JCT Design & Build 2016

A Design & Build contract arrangement is a curious beast. If I wanted something built, say a house or a road, I would want to be able to say to someone “build me a house” or “build me a road”, to agree a price and then for that thing to be built. Ok, I might want to stipulate “it needs to have seven bedrooms and a swimming pool”, or I may want my road to go from Norwich to King’s Lynn and be a dual carriageway all the way along (one day, A47, one day), but by and large I would want all of the details taken care of for me, and for the thing that I want built to come about.

Surprisingly, it might seem, this is not “traditional” procurement. What is described as “traditional” procurement involves engaging various different parties to do different things, perhaps with an architect, project manager and/or similar dealing with the organisation and management of the project. That’s actually a fine way of doing things, as it means that all the different specialisms involved in the construction project are separated out, and each can concentrate on what they’re good at. Indeed, everything has become so niche these days, with different types of surveyors doing very different things, who in turn do very different things to engineers, architects, designers, contract managers, etc, and that’s without even listing anyone who actually builds anything.

However, for those projects where it is just easier (and often quicker) to get the person (or more probably the organisation) that is going to build the thing to design it too, a design and build contract is perfect. Evidence shows that separating design and construction is the source of many problems in the building industry, and a Design & Build contract can alleviate a lot of that.

Anyway, the Joint Contracts Tribunal (JCT) have updated their Design & Build contracts for 2016 and were published in September 2016. I thought I would have a look at some of the key changes. Some of the changes reflect what I touched on in an earlier post on the new JCT Minor Works contract. This is by no means a comprehensive list of the changes in the new 2016 edition, but these are some of the key points I found when going through the new edition.

Payment

This is probably the main area of dispute that lawyers get involved in, so I will touch on it first.

The key change is the introduction of an Interim Valuation Date (IVD), which was in the Minor Works Contract, and is likely to feature in all of the new editions of the JCT contracts going forward. The idea behind the IVD is to ensure that all parties in the supply chain of a construction project are paid with the same money that flows down, to improve cash flow, by having one IVD every month that applies to everyone on the project. The idea is that the contractor gets paid seven days after the IVD, and any sub-contractor then gets paid out of that money 12 days after the IVD.

The removal of the two-monthly interval payments after practical completion also simplifies matters somewhat. Now all payments, whether before or after practical completion, are due on a monthly basis. This seems to be an attempt to meet the Fair Payment Charter recently put out by the government. In practice, there may still be delays in payment for a variety of reasons, but at least the contractual framework is in place.

The wording has also been simplified, which is helpful. We will have to see whether the changes made have any significant impact in practice.

Regulatory and industry changes

There are the obvious changes that you would expect, including the adoption of all the new terminology and processes from the CDM Regulations 2015, which had already been incorporated into most contracts entered into since 2015 by the JCT’s own amendment schedule.

There are also changes to reflect the Public Contracts Regulations 2015, which will apply to most contracts where the employer is a local or public authority. These mainly allow a public sector employer to terminate the contract in certain specified circumstances and makes provision for the Freedom of Information Act 2000.

The 2016 edition incorporates the BIM Protocol, which the 2011 edition did not, along with the 2016 edition of the JCT Construction Industry Model Arbitration Rules (CIMAR).

Insurance

There is an amended Option C with insurance, which is for existing structures, allowing for greater flexibility. It is particularly helpful for commercial tenants who are getting their premises kitted out or refurbished. In such circumstances, often a landlord, and/or other tenants, have control over certain features of a building, which previously under the 2011 contract the tenant (as employer) was obliged to insure. There is now greater flexibility for a tenant employer to involve the landlord to arrange for insurance of the existing structure.

Third party rights and performance bonds

There is now an express provision for performance bonds within the 2016 JCT DB contract, which is helpful, as previously that would have needed to have been added separately.

There is also now provision for third party rights to be given by a sub-contractor, whereas previously only collateral warranties were provided for. Collateral warranties and third party rights are very similar, though it is easier to invoke third party rights than collateral warranties, so their inclusion within the 2016 edition is welcomed.

Conclusion

The changes made all seem positive at the moment. They will only apply to new contracts being entered into going forward where the 2016 editions have been used, so it will be some time before the changes take effect, and even longer for any contentious provisions to make their way through the courts.

There may still need to be amendments to DB JCT contracts in the future, particularly if the risks or liabilities of the parties needs to differ from that set out by the JCT standard contract. Moreover, as time goes on no doubt legislative and common law changes will necessitate additions to schedules of amendment.