The concept of the management contract has come in for a lot of flak from a lot of critics in the past but the new JCT model is certainly the best in class
Twenty-one years ago the JCT wheeled out one of its new models – the JCT87 management contract. The latest version, the Management Building Contract, was published in January. It comes with the related works contract, guidance notes and – for those who still do not believe in the Contracts (Rights of Third Parties) Act 1999 – collateral warranties.
The management contractor (MC) does not carry out any construction work. Instead it assists the employer in putting together works packages for tender and then enters into, and manages, the works contracts. The procedure is thus two-stage. It is paid a
fee, together with the “prime cost” of the building work. This system of procurement should not be confused with construction management, where the employer engages trade contractors directly.
Years ago a leading commentator citicised standard management contracts as anti-employer. They exposed the employer to claims over which it had little control, he said, they invited “cost-plus” arrangements and the MC was in a protected position and often did little to earn his fee. Can these criticisms be applied to the JCT form?
The possibility of claims cannot be ruled out. However, the MC cannot give extensions of time under a works contract without consulting with the architect about the proposed decision; nor can it certify the completion of a works contract without the architect’s consent. Loss and expense claims from works contractors are ascertained by the architect (in conjunction with the MC). Also, the MC now needs employer’s approval (rather than merely having the obligation to consult) if it proposes to litigate against one of the works contractors. So the employer retains a fair amount of control.
The MC does not carry out any construction work. Instead he assists the employer in putting together various works packages for tender
What about the suggestion that the contract invites cost-plus arrangements? A lengthy schedule says what is included within the prime cost. This should give some comfort to employers. As to the work contracts, these can be lump sum – they need not involve remeasurement of quantities. The contract also allows the parties to use fixed or capped rates instead of prime cost. And the employer is to agree the identity of the works contractors with the MC, so at least has some control here.
Finally, what of the suggestion that the MC is “protected”? Put more bluntly, does he justify his fee? One of the schedules to the contract contains a list of the services that the MC will provide. There are 39 separate items and the contract conditions are liberally sprinkled with other duties. So there are a number of clauses on which the employer can attack a non-performing MC.
Although it agrees to ensure that the work is carried out without defects and on time, the MC is, in effect, protected if the only reason for its breach of this clause is a breach by the works contractor. Provided that it complies with the terms of its contract, and administers the work contract properly, it is reimbursed for all sums payable to the works contractors. So it does not take the risk of their defective works or delay – but this is subject to not having breached his contract itself. That proviso is important as was demonstrated in Copthorne Hotel v Arup Associates (1997), where an MC ended up out of pocket after a works contractor went insolvent.
The JCT says that this contract is appropriate for large employer-designed projects where full design information is not available but where an early start on site is needed. That sounds like a recipe for trouble. Given that starting point, however, the JCT form gives the employer a reasonable amount of protection. By contrast, the corresponding Engineering and Construction Contract NEC3 management contract (Option F) looks pretty thin by comparison-even allowing for the usual succinctness of NEC contracts. Those trying out management contracting for the first time may be better advised to go with the JCT model.
Ian Yule is a partner in solicitor Wragge & Co.
This article was originally published under the title: "If you must do it, do it with this"