Introduction to JCT Design and Build

The contract particulars are generally self-explanatory but it is essential that they are completed accurately as they can affect the interpretation of corresponding clauses in the JCT Design and Build 2016 conditions. If the blank spaces provided in the contract particulars are insufficient, a separate sheet with additional information can be signed, dated and attached to the contract. Particular attention should be paid to the following:

Limit of the contractor's liability for loss of use etc. (clause 2.17.3 in 2016, 2011 and 2005 versions)

The insertion of any amount here is intended to constitute a cap on loss of profit and consequential loss. This should be left blank unless a cap is agreed with the employer. If it is intended that the contractor's liability is to be unlimited, care should be taken to insert 'no limit' rather than '0' or 'nil'. Use of the latter is likely to be interpreted by the courts as absolving the contractor of all liability even if it is the intention of the parties that the contractor is to have unlimited liability for such losses.

Liquidated damages (clause 2.29.2 in 2016, 2011 and 2005 versions)

Liquated and ascertained damages (see Liquidated damages) are a sum of money payable, without proof of loss, in the event that a specified contractual obligation is not performed. The amount of liquidated damages that can be claimed is ascertained by reference to the rate specified in the contract particulars. This amount must represent a genuine pre-estimate of the loss which is likely to be caused by the breach; otherwise, it will be treated as a penalty, which may be legally unenforceable.

To be enforceable, the rate of liquidated damages and the period to which that rate applies must be clearly inserted into only 1 of the 2 entries available. The second entry is applicable if the work is to be completed in sections.

If the loss is to be quantified on a weekly basis (for example, '£x per week' is to be inserted in the contract particulars), care should be taken to ensure that this is the amount of loss that would arise no matter what day of the week the non-performance occurred or for how long it continued. If, at different stages in the week, there are different levels of loss, 'per week' should not be used as it may not be construed as a genuine pre-estimate, but as a penalty.

Rectification period (clause 2.35 in 2016, 2011 and 2005 versions)

The rectification period (also known as the defects liability period or maintenance period in other forms of contract) is a period after practical completion in which the contractor is obliged to return to the site and remedy any defects in the works.

The expiry of the rectification period does not absolve the contractor of liability for inherent defects in the works.

Only 1 of the 2 available entries in the contract particulars should be completed. If the work is to be completed in sections, it is the second entry that should be completed. The rectification period is usually either 12 or 24 months, however, failure to insert a period of time leads to the default position of 6 months.

Method of payment - alternatives (clause 4.7 in 2016, 2011 and 2005 versions)

Payment can be made using either stage payments (Alternative A) or periodic payments (Alternative B). Stage payments connect payments to the completion of a particular element of the work whereas periodic payments connect payments to a period in time. If no payment method is selected in the contract particulars the payments are to be made periodically at intervals not exceeding 1 month.

The 2016 revision sees big changes to payment, including the introduction of aspects of the government’s fair payment charter. Interim valuation dates will operate at main contract, subcontract and sub-subcontract levels.  Due dates after practical completion change from the bi-monthly process to monthly in the 2016 JCT suite. The 2016 revision also sees a simplified procedure for loss and expense claims.

Retention Percentage (clause 4.18 in 2016 version and clause 4.17.1 in 2011 and 2005 versions)

The retention percentage is a specified percentage of the amount payable to the contractor (the contract sum).

The retention is retained by the employer as security for the completion of the work and the remedy of any defects during the rectification period.

The amount retained is usually set at 3% or 5% of the contract sum and half of the retained amount will generally be released on practical completion and the balance on the issue of a notice of completion of making good at the end of the rectification period.

Insurance of the works - insurance options (clause 6.7 and Schedule 3, in 2016, 2011 and 2005 versions)

There are 3 options for insurance of the works under Schedule 3 to the JCT Design and Build, one of which must be selected in the contract particulars. There is a choice of Option A, if new buildings are to be insured by the contractor, Option B, if new buildings are to be insured by the employer and Option C, if the work is in existing buildings or extensions.

The 2016 revision extends Option C for an extension of the works in an attempt to assist domestic homeowners who have previously struggled to get adequate cover.

Professional indemnity insurance (clauses 6.15 and 16 in 2016 version, clause 6.12 in 2011, 6.11 in 2005 versions)

It is important that a design and build contractor maintains professional indemnity insurance to cover its liabilities under the contract.

The requirement that the contractor holds professional indemnity insurance under clause 6.12 is only applicable if the contract particulars state the level of indemnity that the contractor must maintain. It is also important to state, by deletion of the non-applicable option, whether the amount of cover applies in each and every claim or in the aggregate. If neither is deleted the cover will apply in the aggregate.

The period of expiry of the cover should reflect the method of execution of the contract and the limitation period that applies, as considered below.

Part 2: Third-party rights and collateral warranties

Where the employer will require the contractor to provide rights or collateral warranties in favour of third parties (or to procure the same from its subcontractors), Part 2 must be completed accurately. Failure to do so may preclude the employer from successfully obtaining such rights and warranties, which may prejudice its position under a third party agreement, for example a funding agreement, agreement for lease or sale or development agreement.

The 2016 revision extends collateral warranties and introduces an option to use third-party rights. Further, the 2016 revision introduces an obligation for performance bonds and/or parent company guarantees as a standard.

Attestation

The Limitation Act 1980 imposes time limits within which an action for breach of contract can be brought. The Limitation Act provides that where a contract is executed under hand, a limitation period of 6 years will apply, however, this period is extended to 12 years if a contract is executed as a deed.

Accordingly, an employer should seek execution of the JCT Design and Build as a deed so that he or she can pursue the contractor for breach of contract for an extended period of time.