A Guide to JCT Building Contracts

The mission statement of the JCT is “to develop, publish,  procure the publication, revise and disseminate in both paper and electronic form suites of standard forms of contract and tender documentation and practice notes.”

Essentially, the JCT contracts are a set of off-the-shelf contracts available to purchase by anyone wishing to enter into a building contract with another party.  The JCT suite of contracts are standard forms of building contracts that parties can use to document their construction projects.

The JCT was formed in 1931. It is now a limited company and the organisation is comprised of seven member organisations, the most well-known of which include the Royal Institute of British Architects and the Royal Institute of Chartered Surveyors. Each member organisation represents a different sector of the construction industry and each nominates a director to the board of the JCT.

The JCT Council is responsible for drafting new forms of construction contracts and making amendments to existing forms of construction contracts There are 5 “colleges” that make up the JCT Council, each representing different parties in the construction industry with the idea being that the JCT contracts are drafted fairly and are not unduly favourable to a particular group, such a contractors or developers.

In practice, as with other standard forms of building contracts, parties tend to require amendments to  the standard provisions in order to adjust the allocation of risk between the parties or to cater for specific scenarios. The JCT standard forms of contract can be amended by a schedule of amendments that is agreed by the parties and then attached to the standard form of contract.

JCT contracts are used in a significant proportion of commercial developments in the UK and are popular with developers, contractors and sub-contractors alike.

The JCT contracts cater for projects ranging from domestic extensions to the largest sky scrapers. The most commonly used forms are the Design and Build Contract and the Minor Works Contract.

i) What is a JCT Design and Build Contract?

The JCT Design and Build Contract is drafted so that the contractor is responsible for completing the design of works as well as carrying them out.

The developer provides detailed information to set out its requirements. The JCT Design and Build Contract is a lump sum contract (i.e. the total cost of constructing the works is set out in the contract) where the contractor is paid periodically.

This form of contract is very popular with large developers as there is a single party with design responsibility – the contractor.

This means that if the design of the works is defective, the developer only need pursue the contractor to recover all of their losses related to the defective design.

ii) What is a JCT Minor Works Contract?

The JCT Minor Works Contract is drafted to suit simpler projects.

One version of the JCT Minor Works Contract contains provisions allowing for the contractor to design part of the works, and the other version places all design responsibility with the developer.

The JCT Minor Works Contract is typically used for projects like retail fit outs or extensions to commercial property but there is no hard and fast rule limiting its use to a particular size or value of construction project.

It has been common for updated JCT forms to take a little time to filter through into everyday use.

The traditional trigger for widespread uptake is the removal from publication of the old forms.

Publication of the 2011 forms ceased at the end of 2018 and so for those involved in the construction industry who have been clinging on to those 2011 forms, it is time to move on to the 2016 JCT Contract forms.

The next section of this blog sets out an overview of the key changes between the 2011 and 2016 forms.

The main drivers for creating the 2016 forms were to:

• Simplify payment processes;
• Incorporate the certain elements relevant to public sector procurement; and
• To include reference to the Construction Design Management 2015 Regulations.

The 2016 updates are reforms to the 2011 JCT forms rather than large scale re-drafts, so whilst they do not include changes to the overall allocation of risks and obligations, there are a number of key changes to be aware of.

i) Payment provisions

Arguably, the most significant changes have been made to the payment terms and these are likely to have the biggest impact.

The intention behind these changes is to implement the government’s fair payment charter, to simplify and consolidate some of the drafting.

The changes are also intended to speed up the payment process throughout the contractual chain so that all levels of the chain from the main contractor down to sub-contractors and sub-sub-contractors are paid within the same 30-day period.

To reflect the fair payment principles, changes have been made to the interim payment due dates.

This includes the introduction of a common interim valuation date that applies throughout the contract chain with the intent that all valuations are assessed and processed against the same period.

Also, the payment period is now co-ordinated in the main contract and sub-contracts so that there is sufficient time to process the applications and payments downstream to sub and sub-sub-contractors.

Of course, the payment provisions in all commercial construction contracts are subject to the Housing Grants, Construction and Regeneration Act 1996, more commonly known as the Construction Act.

Where the payment terms in a construction contract do not comply with the Construction Act the contractual payment terms are effectively replaced by the legislative payment regime.

The JCT 2016 forms have consolidated the payment notice requirements of the Act, with the intention of providing certainty with regards to payment and to help contractors and developers avoid falling foul of the Construction Act.

Anyone moving to the JCT 2016 forms needs to ensure that they and their project teams are fully aware of their obligations set out in the revised payment provisions.

Please see our more detailed blog post on the changes to payment provisions in the JCT 2016 forms for more information.

ii) CDM Regulations

The 2016 JCT forms have been updated to reflect the Construction (Design and Management) Regulations 2015, which replaced the Construction (Design and Management) Regulations 2007. The key change resulting from the updated legislation is the replacement of the role of CDM co-ordinator with that of the principal designer.

iii) Performance bonds and parent company guarantees

The 2016 JCT forms include provisions allowing for the contractor to provide a performance bond and /or a parent company guarantee if the developer requires, although there are no forms provided and no sanctions for a failure to comply.

iv) Collateral warranties and third party rights

The 2011 JCT forms dealt with collateral warranties and/or third party rights from the contractor to beneficiaries, but only collateral warranties from sub-contractors to beneficiaries. The 2016 JCT forms include provisions requiring sub-contractors to provide third party rights to beneficiaries, although there is little evidence that this provision has been widely used to date.

v) Insurance

There are widespread amendments to the insurance provisions but they are generally not substantive.

The most important changes relates to Option C, which is one of the insurance options in the JCT contracts. Option C is used in the case of alterations of or extensions to existing structures and this provides for the developer of a project to insure both the works and existing structures to the works do not apply. However, the 2016 JCT forms have been amended to allow alternative solutions for existing structures to be adopted.

An example will help to illustrate the usefulness of this provision. Where a tenant renting part of a building wants to undertake works to the part they rent, the risk of damage to other parts of the building must be insured against during the tenant’s works.

A tenant is unlikely to be able to afford insurance cover for the rest of the building during their works. The drafting of the JCT 2016 forms allow the contractor to rely on its annual cover for any liability arising out of damage to existing structures during their works (obviously this subject to agreement of the contractor’s insurer).

This change acknowledges that many developers are in fact tenants and therefore not responsible for insuring entire buildings.

Please see our more detailed blog post on the changes to insurance provisions in the JCT 2016 forms for more information.

It is extremely important to seek legal advice before entering into any form of building contract.

The implications of not properly documenting construction works can result in parties not understanding the risk they are taking on and the implications they may face if something goes wrong.

Many problems (and even potential litigation) can be avoided by ensuring that the necessary contracts are carefully drafted at the outset.