before others.

Research indicates a causative link between poor quality documentation and increases in tendered time and cost, extensions of time, cost overruns, variations, rework, dispute, delays and requests for information (Tilley, 2000; Doran, 2006).

2.5 Post-tender (reactive) documentation

Reactive documentation is partly about mopping up. In the absence of sound (or any - see Gelder, 2007) proactive documentation for an item, design decisions must be made reactively, during the execution phase. To some extent this is unavoidable – there is no such thing as 100% complete documentation. Following the 80:20 rule, even the best documentation goes to tender only 80 or 90% complete.

Reactive documentation is partly about dealing with unforeseen events. In general construction these typically involve unexpected ground conditions, e.g. fill, UXB, archaeology. In refurbishment, the actual condition of the existing fabric cannot be fully understood until work commences.

Reactive documentation is partly about making good defective proactive documentation – which is incomplete or imprecise or downright faulty. This is costly, embarrassing and avoidable – so it should be avoided as far as possible.

2.6 Summary

The following diagram summarises this.

Documentation: The documentation phase offers maximum ability to make changes (or design decisions) because nothing has been built yet, and the lowest cost of making these changes (low logistical commitment). This is the best time to make design decisions.

Tender point: At tender, the costs suddenly rise as the logistical commitment increases, and ability to change declines as the documentation is committed to.

This is true of design-build too, in terms of design decisions made pre-tender. For such decisions post-tender a similar set of curves would apply before each of the subcontract tender points.

Execution on site: During construction, as more is built, the ability to change anything diminishes to zero and the cost of making the change increases to maximum. This is the worst time to make design decisions.

2.7 Key points

Products may be pre-made or custom-made.

Architecture can be defined as custom-made buildings.

Purchasers of architecture need to document their requirements and the contract terms – hence building contract documentation.

Documentation is part of the risk management strategy.

The design, and hence the documentation, may be complete, or not. This affects certainty of outcome, allocation of risk, profit, efficiency and so on.

Pre-tender documentation is preferred to post-tender documentation.

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