Beyond bricks & mortar: protecting your construction business with stronger contracts

Introduction

Construction companies excel at managing physical assets – steel, concrete, and labour – but the legal frameworks that underpin projects are often overlooked. While standard construction contracts (such as JCT or NEC) receive significant attention, many firms neglect critical commercial agreements that govern risk, intellectual property (IP), cash flow, and long-term business resilience.

In an industry increasingly shaped by technology, joint ventures, and volatile supply chains, failing to secure robust contracts can lead to disputes, financial losses, and even reputational damage. This article explores five key commercial contracts that construction businesses must prioritise, with a particular focus on protecting intellectual property, an area that is frequently underestimated.

1. Supply chain and procurement agreements: mitigating risk in an unpredictable market

The construction industry relies on complex supply chains, where delays, price fluctuations, and supplier defaults can derail projects. Many companies focus solely on securing the best price, without considering the legal safeguards that should be built into procurement contracts.

A well-drafted supply agreement should address price adjustment mechanisms, particularly in long-term projects where material costs may rise unexpectedly as a result of events outside of either party’s control. Contracts should also define delivery obligations with clear penalties for delays, ensuring suppliers are accountable. One of the most critical yet overlooked clauses is force majeure: traditionally used for natural disasters but increasingly relevant for public health emergencies, trade disruptions, inflation and even cyber attacks.

Flexible contract terms that anticipate potential delays and price fluctuations are essential in managing the risks of an unpredictable construction market. By incorporating adaptable provisions, parties can proactively address disruptions and ultimately save time and costs. The unexpected collapse of construction giant Carillion in 2018, which left thousands of suppliers unpaid and caused major delays to public infrastructure projects, serves as a stark reminder of the importance of effective risk management. For more information about protecting against supply chain disruptions, see a related article here.

2. Joint venture and consortium agreements: structuring partnerships for success

Joint ventures (JVs) are common in large infrastructure projects, allowing companies to pool resources and expertise. However, without clear contractual terms, these partnerships can quickly turn sour. One of the biggest pitfalls is ambiguous decision-making structures, which can lead to deadlock when partners disagree on budgets, timelines, or design changes.

A strong JV agreement should outline governance processes, including voting rights and dispute resolution mechanisms. Equally important is liability allocation: if one partner faces financial difficulties, the contract must clarify whether the other is responsible for covering their obligations. Exit strategies are another critical consideration; if a partner wishes to leave the venture, the JV agreement should define whether they can sell their stake freely or if other partners have first refusal.

The collapse of the Carillion/Eiffage/Kier joint venture on the £550m Aberdeen Western Peripheral Route project (2015-2018) demonstrates these risks. When Carillion went bankrupt in January 2018, the JV agreement’s lack of clear liability transfer clauses forced Kier and Eiffage to shoulder unexpected costs, delaying completion by six months (BBC, February 2018).

3. Protecting intellectual property in an era of digital construction

As construction becomes increasingly technology-driven, companies must safeguard their Intellectual Property (IP): an area often neglected in contract negotiations. From Building Information Modelling (BIM) data to proprietary construction software and drone-captured surveys, digital assets hold significant value.

Many firms assume that if they pay a third party to develop software or create designs, they automatically own the rights. However, without explicit contractual terms in place, IP ownership may remain with the seller, limiting how the company can use or modify the technology. Similarly, subcontractors or consultants may retain rights to designs or processes they develop, which could create future legal complications.

In 2019, Laing O’Rourke discovered that a subcontractor had reused its proprietary modular hospital designs on a competitor’s project. Because their contract didn’t explicitly assign IP rights, legal action proved costly and protracted (The Telegraph, November 2019).

Below are some key IP clauses to include/consider in construction contracts:

– Ownership of designs and data: ensure contracts explicitly state that the company retains full rights to BIM models, drawings, and other deliverables.

– Licensing terms for third-party software:  avoid restrictive agreements that prevent integration with other software tools or charge excessive renewal fees. In 2020, Kier Group faced a £1.2m penalty after unknowingly violating Autodesk’s licensing terms on a major infrastructure project (Construction Manager, July 2020).

– Confidentiality and non-compete clauses: these safeguard against employees and/or contractors sharing proprietary methods with competitors.

A common pitfall occurs when companies use off-the-shelf project management software without conducting a thorough review of the licensing terms. For example, some platforms may restrict data export, which can lead to significant headaches later down the line if the company later decides to switch systems. Taking the time to review software licensing terms in advance can help prevent costly and time-consuming issues.

4. Framework agreements: balancing efficiency with flexibility

Framework agreements, where specific projects can be awarded over a set period, are popular for longer-term projects, offering streamlined procurement and repeat business. However, they can become problematic if market conditions change and the drafted terms are too rigid.

Below are some potential risks we often see in framework agreements:

– Fixed pricing without inflation adjustments: if labour or material costs rise over a period of time, companies may be locked into unprofitable rates.

– Overly restrictive exclusivity clauses: some agreements prevent firms from working either directly or indirectly with other clients, limiting growth opportunities.

– Unclear termination rights: without a fair exit clause, businesses may be stuck in unfavourable arrangements.

A mid-sized contractor learned this the hard way after signing a five-year framework agreement with a developer. When labour costs surged, the fixed-price structure turned profitable projects into loss-makers. Had the contract included a price review mechanism, the contractor could have renegotiated terms rather than absorbing the losses.

5. Dispute resolution clauses: avoiding costly court battles

Disputes are inevitable in construction, but how they are resolved can make a significant difference in time and cost. Many standard contracts default to litigation, which is expensive and slow. Alternative Dispute Resolution (ADR) methods, such as arbitration or mediation, can provide faster, more cost-effective solutions.

The 2017 dispute between Multiplex and Cleveland Bridge over the Wembley Stadium project shows the cost of poor dispute mechanisms. After 15 years of litigation, legal fees exceeded £30m – arbitration could have resolved it in months (The Guardian, May 2017).

Conclusion: building a strong legal foundation

Construction is not just about physical structure, it’s about managing risk through well-drafted contracts. By paying attention to these five key areas – supply chain agreements, joint ventures, IP protection, framework deals, and dispute resolution – companies can avoid costly pitfalls and secure long-term success.

“The most expensive legal clause is the one you didn’t include.”

In an industry where margins are tight and risks are high, strong contracts are the foundation of every successful project.  At Thomson Snell & Passmore we understand the unique challenges facing businesses in the construction industry. If you have any questions about the topics raised in this article, please don’t hesitate to reach out to us.