Practical Law

The JCT launched its 2016 edition of the Minor Works suite of contracts on 15 June 2016. This will be followed by the other JCT contract suites, which will be rolled out family by family. We understand that the next contracts to be published will be the short form of sub-contract and sub-subcontract (date to be confirmed), followed by the design and build (JCT DB) family in the autumn this year.

This post looks at some of the key changes in the minor works suite:

• Minor works building contract (MW 2016).
• Minor works building contract with contractor’s design (MWD 2016).
• Minor works sub-contract with sub-contractor’s design (MWSub/D 2016).

Many of these changes were expected, but others may take practitioners by surprise. The JCT has also taken the opportunity to tighten up some of the drafting, clarify certain provisions and update the guidance notes within the contracts.

Payment provisions

The JCT indicated that the payment provisions would be amended but the extent of the changes may come as a surprise to some. While there are a large number of changes to clause 4 of MW and MWD 2016, these reflect a change in approach rather than any real change in substance:

• Interim Valuation Dates (clause 4.3).  Interim valuation dates (IVD) in respect of each interim payment are now defined. While the parties may agree their own IVDs, the default position is that the first IVD is one month after the commencement date of the works and then at monthly intervals. The intention behind establishing IVDs is that they will operate down the supply chain and promote fair payment. MWSub/D 2016 provides that its IVD should be the same as the first IVD under the main contract and the intervals that apply under  the main contract should also apply under the sub-contract.
• Dates for payment (clause 4.3). The due date for payment is now defined by reference to the IVD, rather than as 4-weekly intervals from the commencement date as under MW 2011. This provides more certainty as to when the due date is. In MW/MWD 2016 it is the date seven days after the relevant IVD in relation to each interim payment. In MWSub/D 2016, it is 12 days after the relevant IVD. The final date for payment of each interim payment in all the contracts is now 14 days from the respective due date.
• Simplified payment process (clause 4.3). MW/MWD 2016 provide for the monthly payment cycle to continue after practical completion up to the due date of the final payment. Under MW/MWD 2011, interim payments made before practical completion operated on a monthly payment cycle, whereas those made on or after practical completion operated on a two-monthly cycle.
• Contractor’s application for payment (clause 4.4). MW/MWD 2016 expressly allow the contractor to make an application for payment. This reflects what often happens in practice whereas the 2011 contracts assumed that the architect/contract administrator would simply issue an interim certificate with five days of the relevant due date. It was only if this certificate was not issued that the contractor would issue a payment notice.
• Payment and payment notices (clauses 4.5 and 4.6). The provisions dealing with payment and pay less notices for both interim and final payments have been consolidated and are now dealt with by clause 4.5.  The provisions setting out the consequences of failing to pay any amount due, whether an interim or final payment, have also been consolidated (clause 4.6).

Parties entering into a 2016 minor works contract should ensure that they understand the amended payment process set out in clause 4. It is compliant with the payment provisions of the Construction Act 1996 and parties should not rush to amend it.

Recent case law demonstrates that problems often arise when parties amend the payment provisions in standard form contracts, in particular when the court interprets them in a way that neither party intended. For example, in Grove Developments Ltd v Balfour Beatty Regional Construction Ltd, the parties amended their contract (JCT DB 2011) to agree a specific schedule of interim applications and payments. The court held that once the agreed schedule 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, the parties amended the payment terms of their contract (JCT MWD 2011) but did not amend the payment notice provisions with the result that the court interpreted them in a way for which neither party contended.

Termination

Clause 6 includes some new termination events:

• It reflects regulation 73 of the Public Contracts Regulations 2015 (PCR 2015), which requires a contracting authority to be able to terminate a public contract where:
  • the contract has been subject to a substantial modification which required a new procurement procedure to be started (regulation 73(1)(a));
  • at the time of contract award one of the mandatory exclusion criteria applied and the supplier should therefore have been excluded from the procurement procedure (regulation 73(1)(b)); or
  • the ECJ has held that the contract should not have been awarded to the contractor in view of a serious infringement of the obligations under the EC Treaty and the Public Contracts Directive (implemented in England and Wales by the PCR 2015 (regulation 73(1)(c)).

These termination rights will be implied into any public contract that does not expressly provide for the contracting authority to terminate in these circumstances. However, JCT has taken the opportunity to specify the basis upon which these rights may be exercised and the consequences of doing so. Termination under regulation 73(1)(b) is dealt with by clause 6.6 and is treated in the same way as a Contractor default event. Termination under regulations 73(1)(a) and (c) is dealt with by clause 6.10 and is effectively treated as a neutral event.

• The right of either party to terminate MW/MWD 2016, following a period of suspension, for loss or damage to the works under clause 6.10.1.3 has been expanded so that this now applies where the loss or damage arises from any risk covered by the “works insurance policy” or by an “excepted risk”, both defined. Previously this referred only to damage caused by any of the “specified perils”. The reasoning behind this amendment is not entirely clear.
• Both parties have a new right to terminate (under clause 5.7 of MW/MWD 2016) if it is just and equitable to do so in circumstances where there is a material loss of or damage to any existing structure. This is treated as a neutral termination event. Potentially there are a number of “sticking points” here, such as what constitutes “material” and what does “just and equitable” mean. However, the intent is clear enough and the courts have recently shown an increased willingness to adopt a more context-specific approach to interpreting contracts.

Insurance

The amendments to the insurance provisions, particularly in relation to clause 5.4C, highlight an issue that has long been a concern for tenants, and their contractors, wishing to carry out works in a multi-let property. They seek to increase awareness of this issue, which is an important step towards fully understanding the risks involved and agreeing a mutually acceptable common approach to sharing this risk. MW and MWD 2016 provide a more flexible approach to insuring both the works and existing structures under the clause 5.4C regime and advise all parties to take appropriate specialist insurance advice. Most importantly the contracts advise a tenant employer to involve the insuring landlord at the outset, communicate with the contractor and its advisers at the earliest opportunity, and ensure that appropriate cover is in place before work commences on site. It adopts a sensible practical approach to an issue that is best resolved on a case-by-case basis, depending on the nature of the works, the insurance market and the identity of the contractor and the landlord.

Building information modelling (BIM)

The 2016 editions give a nod to BIM. The relevant footnotes and guidance notes “assume” that any applicable BIM or other communications protocol will be included in one of the contract documents.  Following publication of the JCT practice note on BIM in January 2016, which did not contain any suggested amendments to the JCT contracts, many practitioners expected these to form part of the 2016 editions. That they don’t is perhaps even more surprising given that the NEC published guidance on using BIM with NEC3 contracts as part of the NEC3 April 2013 editions. It may be that more detailed drafting will be published as part of the JCT DB 2016 suite.

Construction (Design & Management) Regulations 2015

The 2016 editions reflect the changes to the 2011 editions of the minor works building contracts that were first published in March 2015 as JCT Amendment 1: CDM Regulations. As a result, most practitioners will already be familiar with these changes.

CIMAR 2016

Schedule 1 refers to the 2016 edition of the Construction Industry Model Arbitration Rules (CIMAR), which were published at the same time as the minor works suite. There are no differences between the 2011 and 2016 versions.