GLOBAL CONSTRUCTION

8 CRITICAL WAYS THE NEWJCT 2016 WILL CHANGECONSTRUCTION CONTRACTS New simplified payment provisions, insurance amendments and other updated provisions are welcome additions.

THE JCT 2016 UPDATE

Each update to JCT (Joint Contracts Tribunal) brings significant changes to standard

contract terms and the 2016 edition is no different. Now that the dust has settled on the

newly published 2016 suite of contracts, it is worth reflecting on the changes that these

standard contracts will bring about for employers and contractors alike.

A reminder of the contract families included in the JCT 2016 editions:

1. Intermediate Building Contract family released on 7 December 2016

2. Collateral Warranties (CWa/F, CWa/P&T, SCWa/F, SCWa/P&T, SCWa/E) released on

21 November 2016

3. Standard Building Contract family on 4 November 2016

4. Design and Build Contract family on 23 September 2016

5. Minor Works Building Contract family on 24 June 2016

Some key changes compared to the JCT 2011 edition - which are to be welcomed - are

revamped insurance amendments and simplified payment provisions intended to make

the notice requirements under the Housing Grants, Construction & Regeneration Act 1996

more understandable.

I will be referring mainly to the new JCT Design & Build, (arguably the most widely used

in the JCT contract family) in this article which will outline the most significant updates.

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I. CHANGES FOR PAYMENTThe new JCT Design & Build 2016 payment provisions

have been simplified to ensure that the contract payment

mechanism is more easily understood. Section 4 for the

Payment provisions have now been separated into the

following eight sub-sections;

1. Contract Sum and Adjustments under clause 4.1

to 4.3

2. Taxes under clause 4.4 to 4.5

3. Payments and Notices - general provisions under

clause 4.6 to 4.11

4. Interim Payments - calculation of sums due under

clause 4.12 to 4.14

5. Listed Items under clause 4.15

6. Retention under clause 4.16 to 4.18

7. Loss and Expense under clause 4.19 to 4.23

8. Final Statement and Final Payment under clause 4.24

I.I PAYMENTS AND NOTICES - GENERAL PROVISIONS UNDER CLAUSE 4.6 TO 4.11There have been significant policy developments

in payment terms since the 2011 edition of JCT. The

Government has set an ambitious target for the

construction industry to adhere to 30-day payment terms

and zero retentions by 2025 - part of the Fair Payment

Campaign1. In addition, the Construction Leadership

Council has updated the Construction Supply Chain

Payment Charter2. The new JCT 2016 contracts reflect

this, via the introduction of Interim Valuation Dates to give

more certainty to a defined payment date.

The Interim Valuation Dates are to be defined within the

Contract Particulars under 4.7.2 in which the “first Interim

Valuation Date is,” to be inserted and subsequent Interim

Valuation Dates are “thereafter the same day in each

month or the nearest Business Day in that month.”

1. Fair Payment Campaign

2. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/306906/construction-supply-chain-payment-charter.pdf

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However, if no date is included within the Contract

Particulars then the first Interim Valuation Date will be one

month after the Date of Possession.

The section for Payments and Notices - general provisions

now contains a revised payment mechanism which, if left

unamended by the parties’, states that;

1. Under clause 4.7.2 the monthly due dates will be

“7 days after the relevant Interim Valuation Date.”

2. However, under clause 4.7.3, if the Interim Payment

Application from the Contractor is received after

the due date, will be “7 days after the date of

receipt by the Employer.”

3. Under clause 4.9.1, the final date for payment of

each Interim Payment and the final payment is 14

days from its due date.

The JCT Design & Build 2016 requires that the parties

take account of Business Days (any day other than

Saturdays, Sundays and Bank Holidays) within the above

quotation from clause 4.7.2 of the Contract Particulars.

Caution should be taken, as the Interim Valuation Date

is worded under clause 4.7.2 of the Contract Particulars

as the “nearest Business Day,” which during the Easter

Bank Holidays and the Christmas period, could bring the

Interim Valuation Date forward whereas if the Contract

Particulars are amended from “nearest,” with replaced

with “next,” this could overcome this problem and adjust

the Interim Valuation Date after the retrospective Bank

Holiday. It also requires that the parties re-evaluate due

dates and Payment Notice timescales in the event of an

Interim Payment Application being received after the

Interim Valuation Date.

Parties need to ensure that timescales for notices

and payments are adhered to avoid parties being

able to implement ‘smash and grab adjudication’, the

results of which saw an epidemic of cases throughout

2014 and 2015.3 Although JCT Design & Build 2016

makes this no more of a requirement than the

previous 2011 edition.

The monthly payment procedure also continues

after practical completion, during the Rectification

Period, as opposed to the JCT 2011 edition which

changed to payments at two month intervals after

practical completion.

3. Harding t/a MJ Harding Contractors v Paice and Springall [2014] EWHC 3824 (TCC); ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC); Galliford Try Building v Estura Ltd [2015] EWHC 412 (TCC) and Caledonian Modular Ltd v Mar City Developments Ltd [2015] EWHC 1855 (TCC)

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I.II CHANGES FOR PAYMENT OF LOSS AND EXPENSE UNDER CLAUSE 4.19 TO 4.23In my opinion, the most significant change is the updated

wording of the loss and expense provisions under the JCT

Design & Build 2016 which now incorporates a specific

timescale for the Employer to notify the Contractor of the

ascertained value of the loss and expense.

This has been incorporated to influence a prompt

assessment of loss and expense and again, is likely to

have been influenced by the Fair Payment Campaign.

The Contractor is required to provide their “initial

assessment,” after notification “as soon as reasonably

practicable,” under clause 4.20.1 and under clause 4.20.3

to provide an updated assessment at monthly intervals.

Under clause 4.20.4, the Employer has to ascertain the

loss and expense claim “within 28 days of receipt,” and

“14 days of each subsequent update,”. The amounts then

ascertained under clause 4.20, in accordance with clause

4.22 is “added to the Contract Sum.”

As seen within NEC3 the principals of undertaking an

initial assessment of the loss and expense which is then

developed and updated over time (as JCT 2016 states,

monthly) and once the full value is ascertained allows the

parties to progress with claims as and when they occur,

rather than the end of the project.

This is a different approach from the previous JCT

editions which seemed to delay the ascertainment of

loss and expense until it had been clearer whether the

Contractor had actually been delayed or disrupted

under the Relevant Matter and the final effect was

actually known.

It appears that the wording suggests that it is a condition

precedent to payment of loss and expense for the

Contractor to notify and provide monthly updates under

clause 4.20. However, I am sure, this will be later debated

as it is not clear from the accompanying JCT guidance

that the intention was to create a condition precedent.

Furthermore, there appears to be no sanction for not

complying with the specific timeframe and the wording

does not clarify whether the Employer can later contest or

adjust the ascertainment of loss and expense once awarded.

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II. CHANGES TO THE INSURANCE SECTIONThe new JCT 2016 simplifies the insurance options and

has recognised that the insurance for a construction

contract may not fit into the JCT Options A, B and C as

seen within the 2011 edition.

Insurance Option C has been amended to include an

option for the parties to agree their own insurance

arrangements where works are being carried out within

an existing structure;

“6.3.3 Where Insurance Option C applies but a C.1

Replacement Schedule applies in lieu of paragraph C.1,

the Contractor ‘s liability and indemnity under clause 6.2

shall, in respect of loss, injury or damage to the Existing

Structures and their contents due to the causes specified

in that clause, be subject only to such limitations or

exclusions as are specified in that schedule.”

It is welcoming to see an option for the parties to agree

their own insurance arrangements where works are being

carried out in an existing structure. However, care still

needs to be taken to engage with insurance brokers early

on to ensure suitable insurance cover is obtained.

Summary of other notable changes

III. REMOVAL OF FLUCTUATIONS OPTIONSWithin the JCT 2016 edition there is updated Schedule 7

which removes Fluctuations Options B and C. However, as

confirmed within the Contract Particulars under footnote

13 for clause 4.2, 4.12 and 4.13;

“JCT Fluctuations Options B and C are no longer included

in JCT contract documents but continue to be available on

the JCT website www.jctltd.co.uk.” 4

There is also a new opportunity for the parties to agree

to a cost adjustment formula or an alternative bespoke

fluctuation calculation.

4. Can be accessed from http://www.jctltd.co.uk/docs/DB-2016-FluctuationsOptionsBC.pdf.

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IV. CHANGES FOR PERFORMANCE BONDS AND PARENT COMPANY GUARANTEESThe new JCT allow the parties to agree the form for a

performance bond and parent company guarantee under

clause 7.3;

“The Contractor shall on the execution of this Contract

provide to the Employer whichever of the following the

Contract Particulars state as being required:

1. a performance bond or guarantee of the

Contractor’s due performance of the Contract

from a bank or other surety approved by the

Employer in an amount equal to the percentage of

the Contract Sum and for the period stated in the

Contract Particulars;

2. a guarantee by the Contractor’s parent company

identified in the Contract Particulars;

any such bond or guarantee, unless otherwise agreed

by the Employer, being substantially in the form of the

document identified by the Contract Particulars.”

Please note that there is no published JCT 2016

edition forms for performance bonds and parent

company guarantees.

V. THIRD PARTY RIGHTS AND COLLATERAL WARRANTIESIn terms of Third Party Rights and Collateral Warranties,

the main changes are the deletion of Part 2 of the Contract

Particulars and the addition of sub-contractor third party

rights. This is reflected within the JCT standard sub-

contracts which aim to reduce the possibility of the third

party rights not being amalgamated into the sub-contracts.

VI. INCORPORATION OF BIMThe updated JCT 2016, requires the parties to agree to

implement a BIM Protocol, under clause 1.1 of the Contract

Particulars. This BIM Protocol requires the project team to

prepare and include the protocol within the contract.

As per the precedence of documents within clause 1.3, the

wording has been amended so that the articles of agreement

and conditions take precedence over any BIM protocol.

Clause 1.4.6 states that “where there is a BIM Protocol or other

protocol relating to the supply of documents or information,

be deemed to include information in a form or medium

conforming to that protocol.”

VII. INCORPORATION OF THE CONSTRUCTION DESIGN & MANAGEMENT (CDM) REGULATIONS 2015The new CDM regulations 2015 were previously

an amendment under the JCT 2011 edition with an

additional published sheet. This is now fully updated and

incorporated within the JCT 2016 edition under clause 3.16

to reflect updated CDM legislation.

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VIII. ADDED PUBLIC SECTOR SUPPLEMENT 2011 AND PUBLIC CONTRACTS REGULATIONS 2015The contracts have been updated to include the new

Public Contract (PC) regulations as standard for use

by Local Authorities and Registered Providers of

Social Housing.

Clause 8.6, termination by the Employer, refers to

corruption regulation 73(1)(b) of the PC Regulations and

clause 8.11 headed, Termination by either Party, refers to

regulations 73(1)(a) and 73(1)(c) of the PC Regulations.

The incorporation of the requirements of the Public

Contract Regulations 2015 give “provisions enabling the

contracting authority to terminate the contract where”5

1. The “contract has been subject to a substantial

modification which would have required a new

procurement procedure.”6

2. Where the Contractor “at the time of contract

award,” should have been “excluded from the

procurement procedure.”7

3. Where the contract should not have been

awarded to the Contractor in “view of a serious

infringement of the obligations under the Treaties

and the Public Contracts Directive that has been

declared by the Court of Justice of the European

Union in a procedure under Article 258 of TFEU.”8

CONCLUSION

Given the significant changes brought in with JCT 2016,

including a new payment procedure and timescales for loss

and expense, it will take time for Employers and Contractors

to adapt. Some of the changes to the 2016 edition will be

welcomed however, in practice, we are also likely see a large

number of contract amendments being introduced to reflect the

bespoke requirements of individual parties. Parties also need to

be wary when completing the Contract Particulars, particularly

the Supplemental Provisions – Part 2 which automatically

‘applies’, unless the parties opt out.

Important Notice

The views expressed in this article are those of the authors and

do not necessarily represent the views of Navigant Consulting

Inc. or any of our clients.

5. The Public Contracts Regulations 2015 – 73 (1) http://www.legislation.gov.uk/uksi/2015/102/pdfs/uksi_20150102_en.pdf

6. The Public Contracts Regulations 2015 – 73 (1)(a)

7. The Public Contracts Regulations 2015 – 73 (1)(b)

8. The Public Contracts Regulations 2015 – 73 (1)(c)

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CONTACTS

MATTHEW FINNBSc, Hons, FdSc, LLM, FCIArb, MCInstCES ,FCIOB, FRICS Managing Consultant+44 (0)20 7398 3861

matthew.finn@navigant.com

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