Agreements for building are typically based on standardised contracts – off-the-shelf documents containing all the terms and conditions necessary to complete a project. Blank spaces are duly filled in and technical and commercial documents bolted on.
It is a practice with a long history, but that alone does not explain the forms’ prevalence. Cost-effectiveness and convenience are key. In most construction agreements, the contractor performs its obligations in accordance with a specification and start and finish dates for an agreed price. Risks are allocated and legislative requirements catered for.
Mechanisms govern changes to the works and assess when practical completion has been achieved. Better, surely, to address such routine matters through uniform provisions?
Then again, no two building projects are identical. Universal terms may poorly reflect the parties’ bargaining positions or wants. No surprise, then, that developers and interested third parties often demand that standard terms be modified.
But before any tailoring can begin, they have to decide which contract to adapt.
Standard form families
Construction covers everything from factories to infrastructure, utilities and mechanical plant, so it is no surprise to find a wide array of contract options available from professional bodies and umbrella groups. Forms can deal with, for example, works, services, collateral warranties and framework arrangements.
Surveys list the following among the most popular forms in commercial real estate development and refurbishment:
• JCT Minor Works Building Contract
• JCT Intermediate Building Contract
• JCT Design and Build Contract
• JCT Standard Building Contract
• NEC Engineering and Construction Contract
Clearly, the forms offered by the Joint Contracts Tribunal (JCT) dominate, with the organisation following a “finger in every pie” logic. Its Minor Works Building Contract is a short-form document for works of low value or of a straightforward nature. Naturally, this is perfect for modest fit-out or refurbishment works.
The more voluminous Standard Building and Design and Build Contracts, on the other hand, are for substantial undertakings. The latter is seen in everything from private housing developments and supermarket fit-outs to skyscrapers and major stadium projects. The Intermediate Building Contract scoops up everything in-between.
The JCT’s rival, the New Engineering Contract (NEC) suite, emphasises strong project management with a focus on collaboration and information-sharing. This can be beneficial in managing project risks, but adds a degree of administration that parties may prefer to avoid in straightforward projects. With eminent infrastructure and engineering credentials, the fingerprints of the NEC forms can be found on many high-profile schemes, such as HS2, Crossrail and the Olympics.
With the centre ground largely ceded to the JCT and NEC, other providers’ standard forms tend towards specialist uses. A wind farm or food processing plant is a technically complex project where the completed facility must meet defined performance criteria. A JCT contract might not be ideal, but an agreement published by the Institution of Chemical Engineers or the Institute of Engineering and Technology would.
An alternative is to craft an entirely custom-made agreement, but this elicits effort. Even so, non-standard contracts do persist in certain areas, such as for the appointment of construction professionals.
Different requirements, different forms
Established templates benefit from predictability, having had their workings pored over by experts and the courts. But it is the market’s willingness to amend standard forms that makes them flexible to function across a range of projects, allowing for variations in matters such as methods of procurement.
Most projects are procured by one of three methods: traditional, design-and-build or construction management. The main differences between these lie in how they split design and construction risks between developer and contractor.
In traditional procurement, a main contractor executes the works, but design responsibility remains with the developer and its consultants. In design and build, both liabilities rest with the main contractor, while in construction management, the developer maintains a design team but apportions the works across specialist contractors.
Contracts also diverge on pricing. A contractor can be paid on a lump-sum or cost-plus basis. The latter is suitable where it is unrealistic for the parties to ascertain at the outset the quantity of work needed. Instead, work is measured as it progresses and the contractor is reimbursed for costs plus profit margin.
The JCT has distinct standard contracts to cover all such variables, but others prefer streamlining. For example, the Chartered Institute of Building’s Complex Projects Contract leaves its users to specify within it the procurement route and pricing mechanism that apply.
With legal disputes a sad truth in the industry, some have sought a less adversarial approach. While the NEC goes some way towards this, contracts such as the PPC2000 suite of partnering contracts, developed by the Association of Consultant Architects and the Association for Consultancy and Engineering, help foster a partnering mentality and encourage long-term efficiencies.
In understanding how to choose a standard form, the starting point is to find one that best suits the parties’ requirements. Do not underestimate the significance of each party’s grasp of – and contentment with – that document’s core terms. Then, when all that is done, they can begin to vary them.
Francis Ho is head of construction at Olswang LLP
