New Forms of Construction

Contracts – The JCT & NEC

Design
JCT 05
The Intermediate Building Contract 2005
The new JCT suite of contracts (main and
provides an obligation on the contractor to
sub contracts) are currently in the process of
use reasonable skill and care. This
being published and have been fully
obligation is that of a professional designer
redesigned and updated. The updates have
holding himself out as competent to carry
dramatically changed the JCT Contracts as
out such design work. The Minor Works
we know them with use of plainer English
with Contractor’s Design 2005 however, has
and a change in layout, numbering and
no mention of the level of skill required.
position of clauses.
The Design & Build contract includes a
Key Changes
clause which provides that any inadequacy
in design in the Employer’s Requirements is
The main change is the integration of the
not the responsibility of the contractor.
Private and Local Authorities form of
However, the contractor is still responsible
contract leaving just 3 Standard Building
for checking that the design complies with
Contracts:
any statutory requirements. Moreover, any
inadequacy that requires alteration will be
1. Standard with quantities
treated as a change.
2. Standard with approximate
quantities
Copyright
3. Standard without quantities
A new copyright provision has been
They can now be used by both private and
included which states that Copyright in all
local authority employers.
contractors design documents remain vested
in the contractor
There are a greater number of definitions
and some change of terminology. For
On payment of all monies to the contractor,
instance, ‘Determination’ is now
the employer obtains an irrevocable, non
‘Termination’, ‘Loss & Expense Matters’
exclusive licence to copy, use and reproduce
are now ‘Relevant Matters’ and ‘Defects
the contractors design documents for any
Liability Period’ is now ‘Rectification
purpose relating to the works (but not to
Period’.
reproduce them for an extension of the
works).
Supplements are a thing of the past as
fluctuations, sectional completion and
Payment
contractor’s design portion have all been
incorporated within the contract.
If no withholding notice is served, then the
employer pays the amount stated in the
Project specific information has moved to
payment notice. If no payment notice was
the ‘Contract Particulars’ which is found
served, the amount due is to be determined
immediately after the articles of agreement.
in accordance with the valuation provisions
of the contract.
Future amendments will not be issued
separately as before but incorporated
in the contract and a new version published Insurance
immediately.
The 1998 version usually included an
amendment requiring Professional
Indemnity Insurance. This has now been
incorporated into the contract as a new
clause 6. This new clause requires the
contractor to take out Professional
Indemnity insurance immediately following
contract execution. The amount of cover
required is listed in the Contract Particulars.
If no period for expiry is selected, it is 6
years from the date of Practical Completion.
Third Party Rights & Collateral
Warranties
The employer can require the contractor to
enter into a collateral warranty or the
Contract (Rights of Third Parties) Act can
be used instead. If no choice is made, a
schedule of third party rights is
incorporated. JCT have also published a
standard form for each collateral warranty.
Termination
In the 1998 versions, certain insolvency
events would result in automatic termination
but now the employer must serve notice
before any termination.
Adjudication
Adjudication is much simpler. The statutory
adjudication scheme applies so Adjudication
is now carried out in accordance with the
Scheme for Construction Contracts. If the
Contract Particulars are not completed, the
default position is that disputes will be
settled through litigation rather than
arbitration as it was in the 1998 versions.
New Contract
The new Framework Agreement has been
designed for the procurement of
construction and/or engineering works over
a prescribed period of time and comes in a
legally binding and non binding form. It
covers how the parties should work together
and how the framework agreement works
with the underlying contract.
NEC3
The NEC has also been completely revised
and updated with new clauses, terminology
and the introduction of new contracts.
As with JCT05, defined terms have
expanded and changed such as ‘Actual
Cost’ becoming ‘Defined Cost’, ‘Possession
Date’ becoming ‘Access Date’ and the
addition of the terms ‘Key Dates’ and ‘Risk
Register’.
New Contracts
NEC3 Term Service Contract
• Used to engage suppliers for
managing and providing a service
over a specific term (not just for
use in the construction industry).
NEC3 Framework Contract
• A contract between an employer
and a number of suppliers for a
period of time.
Procurement & Contract Strategies
• A user’s guide for the NEC3
contracts in various procurement
and contract strategies.
New Clauses
Clause 25.2 states that any costs incurred by
the employer due to the contractor not
providing the services contained in the
works information should be borne by the
contractor.
Clause 43.4 provides for the Project
Manager to arrange access to the works for
the contractor to correct defects. Once
access is provided, the defect correction
period begins.
Clause 19 is a new clause inserted to deal
with rare events and how to prevent and
deal with them. Such events are now also
compensation events.
Secondary Option Clauses
Secondary Option Clauses are now X
clauses so that they can be used across the
whole suite of contracts.
There are 2 new X clauses;
X18 Limitation of Liability which limits the
Contractors liability for indirect and
consequential loss and also provides for an
overall cap on liability.
X20 Key Performance Indicators (KPI’s).
This includes an incentive schedule which
sets out the amount to be paid to the
contractor if KPI’s are improved or
achieved.
Payment
When assessing the amount due, the
assessment interval runs from completion of
the whole of the works to four weeks after
the issue of the defects certificate.
Early Warnings
A new risk register is to be maintained by
the Project Manager with all early warning
matters listed therein. The early warning
meetings referred to in NEC2 are now
referred to as Risk Reduction Meetings.
Compensation Events
The period for notifying compensation
events has been extended from 2 weeks to 8
weeks from becoming aware of the event.
If the 8 week deadline is missed the
contractor is not entitled to a change in
price, completion date or key dates.
However, if the Project Manager failed to
notify the Contractor of his decision and the
Contractor had notified him of this and he
still failed to receive a decision, then the
Project Manager is treated as accepting the
event as a compensation event and the
Contractor can then submit quotations.
Termination
‘Disputes & Termination’ is now known as
‘Termination’. Disputes have been moved to
W1/W2. W1 for use where the Housing
Grants Construction and Regeneration Act
does not apply and W2 where it does. The
new clause 19 covering ‘Prevention’ is also
added as a new reason for termination.
Risk & Insurance
Although the employer still has to submit
his insurance policies and certificates as in
NEC2, the contractor is now only obliged to
submit his insurance certificate signed by
the insurer.
The contractor must have appropriate cover
until a defects certificate or termination
certificate has been issued.
Conclusion
Although the revisions of both contracts
have made them easier to use there have
been significant changes. Therefore, careful
consideration of the Contracts and legal
advice should still be sought prior to use as
amendments may still be required.
CONTACT DETAILS
For further information or
assistance contact Jonathan
Hawkswell or David Kilvington
Hawkswell Kilvington LLP
17 Navigation Court
Calder Park
Wakefield
WF2 7BJ
Tel: 01924 258719
Fax: 01924 257666
Email: enquiries@thkp.co.uk
Web: www.thkp.co.uk
This bulletin is not intended to be a
definitive analysis of the law and
professional advice should be taken before
any course of action is pursued.
© THKP 2003