New Forms of JCT Standard Contracts

The JCT is making rapid headway in its release of the 2016 suite of contracts.  The Standard Building, Minor Works, Design and Build, Generic Sub-Contract and Collateral Warranty families have been released and the Intermediate Building Contract family is available for pre-order.

Ben Patton, partner in the Ashurst Construction Group, participated in a webinar (available via the JCT's website) with two other members of the JCT Drafting Committee, in conjunction with Building magazine last month, to explain the main changes and answer questions.  The event proved extremely popular, with over 2,500 people registering to listen.

The consensus view is that the changes are to be welcomed although it is unlikely that they will erase the necessity for an accompanying schedule of amendments in the eyes of many employers and funders.

Main Changes

Payment

The new payment provisions are in part a response to the fair payment principles set out in the Construction Supply Chain Payment Charter published by the Construction Leadership Council.  The Charter states an ambition for industry wide standard terms by 2025 providing for 30 days payment terms and zero retentions.  These aims are taken into account in the JCT 2016 suite by the introduction of monthly valuation dates ("Interim Valuation Dates" - to be on the same date in each month) which trigger the process by which the Contractor is paid.  The same procedure is also intended to apply to any JCT sub-contracts and sub-sub-contracts enabling the Interim Valuation Dates to be linked across the tiers.

The provisions have also been re-ordered in generally shorter sub-sections to improve clarity by following the payment process on a construction project as it works in practice.  In this respect, the JCT provisions are arguably now clearer than those in the Construction Act.

It is important to note the JCT envisage that the Interim Valuation Date will be specified in the Contract Particulars (and linked through in sub-contracts).  The default provision is that they will start a month after the Date of Possession which may not fit with the parties' plans.  The monthly payment cycle continues until the final certificate is issued – previously the JCT had provided for a two-monthly payment cycle after practical completion.

Finally, following the ISG v Seevic line of authority, notified sums (plus their interest) are now automatically recoverable as debts.  This opens up summary judgment as a means of getting cash-flow moving quickly on an ongoing project.

Loss and Expense

A significant change (some commentators consider it to be the biggest change) is the introduction of a timetable for dealing with loss and expense claims.  Previously, the JCT provisions contained no references to timescale, simply requiring the Employer to ascertain the loss and expense and add it to the Contract Sum.  Now the Contractor is required to give notice of Relevant Matters as soon as the likely effect becomes (or should have become) reasonably apparent to him, and the Employer is required to ascertain the amount within 28 days of receipt of the initial assessment and to update his assessment within 14 days of monthly updates from the Contractor, i.e., the Contractor can’t put all its claims in at the end of the project and the Employer cannot put off dealing with them until the end of the project.  A potential problem with the unamended provisions is that they appear to provide that the Employer may have to ascertain an amount and add it to the Contract Sum before a clear picture emerges and the final effect of that delay and/or disruption is known.  An amendment to Contract Condition 4.20 may be prudent to prevent such a scenario.

Requirement for a Parent Company Guarantee and a Performance Bond

In order to bring the contracts more in line with market practice, the JCT has incorporated provisions that enable the parties to opt for a PCG and/or Performance Bond.  Previously, there were no such requirements and it was therefore left to the parties to amend the contract to make provision for security documentation of this type.

Model forms for these types of security documentation are not provided and it is up to the parties to identify and agree suitable forms and append them to the contract.  It should also be noted that the JCT has not provided for any sanctions in the event that the Contractor fails to provide these security documents.  Employers sometimes look to withhold payments until the security documents are provided and this is likely to continue to be a provision that will be found in the schedule of amendments.

Insurance

There are still three principal Joint Names Works Insurance Options (A, B and C).  Again, in the interests of simplification and streamlining, common provisions that were in the Insurance Schedule have been moved into the Contract Conditions and provisions that were previously scattered around have been consolidated.  The only option that has been significantly amended is Option C which usually applies where there are existing structures.  This now allows for alternative (non-JCT prescribed) solutions for existing structures and contents cover to be adopted through a "Replacement Schedule".  This is an attempt to provide flexibility where works are being undertaken in only part of a multiple occupancy building, potentially with a tenant engaging the Contractor.

Third Party Rights and Collateral Warranties

A main format change is the substitution of the former Part 2 of the Contract Particulars by "Rights Particulars".  The "Rights Particulars" document is intended to be a separate document (the JCT has provided a model form which is available in the accompanying contract guides and on its website) setting out the Employer's requirements relating to Third Party Rights ("TPRs") and/or Collateral Warranties.  This is an area some found confusing in the old forms and the JCT has attempted to simplify, however, the idea of having to produce and retain an additional Rights Particulars document may seem excessive to some parties who may instead seek to amend the Contract Particulars to incorporate the agreement in relation to TPRs and Collateral Warranties in the Contract Conditions and accompanying schedule of amendments.

A welcome change in the 2016 suite is the incorporation of provisions that enable the Employer to require TPRs from sub-contractors and not just collateral warranties (as was the position under the 2011 contracts).  In practice, sub-contractor warranties can be a challenge to obtain, for example, because sub-contractors may be engaged as the work progresses and the provision of collateral warranties (which are required to be executed by each sub-contractor) can be overlooked or sought only once the sub-contractor has left site.  By providing for TPRs, which can be invoked simply by serving a notice on the party giving the rights, these difficulties can be significantly reduced.  Getting the vesting of TPRs right is critical to their successful operation and so this new approach might also reduce the current risk of TPRs not being properly incorporated when bespoke amendments to provide for TPRs are set out at main contract level but not effectively stepped down into the sub-contracts themselves.

A change to the TPRs within the Design & Build Contract is the addition of a net contribution clause limiting the Contractor's liability in the event that the "Consultants" (a new definition for these purposes which includes the Employer's Agent and any design consultants retained by the Employer) may also be responsible for design defects.  The change in approach is because the JCT considers that under design and build there are specific and limited circumstances when the Employer's Consultants could be held jointly liable with the Contractor in respect of a design defect, for example, where the Employer retains a level of responsibility for the Employer's Requirements.

BIM 

With the coming into effect of the government's mandate for BIM Level 2 on all public sector projects in April 2016, the JCT believe that the use of BIM in relation to construction projects is only set to increase.  The 2016 contracts therefore provide for the option of using BIM and for the parties to agree on and prescribe a BIM Protocol such as the CIC BIM Protocol (which it is assumed will be a technical document and is therefore unsuitable for setting out in the Contract Conditions).  It is to be noted that the JCT consider that while an agreed BIM Protocol will constitute a Contract Document, Contract Condition 1.3 will prevent it from taking precedence over the Contract Agreement or the Conditions.

Public Procurement and CDM

The contracts have been updated to comply with the Public Contracts Regulations 2015 and to incorporate what was Amendment 1 to the JCT 2011 suite and deals with the Construction (Design and Management) Regulations 2015.

Overview

The changes do not materially affect risk allocation and so, as stated at the outset, it is likely that we will continue to see bespoke amendments accompanying the JCT 2016 standard forms.  Provisions that employers and funders routinely amend, and are likely to continue to amend, include – but are certainly not limited to - providing for single point responsibility for design (including that within the Employer's Requirements), providing for novation, compliance with third party agreements, free assignment, and ensuring that the Contractor's copyright licence is not linked to payment.  Accordingly, whilst the changes are largely to be welcomed the new suite is unlikely to become a "one-stop shop".