The nature of standard forms of construction contract
Standard forms of construction contract have been developed to provide formal, predetermined arrangements and mechanisms to cope with the situations that can arise during the course of a con- struction project. They define the obligations and liabilities of the parties to the contract. They also allocate risks to the parties, differ- ent standard forms of contract generally allocating risks differently between contractor and Employer. Business is often described as the process of taking risk in return for reward. Contractors will accordingly price the risks that a contract requires them to bear, and this price will be included within their tenders. It is not there- fore, as sometimes thought, necessarily advantageous to transfer as much risk as possible to the contractor. Decisions should be made, as part of the procurement route and contract selection process, about which party is most suited to manage each of the individ- ual risks. The chosen contract strategy for any project should reflect these decisions. Murdoch and Hughes1note that ‘any deci- sion about laying off risks on to others must involve weighing up the frequency of occurrence against the level of premium being paid for the transfer’. The choice of procurement and contract strategy should be that offering most value to a client, bearing in mind their objectives.
The ‘family hierarchy’ of contracts
The various standard forms of construction contract can be con- sidered in terms of a ‘family hierarchy’. The body responsible for drafting individual standard forms can be considered as the first level in the hierarchy of standard forms of construction contracts. So, for example, the contract examined in detail in this book, JCT Standard Building Contract with Quantities (SBC/Q), has been written by the Joint Contracts Tribunal for the Standard Form of Building Contract. JCT SBC/Q is one form of contract which sits
within the family of contracts produced by the Joint Contracts Tribunal. This family can be considered as the subsequent level within the hierarchy of standard forms of contract. Moving down the hierarchy from main forms of contract lie the various sub- contract forms, supplements, warranties and other ancillary documents.
Contract selection is, therefore, concerned with, first, selecting the appropriate family of contracts and, secondly, identifying the suitable main form and ancillary documents from within that family. The available families of standard contracts include the following:
1 The Joint Contracts Tribunal (JCT) – JCT contracts are con- sidered by many as the ‘industry standard’. They are certainly among the most comprehensive, and they are the most widely used standard forms of contract. The JCT family of contracts covers most forms of procurement and building types, and there is an impressive collection of ancillary documentation published to support the main forms. The JCT comprises inter- est groups from all sectors of the industry; its objective is to determine the format, content and wording of standard forms of contract. As such, JCT contracts are considered by many to be fair in that they are not loaded in favour of either party to a contract. They are, however, sometimes described as compro- mise conditions that, in trying to satisfy the interests of all, are unnecessarily long and complex. The variety of forms available from the JCT will be considered in more detail later in this chapter.
2 Association of Consultant Architects’ Form of Building Agreement – The ACA form of contract was first published in 1982 by the Association of Consultant Architects. The third edition was published in 1998 and consequently revised in 2003. The ACA have also produced a form of sub-contract to comple- ment the main contract. The forms originated in response to the Association’s dissatisfaction with JCT contracts, in particu- lar, with the allocation of risks and responsibilities. Unlike JCT contracts, this form of contract has not been created by nego- tiation. The form is flexible in use; by appropriate selection of alternative clauses it can be used for both traditional pro- curement (with or without quantities) and design and build or develop and construct procurement methods. However, the
form is not widely accepted, and its use has been minimal. The ACA also produce a partnering contract PPC2000, amended 2003.
3 GC/Works Contracts – The General Conditions of Government Contracts is a form of contract often used for central govern- ment works. It is not a negotiated form of contract. The forms are published by HMSO who provide a suite of contracts to cover a number of procurement arrangements, building works and services, some examples are provided below:
● GC/Works/1: Part 1 Major Works with quantities. ● GC/Works/1: Part 2 Major Works without quantities. ● GC/Works/1: Part 3 Major Works single stage design and
build.
● GC/Works/1: Part 6 Construction Management.
● GC/Works/2 Minor Works for use on small or simple contracts. ● GC/Works/3 M&E works.
● GC/Works/7 Measured Term Contract ● GC/Works/10 Facilities Management.
4 The British Property Federation System – The BPF System was introduced in 1983. The system presented radical changes to the way buildings are procured. The system adopts an amended ver- sion of the ACA form of contract. The system has received very little use.
5 CIOB Contracts – Prior to its amalgamation with the CIOB in 2003, the Architects’ and Surveyors’ Institute (ASI) produced the ASI Building Contract. It suffered from the usual concerns of non-negotiated forms of contract in that some of the condi- tions may be considered as unfair contract terms. A standard form of sub-contract was published for use with the main form. Chappell2notes about the ASI Building Contract that ‘it
is intended for use on large projects, but one must doubt the wisdom of doing so in view of the ambiguous wording and inadequacy of some of the provisions’. Following the amalga- mation, the CIOB produced a number of contracts in 2004, CIOB Building Contract for use with substantial and major works, CIOB Domestic Sub-contract and CIOB Minor Works Contract.
6 ICE Contracts – The ICE Contract is published by the Institution of Civil Engineers and has been prepared by the Institution of Civil Engineers in conjunction with the Association of Consulting Engineers and the Federation of
Civil Engineering Contractors. It is a negotiated form of con- tract recommended for use on major civil engineering contracts. It can be used for public or private contracts. The sixth edition, ICE6, was first published in 1991 and is a re-measurement contract; contractors are paid at contract rates on the basis of work undertaken. There is a standard form of bond to accom- pany the contract. The ICE has also produce a seventh edition (Measurement version) as well as contracts for minor works and design and construct.
7 FIDIC Conditions of Contract – The Conditions, produced by the International Federation of Consulting Engineers, are intended for use internationally. They are broadly based upon the ICE Conditions. In 1998 FIDIC updated its series of colour-coded contracts:
● FIDIC Conditions of Contract for Construction (red). ● FIDIC Conditions of Contract for Plant and Design and
Build (gold).
● FIDIC Conditions of Contract for EPC Turnkey Projects
(silver).
● FIDIC Short Form of Contract (green).
8 The Engineering and Construction Contract – The first edi- tion of the contract (called the New Engineering Contract) was published by the Institution of Civil Engineers in March 1993. Publication followed a review of alternative contract strategies for civil engineering work which was aimed at iden- tifying good practice. Following publication of Sir Michael Latham’s report,3 in which adoption of the form was recom- mended, amendments were made to the contract and a second edition published in November 1995 with the new title – The Engineering and Construction Contract (ECC), and a third edition was subsequently published in 2005.
The objectives in drafting the form were threefold. First, to create a contract that was flexible in use. The ECC is compre- hensive; it is designed to cater for all types of project, forms of procurement, methods of tender, and for use in any country. Second, to offer a contract which is clear and simple in terms of language and structure. Third, to provide a contract which acts as a stimulus for good management. The ECC system of con- struction contracts is designed to operate on a different basis from most of the UK contract systems. The principle adopted is that the Engineering and Construction Contract provides nine
core clauses which apply to any procurement route chosen by the client. The core clauses cover issues such as the contractor’s main responsibilities, time, testing and defects, insurance and disputes. The client is then given the choice of six main options that determine the procurement route to be used, i.e.:
● Option A Priced contract with activity schedule. ● Option B Priced contract with bill of quantities. ● Option C Target contract with activity schedule. ● Option D Target contract with bill of quantities. ● Option E Cost reimbursable contract.
● Option F Management contract.
The client then has a choice of up to twenty optional clauses that may be incorporated into the agreement with the con- tractor, these include issues such as: bonds and guarantees, sectional completion, design liability, fluctuations and dam- ages. This ‘pick and mix’ approach allows the client to tailor the contract documentation to suit his particular needs.
Results from RICS surveys4seem to indicate that the use of
the ECC has not been widespread although anecdotal evidence seems to indicate that a number of large client organisations are making extensive use of this contract system. The contract has, however, received good reviews from many within the industry, especially concerning the way it challenges many of the contem- porary problems prominent within the construction industry. The contract offers a challenge to the JCT family of contracts, and it will be interesting to monitor how it affects their use.
The JCT family of contracts
The Joint Contracts Tribunal produces a wide range of standard forms of contract for use in different situations. They are most suitable for building, as opposed to engineering, projects. Surveys by the RICS5have shown that JCT contracts are by far the most
widely used standard forms of building contract in the UK. The main forms, together with some of the associated ancillary docu- ments, are considered below.
1 JCT Standard Building Contract – There are three basic vari- ants of this JCT building contract: ‘with quantities’, ‘without quantities’ and ‘with approximate quantities’. All variants
require Employers to appoint designers to carry out the design function.
The ‘with quantities’ edition (SBC/Q) is intended for use where the work is designed prior to contract and a bill of quan- tities has been prepared setting out the quality and quantity of the works. Contract documents comprise the form of contract, contract drawings, and contract bills. This is a lump sum form of contract; there is an agreed contract sum to be paid to the contractor by the Employer. Contractor’s risk is limited to price only – the Employer bears the risk of errors in the bill of quantities.
The ‘with approximate quantities’ standard form of contract (SBC/AQ) enables construction to commence prior to the design being completed. In practice, a significant proportion of the design decisions must be made prior to contract. Approximate bills of quantities set out the quality and approximate quantity of work. This is a re-measurement form of agreement – the actual work required is measured and priced in accordance with the mechanisms and prices included in the agreement. There is no contract sum. The contract value is ascertained after the contract has been agreed.
The ‘without quantities’ standard form of contract (SBC/WQ) is intended for use where the design is completed prior to con- tract but where there is no bill of quantities. The contract docu- ments will normally include drawings, specification and a schedule of rates. The costs to contractors of tendering for ‘with- out quantities’ contracts are higher than for contracts based upon bills of quantities because contractors have to analyse the design and ascertain the quantities required themselves. For this reason, it is unusual, except perhaps in the case of negotiated contracts, to use this form for high-value projects. Contractor’s risk includes both price and quantity. This is a lump sum form of contract.
Although these contracts can be used on projects of any size, it is unusual, bearing in mind the alternative forms available from the JCT, to use these forms for projects with a value below £200,000. The contracts are comprehensive in providing for many eventualities, but suffer from being complex in wording and numbering. The contracts are subject to regular amend- ment and updating by the JCT to take into account develop- ments in the law and practice.
Prior to 2005, the JCT published ‘Private’ and ‘Local Authority’ versions of the above contracts, but this approach has now been amended and both classes of employer are now covered within a single version of the contract. Optional clauses are used within the contract to accommodate the differences between the two basic employer organisations. Also prior to 2005, the JCT pub- lished two supplements that could be used to modify the stan- dard forms of contract to allow for sectional completion or contractor designed work. Since 2005 these separate supple- ments have been integrated into the contract conditions in the following manner:
(i) Sectional Completion – for use where a contract is to be completed in phases. The contract recital identifies whether there is to be provision for the work to be completed in sec- tions. The contract particulars, contract drawings and con- tract bills will then provide the necessary detail to enable this option to operate effectively.
(ii) Contractor’s Designed Portion – for use where the con- tractor is required to undertake part of the design. If an employer wishes the contractor to be responsible for designing and completing a portion of the works, then the relevant information must be inserted into the seventh recital of the contract. Otherwise the seventh to tenth recitals should be deleted.
Since 2001, the JCT has produced a standard form of sub- contract which main contractors employed on one of the above contracts may use when appointing domestic sub-contractors. Its use is not mandatory and contractors may use alternative forms of sub-contract agreements if they wish. The documen- tation comprises two forms, the Agreement (SBCSub/A) and the Conditions (SBCSub/C). If the sub-contractor is required to carry out some design work then an alternative Agreement (SBCSub/D/A) and Conditions (SBCSub/D/C) should be used. 2 JCT Minor Works Building Contract (MW) – MW 05 is designed for use on projects which are short in duration, small and sim- ple. The contract is short and easy to follow. The same form can be used for both private employers and local authorities. MW 05 is a lump sum form of contract; design should be completed by the Employer’s representative (usually an architect or building surveyor) prior to a contract being agreed. There is no provision in the form for the use of bills of quantities; contract documents will usually include a combination of drawings, specifications
and schedules of works. Practice Note M2 suggested that the form was suitable for contracts with a value of up to £70,000 (at 1987 price levels); this is a guide only, and the Minor Works form has been used successfully on contracts with a value far greater than the recommended limit. The disadvantages of the form – or perhaps the reason why it is only intended for small, simple projects – lie in its lack of comprehensiveness. The provisions dealing with claims are limited, and there are no provisions for fluctuations. If the client wants the contractor to carry out some of the design work then the Minor Works Building Contract with contractor’s design (MWD) should be used.
3 JCT Intermediate Building Contract (IC) – The Intermediate form was introduced by the JCT to fill the gap between the complex JCT Standard Building contract and the simpler Minor Works contract. The form is suitable for projects that are simple in content, require only basic trades and skills, where the services installations are not complex, there are no specialist installations, and the works have been designed by the Employer prior to tender. As a guide, it is recommended that the contract is used where the contract period does not exceed one year, and the contract value is below £280,000 (at 1987 price levels). IC 05 can be used for both private employ- ers and local authorities and it includes an option to allow sec- tional completion. It is flexible in terms of the documentation that may be used in conjunction with it; together with draw- ings, the form permits the use of specifications, or schedules of work, or bills of quantities. The form permits sub-contractors to be named by the Employer. The following supporting docu- mentation is produced for use with IC 05:
(i) Named Sub-contract documentation – ICSub/NAM is the form of tender and agreement and ICSub/NAM/C are the conditions of sub-contract for use when there are named sub-contractors. ICSub/NAM/E is an agreement for use between the Employer and a sub-contractor and its use is recommended where a named sub-contractor has a design responsibility.
(ii) Domestic sub-contract documentation – ICSub/A is the form of agreement and ICSub/C are the sub-contract conditions. If the domestic sub-contractor is required to execute some design work as part of the package, then alternative forms, Agreement ICSub/D/A and Conditions ICSub/D/C should be used.
4 JCT Design and Build Contract (DB) – DB 05 is intended to be used when the contractor is responsible for design and con- struction. It is similar in content and complexity to the JCT Standard Building Contract. The contract is flexible in that it caters for both private and local authority employers and that it permits design input by the Employer up to tender stage. The JCT has also produced a set of standard forms of sub-contract that may be used with this procurement route: Design and Build Sub-Contract Agreement (DBSub/A) and Design and Build Sub-Contract Conditions (DBSub/C). There is no mention of an architect or quantity surveyor in the contract; contract administration is performed by a duty holder referred to as the Employer’s agent (in practice, the role of Employer’s agent could be undertaken by a surveyor, an architect, an engineer, a project manager or a combination of these disciplines).
In essence, the contract operates such that tenders are invited on the basis of satisfying a set of Employer’s Requirements. The nature of the Employer’s Requirements can, in practice, vary from brief performance requirements to detailed designs. Tenders are submitted in the form of Contractor’s Proposals (the contractor’s response to the Employer’s Requirements). These subsequently form the basis for the contract.
The form received immediate, widespread use on its intro- duction, and its popularity has continued to grow. The form provides employers with the reassurance of single point responsibility for design and construction. It provides a low