08 May 2018

Last spring, in a speech to Russian delegates, I contrasted the construction industry with the financial services industry. You might think our transactions have little in common on the face of it, but their industry deals with single one-off transactions to support single one-off buying and selling of goods, as well as long-term investment in longer projects, like mortgages and loans.

If they can do it, why can’t construction?


Wet signing and hard copies

In 2500 BC, we know that the Persians used clay tablets to record agreements between employers and contractors. At best, these would have been marked with the fingerprint or stamp of the slave: an early form of wet signing. Of course, like today, those with the most financial clout would have simply imposed their contracts on their supply chain, which in those days was mostly slave labour.

At the same time, most financial exchanges were based on individual deals, and there was no standardised money. Other methods of exchanging value were equally welcome. Perhaps that’s why a construction contract in the British Museum adopts payment in beer!


Towards standardisation

In 500 BC, King Croesus of Babylon introduced standard coins. His coins were made of gold, so had intrinsic value and worth, and they also bore his mark. Each coin was standardised so that it could be trusted to be the correct weight. This standardisation encouraged trade, improved trust and helped his country become rich – immortalising the King in our reference to people being as rich as Croesus.

Although we have evidence of written contracts being used by the Romans in 100 BC, we have few records of what those terms were. In common law countries such as England, freedom to contract meant people could, and did, make contracts on any terms they liked!


When Paper Ruled the World

Money moved to paper in the 7th century, by which time there was no longer any intrinsic value in the form of money itself. Contracts were still being written on paper, as mentioned by Machiavelli in the 16th century.

By the mid-19th century, paper money was becoming standardised, and in the UK individual notes used to have to be signed in ink (wet signed), stating that the Bank ‘promises to pay the bearer the sum of five pounds on demand’.

At roughly the same time, large corporations were introducing their own ‘standard’ forms of construction contract, encouraging the London Builder’s Society and RIBA to launch the ‘Heads of Conditions of Builder’s Contract’ in 1870.

By the turn of the 20th century, we had pre-printed bank notes, and standard form construction and engineering contracts. So far, so good.

If Building Information Modelling can capture, revise and share the specifications for major projects, surely the ‘what we are building’ element of a construction contract is just one step further?

Still innovating?

During the 20th and 21st centuries, the paths of construction and finance diverge.

Debit and credit cards slowly gained popularity over hard money, and our finances are now represented electronically and digitally. Methods of payment change rapidly, with the emergence of smart banking and even Blockchain technology, with the introduction of bitcoin in 2008.

In construction, meanwhile, our standard contracts have been regularly reissued and updated, but have fundamentally just got longer, more complex and more full of jargon. JCT 1963 was a quarter of the size of JCT 2016. Contracts tend still to be wet signed in duplicate, if they’re signed at all! As the 2018 Survey shows, one third of projects start without a contract being signed, which equates to £4bn of construction work each month (based on UK Government figures for November 2017). But 2% are never signed; that’s a whopping £3bn annually of construction work completed without any wet signed contract at all.

It’s not that contracts themselves are inherently tricky to reduce to a wholly digital transaction. If Uber and AirBnB can introduce services contracts based on your smartphone, surely the ‘how we work together’ element of a construction contract can be created digitally?

It’s not that construction specifications are impossible to reduce to a shareable digital format. If Building Information Modelling can capture, revise and share the specifications for major projects, surely the ‘what we are building’ element of a construction contract is just one step further? The 2018 Survey shows that the majority of contracts refer to BIM or BIM outputs, with a fifth fully integrating the process.

So what is the missing element? Perhaps it is the element of trust, without which the global banking industry comes crashing to a halt. A mere 16% of 2017 projects adopted any form of collaboration techniques, despite clear communication and working together being essential for project success. Over one third adopted no formal techniques for working together.

Before we can create the next generation of construction contracts, we need to focus on building trust. Without trust, contracts will stay mired in 19th century processes and archaic formats.