Practical Law

Last year saw the publication of Revision 6 of the Model Form of Contract MF/1 (Revision 6), a contract that is well-thumbed in the world of supply and installation of mechanical and electronic plant.

The widespread use of MF/1 is in itself a hindrance to the uptake of new revisions. Contractors who have consistently used the older forms, almost as their standard terms and conditions, are comfortable with them and often reluctant to go through the process of updating internal processes in order to use the new version. Revision 6 may be hot off the press but Revisions 4 and 5 are still popping up at the party as old and faithful friends.

The new model: upgrade or transformation?

Long standing MF/1 users will be comforted to hear that Revision 6 is very much an update and not a wholesale transformation. Key changes to be aware of include:

• International. The contract has a more international focus. References to legislation that has no application outside the UK have been removed, along with certain English legal concepts. This means that, unless parties agree to amend the standard position, Revision 6 will be signed as a simple contract and not as a deed. What’s more, the adjudication provisions (which have been moved from the general conditions to Special Condition 2) will only apply if the parties specify this in the appendix.
• Construction Act 1996. The payment and adjudication provisions have been amended to comply with the 2011 changes to the Construction Act 1996 although, as already noted, UK users now need to actively include adjudication, failing which the Scheme for Construction Contracts will apply.
• A move towards NEC? The composition of the contract places more emphasis on the form of agreement and appendix, rather than relying on “special conditions” to tailor the contract to the specifics of the supply. This approach will be familiar to NEC users, where the parties are required to complete contract data. Revision 6 helpfully includes a standard form appendix setting out the information to be completed. Drawing this information together is a useful simplification and should help the contract compiler. The date of the agreement is also incorporated as a fall-back position where there is no formal letter of acceptance.
• Dispute time reduced. The period of time during which the contractor is able to dispute the engineer’s decisions has been reduced from 21 to 14 days (clause 2.6).
• Enhanced termination rights for purchaser. Where the purchaser terminates the contract due to the contractor’s failure to provide the requisite bonds and/or guarantees, the contractor now has to repay all sums paid to the purchaser in addition to the purchaser’s costs of retendering (clause 8.2).
• Deemed knowledge. The contractor is deemed to have informed himself fully of any information “incorporated into the Contract” rather than the Revision 5 drafting of information “annexed thereto or referred to therein” (clause 5.1).

The core remains the same: some key issues

One of the key features of MF/1 is the provision for exclusive remedies coupled with the limitation on liability provisions. These remain largely unchanged in Revision 6:

• Clause 44: exclusive remedies

A central philosophy of MF/1 is that the terms and conditions negotiated for a particular contract should alone define the boundaries of each party’s responsibility towards the other and comprise exclusive remedies. In Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd and GEC Alsthom Ltd, the Court of Appeal held that this type of clause was effective and enforceable and that the “commercial sense in providing expressly for the claims [the parties] intended to be allowed and in simply excluding all possible claims other than those for which specific provision was made seems to [be] clear enough”.

In Strachan, the court also held that clause 44.1 excluded claims for misrepresentation and common law rights to damages. In conjunction with the short defects liability period and the limitations on liability for defective works, this drastically limits the remedies available to the purchaser. Not all construction contracts contain an exclusive remedies provision and the parties should consider whether it is appropriate in the context of their particular contract.

• Clause 36: defects liability

The defects liability period is 12 months from take-over unless a different period is indicated in the appendix. After the defects liability period, the contractor is only liable for defects which would not have been disclosed by a reasonable examination undertaken before the end of that period. Purchasers should also be aware that, in Revision 4, the contractor’s responsibility is further limited after the defects liability period so that it is only responsible if defects were caused by the contractor’s gross misconduct. These provisions are more restrictive than defects provisions in other standard form contracts and their effect, coupled with the exclusive remedy provisions, can be harsh from a purchaser’s perspective, allowing the contractor to avoid claims for the purchaser’s loss of use or profit.

• Clause 44: limits on liability

Limits on liability are often keenly negotiated, but the default position under MF/1 is that the contractor’s liability is capped at the contract price and it is not liable for any loss of profit, loss of use or consequential losses.

In keeping with the exclusive remedies philosophy, the purchaser’s recourse is limited to claiming against the contractor and not its subcontractors, servants or agents.

Revision 6 going forward?

MF/1 users can rest easy. Revision 6 is not materially different from earlier versions and it will be interesting to see how popular this newcomer becomes. Seasoned MF/1 fans may choose to stick with their favoured earlier revisions and simply cherry pick elements from Revision 6, such as the Construction Act 1996 amendments. Others (especially some purchasers) will no doubt continue to steer clear of it, on the ground that it remains more “contractor friendly” than other standard forms.  Only time will tell.