Last month the JCT published new editions of its suite of standard form building contracts, including the Design and Build 2011. The new 2011 editions reflect the amendments to the Housing Grants Construction and Regeneration Act 2006 (the Act) introduced by the Local Democracy, Economic Development and Construction Act 2009 which came into force on 1 October 2011.
The key changes are as follows:
Payment and notices
In the previous edition, the final date for payment was 14 days after the employer's receipt of the contractor's application for interim payment. In the new edition the final date for payment is 14 days after the 'due date' which here means the later of the receipt of the application or (if later) the date of completion of the stage to which it relates or the date when the application ought to have been made. This discourages the making of applications prematurely.
Under the new edition, the employer gives a 'payment notice' not later than five days after the due date whereas under the previous edition the same period started from receipt by the employer of the application, even if too early. The payment notice states the amount the employer considers due (at the due date) and the basis of calculation. The equivalent notice in the previous edition required the employer to say what it 'proposed to pay'. If no payment notice is given by the employer, it is to pay the sum stated in the interim application (subject to any pay less notice).
If the employer intends to withhold payment from the sum in the interim application or payment notice, then no later than five days before the final date for payment it is to give the contractor a notice of that intention, in the form of a 'pay less notice' which must specify the amount the payer considers due and the basis on which that sum is calculated. The pay less notice effectively replaces the withholding notice but now requires the payer to specify details of any abatement (sums it does not consider are due eg work that has not been carried out) as well as set off (eg liquidated damages). The notice also requires the basis of calculation to be specified rather than the grounds for withholding and the amount attributable to each ground.
Equivalent amendments are made to the final statement provisions.
Suspension by the contractor
The contractor can now, by virtue of clause 2.26.4, suspend 'any or all of his obligations' upon non-payment. This suggests that the contractor does not have to suspend carrying out all of the works upon non-payment, but can operate a suspension selectively.
The amendments to the contract also clarify the costs that the contractor can recover if it suspends for non-payment. Clause 4.11.2, dealing solely with suspension, states that the contractor is entitled to a reasonable amount in respect of costs and expenses reasonably incurred by it as a result of exercising its right. In previous editions, the contractor had a right to claim loss and expense under clauses 4.20 and 4.21, as a relevant matter. 'Reasonable cost' is significantly different from 'loss and expense' and does not include, arguably, certain types of financing charges.
References to asbestos and fungal mould insurance have been removed.
Where insurance option A applies, the contractor's liability for acts of terrorism is now limited to that which is covered under the terrorism cover specified in the contract particulars. If no specific cover is agreed, the default position is that the contractor is to take out Pool Re Cover (members of the Pool Reinsurance Company Limited Scheme or other similar successor scheme).
The party responsible for insuring the works is to obtain terrorism cover specified in the contract particulars. If no specific cover is agreed, the default position is that the responsible party is to take out Pool Re Cover.
The definition of insolvency has been amended and is now not only more detailed but also splits up insolvency situations between companies, partnerships, individuals and other general insolvency situations. Whilst it was intended that this definition would correspond with the definition of insolvency in the amended Act there is some disparity, for example, clause 8.1.4 which sets out general insolvency situations is not contained within the Act.
The consequences of termination triggered by contractor default have also been amended to reflect the position in Melville Dundas v George Wimpey (where the employer was entitled to suspend making any further payment to the insolvent contractor, even though the employer had failed to issue a valid withholding notice) and the amended position in the Act. The contract now specifies that there is no need for the employer to pay a sum due to the contractor insofar as (1) the employer has given or gives a pay less notice; or (2) the contractor becomes insolvent (excluding the insolvency situations set out at clause 8.1.4) after the last date upon which a pay less notice could have been given.
This edition of the contract has been updated to include references to the Bribery Act and the Site Waste Management Plan Regulations.