Introduction

Navigating the complexities of construction contracts can be daunting for any business, particularly when the details seem too specialized. As a quantity surveying consultancy, we aim to demystify these complexities, empowering you to make informed decisions. In this blog, we will delve into JCT Construction Contracts, offering a detailed overview of the various contracts within the JCT family, key characteristics influencing contract choice, and crucial aspects like relevant events, relevant matters, loss and expense, partial possession, sectional completion, and insurance options.

What are JCT Contracts?

The Joint Contracts Tribunal (JCT) produces standard forms of contract, guidance notes, and other documents for the construction industry. These contracts are widely used across the UK due to their comprehensive nature and balanced approach, catering to both large-scale and smaller projects.

The JCT Family of Contracts

• JCT Standard Building Contract (SBC)
• JCT Intermediate Building Contract (IC)
• JCT Minor Works Building Contract (MW)
• JCT Design and Build Contract (DB)
• JCT Major Project Construction Contract (MP)
• JCT Construction Management Contract (CM)
• JCT Management Building Contract (MC)
• JCT Prime Cost Building Contract (PC)
• JCT Constructing Excellence Contract (CE)
• JCT Measured Term Contract (MTC)
• JCT Homeowner Contracts (HO)
• JCT Repair and Maintenance Contract (RMC)

Key Characteristics Influencing Contract Choice

When selecting a JCT contract, several factors should be considered:

• Project Size and Complexity: Larger, more complex projects may benefit from the Standard Building Contract or Major Project Construction Contract, while smaller projects might be better suited to the Minor Works or Intermediate Building Contracts.
• Risk Allocation: Design and Build contracts place more risk on the contractor, while Traditional contracts spread risk more evenly between the contractor and client.
• Project Management Structure: Contracts like the Construction Management Contract and Management Building Contract are suited for projects where multiple parties are involved in the management and execution of the works.
• Cost Certainty: Fixed-price contracts provide greater cost certainty, while contracts like the Prime Cost Building Contract allow for more flexibility in pricing.
• Design Responsibility: The level of design responsibility varies among contracts. For instance, in a Design and Build contract, the contractor assumes full responsibility for design and construction, whereas in a Traditional contract, the design responsibility typically remains with the client.
• Program Requirements: Consideration should be given to the project timeline and scheduling needs. Contracts like the JCT Construction Management Contract allow for flexible scheduling and overlap of design and construction phases, which can be advantageous for time-sensitive projects.
• Employer Experience: The employer’s experience in managing construction projects can influence the choice of contract. Less experienced employers might prefer simpler contracts like the Minor Works Building Contract, while more experienced employers might opt for contracts that allow greater control and involvement, such as the Management Building Contract.

When to Use Each JCT Contract

JCT Standard Building Contract (SBC)

When to Use: Suitable for large or complex projects with detailed contract administration and a need for clear, comprehensive terms. Key Characteristics: Extensive provisions for project size and complexity, risk allocation, and detailed design responsibility. Example: Constructing a new hospital or a multi-story office building where detailed project management and clear risk allocation are essential.

JCT Intermediate Building Contract (IC)

When to Use: Ideal for medium-sized projects that are less complex than those suitable for the Standard Building Contract. Key Characteristics: Suitable for moderate project complexity and risk allocation, with some design responsibility on the contractor. Example: Building a small apartment block or a school extension with moderate design and project management requirements.

JCT Minor Works Building Contract (MW)

When to Use: Best for simple, small-scale projects with minimal complexity. Key Characteristics: Simplified contract for small projects, minimal risk allocation, and straightforward design requirements. Example: Renovating a single retail shop or a small residential refurbishment with minimal complexity.

JCT Design and Build Contract (DB)

When to Use: Suitable for projects where the contractor is responsible for both design and construction. Key Characteristics: Full design and construction responsibility on the contractor, clear risk allocation, and suitable for projects requiring streamlined processes. Example: Developing a new commercial property where the contractor handles both design and construction, providing a single point of responsibility.

JCT Major Project Construction Contract (MP)

When to Use: Tailored for very large, high-value, and complex projects. Key Characteristics: Suitable for high complexity, extensive risk allocation, and detailed project management structure. Example: Construction of a large infrastructure project such as a new airport terminal requiring significant contractual obligations and risk management.

JCT Construction Management Contract (CM)

When to Use: Ideal when a construction manager is appointed to oversee the construction process, with multiple trade contractors. Key Characteristics: Flexible scheduling, detailed project management, and involvement of multiple parties. Example: A complex university campus development where multiple trades and contractors are involved and require coordination.

JCT Management Building Contract (MC)

When to Use: Similar to the Construction Management Contract but the contractor also takes on management tasks. Key Characteristics: Management contractor coordinates the work of various subcontractors, extensive project management involvement. Example: A large residential development where the management contractor oversees and coordinates multiple subcontractors.

JCT Prime Cost Building Contract (PC)

When to Use: Appropriate when the contract sum is not fixed and determined by the cost of work plus a fee. Key Characteristics: Flexibility in pricing, suitable for bespoke projects where exact costs are difficult to predict. Example: A high-end bespoke home renovation where costs need to be flexible due to the unique nature of the project.

JCT Constructing Excellence Contract (CE)

When to Use: Used for projects that aim to integrate teams and promote collaboration to improve project outcomes. Key Characteristics: Emphasis on collaboration, integrated team approach, suitable for innovative and sustainable projects. Example: An innovative public-private partnership project designed to achieve sustainable building practices through team integration.

JCT Measured Term Contract (MTC)

When to Use: Suitable for ongoing maintenance and repair works over a specified period. Key Characteristics: Focus on continuity of work, streamlined administrative processes. Example: Regular maintenance services for a local authority’s housing stock over several years.

JCT Homeowner Contracts (HO)

When to Use: Designed for homeowners engaging contractors for domestic works. Key Characteristics: Simplified process for residential projects, minimal contractual complexity. Example: A homeowner hiring a contractor for a kitchen extension or loft conversion, needing a straightforward contract.

JCT Repair and Maintenance Contract (RMC)

When to Use: Used for smaller repair and maintenance projects requiring straightforward contract terms. Key Characteristics: Simplified approach for ongoing maintenance, minimal administrative burden. Example: Routine maintenance of a commercial property or small-scale repair works needing clear and simple contractual terms.

Relevant Events and Relevant Matters

Relevant Events

Relevant events are events on or off site that impact the completion date of the project works. Examples include:

• Delays caused by the client or their agents.
• Exceptional weather conditions.
• Force majeure events.
• Strikes or lockouts affecting the construction industry.
• Changes in statutory requirements.
• Variations and instructions.
• Suspension of works due to non-payment.
• Deferment of possession of the site.

Force Majeure

Force majeure refers to extraordinary events or circumstances beyond the control of the parties involved that prevent one or both parties from fulfilling their contractual obligations. Common examples include:

• Natural disasters (e.g., earthquakes, floods, hurricanes).
• War, terrorism, or civil unrest.
• Government actions or changes in law.
• Epidemics or pandemics.

Process for Handling Relevant Events

When a relevant event occurs, the following process typically unfolds under JCT contracts:

1. Notification: The contractor must notify the contract administrator (CA) as soon as possible, providing details of the relevant event and its expected impact on the project timeline.
2. Assessment: The CA assesses the claim, considering the nature of the event, its impact, and any supporting evidence provided by the contractor.
3. Decision: The CA decides whether the event qualifies as a relevant event and determines the appropriate extension of time (EOT) if warranted.
4. Notification of Decision: The CA informs the contractor of the decision, including the revised completion date and any necessary adjustments to the project schedule.

Associated Timelines

• Initial Notification: Typically within 14 days of the event’s occurrence.
• CA’s Decision: The CA usually has a specified period, often 28 days, to review and respond to the contractor’s notification.

Relevant Matters

Relevant matters are referred to in some construction contracts, such as JCT contracts. A relevant matter is a matter for which the client is responsible that materially affects the progress of the works. This may enable the contractor to claim direct loss and/or expense that has been incurred. Examples include:

• Variations required by the client.
• Late provision of instructions or drawings.
• Discrepancies in contract documents.
• Unforeseen ground conditions.

Difference Between Relevant Events and Relevant Matters

• Relevant Events (RE): Entitle the contractor to claim additional time. These events typically impact the overall project timeline and can lead to an extension of time (EOT) being granted.
• Relevant Matters (RM): Entitle the contractor to claim additional costs (loss and expense). These matters generally relate to additional costs incurred due to disruptions or delays for which the client is responsible.

Loss and Expense

Loss and expense claims arise when the contractor incurs additional costs due to delays or disruptions for which the client is responsible (relevant matter). Loss and expense should be valued as the actual loss incurred by the contractor and not based on schedules of rates or Bills of Quantities (BOQs). Examples of loss and expense claims include:

• Prolongation: Additional costs incurred due to extended project duration.
• Disruption: Costs associated with interrupted workflow and inefficiencies.
• Finance Charges: Additional interest or finance costs incurred due to delayed payments or extended project financing.
• Thickening of Preliminaries: Increased preliminary costs due to prolonged project duration, such as extended site management and facilities.

Partial Possession

Partial possession occurs when the client takes possession of part of the works before completion of the entire project. Here are some key points regarding partial possession:

• Contractor’s Agreement: Partial possession requires the agreement of the contractor. It is not usually agreed upon when signing the building contract but can be negotiated during the course of the project.
• Voluntary Agreement: It is a voluntary arrangement between the contractor and the employer. The contractor can refuse to give partial possession but must not unreasonably withhold consent.
• Retention Release: Upon partial possession, a portion of the retention may be released for the part of the works taken over by the employer.
• Insurance Ends: The contractor’s insurance responsibility for the part of the works taken over typically ends upon partial possession.
• Liquidated and Ascertained Damages (LADs) End: Any LADs applicable for delays generally cease for the portion of the works taken over.
• Employer’s Responsibility: The employer becomes responsible for any damages to the part of the works taken over.
• Defect Period Commences: The defects liability period for the part of the works taken over begins upon partial possession.

Sectional Completion

Sectional completion allows for different parts of the project to be completed and handed over at different times. This is particularly useful for phased projects or where different sections of the building have different completion dates. Each section has its own completion date, and liquidated damages can be applied separately for delays to each section.

Comparison: Partial Possession vs. Sectional Completion

Insurance Options A, B, and C under JCT

Insurance Option A

• Purpose: Used when the contractor is required to insure the works.
• Coverage: Covers all risks of physical loss or damage to the works, including materials and goods on-site.

Insurance Option B

• Purpose: Applied when the employer takes responsibility for insuring the works.
• Coverage: Similar to Option A but the policy is taken out by the employer.

Insurance Option C

• Purpose: Suitable for situations where existing structures are involved, and the employer insures the existing structures.
• Coverage: Covers loss or damage to existing structures as well as works, materials, and goods. It can also include specified perils such as fire, flood, and other risks outlined in the policy.

What Are Perils?

Perils refer to specific risks or causes of loss covered by an insurance policy. In construction, these typically include events like fire, theft, vandalism, and natural disasters. Understanding which perils are covered is crucial for managing risk on a construction project.

Common Types of Insurance for Construction Projects

1. Contractors All Risks (CAR) Insurance: Covers physical damage to the works, materials, and equipment on-site.
2. Employers’ Liability Insurance: Required by law, covers the employer’s liability for injuries or illnesses sustained by employees.
3. Public Liability Insurance: Covers third-party claims for injury or damage caused by the construction activities.
4. Professional Indemnity Insurance: Protects against claims of professional negligence.
5. Performance Bonds: Guarantees the contractor’s performance under the contract.

Subrogation and Joint Names Insurance

Subrogation: This is the process by which an insurance company, having paid out a claim, seeks to recover the costs from the party responsible for the loss. In the context of construction contracts, waivers of subrogation are often included to prevent the insurer from seeking recovery from other parties involved in the project, fostering a collaborative environment.

Joint Names Insurance: This type of insurance policy names both the employer and the contractor as insured parties. The main benefits include:

• Simplified Claims Process: Reduces disputes about responsibility for claims.
• Shared Coverage: Ensures both parties are protected under the same policy terms.
• Reduced Risk of Litigation: Helps to avoid legal conflicts between the employer and the contractor over insurance claims.

Conclusion

Understanding the intricacies of JCT contracts is essential for any UK construction business. By choosing the appropriate contract, you can ensure that your project is managed efficiently, risks are appropriately allocated, and all parties’ interests are safeguarded. Whether you are embarking on a large-scale project or a small maintenance task, the JCT family of contracts offers a robust framework to support your construction endeavours.

For further guidance on selecting the right JCT contract or managing any aspect of your construction project, feel free to contact our quantity surveying consultancy. We are here to help you navigate these complexities and ensure the success of your construction projects.