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News » Law » JCT contract updates in three easy steps » published 20 Apr 2017

JCT contract updates in three easy steps

There are new clauses in JCT contracts that require careful consideration. Fladgate partner Barry Hembling explains.

Some important changes have been introduced in the latest updates to the Joint Contracts Tribunal (JCT) suite of standard form contracts with which users must become familiar.  The updates will affect most construction projects in the UK, where JCT contracts remain the most commonly used forms.  If parties are not aware of the changes or ignore them, they may well find that key contractual entitlements are lost altogether. 

Clause references below follow the JCT D&B standard form contract, which is the most popular form in the JCT suite.  Similar clauses are generally included in other JCT forms.

A: Amendments welcomed by contractors

Payment

The updates establish interim payment valuation dates that are intended to operate down the supply chain to promote fair payment principles.[1]  However, these updates will be of limited benefit to subcontractors unless main contractors adhere to the new JCT payment periods rather than substantially extending them, as is common.  The changes also allow the monthly payment cycle to continue after practical completion up to the due date of the final payment[2] through a new default rolling cycle of monthly valuations. 

Net contribution clause in the TPR schedule

A significant change is the introduction of a net contribution clause.  Although popular with contractors and consultants, net contribution clauses are a cause for concern for employers.  They reverse the common law position of joint and several liability and limit a defaulting party's potential liability where more than one person is responsible for the innocent party's loss.

Loss and expense

A new procedure is introduced for the prompt assessment of loss and expense.[3]  The contractor is required to:

  1. notify the employer of the likely effect on progress as soon as it becomes (or should have become) reasonably apparent;
  2. provide its initial assessment of the loss and/or expense incurred and any further amounts likely to be incurred, plus supporting information; and
  3. provide monthly updates until all reasonably necessary information has been supplied.

The employer is to notify the contractor of the ascertained amount within 28 days of the initial assessment and within 14 days of each subsequent update.  This new procedure will provide contractors with more transparency and certainty about what payments are to be made and by when. 

B: Amendments welcomed by employers

Loss and expense preconditions

Whilst prompt payment of loss and expense will be welcomed by contractors, it comes with a catch.  There is a new condition precedent clause which could catch contractors unawares.  The contractor is entitled to be reimbursed its loss and expense “subject to… compliance with the [notification] provisions of clause 4.20[4].  This clause is aimed at ensuring that:

  1. the contractor provides the necessary information for the employer to assess the loss and expense incurred; and
  2. the employer carries out its assessment and ascertains these amounts promptly.

However, contractors could find that employers use the issue of the appropriate procedure not having been followed as justification for refusing claims.  Good contract management on the part of contractors is therefore more important than ever.

Insurance

The updates introduce changes to the works insurance arrangements under Option C, which is the insurance option that applies where an employer takes out the works insurance for projects in existing structures.  Option C has often proven unsuitable as it assumes that the two types of insurance referred to will always be taken out by the same party, namely:

  1. the insurance for the existing structures and contents (Joint Names Policy for Specified Perils); and
  2. the insurance for the works (the Joint Names Policy for All Risks).

The JCT has now recognised the requirement for flexibility by allowing a ‘C.1 Replacement Schedule’ to be incorporated in place of paragraph C.1 of Insurance Option C. This allows the parties to set out their own bespoke insurance arrangements, which could include:

  1. asking the contractor to bear the risk of damage to the existing structures under its public liability insurance;
  2. arranging for the employer to take out special structures insurance; or
  3. split insurance arrangements in multi-tenanted buildings, such as where the freeholder or principal landlord takes out the existing structures insurance for the entire building and the tenant takes out the works insurance for the floor it is fitting out.

It will be crucial for any C.1 Replacement Schedules to describe the alternative insurance arrangements in proper detail to avoid gaps in insurance coverage.  Employers should therefore take specialist insurance advice and work with contractors to find a satisfactory solution.

Oral instructions

A new procedure has been introduced where oral instructions have been issued to the contractor[5].   Oral instructions are not now final until 14 days after a contractor has issued its written follow-up confirmation to the employer.  This means there is a further opportunity for an employer to reconfirm an instruction in writing following a written follow-up from the contractor as to the extent of the oral instruction issued.

C: Areas where disputes are likely

Oral instructions

Inevitably there will be disputes as to how the oral instructions provisions work in practice.  Situations could arise where a contractor is issued with an oral instruction but finds that the instruction is then reconfirmed by the employer in writing in quite different terms to the original instruction issued orally.  In cases of material oral instructions, there is a risk that contractors may delay in implementing them until the 14 day cooling off period has expired.

Loss and expense

Another area where disputes are likely concerns loss and expense, such as where a contractor’s entitlement is not assessed promptly.  Other challenges are likely around the conditions precedent clause, especially where a contractor faces losing its entitlement to claim if the new procedure has not been followed.

Conclusion

The new JCT updates contain clauses that both contractors and employers will welcome but the true test will be whether the suite becomes more user-friendly.  There are new clauses that require careful consideration, areas where improvements are required in contract management and a number of clauses that are ripe for disputes.  By taking professional advice at an early stage, parties can seek to ensure that such disputes do not arise on projects with which they are involved.

 

[1] Clauses 4.7.2 and 4.7.3

[2] Clause 4.7.2

[3] Clause 4.20

[4] Clause 4.19

[5] Clauses 3.5 – 3.11

 

About the author: Barry Hembling is a partner in the construction, engineering and energy team at law firm Fladgate LLP.

 

 

 

MPU

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This article was published on 20 Apr 2017 (last updated on 20 Apr 2017).

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