Bulletins | December 6, 2016

JCT Design and Build 2016 Contract

JCT has published the new edition of 2016 Design and Build Contract in conjunction with the Design and Build Sub-Contract for use with it. The purpose of this note is to outline the principal changes from the previous 2011 edition and answer some frequently asked questions.

In summary, these are:

  • Introduction of common “Interim Valuation Dates” which will apply throughout the contract chain including at sub-contract and sub-sub-contract tiers.
  • Introduction of a procedure for prompt assessment of Loss and Expense claims.
  • Consolidation in a single sub-section of the payment notice requirements of the Construction Act.
  • Amendments to reflect the CDM Regulations 2015.
  • Consolidation within the main text of the general provisions of Insurance Options A, B and C and ability to adapt bespoke existing structures requirements.
  • Flexibility in relation to adoption of Fluctuations Provisions (if used).
  • Inclusion of provisions for the grant of Performance Bonds and Parent Company Guarantees.
  • Inclusion as an option of Third Party Rights instead of collateral warranties for sub-contractors.
  • Updating of the wording of clause 1.8 (Effect of Final Certificate) to bring JCT Design and Build into line with amendments already been made to other JCT contracts in the 2011 editions.
  • Inclusion of a new clause 1.10 to eliminate the need for multiple repetitions of the requirements for consents and/or approvals not to be unreasonably delayed or withheld.
  • Inclusion of the Public Contract Regulations 2015 for public sector works.
  • Minor updating of the intellectual property provisions.

JCT Standard Building (SBC) Contract 2016

(November 2016)

In addition to the amendments referred to above:

  • The main contract form now incorporates (in Supplemental Provision 9 in Schedule) the provisions of the JCT 2012 Named Specialist Update which previously was published separately. Clause 3.8 of the SBC contract conditions continues to offer the employer some control over the selection of specialists by providing for selection from an (adjustable) list of three or more approved sub-contractors.  This is for discrete work packages identified in the Contract Documents. However, where Optional Supplemental Provision 8 is utilised by reference in the Contract Particulars, the employer can name individual specialists for work packages that fall outside the Contractors Designed Portion.  This can be either pre-contract or post-contract. In the latter case the work will be identified as the subject of a Provisional Sum.
  • The Articles of Agreement remain in their previous format but reference to them has been dropped from the Agreement heading.
  • “Measurement Rules” are defined as the RICS New Measurement Rules, unless otherwise stated. These rules supersede the Standard Method of Measurement.
  • “Site Manager” now supersedes “Person in Charge”.

Frequently asked Questions on JCT Design and Build (DB) and Standard Building (SBC) Contracts 2016

Q. Has there been a change in the risk profile? 

A. JCT’s stated aim was that the 2016 edition amendments do not materially affect risk allocation. However it is unusual for an unamended JCT contract to be used particulary where JCT Design and Build is the form of procurement. Where there is a Schedule of Amendments agreed between the parties, those amendments will themselves change the risk allocation.

Q. How will Third Party Rights (TPR’s) be granted in the new editions now that this is an option for sub-contractors to grant such rights?

A. The Contract Particulars in the Articles of Agreement have been simplified by the deletion of part 2 of the Particulars. This used to set out the warranty and TPR requirements but sometimes caused confusion. Instead employers who have developed their own forms of third party rights and collateral warranty requirements can now incorporate these by reference in the Particulars. Alternatively JCT has on its website model forms for the “Rights Particulars” if the Employer does not have bespoke ones.  (See below for more detail on TPR’s.)

Q. Are the Contract Particulars entries the same?

A. The Contract Particulars have been simplified by the deletion of part 2 of the Particulars (as referred to above); the insertion of a new entry against clause 1.1 for the identification of any BIM protocol and to give a wider choice of provision in respect of fluctuations provisions in section 4 (if they start to be adopted again).  There is also an additional entry for clause 6.7 and Schedule 3 relating to insurance to reflect the amendments made to insurance option C. This allows a replacement schedule for existing structures insurance (as to which see below).

Q. Are the contracts still executed in the same way?

A. Yes each contract can still be executed either as a deed thereby attracting a twelve year limitation period or underhand thereby attracting a six year limitation period.  The only change is to allow a foreign company Employer, which is not operating through a UK subsidiary, to be able to execute the contract in accordance with its own corporate requirements.

Q. If a BIM protocol is included in the contract what order of precedence does the protocol take?

A. Some model protocols provide that the provisions of the protocol override the Agreement and other Contract Documents, JCT does not consider that unqualified overriding provisions are appropriate and therefore clause 1.3 which deals with the precedence of documents has been amended slightly to make it clear that the Articles of Agreement and Conditions take precedence over any BIM protocol. However, a new clause 1.4.6 has been added to provide that where there is a BIM protocol or other protocol relating to the supply of documents or information documents should be in a form or medium conforming to that protocol.

Q. If there is a BIM protocol what effect will that have on the Design Submission Procedure?

A. Clause 2.8 provides for the supply of the Contractors Design Documents as specified by the BIM Protocol, if one is applicable. If not the procedure set out in Schedule 1 (the existing Design Submission Procedure) will apply subject to any modifications to it specified in the Contract Documents (the definition of which includes the BIM Protocol, if there is one).

Q. What changes have been made to the intellectual property provisions?

A. The wording in clauses 2.19 and 2.20 of DB and clause 2.21 to 2.23 of SBC have been amended. There is some minor rewording in clauses 2.19 of DB and clause 2.21 of SBC. New clause 2.20.2 of DB and 2.23.2 of SBC requires the Contractor promptly to notify the Employer if he is or becomes aware that complying with any instructions may infringe any patent rights. Such instructions will not then take effect unless confirmed by the Employer.  If so confirmed any royalties damages or other sums payable by the Contractor will be added to the Contract Sum.  However the general principles embodied in the clauses remain the same.

Q. What changes have been made to the payment provisions in Section 4?

A. Generally the section has been rearranged with a view to simplification.  There are now eight subsections in a more logical order.  A general payments and notices provision has also been included.

However, the main change is the establishment of Interim Valuation Dates which are common valuation dates also intended to apply to sub-contracts and sub-sub-contracts. This has been introduced in order to comply with the Government’s Fair Payment campaign by providing a common assessment date throughout all tiers in the contractual chain. If the payment provisions are unamended, payment will be made from the top to the bottom of the chain within thirty days.  The Interim Valuation Dates will be specified in the Contract Particulars and Sub Contract Particulars.

Under clause 4.7.3 of DB the Contractor is required to make an Interim Payment Application in respect of each interim payment before each Interim Valuation Date.  Subject to the application being made late, (which is dealt with in clause 4.7.3), the due dates for interim payments are 7 days after the relevant Interim Valuation Date.

Under SBC the Contract Administrator is required to issue an Interim Certificate no later than 5 days after each Interim Valuation Date, being the due date in each case. The Contractor may (but is not required to) make an application for payment by the Interim Valuation Date.

Employers (and in relation to sub-contracts, Contractors) should bear in mind that under the Contract Particulars, Interim Valuation Dates in certain months will be altered to the nearest Business Day in the month.  That alteration will directly affect the due date and also the five day period for the issue of the payment notice, the last day for giving a Pay Less Notice and the Final Payment Date.  This is particularly noteworthy given the importance of serving the relevant notices in time and the consequences of not doing so as determined by the Court in recent cases when the amount of the Contractor’s application may become payable however inflated.

Q. What are the Public Contract Regulations 2015 (PC Regulations) and when will they apply?

A. These apply to works procured by a local or public authority employer and not to private sector projects. Where they do apply new Supplemental Provision 12 includes provisions to reflect the sub-contracting requirements of Regulation 71. Under this regulation there is an obligation on a public employer to require the main contractor to provide basic information on his sub-contractors and to keep that information updated.

The inclusion in the contracts of relevant provisions relating to the PC Regulations also means that there are three new termination events set out in Section 8. These would be implied into the contract in any event but JCT has chosen to include (in express provisions) both the basis on which they will be exercised and the consequence of termination. Obviously it remains to be seen if the PC Regulations are repealed or amended in the light of Brexit.

Q. How is Loss and Expense for delay dealt with?

A. Section 4 which deals with loss and expense still requires prompt initial notification of claims, or the likelihood of claims as before that notification is required “to be accompanied, or as soon as reasonably practicable, followed by the Contractor’s initial assessment of the loss and expense incurred and any further amounts likely to be incurred…”. However, it goes on to provide for monthly updates from the Contractor “for as long as is necessary for final ascertainment“.

These requirements are an attempt to avoid the practice of loss of and expense claims not being made or the particulars of them not being given until late in the project after the events giving rise to delay and consequent loss and expense have long since passed.

JCT has not adopted the approach of some bespoke amendments whereby notification by the Contractor in accordance with a time limit is a condition precedent to entitlement to loss and expense, which means that in principle non-compliance avoids the claim.

The Employer (through the Employer’s Agent in the case of DB and the Contract Administrator in the case of SBC) is required to notify the Contractor of his initial ascertainment within 28 days of receiving the required information from the Contractor with further notifications being made within 14 days of each subsequent update. In each case the Employer/Contract Administrator is required to identify any points on which that ascertainment differs from the Contractor’s assessment.

In the amended JCT provisions not only does the Contractor have to notify circumstances which may give rise to loss and expense and keep the Employer/Contract Administrator updated, but also the Employer (through the Employers Agent/Contract Administrator) should not be able to leave loss and expense to one side pending practical completion.

The Relevant Matters which give rise to loss and expense are unchanged and still include Changes to the Employers Requirements (in the case of DB) or Variations (in the case of SBC).

However, loss and expense is now to be included in the valuation of a Change in DB if the procedure set out in Supplemental Provision 24 (Valuation of Changes – Contractor’s Estimates) is used.  So clause 4.21 which deals with Changes to the Employers Requirements will only be relevant if Supplemental Provision 24 does not apply.

Q. Any changes to the Final Account Provisions?

A. Clause 4.12 of DB requires the Contractor to submit the Final Statement to the Employer within three months from practical completion of the Works, as was previously the case. If he fails to do so either within that period or within two months of a reminder notice from the Employer, the Employer may issue the statement. Either way, unless the final balance shown is disputed within the time limits specified by the contract, the statement then becomes conclusive as to the final balance. It then has further conclusive effects in accordance with clause 1.8 (materials, goods and workmanship being to the Employer’s Requirements standards, extensions of time given and loss and expense awarded) except where and to the extent that proceedings have been instituted and until those claims have determined.

Clause 4.25 of SBC deals with the final adjustment and final payment.  The relevant Quantity Surveyor statement and ascertainment is to be provided to the Contractor, within 3 months of the Contractor providing the relevant documentation.  That documentation is to be supplied within a maximum of 6 months after Practical Completion of the works.  Clause 4.26 then deals with the issue of the Final Certificate.  That Final Certificate must be issued within 2 months of the last of the end of the Rectification Period of the Works, the date of issue of the Certificate of Making Good Defects or the date on which the Contractor is sent the Final Certificate. Then the Final Certificate has the same conclusive effects under Clause 1.9 as referred to above regarding Clause 1.8 of DB.

Q. What changes have been made to the insurance provisions?

A. There remains three principal Joint Names Works Insurance Options (A, B and C). However, Option C, which usually applies where there are existing structures, has been amended so as to allow alternative (non JCT prescribed) solutions for existing structures and contents cover to be adopted through a Replacement Schedule. This is an attempt to provide flexibility where works are being undertaken in only part of a multiple occupancy building. In such circumstances it can be difficult for the Employer to obtain Contractors All Risks cover because of the risk of a specified peril such as a fire starting with the works and also causing damage to neighbouring properties or their contents in the rest of the building

Works Insurance may also not be available for works carried out by tenants where insurance of the existing structures is the landlord’s responsibility.

Often the value of the works themselves and the additional risk in respect of the structures and contents of the rest of the building is within the cover that a contractor has or can obtain under the contractor’s public liability insurance. However where a tenant-employer is in a building in multiple occupancy, the overall value of the structures for the whole of the building and contents belonging to the other tenants or the Landlord, may be beyond the contractor’s public liability cover. Where this is the case alternative insurance arrangements involving different layers of cover and risk may be necessary. Such insurance becomes more complex the higher the value of the works and the greater the risks to the adjoining properties. Where the potential liabilities to the contractor exceed any agreed level of cover, the contractor may require an indemnity from the Employer in respect of any claims above those agreed limits.

Where there are existing structures on site but they consist of the building shell or retained façades that have a reinstatement value substantially less than the value of the works to be undertaken, the contractor’s works insurers may be prepared to extend Option A cover to include such structures and this is worth exploring before investigating alternative Option C cover.

It is therefore very important that a prospective employer seeks special insurance advice ideally prior to tender. Any employer-tenant should also consult his landlord on the insurance arrangements.

Q. Any change to the provisions relating to terrorism cover?

A. No. The position remains that often joint names or risks cover of the Works excludes cover for acts of terrorism apart from (depending on the terms of the cover) a small level of cover. Accordingly terrorism cover needs to have been specifically required and an appropriate entry to this effect needs to be made in the Contract Particulars. This can be under the Pool Re scheme or other cover such as that provided by the Lloyds market. However, the terms of the cover should be checked carefully. Lloyds market cover does not include chemical and biological damage.  Pool Re cover excludes nuclear, chemical and biological risks in respect of a residential property. Pool Re cover also always requires annual renewal. However, Lloyds market cover may be available on a project basis.

Q. Does the contract require evidence of insurance to be provided?

A. Helpfully the provisions relating to evidence of insurance previously set out in each of the three Works Insurance Options are now consolidated into Section 6 and the insuring party is required to provide evidence of cover as the other party reasonably requires within seven days of a request to do so.

Q. How are performance bonds and guarantees dealt with?

A. If a parent company guarantee or performance bond (or conceivably both) are required an appropriate entry will be made against Section 7 in the Contract Particulars. The new enabling provisions are dealt with in section 7 of each Contract which previously dealt only with assignment, third party rights and collateral warranties.  This is a welcome addition as previously the requirement for such security from a contractor had to be added by way of amendment to the standard form.

Q. What are Third Party Rights (TPRs) and how have they been amended in the Contract?

A. TPRs are an alternative to standalone collateral warranties. They are in similar terms to collateral warranties but importantly can be invoked simply by serving a notice on the party giving the warranty rather than that party having to execute a collateral warranty. In practice sub-contractor warranties are often difficult to obtain. Unlike other design parties on a project, design sub-contractors may be engaged as the works progress and the collateral warranty requirements can be overlooked or sought later when a sub-contractor has left site. JCT has now included as an option TPR’s from sub-contractors which if used may reduce these difficulties. Previously the 2011 edition only provided for TPR’s from the contractor.

JCT TPR’s comprise Rights Particulars and Rights Conditions. As stated above the former part 2 of the Contract Particulars (in which the Contractor Rights Particulars were previously dealt with) has been deleted.  JCT has also made certain other amendments as follows:

  • the provisions in relation to professional indemnity insurance have been harmonised so that the provisions are the same in both the JCT standard collateral warranties in favour of a purchaser tenant and funder, as they are under the TPR’s. Therefore the beneficiary of a warranty or the TPR’s (as the case may be) will automatically receive an undertaking from the Contractor in relation to such insurance in the same terms as those given to the employer under the main contract. However, in sub-contracts it is still necessary for the employer in his Rights Particulars to specify the level of professional indemnity or product liability cover (as the case may be) that the contractor is to require from various sub-contract trades.
  • there is now a net contribution clause included in the terms of the TPR’s from the contractor and the JCT contractor warranties.
  • a default provision has also been added (in clause 7.4.2) so that where the Employer or Contractor (as the case may be) has failed to specify whether rights are to be granted to a beneficiary by TPR’s or a collateral warranty. In that case the grantee contractor or sub-contractor can choose how to provide the rights whether by TPR’s or a warranty.

Q. Will Schedules of Amendments to the JCT terms still be used?

A. We anticipate that the answer is yes.  Whilst JCT have addressed some of the amendments commonly made in the market, they have not included the principal amendments often sought by Employers.

In respect of DB (and the design portion of SBC) these often require the Contractor to accept full design responsibility.  This may involve the novation of design consultants to the Contractor.  As yet there is not a JCT novation agreement nor any operative provisions allowing for it in the new form.  It is generally the case that under an unamended JCT DB Contract (and SBC design portion) the Contractor does not take full design responsibility.  The Contractor is liable for the Contractors Proposals only in response to the Employers Requirements.

Many main contractors also amend the JCT subcontracts to reflect their standard terms as well as to step down amendments made to the main contacts terms and conditions.