Since the beginning of 2017, we have noticed a marked increase in the number of clients wanting to use the JCT 2016 suite of contracts. This note is intended to serve as a timely reminder of what the key changes to the JCT 2011 contracts were and to understand some of the reasoning behind those changes.
The intended features of the JCT 2016 Edition were clear; to simplify payment processes, incorporate the JCT Public Sector Supplement, CDM Regulations 2015 and Public Contract Regulations 2015 and generally improve functionality and user-friendliness.
The JCT has now published most of the 2016 suite of standard form contracts and these are already being used across the industry. The most recent 2016 editions to be published are as follows:
- Constructing Excellence Contract
- Consultancy Agreement (Public Sector)
- Framework Agreement
- Major Project Construction Contract (MP) and Sub-Contract
- Measured Term Contract
- Pre-Construction Services Agreement (General Contractor) and Pre-Construction Services Agreement (Specialist)
- Prime Cost Building Contract
- Repair and Maintenance Contract.
The next (and final) batch of contracts to be published are the Construction Management contracts, Management Build contracts, tendering document and project bank account documents.
The JCT has now also announced plans for the withdrawal of JCT 2011 and that from April 2018, the JCT 2011 contracts will no longer be in use in any format.
One of the most significant changes in the new JCT 2016 forms of contract is the revised interim payment regime and the introduction of the Common Valuation Date. This change is in support of the Construction Supply Chain Charter and is designed to improve transparency and speed up payments throughout the entire supply chain. It operates so that the main contract specifies an Interim Valuation Date which is the date by which the contractor/sub-contractor (as relevant) must submit their payment applications. This date will be the same date each month (or nearest business day) and the same Interim Valuation Date is then incorporated into all sub-contracts and sub-sub-contracts with headroom built into the timescales for due dates for payment to aid cash flow.
In addition, under the standard form sub-contracts and sub-sub-contracts, the sub-contractors/sub-sub-contractors (as relevant) must submit their payment application 4 days before the Interim Valuation Date. This allows practically all payment applications under the contracts, sub-contracts and sub-sub-contracts to be assessed together. Certainly in multi-tier projects, the whole process is likely to be more holistic and efficient than the previous regime.
Under the 2011 Edition, interim payments would occur monthly prior to practical completion and every two months post practical completion. In the 2016 Edition however, interim payments will continue on a monthly basis after practical completion.
Notified sums (plus interest) are now automatically recoverable as debts where the Employer fails to issue a Payment Notice. This means a contractor/sub-contractor (as relevant) can apply to the Court for Summary Judgment without the need for an adjudicator's award in respect of the notified sum and so will be a quick method of improving cash flow.
Another significant change is to the 'All Risks' insurance provisions, in particular Option C which relates to works to existing structures. Under Option C the Employer maintains insurance of the existing structures and contents. Where the Employer is a tenant, home owner or other domestic employer, it is often difficult for the Employer to take out the required insurance. JCT 2016 deals with this by allowing the parties to agree to alternative insurance arrangements. Precedent drafting for such alternative insurance arrangements is not provided, however, so parties will end up drafting and negotiating on a project specific basis.
Parties should also note the introduction of a new provions which allows either party to terminate the Contractor's employment in certain circumstances if there is material loss of or damage to any of the existing structures. It should be carefully considered whether this is appropriate on all projects.
Public Contracts Regulations 2015
The Public Sector Supplement 2011 provisions in relation to fair payment and transparency as well as Building Information Modelling (BIM) have been incorporated into the JCT 2016 Edition.
The changes also ensure compliance with the Public Contracts Regulations 2015, SI 2012/102. The standard forms now comply with the requirements of regulation 73(1) and public authorities using the standard forms can terminate the contract in the circumstances prescribed by regulation 73.
Parties should however, carefully consider whether the JCT contracts go far enough in relation to BIM, particularly in relation to intellectual property rights where reciprocal licences are likely to be required. Rights provided are likely to need to extend to all intellectual property and consideration needs to be given as to which party owns all relevant models.
For the first time, the JCT standard forms include provisions for performance bonds and parent company guarantees. There is no form of performance bond or parent company guarantee provided by JCT and the parties are required to append an agreed form to the final contract.
Other new provisions relate to third party rights from sub-contractors. Note however, that like the JCT forms of collateral warranty, the provisions of the JCT third party rights are arguably not in an institutionally acceptable form. For example, they now contain an attempted net contribution clause, and we expect most users to replace these provisions with bespoke terms.
The Construction (Design and Management) Regulations 2015, SI2015/51 are now incorporated into the standard form contracts. The 2016 Edition of the Standard Building Contracts also incorporate the RICS New Rules of Measurement (NRM2).
The 2016 Editions provide a time limited procedure for the prompt assessment of any loss and expense applications by the Contractor. The architect/contract administrator must now assess the claim within 28 days of receipt (14 days from any update). Under JCT 2011 there was no such time limit.
There is also a new provision which states that, unless otherwise specified, any required consent will not be unreasonably withheld or delayed.
All in all, the changes to the standard form contracts seem to achieve the JCT's objective to make the standard form contracts more straight forward and user-friendly. The risk allocation between the parties has not been materially altered and so Employers are likely to continue to require amendments to the JCT 2016 Editions. It is however, vital that construction parties fully familiarise themselves with the new provisions, particularly in relation to insurance and payment requirements to ensure that they are not caught out by the changes.