FAQs

The following FAQs are addressed below:

• Is it possible to have a contract that is a guaranteed maximum price (GMP)?
• Is there a precedence between the employer's requirements and contractor's proposals?
• Should a standard form be amended?
• What is a fixed price contract?
• What is a lump sum contract?
• Who takes the risk on ground conditions under a JCT contract?

Many JCT contracts are amended to make them a GMP contract. However, it is hard to see how a contractor can be held to the contract sum if the project circumstances change as a result of employer requested change or employer risk items. It is unlikely that any construction contract is a true GMP contract and the term should be avoided as it leads to client misunderstanding and false expectations with regards to project cost certainty. Cost certainty via a GMP clause is illusionary.

The JCT Constructing Excellence contract uses the terms Guaranteed Maximum Cost but this sum will be adjusted if there is change or client risk items are triggered.

Target cost contracts with a pain gain mechanism that puts all the 'pain' on the contractor can achieve a situation that is similar to a GMP but still does not guarantee a GMP particular if there is change or variations. Except for the JCT Constructing Excellence contract, the JCT does not produce a target cost contract.

Under a JCT Design and Build form, is there a precedence between the employer's requirements and contractor's proposals?

There is some uncertainty on this point as this JCT form does not expressly state what takes precedence. This confusion is apparently a result of the JCT drafting committee (a mixture of clients, consultants and contractors) being unable to agree on this point with the result that an unsatisfactory compromise was reached, which is the current drafting. In 'Understanding JCT Standard Building Contracts' David Chappell argues that the employer's requirements must take precedence as the contract philosophy requires the employer to set out its requirements and it is logical that the contractor works to this. The JCT guidance notes for this contract also provide some explanation on this matter although it provides no overall guidance on precedence. There is uncertainty on this point and it is suggested that the practitioner make an amendment to the third recital making it clear which part of the design takes precedence. This will reduce arguments on the subject.

Should a standard form be amended?

Not necessarily but some amendments are currently fairly standard such as the removal of the inflation/fluctuations provision and the requirement for a lump sum contract. Most standard forms will require some amendment to suit the project requirements although efforts should be made to keep these to the minimum to preserve the essential nature of the JCT.

Your client (particularly the larger client) will often have their own standard amendments and most consultants have their own in house amendments. Public bodies and local authorities often have mandatory contract amendments such as provisions on the Freedom of Information Act and anti-discrimination.

What is a fixed price contract?

This is normally a contract where the contract sum is not to be adjusted for price/ inflation increases. Many of the JCT contracts have detailed provisions for dealing with inflation via 'Fluctuation' provisions. The operation of these provisions can be quite complex. An amendment is normally added to such contracts, deleting the fluctuation provisions and making the contract sum fixed for the contract duration. Fixed price contracts are currently the norm in the construction industry but this may change.

What is a lump sum contract?

A lump sum contract requires the contractor to perform all the obligations identified in the construction contract and complete the works for a specified sum of money. This is sometimes called the 'Inclusive Price Principle'. Providing the project requirements have not changed and none of the compensation mechanisms (variations, extensions of time, loss and expense, etc) in the contract are triggered then the contractor is only entitled to this sum of money for completing the works. A lump sum contract is not a guaranteed maximum price (GMP) contract.

Who takes the risk on ground conditions under a JCT contract?

This is a difficult question on a complex issue. Firstly most JCT contracts do not have any express clauses on ground conditions, which suggests the contractor carries all the risk on ground conditions on JCT forms.

Moreover, JCT contracts are often amended and include terms that exclude liability for ground conditions. However, many JCT contracts also include or make reference to ground investigation reports so there may be the risk of the employer making some form of representation or warranty to the contractor on the nature of the project ground conditions (Bacal Construction v Northampton DC (1975) 8 BLR 88). Representations and warranties are very legal based arguments and require a legal professional to advise on such issues.

It is likely that the risk of ground conditions under a JCT is with the contractor and included for in its price. If the contract is a re-measurement contract, then there may be the ability to recover the cost of additional excavation and earthworks. Much will depend on what the contract expressly states but if the contract is silent then this risk is probably with the contractor. Specialist advice should always be sought on this matter.