Construction Contracts - Essay Example

Construction Contracts Introduction Joint Contracts Tribunal (JCT) forms for written agreements only serve as a set of guides to parties in a construction project. (JCT. [internet]). In the case of JCT2005 Design and Build Contract form, the same is an innovation of the older 1998 version. The new form is claimed to be beneficial to both the client and the contractor. ( Needham-Laing, Matthew. Introduction. MASTERING CONTRACTS: JCT 2005. 1 November 2005. FenwickElliott. [internet]) There are significant improvements in the JCT2005 in that the 1998 format was more worded and hard enough to comprehend at once. There were then several revisions and supplements which should have been incorporated outright in the main covenant. At any rate, all these drawbacks and flaws have been aptly corrected in the new 2005 edition. One very important change is that the nomination for sub-contractors has been discarded. This will mean that the whole project will be the sole responsibility of the contractor. Hence, it will not matter if certain segments of the undertaking are passed on to other outside parties or agencies. Also, there will be minimal arguments to expect in the interpretation of the contract because the new JCT2005 is written in plain simple English and the major parts are segregated from one another in sections. Actually, the vital components and characteristics of the contents are retained except that the presentation has become less complicated or complex. Furthermore, certain terminologies have to be renamed to suit the real spirit intended by the parties. If there is a mutual agreement to have an overseer for the works, the title is now called Architect/Contract Administrator instead of just an Architect. Extension of Time is now termed Adjustment to the Completion Date. In case of a decision to suspend payment, the notice of withholding can only be done by the employer or the client. It can no longer be a part of the job of the Architect/Contract Administrator. The retention range has been decreased from five percent to three per cent. There is already a Contract Particulars section in the JCT2005 which sets forth all the particular data under the contracted jobs which will facilitate easy referral for the basic terms and conditions agreed upon by and between the parties. In case of dispute, the covenanted remedy is now litigation instead of arbitration. As a matter of course, however, the parties are still free to resort to arbitration if they opt to thresh out their differences through the more expedient and convenient alternative method of patching up things. Still, there is a provision recommending for mediation in case of controversies. In the event that one party becomes insolvent, the other has to serve the appropriate notice of termination. Electronic mailing is now allowed as a medium of service of notices and other items for correspondence. The provision for the employer's own design team is still the same in JCT2005. However, a design option for the contractor is also provided for. On insurance pre-requisites, the contractor has become obliged to put up a professional indemnity insurance, an agreement feature not included in the 1998 version. The right of the employer to liquidated damages reduction is set forth in the adjustment of the time for completion while the terms for relevant events are made more burdensome to the contractor who is to shoulder consequential costs brought about by materials and labour shortages resultant of industrial unrests like strikes. In such cases and similar instances, the Architect/Contract Administrator is under obligation to explain any adjustment to the completion date. In order to eradicate confusions regarding notices in the payment aspect of the covenant, the contractor under JCT2005 has the right to be paid according to the sum due considering the progress of performance even if he stated another amount in his application to collect and the employer withholds a certain portion. This will apply even if the said employer or client does not issue a notice of withholding. Consistent with the title of the agreement, the contractor is under obligation to do the design and may obtain an optional design liability insurance. The said insurance proviso can be made mandatory if specified in the Contract Particulars by the Architect/Contract Administrator with the minimum level of insurance to be kept indicated therein. However, if no insurance for the purpose is available at reasonable commercial rates, the contractor is excused from the subject obligation. The JCT2005 version for a design and build project allows savings or cost increments resultant of variation in design works. Once valuated, the variance will be for the account of the employer, that is, any savings will be credited while whatever cost increase will be charged to the latter. The 2005 version of the JCT design and build agreement requires the contractor to submit all drawings to the employer or client before any relevant execution of works. The employer or client is then given fourteen days to review those drawings. Failure to make any comment thereon will allow the contractor to proceed. All the afore-cited amendments in the new JCT2005 Design and Build format have to be taken into account in the proposal under consideration. (Doig, D. Changes, Revisions and Amendments Arising from the Update to the JCT Suite of Contracts published in the JCT 05 Form. Solomons/Eurrope. pp. 11-14. Published May 2006. [internet]). Advice to the Contractor The proposal involves a socialized housing project involving hundreds of home buildings and flats for rent. The scheme envisioned presumably by the client is one of design and build. However, considering that the project is relatively huge and the client is a housing association, it is presumed that consultants and experts are behind the plans and schemes of the employer. Along these lines, good planning and a well-researched study have to be initiated by the contractor. Firstly, it is recommended to customize the contract. It is not wise to totally adopt all the provisions, terms and conditions laid down in JCT2005. While it is not a contract of adhesion, it is one prepared not mutually on the consent and approval of the covenanting parties. There is therefore no assurance that it will perfectly fit the purposes and intentions of the contractor, on one hand, and the employer, on the other. It may be advisable though that the complete provisions of JCT2005 Design & Build form be made as the substantial initial basis in drafting the customized version for the particular project subject of the present undertaking. Secondly, since the project is considered one with a large-scale category in terms of construction, it has to anticipate more risks than are ordinarily encountered by it in other contracts. For instance, the choice of sub-contractors have to be carefully decided upon particularly if the client will insist that there will be no provisos regarding sub-contracting. Credentials to be required of the subsidiary contractors shall include expertise, experience and probity. Under such circumstances, and even in the remote possibility thereof, the company has to seriously assume that it has to absorb all liabilities in case of lapses and drawbacks in the project accomplishment. To minimize possible damages, sub-contractors must be required to put up performance and fidelity bonds or insurance coverage appurtenant to the sub-contracted segments of the whole master plan. Thirdly, considering the magnitude of the works, it is most probable that the client will have its own procedures detailing the design and execution of the planned construction. The meticulous requirements of the client will also most likely be provided to the contractor. Owing to this framework, focused attention must be given to these details and requisites. Since the designing phase will greatly involve the company, the drawings and printed perspectives must be diligently studied, researched and finally drafted. (Design and Build Contract ((DB). 2008 Deciding on the appropriate JCT contract. pp. 16-17. Published by Sweet & Maxwell Limited 100 Avenue Road, London NW3 3PF First published August 2006 Revised February 2007 Revised February 2008. JCT. [internet]). Constant deliberations with the concerned personnel and staff members must be had on the plans and programs until everything is threshed out to perfection. After the submission of the said pertinent papers to the client, the engineers and draftsmen of the contractor must be able to answer any query or concern that may be posed by the housing association in a meeting or meetings that will ensue. Preparedness at all times is imperative to impressively demonstrate that the contractor is ready and highly capable of implementing the project. Furthermore, it is advisable for the contractor to look ahead of the employer or client probably getting the services of a representative or agent to oversee the affairs and day-to-day activities in the jobsite or even to exercise the authority and play role of the employer pursuant to the agreement. Under that likelihood, the contractor has to determine the relevant knowledge and capabilities of the representative or agent to the end in view of avoiding any mis-communications and mis-interpretations in the process. If possible, however, the contractor may ask that any notice with serious impact or effect must come directly from the authorized officer of the housing association as is the recommended mode in JCT2005. Furthermore, the employer may also be requested to define the extent and limits of the authorities and powers of the said agent or representative. Fourthly, the housing units will be in big numbers. It is therefore presumed that the stages of construction will be worked out phase by phase or on a parcel basis. This will necessitate sufficient sources of cash funds and other liquid or current assets on the part of the contractor. It is hence strongly advised of the contractor to agree on a lump sum consideration for each phase with partial payments on monthly intervals based on the progress rate of the work so far accomplished for the particular phase or parcel. Doing so will allow a situation where the contractor does not resort to outside parties, like funders and lenders such as banks, for fund sourcing. Besides, this is well within the ambit of the principle on getting paid as the work is earned. (Regulations 2003 (Pay As You Earn) (Employments) [changed from Regulations 1993 (the PAYE Regulations) Schedule 7, paragraphs A-1-4-3 and B-1-4-3. Design and Build Contract Updates and Corrections included in Revision 1 June 2007 [internet]). This methodology will instil discipline to the contractor, its operations people and staff members down the line, to achieve desired and needed accomplishments in a timely fashion. Attendant risks and legal implications Any business endeavour has its own risks and hazards. It is up to the businessperson or enterprise to be aware of the caveats and of the safety measures that have to be installed to avoid if not minimize the effects of those risks. Delivery of the goods or satisfactory performance will always put the contractor in the right path and away from the hazards of business. Delay has to be zero although there have been judicial pronouncements that insubstantial delay may not be actionable. ( Shawton Engineering Ltd v DGP International Ltd (t/a Design Group Partnership) [2005] ABC.L.R. 11/18 Arbitration, Building. [internet]) It has to be admitted that construction contracts in general are imbued with a wide latitude for possible mis-understanding and mis-interpretation between contractors and clients because of the broad coverage that each covenant has to tackle. This confessed risk can be neutralized and calculated in part by making preparatory studies on the details of each intended proviso in the written agreement such as to cover all angles of the project. It is precisely for these reasons that adherence to the forms prepared by the Joint Contracts Tribunal (JCT) is resorted to on the assumption that these papers have already been thoroughly researched, studied and analyzed by the organization for the benefit of the end-users. Nevertheless, zero error cannot be an absolute assurance. Construction professionals, practicing contractors, funding agencies and lenders, and other third parties have focused so much on the standard forms under JCT 2005 and there has been some relief when these finally came out particularly with the evident improvements out of the 1998 versions. It is to be importantly noted though that no disputes yet have reached the courts involving JCT 2005 forms. ( Boulding, Phillip Q. C. and Calum Lamont. The JCT 2005 Standard Forms Of Construction Contract Delay & The Problem Of Float. 13 December 2006. mondaq REAL ESTATE. [internet]). Yet, it is at least a consolation that any possible risk in the relations between contractors and employers is hugely and significantly trimmed down by the advent of the new versions of JCT written covenants in ready formats. Another new notion that has to be observed is on communications. Electronic mailing is now considered as an adequate mode of service for whatever notification or process. Despite this convenience, it is strongly opined that it is still practicable and wiser to send the hard copy of the notice or process by snail mail to prevent any doubt as had happened in one case regarding a tender of information for referral to arbitration. ( SCRABSTER HARBOUR TRUST Pursuers and Reclaimers; against MOWLEM plc, trading as MOWLEM MARINE Defenders and Respondents: and MOWLEM plc, trading as MOWLEM MARINE Pursuers and Respondents; against SCRABSTER HARBOUR TRUST Defenders and Reclaimers. FIRST DIVISION, INNER HOUSE, COURT OF SESSION Lord President Lady Cosgrove Sir David Edward, Q.C. [2006] CSIH 12 A225/05; A226/05 OPINION OF THE COURT delivered by TEMPORARY JUDGE SIR DAVID EDWARD, Q.C. February 2, 2006. [internet]) White it is true that provisions for mediation and other alternative dispute resolution remedies shall be incorporated in the contract, it is still best to avoid legal complications and other related problems. Litigations mean additional expenses in court charges and fees for lawyers and solicitors, not to mention the time and efforts of company personnel and officers who have to attend to the case. A well crafted customized construction contract, substantially patterned on JC2005 but not at all too dependent on it, will be a key factor. Conclusion Despite the impressive features and expediency offered by the JCT forms of contracts, especially that for a design and build undertaking which is the subject of this paper, it is still advisable and practical to customize the written covenant in order to exactly serve and address the specific concerns of the parties to a particular agreement in accordance with the unique characteristics of the given project and the individual preferences of both the contractor and employer. References (All sources are the Web / Internet) Boulding, Phillip Q. C. and Calum Lamont. The JCT 2005 Standard Forms Of Construction Contract Delay & The Problem Of Float. 13 December 2006. mondaq REAL ESTATE. [internet] Accessed January 9, 2010. Available at: Design and Build Contract ((DB). 2008 Deciding on the appropriate JCT contract. pp. 16-17. Published by Sweet & Maxwell Limited 100 Avenue Road, London NW3 3PF First published August 2006 Revised February 2007 Revised February 2008. JCT. [internet] Accessed January 3, 2010. Available at: Doig, D. Changes, Revisions and Amendments Arising from the Update to the JCT Suite of Contracts published in the JCT 05 Form. Solomons/Eurrope. pp. 11-14. Published May 2006. [internet] Accessed January 3, 2010. Available at: JCT. [internet] Accessed January 9, 2010. Available at: Needham-Laing, Matthew. Introduction. MASTERING CONTRACTS: JCT 2005. 1 November 2005. FenwickElliott. [internet] Accessed January 3, 2010. Available at: http://www.fenwickelliott.co.uk/files/Contract%206%20-%20Mastering%20Contracts%20-%20JCT%202005.pdf Regulations 2003 (Pay As You Earn) (Employments) [changed from Regulations 1993 (the PAYE Regulations) Schedule 7, paragraphs A-1-4-3 and B-1-4-3. Design and Build Contract Updates and Corrections included in Revision 1 June 2007 [internet] Accessed January 3, 2010. Available at: http://www.jctltd.co.uk/assets/DB%20Updates&Corrections%20R1%200607.pdf SCRABSTER HARBOUR TRUST Pursuers and Reclaimers; against MOWLEM plc, trading as MOWLEM MARINE Defenders and Respondents: and MOWLEM plc, trading as MOWLEM MARINE Pursuers and Respondents; against SCRABSTER HARBOUR TRUST Defenders and Reclaimers. FIRST DIVISION, INNER HOUSE, COURT OF SESSION Lord President Lady Cosgrove Sir David Edward, Q.C. [2006] CSIH 12 A225/05; A226/05 OPINION OF THE COURT delivered by TEMPORARY JUDGE SIR DAVID EDWARD, Q.C. February 2, 2006. [internet] Accessed January 3, 2010. Available at: http://www.scotcourts.gov.uk/opinions/2006csih12.html Shawton Engineering Ltd v DGP International Ltd (t/a Design Group Partnership) [2005] ABC.L.R. 11/18 Arbitration, Building. [internet] Accessed January 3, 2010. Available at: http://www.nadr.co.uk/articles/published/ConstructionLawRep/Shawton%20v%20DDP%202005.pdf Read More