NEW MAJOR PROJECT FORM CONTRACT FOR JCT

The Major Project Form of contract has recently been published by the JCT. On the back cover the reader is informed that the contract has been designed for significant projects in terms of size and complexity to be used by experienced employers. Contractors who are to be employed on projects where the contract is used should be able to put in place a proper system of risk management. The contract is a refreshing change from JCT 1998 in that it is less wordy and much more reader friendly. Gone are the complex nomination clauses and the longwinded procedures, replaced by clauses giving more prominence to the basic rights and obligations of the parties.

JCT Contract Design Responsibility

The contract is intended for the bigger projects where the employer is looking to offload as much of the risk as possible and achieve more certainty with regard to the final cost and date for completion. It is not a design and construct contract in the purest sense in that the employers requirements may well comprise a nearly completed design. The contractor’s duties include either completing the design or undertaking the design from scratch. There is provision for transferring to the contractor by novation the employer’s designer, but the risk of design error in this element of the design stays with the employer. This can create a difficulty where a design error occurs and it is not clear cut as to whether the fault lies with the design prepared on behalf of the employer or occurred after the contractor had been appointed. In the same manner as the With Contractors Design Form of Contract the contractor’s level of design responsibility is reasonable skill and care and not fitness for purpose.

Payment

The payment clause allows for alternative methods of arriving at the value of interim payments. Slowly buy surely the old style method of producing a detailed monthly evaluation of the work is disappearing. Options in the form of stage payment, progress payment or some other method are provided for in addition to the tried and tested method.

The head line grabber is that there is no provision for retention. There is as yet no accompanying form of subcontract and so it will be instructive to see whether contractors who are employed where this form of contract is used will include for retention in all the subcontracts. If contractor do include a retention provision in their subcontracts then employers could well feel themselves abused. Employers in the absence of any evidence of fault free contracts would probably feel more comfortable if the contract provided for a retention bond and will be disappointed by its absence.

JCT New Thinking

New Ideas have been introduced which were not part of past JCT thinking. Unforeseen ground conditions have for years been a controversial part of The ICE contract conditions by way of the infamous clause 12. With so much of civil engineering work being below ground this is not unreasonable. Clause 8 of the Major Project Form gives the contractor an opportunity of seeking additional payment if unforeseen ground conditions are encountered that necessitate an amendment to the employers requirements or contractors proposals. There does not seem to be any good reason for this type of clause to be introduced into a JCT contract and it can only be hoped that this provision does not create the difficulties experienced by clause 12 in the ICE conditions. It is nice to see a clause which encourages the contractor to take positive action in identifying cost savings and value improvements. An incentive comes into play if through the contractor efforts there is a reduction in the cost of the project, early completion or a reduction in the life cycle costs associated with the project. The percentage of the saving is to be paid to the contractor at the rate indicated in the Appendix and if none is stated then any saving is shared equally.
There is provision for the contractor being paid a bonus for completing early. The daily rate however does not have to be the same as the rate for liquidated damages.

Contract Changes

The well worn word variations has been replaced by changes which apply to alterations to the employers requirements or contractors proposals. A change will come into operation whenever either party considers that an instruction gives rise to one. There is provision for the submission and acceptance of a quotation before the instruction is given which is to include for any delay and loss and expense. Alternatively the change may be evaluated after the work has been carried out on a fair valuation basis which would again include any loss and expense. The contract makes provision for a pricing document without being specific as to what form it will take and may be used as a basis for the evaluation of changes. If the valuation isn’t agreed prior to the instruction being issued the contractor is required to submit a proposed valuation and full supporting details within 14 days of a change being notified. The employer then has 14 days to evaluate the change and notify the contractor.

Other Significant Items

The insurance clauses represent a refreshing change. Reading insurance clauses in construction contracts is normally a little like trying to chew sawdust and about as rewarding. The contract is much improved and recognises that the employer may wish the contractor to be responsible for arranging the insurance. Alternatively there may be existing insurance arrangements which the employer wishes to bring into play. Project insurance may become affordable and would therefore have to be considered. Whichever method of insuring is required the details must be set out in the Appendix. There is also provision for including professional indemnity insurance if required by the employer. Finally the lawyers have at last had their way. They have been chipping away at the arbitration clause in the JCT contracts for years. They succeeded some time ago in persuading the JCT to include litigation as an alternative to arbitration. The Major Project Form has no provision for referring disputes to arbitration. The alternatives the parties are left with are adjudication, mediation or litigation.

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