Construct.law - Autumn 2023
Update on Standard Form Construction Contracts
By Francis Ho
A new edition of the JCT contract suite is coming in 2024 and will include the following changes:
Modernisation and streamlining of the contracts
There will be better facilitation of giving notices by email.
Gender-neutral language
At last.
Building Safety Act 2022
JCT contract conditions are compliant with applicable law in England and Wales. It’s natural that the new contracts would therefore cover the BSA.
Cooperate Insolvency and Governance Act 2020
The new Section 233B of the Insolvency Act 1986 prevents a supplier from ceasing to perform its obligations or terminating its contract simply because its employer has gone into insolvency. CIGA also introduced a freestanding moratorium. In practice, the issue for employers has been more to do with trying to step into sub-contracts.
JCT Target Cost Contract 2024
Target cost pricing is often associated with NEC Option C but increasingly common for high value and complex JCT-based contracts as it encourages both employer and contractor to collaborate on reducing cost overruns. Target cost is most often used in a design and build route and therefore we expect (and hope) the new contract will be based on the Design and Build Contract JCT will also release a sub-contract form.
Construction Playbook
The Construction Playbook principally affects works for central government or its arm’s length bodies. It comprises a set of policies, some of which are already reflected in the JCT suite.
Future proofing
Primarily this is the movement of three supplementary provisions into the main body. These relate to collaborative working, sustainable development and environmental considerations.
NEC4: January 2023 changes
There were updates to NEC4 in 2019 and 2020 and a further update this January.
Main changes in January 2023
The client can now use documents prepared for the contractor’s design (clause 22.1).
Main Option W2 (adjudication) applies when the contract is subject to the Housing Grants, Construction and Regeneration Act 1996. Previously, this set out time limits that were not aligned. The amended provision now states that the adjudicator dictates the timetable and procedure.
Secondary Option X22 (early contractor involvement) was introduced in NEC4 to Options C and D. Tweaks to X22 largely address an ambiguity, a streamlining as to how compensation events prior to the notice to proceed are dealt with and clarifying what payments are due to the contractor if the works do not proceed to Stage Two.
Secondary Option X29 (climate change) is now integrated into the published contracts.
The Schedule of Cost Components has been amended so that the cost of people working outside of Working Areas (such as those WFH) can be included within Defined Cost. These people must be identified in the Contract Data.
There is now the option in the Engineering and Construction Short Subcontract and Engineering and Construction Short Contract for the contractor’s liability for design to be diluted to reasonable skill and care to reflect insurance and market requirements. Both contracts (and other short forms in the suite) also now permit a cap on total liability to bring them in line with the main forms.
Will there be another update soon?
NEC has always featured option clauses to enable it to comply with UK legislation and it is probable that the ICE will consider it desirable to address the BSA.
Hong Kong Edition
A Hong Kong Edition of the Engineering and Construction Contract has been published. In April 2000, the Chief Executive of the Government of the Hong Kong Special Administrative Region (HKSAR) appointed the Construction Industry Review Committee (CIRC) to:
- Examine the current state of the construction industry in respect of quality, quantity, environmental friendliness, manpower, safety and supervision;
- Identify specific actions and good practices to improve the efficiency and cost-effectiveness of local construction in terms of quality, customer satisfaction, delivery timeliness and value for money; and
- Advise on an order of priority for implementation.
Since 2015, NEC3 (and later NEC4) has been used for all HKSAR public capital works and maintenance contracts wherever possible.
EPCM (engineering, procurement and construction management) model forms
IChemE Engineering, Procurement and Construction Management (EPCM) Contract, First edition 2023 (The Blue Book)
The Blue Book is the first standard form EPCM contract. It can be used for both international and UK projects and is intended for process plant projects.
Key terms of the Blue Book
Extensive testing regime
This is a hallmark of the IChemE contracts.
Fitness for purpose
Since the EPCM contractor provides services rather than the works, unlike the IChemE works contracts, this has been diluted to become a duty of skill and care.
Caps on liability
The parties can agree a total liability cap on the EPCM contractor’s liability. There is also a net contribution clause, in keeping with its role as a consultant. Liquidated damages to apply for delay in the EPCM contractor carrying out its services.
Optional Conditions
Model clauses can bring in provisions that would be compulsory where the project takes place in the UK.
Pricing
The Blue Book allows either cost reimbursable or a fixed price (or a hybridised approach).
FIDIC EPCM contract
The International Federation of Consulting Engineers announced plans nearly three years ago for a new EPCM contract. It is expected to land shortly.
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