JCT 2005: Clause by Clause

Phil Griffiths

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781136438110
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Construction & Architectural Engineering
• Index: Technology & Engineering

* Uses a novel clause-by-clause approach to explain the important JCT 2005 contract

* Written by an experienced author, explaining in simple English the meaning and relevance of each clause to avoid common misunderstandings

* Includes up-to-date legal cases that explain the development and interpretation of the contract

The Joint Contracts Tribunal's suite of contracts (commonly known as JCT 2005) are the most commonly used in the UK to procure major building work. Understanding the contracts, and which to use, is vital knowledge for all students on construction-related HND or degree courses, but these clauses can contain convoluted language, leading to confusion. This easy-to-follow guide takes the reader through the JCT 2005 building contracts clause by clause, in an easy-to-follow format, in simple but effective language that eliminates misinterpretation.

Spilt into 3 sections, this book provides a summary of the current JCT Contracts, identifying which to use for what type of work, along with an analysis of their risk, liability, documentation, design responsibility and financial procedures, ensuring that JCT 2005 Building Contract: clause by clause is the vital, definitive reference for the aspiring construction professional.

Phil Griffiths is a lecturer at Nottingham Trent University with interests in contract administration, finance and project management. He graduated from Nottingham Trent Polytechnic in 1971 and worked as a quantity surveyor in local authority and a medium sized construction company. He also spent some time as a director of a small construction company and is a freelance estimator.

PART 1

Contract Documentation

DOI: 10.4324/9780080949581-1

Where a building project is to be undertaken, the client will have to engage a considerable number of individuals and organisations to provide him with advice, services, materials and goods. To ensure that the work progresses smoothly, it is essential that all the parties involved are fully aware of their role within the project and have clear guidelines as to their rights and obligations throughout the project. This may be achieved through the use of a series of suitable contractual agreements.

A contract may come into existence through a verbal agreement, an exchange of letters, standard conditions of trading or a standard form of contract. All these agreements are legally enforceable, but arguably some are more so than others. For example, with a verbal agreement, who is to know what was really agreed between the parties, and how will the passage of time affect people’s memories and recollections?

In most instances, it is not a legal requirement for any contract to be evidenced in writing unless the parties have agreed to enter into a contract as a deed. But, for obvious commercial reasons, the vast majority of contracts will be entered into by using a written form of contract. The advantage of having a written form of contract is that there will be express terms written into the document to lay down clearly the rights and obligations of the parties involved; therefore, if a dispute arises during the progress of a project, it should be possible to determine who is at fault and what procedures should be followed. If necessary, the contract conditions would also provide the key details in the event of a legal action for breach of contract.

The vast majority of major building works are carried out in accordance with the terms and conditions of a written form of contract, and frequent use is made of published standard forms of contract. Over the years, there has been a steady growth in the development and publication of standard forms of contract, a fact that reflects, to some extent, the increasing diversity of procurement methods, which clients are now prepared to utilise (e.g. design and build, management fee, fast-track, partnering, guaranteed maximum price, target cost). The choice of contracts can at times be bewildering, and this can be compounded by a failure to understand and interpret complex contract conditions and procedures. As a consequence, there are a number of parties who would like to see contract documentation simplified.

Currently, there are two organisations producing the majority of standard forms of contract used on UK building projects. These organisations are the Joint Contracts Tribunal (JCT), which produces the aptly named JCT forms of contract, and the Institute of Civil Engineers (ICE), which is responsible for the New Engineering Contract (NEC) suite of contracts. There are other organisations that also produce standard forms of contract for building works but they are not widely used. The JCT and ICE have adopted contrasting methods of producing standard forms of contract to meet the varying demands of the construction industry. The JCT has taken the approach of producing a specific standard form of contract for each type of procurement route that may be selected, whereas the ICE, through the publication of the NEC documentation, has supported a move towards a more simplified, standardised and user-friendly form of contract documentation.

The NEC documentation comprises a set of core clauses, which will apply to any chosen procurement route. The client then selects from one of the six main procurement options (i.e. options A to F) and finally he has a choice of a further 20 optional clauses, any of which may be selected for incorporation into the contract. By opting for the NEC approach, it is possible to build up a collection of contract documentation suitable for any procurement approach the client may wish to adopt, and through the use of core clauses (which will apply to all NEC contracts), it becomes easier for parties within the construction industry to become familiar with the NEC style of contract administration.

It is interesting to note that this style of contract administration was being championed as far back as the mid-twentieth century in the Banwell Report¹:

A multiplicity of conditions of contract for use in circumstances which vary only to a limited degree is not in our view conducive to a ready understanding between the parties to contract of their respective rights and obligations, and causes much work in checking variants and making adjustments. Many have expressed views in favour of a single form of contract for all building and civil engineering work…we believe that a common form is both possible and practicable.

Furthermore, in 1994, Sir Michael Latham gave strong support to the NEC, although he did suggest that a number of alterations should be made for it to satisfy his guidelines on what comprises an effective form of contract. One minor suggestion was that its name should be changed to the ‘New Construction Contract’ to show clearly that it was adaptable for use on both engineering and building projects. Consequently, in 1995, the main contracts for use with the NEC were renamed as the ‘Engineering and Construction Contracts’.

Despite the support for a common form of contract, there is a counterargument to this approach. It may be argued that a set of common documentation cannot fully take into account all the nuances and requirements of each different procurement route. As a result, the common documentation may provide a satisfactory contract package but it may not always provide the level of detail that some clients require. This may be why the JCT has adopted a significantly different approach to its contract documentation compared with the NEC.

The policy of the JCT is to produce a discrete standard form of contract for each type of project or procurement route commonly used in the UK. As a result, the JCT publishes a large selection of standard forms of contract and documentation as listed below:

Main Contracts

• Standard Building Contract with Quantities (SBC/Q)
• Standard Building Contract without Quantities (SBC/XQ)
• Standard Building Contract with Approximate Quantities (SBC/AQ)
• Design and Build Contract (DB)
• Major Project Construction Contract (MP)
• Management Building Contract (MC)
• Constructing Excellence Contract (CE)
• Intermediate Building Contract (IC)
• Intermediate Building Contract with contractor’s design (ICD)
• Minor Works Building Contract (MW)
• Minor Works Building Contract with contractor’s design (MWD)
• Measured Term Contract (MTC)
• Prime Cost Building Contract (PCC)
• Repair and Maintenance Contract (Commercial) (RM)

Subcontracts

• Standard Building Sub-Contract (SBCSub/A and SBCSub/C)
• Standard Building Sub-Contract with sub-contractor’s design (SBCSub/D/A and SBCSub/D/C)
• Design and Build Sub-Contract (DBSub/A and DBSub/C)
• Major Project Sub-Contract (MPSub)
• Management Works Contract (MCWK/A and MCWK/C)
• Intermediate Sub-Contract (ICSub/A and ICSub/C)
• Intermediate Sub-Contract with sub-contractor’s design (ICSub/D/A and ICSub/D/C)
• Minor Works Sub-Contract with sub-contractor’s design (MWSub/D)
• Short Form of Sub-Contract (ShortSub)
• Sub-sub-contract (SubSub)

Other Contracts

• Construction Management Appointment (CM/A)
• Framework Agreement (Non-binding) (FA/N)
• Framework Agreement (FA)
• Pre-Construction Services Agreement (General Contractor) (PCSA)
• Pre-Construction Services Agreement (Specialist) (PCSA/SP)
• Consultancy Agreement (Public Sector) (CA)

The JCT also produces an adjudication agreement, a non-binding partnering charter, a large number of collateral warranties and agreements for home owners. A complete and up-to-date list of JCT documents may be obtained from its website.

With this bewildering choice of standard forms of contract, the question often arises as to which form the client should be advised to adopt; there is always a danger that in some projects, the form of contract is selected more because of the adviser’s familiarity with it than because of its suitability. For example, recent Royal Institution of Chartered Surveyors (RICS) Contract Surveys² show that some projects let on the JCT Minor Works form were far in excess of the then recommended £125,000 limit; similarly, the Intermediate form was being used on projects in excess of the then recommended limit of £300,000. Because of the anonymity of the surveys, it is not possible to know the reasoning behind this choice of contract, but a swift inspection of the Minor Works form will show that it is a very brief document; to many, this may appear a very commendable attribute but, if problems arise on site, the contract conditions may be of little use, as the clauses cover only some of the major aspects of the construction work. They tend to give only generalised information instead of the detailed procedural information frequently found in other JCT contracts, such as the Standard Building Contract with Quantities (SBC/Q). What may be only a minor issue on, say, a £75,000 project could, if it were to occur on a £5 million project, have serious consequences, and it is necessary, therefore, to have a form of contract that is compatible with the size, complexity and type of work being undertaken.

The drawbacks to having such a multiplicity of contract forms are, firstly, the difficulty of becoming familiar with the critical obligations and liabilities of each form, and secondly, the more onerous task of identifying the subtle variations of each form. In some instances, identical contract conditions have been used within the JCT contracts, but occasionally there are slight variations to the wording of the contract conditions to reflect the specific requirements of that contract. As a result, it is possible for parties to make administrative errors because they are not familiar with the standard form of contract being used.

The following section provides a review of some of the JCT standard forms of contract in current use. The review will identify the circumstances that may be considered in the selection of an appropriate contract along with an analysis of how the contract is to be administered. Finally, each contract will be compared alongside the JCT SBC/Q to identify some of the key differences within each contract.

Minor Works Building Contract (MW and MWD)

Any clause numbers used in the following text refer to the Minor Works Building Contract with Contractor’s Design (MWD).

The JCT Minor Works Building Contract (MW) is one of the smallest and simplest forms of contract produced by the JCT for commercial projects. The JCT does produce a number of very basic contracts for householders, but these contracts do not fall within the scope of this book. From a review of the Contracts in Use survey³ commissioned by the RICS, it is possible to see that the MW contract is one of the most frequently used contracts in the UK. In the 2004 survey, it was shown that nearly 23% (by number) of the contracts captured by the survey were let on the MW form, which would seem to indicate that this is an important and widely used contract. It is certainly widely used, but its importance is diminished by the fact that it is responsible for only 2.4% of the work by value. This survey return clearly indicates that the contract is frequently used but mostly on low value projects.

Recommended Use of Minor Works

The advice currently provided by the JCT is that this contract should be used on projects where the work is of a fairly simple nature. In the Practice Notes produced for previous editions of this contract, the JCT used to advise that the contract was appropriate for projects up to a maximum contract value (in 2004, this figure was £125,000). However, in the 2005 version of the contract, the JCT has obviously decided that the advice to use the contract on works of a simple nature is a more appropriate guideline than stating a maximum contract value. Advice relating to the earlier editions of this contract also stated that the time period for the works should be short enough so that a full fluctuations provision was not required. The reason for this advice is that the MW is a fixed-price contract with an option to allow the recovery of fluctuations relating to government levies and taxes.

Interestingly, the JCT also provides recommendations for where the MW contract would not be suitable. It should not be used as a design and build contract; it is possible to require the Contractor to carry out some of the design work but the contract is not appropriate in situations where the Contractor is to be responsible for designing all the works. Furthermore, the contract is not suitable for projects where bills of quantities are required, or where work is to be carried out by named specialists or where detailed control procedures are required. These last recommendations are obviously in recognition of the fact that the MW contract was drafted on the basis that it would be used only for works of a simple nature.

In normal circumstances, the works are to be designed by the Employer (or designed on his behalf) but, where the Contractor is to design a portion of the works, this is to be clearly defined and detailed. The Employer is expected to provide the Contractor with drawings and/or specification and/or work schedules that are sufficient to allow the Contractor to assess both the quantity and the quality of the work required. Also, the Employer is expected to appoint a Contract Administrator to manage the works in accordance with the contract.

The JCT has taken a different approach from the SBC/Q in dealing with Contractor’s design work in the MW contract. In the SBC/Q, there is an optional provision (using the Seventh to Tenth Recitals), which is to be used when the Contractor is required to carry out some of the design work. The same standard form may, therefore, be used for projects that have no Contractor-designed work as on those that do have an element of Contractor-designed work. The JCT did not follow this approach when drafting the MW contract and, as a result, the contract is available in two different formats. The contract may be purchased as the JCT Minor Works Building Contract or, alternatively, as the Minor Works Building Contract with Contractor’s Design. The JCT has obviously decided, because of the type of client that may use the MW contract and the type of work carried out, that it would be more appropriate to have a separate contract for instances where an element of Contractor design is required.

Format

The format of the MW form is similar to the majority of the current JCT contracts. The Articles of Agreement, Recitals and Contract Particulars are placed at the beginning of the contract document, followed by the Conditions (broken down into nine sections) and finally, the Schedules. At the end of the contract, there are four pages of guidance notes, whereas other JCT contracts have guidance notes produced as a separate document. Although the MW form tends to mirror the format and structure of the SBC/Q, the content is significantly reduced. The clauses within the contract tend to be worded more briefly and simply than in the SBC/Q and a considerable amount of detail has been removed from this contract. This again reflects the fact that the contract has been developed for use on small projects of a simple nature.

Minor Works Compared with JCT SBC/Q

Articles of Agreement

One of the main differences in the articles is that there is no provision within the MW for the appointment of a quantity surveyor (QS). This is because there is no provision for a bill of quantities within the contract documents; therefore, the financial duties normally undertaken by a QS have been allocated to the Architect/Contract Administrator (A/CA). Another major omission is that there is no express procedure to provide third party rights, or for the Contractor to provide collateral warranties.

Section 1: De...

Table of contents

• Cover Page
• Title Page
• Table Of Contents
• Preface
• Part 1: Contract Documentation
• Part 2: An Analysis of the SBC/Q
• Part 3: Legal Issues
• Legal References
• Index