Engineering and Construction Contracts - Essay Example

School Compare and contrast - Insurance requirements of JCT2005 & NEC3 contracts Introduction The NEC3 (NEC3 Engineering and Construction Contracts) and JCT 2005(JCT Standard Building Contract 2005) are standardised formats of construction contracts especially for social construction housing projects. They have mainly developed due to the commercialisation in the construction industry and to ensure that the diverse requirements present in the industry are being met. However, the global effect of the construction industry has created a need to meet with standardisation. They are essentially contracts that cover construction agreements mainly for employer contractor relationships, but can also provide dealings for subcontractors, suppliers, facilities managers, etc (JCT). Basically standardised formats can be utilised to cover construction contracts wherein the contractor would design the building as per the employer and those where the contractor would itself design the building. In this paper we would be looking at the two systems of construction contract formats and determine the differences and the similarities between them. Both the NEC3 and the JCT 2005 provide for certain insurance requirements, but the manner in which each deals with insurance and covers risks is different. This paper covers the insurance requirements of JCT 2005 and NEC3 (LT Eames). Body General The NEC3 Contract can be utilised for various purposes can be utilised for construction works or engineering works that involve the traditional system of civil or engineering contracts. These include electrical, mechanical, construction and civil work. It can be used in various responsibilities in which the contractor would be having no designing responsibilities, some partial design responsibilities or full designing responsibilities. Thirdly it covers contracts wherein the contractor would be paid through a lump-sum bulk amount, cost-plus system of paying or through a re-measurement system of payment. It can also be used to cover for works that are being done in sectors (LT Eames). On the other hand, the JCT 2005 contract can be used for construction of new office or new building flats, and major refurbishment projects for construction. The JCT 205 covers contracts that are complex and the designing is to be done by the employer or on behalf of him. It can also be utilised in case the contractor would be designing a specific portion or various portions of the structure to be constructed. It can also be used to cover for which are to be produced in sections. The NEC3 Contracts should be considered to be used in case the engineering requirements of the project are complex. On the other hand, the JCT 2005 system should be utilised in case there would not be substantial modifications to the design of the project (Gould). Both the NEC3 and the JCT2005 have certain principles and objectives. The objectives of the NEC3 contract is to provide an effective instrument of managing parties to adopt the best practice measures whilst performing construction contracts. Parties would be able to adopt a set of measures so that risks that arise during the performance of the contract are anticipated and adequately managed. The contract tries to simplify the terms and conditions and provide a lucid language such that legal terms and ambiguities are avoided. However, a major disadvantage is that the language has majorly been untested by the courts, which gives rise to the doubt that ambiguities may be present. Any problem that may arise during the construction of the works related to the contract are dealt as and when they arise rather than holistically or towards the end of the project (Gould). The JCT2005 contract is even similar than the NEC3 and is clearly structured out. The format has been tested out several times by courts and the same have been included as amendments of the format. The contract format is divided into 9 main sections, 42 clauses and includes 8 schedules (Gould). Insurance requirements Section 6 of the JCT 2005 deals with the insurance requirements including management of risks, injury and damage. Current with the JCT2005, the insurance provisions are much shorter, but more comprehensive than the earlier versions of JCT 2005. The earlier versions of JCT provided for greater number of insurance provisions and today JCT 2005 have tried to rationalise the insurance requirements. JCT 2005 has also introduced the concept of professional indemnity. Schedule 3 of JCT 2005 includes 3 insurance options termed as A, B or C. According to A, the contractor would carry on the work strictly as per mentioned in the document, and according to B, the employers comments need to be taken into consideration. C includes either agreement of disagreement of the employer with the contractor. The insurance section provides for coverage from injury to persons and property and against damage to property or person. There would also have to be insurance of the works and professional indemnify insurance. Besides, it requires for joint compliance of a fire code. JCT 2005 addresses terrorism coverage, and both the employer and the contractor are excluded are excluded from all risks of works where the damage is caused by acts of terrorism. The party that is affecting the policy can buyback the terrorism coverage. IF any risk is reinsured by the government, Pool RE would be limited to coverage as mentioned in the Reinsurance Act 1993. Under the JCT 2005, there are 3 work options and they aim to meet the costs of restoring and meeting damages. However, there are various factors that need to be taken into consideration whilst calculating these costs (Eames). In the NEC3, insurance is covered under Clause 8 along with risks. The risks carried out by the employer and those which are taken on the contractor are mentioned. An insurance table is available which determines the type of insurance coverage that would be required along with the defined provisions. The contractor would ensure that the insurance is activated, would have to provide the documentation for the same. In case the contractor does not obtain insurance coverage, then the employer would have to obtain the coverage and pass on the costs to the contractor. In case in the clauses if any insurance is to be met by the employer, then the employer would have to make sure that the same is in place. Under the NEC3 contract each party may choose to additionally cover the other party or to extend the various aspects of insurance coverage. However, in general, the allocation of risks between both the parties does not change. In the NEC3, greater responsibility is placed on the programme and the management of the programme to control the various risks factors (Pinsent Masons). Conclusion The NEC3 contracts handle insurance in a more logical manner compared to the JCT 2005. However, the NEC3 format is much simpler and often it may be difficult to develop a legal analysis of the same, and it has been often less dealt with by courts. Due to which prediction of legal interpretation may be difficult. The JCT 2005 provisions on the other hand regarding insurance requirements have improved over time and today they are much simpler and carry better legal weightage compared to the NEC 3 (JCT). Works Cited The Joint Contracts Tribunal Limited. Guide JCT 2005 Design and Built. 2005. http://www.scribd.com/doc/54581531/Guide-JCT-2005-Design-Built Pinsent Masons. A comparison between Standardised Forms of Contract Commonly used in Social Housing Project. 2005. Scribd. 25 May 2012. http://www.docstoc.com/docs/77482356/Nec-Cost-Plus-Building-Contract Nicholas Gould. Standard Forms. 2010. Fenwick Elliot. 25 May 2012. http://www.fenwickelliott.co.uk/files/nick_gould_-_standard_forms_jct_2005_nec3_and_the_virtual_contract_matrics_paper.indd_.pdf LT Eames. NEC and Risk. 2010. NEC Contract. 25 May 2012. http://www.neccontract.com/documents/panel%20briefings/NECPB04%20-%20Risk%20webcopy.pdf Read More