JCT changes: what to watch
The JCT has started publishing its 2016 updates. So far the minor works building contracts (with and without design) and the design and build contract have been updated, in each case with related sub-contract documentation. Updates to the rest of the suite are expected over the next few months.
Most of the changes are as trailed by the JCT but some (for example loss and expense claims under the design and build form) are more substantial than had been anticipated.
Unlike the 2011 amendments, which reflected the updated Construction Act, there is no legislative driver this time, although the revised suite will incorporate the changes published last year to bring contracts in line with the CDM Regulations 2015. The revised contracts do however incorporate provisions from the JCT Public Sector Supplement 2011 relating to fair payment and transparency and relevant aspects of the Public Contracts Regulations 2015.
The main commercial thrust of the changes, particularly in the design and build form, is to bring the contracts closer to market practice. This means three things. First is the addition of an option for a bond and/or parent company guarantee, though the JCT has not published its own forms. Second is the addition of subcontractor third party rights and finally comes recognition that the contractor may be obliged to comply with a BIM Protocol – the protocol itself will need to be prepared by the project team and included in contract documents.
The most significant, and unexpected, change to the design and build form comes in the loss and expense provisions. Previous versions had no specific timeframe for these.
The 2016 edition requires the contractor to notify the employer as soon as the likely effect of a relevant matter becomes apparent. The contractor has to submit its initial assessment of the likely effect of the relevant matter as soon as reasonably practicable and then provide monthly updates. The employer (usually through its agent) has 28 days from the initial assessment and 14 days in respect of updates to ascertain the cost of the claim. Under the contract the amount ascertained by the employer on this basis is added to the contract sum. It appears therefore that determination of the loss and expense claim cannot be deferred until there is a clear picture as to whether the contractor has been delayed or disrupted by the relevant matter and, if it has, the final effect of that. It is also not expressly stated whether the employer can challenge the amount at a later date.
The draft also raises the question of whether the contractor’s obligation to promptly notify its loss and expense claim and to provide monthly updates is a condition precedent to its entitlement to loss and expense.
In both the design and build and the minor works forms, changes have been made to the insurance provision, including an option for parties to agree their own arrangements where works are being carried out in an existing structure. While it now recognises the complications tenants may experience regarding out fitout works, resolving insurance arrangements in these circumstances will still require careful thought and negotiation.
The revised forms also cover payment notices, pay less notices and final dates for payments (for both interim and final account payments) and changes which affect the due date. Minor works forms will now provide that oral instructions no longer ‘have effect’ until confirmed in writing. This will impact the administration of minor works contracts.
While the updated 2016 JCT forms so far include some welcome additions, those advising on or administering them should carefully review the changes as they materially impact payment and contract administration.
IN PLAIN ENGLISH: THIRD PARTY RIGHTS
The 2016 JCT Design & Build Contract and Sub-Contract now incorporate optional subcontractor third party rights provisions. These give a third party (such as a tenant, purchaser or funder) the ability to bring a claim against the subcontractor if it breaches the terms of its subcontract – for example by producing defective work. They provide much the same protection as a collateral warranty.
However, the benefit of a third party right over a collateral warranty is that the right is conferred by service of a written notice on the subcontractor, rather that the subcontractor having to sign a collateral warranty. This reduces paperwork and logistics.
Care still needs to be taken though to ensure that subcontracts meet the requirements of the employer in terms of correctly identifying the classes of beneficiary to benefit from third party rights, the form of those rights and the mechanism for these to be granted.
This article was published in the RIBA Journal and RIBA Journal online on the 24 October 2016.