Recent changes to JCT and NEC standard form contracts
The amendments to the statutory payment, adjudication and suspension rules mean that construction contracts entered into on or after 1 October 2011 will require amendment. Sana Mahmud explains what the JCT and NEC have done.
Due to the delay in the implementation of the LDEDCA, in May 2011 the Joint Contracts Tribunal (“JCT”) published versions of its contracts showing tracked changes from the 2009 revisions to the 2005 editions of those contracts. The JCT duly published its updated 2011 editions incorporating those changes in September 2011. In addition, the new JCT contract suite also includes wording to conform with the Site Waste Management Regulations 2008, and a statutory reference to the Bribery Act 2010. The requirement to obtain insurance for asbestos and fungal mould has now been removed due to difficulties faced by Contractors in obtaining such insurance. The 2011 editions also include references to the updated Construction Industry Model Arbitration Rules.
The NEC has also published amendments to the NEC3 suite as a separate supplement. These are relatively straightforward amendments simply relating to the new adjudication and payment provisions required by LDEDCA. They are certainly not as extensive as those to be found in the new JCT suite. It is anticipated that the recent NEC3 amendments will be incorporated into NEC4, but there is no fixed date as yet for publication of an updated NEC suite.
Amendments to the JCT forms
The most important and widespread changes, however, remain those related to payment provisions. These, along with some other notable changes, are summarised below using, as an example, the JCT Design and Build contract (“DB11”).
Payment (Section 4)
DB11 makes significant amendments to section 4 of DB05. However, DB05 had already provided for the Contractor to apply for payment, and it has been argued that many of the detailed changes to this section were in fact unnecessary.
Clause 4.8 of DB05 now forms part of clause 4.7 of the new DB11. DB11 clause 4.8 provides that the Contractor must make an application (an “Interim Application”) to the Employer stating the amount that the Contractor considers due to him by way of Interim Payment. DB11 clauses 4.8.2 and 4.8.3 apply in relation to due date for payment for, respectively, Alternative A (Stage Payments) and Alternative B (Periodic Payments).
DB11 clause 4.9 deals with the final date for payment, which is stated to be 14 days from the due date. Not later than 5 days after the due date for payment, the Employer must give a notice (a “Payment Notice”) under DB11 clause 4.10.1 specifying the sum which the Employer considers to be due and also the basis on which that sum has been calculated.
Clause 4.9.4 introduces a new concept of a “pay less notice”, which is similar to a notice of intention to withhold under DB05. This must be served in accordance with clause 4.10.2. The Pay Less Notice must be served no later than 5 days before the final date for payment.
Where the Contractor suspends the carrying out of works on grounds of non-payment, DB11 clause 4.11.2 now provides the Contractor with the right to receive a reasonable amount in respect of costs and expenses incurred by him in exercising that right. Clause 4.12 (Final Statement and final payment) has accordingly been amended to take into account the new definitions of “Payment Notice” and “Pay Less Notice”.
The new amendments have been criticised for not adding any further clarity to previous payment provisions which had been viewed by some as unnecessarily complex. However, there are some positive elements to the changes, including the fact that JCT has attempted to keep as much consistency as possible between DB11 and the JCT Standard Building Contract, 2011 edition (SBC11). The new adopted language is also often the same as, or as similar as possible to, the language used in the HGCRA (as amended).
Injury, damage and insurance (section 6)
Risks covered by “All Risks Insurance” are defined by reference to exclusions. The changes now incorporated in DB11 reflect those in the JCT December 2009 update, including a new clause 6.10 dealing with policy extensions and premiums in relation to terrorism cover. Schedule 3 (Insurance Options) has also been amended accordingly.
Termination (section 8)
The aim of the changes to section 8 was to bring the definition of insolvency in DB11 in line with the statutory definition in section 113 of the HGCRA (which the LDEDCA has not amended). Clause 8.1 introduces new definitions of insolvency specific to companies, partnerships and individuals. There are some notable differences between the definition of insolvency under DB11 clause 8.1 and the HGCRA. The right to terminate under DB11 arises under a broader definition than that set out in section 113 of the HGCRA. Under clause 8.7.3.2, if a Contractor becomes insolvent after the last date when the Employer could serve a Pay Less Notice, and no such notice has been served, then the Employer does not need to make a payment to the Contractor despite the fact that this sum will now be due for payment. Finally, clause 8.6 now refers to the new Bribery Act 2010.
Settlement of disputes (section 9)
DB11 now refers to the JCT 2011 version of the Construction Industry Model Arbitration Rules. However these do not contain any changes from the 2005 rules. DB11 did not need to amend its adjudication provisions because, like DB05, it applies the Scheme. That definition, together with the change of legislation provisions in clause 1.4.5, ensures that DB11 will apply the Scheme, as amended, to any adjudication. This is also applicable to other JCT forms.
Amendments to NEC3 forms
The changes to the NEC3 contracts are much less detailed. The amendments revise the adjudication provisions in Option W2 and the payment provisions in Y(UK)2. In the short contracts the LDEDCA changes are reflected by way of an additional clause. With regard to its adjudication provisions, NEC has revised its reference to the slip rule which now states that errors must be amended within 5 days (W2 currently refers to 14 days). In light of changes brought about by LDEDCA (in that parties can no longer include contractual terms that deal with their own legal costs), provision has also been made for the adjudicator to allocate his fees and expenses for the adjudication. Furthermore, if the adjudicator’s decision amends the amount notified as being due, payment of the new amount is due no later than 7 days from the date of the decision or final date for payment of the notified amount, whichever is later.
The new payment provisions also include substantial amendments to reflect the new payment notice requirements, and as with the JCT amendments, NEC has replaced the withholding notice provision with a Pay Less Notice requirement in line with the new rules. This has involved a subtle change to its withholding notice provision by requiring the notice to state the amount considered due (as opposed to simply the amount being withheld) along with the basis for that calculation. Unlike JCT, provisions of the NEC do not specifically provide for what happens when no valid payment notice is issued. Covering this eventuality is not strictly necessary as the LDEDCA provide, that, in the absence of a valid payment notice, the (sub)contractor will be entitled to determine the sum due. This will normally happen automatically through the application for payment.
Finally, a right to suspend has been included in all NEC3 contracts as a compensation event (this only affects the short contracts, where previously no right to suspend existed).