Seminar

The JCT 2005 Standard Forms of Construction Contract

12 January 2006

Speakers Philip Boulding QC

Introduction

(1) The layout and structure of the 2005 forms;
(2) Contractor’s design responsibilities;
(3) Third Party Rights;
(4) Dispute resolution.

(I) Layout and Structure of the 2005 forms

Section-Headed Approach
4. The documents published so far adopt a “section-headed” approach rather than a “clause-by-clause” structure, splitting each contract into parts with titles such as “Carrying Out the Works”, “Control of the Works” etc.

5. To a familiar user of the 1998 forms, such a re-jigging certainly appears a little unfamiliar. The sectional approach has had the effect of rearranging the conditions in such forms. (It is important to be aware that, although there have been some significant changes to substance, for the most part the new forms do reflect the provisions of the old (although those provisions may have moved around – so you will need to cross-check!)).

6. The net result is an undoubtedly more “user-friendly” contract designed to be more accessible to contracting parties and construction professionals alike.

Project-Specific Approach
7. Perhaps in an attempt to encourage contracting parties to properly fill in details of the works to which the contract relates, “project-specific” information, traditionally located in the Appendix to the conditions, has been shifted to the front of the Contract in what is generally known as the “Contract Particulars”.

8. The Contract Particulars also include, for the first time, the identity of parties to whom third party rights are to be given and factors regulating liability under the contract such as net contribution clauses for subcontractors. This is an important inclusion and is discussed in more detail below.

Integration of Supplements
9. Another welcome development is the integration of some supplements into the main text of the 2005 Contracts, obviating the need to read two documents together or, in the case of hard copies, to make numerous amendments to clauses.

10. For example, under the Standard Building Contract 2005 (“SBC 2005”), sectional completion is dealt with by express contractual provisions (in particular, the Articles of Agreement, the Contract Particulars, the Definitions under clause 1 and the Conditions) rather than by the addition and incorporation of a supplement.

Greater use of Schedules
11. On the other hand, curtailments to the body of the standard form text have been made by cross-referring back to the Contract Particulars. For example, under the 1998 standard form contract there were lengthy options for the insurance of the works under clauses 22A, 22B or 22C, meaning that once one of these has been selected, the other two clauses are rendered superfluous. The result was unwieldy and potentially confusing.

12. Clause 6.7 of SBC 2005 now simply provides:

“Insurance Options A, B and C are set out in schedule 3. The Insurance Option that applies to this Contract is that stated in the Contract Particulars”

Publication of Guides
13. The JCT has produced “guides” to assist the user in finding the equivalent provisions in the older standard form contracts in the new editions.

14. Whether such guides will be used by contracting parties as a reference tool (which is presumably what they are intended to be) or as a resource for bespoke amendments remains to be seen…

(II) Contractor’s Design Responsibilities

15. The 2005 reformatting of the JCT contracts has seen two notable additions to the range, namely the Minor Works Building Contract with Contractor’s Design (“MWD 2005”) and Intermediate Works Building Contract with Contractor’s Design (“ICD 2005”), specifically tailored for the smaller end of the market where the contractor provides some design input subject to supervision from the architect or contract administrator.  

16. Neither contract is intended to be a substitute for a design and build contract; indeed, both appear only to be suitable in circumstances where the parties intend that the contractor is to be responsible for a discrete element of the design.

17. Perhaps in order to emphasise this point, both contracts oblige the employer (i) to supply detailed requirements for the intended “contractor’s design portion”, (ii) to examine the contractor’s proposals in respect of such requirements and (iii) to satisfy himself that those proposals are adequate (see Seventh Recital).

18. It is of course open to an employer to delete or amend such provisions in an attempt to impose a more onerous design responsibility upon a contractor than was intended by JCT draftsmen. This may well be an area where disputes occur.

19. More interestingly from the lawyer’s point of view, the contractor’s design obligation differs between the two contracts. Under ICD 2005, the standard of care in relation to the design of the particular portion is that of a professional designer. (1) .  Conversely, under MWD 2005 the standard is that of reasonable skill, care and diligence. (2).  The question which presumably will be left for the courts to decide is whether the reasonable skill and care to be expected of a contractor carrying out design work is different to the skill and care to be expected of a professional designer.

Contractor’s obligation to “complete” the design
20. By including a clause within SBC 2005, DB 2005, IDP 2005 and MWD 2005 which expressly provides that a contractor is not responsible for checking the adequacy of any design contained within the employer’s requirements, the JCT appears to have kicked the principle laid down by the decision in Cooperative Insurance Society v Henry Boot Scotland Limited (2003) CLJ 19 109 squarely into touch.

21. In Boot, HHJ Seymour QC held that a contractor charged with “completion” of design work was under a duty of care to examine an employer’s pre-existing design and to satisfy himself that the same was such that would produce a completed design capable of being constructed.

22. However, this is not to say that a contractor has no responsibility whatsoever in relation to the design:

(1) under SBC 2005, DB 2005 and ICD 2005 (though not MWD 2005), a contractor is obliged to notify any inadequacies in the employer’s requirements upon becoming aware of the same, and then to seek reimbursement for related costs by way of a variation;

(2) Further (save under MWD 2005), it is incumbent on the contractor to ensure that the employer’s design complies with any statutory requirements (except in the case of DB 2005 where the employer’s requirements state that they are so compliant).

Design Review Procedure
23. Both DB 2005 and SBC 2005 (3)  contain a “design review procedure” whereby the contractor is required to submit all design documents that it prepares for review. Following such a review, design documents are graded as follows:

(1) “A” – contractor to proceed with the works in accordance with the design document. To prevent any undue delay, a design is deemed to have been marked “A” in the event that it is not returned within 14 days of submission;

(2) “B” – contractor proceed with the works in accordance with architect/employer comments. Design must also be amended to take on board such comments;

(3) “C” – contractor to resubmit design document incorporating comments made. No works to be carried out.

24. A contractor is only entitled to be paid in respect of such work where it has been executed in accordance with designs marked A or B.

25. It remains to be seen whether an employer may seek to cross the line between making comments on designs which are for the purposes of gaining confidence that the contractor is having proper regard to the contractual requirements and making comments which, in effect, attempt to vary the design requirements via the back door. To protect against this, a contractor is required to raise any challenges to comments which appear to introduce a variation within 7 days of the comment being made. Absent this, such comments will be deemed not to constitute a variation.

(III) Third Party Rights

26. Despite a clear market demand for collateral warranties, especially following the infamous decision of the House of Lords in Murphy v Brentwood, the JCT has consistently refused to incorporate provisions for a contractual warranty between main contractor and third parties (principally purchasers, tenants and funders). Inevitably, such a provision led to a proliferation of bespoke forms of collateral warranties.

27. The granting of third party rights has already been included in the 2003 Major Project Form (“MPF”) (although this did not and does not extend to the provision of warranties).

28. Perhaps encouraged by the MPF, or alarmed by the number of bespoke warranties in existence, SBC 2005, DB 2005 and IC/ICD 2005 now include provisions for main contractor and subcontractor collateral warranties in favour of purchasers, tenants and funders.

29. However, it should be noted that the nature of such provisions varies markedly across the 2005 suite of contracts. For example, the MW/MWD05 contains no such clauses, whereas the SBC 05 makes provision for collateral warranties, sub-contractor collateral warranties and the granting of third party rights.

30. Should such provisions exist, it is critical that the Contract Particulars in relation to warranties or third party rights are carefully filled in. In addition to identifying the beneficiaries, the parties also need to identify the part of the works to be purchased or let and whether or not a warranty or third party rights are to be granted (if a choice is available).

31. Specific details requiring attention include whether or not a contractor is to be liable for non-repair losses incurred by the beneficiary and any “cap” to be applied to the net contribution clause of the warranty.  Should no purchasers, tenants or funders be identified by name, class or description, then an employer will not be able to subsequently ask for warranties or third party rights in relation to the same.

32. A notice identifying (i) the relevant purchaser, tenant or funder and (ii) his particular interest in the works must be served by actual, special or recorded delivery upon the contractor, following which the contractor has fourteen days to enter into the relevant form of warranty. Third party rights vest in the appropriate beneficiaries upon the contractor’s receipt of a notice from the employer.

33. Should sub-contractor remedies be required (as provided for under IC/ICD 05, SBC 05 and DB 05) then it is incumbent upon the contractor to “comply with the requirements set out in the Contract Documents as to obtaining such warranties”. It is up to the parties to decide whether such an obligation is absolute or restricted to using the contractor’s “best endeavours” or “reasonable endeavours”.

34. The 2005 suite anticipates that standard form warranties (such as the JCT CWa/P&T (for purchasers and tenants) or the JCT CWa/F (for funders)) will be adopted by the parties, but the contracts provide that the agreed forms are subject to bespoke amendments.

(IV) Dispute Resolution

35. For the lawyer and construction professional alike, perhaps the most significant practical development implemented by the 2005 forms has been the apparent sea change to the familiar JCT dispute resolution procedure.

36. Whilst the draftsmen have shied away from a “uniform” procedure, applicable across the entire 2005 suite of, it is fair to say that the new forms see arbitration as being on the wane.

SBC 2005
Adjudication
37. The JCT Adjudication rules have been scrapped in favour of the Scheme for Construction Contracts.

38. One significant consequence of this is that it would seem that no more than one dispute at a time can be referred. It had previously been decided that under the JCT adjudication provisions (but not the Scheme) multiple disputes could be referred in one adjudication – R Durtnell & Sons v Kaduna Ltd [2003] BLR 225.

Arbitration
39. Arbitration still exists but is no longer the default position; for it to apply, an express entry must be made in the Contract Particulars against Article 8.

40. Even though the draftsmen did not go as far as removing the provision for arbitration entirely, such as in the case of the MPF, this development remains a particularly interesting one, especially in the light of the recent shake-up of the TCC.

MW 2005/IC2005
41. The dispute resolution procedure under these two forms is broadly the same as the SBC 2005. However, given that both forms may well be used by parties who fall within the definition of “residential occupiers” for the purposes of s.106 Housing Grants, Construction and Regeneration Act 1996, the accompanying guides to each contract contain a “health warning”:

IC 2005
107. Care needs to be taken where an Intermediate Building Contract is used for a contract with a residential occupier within the meaning of section 106 HGRA 1996…

108. Since Part II of that Act does not apply to contracts with residential occupiers, as defined, the Employer’s Architect or contract administrator may be under a duty to advise his or her client(s) accordingly, in particular with regard to adjudication and as to whether or not to disapply Article 7 and clause 9.2.

MW 2005
6. The Contract complies with the requirements of the Housing Grants, Construction and Regeneration Act 1996 in providing for adjudication and certain payment provisions; however, not all building contracts are subject to this Act. For example, a contract with a residential occupier within the meaning of section 106 of the Act is excluded and therefore it does not need to contain adjudication provisions, but a residential occupier in entering into a Minor Works Building Contract will be accepting adjudication as a means of resolving disputes.

V. Conclusions

42. In general terms, the changes implemented by the 2005 suite of JCT contracts are to be welcomed and evidences the fact that constructive criticism from commentators is not necessarily ignored! (4)

43. However, as with all contracts, it will be open to the parties to amend, add or omit certain clauses – especially those which appear unfamiliar. For example, issues in relation to the existence and extent of a contractor’s design responsibility may be an area which proves to be particularly fruitful for those in the legal profession.

For further information…(!)
44. See the forthcoming publication “Keating on the JCT Contracts” which will:

• Be published by Sweet & Maxwell (and written by members of Keating Chambers)
• Provide clause by clause commentary on (eventually) all of the new suite
• Be in looseleaf and updated format
• Contain extensive cross-referencing to Keating on Building Contracts (new edition also out shortly!)

(1) clause 2.34.1
(2) clause 2.1.1
(3) although only if the Contractor's Design Portion in the Seventh Recital is appliable
(4) by way of example, we would like to think that the removal of all provisions in relation to nominated subcontractors is in no small part due to the criticism leveied towards the same in Keating on Building Contracts!

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.