In an update on the (then) forthcoming JCT 2016 edition of contracts, Richard Saxon CBE, Chair of the Joint Contracts Tribunal (JCT), stated that the "construction industry has changed and become increasingly complex over the past 80 years. The JCT, in order to provide the industry with an effective service, has also needed to react, evolve, change and reflect the working practices of the industry as these have shifted over time."
This change in the construction industry has resulted in an update to the JCT suite of contracts. The "principal objective behind the new edition is to reflect relevant changes in the law and practice; the 2016 edition continues that evolutionary process," says Saxon.
It has been a year since the JCT launched the first of its JCT 2016 contracts and, while some updates are still to be published, it appears that employer uptake of the new version is low. So why are employers sticking to the 2011 version?
There are a couple of reasons. First, employers believe the latest amendments are more "form over substance" – a view that corresponds with the JCT's primary objective of making the JCT 2016 contracts user-friendly by using clearer and more consolidated drafting. Secondly, aside from the necessary legislative and case law amendments, there is a common belief that the JCT has missed opportunities to rectify practical issues relating to insurance and risk allocation in the design and build form of contract. A review of the key features of the 2016 edition adds weight to these two reasons.
Key features of the JCT 2016 suite
The common amendments incorporated across all of the new 2016 contracts (so far) include:
- incorporating and updating the provisions from the JCT Public Sector Supplement 2011 (relating to fair payment, transparency and building information modelling (BIM)) and the BIM Protocol;
- incorporating provisions relating to the CDM Regulations 2015, previously published as "Amendment 1";
- provisions which reflect the Public Contracts Regulations 2015;
- a number of changes in respect of payment, designed to reflect fair payment principles. This links with the government's long-term vision for the future of the construction industry, whereby Construction 2025 cited equitable financial arrangements and certainty of payment as critical success factors for the industry, with a need to "… create conditions for construction supply chains to thrive by addressing access to finance and payment practices". These include:
- the introduction of an "Interim Valuation Date", which applies down the contractual chain to improve the speed at which sub-contractors get paid;
- the monthly payment cycle now continues after practical completion, up to the due date of final payment;
- the employer must determine the contractor's initial loss and expense claim within 28 days of receipt and any subsequent update within 14 days of receipt (JCT 2011 had no such deadlines); and
- flexibility in relation to fluctuation provisions;
- provisions for the grant of performance bonds and parent company guarantees, as well as an extension of the optional provisions for the obtaining of collateral warranties from sub-contractors to include the granting of third party rights by sub-contractors, as an alternative; and
- an extension of (Works) Insurance Option C to allow alternative solutions to the problems encountered by tenants and domestic homeowners in obtaining existing structures cover for contractors, and consolidation within the main text of the generic provisions that apply to Insurance Options A, B and C.
A wasted opportunity?
The changes made to the JCT 2016 suite have not resulted in a material decrease in the number of amendments that employers traditionally make to JCT contracts. As a result, employers have not seen the need to engage in the new form of contract at an additional expense.
Here are some examples of issues that could have been addressed in JCT 2016:
- The performance bond and parent company guarantee provisions recognise that security is usually expected to be provided in today's market. However, the JCT has not published its own forms of such documentation and instead requires the performance bond and/or parent company guarantee to be "substantially" in the form[s] identified within the Contract Particulars.
- Whilst JCT 2016 addresses the issue of insuring existing structures, problems arise where the client is not the freehold owner of the building. The JCT's drafting team could have – but did not – provide hybrid wording whereby the contractor maintains a joint names policy for the works (i.e. all risks insurance) and the landlord (not the employer) insures the existing structure in his sole name (and the contractor has to rely on his third party liability cover should he cause damage to the existing structure). For JCT 2016 to be revolutionary, there must be a requirement for more tailored insurance solutions.
- The JCT 2016 suite does not provide a mechanism for the contractor to produce a VAT invoice before being paid. This is integral to the construction supply chain and the revised 2016 suite would have given the perfect opportunity to provide for this.
- Specifically in relation to design and build contracts, the contractor commonly assumes single point responsibility for both the design and construction of a development. To achieve this, contract amendments make the contractor responsible for the contents of the employer's requirements and any discrepancies within that document or between the employer's requirements and the contractor's proposals. In return, the client agrees to novate the designers' appointments to the contractor to ensure the contractor has a direct means of recourse should the designs prove defective. An amendment of this sort would have been useful but was missed from JCT 2016.
Practical effect of the JCT 2016 suite
The JCT's 2016 changes do not, in the main, offer new solutions to JCT contract issues: whilst arguably evolutionary, the amendments are hardly revolutionary. Indeed, Richard Saxon CBE noted that the changes to the JCT 2016 suite have been developed to "improve functionality and user-friendliness". This has led to a failure to deal with a number of issues in the new edition, which is a rather wasted opportunity in that contracting parties will still need to amend the standard forms. Such amendments can lead to disagreement and results that neither party intended – as recent case law has shown.
For example, in Grove Developments Ltd v. Balfour Beatty Regional Construction Ltd  EWHC 168, the parties amended their contract, which was a standard form JCT design and build 2011 edition, to agree a specific schedule of interim applications and payments. The court held that, once the agreed schedule had expired, the contractor had no contractual right to apply for further payments until the contract's final payment mechanism was triggered.
Similarly, in Manor Asset Ltd v. Demolition Services Ltd  EWHC 222, the form of contract used was the JCT Minor Works Building Contract 2011. The parties amended the payment terms but did not amend the payment notice provisions. When they subsequently argued over the terms, the court interpreted them in a way for which neither party had contended.
Evolutionary – yes. Revolutionary – no.
Whilst the changes to the JCT 2016 suite seem to achieve the JCT's objective to make the standard form contracts more straightforward and user-friendly, clients have not been as willing to change from the 2011 form; amendments are still required in order to mirror the practical effect of development projects and ensure the risk allocation adopts a market norm approach. The new JCT suite of contracts has failed to incorporate substantive changes and this, in many ways, has been a missed opportunity for the JCT to provide drafting that deals with common development practices.