The past year has seen a significant rise in the number of construction contracts being signed electronically. Could this method become the 'new normal'?
With various types of organisations now having a substantial proportion of employees working from home, signatories are not so readily available and often have limited access to printing and postage. As a result, many of our clients are now opting to have their construction contracts signed electronically, where appropriate, including building contracts, consultant appointments, and collateral warranties.
Construction has traditionally been a sector where contracts have been signed in 'wet ink', however over the last 12 months, the advantages of having documents signed electronically have really come to life. Electronic signing platforms not only speed up the signing process, but also avoid the potential for documents to be lost or misplaced, as well as providing an audit trail of who has signed each document. In the construction sector, documents often have to be signed urgently or may not be fully agreed until hours before a deadline so electronic signing platforms, such as DocuSign, can be more efficient and convenient than the traditional method of passing boxes of hard copy documents around various signatories, particularly if some parties are located overseas.
While documents like building contracts may include hundreds of pages of technical annexations, most platforms can cope with these, even if some annexations need to form separate 'envelopes'. This is preferable to documents being stored on discs or USB sticks, the contents of which can be difficult to check (given IT security concerns) and may get broken or wiped. The e-signature process also makes it clear if a document has not been signed in all of the required places, and can be easily rectified – whereas for paper documents, many hours can be wasted having to re-issue a document that has not been fully signed.
But what about the requirement of self-proving status?
In our experience, electronic signing has been adopted for documents governed by English law, more than those governed by Scottish law. The Law Commission has confirmed that deeds can be signed electronically, so for English documents, there is no downside, but plenty of benefits to using this process.
However, before remote working encouraged and accelerated the adoption of electronic signing platforms for day-to-day practice, one of the main concerns around electronic signatures in Scotland was the lack of self-proving status. If a document is self-proving, it means there is an evidential presumption that the document was signed by the signatory and if it was ever challenged in court, the burden of proof lies with the party who is disputing that a signatory signed the document.
Although there is no requirement under Scots Law that construction contracts need to be self-proving in nature, a market practice has developed whereby documents, certainly when prepared by lawyers, are signed in this manner and there may also be a requirement in any related facility agreements and property documents such as agreements for lease. For some transactions, parties may be willing to waive this requirement.
Qualified electronic signatures
For a signature on an electronic document to be self-proving under Scots law, the signatory must use what is known as a qualified electronic signature (QES). QES are regulated under EU law (now part of UK domestic law under the EU withdrawal legislation). As the QES needs to be stored in a secure way (for example, on a smartcard) and the issuer of a QES needs to validate the identity of the signatory in advance, QES have historically been used only in limited, 'closed loop', situations.
However, some of the platforms do now have the option to use cloud-hosted QES, where the signatory's identity is verified via a video call or mobile app. This means it is now feasible to use QES to sign documents such as construction contracts.
At Brodies we now use QES, provided through DocuSign. While it takes time to set up your QES (you have to arrange a video call with an ID agent, in order for them to check your identity and passport), once this is done your QES can be stored in a virtual wallet and easily applied to other documents in the future.
Electronic signing of construction contracts is definitely more popular than it once was, however, it remains to be seen whether this method will indeed become the 'new normal' or if, once organisations return to offices, the traditional paper method will gain favour once again.