Questions
Can I still use JCT 2016 contracts for my projects and are there changes to all JCT contracts?
Has there been any change to the risk profile in the contracts?
Are new limitations of liability included?
What changes have been made to the Articles of Agreement?
Will the contracts be executed in the same way?
Have any changes been made to the payment provisions?
What changes have been made to the extension of time and loss and expense provisions?
How is the Building Safety Act 2022 (BSA) dealt with?
What about Termination provisions?
Can I still use JCT 2016 contracts for my projects and are there changes to all JCT contracts?
Once the relevant JCT suite for the form of procurement to be used has been published, it is advisable to use the 2024 contracts because they refer to current legislation, most notably the Building Safety Act 2022 and the Corporate Insolvency and Governance Act 2022, as well as relevant case law, such as that relating to the duration of liquidated damages. Similar template changes have been made to all JCT contracts, tailored in each case to the particular type of procurement.
Has there been any change to the risk profile in the contracts?
JCT’s intention was that there should not be a material change. However, if bespoke amendments are made to any of the contracts (as is often the case), those amendments may themselves change the risk profile. If adopted by the parties, the new limitation on liability referred to below may also mean a change in the risk profile for an individual contract.
Are new limitations of liability included?
- In the guidance notes (not in the contract conditions), JCT has provided a draft clause which can be used to cap the Contractor’s liability in the main contract, and subcontractor’s liability in the related subcontract. If agreed by the parties, this can be incorporated by entry in the Contract Particulars. If used, JCT recommend that the pre-existing optional limitation in relation to design liability (clause 2.17 in the JCT Design and Build form) is stated not to apply in the Contract Particulars. This is because the JCT liability cap will in principle cover both design and workmanship/materials liability. In the draft JCT clause, liquidated damages are excluded from the cap on liability because it is anticipated that this will usually be what is agreed, but if liquidated damages are to be included in the cap, this express exclusion will need to be deleted. On the other hand, if liquidated damages are agreed to be subject to a separate cap on liability rather than no cap at all, that will need to be expressly set out in the contract by way of amendment. Other exclusions from the JCT cap wording, relate to claims under the Defective Premises Act 1972 as amended by the Building Safety Act 2022 (BSA); personal injury and loss and damage to other property; fraud, wilful damage, or deliberate concealment; and bribery and corruption offences. The extent to which the optional cap wording is adopted by parties remains to be seen. Whilst for some time it has been common to agree caps on liability for designers (reflected in JCT contracts as referred to above), it has been less common for building contracts to have an overall cap on liability.
- The standard of care for design work remains that of reasonable skill and care expected of a relevant professional designer undertaking design similar in scope and character to the design of the works concerned. However, design liability now specifically excludes any liability for the design being fit for purpose, to the extent permitted by law.
- The clauses relating to liability under the Defective Premises Act (DPA) now refer to the new Section 2A inserted by the Building Safety Act 2022 (BSA) and includes liability under that. The clause no longer applies to works on a single dwelling only but is now wider and includes works to a “relevant building containing one or more dwellings”. Although not expressly referred to, users should also note that there are increased limitation periods for claims There are also increased limitation periods for claims under the DPA namely 30 years for work completed before 28 June 2022 and 15 years for work completed after 28 June 2022. The DPA also provides that those taking on work in connection with a dwelling owe a duty to ensure that work is done in a workmanlike or professional manner with proper materials so that any dwelling is fit for habitation when completed. This includes refurbishment work not just new dwellings. It is not possible to contract out of the DPA.
What changes have been made to the Articles of Agreement?
- The requirement for collaborative working, previously an optional supplemental provision which applied by default if the entry in the Contract Particulars did not specify otherwise, is now included as an Article and therefore is a mandatory term of the contract. This provides: “The Parties shall work with each other and with other project team members in a co-operative and collaborative manner, in good faith and in a spirit of trust and respect. To that end, each shall support collaborative behaviour and address behaviour which is not collaborative”.
- A new article has been added to name the Principal Designer and Principal Contractor for the purposes of the BSA. Whilst these may be the same as the Principal Designer and Principal Contractor for the CDM Regulations, if suitably qualified and competent in accordance with the BSA regulations, the roles are very different. An Employer will therefore need to be satisfied that any combined appointment meets the requirements and if not, separate appointments will need to be made for each role. For more information of the BSA roles please see our article on the topic: Navigating the Building Safety Act 2022: Demystifying Principal Designer and Principal Contractor Roles Part 1.
- The list of supplemental provisions has reduced because three of the provisions (namely collaborative working (as mentioned above), sustainable development and environmental considerations and notification and negotiation of disputes are now included as mandatory provisions.
- Electronic service of contractual notices can now be effected by email, if the parties agree and fill in the relevant Contract Particular with the email addresses to be used. Notices served in this way are deemed to have been received the next business day. Key notices relating to default and termination (being those to which clause 1.7.4 is stated to apply) can also be served by email but only if the parties specifically agree by filling in the Contract Particular entry relating to clause 1.7.4.2. If that is not filled in, the default position is that such notices cannot be served electronically. Instead, they will have to be served by hand or Special Delivery Guaranteed post. If it is agreed that service of important notices can be made by email, both parties need to ensure that their specified email addresses are kept up to date and that the other party is notified of any changes. For a change to the key notices to be effective the notice must expressly state that it relates to clause 1.7.4.2. Care must be taken to notify a change of the stated email address when someone leaves the organisation or the email address for the organisation changes. Any general email address used for an organisation should obviously be one that is regularly checked, because it will be good service if the parties have opted for email service even if the receiving party has failed to see a notice served in this way.
- The latest editions of fluctuation provisions can still be incorporated into the contract by completing the relevant Contract Particulars entry, but the fluctuation provisions themselves are now to be found on the JCT website.
- There is a new entry relating to whether loss and expense is payable in principle for the new Relevant Events dealing with the effects of an epidemic and exercise of a statutory power -see below. If either or both are agreed to be Relevant Matters, the parties will need to state this in the relevant Contract Particulars entry.
- The parties are now required to set out any sub-limits which apply to the overall level of professional indemnity insurance cover, stating the type e.g. aggregate or the amount per claim and level of cover. This replaces the previous entry setting out only sub-limits for pollution and contamination. Any specific exclusions in the policy must also be stated, these typically are set out in any separate schedule, memorandum, or endorsement to the policy, as distinct from general policy exclusions.
- Changes to the dispute resolution provisions – see below.
Will the contracts be executed in the same way?
They can be executed in the same way as the 2016 edition, but the 2024 edition now provides for electronic execution to reflect this increasingly popular way of executing contracts.
What about sustainability?
The approach of JCT is that sustainability requirements should be addressed earlier in the procurement process rather than once the building contract has been entered into. This is why more detailed provisions have been included in the JCT Pre Construction Services Agreement. However, it is recognised that the possibility of a more sustainable and economically viable approach may become apparent during the works, which the Contractor “is encouraged” (but not obliged) to suggest. The former supplemental sustainability clause providing for this has been slightly revised and has become a mandatory contract condition. The clause does not proscribe how any contractor suggestion may be dealt with, if agreed, but in principle that can be accommodated by other contract conditions relating to instructions, changes/variations, extensions of time and loss and expense, as appropriate.
The Contractor is also obliged to provide the employer with information it reasonably requires regarding the environmental impact of goods and materials. Although this is not a new clause, given the increasing emphasis on sustainability, the contractor should be aware that such a request may be made once the contract is entered into. Pre-contract the contractor will need to consider the extent to which it’s proposed supply chain will be able to meet this obligation and any other sustainability requirements set out in the invitation to tender documents. If these requirements may cause difficulty, for example because a subcontractor does not usually keep sustainability information or records the contractor should discuss with the employer pre contract how to resolve any such difficulty.
Have any changes been made to the payment provisions?
- No material changes have been made to the interim payment provisions.
- There are changes to the final payment following termination of the Contractor’s engagement with a new defined term “Termination Payment”.
- There is no significant change to the way final payment following termination is calculated although the accounting provisions have been simplified.
- Following termination of the Contractor’s engagement under the contract, whatever the grounds, there is now a due date for payment of any sum due to the Contractor or Employer (or subcontractor or Contractor under a subcontract) after completion of the Works. The applicable due date differs depending on the grounds for termination i.e. whether termination by the Employer, Contractor or by either party due to a neutral event, as set out in the relevant clauses.
- There is a new sub-section dealing with the final date for payment of the Termination Payment (14 days from the due date) and related notices.
What changes have been made to the extension of time and loss and expense provisions?
There are a number of changes:
- The procedure for dealing with applications for an extension of time to the Completion Date has been streamlined and new time periods apply. Any requests for further information must now be made by the Employer (or Employer’s Agent/Contract Administrator) within 14 days of receipt of the particulars of the application. Absence of the EA/CA will not be an excuse for not making a necessary request in time. Because extension of time applications can vary in complexity and detail, there is not a time period for the contractor to respond the information requested, but the contractor will be best advised to cooperate by providing any “reasonably necessary” information as soon as possible. If the contractor fails to provide the information requested ,the EA/CA may make the decision without it and that decision may not be what the contractor seeks. Generally, a contractor is best advised to provide as much relevant information in support of its application from the outset rather than wait until requests for information. There are separate timetables for decision making from receipt of the notice and particulars on one hand and any notified material change on the other. This means that the decision making process should not be delayed by any notice of material change. The time for any extension of time decision is reduced to not later than 8 weeks ( previously 12 weeks with a reduction from 16 to 10 weeks in the subcontract). This time period runs from the receipt of particulars of the application or from the date of the receipt of the further information requested by or on behalf of the Employer; or notice of material change, as the case may be. The time period for final review after practical completion remains at 12 weeks (16 weeks under the subcontract).
- There is now a specific relevant event which deals with an epidemic (which is not defined in the contract), whether first occurring after the Base Date or before whose effects change after the Base Date. This is providing any such change affects the execution of the works, by limiting the availability or use of labour or, services; or preventing the Contractor from or delaying the securing of goods, materials or services including those from outside England and Wales. In all cases the labour, materials etc causing the delay must be necessary for the proper carrying out of the works.
- The occurrence after the Base Date of any of the following which affect the execution of the works: any statutory change: exercise of a statutory power (unless caused or contributed to by the Contractor or anyone it engages); the publication of any guidance whether by government, local authority or in the case of guidance by The Construction Leadership Council or any successor body.
- Whilst the two new Relevant Events referred to above are not optional, each of the equivalent Relevant Matters relating to loss and expense provisions are optional. As mentioned above the parties can opt into these by so stating where indicated in the Contract Particulars. They can indicate that either or both apply or do not apply. If the entry in the Contract Particulars is not completed, the default is that these Relevant Matters do not apply. If they do not apply the Contractor may obtain an extension of time (and relief from liquidated damages for that period) but no loss and expense for the delay so caused. This is, in effect, the sharing of risk approach often adopted by parties during Covid.
- The pre-existing Relevant Event relating to compliance with the Employer’s/Contract Administrator’s instructions about antiquities has been expanded. This now includes instructions relating to any asbestos, contaminated material or unexploded ordnance on site or uncovered during the excavation of the site. There is a new standalone provision dealing with discoveries of these on site. Once discovered, this must be reported and an instruction issued by the Employer’s Agent/Contract Administrator as to how the discovery is to be dealt with. The Relevant Event applies except to the extent that such material was identified in the Contract Documents. The use of the words “to the extent ….” indicates that if the contract documents deal with any of these matters, but their presence on site is different to what the Contractor could have reasonably expected, this may be grounds for an extension of time. It is important, before entering into the contract, that the parties discuss and agree which of them is taking the risk of ground conditions both known and unknown; what information should be included in the contract documents about known conditions and whether the contractor can rely on that information.
How is the Building Safety Act 2022 (BSA) dealt with?
With a light touch, like the CDM Regulations in the previous edition. As mentioned above, there are new entries in the Contract Particulars for a BSA Principal Designer and Principal Contractor which the BSA requires for any works subject to building control, not just Higher Risk Buildings (HRBs). Part 2A of the Building Regulations which relate to the dutyholder regime under the BSA is referred to in Section 3 of each contract but the regulations themselves are not set out. The applicable statutory regulations relating to HRBs are also not set out in the contracts, although the parties must comply with them regardless. If the parties want to set out the relevant requirements and time limits in relation to HRBs and the gateway regime they can obviously do so by amendment, but it will be best to seek advice on those amendments. In relation to HRBs there are some fundamental points which will need to be agreed by the parties before appropriate amendments can be made. These include which party will take the time and cost risk of any delays by the Building Safety Regulator in giving gateway approvals (or if these will be neutral events) and how the gateway completion certificate will affect practical completion, liquidated damages and the rectification period.
What about Termination provisions?
- Epidemics and the exercise of statutory powers have been added to the list of neutral events which may give rise to a right to terminate by either party. In the case of public procurement, there may also be a right to terminate where there has been a substantial modification to the contract such that a new procurement procedure is required.
- Breach of Part 2A of the Building Regulations relating to the dutyholder regime under the BSA is now a ground for termination by both the Employer and Contractor.
- Where the termination is by the Employer, the Employer may choose to complete the Works by engaging a new Contractor or by completing the works itself, typically by engaging subcontractors directly. There is a new requirement for the Employer to notify the Contractor of the date of completion of those works so that the original contractor will know when the final account will be dealt with.
- There are new grounds for termination for insolvency introduced by the Corporate Insolvency and Governance Act 202 (CIGA) namely the moratorium procedure and the compromise or arrangement procedure.
Are there any changes to the dispute resolution provisions?
Yes there are three material changes:
- In addition to naming an agreed individual, the parties also now have the option to specify their own adjudicator nominating body and if arbitration applies, the arbitrator nominating body. If they do not choose their own body or one of those listed in the contracts (RIBA, RICS, Construction Adjudicators or CIArb for adjudicators; RIBA, RICS, CIArb for arbitrators), the party making the referral/giving the notice of arbitration may choose from the list in the contract only.
- The provision relating to notification and negotiation of disputes which was previously a supplemental provision is now a contract condition. There is a corresponding entry in the Contact Particulars in which to state the names of the individuals who will be each party’s senior executive nominee, to meet as soon as practicable for “direct, good faith negotiations” to resolve a matter notified by one party to the other as likely to give rise to a dispute or difference. Each party should consider who their nominee should be, ideally not someone who is directly involved in the project day to day, instead an experienced individual who can take an objective and pragmatic view in seeking to resolve such matters. Although the provision is not expressed to be a condition precedent, this does not mean that a court will not enforce it, either by suspending the proceedings whilst the parties comply or alternatively by penalising any non-compliant party in costs. The provision does not need to be complied with prior to adjudication proceedings as the right to adjudicate is a statutory one which can be exercised at any time. That does not mean however that such discussions cannot take place before any formal dispute resolution process.
What changes have been made to subcontracts?
The changes to the subcontracts mirror those made to the main contracts as appropriate, to ensure that the contracts work together, but there are two changes worth noting in particular:
- Sub-contract indemnity: it has long been a principle of JCT subcontracts that the subcontractor agrees to indemnify the Contractor against loss, if it puts the Contractor in breach of terms in the main contract which relate and apply to the subcontract works.. Such an indemnity provision can give rise to more extensive loss claims and an extended limitation period to make a claim. This is because the usual rules for breach of contract claims do not apply. This is why the new provision includes an obligation on the Contractor to take reasonable steps to mitigate any losses it seeks to claim under the indemnity and also limits the period for making a claim to the limitation period which applies to the subcontract i.e. 6 or 12 years depending on how it is executed plus 6 months. The additional 6 months period is to allow a period for the Contractor to consider any claim made by the Employer against the Contractor towards the end of the limitation period under the main contract, for which the Contractor may wish to make an indemnity claim against a subcontractor.
- If a subcontractor has agreed to provide collateral warranties/third party rights which contain the right to step into the subcontract on termination in favour of the Employer or Funder, the subcontractor’s employment will no longer terminate automatically on termination of the Contractor’s employment under the main contract. Now termination of a subcontractor’s employment under a subcontract will take place after the expiry of the period for giving notice to exercise the step-in rights. During the notice period, the subcontractor may suspend the performance of its obligations under the subcontract until notice of step in (if any) is received. If such notice is not received, the subcontractor’s employment will terminate on the day after the last date on which such written notice may be served. The suspension is deemed to be a suspension due to an instruction under Main Contract. As the contracts only refer to step in rights in favour of an Employer of Funder, a subcontractor should consider before entering in to a subcontract, whether any other parties will be given collateral warranties/third party rights containing step in rights because an amendment will be needed to refer to these.
- There is a new standalone provision dealing with discoveries of asbestos, contaminated material and unexploded ordnance.
In conclusion:
- Parties to a new building project are advised to use the new 2024 forms as they become available.
- The parties will benefit from more discussion up front to discuss how new provisions will be implemented.
- Thought must be given to new entries in the Contract Particulars.
- If working on an HRB, the BSA needs to be considered carefully and agreement reached on how they will impact on key contract provisions, such as time, practical completion, defects rectification and liquidated damages.