Engineering, Construction and Architectural Management

Commercial reviews in the tender process of contractors

Samuel Laryea Will Hughes

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Engineering, Construction and Architectural Management, Vol. 16 Iss 6 pp. 558 - 572
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ECAM
16,6

Commercial reviews in the tender

process of contractors

558

School of Construction Management and Engineering, University of Reading,

Reading, UK

Samuel Laryea and Will Hughes

Received March 2009

Revised July 2009
Accepted August 2009

Abstract

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Purpose The purpose of this paper is to show the extent to which clients amend standard form
contracts in practice, the locus of the amendments, and how contractors respond to the amendments
when putting together a bid.
Design/methodology/approach Four live observational case studies were carried out in two of
the top 20 UK construction firms. The whole process used to review the proposed terms and conditions
of the contract was shadowed using participant observation, interview and documentary analysis.
Findings All four cases showed strong evidence of amendments relating mostly to payment and
contractual aspects: 83 amendments in Case Study 1 (CS1), 80 in CS2, 15 in CS3 and 29 in CS4. This
comprised clauses that were modified (37 per cent), substituted (23 per cent), deleted (7 per cent) and
new additions (33 per cent). Risks inherent in the amendments were mostly addressed through
contractual rather than price mechanisms, to reflect commercial imperatives. Qualifications and
clarifications were included in the tender submissions for post-tender negotiations. Thus, the
amendments did not necessarily influence price. There was no evidence of a standard-form contract
being used as such, although clients may draw on published standard-form contracts to derive the
forms of contract actually used in practice.
Practical implications Contractors should pay attention to clauses relating to contractual and
financial aspects when reviewing tender documents. Clients should draft equitable payment and
contractual terms and conditions to reduce risk of dispute. Indeed, it is prudent for clients not to pass
on inestimable risks.
Originality/value A better understanding of the extent and locus of amendments in standard form
contracts, and how contractors respond, is provided.
Keywords Project evaluation, Contracts, Risk management, United Kingdom
Paper type Case study

Engineering, Construction and

Architectural Management
Vol. 16 No. 6, 2009
pp. 558-572
q Emerald Group Publishing Limited
0969-9988
DOI 10.1108/09699980911002575

Introduction
In the construction procurement process, the successful contractor enters into contract
with the employer normally after a tendering process (as explained in an
experiential-based textbook prepared on behalf of practitioners by Hackett et al.,
2007). Such a contract is typically an agreement in writing or evidenced in writing
(Murdoch and Hughes, 2008, p. 117). In forming a contract, construction clients often
present their terms and conditions to the market (Hughes and Greenwood, 1996). But
they also have to reach agreement with their builders on the contractual terms that will
form the legal relationship between them (as explained in an empirical study on roles in
construction projects, carried out for the JCT by Hughes and Murdoch, 2001, p. 142).
Standard-form contracts have been drafted specifically for use in construction
(Murdoch and Hughes, 2008; Uff, 2005). But studies, including an empirical study
involving 83 specialist contractors, showed that such contracts are rarely used without
amendments in practice (Hughes et al., 1997). When clients present amended

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standard-form contracts to contractors during the tender process, the builders tend to
analyse the proposed terms and conditions in a process called commercial review.
This is often done by the commercial department and it helps contractors to respond
appropriately to any risks. The extent and locus of amendments to standard-form
contracts, and how contractors respond, are investigated based on four live
observational case studies where the whole commercial review process was observed
in two of the top 20 UK construction firms (Hansford, 2008).
Background
The Joint Contracts Tribunal (JCT) indicates that standard-form of contracts, guidance
notes and other standard documentation for use in the construction industry started
appearing in 1931 (www.jctltd.co.uk). However, a Chartered Institute of Building
publication on the evolution of standard-form contracts shows a longer history of
existence that dates back to 1870 (Spiers, 1983, p. 4). Standard-form contracts have
some advantages, including speed of producing tender documents, familiarity for
contract administrators and tenderers, and an established body of case law which can
assist in the drafting and interpretation of contracts (Willis et al., 1994). However,
Spiers (1983) has criticized standard-form contracts for their inability to adapt to the
context in which they operate. Another problem with standard-form contracts, at least
in the UK, is that drafters focus their contracts on specific project types whereas users
may not be so careful about where they use them (see Hughes and Greenwood, 1996,
p. 196; Hughes et al., 1997, p. 36). Clients may thus be justified in presenting their own
unique terms and conditions to the market. Indeed, this is not a recent practice. Spiers
(1983, p. 14) described how . . . local authorities [as far back as 1902] preferred their
own forms of contract and their own interpretation.
A study on role and responsibility in site investigation, carried out for CIRIA by Uff
and Clayton (1991, p. 10), indicated that parties to a construction contract tend to adapt
standard-form contracts to define their relationship. However, a study on the
standardization of construction contracts by Hughes and Greenwood (1996, p. 196)
argued that clients tend to modify standard-form contracts, by introducing their own
special clauses, either genuinely to suit their projects or unfairly to gain an advantage.
A questionnaire survey by Hughes et al. (1997, p. 36), involving 83 specialist trade
contractors, showed that amendments to standard-form contracts were prevalent,
hence 80 per cent of the contractors qualified their bids. Research carried out for the
JCT by Hughes and Murdoch (2001, p.142), using desk study, in-depth analysis of nine
published plans of work and focus group interviews, argued further that Even when a
standard form of building contract is used, there will frequently be amendments and
alterations to the text of the standard form. Thus, although some writers refer to
contracts being frequently amended, it is yet to be quantified or justified
substantially.
In a textbook on commercial management in construction, Walker and Wilkie (2002)
explained how clients tend to have a sometimes misplaced tendency to transfer
unreasonable risk to contractors through contracts. Consequently, many contractors,
when calculating their bids, would indeed analyse the proposed terms and conditions
of contract, in order to understand the risk apportionment, and respond appropriately
(Hughes et al., 1997). This often leads to qualifications in the tender submission
(Walker and Wilkie, 2002, p. 69). Hughes and Murdoch (2001, p. 142) defined

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qualifications as a contractual provision proffered by a builder that forms a condition

of the tender. If the client does not accept this contractual provision, the builders price
[and programme] will not stand. Many clients often prefer unqualified tenders (as
explained by Uff and Clayton, 1991, p. 12). But based on evidence from the study
carried out by Hughes et al. (1997, p. 79), which revealed that standard contracts were
routinely amended, contractors were advised that: Any amendments to standard-form
contracts should be carefully checked. . .The contractors first reaction to such
amendments should be to qualify the bid to ensure that the bid is based on a
reasonably equitable basis. Thus, standard-form contract amendments are clearly an
issue in theory and practice. However, no major empirical work has been reported to
articulate the extent and locus of amendments. This work is at the intersection of
economics, law and management.
In a business economics sense, bidding contractors will generally hope to obtain
projects under the most favourable contractual terms that yield expected profit
(Fischer and Jordan, 1996). As Marsh (2000, p.53) explains in an experiential-based
textbook for practitioners, contractors strategically plan their tenders to satisfy a dual
objective of offering the most attractive price, while minimizing risks and liabilities
under a potential contract. In a legal sense, contractors will try to avoid signing up to a
contract that is potentially onerous and likely to result in dispute and costly legal
battles. And in a managerial sense, contractors would prefer to sign up to contracts
that they have the managerial capacity to execute. Hence, commercial reviews should
normally cover the economic, legal and managerial aspects of a project such as: the
scope of work, terms of payment, schedule and programming of work, insurance,
indemnity, changes and variations, assurances of performance, damages and
warranties (Marsh, 2000). These issues are well explained in standard construction
law textbooks such as Murdoch and Hughes (2008) and Uff (2005).
The research by Hughes et al. (1997) showed that nearly all of the 83 specialist
contractors qualified their bids because of non-standard conditions. The remainder
added qualifications during the negotiations leading to the signing of the contract. The
contractors responded in two main stages to standard contract amendments. First, the
work content is priced and negotiations firm this up. Then second, the risk elements
are negotiated. The contractors either sought to amend the clauses or negotiated a
suitable payment for taking the risk. Mechanisms used for responding to amendments
were qualifying bids (80 per cent of contractors), seeking legal advice (55 per cent),
consulting trade associations (30 per cent) and negotiating (58 per cent). Some firms (15
per cent) simply ignored non-standard conditions in their bid proposals. Non-standard
clauses were found to range fairly evenly across the following themes: payment, others,
programme, set-off, attendances, co-ordination, design liability, insurances, arbitration,
liquidated damages, and retention. The attempt to quantify the degree to which
standard forms are amended was based on a three-point scale: rarely, sometimes
and usually (Hughes et al., 1997, pp. 87-89). JCT forms were usually amended,
whereas the FCEC Blue form was only sometimes amended.
Based on structured interviews with five professional quantity surveyors, 11
individuals holding the office of commercial manager, and two solicitors with
specialization in construction law, Lowe et al. (1997) described how a good commercial
manager [contractor] will assess the risks associated with a tender and decide whether
they are acceptable or unpriceable. One interviewee said: To determine the risks, I go

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through the tender documents and look at the terms of the contract. I look at the nature
of the contract. The more complex the building the more areas of potential failures that
are and the more management things I have to do to make sure it does not fail. Almost
all those interviewed believed that risk analysis was part of the commercial managers
role. Three stages of the risk assessment process were described: being proactive about
assessing situations and discovering possible risks; determining the cost of the risk,
then assessing whether this cost/risk is acceptable; and discovering ways to reduce the
risk and its cost.
This remains the state of understanding on how contractors respond to
amendments when reviewing tender documents received. The research literature
presents no detailed articulation of the extent and locus of amendments to standard
form contracts, and how contractors actually respond. Therefore, the following
questions that were highlighted in the literature are addressed:
(1) To what extent do clients amend standard-form contracts?
(2) What areas of standard forms do clients mostly amend?
(3) How do contractors respond to the amendments to standard forms?
(4) What activities are involved, what documents are reviewed?
(5) Which personnel (roles and responsibilities) are involved and for how long?
(6) What kinds of information are processed? And how is it processed?
(7) Does risk play a role in commercial reviews?
(8) How does commercial review impact on the final bidding price?
Mintzberg (1973), in considering the question What do managers do? showed how
useful it is to ensure that research is comprehensive, inductive and intensive. This
research asks a similar, but more focussed question, What is the extent and locus of
amendments in standard form contracts in practice, and how do contractors respond
when they review tender documents? The purpose is to capture the entire process,
probe deeply, and develop a general statement of how contractors respond to
amendments from a case study of specific tender processes. Commercial sensitivity is
often cited as the main reason for the difficulty in accessing the information needed to
address questions in this kind of research (see for example, a study on the pricing
processes of nine UK builders by Skitmore and Wilcock, 1994). But without a better
understanding of amendments to standard contracts, and how contractors respond to
them, it would be hard to address precisely the issue in theory and practice. Hence, an
appropriate research strategy and method was required.
Research method
Four cases of the whole commercial review process were investigated in two of the top
20 UK construction firms (Hansford, 2008), hereafter referred to as Gamma and Beta, in
2008. Access was negotiated into the two firms to enable a live observation of every
aspect of putting together a bid. It became possible to shadow more than one
commercial review process and to collect documents since the commercial departments
did more than one commercial review within the tender periods. Six and seven weeks
respectively were spent observing the bidding process in Gamma and Delta. The entire

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study lasted 65 days i.e. 110 hours of direct observation as working hours was
0800-1730 hours (with one-hour of break time each day).
The bid teams were assisted by the researcher in their daily work. This helped to
obtain a chronological record of everything involved in the bidding process, including
the commercial review. Questions were asked to clarify observations and to learn about
general experiences. All documents used in the bidding and commercial review
processes were collected and analysed. Thus, three main methods were used:
observation, interview and documentary analysis. This triangulated approach (Gill
and Johnson, 2002) helped to achieve a significant degree of internal validity through
direct observation. It helped to achieve a significant degree of ecological validity
through the use of participant observation (Saunders et al., 2007; Gill and Johnson,
2002). And to some degree, learning about general experiences provided some basis for
comparing observations here to previous experiences in the firms. Reliability is a tricky
issue in observational research because of perception and reflexivity (Gill and Johnson,
2002). Here, however, the unit of analysis was contractors response to amendments to
standard forms. Much of this was clearly objective and documented in a commercial
review report (CRR). Hence, it was quite straightforward to analyse the CRR
documents, in addition to recorded observations and interviews. Case studies are often
limited in their capacity to be representative of whole population (Yin, 2003). Hence, the
results here may not be generalized for the entire industry. Case studies depend
crucially on how well the study objective is focused and careful selection of cases
(Hakim, 2000). This underpins the specificity of the research question here, and
carrying out the research in two of the top 20 UK construction firms that have a
presence across the UK and overseas and wide range of experiences with construction
clients and contracts.
The CIRIA report by Uff and Clayton (1991, pp. 15-33) examined 11 main areas of
the ICE conditions of contract: roles of the parties, definition of the work, contract
documents, payment provisions, responsibility for design and direction, role of the
supervisor, initiation of changes and their consequences, unforeseen conditions,
obligations as to timing and completion, risks and insurance requirements, and
disputes and arbitration. The other CIRIA report by Hughes et al. (1997, pp. 33-36)
examined contractual issues in procurement: payment, subcontractors, design
warranties, liability for late completion, programme and protection of work. These
themes informed the categories used for the analyses in Tables I-IV.
Case studies
Case studies 1 and 2 were carried out in Gamma whiles case studies 3 and 4 were
carried out in Delta. These are examined and analysed as follows.
Analysis Case study 1
The first case study (CS1) involved the commercial review of tender documents for a
12m enabling works project proposed to enable the development of residential and
commercial properties on a large tract of marsh land. The tender documents comprised
of specifications (358 pages), drawings (213 sheets), bill of quantities (BQ 197 pages)
and ICE conditions of contract 7th edition. In addition, the contractors were expected to
have and to know the Highways Agency specifications that were referred to in the
tender documents. Tenderers were required to price the BQ, and submit a Guaranteed

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Amendments relating to:

Total

Construction
Financial and payment
Dispute resolution
Physical conditions
Contractual and legal
Health, safety and security
Contract documents
Novation and subcontractors
Clauses deleted from standard contract
Programme and planning
Services and utilities
Total

0
1
0
1
10
1
2
0
0
0
0
15

1
3
1
0
5
0
0
1
1
2
0
14

0
5
2
0
11
0
2
0
0
1
0
21

0
9
0
4
9
0
2
2
2
2
3
33

0
0
0
0
0
0
0
0
0
0
0
0

1
18
3
5
35
1
6
3
3
5
3
83

Notes: A comment made for information only; B potential onerous item of which to be aware;
C onerous item, ideally to be clarified or amended; D provision which should ideally not be
accepted; E item requiring a specific action

Amendments relating to:

Total

Construction
Financial and payment
Dispute resolution
Physical conditions
Contractual and legal
Health, safety and security
Contract documents
Novation and subcontractors
Clauses deleted from standard contract
Programme and planning
Services and utilities
Total

0
6
2
0
7
1
1
2
8
0
0
27

0
2
0
0
9
0
0
0
1
0
0
12

1
5
0
2
2
0
0
0
4
0
0
14

0
7
0
0
4
1
0
0
2
0
0
14

0
2
0
0
3
0
0
0
0
0
0
5

0
0
0
0
1
1
2
0
4
0
0
8

1
22
2
2
26
3
3
2
19
0
0
80

Notes: 1 Comment made for information only; 2 Item of which to be aware; 3 Onerous;
4 Provision which should not be accepted; 5 Item requiring a specific action; ? Unknown

Amendments relating to:

Number of clauses
Percentage (%)

CN

DR

PC

C&L

HSS

Total

3
20.00

4
26.67

2
13.33

1
6.67

4
26.67

1
6.67

15
100

Notes: CN construction; F financial; DR dispute resolution; PC physical conditions;

C contractual and legal; HSS health, safety and security

Amendments relating to:

Number of clauses
Percentage (%)

CN

DR

PC

HSS

Total

6
20.69

12
41.38

0
00.00

2
6.90

9
31.03

0
0.00

29
100

Notes: CN construction; F financial; DR dispute resolution; PC physical conditions;

C contractual; and HSS health, safety and security

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Table I.
Extent and locus of
amendments in CS1

Table II.
Extent and locus of
amendments in CS2

Table III.
Analysis of commercial
review report (CRR) in
CS3

Table IV.
Analysis of commercial
review report (CRR) in
CS4

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Table V.
Categorization of
amendments and
frequency of risk

Maximum Fixed Price (GMFP) that was free from qualifications. The proposed site
of construction was of special environmental and ecological interest to the local council
and authorities. The project was to be completed in two sections of six months each.
The main documents reviewed by the CM were the: instructions to tenderers, form of
tender, form of agreement, form of bond, conditions of contract, special requirements,
collateral warranties, and parent company guarantee (PCG). This role was performed
by the CM who heads a commercial department, and an assistant who is a quantity
surveyor. Others involved in reviewing warranties/bonds/PCG and insurance were the
legal and insurance managers.
The CM defined commercial review as a process where the conditions of contract are
assessed to ascertain the extent to which each amended clause is acceptable to us. The
estimator said that: The commercial review involves all aspects of the contract because
clients often amend the standard forms in order to gain an advantage. Therefore, the
commercial review is intended to help us in understanding how the clauses have been
amended by the client. The 22-page commercial review report (CRR) contained a
contract appraisal that highlighted each amendment to the standard-form contract,
the potential consequences, and how to respond. The CM indicated the main areas of
concern as: the form of tender, conditions of contract, and legal and insurance
requirements. Based on the review, the CM recommended in the CRR that: The Form of
Tender should not be signed and returned. We will not be providing a compliant tender.
The amendments are designed to produce a contract that transfers virtually all risk
onto the contractor leaving very little right to extension of time and additional payment.
Any tender issued under these conditions should be qualified stating that our offer is
subject to agreement of suitable terms and conditions.
Table V shows the number of times the word risk was specifically mentioned in the
CRR, in relation to the different categories (A, B, C, D and E) used by the CM to describe
the potential impact of amendments to the standard-form contract. Out of 83
amendments reviewed, 40 per cent of them should ideally not be accepted; 25 per cent
should ideally be clarified or amended; 18 per cent were simply to be noted; and 17 per
cent were potentially onerous. No amendment categorized A had any specific
mention of the word risk this does not seem surprising given that those amendments
were to be simply noted. Risk was mentioned once in describing category B
amendments; thrice in relation to C amendments; and ten times in relation to D
amendments. Thus, risk is a significant factor in the commercial review process.
Table I examines themes relating to terms and conditions routinely amended. Most
amendments related to contractual (42 per cent) and financial (22 per cent) aspects.

Categories describing potential impact of

amendments

Total

Number of clauses reviewed under each category

Number of times risk was mentioned in the CRR

15
0

14
1

21
3

33
10

0
0

83
15

Notes: A comment made for information only; B potential onerous item of which to be aware;
C onerous item, ideally to be clarified or amended; D provision which should ideally not be
accepted; E item requiring a specific action

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Most risks were ideally not to be accepted. The remainder related to contract
documents (7 per cent), programme (6 per cent), physical conditions (6 per cent),
subcontractors (4 per cent) and deleted clauses from the standard contract (4 per cent).
The distribution across categories is also shown.
Table VI examines the nature of amendments. A total of 37 per cent of clauses in the
standard contract were amended, 24 per cent were substituted with the clients own
special terms and conditions, 33 per cent were entirely new clauses, and 6 per cent of
clauses in the standard form had been removed. The distribution under each category
is shown. A content analysis of the CMs written comments in the CRR showed that
risk was mentioned specifically five, four, three and two times in connection with
substituted, amended, new and deleted clauses respectively.

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Analysis Case study 2

The second case study (CS2) involved the commercial review of tender documents for a
9m marine and road job for a public client. The tender documents given were: ICE
Design and Construction, 2nd Edition September 2001, outline drawings, and
specifications. The main documents reviewed by the CM were the: instructions to
tenderers, form of agreement, parent company guarantee (PCG), surety bond,
amendments to the conditions of contract, and form of tender. The CRR indicated that:
There are a number of specific clauses that are either onerous or that are not
acceptable without further clarification or amendment. We should not agree to the
terms and conditions of contract and must qualify our tender accordingly.
To do the commercial review, the CM read through the relevant documents
thoroughly, and identified areas that varied from the standard-form contract. Each was
recorded, the potential impact described, and a response action recommended. The
main aspects highlighted by the CM in the CRR to be clarified, negotiated, or priced
were:
. . . rights of third parties, assignment by the employer, period of consent by the employers
representative of the contractors design copyright, responsibility for design supplied on
behalf of the employer, unforeseen ground conditions including the extent of information
deemed to be in the contractors contemplation, entitlement to extension of time, and
additional payment particularly with regard to matters not in the contractors control,
insurance, obligations and liabilities relating to the enabling agreements, payment of fees and
rates and taxes, delay and additional cost caused by third parties, EOT associated with
fossils and articles of value and the like, weather risk, extent to which LAD is limited or
Category
A
B
C
D
E
Total

Amended clauses

Substituted clauses

New clauses

Deleted clauses

Total

5
6
7
13
0
31

6
3
5
6
0
20

4
4
8
11
0
27

0
1
1
3
0
5

15
14
21
33
0
83

Notes: A comment made for information only; B potential onerous item of which to be aware;
C onerous item, ideally to be clarified or amended; D provision which should ideally not be
accepted; E item requiring a specific action

Table VI.
Nature of amendments in
CS1

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Table VII.
Categorization of
amendments and
frequency of risk

unlimited, removal/disposal/sale of contractors equipment by the employer, right to interest

for late payment/certification, increases in taxed etc. for workpeople and landfill tax,
performance bond wording, and PCG.

Table VII examines a link between risk and 80 amendments reviewed by the CM. The
CM found it hard to categorize the potential impact of 10 per cent of amendments. 34 per
cent of the amendments were to be simply noted, hence probably not of significant
commercial concern. A total of 15 per cent were amendments of which Gamma needed to
be aware; 18 per cent were onerous obligations, and the CM thought that 18 per cent
of the amendments should not be accepted. Of the amendments, 6 per cent required a
specific action such as qualification or contingency allowance.
Table II examines themes relating to terms and conditions that are routinely
amended. Financial (28 per cent) and contractual (33 per cent) terms and conditions
were mostly amended. 24 per cent of clauses in the standard form had been deleted.
The remaining 16 per cent was distributed over issues relating to tender documents,
dispute resolution, novation and subcontractors, and physical conditions at the
construction site. The distribution under categories is shown.
Table VIII examines the nature of amendments. 35 per cent of clauses in the
standard contract were amended, 10 per cent were substituted with the clients own
special terms and conditions, 29 per cent were entirely new clauses, and 26 per cent of
clauses in the standard form had been removed. The distribution under each category
is shown. A content analysis of the CMs written comments in the CRR showed that
risk was mentioned specifically five, four, three and two times in relation to
substituted, amended, new and deleted clauses respectively. Thus it is fair to
appreciate the significant risk associated with amendments to the standard-form
contract.

Categories describing potential impact of

amendments

Total

Number of clauses reviewed under each category

Number of times risk was mentioned in the CRR

27
0

12
1

14
5

14
4

5
1

8
0

80
11

Notes: 1 Comment made for information only; 2 Item of which to be aware; 3 Onerous;
4 Provision which should not be accepted; 5 Item requiring a specific action; ? Unknown

Category

Table VIII.
Nature of amendments in
CS2

1
2
3
4
5
?
Total

Amended clauses

Substituted clauses

New clauses

Deleted clauses

Total

11
6
5
4
1
1
28

2
3
1
1
0
1
8

7
1
3
6
3
3
23

7
2
5
3
1
3
21

27
12
14
14
5
8
80

Notes: 1 Comment for information only; 2 Item of which to be aware; 3 Onerous;

4 Provision which should not be accepted; 5 Item requiring a specific action; ? Unknown

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Analysis Case study 3

The third case study (CS3) involved the commercial review of tender documents for a
proposed 6.5m infrastructure works for a railway terminal in England comprising of
platform works, a footbridge, track works, ole works, and signalling works. The tender
documents were 1,090 pages comprising of outline drawings, technical workscope,
specifications, and conditions of contract. The CM described the proposed contractual
arrangements as Schedule of amendments to the ICE conditions of contract Design
and Construct 2nd Edition. The CRR was done in the second week of the seven-week
tender process. 15 amendments were reviewed by the CM. There was no specific use of
the word risk in the four-page CRR. To do the commercial review, the CM read
through the proposed terms and conditions, and tried to identify areas that varied from
the standard-form contract. Each was recorded, the potential impact described, and a
response recommended. The most recommended response mechanism was
qualifications. Three out of 15 clauses were highlighted in the CRR as potentially
dangerous.
Table III analyzes themes in the CRR of CS3. 27 per cent of amendments related to
financial aspects, 27 per cent to contractual and legal, 20 per cent to actual
construction, 13 per cent to dispute resolution, 7 per cent to physical conditions, and 7
per cent to health, safety and security. In one case, the CM did not believe that the
clauses will apply, and in another case, the CM thought the clause had actually been
amended to suit Delta. The amendments comprised of modified, new deleted
clauses. Hence, they did not vary significantly in nature from the ones in CS1 and 2.
Analysis Case study 4
The fourth case study (CS4) involved what the CM described as an amended version
of the ICE conditions of contract, Design and Construct, 2nd Edition. The 8.5m
project comprised of trackworks, shelter building, ole works, and signalling works. A
ten-page CRR was produced by the CM in the second week of the tender process. The
CRR concluded that: The special conditions and particular conditions do not contain
any amendments which would be considered as show stoppers. However, we should
state in our offer that if our bid is of interest, then we would reserve the right to review
the wording of some of the terms and conditions of contract. Whiles tenderers were
required to submit a complaint bid, alternatives with a compliant bid were allowed.
The areas reviewed by the CM are: instructions to tenderers, conditions of contract,
performance bond, parent company guarantee, collateral warranties, novation
agreements, insurances, bill of quantities and SMM, liquidated damages, time for
completion, railway costs, payment terms, minimum amount of interim certificates,
percentage of value of goods and materials to be included interim certificates, retention,
defects liability period, and the client. The word risk was mentioned specifically two
times in the CRR. This was in specific relation an amendment to Clause 55(1) which
effectively meant a lump sum contract instead of cost reimbursement.
Table IV analyzes themes in the CRR summarized in Appendix 4. 29 areas of the
conditions of contract and tender documents were reviewed. A total of 41 per cent of
amendments related to financial, 31 per cent to contractual and legal, 21 per cent to
construction, and 7 per cent to physical conditions. No amendments related to dispute
resolution and HSS.

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568

Discussion
First, a significant amount of amendments to the ICE standard-form contracts were
found i.e. an average of 52.5 amendments in four cases. Therefore, it did not seem that
the concept of standard-form contracts holds true in practice. In all four cases, with
projects ranging between 6.5m-12m, the amendments comprised of modified,
substituted, deleted and new clauses. There was significant variation in the number of
such clauses, but modified and new (unique) clauses were mostly significant. A
significant number of clauses in the standard form were also deleted by the clients. The
extent of amendments in CS1, CS2, CS3 and CS4 were 83, 80, 15 and 29 respectively.
This reinforces the argument in Hughes and Greenwood (1996) that clients rarely use
standard-form contracts without amendments in practice. It also supports findings in
Hughes et al. (1997) where 83 specialist contractors indicated that standard-form
contracts were always amended.
Second, all four case studies showed that the locus of amendment by clients related
mostly to financial and payment issues, and contractual and legal arrangements (see
Tables I-IV and Table IX). These involved mainly issues related to liquated damages,
time for completion, payment terms, minimum amount of interim certificates,
percentage of value of goods and materials to be included in interim certificates,
retention, defects liability period, PCG, performance bond, utilities companies, weather
conditions, taxes, contract document definitions, and warranties. It is hardly surprising
that the financial aspects were a main issue. It has always been thus. Spiers (1983,
p. 14) showed how significant disagreements existed, as far back as 1922, . . . between
the contractor and the building owner upon questions which affected the financial
aspects of the contract. But There was no need in contracts to specify what each
party should do, for everyone knew only too well. They also knew the penalty for
failure. Society was a very effective arbitrator with its monopoly in right and wrong.
Here, it is interesting to observe how things have significantly changed with the use of
clear specifications in contracts. The survey by Hughes et al. (1997) showed that most
payments were delayed by at least 11.5 days beyond the period stipulated in their
contract, with only 15 per cent being paid on time. Contractors will be wise to pay
attention to these areas. Clients are also encouraged to draft equitable payment and
contractual terms and conditions to reduce risk of dispute.
Third, both contractors were concerned about the special and unique conditions
proposed by their clients. In all four cases, contractors proposed to qualify and clarify
their risks as part of the tender programme and price submission for post-tender
negotiations with the employer if the price is of interest. This seems to indicate a
perception among contractors that employers actually propose their conditions in
order to gain an advantage rather than genuinely to suit the project. As far back as
1870, Spiers (1983, p. 7) showed how There is little doubt that builders were asked to
accept obligations which were far from reasonable. It does not appear that this has
changed much in current practice. But in one case i.e. CS3 the contractor (Delta)
thought that the client had actually drafted one of the amendments in Deltas favour.
The CM described it as follows: Adverse physical conditions; contamination and
pollution added; this is a favourable addition. However, it could be argued that the
client might not actually have had the intention of helping Delta in mind. Indeed, it is
prudent for clients not to pass on inestimable risks.

29
52.5

15

80

83

4
7.5

11

15

Frequency of use of
Conditions Number of the word risk in the
CRR
of contract amendments

CD

CD

CD

CD

EH

EH

EFH

EFGH

Main Main roles and personnel

involved in the CR
areas of
process
risk

HI

HI

IJMN

IJMN

Main
documents
reviewed

PQ

PQ

PQ

PQ

Commercial risk
response
mechanisms

2
2.5

Time taken to
produce CRR
(weeks)

Notes: A ICE 7th edition, 1999; B ICE Design and Construction, 2nd edition, 2001; C Financial; D Contractual/legal; E Commercial manager;
F Legal manager; G Insurance manager; H Quantity surveyor; I Conditions of contract; J Form of bond; K Form of tender; L Special
requirements; M Collateral warranty; N Parent company guarantee; P Qualification; Q Clarification

Case
Study
(CS1)
Case
Study
(CS2)
Case
Study
(CS3)
Case
Study
(CS4)
Mean

Case
studies

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Commercial
reviews

569

Table IX.
Summary of results

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570

Fourth, the main activities involved in the commercial review process appeared to be:
ascertaining the documents given and deciding which ones to review; analysing the
contents; identifying commercial risks; and formulating risk response mechanisms.
The responsibility for carrying out the commercial reviews was borne by commercial
managers (CM). In two cases, the CMs were assisted by quantity surveyors to read
through the documents and identify variations to the standard form contract and other
onerous conditions proposed by the client. A legal manager and an insurance
manager were also involved in C2 1 and 2. The main information used to inform the
commercial reviews were the standard-form contracts, experience from previous
projects, and historical records of the company relating to the client and previous
similar projects. It did not seem that the commercial decisions made about the cases
involved here were based solely on information relating to its client or tender
documents. Previous experiences relating to other projects influenced decisions here.
Hence, the commercial view that contractors take of a project may not necessarily be
influenced solely by information relating to a particular client and their project.
Fifth, an examination of the four case studies shows that risk clearly played a
significant role in informing the commercial view taken in respect of the projects. For
example, the word risk was mentioned specifically 15 times in the CRR for CS1, 11
times in the CRR for CS2, and two times in the CRR for CS4. The main response
mechanisms for these risks were qualifications in the tender programme and price
rather than pricing them as contingency allowances in the final bidding price.
Therefore the data shows how risk is mostly managed through contractual rather than
price mechanisms, reflecting commercial imperatives at the time of bidding. While the
obvious reason was to avoid inflating the bidding price, both contractors also thought
that given the low-probability, high-impact nature of the risks the employer was in
a better position to own and deal with them.
Sixth, some of the risks were priced by the bid manager individually for
consideration by the entire bid team at the final tender review stage. CS 1 and 2 in
Gamma had no risk contingencies applied in the final bidding price, in addition to the
qualifications, clarifications and assumptions accompanying the tender programme
and price submitted. However, Delta included an average risk margin of 0.5 per cent in
the final bidding price. Therefore, it seemed that apart from the strategic mechanisms
for taking account of risk such as qualifications, unique and special terms and
conditions proposed by clients have no significant impact on price.
Conclusions
Mechanisms used by contractors for reviewing and responding to amendments to
standard-form contracts by clients are investigated. The extent to which clients amend
standard-form contracts, and the locus of amendments, were also investigated. Four
case studies of civil engineering projects of value 6.5m-12m showed strong evidence
of amendments to standard contracts. This confirmed the routine amendments of
standard form contracts in practice. Thus, if clients will indeed continue to propose
their own conditions of contract, which, in principle, normal business practice suggests
is acceptable, then the justification for drafting standard-form contracts remains
challenged. Neither of the contractors wanted to inflate their prices as a response to
amendments, which would reduce their chances of winning the work. Nevertheless,
they were clearly mindful of the inherent risks and liabilities in the proposed terms and

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conditions. Therefore, both contractors dealt with the amendments using contractual
rather than price mechanisms. They preferred to qualify and clarify the risks as part of
their tender submission for post-tender negotiation. Evidence from previous
experiences suggested that both contractors routinely performed a commercial
analysis of the proposed conditions of contract in each tender process using their
commercial managers. The process is called a commercial review. Depending on the
degree to which terms and conditions in a proposed contract were considered to be
onerous, the contractors would decide on the best way to approach commercial risks:
either to qualify or clarify. All four cases showed evidence of extensive amendments
(53 on average) comprising modified, substituted, deleted or newly introduced clauses.
These related mostly to payment and contractual aspects of the contract. Therefore,
contractors would be wise to pay attention to these areas. Since the risk response
mechanisms used in both firms were qualifications and clarifications in the tender
price and programme, it did not appear that amendments to standard-form contracts
impact significantly on price. Given the evidence, it also seemed that there may be no
such thing as a standard-form contract in practice although clients may draw on
standard-form contracts to derive the forms of contract that are used in practice.
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Corresponding author
Samuel Laryea can be contacted at: s.laryea@reading.ac.uk

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