Standard contracts: evolution of Ts and Cs
Sign of the times
16 October 2019
The terms and conditions of standard form contracts have evolved in response to the industry’s changing procurement strategies
One response that stands out from the most recent NBS National Construction Contracts and Law Survey is the small but persistent group of respondents – 3% – who state that they either sign their contracts once work has completed, or never sign them at all.
There are no statistics that conclusively show how many actual construction contracts are entered into each year in the UK, but the Ministry of Housing, Communities & Local Government data reveals that district-level planning authorities approved around 360,000 planning application decisions in 2018. Although there is no simple one-to-one correlation between planning applications and building projects, an assumption is that around 10,800 projects – 3% of these planning decisions – complete each year without a formal contract. The figure, however, is likely to be much higher as there will probably be several different contracts on any one project.
In the past, most trades were carried out by directly employed labour, under the general building contractor model. Currently, the tendency is for most of the work to be by specialist subcontractors.
Most client organisations have procurement policies that mandate the use of formal contracting arrangements, and in the public sector it is an implicit requirement of the Public Contracts Regulations 2015
It is not unusual for a medium-sized job to have half-a-dozen subcontractors covering areas such as joinery, plumbing, heating and electrics. Larger projects may have many times that number as the complexity and need for specialists increases. Each subcontractor will have its own contractual arrangement.
The project will also have consultant appointments for everything from design to environmental and health and safety services. Many of these roles may operate without signed contracts and, for those people concerned, the risks are substantial – particularly in the event of a dispute.
A contract is designed to provide both parties with a clear and shared agreement on what is expected from each party. The contract can include post-tender variations and dictate that all conversations, letters and emails be recorded, which can be invaluable in disagreements.
The contract will determine the length of the statutory limitation period, that is the time limit each party has to bring a claim against the other party. For a simple contract, the period will normally be 6 years; 12 years for contracts executed as a deed – which must be in writing.
In the public sector, the use of formal contracting arrangements is an implicit requirement of the Public Contracts Regulations 2015, while most client organisations have procurement policies that mandate them. Therefore, by not having a signed contract, organisations may be breaking their own rules.
So, why doesn’t everybody have a contract? The way that contract law works, using the principles of offer, acceptance and consideration, they probably do but just don’t have an official – and signed – record of what has been agreed. Unfortunately, this can become a major stumbling block in the event of a dispute.
Early standard building contracts
There was a time when either the client or the contractor might offer their own terms and conditions to the other party on a project-by-project basis. Clearly this was unproductive because, for one party at least, a new set of terms had to be read, digested, interpreted and assessed every time.
To simplify this situation, a group of representative bodies got together and devised a common set of conditions. The first standard building contract was published in 1902, under the sanction of the Royal Institute of British Architects (RIBA) and in agreement with the Institute of Builders, now the Chartered Institute of Building, and the National Federation of Building Trades Employers of Great Britain and Northern Ireland, which later became the Building Employers Confederation.
For many years, there were only two types of standard form contract:
- the Standard Agreement and Schedule of Conditions of Building Contract evolved into a standard form contract published by the Joint Contracts Tribunal (JCT) following its formation in 1931; and
- the Institution of Civil Engineers (ICE) released the Conditions of Contract for Works of Civil Engineering Construction in 1945.
Both types of contracts were lump sum: the contractor agreed to complete an assignment in a fixed time for a fixed amount. Both contracts also involved a third-party administrator – either the architect or the engineer – whose job was overseeing the operation of the contract’s terms and procedures. JCT and ICE both introduced minor works versions of these contracts, and JCT introduced its Intermediate Form in 1984 in response to requests for a contract for projects between ‘standard’ and ‘minor works’ in size.
Over the years, contract bodies have adapted their contract suites in line with how the industry has evolved and how its ways of working have changed – and to better apportion the risk borne by each relevant party
Spreading the risk
Over the years, contract bodies have adapted their contract suites in line with how the industry has evolved and how its ways of working have changed – and to better apportion the risk borne by each relevant party.
New methods of procurement – along with the desire to improve collaboration between the various members of a project team – has increased the demand for more specialist contracts.
In response to this demand, JCT introduced a series of new forms along with supplements to the standard form contracts, to incorporate activities such as partial contractor design, where the contractor is responsible for the design of specific parts of the works, and sectional completion, which allows different start and completion dates for specific parts of the works.
In 1981, it launched the Design and Build form, for when the contractor carries out both the design and construction work. JCT has also introduced the following contracts:
- Prime Cost Building Contract: the contractor is paid an allowance – or prime cost – for materials and labour, together with a flat rate fee which will cover overheads and profit. These contracts are often referred to as cost plus contracts and are usually used for projects that require an early start on site, and for alterations or emergency repair work.
- Measured Term Contract: for employers with a regular flow of maintenance, minor works and improvements projects that they would like to be carried out by a single contractor over a specified time period.
- Major Project Construction Contract: for large-scale projects involving experienced parties, where the employer has clear and well-established procedures, and the chosen contractor is well versed in following these procedures.
- Construction Management Contract: this contract is designed for projects where separate trade contracts are issued from the employer for a range of work, and a separate construction manager is appointed to oversee the completion of the works.
- Management Building Contract: for large, complex projects where a management contractor is appointed to manage the works, and they employ work package contractors.
- Constructing Excellence Contract: this contract is JCT’s contribution to better partnering, or collaboration. It has a strong legal framework, retaining a fair allocation of risk to both parties, meaning the burden of process and administration to both parties is avoided.
- Framework Agreement: for use where one or more contractors are retained on a set of core conditions as part of a long-term arrangement. It is often used to set out the terms for procurement not only with contractors, but with subcontractors and other suppliers in the supply chain.
In addition, there are several accompanying subcontracts, short subcontracts and supply contracts. JCT also publishes a range of warranties, 2 contracts for home owner/occupiers and a pre-construction services agreement. Due to the different prevailing laws, some JCT contracts have been adapted for use in Scotland by the Scottish Building Contracts Committee (SBCC), and supplements are available to allow the main contracts to be used in Northern Ireland.
In 2017, The Landscape Institute modified the JCT Minor Works Building Contract, creating the Landscape Works Contract 2017, the Landscape Works Contract with Contractor’s Design 2017, the Landscape Maintenance Works Contract 2017, and the Homeowner Landscape Contracts. These are for use in the landscape industry, both in England and Scotland.
Key factors when finalising a contract
Emma Milham is a senior associate at Hill Dickinson LLP
Made to measure
It is now possible to choose from a wide range of standard form contracts, specifically designed for almost any type of project. Some examples are listed below.
In 1993, with the intention of improving collaboration and management, ICE launched its New Engineering Contract (NEC). The second edition was rebranded as the Engineering and Construction Contract (ECC) and included a set of subcontracts. The fourth edition was published in 2017 and has evolved into a contract suite (NEC4) with the addition of the following:
- Framework Contract: for the appointment of one or more suppliers to carry out construction work or provide design or advisory services as instructed over a set term.
- Term Service Contract: similar in application to the JCT Measured Term Contract, for the appointment of a supplier to manage and provide a service for a given period of time.
- Supply Contract: for the supply of high-risk or high-value goods.
- Design Build and Operate Contract: for the procurement of a more integrated, whole-life delivery solution.
- Alliance Contract: an evolution of the ethos of partnering to allow the client and all key members of the supply chain to be engaged under one contract.
Although NEC is styled as an international contract, it also includes supplements for use in the UK.
ICE’s flagship conditions have been taken over and rebranded as the Infrastructure Conditions of Contract (ICC), jointly sponsored by the Association for Consultancy and Engineering (ACE) and the Civil Engineering Contractors Association (CECA). Several other organisations have introduced their own standard form contracts. These organisations include the Association of Consulting Architects – publishers of the Project Partnering Contracts (PPC) suite of standard form partnering contracts: PPC2000, SPC2000 and TPC2005 – the Institution of Chemical Engineers, ACE and the International Federation of Consulting Engineers (FIDIC). In 2014, after a gap of almost 90 years, RIBA published two brand new small works contracts.
Clients and contractors often become familiar with their preferred form based on use, custom or occasionally the brand appeal of the publisher
Clients and contractors often become familiar with their preferred form based on use, custom or occasionally the brand appeal of the publisher. For the most part, standard form contracts of all types are used without incident. Over the years, they have evolved, following wide consultation with stakeholders, so users can feel confident that, in any agreement, there are likely to be few unforeseen problems and all parties should feel fairly represented. Each party, however, needs to read the terms and conditions thoroughly – and, of course, remember to sign the contract.
Roland Finch FRICS is a technical author at NBS, specialising in contract preliminaries.
- Related competencies include: Conflict avoidance, management and dispute resolution procedures, Contract administration, Contract practice, Risk management
- This feature is taken from the RICS Construction Journal (September/October 2019)
- Related categories: Contracts; JCT contracts; Standard forms of contract and amendments; What type of contract do I need?