The new contract is a shorter and simpler form of document and should be commended on those grounds alone. However, the form has many other pluses. It plugs the gap between the existing JCT Standard Form of Building Contract and the JCT Form of Building Contract with Contractors' Design, and provides a different starting point for employers and contractors involved in major development. The approach of the new contract requires employers to fully identify their requirements for their project at an early stage and communicate with the contractor for pricing. Once the contract is under way, the employer's role is strictly hands-off – save for design review, payment and ensuring access to the site. This all sounds familiar, but the opportunity for employers and contractors is to be found in the detail.
The detail provides a more balanced approach to risk between the parties and introduces many changes driven by commercial requirements for major development projects and in response to changes in law. Since the form is up to date with all these stipulations, there is less opportunity for us lawyers and construction professionals to draw up lengthy schedules of amendments, as is required in the standard JCT forms. The bottom line is that contractors will be taking on more risk up front, but there's less room for unpleasant surprises around the corner.
The JCT should also be applauded for leading the industry in embracing third-party rights.
The approach of the new contract requires employers to identify their requirements for their project at an early stage and communicate with the contractor for pricing. Once the contract is under way, the employer’s role is strictly hands-off
The new form introduces the machinery of the Contracts (Rights of Third Parties) Act 1999 and gives specific rights to funders, purchasers and tenants (the familiar third parties involved in major commercial office and retail developments where the form may find popularity). We now have momentum and an endorsement to dispense with the practice of demanding collateral warranties in favour of third parties.
So is the devil in the detail? Although employers, contractors, insurers and their advisers will be keen to explore the detail, they should be encouraged by the simplicity and transparency of the new form. Here are some of its main features:
- The contractor is not responsible for design contained within the employer's requirements. Clearly the detail of design contained in the requirements will colour the scope of responsibility for design undertaken by the contractor. The employer will need to put suitable arrangements in place with its design consultants (and interested third parties) to manage the risk of shortfalls in the initial design requirements, particularly where it exercises the right to novate the design consultants to the contractor.
- The contractor is given access to the site only, not possession. This anticipates concurrent works by direct contractors, and phased development.
- There is a shrunken menu of relevant events for extension (no protective clothing for adverse weather).
- There is no payment for off-site materials.
- The basic payment menu consists of interim valuation, stage payments and schedule payments. There is no formal provision for retention (leaving the parties to make their own arrangements).
The employer's representative is guided by a definition of practical completion. There are related provisions for acceleration, bonus for early practical completion and sharing of cost savings or value improvements proposed by the contractor.
Terry Fleet is a partner in Nabarro Nathanson.