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RISK MAY NOT BE PASSED DOWN THE SUPPLY CHAIN

TECHNICAL & PRACTICE

At the beginning of July, the Joint Contracts Tribunal (JCT) began its sequential publication of the new suite of contract documents starting with the Intermediate Building Contract, the Minor Works Contract and the two versions of the over-arching framework agreement, binding and non-binding.

The new Standard Building Contract is due to be published imminently and eventually the full set of documents will include both main and interlocking subcontract terms for all three versions (Standard, Intermediate and Minor Works) together with a Design and Build form, major project construction contract, construction management and management building contract documentation, all with appropriate subcontracts and collateral warranties. The artificial and unnecessary distinction in the JCT documentation between the private form of contract and local authorities form of contract has been dispensed with. The standard contract will now comprise only three versions, namely 'with quantities', 'with approximate quantities' and 'without quantities'.

The standard with quantities document will be appropriate for larger works designed and/or detailed by, or on behalf of, the employer, where detailed contract provisions are necessary and the employer is to provide the contractor with drawings and bills of quantities to define the quantity and quality of the work; and where a contract administrator or quantity surveyor is to administer the conditions. It can be used where the contractor is to design identified parts of the works (contractor design portion) and where works are to be carried out in sections.

The approximate quantities contract is appropriate where the employer is to provide approximate bills to define the quantity and quality of the work which are to be subject to remeasurement, as there is insufficient time to prepare the detailed drawings necessary for accurate bills to be produced.

The standard contract without quantities is appropriate where the employer is to provide the contractor with drawings and either with a specification, or work schedules, to define adequately the scope and quality of the work and where the degree of complexity is not such as to require bills of quantity.

The new documentation is intended to simplify and shorten the contracts, make sure there are properly matching subcontracts available and generally see that each category of project has the appropriate simple contract. Given the efforts that have been made to coordinate the documentation, the staggered roll-out has been criticised, reflecting concern about the possibility of a miss-match between the old and new documentation.

For example, if when the contract is signed some of the new JCT documents are not yet available (eg subcontracts and collateral warranties), the risk may not be passed down the supply chain in a uniform and sensible manner. At this early stage, comments on the practical impact of the documents must, of necessity, be speculative. It will, though, be incumbent on architects - whose brief will include advising clients on contract documentation - to be familiar with the new forms and to know which will be the most suitable.

The Intermediate Building Contract with Contractor's Design is a new form of contract, for use where the building works are relatively straightforward, the employer has detailed the work that the contractor is required to design and a contract administrator is appointed. It begins with articles of agreement, followed by contract particulars identifying details such as dispute resolution, completion date, liquidated damages, interim certification and the identity of the adjudicator. There is a provision (6.15) for the level of professional indemnity insurance for the contractor's designed portion and separate entries for levels of cover for pollution/contamination claims. There is also a section for collateral warranties, including the provision for collateral warranties from subcontractors. Section 7 deals with assignment and has detailed provisions as to warranties, with the relevant JCT form (unpublished at the time of going to press) being the preferred form. Assignment still requires the consent of each party.

The settlement of dispute provisions under Section 9 provide firstly for the possibility of a mediated resolution and for adjudication. The articles (8 and 9) will have stated whether arbitration is then to apply. Although the (near) equivalent 1998 documentation already provided for litigation as an alternative to arbitration, it is more important now for the choice to be filled in, because the default position will be litigation. Possibly this is in recognition of the civil procedure reforms introduced by the Master of the Rolls in the late 1990s (allowing judges to become more interventionist), which have meant that litigation is now very often a quicker and more practical dispute-resolution forum than arbitration.

The new forms seem to be in line with recent initiatives within the construction industry to streamline procurement routes and engender a spirit of cooperation. The recent publication of the British Property Federation Consultancy Agreement can be viewed as another such attempt, by having a standard appointment form intended to reflect the liability concerns of the consultants and the commercial requirements of the employer (although the success of this document is very much open to interpretation).

The new framework agreements are also an attempt to replace blame with practical cooperation and openness, although as with partnering agreements the enforceability of these framework agreements is questionable. They are not intended to replace the new forms of building contracts (which would coexist, underneath such a framework agreement), nor to undermine the role of these underlying contracts in defining the legal/contractual rights and responsibilities of the parties.

The framework's purpose is principally to provide a complementary supplemental statement of 'best practice' designed to encourage project participants to work together in an open, cooperative and collaborative way, and in a spirit of mutual trust and respect. It underlines the common pursuit of achieving a number of mutually beneficial framework objectives, such as eliminating health and safety incidents, encouraging team working and consideration for others, greater predictability regarding cost and programme, improving quality, productivity and value for money, avoiding disputes and the enhancement of the service provider's reputation.

Each service provider would enter into such a separate agreement with the employer and there would be a system of regular monitoring - during the framework term - of the service provider's contribution to achieving the objectives using appropriate performance indicators. The binding and non-binding versions of the framework agreement are virtually identical (save for the reference in the binding version to the applicable law and jurisdiction and the settlement of disputes). It has been suggested that it is not significant which form is chosen, since one is either committed to cooperation or not. This rather invites the question of why have an agreement at all?

The purpose is to bind the project participants together with the intention that their familiarity and cooperation will be part of an educative process over a series of projects. The framework agreement is not usually recommended on a single project unless it is of a substantial nature. It is to encourage a longer-term view, establishing and developing relationships to focus on the employer's needs and to achieve a better understanding of each service provider's operational methods, as the team moves from project to project. During this cross-over period, with the new and the old contract forms coexisting, particular care will need to be taken in advising on procurement methods. There is a greater obligation on those advising the employer to see that the employer's wishes are properly communicated and reflected.

A key example comprises the new copyright/licence provisions in the JCT 05 documentation, whereby the employer's licence to use the contractor's design documents for any purpose relating to the work can be revoked in the event of a dispute over payment - a provision which, if unaltered, may be unacceptable to a funder. Care will also need to be taken to ensure that compliance with the framework agreement's encouragement to provide early warnings to the employer of difficulties does not simultaneously put a service provider (including the architect) in breach of the terms of its professional indemnity insurance policy, which will commonly prohibit any admissions of liability. Early commentators have also observed that while the stated aims of the framework agreement are laudable, they do not really amount to anything more than statements of intent of a general nature.

Similarly, it may transpire that while the amendments to the JCT05 forms are intended to modernise the existing contracts and reflect the change in requirements of the construction industry, the allocation of risk between the parties is essentially unchanged because the dynamics of a building project and the backdrop against which it operates are unchanged. Perhaps, therefore, one has to wait for a more fundamental re-examination of how projects are procured and of those involved in the process before a conflict-free, blameless construction industry culture is achieved.

Mark Klimt is a partner in Fishburns Solicitors. Email klimt@ fishburnslaw. com

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