This was to be achieved by virtue of section 1(1) of the Act, which provides that a person who is not a party to a contract may enforce a term of that contract if it either expressly provides that he may do so, or purports to confer a benefit on him. So, under the Act, direct contractual rights could be acquired between parties who were not originally party to a contract, eliminating the need for warranty agreements.
The Act was heralded as being the answer to the plethora of paperwork that has dogged the industry for years and would eliminate the time and expense spent arguing over the terms of warranty agreements. But two and a half years after its introduction, the Act has not really been embraced by the industry.
Why is it that such an innovative piece of legislation has seemingly been ignored?
Lack of take-up
There are perhaps a number of factors that may be responsible for the Act being largely ignored.
For a start virtually all standard forms of contract including those issued by the Joint Contracts Tribunal (JCT) and the Institution of Civil Engineers automatically exclude the operation of the Act. Those forms do not even give the parties the option to use the Act should they so wish.
Familiarity has a role to play. Love them or hate them warranty agreements have become a familiar feature of construction contracts. Unfortunately, there is no single form of warranty agreement that is universally accepted by the industry and hence the need for seemingly endless rounds of negotiations to finalise forms of warranty agreements on each individual project.
The Contracts Act was heralded as being the answer to the plethora of paperwork that has dogged the industry for years
Nevertheless, general principles as to the form and content of warranty agreements have evolved over the years and gradually the areas of conflict are narrowing. Raising the question why change something which seems to work?
Also beneficiaries of warranty agreements, whether they are developers, funders, or purchasers/tenants, gain comfort from having their own document. Using the Act would mean that the beneficiaries' rights would have to be set out in the contract or appointment and the beneficiary itself would not necessarily be identified by name but may simply be classified in a category of developers, funders or purchasers/tenants. None of which would give the beneficiary the same tangible comfort afforded by a warranty agreement, even though this apparent comfort is often misplaced as a beneficiary of a warranty agreement should always retain a copy and check the provisions of the underlying contract or appointment, a practice which is not always followed. Ultimately, there is no reason why rights acquired under the Act should be any different to those under a warranty agreement.
It is worth bearing in mind extent of third party rights. Certain provisions of warranty agreements are generally accepted such as copyright licence, insurance, step-in and assignment (although the exact wording of such provisions can sometimes take a while to finalise).
Providing for third party rights through the use of the Act in a contract or appointment would require careful drafting and would need to address these same issues so that the beneficiary is in the same position as it would have been in had it received a warranty agreement.
Finally there are variations to consider. An added complication caused by the Act concerns the ability of the original contracting parties to amend the terms of the contract or appointment. Under the Act, once a third party has acquired rights under the contract the original parties cannot amend or vary the terms of the contract without the third party's consent. This is perceived as being a major problem for construction contracts where variations are part and parcel of the day-to-day management of the contract.
It is questionable whether variations, issued under a contractual mechanism, would actually be caught by the Act. But this uncertainty is possibly another factor which explains why the Act has not been widely used to date, particularly where a number of beneficiaries may have acquired rights, some of whom may not be immediately identifiable by the original contracting parties. To have to seek their consent to any variations would be totally impracticable.
Source
Building Sustainable Design
Postscript
Emma Leask is an assistant solicitor in the Construction and Engineering Department of Nicholson Graham & Jones. Tel: 020 7360 8154 or e-mail: emmaleask@ngj.co.uk
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