Episode 33:
Hello and Welcome to the Part3 with me podcast,
The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will be looking more closely at the Building Contracts typically used with the traditional procurement route — PC5 - Building Procurement of the Part 3 Criteria.
So last week we looked at the procurement routes and the factors that assist in determining the most appropriate route, this week we will be looking at the building contract forms, starting with the ones typically used for traditional procurement.
So when it comes to Contract Forms, we have the Standard forms and the Non-Standard Agreements.
First looking at the Standard Forms:
These building contract forms are typically more cost effective and are generally easier and more convenient to use that having to create a bespoke one. For the majority of building contracts under which architects have a stated role, the JCT forms are the ones most commonly used and are uniquely distinct in that they are produced by a tribunal which represents the professions, the industry and employer bodies. The JCT forms are considered as fair and balanced in the interests of the parties. And you also have the NEC suite of documents which is becoming increasingly popular, and was specially designed to support innovation through digital advances and encourage collaboration across the disciplines and delivering real project value and enabling best practices in procurement. Standard forms are typically drafted to take into account a legal backdrop of common law and statutory rules. The Latham Report also encourages the use of the standard forms without amendments, the Latham Report was a report commissioned by the UK Government in 1994 to investigate the perceived problems with the construction industry and has been relatively influential to the construction industry in its findings. If the employer wishes to make changes to a standard form then it essentially leads on to becoming a bespoke form, the basic rule is to never make amendments which might have unintended effects on other clauses disturbing the balance of the whole document. The architect in such cases should make the employer aware of the risks of amending a standard form and legal advise should be sought by the employer.
Now when it comes to using Bespoke Forms:
Such forms can easily impair the balance between the parties and be a cause of endless arguments between lawyers. There are some instances though where a bespoke form may be required to fit the employers requirements, this is typically experienced on commercial or larger contracts. A key thing to bear in mind is that if a bespoke form is to be used, it should be reviewed by a lawyer with appropriate specialist knowledge to advise the employer accordingly in terms of wording, clauses, and so on.
A key items for us a Architects when a building contract is chosen is to check the design liability we will have under the contract and we should only accept design liability to an extent agreed and intended and which is acceptable to the professional indemnity insurance provider.
So today I will provide an overall summary and key points on the typical forms most commonly used for traditional procurement, these are:
Fun fact, the JCT which stands for Joint Contracts Tribunal was formed by the RIBA. Starting with the first form, the JCT Standard Building Contract aka SBC is probably one of the most known and widely used form of Building Contract. It is appropriate for larger works designed and/or detailed on behalf of the employer where detailed contract provisions are necessary and is suitable for private or local authority employers. Its typical format has the Conditions set out in 9 Sections. Section 1 covers Definition and Interpretations, Section 2 covers the Carrying out of the Works setting out the contractor’s general obligations, Section 3 covers the Control of the Works, Section 4 and 5 deal with valuation and payment, Section 6 covers insurance, Section 7 is on assignment and Third Party Rights, Section 8 covers Termination and Section 9 dispute resolution. Additional schedules are provided at the back of the form covering design submission procedures, insurance options, bonds and fluctuations.
This form is published in three versions for use with quantities, without quantities or with approximate quantities. With quantities tends to be used where the employer, alongside the appointed consultants, has provided a full set of drawings and bills of quantities at the time of tender. Without quantities also requires the preparation of a full set of drawings to be accompanied either by a Specification or Schedule of Work. In order to be able to provide a valuation of variations and fluctuations, the contractor is required to submit a Schedule of Rates or a Contract Sum Analysis and the level of detail to be provided by the contractor will be set by the employer at the tender stage. With approximate quantities is in essence the same as with quantities but instead of providing a full set bill of quantities, the employer will provide a full set of drawings and approximate bills of quantities and the contractor will provide an indicative tender sum of the likely price of the works.
Key items to consider and remember if using a Standard Building Contract, is that it is intended for substantial lump sum contracts, that work needs to be fully documented at tender stage and is to be completed within a stated period. The contractor may be required to design an identified part of the Works, which will need to be provided for within the Employers Requirements at tender stage. If not, then the contractor will need to be provided with fully detailed design information at tender stage. Any information provided after may give rise to claims. For SBC the employer is required to appoint a Contract Administrator and a quantity surveyor. The form also allows for partial possession and sectional completion. The completion date may be subject to adjustment if delays are caused by a range of ‘neutral events’ or by events caused by the employer. The form also allows for sub-contractors to be chosen by the contractor from a list of not less than three names. SBC places more risk on the Employer than other standard forms for example Major Projects Construction Contract MP.
Now moving on to the JCT Intermediate Contract aka ICD. It is most appropriate for simple construction projects that require all the recognised industry trades and skills with detailed contract provisions but without the requirements for the installation of complicated building services or other specialist work. It is more detailed than the Minor Works Contract but less detailed than the Standard Building Contract. It is suitable for private and public employers. Its typical format has the Conditions set out in 9 Sections in line with the SBC followed by 5 Schedules dealing with insurance, named sub-contractors, forms of bonds, fluctuations and supplemental provisions.
The form is published in two versions, one with contractors design which has provision for the contractor to design an identified portion of the Works ICD and one which does not IC. In all other respects the versions are identical. The main criteria for this contract form is for the building work to be of simple content without complex services installations where the works are design by or on behalf of the employer and the employer is to provide the contractor with drawings, specifications and schedules that define the quantity and quality of work and where the employer intends to engage an architect or contract administrator and a Quantity Surveyor to administer the conditions. It is a lump sum contract to be priced by the Contractor so the job needs to be fully designed and billed or specifies at tender stage. And as mentioned, if it is the first version where the contractor is to design a discrete part or parts of works, the requirements of that design will have to be detailed by or on behalf of the employer. The contractor can tender either by pricing the itemised bills, Specification or Schedules or they can state just a lump sum based on a Specification which is not itemised for pricing. If the second method is used then the employer will require the contractor to submit a Schedule of Rates or a Contract Sum Analysis. There is also provision with this form for sectional completion and partial possession.
Key items to consider and remember if using an IC16 or ICD16, is that the ICD version allows the contractor to design and identified part of the works and this depends on detailed Employer’s Requirements being issued at tender stage. ICD does not include the detailed design submission procedure set out in Design and Build and is therefore not suitable for a design and building contract. As mentioned, the contract accommodates partial possession and sectional completion. There are also provisions for the contractor and/or its sub-contractors to provide collateral warranties on JCT standard forms to purchaser/tenants, funders and to the employers. It allows for sub-contractors to be named, and there are two procedures. The first requires the naming to be pre-contract and may seem inflexible but brings greater certainty. The second allows for naming during construction and is covered in the contract by a provisional sum. In both cases the sub-contractors are domestic and the responsibility of the main Contractor. Use of dedicated documents is mandatory with named sub-contractors. As the main contractor is not responsible for named subcontractor design, employers should be advised to use an ICSub/NAM/E agreement for each named sub-contractor involved in some design relating to their work. If acting as contract administrator note that while the procedural rules are less demanding than those for SBC11, care is needed to make sure that action is taken within a reasonable time even though no time limit is stated.
And finally moving to the Minor Works Contract aka MW16 or MWD16, is intended for small building work of a simple ‘one-off’ nature and is not suitable for jobbing or maintenance type work.
The form is published in two versions, one with contractors design which has provision for the contractor to design an identified portion of the works - MWD and one which doesn’t - MW. In all other aspects the versions are identical. Both versions consist of 7 Sections, including Definitions, carrying out the works, control of the work, payment, insurance, termination and dispute resolution and 3 schedules with a Guidance Note at the very end of the form.
The form is relatively brief and simple. Some terms might be implied by common law so the form should be used with thought and treated with care. The form should be used only where the client has engaged a professionally qualified person to act as Architect or Contract Administrator in administering the terms. It should be used where minor building works of simple character are to be carried out for an agreed lump sum. The form is not for use with works that require bills of quantities or where the duration of the works will require full labour and material fluctuation provisions. There’s no provision in the form for the employer to nominate or name-subcontractors for specialist work. The ‘with contractor’s design’ version, unlike SBC11 and IC11, contains very brief provisions relating to design, and doesn’t include requirements for approving design information, nor for the contractor to carry Professional Indemnity Insurance. MWD11 should then only be used where the design input is limited, and should never be used for design-build procurement. There can be ‘Contract Drawings’, a ‘Contract Specification’ or Schedules which are also Contract Documents. The contractor will price a detailed contract document, or may provide a lump sum price supported by a Schedule of Rates. There are no supplements published to extend the range of this contract. In many instances where the Minor Works Agreement is used for domestic work, the Housing Grants Construction and Regeneration Act may not apply and the contract will not be subject to the statutory requirements relating to adjudication and payment provisions. Nevertheless, the forms include the requirements for adjudication and certain procedures relating to payment. If not required by statute, they may be removed but only after taking legal advice.
Key items to consider and remember if using an MW16 or MWD16, There is no provision for bills of quantities and although a quantity surveyor may be named, it is with no specific role under the Conditions. There is no provision for phased completion, naming of sub-contractors, or design by the contractor. The form is drafted to include compliance with the CDM Regulations, and with the Housing Grants, Construction and Regeneration Act 1996, whether or not these apply in full to the particular contract. When completing the form, decisions are required relating to insurance of the Works and damages for non-completion. If acting as contract administrator, note that although the Conditions are likely to prove adequate for most situations, should the nature of the work require it, then it might be advisable to clarify the procedural rules pre-contract, especially if working with a contractor for the first time. For slightly larger projects, or those which require more comprehensive conditions, then IC16 might be a safer choice. For work on projects where the Client is a residential homeowner who intends to reside in the project, perhaps consumer contracts, like the JCT forms for homeowners, might be more applicable or the RIBA Contracts. The Minor Works Agreement has featured in a surprising number of court cases, often due to use beyond its intended limits or because of careless administration. It has limitations, particularly concerning the design insurance and determination provisions, and needs to be treated with respect and administered with diligence.
If the accelerated traditional methods is used, mentioned in the previous episode, the JCT Prime Cost Contract can be used.
The JCT Prime Cost Contract is a cost-reimbursable contract. This form of contracts allows for an early start on site without the need to completely define the extent and nature of the work. It is appropriate for contracts designed by or on behalf of the employer where its not possible to prepare full design information before work commences. It is published in one version for either private or public sector clients. The Recitals require a Specification and drawings to be listed and an estimate of the Prime Cost of the items of work to be stated. The Contract Fee charged by the contractor may be either on a fixed or percentage basis. The Employer is required to appoint a contract administrator and a quantity surveyor. PPC16 provides for partial possession and sectional completion. There is no provision for design by the Contractor, nor for performance specified work. Sub-contractors may be selected by the contractor from a list of not less than three names. Sub-contractors and suppliers may also be nominated, in which case the use of dedicated documents is mandatory. When completing the form, entries are required relating to decisions on matters including deferment of possession; bonds (listed items); insurance of the Works; Joint Fire Code; liquidated damages; and EDI. If acting as contract administrator it is essential to follow for the procedural rules, particularly where nominations are made. This is an attractively presented, self-contained but bulky document. The Conditions are Section headed and sub-headed, but the procedures are rather complex for administration. It hasn’t sold in great numbers, not surprising as this is procurement method brings considerable risks for the Employer. So all in all not a very popular form.
So to sum up what I discussed today:
We focussed on the typical standard forms used under the traditional procurement method. Which include the JCT Standard Building Contract, JCT Intermediate Contract and JCT Minor Works Contract.