Lawyers have warned that the revised JCT design-and-build contract published last week could cause widespread confusion.
Helen Garthwaite, a construction partner at Taylor Wessing, said that the inclusion of a "third-party rights schedule" as an alternative to collateral warranties represents a significant change in standard contracts, and that its implications had not been fully grasped by construction firms, developers and funders.
She said that developers and project teams would need to take extra care completing contracts and selecting the preferred option, or third parties may not have the necessary rights.
Until now interested third parties have commonly looked to collateral warranties to give them a remedy in the case of defects or, for funders, to give a right to “step in” to the contract where the employer is insolvent. Under the new contract, a third party can now also opt for a third-party rights schedule to obtain the same rights.
Garthwaite said: “In the worst case a proposed beneficiary of third-party rights may simply be unable to obtain the rights expected. If rights are unclear this may have an impact on the ability of a developer to deal with its property investment.”
Garthwaite added: “There are practical and technical hurdles that must be gone through to achieve these third-party rights. These include giving notice to activate the obligation of the contractor to give a warranty in the required form.”
Garthwaite welcomed the fact that the JCT had embraced third-party rights schedules, but said that ready-made schedules did not work for all third parties and they would wish to amend them. This could mean that schedules become as hotly negotiated as collateral warranties.
She said: “This contract rekindles the debate about whether you should use third-party rights or collateral warranties. People are going to be forced to make a choice across their project documents or risk a mish-mash of the two.”