OCTOBER 2011
JCT NEWS
THE JCT CONTRACTS UPDATE FOR THE CONSTRUCTION PROFESSIONAL
HERON TOWER - OUR TOP CITY CONTRACT The City of London’s newest, and highest, addition to its skyline was built using a JCT Major Project Construction Contract. The 230m high Heron Tower, completed earlier this year, replaced Tower 42, the former NatWest Tower, as the City’s highest building. It is the third-highest building in London after Canary Wharf and the Shard, due for completion next year and a project also using a JCT form of contract. Designed by Kohn Pedersen Fox, Heron Tower is 46 storeys tall with a restaurant, sky bar and public terrace at the top of the building, all accessible directly from Bishopsgate below. In addition to the six double-deck external lifts, there are four internal double-deck scenic lifts for the less faint hearted. The building is marketed as a ‘six-star advanced business life environment’ and uses a series of three-floor ‘villages’, each with its own three-floor high atrium, aimed at ‘boutique’ finance firms in the city. The tower’s main reception boasts Europe’s largest aquarium. It contains 1,200 fish and an entire sustainable ecosystem modelled on the majesty and biodiversity of Heron Island’s coral reef in Australia. The south elevation of the tower is covered with solar photovoltaic panels – at 3,200 square metres, it is the UK’s second largest installation.
HERON TOWER - DAY
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Harriett Baldwin MP hosts JCT Construction Industry Parliamentary Reception
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My Three Best Mates Ed Badke – Development Director, Notting Hill Housing Group
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Is Two-stage Tendering and Collaboration being discarded in pursuit of lowest price? Julian Record – Director, Real Estate Advisory, Drivers Jonas Deloitte
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Good Faith – in Practice Shy Jackson - Senior Associate, Pinsent Masons LLP
Construction of the building, which provides 40,836 sq m of commercial office space, was undertaken by Skanska, and started in April 2008, the building topped out in April 2010, and completed in March 2011. Commenting on Heron Tower’s completion, Gerald Ronson, chief executive of Heron International, said: “Heron Tower has taken more than 12 years from conception to completion but the results speak for themselves: this is a truly exceptional office development in one of the world’s best locations.”
HERON TOWER - NIGHT
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The Importance of Notices When in Delay – Do They Really Matter? Mark Clinton - Thomas Eggar
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JCT News Flash
JCT NEWS 2
JCT SUPPORTS THE GOVERNMENT’S CONSTRUCTION STRATEGY There is little doubt that the Government Construction Strategy (Strategy) has been generally welcomed by the construction industry because for many years the industry has argued that it has punched below its weight: this, it has been suggested, is down to the failure to secure the ear of government. Now this has been remedied one might ask whether everyone should be pleased with the outcome.
Peter Hibberd
Chairman’s Letter
The Strategy must not be read in isolation because it is reliant upon the Government’s economic strategy and is, or should be, inextricably linked to sustainability and environmental policy. Other government policies including those of the localism agenda also will impact upon its construction strategy. There will be tension between those policies and it is clear that not everyone will wish to see construction as the principal driver. As mentioned in earlier JCT letters the industry needs to have a vision of itself within the wider environment and if it fails to engage on this point it will meet substantial opposition from many areas and fail to deliver. The Government Construction Strategy states that construction has failed to exploit the potential for public procurement of construction and infrastructure projects to drive growth. This may simply be an observation but it reads like a criticism and one that may be misread. This Strategy is not about the creation of construction work per se, which is just a series of one off events, but what the building offers society in terms of facilities and opportunities – as the Strategy says ‘procurement is best looked at as a part of a broader asset life cycle’. It is about growth but not in the way some in the industry will envisage – something that is better appreciated when one considers the Strategy envisages a 20% reduction in costs by the end 2015. The Strategy is primarily concerned with public sector procurement but there will of course be a knock on effect to those working in the private sector because of the huge amount of work that originates from central government. It is absolutely right that Government looks at ways of extracting better value for the £40bn or so per annum that is spent on construction: something that should be done on a regular basis. The Strategy suggests that the barrier to reduced cost is the lack of integration in the industry compounded by a lack of standardisation and repetition of product and a procurement process that has been shaped to
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reinforce those barriers. It challenges industry business models and practices, which presents no small task but is achievable. It also states that it will replace adversarial cultures with collaborative ones while demanding cost reduction and innovation within the supply chain to maintain market position rather than on the bidding process. This may be far more difficult. Government proposes to publish a rolling two year programme and although this is better than nothing it is of limited help. As recognised, the programme is subject to changes in priorities; something Governments are prone to. There is recognition by Government that clients and suppliers need to work together with fewer suppliers in a more settled supply chain but that this creates a tension with the idea of an accessible market for SME’s and others. Regardless of the Government’s acknowledgement of this tension it seems the Strategy will, in practice, through greater central control, benefit a few and shut out many. Yes, fragmentation of the public sector client base is a problem in some respects but not in every respect. A ‘single’ public sector client would be over-centralisation and lead to more problems than it would solve. Inherently it has the same problems as would nationalised industries and it also works against the agenda for local democracy. As part of the Strategy the Government will now move towards using only standard forms of contract with minimal amendment for all central government procurement. JCT supports the concept of minimal amendments to its standard form contracts while recognising that in practice parts of the market have been diverging on this point. Providing the appropriate freedom of contract, while maintaining the full benefits of standardisation, has always created a tension and one that has intensified with the advent of electronic documents. In the past the Government had its own contracts such as GC/Works and PACE but neither those nor the more recent embracement of an engineering contract have changed things much in terms of increasing value for money. Interestingly, private sector projects do not seem to suffer from a lack of value and from other problems to the same extent as those in central government. The procurement systems used and the levels of standardisation (both in terms of product and
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objectives. JCT forms of contract have been widely used across the private sector and local government. The private sector has been successfully procuring works on these forms and arguably the same can be said for most local authorities. If it is untrue those local authorities have been successful then the difference would come down either to the adequacy of skills available to local authorities or to central government
policies and ‘interference’ by government departments. One suspects it is those policies and such interference rather than an inadequacy of skills. In terms of doing things better there is still much to learn from the private sector and indeed many local authorities. Peter Hibberd Chairman of JCT
HARRIETT BALDWIN MP HOSTS JCT CONSTRUCTION INDUSTRY PARLIAMENTARY RECEPTION Harriett Baldwin MP hosted a reception on behalf of JCT on The Terrace at the House of Commons. The reception was held to launch the new 2011 suite of JCT contracts that were prepared to meet the requirements of the Local Democracy, Economic Development and Construction Act 2009, which came into force on October 1 in England & Wales. Harriett Baldwin MP said: “Holding the launch in the House of Commons not only highlights the importance of the new edition, but also reinforces JCT’s position as the UK’s leading contracts provider.” Business Minster, Mark Prisk MP, in congratulating JCT on responding so promptly to the changes that the Construction Act bring in, said: “With any new legislation, it is always a challenge for the industry to accommodate the new requirements. With JCT contracts being used on many building projects, it is commendable that JCT has been able to publish a new revision incorporating the changes quickly and making it easier for the industry to react to the legislation.” Victoria Peckett, chair of JCT Drafting Sub-Committee explained the key changes in the new edition. John Riches, chair of JCT Payment Review Working Group, also unveiled a new Public Sector Supplement. Tailored specifically for public sector clients and their contract administrators, JCT has pioneered a userfriendly document that can be used in conjunction with JCT contracts in the procurement of public sector projects, and is designed to accommodate key features from the Government’s Construction Strategy.
Left to Right: Neil Gower, Victoria Peckett, John Riches, Harriett Baldwin MP, Peter Hibberd.
JCT NEWS 4
MY THREE BEST MATES ED BADKE – DEVELOPMENT DIRECTOR, NOTTING HILL HOUSING GROUP
Most people reading this article will be familiar with the term Social Networking – Facebook; Twitter; LinkedIn are all examples of how we can stay in touch with people at the press of a button. If Facebook is to be believed the average user has around 130 ‘friends’. We all know what a friend in need is, so how can anyone cope with this many friends? The reality is that, in all probability, the majority of those friends are more likely to be acquaintances – people we know, or know of, but not what one would call real friends. What has all this got to do with the business of building contracts? I hear you ask. Well, please be patient and all will be revealed! The relatively recent phenomenon of social networking, a by-product of the internet, has passed me by. Instead I have three really close mates that I have known for many years. You could almost say we grew up together. Certainly we have all put on a few pounds since we first met and, although we have been through a few scrapes over the years, we have come out of them largely unscathed and with a stronger relationship. You may have already guessed who these three mates are, but just in case I can confirm their identities are: • The JCT Minor Works Building Contract. • The JCT Intermediate Building Contract. • The JCT Design and Build Contract. It is true that, similar to many Facebook users, I do have many other contractual acquaintances, from both within and outside of the JCT suite of contracts. But, invariably, I turn to one of my three mates when I need some help and
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support with a relationship with one of our framework consultants or building contractors. So what are the characteristic traits of these contracts that distinguish them from the many other forms that are available? Well, like any true personal friendship, these contracts promote relationships that are based upon a combination of the following: • Empathy. These contracts are written in a clear and unambiguous language and deal with risk allocation between the contracting parties in a straightforward manner. Clearly, as an employer of building contractors, I am of the view that perhaps more of the risk should lie with the building contractor rather than the employer. However it is important that employers recognise that any reallocation of risk comes at a price. Although, strictly speaking, Notting Hill Housing is not a public sector organisation, we do receive a significant part of our funding from the Homes and Community Agency and have to comply with strict procurement rules. Like many similar organisations we have done this by setting up contractual frameworks for our suppliers of consultancy services and building works. Therefore all of our projects are tendered to our framework contractors and we implement our building contracts through a JCT Form. In fact the vast majority of contracts, both by value and by number, are let using the JCT Design and Build Contract and, at the risk of making myself a hostage to fortune, I cannot envisage a situation where Notting Hill Housing would let a contract without one of my three mates.
The great thing about my contractual mates, and this is where empathy comes in, is that they encourage us to sort out what we want before entering into a contractual commitment. And if, by chance, we miss something, or something unexpected happens, the contract is there to help us resolve matters quickly and amicably. Certainly the feedback I have had from our framework contractors is that this is a sentiment they share. It is this empathy that helps create long-term programme relationships rather than single project transactions. • Trust. Like any organisation with a large capital programme we need to be able to trust our suppliers to deliver on cost, quality and programme. In terms of cost, Notting Hill Housing has an internal project approval committee. All building contracts are presented to this committee and peer reviewed before we are given authority to enter into a contractual commitment. Whilst, as an experienced developer we are aware that unforeseen circumstances can occur, which may give rise to cost overruns, I can say, categorically, that cost overruns are significantly lower when using one of my contractual mates. As far as quality is concerned, we generally take the design to Stage D+ before we go out to tender. The skill here is to take the design to a level that accurately shows what we want without inhibiting the tendering contractors’ instincts to gain a competitive advantage through an innovative tender. Once again, when this approach to quality is accompanied by a clear contractual relationship, the probability of a successful outcome is increased significantly.
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Finally turning to programme, Notting Hill has two masters to satisfy. Firstly there is our own Executive Board which, not surprisingly, has a tendency to set demanding targets. Secondly there are the Homes and Community Agency’s delivery targets which we are required to meet. Anyone who is connected with the Affordable Housing Sector will know the political significance of meeting these targets, particularly the unit completion targets for the financial year ending March 2012: so all of our contracts are let with express Dates for Completion agreed prior to entering into contract. So how does all of this feed into the bottom line and improved performance? Well, a few years ago I introduced my three best mates to my Chairman. Whilst, initially he was sceptical, particularly about the use of an ‘adolescent’ design and build form of contract, he became a convert when he saw our post-contract overspend drop from around 30% to 5%!
However, there is one area that I feel JCT may be missing a trick. Invariably if a delay occurs in a building contract, the contractor’s first reaction is to assess the extent of delay and prepare an extension of time claim. However, in many cases the employer may prefer to buy off the extension through an acceleration agreement – something which is catered for in the JCT Design and Build Contract but not by my other two best mates. Is this an option that could be included in all contracts? It just goes to show that even the best of mates can have a difference of opinion without falling out! • Performance Our capital programme in Notting Hill this year is for around 1285 unit completions with a construction spend of £152m. I can predict, with a high degree of confidence, that we will deliver this programme within 5% of the approved programme budget and unit numbers.
Clearly a lot of this success is a direct result of our management and the support of our consultant and contractor supply chains. However the additional key success factor is the form of contract that we use. I guess we all have a contractual nightmare hidden away somewhere in our CVs, but I would doubt that there are many based on the contractual arrangements I have outlined above. It is interesting to note that the vast majority of all building contracts are let on JCT contracts and that my three best mates make up approximately 70% of those contracts. It is comforting to know that I am not alone. Who are your three best mates? Why not email JCT at stanform@jctltd.co.uk and let it know. Ed Badke is a Chartered Surveyor, Development Director at Notting Hill Housing Group and a Director of JCT Limited.
JCT NEWS 6
IS TWO-STAGE TENDERING AND COLLABORATION BEING DISCARDED IN PURSUIT OF LOWEST PRICE? JULIAN RECORD - DIRECTOR, REAL ESTATE ADVISORY, DRIVERS JONAS DELOITTE
Julian Record
Yes is the short answer but I am increasingly of the view that smarter procurement incorporating greater collaboration such as that offered through two-stage, open book procurement routes is urgently required in order to buck the trend in the savage bidding taking place across the industry.
exactly right. In today’s climate a client might be lucky to get two or three versions as there simply aren’t the fees for designs to be perfected to the same extent. This is being compounded as design risks are being passed onto contractors, where it’s possible to do so, who are in a similar jam.
The same is also true for the procurement of consultancy services which have also nose dived to quite frankly unsustainable levels and the combined effect of both these aspects is exposing clients to a whole host of risks and liabilities which few truly understand and will give rise to a greater incidence in delays, insolvencies, claims and building defects as time goes by. These are reasonably well understood if not still relatively intangible but a further fear which I have relates to increased operation and maintenance costs, at a time when we need to build more sustainably.
All of this spells trouble for the unwary but who can blame clients for taking advantage of the current climate? Many are inexperienced and haven’t the knowledge and understanding to see the picture. Moreover, how can clients protect themselves from the pitfalls touched on above?
Meanwhile I believe many clients feel that they are getting ‘more for less’ when in fact behind all the smoke and mirrors thrown up by the industry it’s really ‘less for less’. Yes, wasteful practices are being eliminated which accounts for part of this fall but a simple illustration of this springs to mind from the recently completed Royal Shakespeare Theatre redevelopment where the architects produced numerous iterations of the auditorium designs – in excess of 40 versions in order to get the sightlines, seating and acoustics
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The answer to this has to be in smarter procurement of both professional services and construction works; something which I touched on earlier in the year. In effect, devising a go to market strategy and plan that seeks long term value rather than short term savings. Tesco’s refer to it as ‘active procurement’ but it is the same concept. This is where I feel that clients need most help, yet due to the squeeze in public sector finances and the desire for self preservation, clients are eschewing up-front advice in order to save costs and are using in-house resources to determine vital components of a brief such as budget, programme and procurement strategy. In-house resources which in my view are often not competent to make such decisions without the right support.
So how does this fit with TwoStage tendering? Well, it was not that long ago that this option was the preferred choice for many government organisations for its collaborative qualities. It still remains the case for some, though by and large the recession has given way to the more widespread use of single stage tendering as a means of securing the lowest possible price. The reason for the shift being that many view two-stage as being c.10% dearer than single stage tendering and often consultants don’t like the process due to the time and effort required to support the process and get it right. I was in this camp not so long ago but as time passes I find myself of a different heart and now see the need for a return to two-stage tendering in order to deliver better whole life value. Why? Well principally for the reasons touched on above. We have all been involved in projects where many requirements such as programme, the scope of services or even the procurement strategy have been determined before a team is appointed and work really gets underway which drastically influences the outcomes and restricts how value can be achieved. Never is this truer than for two-stage procurement which needs the right conditions to flourish and deliver best value. First amongst these conditions is a client who understands the pressures across the industry, the
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risks this spells and is willing to work more collaboratively; Second, the procurement of upfront advice to guide the brief and develop an integrating procurement strategy for both the professional and construction team with the attendant scopes of services; Third, there needs to be greater focus on the procurement of individuals and teams, who have the experience and understanding of the issues, to work together to achieve best value. All businesses are people businesses, involving relationships yet procurement is often undertaken in a vacuum; and
Fourth, and arguably most importantly, the programme needs to be structured to suit the process and allow time for design development. This is true for all projects, but a two-stage process really needs a well developed design (RIBA Stage E) to properly articulate the design and underpin the open book procurement of the packages which represents c.80% of the construction cost. If inadequate design information is produced or the programme is too tight then high risk pricing can become a material factor during the second stage and costs for incomplete elements of design have to be negotiated, often with poor results.
If correctly set up I believe this option can • Secure the best talent to deliver sustainable projects; • Promote closer collaboration across the industry; • Provide an active hedge against a claims culture beginning to take a foothold, insolvencies and quality; and • Help meet the government’s aim to increase standardisation and to build more cost effectively. One effective means of achieving two-stage tendering is by using the JCT Pre-Construction Services Agreements in conjunction with the main building contract.
DATE FOR YOUR DIARY SBCC Annual Update 2011 24 November 2011, Royal College of Physicians, Edinburgh Providing an update on the most important issues facing construction professionals in Scotland, this event will cover the latest revisions to SBCC contracts and the legal issues behind them. For further information please visit: http://www.sbcconline.com/news.aspx
JCT NEWS 8
GOOD FAITH – IN PRACTICE SHY JACKSON - SENIOR ASSOCIATE, PINSENT MASONS LLP
JCT incorporated an express good faith obligation as part of Revision 2 to the standard form published in 2009. Schedule 8 at paragraph 1 requires the parties to act “in a co-operative and collaborative manner, in good faith and in a spirit of trust and respect.” These obligations were introduced to encourage collaborative working and it is therefore worth looking into how such a clause may operate in practice and the impact it may have. The legal basis for good faith obligations Good faith is a phrase often used, but traditionally there has been reluctance by the courts to use good faith as part of the wider general law of contract. Good faith is a well established part of insurance and partnership law but in so far as the law of contract is concerned, the House of Lords held, for example, that “…however the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. … A duty to negotiate in good faith is unworkable in practice as it is inherently inconsistent with the position of a negotiating party.” (Walford v Miles [1992] 2 AC 128). Despite the rejection of good faith when negotiating as unworkable in Walford v Miles, more recently, in Petromec Inc v Petroleo Brasileiro SA Petrobas [2005] EWCA Civ 891 it was suggested obiter that an express obligation to negotiate in good faith was enforceable and in Berkeley Community Villages Ltd v F. Pullen, K. Pullen and A. Pullen [2007] EWCH 1330 (Ch), good faith was said to mean an obligation on the parties to observe reasonable commercial standards of fair dealings in relation to their contractual obligations. Good faith was also the issue the TCC considered last year in Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 1632 (TCC), a case where the economic meltdown meant that the minimum sale prices originally agreed resulted in the proposed development no longer being commercially viable. The agreement had an express good faith obligation and it was argued that this meant that the landowner should agree to revise the commercial terms, in order to achieve the common intended commercial purpose.
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The court preferred to uphold the bargain agreed by the parties and held that a good faith obligation did not require either party to give up a freely negotiated financial advantage clearly embedded in the contract. In other words, if the contract contains express contractual obligations or rights, they will have priority over a more general obligation to act on good faith. Good faith in construction As noted above, good faith is a recognised concept in insurance law and in partnership law and indeed in respect of certain tendering obligations. The courts have had no hesitation or difficulty in determining compliance with good faith obligations in these areas. Partnership in particular seems relevant to construction and there are of course standard forms which are based on the general principles of partnership. Such forms however do not always use express good faith obligations, or create a formal partnership, which would then be subject to good faith obligations as part of the law of partnerships. The effect of such obligations was considered in Birse Construction Limited v St. David Limited [1999] BLR 194. HHJ LLoyd QC considered certain behaviour against the background of the duties described as “mutual co-operation and trust” and a relationship which was intended to “promote an environment of trust, integrity, honesty and openness” and “to promote clear and effective communication”. He observed that these days one would not expect, where the parties had made mutual commitments such as those in the partnership charter, to be concerned about compliance with contractual procedures if otherwise there had been true compliance with the letter or the spirit of the charter. He suggested that even though the terms of the partnership charter would not alter or affect the terms of the contract, an arbitrator would undoubtedly take such adherence to the charter into account in exercising the discretion to open up, review and revise. The suggestion that strict compliance with the contract may not be necessary in such circumstances however has not been followed by the courts.
9 The practical impact of good faith clauses The question which arises as to the operation of good faith clauses is whether they will have an impact on the express obligations already contained in the JCT form or are they only intended to indicate the intention for collaborative working? The full obligation as set out in paragraph 1 of schedule 8 reads as follows: “Collaborative working The Parties shall work with each other and with other project team members in a co-operative and collaborative manner, in good faith and in a spirit of trust and respect. To that end, each shall support collaborative behaviour and address behaviour which is not collaborative.” The courts seem clear in not letting good faith obligations go against the express terms of the contract. If a party has an entitlement under the contract, this is unlikely to be affected by a good faith clause. A good example is the recent case of Education 4 Ayrshire Limited v South Ayrshire Council [2009] CSOH 146, where a party was able to rely on the strict application of a condition precedent (requirement for a notice) as a bar to claim despite having full knowledge of the circumstances giving rise to the claim and not suffering any prejudice from the lack of notice. It seems unlikely therefore that a good faith obligation will prevent a party from insisting on a strict interpretation of its contractual rights. Good faith may however have an impact where there are no express obligations. Such an obligation could arguably give rise to an obligation to disclose relevant information which one party has, as part of the general duty to collaborate. In the recent case of ING Bank v Ros Roca SA [2011] EWCA Civ 353, an agreement was drafted in such a way that payment was based on a value of a company
in 2006 but as the deal was done in 2007 there was a substantially higher fee. The Court of Appeal had to accept that the words meant what they said but used estoppel to avoid the outcome neither party intended. Lord Justice Rix accepted there was no general notion of good faith in commercial affairs but observed that while “...silence gives no hostages to fortune. If, however, the contractor speaks then he may have to live up to what he says...”. In these circumstances, there was a positive duty to speak up and this is the type of situation where an express good faith duty may make a difference. This was the approach taken recently in Horn and others v Commercial Acceptances Ltd [2011] EWHC 1757, where Peter Smith J made obiter comments about the effect of a contractual good faith duty in a loan agreement. In his view, such a duty required disclosure of all material facts, especially as in this case the other party would have been deprived of the opportunity to make an informed decision. He also suggested that a breach of good faith could happen even if a party behaved honestly, referring to conflicting authorities as whether dishonesty was required. He rejected the argument that a good faith obligation gave rise to fiduciary duties. This background may help when looking at paragraph 1 of schedule 8. Questions may arise however as to the effect of the second sentence. Does the obligation to “support collaborative behaviour” have priority over other obligations and what is required in practice to “address behaviour which is not collaborative”? The approach the courts take suggests that such wording will not have priority over specific obligations or rights. It therefore seems unlikely that good faith clauses will affect the operation of express clauses or that they
will give rise to new causes of action save in unusual circumstances. The main purpose of Revision 2 was to add the principles adopted by the Office of Government Commerce in the Achieving Excellence in Construction Initiative and to encourage parties to collaborate in acting under a contract. This is consistent with modern approaches to contracting, which encourage parties to collaborate with each other rather than to rely solely on the express words of the contract. From this perspective, it is clear that the obligation to act in good faith is part of the general obligation to co-operate and act in the spirit of trust and respect. This is an approach which is to be commended and it provides for collaboration on the basis of the existing contractual structure setting out the parties’ rights and obligations. Conclusions Contracts are a way for parties to set out their commercial bargain and respective rights and obligations. It makes sense therefore that the courts do not allow an overarching duty of good faith to go against what the parties have expressly agreed. It is possible nonetheless to see circumstances where a duty to collaborate and be open would give rise to obligations beyond what is expressly set out in the contractual terms, although that appears likely to arise in limited circumstances and only if there are no other relevant express obligations. What is important however is that parties understand that the obligations in Schedule 8 of Revision 2 (also in 2011 edition) have a real purpose. They are intended to encourage parties to be open with each other, cooperate and collaborate in the spirit of trust and respect. There is much to be said for this approach and little, if anything, to be said against it.
JCT NEWS 10
THE IMPORTANCE OF NOTICES WHEN IN DELAY – DO THEY REALLY MATTER? MARK CLINTON – THOMAS EGGAR
Contracts require the giving of notices but do such notices really matter as a matter of law? When lawyers discuss this issue, they usually analyse it by considering whether the giving of the particular notice in question is a condition precedent – a condition that must be satisfied first, before a relevant claim can be made. For a subject that is so important and raises so much debate, there are remarkably few cases on the point. However, we now have another one to add to that short list: WW Gear Construction Limited v McGee Group Limited in which judgement was given in June 2011. Gear engaged McGee, under a JCT Trade Contract, to carry out ground works in connection with a hotel project in London. In due course, McGee submitted a claim for extensions of time and for loss and expense. The issues on the meaning and proper
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application of the contract clauses relating to such claims were in dispute. Gear referred those issues to adjudication. Gear did not like the answers it got in the adjudicator’s decision, so it went to court to get declarations on the issues from the judge. The decision focuses on the JCT notice provisions relating to loss and expense. The relevant clause in the JCT Trade Contract is clause 4.21. It had been amended in this case to “beef up” the notice requirements but those amendments were, in the view of the judge, “superfluous”. He analysed the meaning of the clause section by section. The opening wording of the clause has a familiar look to it (clause 4.21 TC/C 2002): “If the Trade Contractor makes a written application to the Construction Manager stating that he has incurred or is likely to incur
direct loss and/or expense (of which the Trade Contractor may give his quantification) in the execution of this Trade Contract” The judge took the view that the wording was clear enough – if you want loss and expense, you have to ask for it. There is nothing in the clause to suggest that the construction manager has to ascertain loss and expense if you don’t ask. As to the timing of the notice, the clause again has a familiar look: “provided always that: the Trade Contractor’s application shall be made as soon as [and in any event not later than two months] after it has become or should reasonably have become apparent to him that the regular progress of the Works or any part thereof has been or was likely to be affected as aforesaid”
11 The words in square brackets were an amendment to the standard form but they do not affect the key issue of the basic meaning of the clause. The judge considered that the words “provided always that” are “often the strongest sign that the parties intend there to be a condition precedent”. What if the delay becomes apparent to the contractor later than it might have? It seems that the contractor can meet the requirements of the clause by giving the notice within a reasonable time of the later date. The judge held that, subject to that latitude permitted by the clause, the giving of notice on time is a condition precedent to claiming loss and expense. So, it is clear from this decision that delay notices do matter, at least so far as the JCT requirements for loss and expense are concerned. The JCT forms also preserve common law rights so it would still be possible to make a claim for damages if the event causing delay was a breach of contract by the employer: so much for notices for loss and expense. What about extensions of time? This case does not address them but others do. When one looks at the extension of time provisions in the JCT forms, the similarity of approach to that used for loss and expense is immediately apparent. Taking the Design and Build form as our sample text, clause 2.24 contains the requirement to give notice in the following mandatory terms: ‘the Contractor shall forthwith give written notice’. The Employer’s obligation is expressed in similar terms to those considered in the Gear case: ‘If on receiving a notice and particulars under clause 2.24’. I see no reason why a court should view this any differently to the way they viewed the wording in Gear. If you want an extension of time under this clause, you have to ask for it. What may be less clear is whether the condition is satisfied by giving notice or whether it is only satisfied by giving notice forthwith as clause 2.24 requires. Even if the notice requirement under clauses 2.24 and 2.25.1 do create conditions precedent, the position as regards extensions of time is markedly different to that for loss and expense as discussed in Gear. This is because clause 2.25.5 requires the employer to review extensions of time no later than 12 weeks after practical completion and grant any extension of time that is merited regardless of whether the relevant delaying
events have been notified under clause 2.24. In the end therefore, failure to give notice is not fatal to the contractor’s entitlement to an extension of time. Some other forms of contract are stricter and do make the giving of timely notice a condition precedent to entitlement to an extension of time. Such provisions raise an interesting legal issue. As readers will appreciate, one of the several reasons why contracts contain extension of time provisions is for the benefit of the employer. If the employer causes delay and the contract does not provide a means to alter the completion date to reflect such delay, the employer cannot insist on completion by the completion date and cannot recover liquidated damages (time and damages will be ‘at large’). This is often referred to as the prevention principle. The interesting legal issue is this: if the employer causes delay and an extension of time cannot be granted because of a mere procedural matter (late notice or absence of notice) is the prevention principle contravened, thus putting time and damages at large? The Australian case of Gaymark Investments PTY Limited v Walter Construction Group Limited (1999) held that the principle was infringed by making delay notices a condition precedent. What do the English courts have to say about this? The short answer is that we still await a binding decision. Indications were given in Multiplex Constructions Limited v Honeywell Control Systems Limited (TCC 2007) and in Astea (UK) Limited v Time Group Limited (Court of Appeal 2007). In neither case did the court ultimately have to decide this issue but in both the judges doubted the law of England and Wales aligned with the position set out in Gaymark. So, it is possible that the time and liquidated damages provisions in contracts in England and Wales would survive even where a notice of delay is made a condition precedent but until a binding decision is made in the courts, they may still give rise to a little uneasiness. In the circumstances it is clear that the 12 week review adopted by JCT provides a fair approach and one that has a much to commend it.
JCT NEWS FLASH
NEW SERVICES AND PRODUCTS FROM JCT JCT CONTRACTS 2011 EDITION AVAILABLE FROM YOUR STOCKIST The new edition of JCT Contracts – JCT 2011 – which covers the new payment legislation and other updates was published in September. The new Construction Act came into force on 1 October in England and Wales. As well as reflecting the new payment legislation, the 2011 edition makes the following key changes: • A revised Insolvency definition in the Termination section. • Incorporation of the revised Terrorism Cover provisions that were included in JCT’s December 2009 Update. • The provision for appointment of the principal contractor under CDM Regulations has been extended to cover that function under the Site Waste Management Plans Regulations 2008. • Statutory reference to the Bribery Act 2010. • Entries in respect of PI insurance relating to asbestos and fungal mould have been removed. • Revised retention provisions in the subcontracts. The JCT 2005 suite will remain available until 1 July 2012 and it is labelled to show they no longer comply with the current legislation. The equivalent legislation comes into force on 1 November in Scotland. Users in Scotland should refer to www.sbcconline.com regarding the SBCC 2011 suite. Users in Northern Ireland should continue to use the JCT 2005 suite until the equivalent legislation comes into force in Northern Ireland (expected to be late 2012). JCT CONTRACTS ACADEMIC BOX SET JCT Contracts Academic Box Set (ISBN: 9780-414-02261-4) includes: • the complete set of JCT Contracts • the JCT Contracts Digital Service • invitation to become a member of the JCT Education and Training Provider Group The Academic Box Set is a limited offer and is only available to recognised bodies whose primary purpose is the provision of education and training. Order from your local stockists today.
SWEET & MAXWELL
MAKE YOUR TRANSITION TO JCT 2011 WITH JCT TRACKED CHANGE DOCUMENTS THE CHANGES TRACKED FOR YOU To help make the move to the new edition of JCT Contracts as smooth as possible, the JCT produced the JCT Contracts Tracked Change Documents that show the tracked changes to the existing JCT 2005 contracts that form the JCT 2011 suite of contracts. Especially helpful for professional advisers, the Tracked Change Documents are available in hard copy only. HOW TO GET THE TRACKED CHANGE DOCUMENT YOU NEED The following Tracked Change Documents are available to order in bound hardcopy from your local stockist. • SBC/Q 2011 Tracked • SBC/AQ 2011 Tracked • SBC/XQ 2011 Tracked • DB 2011 Tracked • IC 2011 Tracked • ICD 2011 Tracked • MW 2011 Tracked • MWD 2011 Tracked All other contracts are available through Docdel by emailing: sweetandmaxwell.Docdel@ thomson.com. When you purchase a Tracked Change Document through Docdel, you will receive an unbound hardcopy print out of the PDF version.
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JCT PUBLIC SECTOR SUPPLEMENT JCT has issued a Public Sector Supplement which can be used in conjunction with the JCT contracts 2011 Edition in the procurement of public sector projects. The Supplement includes the following features: • Provisions to ensure alignment with the Government’s Fair Payment Guidelines. • A model clause authorising disclosures by public sector clients in accordance with the Freedom of Information Act 2000 and the Government’s Transparency Policy. • Reference to any agreed Building Information Modelling protocol. To receive a free PDF copy of the Public Sector Supplement, e-mail stanform@jctltd.co.uk. Include your name, company name, postal address, telephone number and e-mail address in your request. JCT CONTRACTS COMPLETE WORKS
JCT 2011 Complete Works comprises of a full set of JCT documents, in JCT branded binders, for your library or office. Order from your local stockist today. JCT 2011COMPLETE WORKS ISBN: 978-0-414-04793-8
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