Contract changes – what’s new?
As part of an ongoing revamp, the Joint Contracts Tribunal has rolled out an updated suite of standard form construction contracts for Design & Build. John Cleaveley, partner and head of construction at Weightmans LLP, takes a look at the changes
DESIGNED for construction projects where the contractor carries out both the design and the construction work, the area of the Joint Contracts Tribunal (JCT) Design & Build contract 2016 which has seen the most significant change is the provisions relating to payments and insurance.
The amendments to the payment provisions have been introduced to simplify the process and reflect fair payment principles, while the new insurance option is designed to help tenants overcome problems carrying out works on their landlord’s property. While some of the changes are to be welcomed, overall the amendments don’t go far enough to align the JCT terms more closely to the standard position in the market. As a result, they are unlikely to reduce the time it takes drafting and negotiating bespoke amendments.
A simpler, fairer payment regime A new definition has been introduced for the Interim Valuation Date. Now the default position is that the first interim valuation date is one month after the date of possession and then at monthly intervals. For each Interim Payment, the contractor makes an Interim Payment Application stating the sum due and the how the total has been calculated.
The monthly due date for each Interim Payment will be seven days after the Interim Valuation Date, unless the contractor’s Interim Payment Application is received after the stated date, in which case, the due date will be seven days after the date of receipt by the employer.
Under the JCT 2011 contracts, the due date was the later of either:
● The date of completion of the stage (where Alternative A applies) or the specified date (where Alternative B applies); or
● The date of receipt by the employer of the Interim Application.
This amendment alters the current JCT payment period. Employers and contractors will need to take this into consideration during the negotiation stage.
No later than five days after the due date, the employer must give a Payment Notice to the contractor stating the sum that the employer considers to be due. Subject to any Pay Less Notice, the employer must pay the sum stated as due in the Payment Notice on or before the final date for payment. The final date for payment of each Interim Payment is 14 days from its due date.
This period now also applies to the final payment. There is now no distinction between interim payments due before practical completion and after practical completion. Previously, the period between interim certificates during the Rectification Period was two months rather than one month.
The monthly payment cycle continues after practical completion up to the due date of the final payment. There is now also a new procedure for assessing loss and expense claims. Previously, the making of a valid application triggered the right for the contractor to have loss and expense ascertained and added to the Contract Sum.
This has been replaced with a more detailed notification and assessment process similar to that required for time applications. Prompt assessment is required by the employer as new clause 4.20 provides that, within 28 days of receipt, the employer must notify the contractor of the ascertained amount of the loss and/or expense incurred. There are, however, no consequences in the event that the employer doesn’t notify within the timescale.
Flexible insurance for tenant works Alongside important changes to payments, the new contracts tackle the common issues encountered with the insurance provision used when works involve existing structures – Insurance Option C.
Under this option, the employer is required to take out an all risks policy of the existing structure in the joint names of the employer and the contractor. However, this assumes the employer is the owner of the building. This causes a problem when the works are being carried out by a tenant, because the tenant will have no control over the buildings insurance.
To address this issue, a new insurance option, C1 Replacement Schedule, has been introduced. The new provision lets tenants and landlords disregard the standard provisions and tailor provisions to their particular requirements.
Changes to the 2011 version In this latest iteration, the JCT has taken the opportunity to tidy up some of the drafting. For example, new clause 1.10 has been inserted confirming that any consent to be provided by either the employer or the contractor shall now not be “unreasonably withheld or delayed”. This reduces the repetition of this phrase throughout the contract.
Other changes include:
● CDM Regulations – the new contracts incorporate the changes under the Construction (Design and Management) Regulations 2015.
● Security documents – now includes provisions for the contractor to provide performance bonds and/or parent company guarantees.
● Building Information Modelling (BIM) – includes the option to incorporate any BIM protocol and, where there is an applicable BIM protocol, this will be a Contract Document.
● Third Party Rights and Collateral Warranties – Part 2 of the contract particulars has been deleted and the provisions relating to third party rights and collateral warranties have been moved into section 7 of the contract. The contract introduces a new definition, the ‘Rights Particulars’ which will identify the beneficiaries and set out the parties who are required to grant rights, specifying in each case whether rights are to be granted as third-party rights or by way of collateral warranties.
Crucially, the updates don’t address common changes, such as the requirement to create a single point of responsibility for both the design and construction of the works or responsibility for ground conditions – something that will still have to be fleshed out during contract negotiations.
Article by John Cleaveley, partner and head of construction at Weightmans LLP.