Ensuring that you select the correct building contract for your client or project is key. Having a building contract that includes the appropriate clauses and conditions to match the requirements of the project is paramount.
This is the second article examining how to select the most appropriate form. The first considered domestic projects, whereas this one examines contracts for small commercial projects, focussing on:
RIBA Concise Building Contract 2018 (RIBA CBC)
JCT Repair and Maintenance Contract (JCT RM)
JCT Minor Works Building Contract 2016 (JCT MW)
JCT Minor Works Building Contract with Contractor’s Design 2016 (JCT MWD)
JCT Intermediate Building Contract 2016 (JCT IC)
JCT Intermediate Building Contract with Contractor’s Design 2016 (JCT ICD)
NEC4: Engineering and Construction Short Contract (NEC4 ECSC)
Shorter contracts for commercial projects compared:
| JCT ICD | JCT MWD | JCT RM | NEC4 ECSC | RIBAC CBC | |
|---|---|---|---|---|---|
| Contract length (RIBA CBC = 1L) | 4.3L | 2.3L | 0.3L | 0.75L | 1L |
| Independent decision maker/CA | Yes | No | Yes | No | Yes |
| Collaborative working clause | Schedule 5/1 | Schedule 3/1 | Schedule /1 | 10.2 | 3 |
| Public Sector Clauses | Yes | 6.6 6.10 and Schedule 3 | No (except Schedule /8) | 17 | 24 |
| Contractor Design Portion (CDP) | Yes | Yes | No | Yes, in the scope | Yes, optional |
| CDP submission | Schedule 6 | 2.1.3 | No | 20.2 | 15.2 |
| Client selected subcontractors | Yes, Named but not for CDP | No | No | No | Yes, optional |
| Professional Indemnity Insurance required | Yes | No | No | No | No |
| Programme required | No | No | No | 31.1 | |
| Completion in Sections | Yes | No | No | No | 17 |
| Partial possession | Yes | No | No | No | 9.12 |
| Listed items | 4.10 | No | No | No | No |
| Variation quotation | No | No | No | 62 | 5.11 |
| Variation and EOT rules | Yes | No | No | 62 | 5.11 |
| Loss/expense | Yes | Limited | Limited | Yes | Yes |
| Time bar clause | No | No | No | 61.3 | No |
| Liquidated damages | Yes | Yes | No | Yes | Yes |
| Insurance backed guarantee | No | No | No | No | Optional |
| Advanced warnings/risk register | No | No | No | Early warning, 15.1 | Risks register, 3.1.3, Advance warning 3.2 |
| Sustainable development, environmental considerations | Schedule 5/4 | Schedule 3/4 | Schedule /4 | No | No |
| Anti-discrimination | No | No | No | No | Optional, 24.4 |
| Supply chain control | Yes, including Named | Yes | No | 17, (corrupt acts) | 24 |
| Collateral warranties/Third party rights | Section 7 | No | No | No | Optional, 23 |
The article compares how they deal with key issues that are likely to be of concern to commercial clients, including legislative and policy constraints, and preferences as to quality, time, cost, and dispute avoidance. In all cases it considers the unamended forms, or in the case of the NEC4 any Z clauses. For ease of reference a comparative table is included.
Specificity
Why is it preferable to use a specially drafted standard form of building contract?
The RIBA Concise Building Contract and JCT forms are drafted for use on commercial projects in the UK, and as such, the provisions comply with the Unfair Contract Terms Act 1977, and the Housing Grants, Construction and Regeneration Act 1996 (HGCRA). If the NEC4 ECSC is used in the UK, ‘additional conditions’ reflecting the HGCRA requirements will apply. Additionally, public sector clients are required to comply with a range of policy and legislative requirements which they will wish to see embodied in the contract terms.
Format, flexibility
Most commercial clients and contractors would prefer a contract for smaller projects to be short and simple. As can be seen from the table, the RIBA CBC and the NEC ECSC are the shortest, but it should be noted that the latter is normally used with an extensive list of Z clauses to supplement the printed conditions, whereas the RIBA CBC is self-contained, offering a range of options in a simple drafting style.
Roles
All of the forms, except the NEC4 ECSC and the JCT RM, require an independent contract administrator. If the client wishes to deal with the contractor direct, it could consider using these, or adding the RIBA Domestic Building Contract option clause 19 (client acting as contract administrator) to RIBA CBC – something the RIBA might consider for a future edition.
Quality
Determining the quality and performance is an integral part of design and for all clients, whether private or public, and appropriate allocation of design responsibility is a key factor in selecting a form. If the client requires design input from the contractor, all of the forms, except for the JCT MW and JCT IC, allow for this: RIBA CBC in Item P (Contractor Design) in the Contract Details, JCT in the appropriate recital, and for NEC ECSC in the second recital. In all cases the contractor takes full responsibility for its own design work. It would be important to define the extent of that design carefully, as following the Museum of Liverpool case[1] a court is unlikely to find a contractor liable for design decisions that do not lie within its defined scope. On the other hand, if the preference is for the contractor to complete all outstanding design, it may be possible to achieve this with a carefully drafted entry in the details/recital.
The RIBA CBC and the JCT IC/ICD require the contractor to take out PI insurance, but this is not covered under the JCT MWD or NEC4 ECSC, suggesting they should not be used except for minor, low risk design items.
The level of design liability may be important, especially when it comes to achieving tightly drafted performance criteria. JCT forms generally require the contractor to undertake any design with reasonable skill and care, but not to provide something ‘fit for purpose’. The RIBA CBC states this (clause 15.1.1), but also adds that ‘subject to clause 15.1.1’ the contractor ‘shall ensure that its design is in accordance with the Client’s specification’ (clause 15.1.2). The phrase ‘subject to’ may mean that 15.1.2 is similarly limited to reasonable skill and care, but it is also possible that a court would conclude this is a strict liability (e.g. see MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59). This would be to the benefit of the client, but the parties should note that the contractor’s PII may not cover this extended liability.
Where there is to be significant amount of contractor design, the client may wish to monitor its development closely. In RIBA CBC, the contractor must submit ‘details of its design’ of any items listed in P (Contractor Design) of the Contract Details for comment at least 21 days before the work is commenced. However, the contract does not state what the effect of any comments might be - the contractor is not required to respond or re-submit the design. In JCT MWD, the obligation is similar, the contractor is to provide drawings ‘reasonably necessary’ but the period for comment is much shorter, just 7 days, which will be insufficient for any but the most minor items. If careful integration of extensive and complex contractor designed items is needed, the detailed approval system included in JCT ICD may be more appropriate, giving clarity on steps to be taken. NEC4 ECSC states that ‘The Contractor does not start work that the contractor has designed until the employer has accepted that the design complies with the works information’ – this leaves ambiguity as to what happens if the design is later discovered not to comply. The JCT makes it clear that irrespective of comments made, responsibility for the design lies with the contractor (JCT ICD Schedule 2: 8.3).
For less complex design, the RIBA CBC with its longer approval period, and requirement for PII, is a more viable option than JCT MWD. RIBA CBC additionally requires the contractor to notify the Contract Administrator of any discrepancies with the rest of the design, and deals with copyright, neither of which are covered by JCT MWD.
In practice, design input from specialist subcontractors may be more critical than that of the contractor. Neither the JCT MW/MWD nor the NEC ECSC make any provision for client selected sub-contractors. The RIBA CBC allows for the client to select particular firms to undertake work, including design (Items P (Contractor Design) and Q (Required Specialists) would need to be completed and, for clarity, cross referenced). The contractor retains responsibility for all aspects of their work, an ideal arrangement from the client’s point of view. Even the larger JCT commercial contracts do not incorporate this degree of flexibility – with the JCT IC/ICD it is possible for the employer to select subcontractors, and although responsible for timing and quality of work, the contractor is not liable for the “Named Sub-contractors” design, so that warranties are essential.
Timing
Some commercial projects are straightforward in terms of timing, but others may need careful pre-planning, particularly if the client would like to release parts for occupation before others are complete. The RIBA CBC and the JCT IC/ICD provide for the project to be run in planned phases, whereas the JCT RM, JCT MW/MWD and NEC4 ECSC assume a single start and finish date. The RIBA CBC and the JCT IC/ICD also give the client the right to postpone access to the site and allow to take partial possession, whereas the other two do not. All the forms, except for the JCT RM, contain a liquidated damages (LD) clause.
Cost
Both the RIBA CBC and the JCT IC/ICD allow for a range of pricing options. Both could be run on a lump sum basis, and include a Bill of Quantities if preferred, or on a schedule of works with rates. The JCT MW/MWD assume the contract will be lump sum and the NEC4 ECSC can be lump sum or re-measurement. The JCT RM is entirely rates based. All of the contracts reviewed allow for monthly payment, generally though certification by the Contract Administrator, although with JCT RM and NEC4 ECSC this is done through application by the contractor to the employer.
The RIBA CBC additionally allows for a milestone arrangement whereby the contractor is only paid when pre-determined stages have been reached. This requires the parties to set out in advance what those stages will be, for example completion of ground works, structural frame, external envelope, and a value is also agreed for each stage. This acts a significant incentive for the contractor to maintain regular, planned progress. Following a 2019 Court of Appeal case[2], which considered a set of bespoke milestone provisions, it seems likely that these would be found to comply with the HGCRA, provided the stages are defined with sufficient clarity.
The JCT IC/ICD (but not JCT MW/MWD) include provisions regarding payment for and ownership of unfixed goods delivered to site (property vesting clauses) and for off-site manufactured items (‘listed items’) which can be useful to allow the possibility of earlier payment and improved cash flow for the contractor. Under the RIBA CBC only completed work should be certified, a simpler and less risky strategy from the point of view of the client.
Dispute avoidance, early warning and risk register
The RIBA CBC contains a range of dispute avoidance mechanisms including the requirement to hold a pre-start meeting, encouraging the use of a risk matrix, and an option to require the contractor to submit a programme at this meeting (clause 14). The JCT forms include a collaborative working clause, in the Supplemental Conditions, and prompt notification and negotiation of matters that may give rise to a dispute. The NEC4 ECSC provisions are limited to the parties giving each other early warning. The NEC4 ECC’s provision for early warning register and meetings is unfortunately missing from the short contract.
Context
Key themes of current concern to public sector[3] and some private sector clients, are bribery, corruption, transparency and fair payment. All of the forms reviewed cover these under the main or specific public sector clauses, with those of the JCT MW/MWD and JCT IC/ICD being the most extensive. The RIBA CBC, under its optional clause 24, also requires the contractor to ensure that discrimination of any form is not practiced by itself or its sub-contractors, giving the employer the right to terminate if this is not complied with. The reference to discrimination, which is not included in the JCT or NEC4 forms, is commendable, and is a pity that it applies only to public sector contracts, and not generally to commercial projects (or even domestic). The JCT forms contain optional provisions relating to sustainable development, and to key performance indicators which may also be of interest to commercial clients.
Supply chain management is increasingly important for many clients, particularly in the public sector. The JCT forms require the contractor to use specific standard contracts for sub-contracting wherever possible or, if using other terms, requires specific provisions to be included. For the JCT MW/MWD form these are limited to termination and fair payment, but JCT IC/ICD additionally requires stepped down property vesting terms, effectively preventing subcontractor removing materials, etc from site, in situations where the employer has paid the contractor, but the contractor has not paid its subcontractor. In both JCT forms, several of the Public Sector clauses are also stepped down.
A disadvantage of the RIBA CBC is that it does not form part of a suite and unlike the JCT, does not refer to any coordinated standard from warranties or sub-contracts. It is also less likely to be used in the context of larger developments, for example as a contract used for enabling works – the JCT MW/MWD and NEC4 ECSC are ideal for this scenario, as the terms will reflect those of the main contract, in other words, the NEC4 ECC or the JCT DB or JCT SBC.
Summary
In summary, for smaller commercial projects, the RIBA CBC offers significant advantages, particularly in relation to JCT MW/MWD and NEC4 ECSC. It contains a wide range of flexible provisions many of which are not to be found in other standard forms two or three times its length, yet remains concise, in simple language and easy to navigate. Its provisions suit projects that require client selected sub-contractors for design of self-contained elements that are not dependent on rigorous drawing approval procedures, but where a single point of responsibility is preferred. For projects with extensive contractor/subcontractor design, where drawing approval procedures and/or terms to cover off-site manufacturing are key, or where the client wishes to control the terms on which sub-contracts are let, the JCT ICD will be more appropriate. The RIBA CBC’s options relating to discrimination, PII, milestone payments, and insurance backed guarantees will progressively be seen by many commercial clients as welcome inclusions.
[1] The Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Limited and PIHL UK Limited and Galliford Try Construction Limited (in joint venture) [2013] EWHC 2403 (TCC); see also Rotherham Metropolitan. Borough Council v Frank Haslam Milan &. Co Ltd and Another (1996) 78 BLR
[2] Bennett (Construction) Limited v CIMC MBS Limited (formerly Verbus Systems Limited) [2019] EWCA Civ 1515 the
[3] As highlighted in the Construction Playbook, Government Guidance on sourcing and contracting public works projects and programmes, Dec 2020, Cabinet Office
Thank you, Professor Sarah Lupton and Manos Stellakis, for providing this article.
The RIBA Concise Building Contract, together the RIBA Domestic Building Contract and RIBA Professional Services Contracts, are available digitally from RIBA Contracts Digital – www.ribacontracts.com.
Professor Sarah Lupton MA DipArch LLM FCArb CArb RIBA, is a partner in Lupton Stellakis and directs the Master of Design Administration and the Diploma in Professional Practice at the Welsh School of Architecture. Sarah is dual qualified as an architect and as a lawyer.
Manos Stellakis BSc DipArch MSc(Econ) RIBA, RIAS, is a partner in Lupton Stellakis and Expert Consultant (past title, Distinguished Visiting Fellow) at the Welsh School of Architecture. Manos teaches and examines at a number of schools of architecture including the AA, Bartlett, De Montefort University, University of Westminster, WSA, and, at the RIBA’s ADPPA.
Manos and Sarah are co-authors of Which Contract?, available from RIBA Books.
