JCT Vs NEC3

New Forms of Construction Contracts – The JCT & NEC Design

JCT 05 The new JCT suite of contracts (main and sub contracts) are currently in the process of being published and have been fully redesigned and updated. The updates have dramatically changed the JCT Contracts as we know them with use of plainer English and a change in layout, numbering and position of clauses. Key Changes The main change is the integration of the Private and Local Authorities form of contract leaving just 3 Standard Building Contracts: 1. 2. 3.

Standard with quantities Standard with approximate quantities Standard without quantities

They can now be used by both private and local authority employers. There are a greater number of definitions and some change of terminology. For instance, ‘Determination’ is now ‘Termination’, ‘Loss & Expense Matters’ are now ‘Relevant Matters’ and ‘Defects Liability Period’ is now ‘Rectification Period’. Supplements are a thing of the past as fluctuations, sectional completion and contractor’s design portion have all been incorporated within the contract. Project specific information has moved to the ‘Contract Particulars’ which is found immediately after the articles of agreement. Future amendments will not be issued separately as before but incorporated in the contract and a new version published immediately.

The Intermediate Building Contract 2005 provides an obligation on the contractor to use reasonable skill and care. This obligation is that of a professional designer holding himself out as competent to carry out such design work. The Minor Works with Contractor’s Design 2005 however, has no mention of the level of skill required. The Design & Build contract includes a clause which provides that any inadequacy in design in the Employer’s Requirements is not the responsibility of the contractor. However, the contractor is still responsible for checking that the design complies with any statutory requirements. Moreover, any inadequacy that requires alteration will be treated as a change. Copyright A new copyright provision has been included which states that Copyright in all contractors design documents remain vested in the contractor On payment of all monies to the contractor, the employer obtains an irrevocable, non exclusive licence to copy, use and reproduce the contractors design documents for any purpose relating to the works (but not to reproduce them for an extension of the works). Payment If no withholding notice is served, then the employer pays the amount stated in the payment notice. If no payment notice was served, the amount due is to be determined in accordance with the valuation provisions of the contract. Insurance The 1998 version usually included an amendment requiring Professional Indemnity Insurance. This has now been incorporated into the contract as a new

clause 6. This new clause requires the contractor to take out Professional Indemnity insurance immediately following contract execution. The amount of cover required is listed in the Contract Particulars. If no period for expiry is selected, it is 6 years from the date of Practical Completion. Third Party Warranties

Rights

&

Collateral

The employer can require the contractor to enter into a collateral warranty or the Contract (Rights of Third Parties) Act can be used instead. If no choice is made, a schedule of third party rights is incorporated. JCT have also published a standard form for each collateral warranty.

NEC3 Framework Contract •

A contract between an employer and a number of suppliers for a period of time.

Procurement & Contract Strategies •

A user’s guide for the NEC3 contracts in various procurement and contract strategies.

Adjudication Adjudication is much simpler. The statutory adjudication scheme applies so Adjudication is now carried out in accordance with the Scheme for Construction Contracts. If the Contract Particulars are not completed, the default position is that disputes will be settled through litigation rather than arbitration as it was in the 1998 versions.

Termination Clause 25.2 states that any costs incurred by the employer due to the contractor not providing the services contained in the works information should be borne by the contractor. Clause 43.4 provides for the Project Manager to arrange access to the works for the contractor to correct defects. Once access is provided, the defect correction period begins. Clause 19 is a new clause inserted to deal with rare events and how to prevent and deal with them. Such events are now also compensation events. Secondary Option Clauses Secondary Option Clauses are now X clauses so that they can be used across the whole suite of contracts.

New Contract

There are 2 new X clauses;

The new Framework Agreement has been designed for the procurement of construction and/or engineering works over a prescribed period of time and comes in a legally binding and non binding form. It covers how the parties should work together and how the framework agreement works with the underlying contract.

X18 Limitation of Liability which limits the Contractors liability for indirect and consequential loss and also provides for an overall cap on liability.

NEC3 The NEC has also been completely revised and updated with new clauses, terminology and the introduction of new contracts. As with JCT05, defined terms have expanded and changed such as ‘Actual Cost’ becoming ‘Defined Cost’, ‘Possession Date’ becoming ‘Access Date’ and the addition of the terms ‘Key Dates’ and ‘Risk Register’. New Contracts NEC3 Term Service Contract •

Used to engage suppliers for managing and providing a service over a specific term (not just for use in the construction industry).

However, if the Project Manager failed to notify the Contractor of his decision and the Contractor had notified him of this and he still failed to receive a decision, then the Project Manager is treated as accepting the event as a compensation event and the Contractor can then submit quotations.

New Clauses

Termination In the 1998 versions, certain insolvency events would result in automatic termination but now the employer must serve notice before any termination.

If the 8 week deadline is missed the contractor is not entitled to a change in price, completion date or key dates.

X20 Key Performance Indicators (KPI’s). This includes an incentive schedule which sets out the amount to be paid to the contractor if KPI’s are improved or achieved. Payment When assessing the amount due, the assessment interval runs from completion of the whole of the works to four weeks after the issue of the defects certificate. Early Warnings A new risk register is to be maintained by the Project Manager with all early warning matters listed therein. The early warning meetings referred to in NEC2 are now referred to as Risk Reduction Meetings. Compensation Events The period for notifying compensation events has been extended from 2 weeks to 8 weeks from becoming aware of the event.

‘Disputes & Termination’ is now known as ‘Termination’. Disputes have been moved to W1/W2. W1 for use where the Housing Grants Construction and Regeneration Act does not apply and W2 where it does. The new clause 19 covering ‘Prevention’ is also added as a new reason for termination. Risk & Insurance Although the employer still has to submit his insurance policies and certificates as in NEC2, the contractor is now only obliged to submit his insurance certificate signed by the insurer. The contractor must have appropriate cover until a defects certificate or termination certificate has been issued. Conclusion Although the revisions of both contracts have made them easier to use there have been significant changes. Therefore, careful consideration of the Contracts and legal advice should still be sought prior to use as amendments may still be required.

CONTACT DETAILS For further information or assistance contact Jonathan Hawkswell or David Kilvington Hawkswell Kilvington LLP 17 Navigation Court Calder Park Wakefield WF2 7BJ Tel: Fax: Email: Web:

01924 258719 01924 257666 [email protected] www.thkp.co.uk

This bulletin is not intended to be a definitive analysis of the law and professional advice should be taken before any course of action is pursued. © THKP 2003