Repair and maintenance contracts

The following Construction practice note provides comprehensive and up to date legal information covering:

  • Repair and maintenance contracts
  • Procurement considerations
  • Insurance considerations
  • Repair and maintenance contracts for specific/pre-defined works
  • Use of R&M contracts under framework agreements
  • Administration of an R&M contract
  • Pricing and payment under R&M contracts
  • Defects rectification period under an R&M contract
  • Term contracts for repair and maintenance works
  • Administration of a term contract
  • More...

Repair and maintenance contracts

This Practice Note looks at the nature of repair and maintenance contracts, how they are used and the different types of such contracts: term contracts and contracts for specific, pre-defined works. It looks at particular considerations that need to be taken into account in respect of repair and maintenance construction contracts and at the standard forms that might be used by an employer to appoint a contractor for this type of work.

The term ‘repair and maintenance contract’ could be used to refer to:

  1. a contract for a specific project involving pre-defined repair and maintenance work to be carried out by the appointed contractor (referred to, in this Practice Note, as an ‘R&M contract’), or

  2. a programme of, as yet undefined (or defined only by type), repair and maintenance works that are to be carried out by the appointed contractor, upon instruction to do so, over a specified time period (usually several years) across a number of properties. This type of contract might be referred to as a measured term contract or term contract (for ease, in this Practice Note, we refer to this type of contract as a ‘term contract’)

Although both these types of contract are used for the procurement and delivery of repairs and maintenance services, they have different purposes and are used differently by employers.

Repair and maintenance contracts of

both types may be entered into in either the public or private sector but they are commonly encountered in the public sector, for example in relation to social housing, schools and universities where ongoing asset/estate management necessitates both stand-alone, one-off repair/maintenance projects and the cyclical/planned and responsive maintenance of the employer’s asset(s) and its/their environment.

Attention often focuses on new build projects or major programmes of refurbishment/overhaul but repairs and maintenance works of all sizes can constitute a considerable area of spend for any property owner and, in the public sector at least, the procurement of such works and the value that they offer can potentially be subject to scrutiny.

Procurement considerations

In the public sector, depending on the value/estimated value of the works, the procurement of a repair and maintenance contract may be subject to the requirements of the Public Contract Regulations 2015, SI 2015/102. For more on when these regulations will apply, their requirements and the procedures that must be followed, see Practice Notes: Introduction to public contracts procurement and Public Contracts Regulations 2015—key steps and common procedures.

A repair and maintenance contract may be procured on the basis of one of the appropriate standard form contracts or a bespoke contract. It is more common for a bespoke contract to be used in respect of a smaller, lower value, R&M contract than for a term contract.

Insurance considerations

As repair and maintenance works, both under R&M contracts and term contracts, will often be carried out to (and/or may be adjacent to) an existing building (or part of an existing building), the insurance provisions in the contract must be considered carefully and must recognise that the contractor’s only insurable interest in such circumstances is in its contractual obligation to take care of the works themselves until completion. It has no insurable interest in the rest of any existing building, whether the works form part of that building or are adjacent to it. The employer must take care to ensure that the necessary insurance is in place for such existing building(s) so that, if they suffer any damage while the work is being carried out to part of them or to an adjacent building, such losses are recoverable under insurance. For more, see Practice Note: Construction insurance—overlap between the works and existing buildings.

Repair and maintenance contracts for specific/pre-defined works

As already mentioned, an R&M contract for a specific, pre-defined project, rather than a term contract, might be procured using a bespoke contract rather than a standard form. The JCT publishes a standard form contract specifically designed to be used to engage a contractor to carry out a specific set of works which involve the repair and maintenance of a building, the JCT Repair and Maintenance Contract (RM) 2016. According to the JCT, this form of contract is intended to be used for individual, ‘substantially defined’ programmes of repair and/or maintenance, ie where the work is known or can be predicted at the outset when the contractor is engaged, rather than periodic repairs/maintenance carried out over a period of time.

The JCT also publish a separate form of contract, the Home Repair and Maintenance Contract (HO/RM) to be used for work on a residential dwelling by the occupier.

An R&M contract can be used in both the public and private sectors but they are very commonly found in the public sector. This type of contract might also be used by a private sector residential or commercial landlord or any business with a property portfolio eg hotels, retail premises etc.

Use of R&M contracts under framework agreements

An R&M contract, such as the JCT RM contract, might be the form of contract that is incorporated into a framework agreement to be used as the ‘call off’ contract—the contract entered into when an item of work is instructed under the framework by the employer. Framework agreements are used in the construction industry by both the public and private sector. The process of instructing a contractor who is party to a framework agreement to provide works or services in relation to a specific project or task is referred to as ‘call-off’, and the contract underlying the framework agreement which is entered into in such a situation is commonly referred to as the ‘call-off contract’. See Practice Notes: Introduction to framework agreements for construction lawyers, Framework agreements in construction—procurement and tendering and Framework agreements in construction—call-off procedures.

Where an R&M contract is a ‘call off’ contract under a framework agreement in the public sector, it is important that all of the EU procurement rules which relate to the call-off of contracts under frameworks are properly complied with. Public Contracts Regulations 2015 (PCR 2015), SI 2015/102 may apply to the procurement of the framework, even if the individual projects called off under it fall below the relevant threshold. See Practice Note: Framework agreements in construction—call-off procedures.

Administration of an R&M contract

Under the JCT RM contract, there is no provision for a contract administrator (and bespoke contracts are likely to take a similar approach). This is because this type of contract will typically be entered into by an experienced client, who frequently employs contractors to carry out works for it and, given the usual size/value of such works is able to manage/administer the process itself quite capably.

Pricing and payment under R&M contracts

The pricing of works under an R&M contract can be done a number of ways. It is usually on the basis of a fixed price, daywork rates or is based on schedule of rates, depending on the nature of the works. See Practice Note: Pricing structures in construction contracts.

If the duration of works is known, or estimated, to be more than 45 days, then the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996) will apply and mean that the payment terms in the R&M contract must comply with its provisions which entitles the contractor to payment by instalments. If it is known/estimated that the works will last for less than 45 days, there can, if the parties wish, just be a single payment to the contractor for carrying out and completing the works. For more detail regarding the requirements of HGCRA 1996 with regard to payment, see Practice Notes: Payment in construction contracts under the HGCRA 1996 and Interim payments in construction contracts.

The JCT RM Contract does not make any provision for liquidated damages (see Practice Note: Liquidated damages in construction contracts). This may differ in a bespoke R&M contract but, given the typically short term of such a contract and the nature of the works typically carried out, the imposition of liquidated damages for late completion is potentially heavy-handed and likely to be unpopular with contractors. The guidance notes to the JCT RM contract suggest that the JCT Minor Works Building Contract is a more appropriate standard form to use if provision for liquidated damages is required.

Defects rectification period under an R&M contract

The defects rectification period in an R&M contract will usually be very short, reflecting the nature and risk profile of the works being carried out under it. For example, under the JCT RM Contract, the defects rectification period is only six weeks unless this is deemed insufficient by the parties and the standard wording is amended to provide for a longer period that they consider more appropriate for the nature of the works being carried out. For more on defects periods, see Practice Note: Defects liability period and rectification of defects.

Term contracts for repair and maintenance works

Term, or measured term, contracts are commonly used for repair and maintenance works that are to be carried out over a period of time where the specific requirements are not known in detail, or cannot be predicted, at the outset (when the contractor is appointed). The contractor is appointed under the measured term contract to take on ‘orders’ as the need arises and it is instructed to do so by the employer. Where a measured term contract is used, there will usually be an expectation that there will be a flow of work to be carried out by the selected contractor over the course of the contract period even though the exact details of the works are yet to be determined.

A term contract does not describe the specific works that will be undertaken under the contract. In the JCT Measured Term Contract (MTC), the Contract Particulars provide for details to be inserted of the properties where works may be instructed and for the types of works that may be instructed by an order to be described/listed. A minimum and maximum value for a single order can also be set out. Different contracts may deal with this in different ways but the common theme is that works are not pre-defined. The contract may, however, set out, at a high level, the kind of works that the term contract will involve but the detailed specifications, drawings etc usually found in a building contract to specify the works will not be found in a term contract.

Employers such as local authorities and registered social landlord are common users of term contracts. The term contract provides them with an efficient and versatile contractual vehicle via which they can have routine maintenance and remedial works carried out to their assets within the specified geographical area as and when required, without having to go out to tender for each piece of work/project. It is common for this type of contract to include performance targets/key performance indicators (KPIs) which encourage continuous improvement and incentivise the delivery of a consistent and quality service throughout the term which, in turn, can positively impact on end user satisfaction. In the public sector, it is also important that the service provided under the term contract offers value for money for the employer.

The ‘term’ of a term contract will vary, depending on its purpose and the nature of the works that it is intended to capture. For example, the JCT MTC envisages that the ‘Contract Period’ will normally be at least a year and it is typical for a term contract to be for several years. The contract will usually set out a commencement date, from when the term contract will run and its term, a period of months or years.

Administration of a term contract

Unlike an R&M contract, a term contract may provide for the appointment of a contract administrator to administer the works for the employer. It is the contract administrator who will issue an order to the contractor for it to undertake the required works.

When particular works are required to be carried out under a term contract, the contractor will be issued with an instruction from the employer/contract administrator. What this instruction is called depends on the form of contract being used and/or the drafter’s preference: it may be the ‘order’ (as per the JCT MTC), ‘task’, ‘Task Order’ (as per the NEC Term Service Contract) or other similar expression. Each order (using the JCT terminology for ease) will describe the specific works required and may include drawings if appropriate and a valuation (agreed between the employer and the contractor). The order will usually set out a commencement date and a (reasonable) date for completion of the work.

Pricing under a term contract

Pricing under a term contract may be based on a schedule of rates; archetype pricing; bills of quantities or target cost contracts with pain/gain sharing (see Practice Notes: Pricing structures in construction contracts and Target cost contracts on construction projects). A series of ‘National Schedule of Rates’ is published (by NSR Management), it comprises a range of schedules covering Building Works, Mechanical Services, Electrical Services, Highways Maintenance, Housing Maintenance, Access Audit and Painting and Decorating. These are often used in term contracts, for example, the Schedule of Rates referred to in the JCT MTC can be specified, in the Contract Particulars, to either be the National Schedule of Rates or another schedule, as identified. In the social housing sector, there is another standard form schedule of rates aimed particularly at that sector, the M3NHF Schedule of Rates, that is widely used by registered social landlords and local authorities. The M3NHF Schedule of Rates could also be used by a private sector employer entering into repair and maintenance contracts although it is obviously aimed principally at the public sector. The M3NHF Schedule of Rates consists of an inclusive list of all commonly needed repairs, with industry standard preliminaries, a comprehensive Technical Specification and the NHF Form of Contract (see below). Each rate has a code to identify it, a letter which indicates the urgency of the job, a brief description of the works involved, a unit of measure for determining the required quantity of the rate (eg per square metre) and the rate price.

TUPE considerations

Where the term contract involves the outsourcing of services that were previously provided in-house by the employer (eg by the DLO (Direct Labour Organisation) of a local authority), the contractor may discover that it will inherit staff via the operation of the Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246 (TUPE Regs 2006) and the parties will need to ensure that the associated processes are duly followed. People are an essential part of the delivery of repair and maintenance services and, if relevant, employment issues relating to the employees who have historically provided those services, and their future employment must be adequately dealt with in the term contract. Where it is applicable, the effect of TUPE Regs 2006 is that, upon outsourcing the repair and maintenance services by virtue of the term contract, relevant employees who had previously provided such services would transfer from the employer to the contractor being engaged under the term contract on the same terms and conditions of employment. The term contract therefore needs to deal with such continuity of employment.

There are several standard form term contracts:

JCT Measured Term Contract (MTC)

The JCT Measured Term contract (MTC) 2011/2016 is, as already discussed, appropriate for use where a programme of works is to be carried out over a ‘medium to long period—the JCT considers it to be appropriate for programmes of a year or more. It is widely used for repairs programmes, frameworks etc where

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