Legal issues with JCT contracts

An agreement (which is what a contract is) for construction is always going to be complicated as it will have to include for a wide variety of project data (price, time, quality requirements) plus numerous legal issues. Construction projects differ from many other commercial contracts in that each project is ‘unique’: whether in design, conditions of the site, the weather, people involved - which in turn creates its own, often, unique challenges.

Construction contracts are also subject to an immense amount of law particularly statute and case law. Public sector contracts are subject to strict requirements under public procurement law and specialist advice should be sought on this.

Classic heavy weight texts on construction law and contracts (particularly the JCT) are:

• Keating on JCT Contracts;
• Emden's Construction Law;
• Hudson's Building and Engineering Contracts.

These books are very expensive and some are available from the RICS library.

For these reasons, a UK standard construction form like the JCT is always recommended. A bespoke or heavily amended standard form is rarely if ever appropriate. Such contracts carry many risks and the practitioner must inform his or her client if a bespoke form is to be used.

Bespoke forms rarely have any of the benefits of a standard form. The contractor will probably treat such forms with suspicion and it is likely he or she will price this risk in the contract sum. Your client will therefore pay a premium for using such contracts. These notes, therefore, do not deal with bespoke contracts. The 2011 OGC Achieving Excellence Guide No. 6 - Procurement and Strategies also recommends avoiding bespoke construction contracts as did the Latham Report in 1994. See also Balfour Beatty Regional Construction Limited v Grove Developments Limited [2016].

The law of contract

Legal issues will arise during a project and these must be dealt with at the time and by the appropriate legal professional even if it is expensive. Dealing with legal matters pre-contract is considerably cheaper than dealing with matters post contract when a dispute has arisen and some sort of legal action is likely.

Construction contracts deal with a variety of legal matters but the contract itself is governed by the law of contract. It is therefore important that practitioners have a good understanding of this area of law.

Bear in mind a few basic contract principles, which include:

• a contract is essentially a bargain between 2 parties. The selected contract should therefore reflect this bargain as closely as possible;
• a contract will allocate risk between the parties. Risk is a complex subject and care should be taken on this matter;
• the contract will set out various procedures that have to be complied with. Be sure you and your client can comply with these procedures; and
• failure to comply with any contract requirement is a breach of contract and the other party may be entitled to damages (normally money).

Contract formation

The formation of a binding and legally enforceable contract usually takes place via several sequential stages (tender, clarification/negotiation, acceptance, contract assembly and preparation). Care must be taken that these stages are followed to ensure compliance with the appropriate tender regulations and to achieve a legally binding contract.

Essentially the client must give all the project information to the contractor who then provides his or her tender. This is an 'offer' which the client can accept or decline. A 'clean' acceptance of the tender will result in a binding contract. In reality, the contractor will usually qualify his or her tender and the client will often enter negotiations with the contractor to discuss his or her tender. This can result in a situation where there is no clear offer and acceptance, and a difficult legal situation can arise.

As already noted, the JCT forms require clarity on what the contractor has offered and what has been accepted. The practitioner must ensure that the tender process and any negotiations are clearly structured and recorded so that when the formal contract is prepared, the contents of the contract reflect both:

• the bargain between the parties; and
• the structure required by the particular JCT contract.

JCT contracts have a fairly rigid structure and it is essential that a JCT contract is assembled so that it follows the structure required by the terms of the particular JCT contract. Failure to assemble the contract properly will result in confusion and dispute.

Most of the JCT 2016 contract guides now have a useful checklist (at the back of the guide) of the items required to make up a JCT contract.

Jurisdiction

England and Wales

England and Wales have the same legal system and all JCT contracts can be used in these jurisdictions.

Scotland

Scotland has a different legal system to England and Wales and the Scottish Building Contracts Committee produces Scottish versions of JCT standard forms.

Northern Ireland

Some changes are required to the JCT contracts for a project in Northern Ireland and these are usually available via an adaption schedule. These adaption schedules are available from local professional construction bodies such as the Royal Society of Ulster Architects.

Dispute resolution

Most construction disputes are dealt with informally by negotiation and compromise. Mediation is becoming more common and focuses on the needs of the parties rather than their strict contractual rights.

The most common formal means of resolving disputes in the UK is adjudication. This only gives a decision that is ‘contractually’ binding in the interim and can be overturned by arbitration or via the courts. Arbitration is now out of favour in UK construction although it does have some advantages particularly with regards to confidentiality and tribunal expertise. Some large government bodies like the NHS prefer arbitration. There is also a specific Act clearly defining arbitration practice and procedure.

The default forum for final dispute resolution in all JCT contracts are the UK courts. If arbitration is wanted, then the appropriate amendment must be made to the JCT contract particulars.