Building contracts and tenders

Although a contract may be little more than a detailed letter, it is worth considering the range of standard contracts that are available to make life easy, and save time, stress and typing errors.

Here we run through some of the options that are available for the types of work discussed in this section.

Recent statutory changes amending the Housing Grants,Construction and Regeneration Act 1996 also need to be borne in mind and once again contract law has evolved:

• the 'New' Construction Act;
• the Local Democracy, Economic Development and Construction Act 2009;
• Part 8 of this Act aims to improve upon the objectives of the Housing Grants,Construction and Regeneration Act 1996 - the HGCRA – and the principal element relates to improving the transparency and speed of the mechanism for payment of the contractor, and by extension subcontractors;

The impacts of the Act are significant so take the appropriate time to review contract documents fully.

A quick and rather simplified resumḗ of the changes is as follows:

• The Act came into force October 2011.
• It is not retrospective (unless your organisation or client operates framework agreements or term maintenance agreements and the like - which do then need to be brought into line and cannot roll along as before.
• All construction contracts after this date comply with the Act (except owner-occupier works) whether the requirements are written in to the contract or not.
• Payment notices and 'pay less' notices are introduced – either party can issue notice the - employer must issue a payment notice in accordance with the agreed payment schedule - even if the sum notified is zero.
• There is a limited time window for the employer to issue a 'pay less' notice if in disagreement with the contractors application for payment – which sets out the sum the employer thinks due.
  Failure to comply with the notice terms may constitute a breach of contract by the employer and the sum applied for becomes due to the contractor.
• There is an increased responsibility upon the contract administrator or employer's agent to get things right (but in recessionary times there is unlikely to be any more fee to reflect the time taken to make things so).
• The payer or payee, whichever is serving the payment notice, must show the basis on which it is calculated for it to be a compliant notice. There is a 5-day compliance period so do not go on holiday without first arranging for scrutiny of any applications for payment which might appear while you are away.
• Contractors may serve a 'default notice' where the employer fails to issue a payment notice to the agreed timetable - which helps gee the process up a bit. The EA has to react quickly if the contractor serves a notice – larger contractors will be paying particular attention to the mechanics of default notices within the contract payment mechanism to ensure the cash flow timetable down to their subcontractors is protected. Unlikely to be significant on very small contracts but you need to check.
• Conditional payments are no longer permitted – so 'pay when certified' and similar phrases and clauses can no longer apply.
• The Act improves the operation of adjudication in dispute resolution and allows the adjudicator to address any minor errors in awards etc with a view to saving time and cost.
• Adjudication is encouraged as the preferred means of resolution so you would need very good grounds to justify your position if you elect for anything else. EA and other client advisers need to show that all appropriate routes have been tested before taking a dispute to court.
• The contractor has increased scope to suspend works in the event of a breach by the employer – some or all of the works, and if the employer is at fault the contractor qualifies for an extension of time to restart work.
• Even oral contracts are recognised by the Act enabling an adjudicator to award even where there is no contract in writing.
• This gives more reason to ensure that any agreements are in writing since 'the other side' now have increased scope and opportunity to take a dispute to external resolution.
• Ensure that you select the exact (compliant) mechanism for adjudication of disputes if you do not want the default version of the Act to apply

The JCT suite of contracts

This is a group of contracts devised by the Joint Contracts Tribunal Ltd (JCT) – a body comprised of representatives of the building industry and professions. The JCT suite was substantially revised during 2005 and again in 2011 to reflect 'The New Construction Act'. (JCT contracts are available from RICS.)

The new contracts came into operation in 2012. The 2005 revisions represent a significant change in style from the older versions, the basic content is essentially the same.

The main JCT contracts relevant to this section are:

• Home owner contracts (HOB and HOC)
• Minor Works Building Contract (MW)
• Intermediate Building Contract (IC)

Home owner contracts (HOB and HOC)

There are 2 simple contracts:

• Building Contract for a Home Owner/Occupier who has not appointed a consultant to oversee the work (HOB); and
• Building Contract and Consultancy Agreement for a Home Owner/Occupier who has appointed a consultant to oversee the work (HOC).

Both are designed for small domestic building work such as extensions and alterations, and where the proposed works are to be carried out for an agreed lump sum. Neither is suitable for use in Scotland. (A separate version is published and issued by the Scottish Building Contract Committee Limited (SBCC) for use in Scotland.)

The disadvantage here is that these contracts are unsophisticated and provide little finesse in control over the payment structure. They are suitable only for the simplest of schemes with little likelihood of significant design or cost variation.

For homeowners who are determined to run the job themselves, they are useful and clearly written and the owner-occupier has the advantage of being exempt from the Construction and Regeneration Act provisions, which may help to simplify things somewhat.

Minor Works Building Contract (MW)

There are 3 types of minor works contract:

• Minor Works Building Contract, 2011 (MW)
• Minor Works Building Contract with contractor’s design, 2011 (MWD)
• Minor Works Sub-Contract with sub-contractor’s design (MWSUB/D)

These contracts can be used by both private and local authority employers, and are appropriate for works where a contract administrator is to administer the conditions.

Formerly known as the 'Agreement for Minor Works' the MW contract is one of the most widely used JCT contracts and is suitable for many types of project. It might be used for schemes much larger than the contract was originally intended for when first published, but where the works are of a fairly repetitive and simple nature, despite being of significant value.

There is now a specific mechanism to deal with subcontractors. Given that the contract might typically be used for projects up to £200,000, the subbies involved are likely to be known to the main contractor and probably will relate to electrical, gas heating and possibly groundworkers.

The MW contract pro forma covers all of the essentials, and is set out in sufficient detail to cover most eventualities on small projects, so this should be a straightforward solution to many surveyors’ contract needs, and most practices will keep a box of the contract pro forma in the office.

Take care, however: the pro formas are not cheap, and the documents are revised fairly frequently.

The MW contract does not formally require the use of certificates to establish valuations, instructions, practical completion and the like. In theory a letter is sufficient for this. However, a properly set out certificate is well worth while and looks more professional. With a computer spreadsheet, valuations can be checked and adjusted each month or fortnight in the office and then rolled for sign off as required.

Experience suggests there are more valuation certification errors since spreadsheets became common than ever occurred when sheets and certificates were filled in by hand and checked by longhand mathematics. So avoid complacency. The computer is only quick if you check the results and keep the data up to date.

A new version of the MW agreement was introduced with the 2005 revision – the Minor Works Building Contract with contractor’s design (MWD). A further version, introduced in 2007, covers subcontractors' designs. The document has been brought into line with the 2011 revision reflecting the application of the New Construction Act.

Not to be confused with a 'proper' Design and Build (DB) contract, the MWD is similar in form to the main MW, but includes a contractor’s design element. It provides a method for the builder to complete parts of the employer's (or in reality the architect's) design and employer's requirements (ERs) – perhaps the mechanical and electrical element, for example.

Intermediate Building Contract (IC)

The main IC is the Intermediate Building Contract, 2011 (IC).

This contract provides more detailed provisions and more extensive control procedures than the MW, but is less detailed than the JCT’s Standard Building Contract (SBC). (The SBC is beyond the scope of this section; suffice to say it allows you to build up a document specific to the job in hand.)

The IC offers a number of distinct advantages over the shorter and simpler MW form and is aimed at projects of greater value and complexity than the Minor Works. For example, it can be adapted to phased or sectional completion of the project – immensely useful, say, on a small development of houses, if you want to issue separate practical completion certificates. In reality these are 'sectional completion certificates', and would trigger the relevant dates – on defects liability for example, as each house is completed within the scheme.

Further, the IC allows for the use of collateral warranties and increasingly are a requirement of most developers/ employers. Contractual liabilities are effectively transferred to a prospective purchaser/building owner or tenant, and may be a critical item in the marketability of a project.

The newer forms of JCT warranty improve the design and workmanship liabilities where frequently the same company both designs and installs services - in case law the designer has traditionally been perceived as having a higher duty of care over the installer - since they are often one and the same especially on smaller jobs it makes sense for these duties and liabilities to coincide as far as possible.

The IC also allows the appointment of named subcontractors (using one of the specific subcontractor forms, if appropriate).

Choosing the right contract form In the author's opinion, the With Contractor's Design (WCD) version is not best suited to schemes involving any significant complexity. The version of the contract is necessarily longer and a little more complex than the MW version. The WCD contract suggests that it is appropriate for use where a quantity surveyor and the CA have been appointed. This is, however, consistent with the opportunity for increased controls over the build process offered by this form of agreement. Novation of specialist subcontract design teams would perhaps be more appropriate where the design element is unusually complex.

Other JCT contracts

The JCT Jobbing Contract – once useful for small repair instructions and maintenance works – has been discontinued. It has, to some degree, been replaced by the Repairs and Maintenance Contract 2006 (revised, 2007), but this is not intended for use by an independent external contract administrator.

There is a JCT Major Projects contract – beyond the scope of this section.

It is worth mentioning the Design and Build Contract (DB) and its various versions.

The 2007 Revision 1 updated the old DB, and if you have used the old form before you will need to look out for the changes – for example, the employer is now responsible for defining the site boundaries.

It is also important that the employer's requirements are very carefully drafted and checked, because any shortcomings are not the contractor's responsibility. (Be very particular about this – some clients rarely update their 'standard' document.)

Part of the attraction of this form of contract is that it encourages early involvement from the contractor and the risk is heavily weighted against the contractor once the contract is in place.

Use of this type of contract needs to be considered very carefully: there are probably more claims on DB schemes than any other contract. This is probably because both clients/employers and contractors alike fail to realise the limitations of the contract and indeed, in their haste to get on with the project, their own limitations or those of the site. Both parties need to be clear who is designing what in order to ensure that information is delivered to site in timely fashion. It is embarrassing, and causes delay but you frequently hear ' ... Oh we thought you were doing that bit ... '

The format is suited to projects with only limited complexity and perhaps a degree of repetition or standardisation – an estate of similar houses or industrial sheds, for example.

Don't be swayed by 'good intentions' Often the contractor launches into schemes full of good intentions only to find that the site does not lend itself to the employer's requirements (ERs), or an existing building cannot be economically adapted. The contractor then pays a financial penalty for delays on resolving the design or inability to deliver. And at the end of the day the employer had not achieved what it wanted either. A complex 'one-off' design is not the place to discover the limits of the DB form of contract. Better by far to try to resolve the design first, wehere there is any uncertainty. Fine if you are a constructor who builds semi-standard industrial units all over the country and only has to adapt a particular model to the ER.

Federation of Master Builders (FMB) Domestic Building Contracts

One of the main attractions of these forms is that they can be downloaded free from the FMB website (although the FMB does request you to supply project details so that FMB members can contact you with a view to tendering for works as a condition of use). The Minor Works version is intended for contracts up to £250,000 in value and the Domestic Contract up to £500,000.

FMB Minor works

The document is simple, but it is simple to the point where it does perhaps favour the contractor more than the employer when compared with the JCT forms. For example, the contract does not define extensions of time very tightly; 'weather conditions which delay or prevent' is given as an example. The contract does not suggest that this needs to be exceptionally bad (which is the normal rule) – so by implication there could be an obligation for an extension for any normal seasonal rain during the winter period.

The contract excludes liability for defects which pre-exist, or are caused by the employer, but there is no requirement for a schedule of condition pre-works, which would be a sensible prerequisite to draft into the agreement.

The first port of call for dispute resolution is conciliation – effectively mediation rather than adjudication. The latter is likely to be more rigorous in its approach and decision making, and enforceability.

The contract does not set out a mechanism for an external contract administrator, and while an employer's agent is not necessarily excluded, the contract has to be modified if one is to be included. This demands some care and consideration on the part of the person drawing up the paperwork. For these reasons the Domestic Contract might be more appropriate.

FMB Domestic Contract

This is broadly similar in scope to the Minor Works version, but a little more refined.

There is provision for a client's 'authorised representative, although the role is not defined in the agreement.

The contract includes provision for a Schedule of Rates to agree in advance the pricing of any changes to the contract. In the author's experience, this still relies heavily on the integrity of the builder. An adequately priced (and ideally itemised) specification being disclosed to both parties in advance is preferable – there is no requirement for this in the contract, however. There might be a temptation to add liberally to the hours on any variations once the client has been signed up, although in this case there is some additional protection offered by the FMB complaints procedure and threat of expulsion to any non-conforming members (assuming an FMB builder is employed, of course).

Since this section is directed at the surveying profession you may well decide there is more comfort in the traditional JCT suite, with a more defined body of interpreting guidance and case law behind it.