May 29, 2024

Construction contracts and ‘good faith’ negotiations

News Article

Negotiations play a critical role in the drafting and implementation of construction contracts.

They hold significant influence over the success of the project, as the primary opportunity to set out the responsibilities of each party, a timeline for completion and approximate costs – aligning the objectives of each party and supporting mutually beneficial terms.

This is particularly important for projects which are large-scale, involving significant investments and supplies from multiple parties.

As such, negotiations are often required by standard form contracts.

The new JCT 2024 suite has placed an increased emphasis on ‘good faith’ negotiations, requiring parties to engage with one another honestly, fairly and sincerely.

Supervising Director, Adam Davis, is here to show you what good faith negotiations mean for you and your project, and how you can maximise the benefits.

The basics of good faith negotiations

‘Good faith’ refers to the expectation that parties will engage with the negotiation process without any intention to deceive or defraud, and with the goal of achieving the most beneficial outcome for the goals of the project.

It is often expected implicitly or required explicitly because it supports collaborative working, builds trust, anticipates likely challenges and prioritises completing the project over the interests of individual parties.

Engaging in good faith negotiations

Construction contracts often require several stages of negotiation because of the complexity of construction projects.

Your legal team and those engaged by other parties can support good faith negotiations and ensure that all agreements meet legal requirements and sit within the confines of construction law.

Conducting good faith negotiations centres the following key practices:

  • Transparency – Sharing important information openly and accurately, including project plans, timelines, costs, and any potential risks.
  • Respect – Treating all parties’ interests and concerns with consideration, aiming to reach solutions that respect everyone’s contributions and needs.
  • Accountability – Keeping promises and agreements made during negotiations and taking responsibility for any changes in circumstances.
  • Collaboration – Working towards common goals and recognising that a successful project outcome depends on all parties.

Using these practices can significantly enhance the effectiveness of negotiations and contribute to the smooth execution of construction projects.

Avoiding disputes

One of the main purposes of good faith negotiations is to avoid disputes and litigation between parties involved in a construction project.

Occasionally, though, conflict is unavoidable.

When disputes arise, mediation serves as a valuable tool to uphold the principle of good faith. Mediation involves a neutral third party who helps disputing parties find a mutually satisfactory resolution without the need for litigation.

This process is less formal, less adversarial, and typically more cost-effective than going to court.

However, the goal of good faith negotiations as required by the latest JCT suite is to avoid the need for mediation by getting all parties on the same page.

Expert legal support is essential to achieving this. We can advise you on drafting clear, compliant and comprehensive contracts which outline the rights and obligations of all parties involved.

To speak to a member of our Construction Law team, please contact us today.