Understanding JCT Standard Building Contracts

David Chappell

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351621809
• Edition: 10
• Topic: Arquitectura
• Subtopic: Arquitectura general

This tenth edition of David Chappell's bestselling guide has been revised to take into account changes made in 2016 to payment provisions, loss and/or expense, insurance and many other smaller but significant changes, and includes a section on performance bonds and guarantees. This remains the most concise guide available to the most commonly used JCT building contracts: Standard Building Contract with quantities, 2016 (SBC16), Intermediate Building Contract 2016 (IC16), Intermediate Building Contract with contractor's design 2016 (ICD16), Minor Works Building Contract 2016 (MW16), Minor Works Building Contract with contractor's design 2016 (MWD16) and Design and Build Contract 2016 (DB16).

Chappell avoids legal jargon and writes with authority and precision. Architects, quantity surveyors, contractors and students of these professions will find this a practical and affordable reference tool arranged by topic.

1 Contractor’s obligations

1.1 The forms

It seems appropriate to begin by looking briefly at the standard forms under consideration. All the JCT forms of contract were substantially amended in 2005. These became SBC, IC/ICD, MW/MWD and DB. These forms were reissued in October 2011 after having been amended to take account of changes to the Housing Grants, Construction and Regeneration Act 1986 wrought by the Local Democracy, Economic Development and Construction Act 2009. The contracts became suitable for use in Northern Ireland when the amendments took effect on 14 November 2012.

SBC is a very comprehensive document which is suitable for use with any size of building works. Owing to its complexity, however, its use is likely to be reserved for projects which are substantial in value or complex in nature.

DB provides a basis to allow contractors to carry out the design as well as the construction. The resemblance between SBC and DB is still very strong. There lies the trap, because DB has many substantial differences from the traditional form of contract. Essentially, the scheme of the contract is that the employer, either personally or through an agent, produces a performance specification (the Employer’s Requirements) which the contractor must satisfy. The contractor demonstrates how it intends to do this by producing the Contractor’s Proposals. With this type of contract, the contractor carries most of the risk so far as cost, time and finished product are concerned. No independent architect is involved and, therefore, there are no certificates of any kind. There are merely statements and notices from the employer and applications for payment from the contractor. In addition to the normal clauses, this contract contains optional supplemental provisions.

The forerunner of IC/ICD was introduced to fill the gap between what is now SBC and what is now MW/MWD. A look inside the front cover suggests its use if the Works (all the work to be done) are of simple content, adequately specified or billed and without complicated services or specialist work. There is no suggested upper price limit but £490,000 (at 2017 prices) and a maximum contract period of 12 months seems reasonable. Price and length of contract period are not, however, the most important factors.

MW and MWD are suitable for use on projects having a maximum value of £200,000 (at 2017 prices). They are not suitable for complex Works and no provision is made for bills of quantities or named sub-contractors. Very importantly, as far as contractors are concerned, there is only limited provision for reimbursement of loss and/or expense, although a claim can always be made using common law rights. This form is very popular and not only for minor Works. It is known to be used in conjunction with bills of quantities, although quite unsuitable. The reason for its popularity is no doubt because it is short and simply expressed. Its simplicity is deceptive, however, and there are pitfalls for the unwary.

The contractor may think that the suitability or otherwise of a particular form for a particular project is academic in the sense that it can do very little about it. The choice is for the employer advised by the architect. A thorough knowledge of the contents of the various forms, however, can influence the contractor’s tender – if it has any sense.

Some employers use the standard forms, but with amendments to suit their own requirements and ideas. Such amendments, if substantial, may turn a standard form into the employer’s ‘written standard terms of business’ under section 3 of the Unfair Contract Terms Act 1977 with the result that, if the meaning of any part of the contract is ambiguous and no recognised method of interpretation will resolve its meaning, the meaning most favourable to the contractor would be used. Amended forms of contract do have an unfortunate habit of backfiring on the party, making the amendments inconsistent or inoperative [1]. Any amendment to clauses 2.26–2.29 of SBC is likely to provide a bonus to the contractor unless great care is taken. More will be said about this later when dealing with extensions of time.

Whichever of these forms is used, the contractor undertakes to carry out the Works in accordance with the contract documents.

Contract documents

It is vitally important to know which are the contract documents, because they are the only documents which spell out what the employer and the contractor have agreed to do. Letters exchanged before the contract is entered into and the contractor’s programme are not contract documents, that is they are not binding on the parties, unless expressly so stated. Architects may point to minutes of site meetings as evidence of what was agreed, but they cannot amend the contract documents [2]. In order to amend the terms of the contract it would be necessary for the employer (not the architect on the employer’s behalf) and the contractor formally to agree the change, preferably in writing and preferably as a deed.

SBC defines them in clause 1.1 as the contract drawings, contract bills, agreement, conditions and (if appropriate) the Employer’s Requirements, Contractor’s Proposals and the CDP (Contractor’s Designed Portion) analysis and (if appropriate) the BIM Protocol. The contract drawings must be the drawings on which the contractor tendered. It is not unusual for the architect to have made revisions to the original drawings between tender and the signing of the contract. The contract drawings must be carefully scrutinised before signing and, if such revisions are present, the architect must be asked to restore them to their previous condition.

IC and ICD provide four options:

• contract drawings and specification priced by the contractor;

• contract drawings and work schedules priced by the contractor;

• contract drawings and bills of quantities priced by the contractor;

• contract drawings and specification and the sum the contractor requires for carrying out the Works;

together with the agreement and conditions (the printed form) and, if applicable, the BIM Protocol and/or particulars of tender of any named person in the form of tender and agreement ICSub/NAM.

If the contractor is simply asked to state a sum required to carry out the Works – the last option – it must also supply a Contract Sum Analysis or a schedule of rates on which the Contract Sum is based.

Although the bills of quantities, the specification, the work schedules, the Contract Sum Analysis and the schedule of rates are each referred to as the priced document, the way in which the contract documents are defined in clause 1.1 makes it very arguable that neither the Contract Sum Analysis nor the schedule of rates is a contract document. In some circumstances, this may be important because the priced document is essential to value architects’ instructions requiring a variation (clause 5.3.1). It will normally be to the contractor’s advantage if the third option is used (with priced bills) because it puts the onus on the employer to ensure that the quantities are correct (see clause 2.12). All the other options provide room for dispute if there are inconsistencies.

MW provides, in the second recital, and MWD in the third, for the contract documents to be any combination of contract drawings, specification and work schedules together with the conditions (the printed form). MWD adds the Employer’s Requirements. The third recital, the fourth in MWD, provides that the contractor must price either the specification or the schedules or provide a schedule of rates.

DB defines the contract documents in clause 1.1 as the Employer’s Requirements, the Contractor’s Proposals and the Contract Sum Analysis together with the agreement, the conditions and, if appropriate, the BIM Protocol. The contents of the Employer’s Requirements, the Contractor’s Proposals and the Contract Sum Analysis are to be listed in the Contract Particulars. They are frequently composed of a mixture of specifications of various kinds and drawings. The Contract Sum Analysis is sometimes as detailed as bills of quantities.

It is usual to talk about ‘signing’ the contract, but in fact it can be executed in either of two ways: under hand (also known as a ‘simple’ contract) or as a deed (also known as a ‘specialty’ contract). As far as building contracts are concerned, there are two important differences. A deed does not need what is called ‘consideration’ to make it a valid contract, but a simple contract does need consideration. For example, a builder who offered to construct a house for someone would have to receive something in exchange for there to be a valid simple contract, but if the contract was entered into as a deed, it would be binding even if the builder agreed to build the house without any reward.

The second important difference concerns the Limitation Act 1980 which operates to limit the period during which either party may bring an action to enforce their rights under the contract. In the case of a simple contract, the period is six years from the date of the breach. For practical purposes, the starting date is usually taken as practical completion [3]. In the case of a deed, the period is 12 years. It is clear, therefore, that a contractor is more exposed if it enters into a building contract in the form of a deed.

It used to be the case that a deed had to be sealed in order to be properly executed. This was usually achieved by the impression of a device on wax or a wafer and fixed to the document. In fact, it was usually sufficient if it could be shown that both parties intended the document to be sealed [4]. The Law of Property (Miscellaneous Provisions) Act 1989 and the Companies Act 1989 abolished the necessity of sealing for individuals and companies respectively. Indeed, sealing alone is not sufficient to create a deed. In Northern Ireland, the Companies (No. 2) Order (Northern Ireland) 1990 and the Law Reform (Miscellaneous Provisions) (Northern Ireland) Order 2005 removed the requirements for sealing for companies and for individuals respectively. All that is necessary now in order that a document be executed as a deed is that it be made clear on its face that it is a deed and, in the case of a company, that it is signed by a director in the presence of a witness who must attest the signature [5] or by a director and company secretary, or, in the case of an individual generally, that it is signed by the individual in the presence of a witness who must attest the signature. It is a matter on which proper advice should be sought before executing the contract.

Clause 1.7 of SBC, IC/ICD and DB provides that all notices and other communications must be in writing. If there is no BIM Protocol, the parties must agree in writing how they are going to communicate. For example, for all the usual contract correspondence they can agree to communicate by first class post and/or by e-mail. However, it will be seen later that when a party intends to terminate the contractor’s employment, the contract expressly states the ways in which that is to be communicated and the parties must comply.

Discrepancies

It is quite usual for there to be some small, and sometimes large, discrepancies between the provisions in the printed form and in, say, the bills of quantities or specification. Priority of documents then becomes important. It is often thought that terms which are hand- or type-written must take precedence over those which are printed because the written terms must represent the clear intentions of the parties. Indeed, that is the general law: type prevails over print [6]. However, clause 1.3 of SBC, IC/ICD and DB and clause 1.2 of MW/MWD clearly state that nothing contained in any of the contract documents will override or modify the terms in the printed form.

This kind of provision has been upheld in the courts [7]. In practice, it means that, if a term in the contract bills or specification is in conflict with a term in the printed form, the printed term will prevail. For example, if the bills provide for an estate of houses to be completed on specific dates, in other words phased completions, and the printed form contains just one date, it is the date in the printed form which will apply and the contractor will have fulfilled its obligations as to the time for completion if it completes all the houses on that one date. If the printed form stipulates that the period for payment is 14 days, that stipulation cannot be overridden by a clause in the bills allowing 21 days. To be effective, the change must be made to the printed form itself. A clause in the bills stating that the bills take precedence over the printed form is ineffective, because the clause in the printed form states that it takes precedence. To alter the situation requires the change to be written into the printed form itself.

All six contract forms are lump-sum contracts. That is to say that, in general, the contractor takes the risk that the work may be more costly than it expects. Specific clauses, however, modify the effects.

In particular, when bills of quantities are used, SBC clause 2.13.1 and IC/ICD clause 2.12.1 expressly provide that the bills are to be prepared in accordance with the Measurement Rules (NRM2) unless specifically stated otherwise in respect of particular items. The Measurement Rules were produced by the RICS to replace the Stan...