JCT contract selection considerations

Insurance is a very complex subject with its own body of law. Clients often want amendments to the JCT insurance provisions for a variety of reasons. The JCT 2016 includes a consolidation of the provisions relating to insurance option A, B and C. Only an experienced professional should provide such amendments and such amendments should be cleared with the project insurers (this includes both the client and contractor's insurers). It is vital that project insurance provides comprehensive cover and gaps between the client and contractor's insurance are avoided. The situation is made all the more complicated where the client is not also the owner of the land, e.g. works to demised premises/sites.

Practitioners should avoid involvement in such amendments unless they have the required experience. Such amendments should generally be done by the client's lawyers. Note that advising on insurance is regulated by the Financial Services Authority and amending the JCT insurances may not only be negligent but may be breaking the law.

See Construction insurance for more information.

Intellectual property

The JCT 2016 contracts include an update to the intellectual property provisions with the JCT 2012 Named Specialist Update being inserted.

Risk

Risk is a complex subject and these guidance notes can only mention risk in passing. Risk is also mentioned in some of the discussion below on individual contracts. An understanding of risk will help with a contract set up and contract administration. Keith Pickavance's book Delay and Disruption in Construction Contracts provides a detailed analysis of construction risk, particularly with regards to the JCT.

Much of the risk for the construction works is with the contractor but there are many important exclusions particularly with regards to change events (variations) and insurance matters. Ground conditions are a complex issue and great care must be taken on this. JCT Constructing Excellence allows the parties to allocate risk between the parties. Again great care must be taken with this exercise.

The Local Government Task Force provides a useful mini guide titled A Guide to Standard Forms of Construction Contract which provides a brief outline of the risk profile of some of the most popular JCT contracts.

Again, always seek specialist advice if more information on risk is necessary or becomes an issue.

Collateral warranties

There is now a trend towards obtaining collateral warranties from the contractor and his or her subcontractors. This is a burden on most contractors, resulting in additional costs and considerable friction.

The security clients get from such warranties is probably limited particularly if the warranties are from subcontractors as many of these entities are unlikely to have substantial funds or be around in the future. The drafting, reviewing and obtaining of such warranties all incurs legal fees and the client will have to pay for this at some point either via higher tender fees or legal bills from his or her advisors. Using a standard form warranty (such as the JCT) will save on legal costs.

The provision of collateral warranties should be limited to those parties who need a contractual duty of care from the project constructors for defective works. This is likely to be limited to:

1. project funders; and
2. project end-users.

It is suggested that project end-users be limited to first purchasers of the property and possibly those who first lease the property. Second purchasers and second tenants rarely need access to the project constructors and should be looking for compensation for building problems from the building maintenance team and/or building insurance. Alternatively, the original collateral warranties could be assigned to these successor end-users. There must be a limit on the number of collateral warranties for practical and commercial reasons (the contractor cannot price unlimited liabilities to third parties).

The exact nature of the project will determine which subcontractors and subconsultants should provide collateral warranties but it probably should be limited to:

1. those with design responsibility; and
2. those involved in piling, structural steelwork, roof and wall cladding, mechanical and electrical engineering.

Collateral warranties are not provided for under the JCT Minor Works Contract but are provided for under most of the other forms Standard Building Contract, Intermediate and Design and Build Contract). Part 2 of the JCT Contract Particulars deals with this issue and care must be taken when filling out Part 2[A1] as it is not that easy to understand. The 2016 revision of the JCT includes provisions for the grant of performance bonds and provisions for parent company guarantees.

An alternative to collateral warranties is to use the Contract (Rights of Third Parties) Act 1999 and again Part 2 of the above JCT contract can be used to extend rights to third parties. The Contract (Rights of Third Parties) Act 1999 is rarely used in practice and most clients prefer collateral warranties. JCT 2016 provides an option to use third-party rights instead of collateral warranties for subcontractors.