Industry Insight No. 17: Is JCT 2016 carving the way forward?

May 18, 2017

This article was first published by LexisPSL® on 18 May 2017.

 

Construction Analysis: Sarah Schütte of Schutte Consulting Limited gives her thoughts on some of the changes made in the 2016 editions of the Joint Contracts Tribunal (JCT) standard form contracts, and looks at how they are being received by the construction industry.

 

In my last article, I examined NEC4 and how the market felt about the upcoming changes. This month, I turn my attention to the new JCT 2016 contracts, the publication of which is almost complete.

 

Incorporation of public sector initiatives

 

1.Fair payment principles


The 2016 editions incorporate the JCT Public Sector Supplement 2011. Fair payment principles are included as standard clauses, satisfying the aims of the Construction Supply Chain Payment Charter (the ‘Charter’).

 

The Charter’s principal aim to protect cash flow down the contractual chain is important. The application (and 'teeth') rely on money being 'due', which has been taxing as there are many ways one person can avoid money being 'due' to another. While the statutory right to refer to adjudication at any time has reduced the problem, it nevertheless remains. The government’s right to 'name and shame' contractors delivering public sector projects is sound in principle but we may need to think more creatively about tracking the reasons for poor payment behaviour to make the Charter really effective.

 

I think that private sector project parties, subject to fewer initiatives, will routinely delete the clause, since freedom of contract and negotiation generally drive business arrangements.

 

2. BIM

JCT has incorporated building information modelling (BIM) provisions as standard clauses. However, JCT has left the choice of the specific BIM protocol to the parties to complete in the contract particulars.

 

I am an enthusiastic advocate of BIM, and wider project management and controls technology (see Industry insight No.10: The future of portfolio, project and programme management—part 1 and Industry insight No.11: The future of portfolio, project and programme management—part 2). However, BIM is difficult to comprehend, costly to implement and not straightforward to administer or protect (see Industry insight No.12: How software can support project delivery).

 

While mandated for public sector projects, private sector organisations remain apprehensive to invest in new technology where profit margins are squeezed, despite the longer­-term benefits. JCT’s adoption of BIM as standard is significant, but it is premature for the private market in the short-­term and so I think these clients are likely to delete the provisions. However, it should prompt an overdue discussion on methods of recording and storing project data.

 

Payment provisions

Readers are familiar with the amended Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996), which requires an employer to pay 'sums due' to a contractor. The new payment provisions in section 4 of the JCT contracts contain substantive changes to drafting and approach:

  • an expedited procedure for loss and expense claims

  • a consolidated notice requirement streamlining the requirements of the HGCRA 1996

  • flexible fluctuations provisions

Performance bonds and parent company guarantees (PCGs)

 

JCT has inserted spaces for the parties to complete into the contract particulars to require security documents. However, it could (should) have produced its own model forms of performance bonds and PCGs, which I estimate would save c. 90% of common drafting.

 

Collateral warranties vs third party rights (TPRs)

 

JCT’s decision to promote TPRs is interesting, given the Contracts (Rights of Third Parties) Act 1999 has been excluded from almost every contract I have advised on. People like collateral warranties and there is something about this type of secondary contract which the market is holding on to. I am not convinced of the take­up!

 

Intellectual property (IP)

 

IP is constantly evolving, so new clarification in relation to the assignment of the employer’s IP licence is welcomed.

 

Adjustments to reflect current legislation

JCT 2016 facilitates compliance with the Construction (Design and Management) Regulations 2015, (SI 2015/51) and Public Contract Regulations 2015, (SI 2015/102).

 

What are some of the missed opportunities of the 2016 editions?

 

The missed opportunities are:

  • there is still no requirement for the contractor to assume single point design responsibility

  • there is a lack of real importance attached to planning/programming and/or the project management function, especially when compared to NEC3

  • the contracts are still too long!

     

Market reaction

 

Clients and contacts who regularly use the 2011 contracts and are considering moving across to the 2016 editions have said to me that:

  • it is now more user-­friendly, so they can get to grips with it quickly

  • it is more in line with current market practice, which means fewer amendments (subject to acceptance of JCT’s standard drafting)

  • there is no significant change to the overall balance of risk, so existing risk management protocols can largely be preserved. I do recommend a thorough review if you use JCT for a significant proportion of projects

  • fair payment principles are complicated and disliked

  • anything that simplifies insurance is welcomed

  • an agile assessment procedure is welcomed but requires a change of 'JCT mindset'

  • generally, the new versions should negate the need for protracted expensive negotiation

     

Conclusion

The JCT 2016 editions edge the construction industry forward. In my opinion, the availability of another form of contract (in addition to the NEC) which helps parties in public sector contracts meet government mandates is good for the market.


Furthermore, every contract refresher provides organisations an opportunity to review (and adjust) their procurement systems and contract delivery processes, train people, and re­appraise supply chain and upward responsibilities. Fluid cash flow is the 'very lifeblood' of the construction industry (according to the case of Modern Engineering (Bristol) Ltd v Gilbert­Ash (Northern) Ltd [1973] 3 All ER 195). The balancing act required for effective implementation has proved to be fraught and JCT is taking steps forward to positively contribute.

 

Finally, organisations could take time out to reflect:

  • the better equipped your team is, the better quality contract will result. Excellent training results in tangibly smarter and more cost­effective procurement, and improved service in the delivery phase thereafter

  • it is incumbent on contractors to maintain excellent record­keeping to support claims for extra time and money, as the JCT places no importance on a regular programme (unlike NEC).

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