What are the changes in the JCT Design and Build Contract 2016?

David Savage, partner and head of construction and infrastructure at Charles Russell Speechlys, and Kate Knox, senior associate, consider the changes to the JCT Design and Build Contract 2016. Key changes include amendments to the provisions concerning payment, insurance and performance security.

This analysis was first published on Lexis®PSL Construction. Lexis®PSL subscribers can enjoy expert guidance by accessing some of the links below. If you are not a subscriber, you can take a free trial of Lexis®PSL Construction here.

Original news

On 22 September 2016, the JCT published the 2016 edition of its Design and Build Contract and Design and Build Sub-contract, along with associated guides. See News Analysis: JCT Design and Build Contract 2016 published.

Lexis®PSL Construction customers are able to access reference copies of the new contracts and guides in subtopic: JCT contracts 2016 (under the Forms tab).

What are the key changes from the 2011 edition?

Performance bonds and parent company guarantees (PCGs)

Similar to the drafting already found in the JCT Construction Management Trade Contract (2011 edition), there is now a standard clause (clause 7.3) requiring the contractor to provide a performance bond and/or a PCG on the execution of the building contract (where these requirements are stipulated to apply in the contract particulars). The bond and/or PCG are to be ‘substantially’ in the forms identified within the contract particulars (though employers’ lawyers may not welcome the term ‘substantially’). The contract particulars allow for optional expiry dates of the bond, being:

• the date of practical completion
• two weeks after the expiry of the rectification period, or
• the date for issue of the notice of completion of making good

These optional expiry dates will be welcomed by most, though perhaps not by insurers preferring a calendar date. Understandably, the JCT have chosen not to prescribe the form of bond.

JCT Public Sector Supplement 2011 and the Public Contracts Regulations 2015

The Public Sector Supplement provisions relating to fair payment, transparency and building information modelling (BIM) have been incorporated, together with relevant aspects of the Public Contracts Regulations 2015, SI 2015/102 (PCR 2015). For public authorities entering into JCT contracts, the standard form will now comply with the requirement of PCR 2015, reg 73(1), giving the employer the contractual right to terminate the contract where:

• the contract has been subject to substantial modification which would require a new procurement procedure to be implemented,
• the contractor is the subject of one of the mandatory grounds for exclusion from the procurement procedure under PCR 2015, or
• the contract should not have been awarded to the contractor in view of a serious infringement of the obligations under the Treaties and the Public Contracts Directive 2014/24/EU that has been declared by the Court of Justice of the European Union in a procedure under Article 258 TFEU.

(For guidance on the PCR 2015, see our EU procurement subtopic).

Insurance of existing structures and insurance option C

There is now a new insurance option available to the parties through the use of a ‘C.1 Replacement Schedule’. This incorporates alternative insurance arrangements for employers who are unable to secure all risks insurance of an existing structure in the joint names of the employer and the contractor. Such alternative arrangements are to be set out in the contract particulars and in an alternative schedule prepared by the employer. The JCT has also consolidated the insurance drafting, moving a lot of content previously spread across the alternative options in Schedule 3 (relating to consequences of an event of loss or damage) directly into section 6 of the contract.

Payment provisions

Again, as with the Minor Works 2016 contract, section 4 (payment) has been revised and simplified and now includes:

• interim valuation dates which apply throughout the construction period and the rectification period—payments during the rectification period will now be every month rather than every two months
• new clause 4.20 provides a procedure for prompt assessment (within 28 days) by the employer of loss and expense claims
• fluctuations options B and C are no longer attached to the contract (notwithstanding that they are still available for use from the JCT website) and the contract now allows for an alternative bespoke fluctuation or cost adjustment formula to be used
• interim and final payments are now consolidated into one sub-section of the notice requirements of the Housing Grants, Construction and Regeneration Act 1996

Of interest is the fact that, while previously there was a difference between the period of time between the due date and the final date for payment for interim and final payments, a 14-day period now applies to both.

Third party rights from subcontractors

Under clause 7.4, there is now the option for sub-contractors to provide rights to beneficiaries either by way of collateral warranties or third party rights.

CDM Regulations

The Construction (Design and Management) Regulations 2015, SI 2015/51 are now directly incorporated into the contract.

Are there many other changes?

New definitions

There are new definitions in the contract that, in some cases, are brought about by the inclusion of the new provisions described above and, in other cases, facilitate the briefer, more concise revision of the contract. These include:

• ‘BIM Protocol’
• ‘C.1 Replacement Schedule’
• ‘Consultants’
• ‘Design Submission Procedure’
• ‘Employer Rights’
• ‘Existing Structures’
• ‘Final Payment Notice’
• ‘Fluctuations Provision’
• ‘Interim Valuation Date’
• ‘Local or Public Authority’
• ‘Named Sub-Contractor’
• ‘Principal Designer’
• ‘Rights Particulars’
• ‘Works Insurance Policy’

New clause 1.10 (consent and approvals)

As with the Minor Works 2016, this new clause has been introduced to reduce repetition throughout the contract, providing that consent or approval of either the employer or the contractor shall not be unreasonably delayed or withheld, except in respect to clause 7.1 (consent to assign the contract or the rights thereunder) which is at the sole discretion of the relevant party.

Deletion of contract particulars part 2—third party rights and collateral warranties

There is now the ability to append bespoke documentation detailing ‘Rights Particulars’ (as referenced by clause 7.4 and the Contract Particulars).

Copyright licence (clause 2.38.3)

This is now expressly assignable to any owner from time to time of the works and may be sub-licensed to any owner or tenant or to any person engaged in any of the permitted purposes referred to in the main licence clause.

What are the changes likely to mean in practice?

For public bodies, there may be a change in perception of the JCT suite of contracts following the inclusion of the enabling drafting for fair payment, transparency, BIM and compliance with PCR 2015.

The changes are unlikely to result in a material decrease in the number of amendments that employers traditionally make to the JCT contracts. However, with the introduction of an alternative mechanism for documenting the insurance arrangements for existing structures, it is hoped that this will be sufficient to alert parties to the potential complications of insuring existing structures before it becomes too late.

Has there been any shift in the balance of risk between the parties?

In short, no. This is no surprise and reflects the position of the JCT over many years.

Do any of the changes come as a surprise?

Surprisingly, as noted, part 2 of the Contract Particulars (Third Party Rights and Collateral Warranties) has been deleted. The parties are instead to add their own separate document detailing which rights (whether third party rights or collateral warranties) are to be granted to relevant parties (‘Rights Particulars’). The JCT’s guide to this contract appends a model form for this document. This change may have been adopted because it is difficult to work with a static version of part 2 (if a user is unable to access and modify an online version of the contract)—however, this change does make the contract arguably less user friendly if a significant component is no longer included.

This approach of style over substance is arguably also seen in the JCT’s decision to omit Fluctuations Options B and C from Schedule 7 of the contract. While the motivation for this deletion may have been in part to reduce the length of the contract and in part because, where the fluctuation provisions are applied, the vast majority will apply Fluctuations Option A—again, this change makes the contract less user friendly if parties wishing to consider the fluctuations options have to locate Fluctuations Options B or C on the JCT website.

Are the changes consistent with those found in the 2016 editions of the JCT Minor Works Building Contract, Short Form Sub-contract and Sub-subcontract?

There are indeed a number of overlaps with those changes to the 2016 edition of the JCT Minor Works Building Contract, as described above. As you might expect, these too are reflected in the Short Form of Sub-contract and Sub-subcontract, particularly in respect to payment provisions, which are intended to be ‘stepped down’ throughout the supply chain.

Are there any issues that you would’ve liked to have seen addressed that were not?

There is one major change to the JCT Design and Build Contract which employers and their funders routinely look for, which continues to be overlooked by the JCT standard drafting. This is the common practice of requiring the contractor to assume single point responsibility for both the design and construction of a development. It is achieved by amending the contract to make the contractor responsible for the contents (including the design) of the employer’s requirements in consideration for the employer agreeing to novate the appointments of the relevant designers across to the contractor (usually accompanied by an uplift to the tender price for assumption of this risk). This common practice continues to be ignored by the JCT and calls into question how fit for purpose this contract is. Well-advised employers will continue to seek this routine amendment.

Overall, are the changes likely to be welcomed by the industry?

Yes. Once parties have adapted to the new suite of contracts and incorporated the changes into any precedent banks they might maintain, the more concise, flexible and ‘user-friendly’ JCT contract is likely to be deemed an improvement from previous versions.

David advises employers, contractors, and consultants on a wide range of building and civil engineering matters, both domestically and internationally. He also advises the firm’s private clients on high value residential construction projects. In his international work, David is particularly focussed on the Middle East region, working closely with Charles Russell Speechlys’ Manama and Doha offices, to which he is a regular visitor. He is ranked as a Band 1 partner in Chambers 2016 for construction.

Kate specialises in non-contentious construction and engineering matters, advising commercial developers, national house builders, hotel developers and contractors on construction and engineering projects in the UK, the Middle East and Africa. She is well versed in all methods of procurement and regularly uses JCT and FIDIC contracts as well as bespoke EPC contracts and other industry standard forms. She is also the knowledge development lawyer for the construction engineering and projects group.

Interviewed by Kate Beaumont. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further reading:

Lexis®PSL subscribers can learn more about the changes found in the 2016 editions of the Minor Works Building Contract, the Short-form Sub-contract and the Sub-subcontract.  If you are not a subscriber, you can take a free trial of Lexis®PSL Construction here.