jct assignment clause

STEPHENSON HARWOOD

06 Aug 2021

Assignment under JCT: a costly lesson for beneficiaries

In the recent judgment of Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC), the TCC has taught a costly lesson to the beneficiary of a purported assignment who was seeking to pursue a claim against a contractor under a JCT building contract.

The crux of the case depended on the interpretation of an assignment provision in the contract that permitted the Employer to assign the right to bring proceedings in its name to a subsequent owner of the property. Despite the clause first featuring in the JCT standard form in 1987, there had been little commentary on it prior to this case.

Background to the claim

A developer called Camstead Limited employed Shepherd Construction Limited to demolish an existing building and construct new self-contained student apartments in Cambridge pursuant to an amended JCT Design and Build Contract 2005 Edition.

After completion of the works, the freehold interest in the property was conveyed twice, first to an investor called RMB and then to Aviva.

Following the tragic Grenfell Tower fire in 2017 and subsequent government guidance relating to fire risk assessments, Aviva investigated and identified various fire safety defects at the Property. Aviva issued proceedings against Shepherd in September 2020 and relied on a deed of assignment between Aviva and Camstead that purported to assign to Aviva the full benefit of the JCT contract and the right to bring proceedings. The deed of assignment was executed at or around the same time as the issue of the court proceedings in which Aviva advanced claims for damages of over £4 million, being the alleged cost of the necessary remedial works.

The court applications and assignment provisions

The judgment deals with two interim applications, the first from Aviva to join Camstead as a Claimant and the other from Shepherd to strike out Aviva's claim.

It was Shepherd's case that there was no valid assignment and so no basis to join Camstead. This argument turned on the proper interpretation of two clauses under the JCT contract, namely:

• Clause 7.1.1 (amended from the standard form): " The Employer shall be entitled upon giving the Contractor 14 days' written notice of its intention to do so, to assign the benefit of this contract by absolute assignment to any person (save any to whom the Contractor makes reasonable objection in writing before the expiry of the said period of 14 days) and in this contract the term "Employer" shall be construed accordingly. "
• Clause 7.2 (unamended from the standard form): " Where clause 7.2 is stated in the Contract Particulars to apply then in the event of transfer by the Employer of his freehold or leasehold interest in or of a grant by the Employer of a leasehold interest in the whole of the premises comprising the Works or (if the Contract Particulars so state) any Section, the Employer may at any time after practical completion of the works or of the relevant Section grant or assign to any such transferee or lessee the right to bring proceedings in the name of the Employer (whether by arbitration or litigation whichever applies under this Contract) to enforce any of the terms of this Contract made for the benefit of the Employer… "

The TCC noted that whilst clause 7.1.1 required Camstead to give notice of the assignment and in effect to seek Shepherd's consent, that restriction was limited in practice because Shepherd could only raise a reasonable objection once that notice was given. However, on the facts of the case, Aviva accepted that there had been no assignment under clause 7.1.1 because no notice of the purported assignment had been given to Shepherd. In the words of the TCC, Aviva had therefore 'pinned its colours to the mast' by relying on a purported assignment under clause 7.2 instead.

In response, Shepherd submitted that clause 7.2:

• only permitted assignment to the first assignee (i.e. not Aviva who was the second owner of the Property); and/or
• only allowed proceedings to be commenced in the name of Camstead as the original Employer under the JCT contract.

The TCC (Mrs Justice Jefford) agreed with Shepherd's arguments.

First, the TCC found that clause 7.2 is expressly concerned with a transfer by the Employer of a freehold or leasehold interest and there was " no wording that would encompass a subsequent transfer by [the first] transferee to another ". A distinction was therefore drawn between (a) the initial transfer of the freehold interest of the Property from Camstead to RMB and (b) any subsequent transfer of the freehold interest. Accordingly, the purported assignment from Camstead to Aviva, as the second owner of the Property, could not take effect under clause 7.2. The TCC went on to say that, even if clause 7.2 could be interpreted as applying to subsequent owners as well as the first transferee, it would nevertheless make commercial sense for it to be construed in a limited way. This is because, if clause 7.2 permitted Camstead to assign to any subsequent owner without consent, it would render clause 7.1.1 largely superfluous.

Secondly, the TCC found that " all that can be assigned [under clause 7.2]… is the right to bring proceedings in the name of the Employer " (emphasis added). Thus, the claim should have been brought in the name of Camstead, and Aviva could not advance a claim for its own losses. The TCC came to this conclusion because that is what the clause says and, if clause 7.2 permitted Camstead to assign to a subsequent freehold owner the right to bring proceedings and claim that subsequent owner's losses, it would have the effect of permitting an assignment of the benefit of the JCT contract without notice or consent, which would again render clause 7.1.1 pointless.

In light of those findings, the TCC accepted Shepherd's application to strike out Aviva's claim and denied Aviva's application to join Camstead to the proceedings.

Practical lessons

The TCC's primary finding that clause 7.2 only permits an assignment to the first assignee, and not any subsequent assignees, limits its application significantly. Had Aviva had the benefit of a valid assignment under clause 7.1.1 (i.e. with notice), it would not have needed to rely on clause 7.2 and that would have ultimately saved its claim from being struck out. This case is therefore a salutary reminder to ensure that you comply strictly with the assignment clause, or else risk having no recourse should things go wrong.

The other decision from the TCC that clause 7.2 only permits the assignment of the right to bring proceedings in the name of the Employer is perhaps unsurprising given the clause's clear and unambiguous wording. However, it does call into question what purpose the clause has if the assignee cannot rely on an assignment under clause 7.2 to bring a claim for its own losses. The TCC's response to this is that such an assignment gives the assignee the right to enforce the obligations of the Contractor after practical completion, such as the obligations to make good defects or to pay liquidated damages for delay. Further, although not addressed in the judgment, it is possible in limited circumstances for an Employer to recover losses sustained by a new building owner. However, the claims that a new owner can bring pursuant to a clause 7.2 assignment are not as far-reaching as might have been expected. It follows that the new owner would be well advised to seek an assignment under a provision like clause 7.1.1 instead.

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Expert Insights

What is a JCT contract? Do I need one for my build?

This article will look at the commonly used JCT forms of building contract and reasons to amend the JCT forms, as well as various factors you need to consider in choosing the most suitable JCT form for different types of construction project.

What is a JCT contract?

The Joint Contracts Tribunal (JCT) publishes a suite of standard form contracts which are commonly used in construction projects in the UK. At the time of writing, the JCT 2016 editions are the latest versions, with the next versions expected to be the 2024 editions. 

Established in 1931, the JCT is comprised of a number of contributing organisations, including the British Property Federation, the Contractors Legal Group, RIBA and the RICS.

Why should I use a JCT contract?

JCT contracts are well known in the UK construction industry and are institutionally acceptable to investors and financiers provided certain amendments are made.

The RIBA Construction Contracts and Law Report 2022 found that 59% of respondent organisations used JCT forms of contract most often, compared with RIBA building contracts at 15% and NEC contracts at 13%, and that the JCT forms were widely considered “industry standard”.

Using a standard form allows contractors to quickly understand the risk profile of a contract when preparing their tender. This helps contractors keep to a short turnaround time when tendering for works and to keep tendering costs as low as possible.

What does a JCT contract contain?

JCT contracts tend to be lengthy documents which is unsurprising bearing in mind the complexity of their subject matter and the potential scenarios which can occur on a live project. 

They generally comprise:

• The introductory Agreement identifying the employer and the contractor
• Recitals covering a brief description of the works and the associated contract documents and Articles which include the contract sum (if it is a lump sum contract)
• Contact Particulars which include information such as the: Date of Possession Date for Completion Levels of required insurances
• Contract Conditions , for the main forms of building contract these are split into nine sections governing matters such as: the contractor’s obligations in carrying out the works, determining when practical completion has been achieved and what happens on late completion, who is responsible for escalating costs and project delays, change control, payment arrangements – in the UK, this is a heavily regulated area, insurance – this is a key requirement, with insurances shoring up the contractual risk allocation, arrangements for collateral warranties - again fundamental in meeting some key requirements of the stakeholders typically involved in a construction project, termination provisions, including drafting dealing with insolvency of one of the parties, and dispute resolution – again an area which is subject to statutory regulation.
• Contract documents – the parties append the technical documents.

Why amend a JCT contract?

It is very common for employers to amend the JCT forms of contract to cover their requirements for the project.

Typical employer amendments include:

• Single point responsibility If the employer is looking for ‘ single point responsibility ’ from the contractor, the JCT Design and Build Contract 2016 needs to be amended to make the contractor responsible for all the design, including any design in the Employer’s Requirements, as this is not the case in the unamended JCT Design and Build Contract 2016.  This is also commonly insisted upon by a funder.
• Assignment Making the contract unilaterally assignable by the employer, as the unamended JCT requires the contractor’s consent for the employer to assign in most circumstances.
• Copyright conditional on payment of fees Where included in the design forms of contract, the JCT makes its copyright licence conditional upon there being no monies owed to the contractor.   This is often amended by an employer to avoid the risk of a copyright licence being withdrawn in the event of a payment dispute. 
• Bespoke Collateral Warranties Including bespoke forms of collateral warranty, as the JCT forms of collateral warranty are not generally acceptable to purchasers, tenants and funders. This is because of the limitations of liability in the JCT’s collateral warranties, including net contribution clauses.
• Relevant Events and Relevant Matters Changing the risk allocation of delays by the removal of some of the contractor’s contractual grounds for seeking an extension of time (called Relevant Events), as the default allocation of risk under the contract may be inappropriate. The employer may also be looking for greater cost certainty by removing the contractor’s right to claim loss and expense for certain Relevant Matters.
• Retention The JCT contracts provide that the employer holds the retention monies in a fiduciary capacity and requires the employer, upon request, to put the retention monies into a separate retention account.  This drafting is commonly amended so that the employer can treat the retention as its own funds until it is due to be paid to the contractor.

What are the JCT contract types

Jct standard building contract 2016.

Key Features:

• Used for large, complex projects where the design responsibility remains with the employer (and its professional team)
• The employer appoints an architect/contract administrator and quantity surveyor to administer the contract
• Can be used where there is design input from the contractor in relation to discrete parts of the works – the Contractor’s Designed Portion

JCT Design and Build Contract 2016

• Used for large, complex projects where the contractor carries out the works and also completes the design
• The employer employs an employer’s agent to administer the contract
• Employer’s Requirements are prepared by the employer and provided to the contractor – without amendments the employer will be responsible for the design in the Employer’s Requirements

JCT Intermediate Building Contract 2016

• Used for midsized projects without undue complexity
• The design is prepared by or on behalf of the employer, save where there is a contractor’s designed portion
• It is not suitable as a design and build contract

JCT Minor Works Contract 2016

• Used for small projects of a simple nature with or without a design element
• The employer appoints an architect/contract administrator to administer the contract

Which JCT contract should I choose?

There are a number of JCT contracts available. Deciding on which one to choose requires a decision to be made on the preferred procurement route.

There are different procurement routes, including:

• Traditional Key Features:
• Contractor is usually appointed by competitive tender
• Full documentation is needed at tender stage
• The employer has control over the design, quality and standards
• The employer appoints an independent contract administrator, usually the architect or another member of the professional team
• Design and Build Key Features:
• The Employer’s Requirements can vary in detail but are matched by the Contractor’s Proposals
• The employer has less control over design development once the contract is entered into
• There is no independent contract administrator – the employer appoints an agent to act on its behalf
• Lower risk in terms of cost and time for the employer
• Uncertainty over design and quality particularly when the Employer’s Requirements are not sufficiently detailed
• Construction Management / Management Contracting Key Features:
• For construction management:
• The work is divided into several ‘packages’. The employer will engage trade contractors to carry out each package. The employer will employ a construction manager to manage the various packages of work.
• This form of procurement is used on projects where there is a shortage of time with a need to let early packages of work whilst design of the works progresses and/or the employer wants greater control over the project and the choice of trade contractors.
• For management contracting:
• The employer employs a management contractor. The work is divided into several ‘packages’, each of which will be a separate contract between the works contractor and the management contractor.  Generally, where the management contractor is not in breach of its obligations, its liability for default by a works contractor is limited to amounts actually recovered from the works contractor.
• The management contractor is paid a fee plus site set-up and preliminaries costs. The management contractor is engaged early on to advise on programming, buildability and packaging of work.

The choices are set to increase further in 2024, with promise of a new target cost contract being published as part of the 2024 suite of contracts, giving the user more choice based upon alternative pricing requirements.

For further information and assistance please contact Patricia Nathan-Amissah by telephone on +44 (0)20 7203 5411 or by email .

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The wrongs of assigning rights

JCT assignment provisions seldom fall under the court’s microscope. This makes a recent TCC decision about such clauses in the context of whether an employer could be joined to a cladding claim all the more important. This is not a final judgment but is instead a consideration of an interim strike out application involving Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC).

In 2007, the defendant contractor (“ Shepherd ”) entered into a standard form JCT Design and Build Contract 2005 edition (the “ Contract ”) with the employer (“ Camstead ”) to build student flats in Cambridge. The Contract was made under seal for which the limitation period is 12 years.

There were five sections of works which achieved practical completion between September 2008 and April 2009. Camstead transferred the freehold in 2009 to a group known as the “Hotbed companies” who sold it on to the claimants (“ Aviva ”) in 2012.

Following updated government guidance on fire safety in January 2020 in the wake of the 2017 Grenfell tragedy, Aviva investigated the cladding and allegedly identified defects.

In September 2020, Aviva and Camstead entered into a deed of assignment. This purported to assign to Aviva the full benefit of the Contract and the right to bring proceedings.

At the same time as entering into the purported assignment in September 2020, Aviva issued proceedings against Shepherd for c. £4m in relation to remedial works arising from the alleged defects. Aviva notified Shepherd of the purported assignment three weeks later.

In January 2021, Aviva applied to join Camstead as a claimant; CPR 19.5(2) provides for the addition of a party to proceedings after the end of any relevant limitation period. Shepherd cross-applied to strike out the proceedings under CPR 3.4(2) on the basis that no reasonable grounds had been disclosed to bring the claim because there was no basis to join Camstead, no valid assignment and therefore Aviva had no right to bring the claim. They succeeded.

JCT assignment clauses

Two assignment clauses were scrutinised. Clause 7.1 gave the employer (Camstead) the right to assign the benefit of the Contract to any person: (i) if it provided 14 days' written notice to the contractor (Shepherd); and (ii) subject to any reasonable objection by the contractor before the expiry of the 14 days.

The Judge, Mrs Justice Jefford, referred to a hypothetical position in which there was no reasonable objection as meaning the contractor was giving implied consent. The unamended form of clause 7.1 provided that “neither the employer nor the contractor shall assign the contract or any rights under it without the written consent [our underlining] of the other” .

Clause 7.2 (which was in its unamended form) applied if the employer transferred the freehold or leasehold and entitled the employer to assign to "any such” transferee or lessee, the right to bring proceedings in the employer’s name to enforce the contract.

Aviva accepted that the lack of notice (or consent) required under 7.1 meant there had been no valid legal assignment of the right to sue but argued that there had been a valid equitable assignment under clause 7.2.

The decision

The Judge found that, under clause 7.2, only the right to bring proceedings in the name of the employer could be assigned; thus  proceedings had to be brought in Camstead’s name. Aviva was the wrong claimant. Furthermore, the words of the clause meant that the right could only be assigned to the first transferee, Hotbed. The clause could not be construed in a way which would cover the subsequent transfer by Hotbed to Aviva. Further, the clause did not permit an equitable assignment of the benefit of the contract (without notice or consent). Otherwise, this would mean the limitation in clause 7.1 would have no substantive effect since the employer would always be able to assign in equity, to any future owner, the right to bring proceedings without notice or consent.

She also found that clause 7.2 expressly concerned the assignment of contractual rights and was not a basis for an assignment of rights in tort.

It is, the Judge decided, “ inherently unlikely ” [our underlining] that a contractor will “ owe a duty of care to the employer to prevent or avoid economic loss ”. Why, asked the Judge, would a contract prohibit the assignment of causes of action in contract without consent but leave the possibility that a cause of action in tort could remain? The reality is that any duty in tort will generally coexist with a duty in contract and so assignment of that right would be subject to the terms of the deed. While it is conceivable that certain specific circumstances might give rise to a cause of action in tort, independent of contract, no such duty had been pleaded by Aviva.

There was no valid assignment from Camstead to Aviva and therefore no reasonable grounds to bring the claim. The Judge refused Aviva’s application under CPR 19.5(2) to join Camstead to the proceedings after expiry of the limitation period and granted Shepherd’s strike out application under CPR 3.4(2).

Another decision in the context of losses arising from potential cladding and fire safety risks. However and importantly, the Judge has only concentrated upon a narrow aspect of what was involved being contract interpretation or limitation on a summary basis. The court did not consider the wider issues which will be looked at if or when a claim proceeds to trial.

This case is of interest to practitioners, developers and contractors alike. It provides some analysis of the JCT forms addressing the importance of notice, consent and how the transfer of assignments are treated. It demonstrates the importance of checking the status of the claimant and the effect of clause 7.2. It is easy to overlook wording which has remained in place for 34 years with scant judicial consideration.

For further examples in our series of articles focussed on cladding related claims, see our articles about RG Securities and Martlett Homes .

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JCT Design and Build Contract

In this article I’ll discuss the principles of Design and Build Contracts by reference to the Joint Contracts Tribunal (JCT) suite of contracts. This is followed by a clause by clause guide to using the JCT Design and Build Contract.

Chapter 1 – Introduction to the JCT Design and Build Contract

What is Design and Build Contracting?

“Design and Build is a contractual arrangement in which the contractor offers to design and build a project for a value inclusive of both the design and construction costs.”

In Design and Build Contracting there is reference to three key stakeholders:

• The Employer – the client for the overall project
• The Contractor – the   Main Contractor   on the project
• The Subcontractor(s) – any Subcontractor(s) employed on the project

The simple concept that makes Design and Build Contracts different to traditional is that the Employer seeks to transfer more design responsibility to the Contractor. The Contractor has greater design input on a Design and Build Contract than with the traditional   procurement route . Under the JCT Design and Build Contract, the Contractor has an equal-level of design responsibility as the Architect.

Design and Build is a modern   Procurement Route in construction , unlike in other industries where it has been in use for a long period of time. Construction has lagged behind due to the emergence of architecture as a profession that has led the industry for the majority of the past century.

Chapter 2 – Where to find key Clauses

It can be difficult to identify Clauses in the JCT Design and Build Contract with ease. The table below extracts the page number and Clause reference for the important day-to-day Clauses.

Chapter 3 – How to use the JCT Design and Build Contract?

The JCT Design and Build Contract is a detailed and lengthy contract with over 100 pages, but it is designed to be simple to navigate if you know where to look. The Contract is split into three sections; the Articles of Agreement; the Conditions and the Schedules.

These sections are further broken down into subsections. Using the table below, the key Sections, Subsections, Clauses and Page numbers are identified based on the 2016 edition of the JCT Design and Build Contract.

Chapter 4 – Navigating and Understanding the JCT Design and Build Contract

1. the articles of agreement, articles of agreement and recitals (pages 1 – 2).

This section of the Contract is where you will find details of the date of the Contract and who the parties to the contract are – their registered company name, registered address and company registration number.

The Articles (pages 3 – 5)

There are nine different Articles included in this section of the contract and in effect the Articles provide headline details on the major agreements within the Contract. A description of each is provided in the table below:

The Contract Particulars (pages 6 – 17)

The Contract Particulars in the JCT Design and Build Contract state the aspects of the Contract that are bespoke and particular to the specific project. This section includes:

• Where to find the Employers Requirements and Contractors Proposals
• Where to find the   Contract Sum Analysis   (breakdown of the price of the works)
• The Date for Completion of the Works
• The Date for Possession of the Site
• Sectional Possession and Sectional Completion dates
• The rate of Liquidated Damages
• The length of the Rectification Period
• The Retention percentage

The Attestation (pages 18 – 24)

The Attestation pages are the area of the Contract where the signatures and details of the individuals who signed the contract can be found. You will also find whether the Contract is   signed under hand or as a Deed .

There are key differences between contracts   signed as a Deed or Under Hand . Executing a contract as a Deed means that the limitation period for starting legal proceedings for a breach of contract is significantly longer – 12 years rather than six if signed underhand.

2. The Contract Conditions

Clause 1 – the definitions and interpretations (pages 25 – 31).

This section deals with how the Contract is to be interpreted by the parties and potentially by any third party in the event of a dispute.

The   Definitions   explain the formatting of the Contract. For example, when a word or phrase in the Contract starts with a Capital Letter this is a defined term in the Contract. This means the term can be defined by the list of definitions on Page 25 of the Contract, which explain exactly what that word means in the context of the Contract.

Knowledge of this fact makes understanding and using the Contract much easier. Here are some examples:

• “ Contract Sum ” is defined in the Contract as “the sum stated in Article 2”.
• “Business Day” is defined as “any day which is not a Saturday, a Sunday or a Public Holiday”

With regards to   Interpretation , pages 29 to 31 detail how the Contract and the terms and conditions within it are to be interpreted. This is useful to understand in the event there is a disagreement regarding any matters during the project.

An example of its application could be used in the event there is a disagreement about the Scope of Works:

• The Employer states that a brick wall is included in the Scope as it’s shown in the Contract Scope of Works document.
• The Contractor states the brick wall is excluded by referring to an email where it was excluded during Tender Stage. This email excluding the brick wall is however not included in the Contract.

In this case, Clause 1.3 of the JCT Design and Build Contract regarding   Interpretation   is useful as it states:

“The Agreement and these Conditions are to be read as a whole. Nothing contained in any other Contract Document or any Framework Agreement, irrespective of their terms, shall override the Agreement or these Conditions.”

This means that the Contract Document is the entire agreement between the two parties and only documents included within it are relevant. Therefore, the Contractor’s email excluding the brick wall is irrelevant as it’s not a Contract document.

An understanding of the Interpretation clauses is important as it allows the parties to understand what the agreement is with clarity. It’s good practice to refer to this section before signing a Contract.

Clause 2 – Carrying out the Works (pages 32 – 41)

Clause 2 of the JCT Design and Build Contract lays out what the Contractor’s obligations are. Clause 2 includes many Clauses and Sub-Clauses which define the criteria under which the Works will be completed. The Clauses are summarised below:

Contractor’s Obligations   – Clauses 2.1 and 2.2 are focused upon the minimum expectations of the Contractor for the Works with a failure to meet the requirements effectively being a breach.

The Contractor under Clause 2.1 is required to “complete the Works in a proper and workmanlike manner” and to comply with the Laws of the country, including Health and Safety while Clause 2.2 focuses on materials, goods and workmanship selection in order to ensure these are suitable.

For example. the Contractor is obligated to “take all reasonable steps” to make sure its employees and operatives working on the project hold Construction Skills Certification Scheme (CSCS) cards which, in theory, would increase the quality of the workmanship and Health and Safety practices across the project.

Possession   – Clauses 2.3 to 2.6 detail the process of the Employer   handing over   the site to the Contractor. From the Date of Possession, the Contractor is obligated to “regularly and diligently proceed” which means that the Contractor must maintain regular progress of the Works. This wording obligates the Contractor to work every day moving forward until the works complete.

Clause 2.4 also states that if the Contract Particulars allow it, the Employer can delay the Date of Possession by up to six weeks.

Contract Documents   – Clauses 2.7 to 2.9 provide an explanation on where the contract Documents shall be held; what constitutes construction information and also how the site boundaries are defined. It’s is key that, on the Date of Possession being provided to the Contractor, the Employer should have already defined the site boundaries to the Contractor.

Discrepancies and Divergences   – Clauses 2.10 to 2.16 are important clauses in respect to the commercial management of the project.

Given large volume of documents included in the contract, there will be a discrepancy between contract documents. These Clauses explain how to manage discrepancies and confirm who is responsible and whether the matter constitutes a Change that often leads to an impact in terms of time and money.

An example of the application of this Clause is as follows:

If the Contractor identifies a discrepancy within the Architect’s Drawings (Employer’s Requirements) the Contractor is to notify the Employer of this and can confirm the cost of both and their intention to complete the cheaper option. If the Employer chooses the more expensive option, this is treated as a Variation to the   contract sum .

Design Work, Liabilities and Limitation   – Clause 2.17 allows the parties to understand the Design Liability and Limitation of the Contractor under the JCT Design and Build Contract. The Contractor has major obligations and the same level of responsibility as the Architect under a JCT Design and Build Contract. This is confirmed by the following wording:

“…the Contractor shall … have the same liability to the Employer … as would an architect or other appropriate professional designer…”

Fees, Royalties and Patent Rights   – Check this Clause to understand the impact of Fees, Royalties and Patent Rights deriving from the design works. What the contract says here is that any Royalties or Fees (relating to the Employer’s use of the design) are deemed to be included by the Contractor in the   Contract Sum   and cannot be charged as extra.

Unfixed Materials and Goods – property, risk etc.   – This Clause relates to ownership and payment of Materials on and off site as well as who holds the risk for damage to these materials.

Where payment for materials on site has been made, the materials become the   property of the Employer   and ownership of the materials is transferred. In terms of which party is responsible for loss or damage to them once ownership is transferred, check which Insurance Option, B or C, has been selected in Schedule 3 ( Insurance Options ).

Adjustment of Completion Date   – More commonly referred to as   Extension of Time , the Adjustment of the Completion Date Clauses are found from 2.23 to 2.25. These are some of the most important and commonly used Clauses in the Contract as they explain the grounds upon which a Contractor must submit a   Notice of Delay   and how a Contractor is able to adjust the completion date (apply for an   extension of time ).

Often, the Commercial success of a project hinges on the Contractor making regular Notices of Delay. Read our article on   Giving Notice   for more information on this.

Relevant Events   – A   Relevant Event   is an event during the progress of the works that causes a delay to the completion date and potentially gives the Contractor rights to request an   Extension of Time . Clause 2.26 defines in detail what constitutes a Relevant Event under the JCT Design and Build Contract. For more explanation of Relevant Events please refer to our article titled the   JCT and Relevant Events

Practical Completion, Lateness and Liquidated Damages   – These Clauses deal with matters relating to   Practical , Sectional and Non-Completion under Clauses 2.27 and 2.28. A key matter which often drives disputes is covered under Clause 2.29 which defines the exact rules that the Employer must follow if they wish to apply Liquidated Damages due to late completion by the Contractor.

Partial Possession   by Employer   – This Clause allows the Employer to take   Partial Possession   of the Project during the construction works and before   Practical or Sectional Completion .

Taking Possession in “parts” is interesting as in some cases the Employer can request the early Possession of parts of the site and should this happen it can be of benefit to both parties. For the Contractor, it can lead to the   early release of retention   and a reduction in their insurance obligations and the value of Liquidated Damages.

This kind of arrangement is not uncommon and an example of when this could happen is in the Construction of a Residential Tower. It may be that that the Tower is 10 storeys high and when levels 1 to 5 are finished, the Employer can move tenants in on these floors while Fit-Out works on the upper levels finishes.

Defects   – Clauses 2.35 and 2.36 state what the Contractor is required to do upon completion of the project in regard to defects and making good any defects during the   Rectification Period . This Period is usually 12, 18 or 24 months long. The length of the   Rectification Period   is confirmed on page 9 of the contract (in the Contract Particulars).

Contractor’s Design Documents   – Clauses 2.37 and 2.38 state how and when the Contractor must provide As Built Drawings which are drawings showing the final details of the project as constructed. These are required as during the construction process elements of the design are often changed on site due to physical constraints not foreseen during design.

As Built Drawings are important and tied to the release of the   Practical Completion   certificate by the Employer. The Contractor needs to have a procedure in place for managing and issuing As Built Drawings to ensure this does not impact the release of the   Practical Completion   Certificate.

The Clause also confirms that by signing the Contract, the Contractor grants the Employer unreserved rights to use its drawings and that this will not infringe any Copyright legislation.

Clause 3 – Control of the Works (pages 42 – 46)

Access and Representatives   – Clauses 3.1 and 3.2 are very simple and confirm that, always, the Contractor must allow the Employer access to the works and further, that the Contractor must appoint a nominated Site Manager at the start of the Works to be approved by the Employer.

Sub-Contracting   – these conditions describe the basis upon which the Contractor can   subcontract   elements of the work. The Contractor is not permitted to   subcontract   the whole or any part of the Works and, perhaps more importantly the Design, without the Employer’s prior consent. It is rare for consent to be withheld as the Employer must always act reasonably. However, the terms do require the Contractor to notify and receive consent.

Employer’s Instructions   – This section confirms the Contractor’s obligations to comply with reasonable instructions from the Employer. Should reasonable instructions not be complied with in seven days, the Employer can instruct others to complete the works and where an a dditional   cost (a cost higher than it would’ve been incurred using the Contractor) is incurred, this can be deducted from the   Contract Sum .

The Contractor does have a right to   reasonable   objection of instructions under Clause 3.9.2 which states that any instruction which alters the standard of any of the materials or goods can be reasonably rejected by the Contractor given their design obligations on the project.

CDM Regulations   – Clause 3 refers to both parties’ statutory obligations to one another regarding the CDM Regulations.

Clause 4 – Payment (pages 47 – 55)

Contract Sum and Adjustments   – This section of the Contract is all about money and on what grounds the   Contract Sum   can be adjusted. Clause 4.2 states that the   only   reasons for adjusting the Contract Sum are for costs associated to the following:

• Agreed Variation Works
• Agreed   Acceleration Works
• Agreed Fluctuations (see Contract Particulars)
• Agreed   Loss and Expense
• The Instruction of   Provisional Sums

Taxes   – Clauses 4.4 and 4.5 refer to the application of VAT and CIS taxes to the Contract Sum.

Payments and Notices   – Clause 4.7 to 4.11 deal with the construction payment process under the JCT Design and Build Contract. This   payment mechanism   is compliant with the most recent UK legislation from 2009, the   Local Democracy, Economic Development and Construction Act   and the Clauses are summarised as below:

• Clause 4.7   – Explains that the Employer shall make Interim Payments to the Contractor and that the Due Date shall be seven days after the Valuation Date and five days later the Employer shall submit their   Payment Notice   to the Contractor.
• Clause 4.8   – This clarifies what must be included in a   Payment Notice   and that it should show “the basis on which the [payment value] has been clarified.”
• Clause 4.9   – States that 14 days after the Due Date the Final Date for Payment falls. This date is the date when the Employer will transfer funds to the Contractor. This Clause references a “ Pay Less Notice ”; for more information on what a Pay Less Notice is refer to our article titled the JCT and Pay Less Notices.
• Clause 4.10   – This Clause clarifies the “Pay Less Notice”; for more information on what a Pay Less Notice is refer to our article titled the JCT and Pay Less Notices.
• Clause 4.11   – In the event of non-payment or non-compliance with the above-mentioned Clauses, the Contractor has the right to suspend works and the process for doing so is explained in this Clause.

Interim Payments – calculations of sums due   – Clause 4.12 to 4.15 identify the different valuation methods available to the parties under the JCT Design and Build Contract.

Listed Items   – Clause 4.15 refers to “Listed Items” in the Contract that are pre-agreed items to be included in interim payments for payment off-site. Listed Items will include the value of such materials and once paid, ownership passes to the Employer.

Retention   – Clause 4.16 to 4.18 confirms how the   Retention value   (see 4.18.1 of the Contract Particulars) is withheld and then paid back. During the Contract Works 100% of the retention is withheld form payments and then when the works reach   Practical Completion   50% of the retention is released, with the remaining 50% released upon expiry of the   Rectification Period .

Loss and Expense   – Loss and Expense is cost that results from the impact of   Relevant Events . Where a delay event has caused costs for either party this can be claimed as Loss and Expense and added/subtracted from the   Contract Sum .

Clause 4.20 clarifies the basis for doing this and states that “as soon as is reasonably” possible the Contractor must notify the Employer of Loss and Expense (also known as a   Relevant Matter ) and provide cost advice including any evidence of the costs in support. Within 28 days, the Employer must then reasonably confirm their acceptance or otherwise to these costs.

Final Statement and Payment   – Clause 4.24 obligates both parties to act promptly to conclude any commercial discussions after   Practical Completion   of the Works. The Contractor is required to submit their “Final Statement” (final cost assessment) within three months of   Practical Completion   and the Employer then has two months to conclude its assessment.

Clause 5 – Changes (pages 56 – 58)

General   – This Clause deals with Changes or as they’re more commonly known, Variations. Clause 5.1 clearly defines what matters are considered Variations.

The Valuation Rules   – these Clauses deal with how each party must Value the price of any variation and assessment falls under two main headers:

• Measured Works (Clause 5.4) – Where there is an increase in the Scope of Works the price should be consistent with the price in the   Contract Sum Analysis . For example, if the   Contract Sum Analysis   says Curtain Walling is charged at £500 per m² and there is an instruction for an extra 10m² this is to be charged at 10m² x £500. If there is no applicable rate in the Contract, then “a fair valuation shall be made” by both parties.
• Daywork (Clause 5.5) – Where the works can not be valued in line with Clause 5.4 – perhaps because they’re particularly one-off in their nature, or unique works not included in the Contract – they’re to be valued on a Daywork basis as per the rules in this Clause.

Clause 6 – Injury, Damage and Insurance (pages 59 – 66)

Personal Injury and Property Damage   – Clauses 6.1 to 6.6 deal with the Contractor’s obligations regarding Insurance and having suitable cover in place in the event of Personal injury or Property damage. This   insurance protection   must be held and maintained throughout the lifecycle of the project.

Insurance of the Works and Existing Structures   – Clauses 6.7 to 6.14 are to be read in conjunction with the Contract Particulars and the Schedules of the JCT Design and Build Contract. The Contract Particulars (page 13) state which   Insurance Option   has been selected (Option A, B or C) and Schedule 3 details the implications of implementing this.

Professional Indemnity Insurance   – Professional Indemnity Insurance, often referred to as PI cover, must be held by the Contractor to cover its professional expertise in the field of design. The Contractor holds the same level of liability as an Architect under the JCT Design and Build Contract and must hold Professional Indemnity insurance confirming this level of expertise.

Joint Fire Code – compliance   – Clauses 6.17 to 6.20 are to be read in conjunction with the Contract Particulars if the particulars state the Joint Fire Code applies. If it does apply refer to these Clauses for its application.

Clause 7 – Assignment, Performance Bonds and Guarantees, Third Party Rights and Collateral Warranties (pages 67 – 69)

Assignment   – Assignment is a legal term used in contract and property Law. It is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. The JCT Design and Build Contract does not allow Assignment of the Contract by either the Contractor or the Employer and Clause 7.1 confirms this.

Performance Bonds and Guarantees   – Clause 7.3 states that if the Contract Particulars (page 15) confirm that the contract includes for a   Performance Bond   then immediately upon signing of the Contract, the Contractor is to provide a   Performance Bond   to the Employer.

Third Party Rights from Contractor   and   Collateral Warranties   – Clauses 7A to 7E deal with the rights of 3 rd   Parties to the Contract.

An example of a 3 rd   party is a future Tenant or a Funder who may have rights to the Contract at a later stage. These 3 rd   parties may need to enforce specific terms of the contract and these Clauses give them the rights to do so.

For example, if the project was supposed to use certain, long-lasting, materials which it does not, these Clauses allow the 3 rd   party to enforce a contract term or to highlight a breach.

Collateral warranties   are more express agreements associated with specific 3 rd   parties such as a known tenant and provide for the duty of care in the Contract to be extended by one of the contracting parties to the 3 rd   party (not in the contract). A simple example of the relevance of this is the   Design and Build Contractor   owes a duty of care to the future occupier of the development in so far as any subsequent defects which may arise are concerned.

As with   Performance Bonds   and Guarantees, always check the Contract Particulars (page 16) to see which 3 rd   Party Rights or   Collateral Warranties   apply to the specific Contract.

Clause 8 – Termination (pages 70 – 75)

General   – This Clause deals with Contract Termination. The JCT Design and Build Contract require one or both parties to meet certain obligations. If these obligations are not met, the parties involved can enforce contract termination Clauses to void and close the contract.

One of the most common reasons for Termination is when one of the parties becomes insolvent and can no longer administer their obligations. Clause 8.1 details what the definition of insolvent means regarding a Company; a Partnership; an Individual or a Person.

Termination by the Employer   – Clause 8.4 states the various reasons for which the Employer is permitted to terminate the Contract. The Employer must give notice stating the breach and the Contractor then has 14 days to remedy the breach. If the Contractor does not remedy, the Employer can terminate the Contract “on, or within 21 days from” the expiry of the 14-days.

  If the Contractor is terminated, Clause 8.7 details the steps the Employer can take to appoint other persons to complete the works.

Termination by the Contractor   – Clause 8.9 states the differing reasons for which the Contractor is permitted to terminate the Contract.

One of the main reasons is a lack of payment in accordance with Clause 4.9. Lacking payment is one of the primary drivers for Contractor Termination and the Contractor must give notice of any breach giving the Employer 14 days to remedy the matter. If the Employer does not, the Contractor has the right to terminate the Contract “on, or within 21 days from” the expiry of the 14-day period.

Termination by either Party   – Clause 8.11 deals with more general causes for Termination whereby events outside of both parties’ control occur (i.e. civil commotion, terrorism, government intervention etc.). Where these events cause serious delay to the Contract either Party can give notice of their intention to terminate as per the rules in Clause 8.11.

Consequences of Termination   – Clause 8.12 confirms how costs (Loss and Expense) flows as a result of termination and how both parties should act in the case of termination.

If the Contract is terminated by the Contractor – the Contractor must as soon as is reasonably possible (within two months) prepare and submit details of the account including the value of the works completed; the cost of removal from site and any other loss and expense incurred. The Employer then has 28 days to assess the submission and is obligated to reasonably pay what is due.

Clause 9 – Settlement of Disputes (pages 76 – 77)

General   – In the event of a dispute, the JCT Design and Build Contract provides three different remedies that are available to the parties to stimulate resolution. Each have their advantages and disadvantages and are more suited to certain applications which should be considered dependant on the context of the dispute.

Mediation   – The JCT Design and Build Contract advocates the cheapest and quickest route. Mediation is a structured process where a neutral 3 rd   party (The Mediator) assists the parties in resolving the dispute through specialist negotiation techniques.

The problem with Mediation is that the result is non-binding and the Mediator cannot impose a decision on the parties. Any settlement must be on the basis that the parties voluntarily agree to accept it. With more contentious or high-value matters this is unlikely.

Adjudication   –   Adjudication   is another common form of   dispute resolution   that became familiar in UK construction with the implementation of the 1996 Housing Grants Construction and Regeneration Act. Adjudication is quick and relatively inexpensive but is still likely to be costlier for both parties than Mediation depending on the complexity of the issue.

Clause 9.2 details how the parties can instigate Adjudication and refers to the Contract Particulars for details of who the nominated contract Adjudicator is. The benefit of using Adjudication over Mediation is that the decision is binding. However, it’s possible for the ruling to be overruled if the dispute is referred to Arbitration or litigation (Court).

Arbitration   – This is a form of alternative   dispute resolution   which enable the parties to resolve disputes outside the courts.   Arbitration   sees any dispute being concluded by Arbitrators (a panel of one or more persons) and the decision is legally binding and enforceable. Clause 9.3 details the procedures and roles of both parties and the Arbitrator under the Contract.

The Contract Schedules

Schedule 1 design submission procedure (pages 78 – 79).

This section of the Contract is where you will find details on exactly how the Design Submission Procedure works and how the parties are to interact during the design stages of the project.

The Conditions state that:

• The Contractor shall submit its drawings to the Employer
• Within 14 days of receipt of these drawings, the Employer shall communicate to the Contractor, whether the document is considered to be A, B or C Status Contractor.

What do these statuses mean?

• A Status:   The document is 100% perfect and the Contractor can proceed.
• B Status:   The Contractor can proceed with the document but must incorporate the comments of the Employer.
• C Status:   The Contract cannot proceed and must resubmit the document for approval.

A practical note here is that this process can be mis-used to the detriment of the Contractor and progress of the works. Please consider therefore, that the Employer is only able to mark a document with a B or C status where:

 “the Employer [expressly confirms] that it is not in accordance with the Contract”

Therefore, the Employer must explain – by reference to the Contract – exactly why the Design Submission is not suitable. The Employer cannot simply state B or C status on the grounds of whether they like the design for example.

Schedule 2 Supplemental Provisions (pages 80 – 85)

This section details Supplemental Provisions that are to be used in the Contract if the Contractor Particulars state they’re to be used (see page 6, 7 th   Recital). Where these Supplemental Provisions are stated as “Apply” then the Terms included in the Schedule become enforceable conditions to be followed by both parties.

Schedule 3 Insurance Options (pages 86 – 88)

In Clause 6 of the Conditions it is noted that   Insurance Options   A, B and C could be chosen at the outset of the Contract. Schedule 3 simply details what the practical implication of the various options are and how they’re enforced. Refer to page 13 of the Contract Particulars to see which   Insurance Option   applies to the specific contract.

Schedule 4 Code of Practice (page 89)

The Code of Practice is a Schedule which relates to Clause 3.13.3 of the Conditions (page 45) for Work that is not considered to be in accordance with the Contract and is designed to make the operation of opening or testing the Works simple and standardised. This Clause provides a detailed procedure of what to do in this instance.

Schedule 5 Third Party Rights (pages 90 – 94)

This Schedule refers to Clause 7 of the Conditions regarding 3 rd   Party Rights. Check the Contract Particulars (page 16) to see which, if any, 3 rd   Party Rights apply to the specific Contract and then follow this Schedule for the procedure for applying the rights.

Schedule 6 Forms of Bond (pages 95 – 103)

The JCT Design and Build Contract simplifies the process of using   bonds   in the Contract by providing standard templates for; Advance Payment Bonds (Part 1); Off-Site Material Bonds (Part 2) and Retention Bonds (Part 3) within Schedule 6.

Check pages 10 to 12 of the Contract Particulars to see whether Bonds apply to the Contract and if so, use these standard templates to implement them.

Schedule 7 JCT Fluctuations Option A (pages 104 – 107)

On very large schemes which last for several years, the JCT Design and Build Contract has a Fluctuations provision. Fluctuation provisions provide a mechanism for dealing with the effects of inflation which on major, long-lasting projects, can be significant.

On larger schemes, the contractor can provide a tender based on current prices and then the Contract, using Schedule 7, makes provision for price fluctuations to specified items over the duration of the project.

The Fluctuation Clause in the JCT is almost exclusively limited to larger projects as with shorter projects, the Contractor is deemed to have included for any minor fluctuations within their Contract Sum. To see if the Fluctuation provision applies in the Contract check page 10 of the Contract Particulars.

Chapter 5 – Summary and Conclusion

Since inception, the JCT Design and Build Contract has grown in popularity and usage in the UK Construction Industry. There are few Employers who dislike the Contract as it provides a high-quality alternative to the Standard Building Contract and offers increased cost certainty from an earlier stage.

This form of contract is however complex and must be studied in detail at tender and contract execution stage so that both parties understand their obligations under the Contract form.

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How to successfully claim and manage change under jct (article 73).

Date: 07 Apr 2022

Download: How_To_Successfully_Claim_And_Manage_Change_Under_JCT_%28Article_73%29.pdf

Categories: Commercial, Contractual, Planning & Programming | Articles

Introduction

Change, in its broadest sense, commonly arises during the life of a Construction Project.

This “ Change ” could be a change in scope, quantity or how the work can be carried out which may or may not have a financial impact. However, “ Change ” can also be the Contractor being on site longer than anticipated or the Contractor may become entitled to loss and expense which changes the overall project value.

Every Contract should contain mechanisms that set out the procedures for claiming and managing change. In this article, we will consider change in terms of alteration to scope, quantity, quality, methodology and the like (what is commonly referred to as “ Variation ”) we will also explain how change should be presented and claimed under the JCT Suite of Contracts.

What is Change?

“ Change ” or “ Variations ”, as they are often referred, are modifications to the Contract Works. These changes may be to a Party’s performance under the Contract, for example, the addition, omission or alteration of work or the conditions to which the work is to be carried out. Changes can be instructed by the person administering the Contract or may be deemed Variations for example, compliance with a new Statutory Requirement. The Contractor is required to adhere to Statutory Requirements so has to incorporate changes as necessary, regardless of whether an instruction has been received.

The most commonly used standard forms of Construction Contract all contain express provisions to claim and manage change. These “ Variation ” clauses enable these changes to occur in a manageable straightforward manner. Without such provisions, introducing a change can be complicated and time consuming, as it would require changing the initial agreement itself or entering into an entirely separate Contract.

Change under JCT

As with most Standard Forms of Contract, the JCT Suite of Contracts contain provisions which enable “ Variations ” to be made. Each of the JCT Contracts provides its own specific definition of what a change is and the process of managing and valuing change. 

The JCT Design and Build (DB) Contract 2016, for example:

“ The term “Change” means:

• The addition, omission or substitution of any work;
• The alteration of the kind or standard of any of the materials or goods to be used in the works;
• The removal from site of any work executed or Site Materials other than work, materials or goods which are not in accordance with this Contract;
• Access to the site or use of any specific parts of the site;
• Limitations of working space;
• Limitations of working hours; or
• The execution or completion of the work in any specific order ”.

The JCT Standard Building Contract (SBC) and Intermediate Building Contract (IC) contain similar definitions but use the term “ Variation ” as opposed to “ Change ”.

The JCT Minor Works Building Contract 2016 (MW) contains a simplified mechanism:

Clause 3.6.1

“ The Architect/Contract Administrator may without invalidating this Contract issue instructions requiring an addition to, omission from, or other change in the Works or the order or manner in which they are to be carried out (a ‘variation’). ”

It is important that the Parties to a Contract are familiar with the specific obligations with regards to Change/Variation and understand what constitutes a Change/Variation under that Agreement.

Managing Change Under JCT

Each of the JCT standard forms of Contract specifies how changes are to be managed and each standard form contains slightly different mechanisms, terminology, and obligations. However, the different JCT forms all generally contain a similar approach.

Below are some of the requirements contained within the JCT Standard Building Contract (SBC) With Quantities 2016, which address the management of change:

• Clause 2.15 requires the Contractor to notify the Architect/Contract Administrator, with appropriate details, as soon as it becomes aware of any departure, error, omission or inadequacy of the Contract Bills and Contractor’s Design Portion-related documents (Employer’s Requirements). This is to ensure any discrepancies are dealt with at the earliest opportunity, enabling changes in cost and/or time can be managed accordingly.
• Clause 3.10 places an obligation on the Contractor to comply with all instructions issued to him by the Architect/Contract Administrator, save for the exclusions identified within Clause 3.10.
• Should a Contractor not comply with an instruction within 7 days, Clause 3.11 allows the Employer to employ and pay others to execute work of any kind that may be necessary to give effect to that instruction. The Contractor shall be liable for all additional costs incurred by the Employer in connection with such employment, and an appropriate deduction may be made from the Contract Sum. This provides the Employer with further surety that changes will be incorporated into the Project.
• Instructions are often provided that are not in writing, for example verbal instructions. To ensure that these changes are captured, Clause 3.12 stipulates that the Contractor shall confirm the terms of an instruction in writing to the Architect/Contract Administrator within 7 days. Should the Architect/Contract Administrator then not dissent by notice to the Contractor within 7 days from receipt of the Contractor’s confirmation, the instruction shall take effect as from the expiry of the latter 7-day period.

Valuing the Change

Once Entitlement to Change / Variation has been established, valuing the Change needs to be considered. At this point it should be noted that not every Change results in a change to the Contract Sum.

Prior to valuing Change / Variation under JCT Contracts, the following factors need to be considered:

• The character of the work. Is the change similar in character to works undertaken elsewhere?
• The conditions of the work. Dependent on the stage of the works when the change is required, may mean that access is constrained and/or productivity is reduced, potentially bringing about an increase in the cost to undertake the change.
• The quantity of work undertaken. The volume of work required under the Change may have an effect of the cost of the works, due to economies of scale. For example, if a plasterer is instructed to carry out 1m2 of plastering in isolation, the cost per m2 will likely increase significantly compared to carrying out, say, 100m2.
• It may be prudent to ascertain if the Change will impact on Preliminaries and a decision may be required as to how to present such a claim. Unlike NEC the time impact of a change does not necessarily need to be considered and presented at the time as a claim for Change is presented.

Each of the JCT Contracts contains is own requirements when valuing a change. However, generally the Valuation Rules are:

• Where the Contract contains a Bill of Quantities, a Schedule of Work or a Contract Sum Analysis, the works requiring a change should be measured and quantified using the same rules of measurement as that used to establish the rates in Bills of Quantities, Schedule of Work or Contract Sum Analysis. For example, if a Bill of Quantities contains a m3 rate for excavating trenches, any variation requiring excavation works should be measured on the same basis and not deviated to an alternate measurement for instance a linear metre rate.
• In situations where the change effects a lump sum item, allowances or percentage adjustments are to be applied from the Bills of Quantities.
• Where the Contract contains approximate quantities, if the approximate quantity identified in the Contract is a reasonable forecast of the quantity of work undertaken, then the rate in the Bills of Quantities are to be used in the valuation. Should the approximate quantity in the Contract not be a reasonable forecast of the actual work carried out, the rate in the Bills of Quantities should be used as a basis for the valuation and a fair allowance made for the change in quantity.
• Should a Change not be of similar character to work set out in the Contract priced documents, the Change is to be valued at fair rate and prices.
• In some circumstances, usually due to the nature of the work in question, change may be valued on a “daywork” basis, which is a resource time, plant, and materials utilised basis usually calculated on the basis of pre-agreed rates or pre-agreed percentage uplift to demonstrable costs.

When it comes to claiming and/or managing change under JCT, there is not a “ one size fits all ” approach. Each of the JCT Contracts provide its own definition of what constitutes a change/variation, although they clearly follow a broadly similar approach.

The parties need to ensure they are comfortable with the provisions of its individual Contract when it comes to managing a change, to ensure that the correct Notices are submitted and the correct procedures are followed. Similarly, the valuation rules of any change will also be identified within the Contract, giving parties guidance on how any change is to be valued and these should be followed to avoid disagreements.

Some practical tips for managing change are:

• Ensure that you can link the claimed change to an instruction or a new Statutory Requirement.
• Advise as soon as possible of a change or a potential change.
• Follow the valuation mechanisms correctly.
• Provide sufficient information and make any presentation easy to follow (marked-up drawings, relevant correspondence and instructions, photographs, provide a brief narrative explanation of the change, wherever possible refer sums claimed back to the original contract).
• Include any change into any interim account claim / application for payment.
• Provide evidence of actual cost if possible.
• If valuing change as a daywork, ensure the daywork sheets are signed and the correct rates and percentage uplifts are utilised.

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Out-Law Guide 7 min. read

Standard form contracts: JCT

13 Jun 2023, 4:22 pm

What is the Joint Contracts Tribunal?

The Joint Contracts Tribunal (JCT) is made up of seven member organisations who collectively represent a wide range of interests in the building and construction sectors. JCT produces standard forms of contract, guidance notes and other standard documentation for use in these sectors. JCT's intention is that the contracts developed and published by it represent a balanced allocation of risk between the contracting parties.

The JCT suite of contracts

The most recent version of the JCT suite is the 2016 version, although a 2023 version of the suite is expected to be published sometime this year. Contracts from previous versions of the JCT suite are still in use (2011, 2005, 1998 etc.) but care should be taken when using them on 'new' projects as some of the provisions do not comply with the current law - the updates made to each new JCT suite seek to capture changes in legislation that have occurred between the versions.

The suite includes different forms of standard contract, intended for use on projects of varying scales, values and complexity (e.g. minor works, intermediate works, design and build projects), as well as standard forms of sub-contract that are designed to dovetail with the main forms. 

The most commonly used main contracts in the current JCT suite are:

• JCT Design & Build Contract 2016 (DB);
• JCT Intermediate Building Contract 2016 (IC);
• JCT Intermediate Building Contract with Contractor’s Design 2016 (ICD);
• JCT Standard Building Contract with Quantities 2016 (SBC/Q);
• JCT Standard Building Contract with Approximate Quantities 2016 (SBC/AQ);
• JCT Standard Building Contract without Quantities 2016 (SBC/XQ);
• JCT Minor Works Building Contract 2016 (MW); and
• JCT Minor Works Building Contract with Contractor’s Design 2016 (MWD).

The wider suite of documents includes construction management and management contracting forms with associated trade/works contractor forms, along with a framework agreement.

The JCT suite also provides specific sub-contracts tailored for use with its “Design & Build”, “Intermediate” and “Standard” forms – as well as a short form sub-contract and sub-sub-contracts that can be used across the JCT main contract family.

In addition, JCT publishes guidance notes, practice notes and supporting documents to complement the main contract suite, including template collateral warranties. JCT was also one of the first standard forms to embrace third party rights as an option for use, instead of collateral warranties .

Although each project should always be considered on its own merit and individual peculiarities, JCT produces a useful flowchart  (1-page / 28KB PDF) and accompanying guide  (47-page / 563KB PDF) to assist potential users in picking an appropriate form of contract.

Structure of a JCT contract

JCT contracts generally follow the same structure for continuity and ease of use:

• Articles of Agreement, comprising:
• an agreement setting out the party details;
• recitals, setting out important context as to the nature/type of works being procured and what documents are included in the contract (e.g. specification and pricing documentation); and
• articles, setting out certain factual information in relation to the works, including the contract price and the identity of, for example, the Employer’s Agent for the works.
• Contract Particulars: this is a “fill the blanks” section that sets out some project-specific factual elements that need to be completed properly for the contract to work as intended (e.g. the completion date, date of possession, defects rectification period, liquidated/delay damages details etc. must be inserted).
• Conditions: the core terms and conditions of the contract.
• Schedules: these cover some of the more commonly used “add-ons” to a construction contract such as different insurance options, a design submission procedure, fluctuation provisions and template forms of bonds.

Conditions: main provisions

The conditions / contract terms in JCT contracts cover nine main areas.

• definitions and interpretation;
• carrying out the works, which also covers things such as the completion and defects rectification requirements;
• control of the works;
• payment (by reference to an interim payment and final account procedure based on the requirements of the 1996 Housing Grants, Construction and Regeneration (as amended) Act );
• injury, damage and insurance;
• assignment, performance bonds and guarantees, third party rights and collateral warranties;
• termination ; and
• settlement of disputes .

Payment provisions in JCT contracts are flexible. They allow an employer to agree to make upfront and advance payments to contractors (usually accompanied by a form of payment security, such as a bond) as well as pay the contractor for off-site materials and goods, subject to security being provided over them if required.

Interim payments are usually made as the works progress and one of two different pricing valuations can be selected: “Alternative A”, covering completed stages and variations; and “Alternative B”, covering works in progress together with site materials.

Like other standard forms, JCT contracts envisage retention being applied to interim sums paid to the contractor by reference to a pre-agreed percentage of the contract sum (specified in the “Contract Particulars” section) up until practical completion of the works . This retained amount then halves at practical completion, with the remaining half being retained until the final account process. Retention is intended to act as an incentive to the contractor to deal with defects which come to light after the works have been completed, although it is worth noting that “cash” retentions are currently subject to ongoing consultation  across the building and construction industry.

JCT contracts provide for a fixed completion date - or multiple sectional completion dates - and assume that liquidated damages  will be agreed upfront to reflect the employer’s losses if the contractor does not complete the works by the agreed dates. Completion date can be adjusted where, in broad terms, the contractor is delayed in completing the works due to the occurrence of a finite list of “Relevant Events” stated in the contract - broadly, matters that are beyond the contractor’s control, as well as variations to the works.

JCT Design & Build Contract 2016 (DB)

The DB contract is a popular form in the JCT suite. It tends to be used for large, complex construction projects such as large scale commercial/mixed-used developments, sports stadia, shopping centres and office blocks. It is used by both the public and private sector.

The DB contract is a "lump sum" contract, where the price for the works is agreed upfront by reference to the agreed scope of the works and is only adjustable by reference to a number of predefined circumstances that allow a contractor entitlement to additional payment or loss and expense ("Relevant Matters" - covering variations to thr works as well as, when compared to the list of "Relevant Events", a shorter, finite list of delay events that, in broad terms, are beyond the contractor's control.

Under the DB contract, the contractor will have “single point design responsibility” for the works. This means that the contractor will:

• design the works based on (or be required to adopt as its own the designs in) the “Employer’s Requirements” provided to it by the employer (i.e. what the employer wants in terms of construction);
• produce the “Contractor’s Proposals” (setting out how it will achieve the employer's requirements); and
• carry out the works (as described in these documents) for the agreed lump sum.

In this context, “single point design responsibility” means being liable for the entirety of the design and construction of the works, irrespective of whether the employer has provided elements of the design.

JCT Standard Building Contract (SBC)

Sometimes described as a “traditional” contract, a contractor may not necessarily be involved in any aspect of the design under an SBC.

The works will typically be described by reference to drawings and bills of quantities prepared by or on behalf of the employer and given to the contractor. Bills of quantities are effectively lists of the items which will be needed for construction (including a description of the item and the quantity required) and on which payment is based.

JCT publishes three forms of SBC:

• SBC/Q: as with the DB, this is a lump sum contract.Here, the employer provides the contractor with bills of quantities to define the quantity and quality of the work (which is used to calculate the lump sum).
• SBC/XQ: again, this is a lump sum contract.The SBC-XQ is distinguished from the SBC-Q in that, here, the employer provides the contractor with a specification or work schedules to adequately define the scope and quality of the work but no bills of quantity, so the contractor prices by reference to its assessment of the cost of the works based on this information).
• SBC/AQ: this is a measurement contract. Here, the employer provides drawings and approximate bills of quantities, with the contractor being required to tender a sum which is an estimate of the likely price of the works. This initial estimate is then updated once the works are completed to reflect a final sum by reference to the remeasurement and valuation of all work undertaken. The price for the works can go up or down to reflect the actual cost of delivering them. The price will also change to reflect the impact of “Relevant Matters” as above.

Read more about Construction Standard Form Contracts

Out-Law News

JCT 2024: latest forms address minor works and sub-contracting

Out-Law Guide

The JBCC nominated/selected subcontractor regime

Out-Law Analysis

Impact of potential variations of scope in Hong Kong SAR NEC forms must be thoroughly assessed

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The Wrongs Of Assigning Rights

Contributor.

JCT assignment provisions seldom fall under the court's microscope. This makes a recent TCC decision about such clauses in the context of whether an employer could be joined to a cladding claim all the more important. This is not a final judgment but is instead a consideration of an interim strike out application involving Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC).

In 2007, the defendant contractor (“ Shepherd ”) entered into a standard form JCT Design and Build Contract 2005 edition (the “ Contract ”) with the employer (“ Camstead ”) to build student flats in Cambridge. The Contract was made under seal for which the limitation period is 12 years.

There were five sections of works which achieved practical completion between September 2008 and April 2009. Camstead transferred the freehold in 2009 to a group known as the “Hotbed companies” who sold it on to the claimants (“ Aviva ”) in 2012.

Following updated government guidance on fire safety in January 2020 in the wake of the 2017 Grenfell tragedy, Aviva investigated the cladding and allegedly identified defects.

In September 2020, Aviva and Camstead entered into a deed of assignment. This purported to assign to Aviva the full benefit of the Contract and the right to bring proceedings.

At the same time as entering into the purported assignment in September 2020, Aviva issued proceedings against Shepherd for c. £4m in relation to remedial works arising from the alleged defects. Aviva notified Shepherd of the purported assignment three weeks later.

In January 2021, Aviva applied to join Camstead as a claimant; CPR 19.5(2) provides for the addition of a party to proceedings after the end of any relevant limitation period. Shepherd cross-applied to strike out the proceedings under CPR 3.4(2) on the basis that no reasonable grounds had been disclosed to bring the claim because there was no basis to join Camstead, no valid assignment and therefore Aviva had no right to bring the claim. They succeeded.

JCT assignment clauses

Two assignment clauses were scrutinised. Clause 7.1 gave the employer (Camstead) the right to assign the benefit of the Contract to any person: (i) if it provided 14 days' written notice to the contractor (Shepherd); and (ii) subject to any reasonable objection by the contractor before the expiry of the 14 days.

The Judge, Mrs Justice Jefford, referred to a hypothetical position in which there was no reasonable objection as meaning the contractor was giving implied consent. The unamended form of clause 7.1 provided that  “neither the employer nor the contractor shall assign the contract or any rights under it  without the written consent  [our underlining] of the other” .

Clause 7.2 (which was in its unamended form) applied if the employer transferred the freehold or leasehold and entitled the employer to assign to "any such” transferee or lessee, the right to bring proceedings in the employer's name to enforce the contract.

Aviva accepted that the lack of notice (or consent) required under 7.1 meant there had been no valid legal assignment of the right to sue but argued that there had been a valid equitable assignment under clause 7.2.

The decision

The Judge found that, under clause 7.2, only the right to bring proceedings in the name of the employer could be assigned; thus  proceedings had to be brought in Camstead's name. Aviva was the wrong claimant. Furthermore, the words of the clause meant that the right could only be assigned to the first transferee, Hotbed. The clause could not be construed in a way which would cover the subsequent transfer by Hotbed to Aviva. Further, the clause did not permit an equitable assignment of the benefit of the contract (without notice or consent). Otherwise, this would mean the limitation in clause 7.1 would have no substantive effect since the employer would always be able to assign in equity, to any future owner, the right to bring proceedings without notice or consent.

She also found that clause 7.2 expressly concerned the assignment of contractual rights and was not a basis for an assignment of rights in tort.

It is, the Judge decided, “ inherently unlikely ” [our underlining] that a contractor will “ owe a duty of care to the employer to prevent or avoid economic loss ”. Why, asked the Judge, would a contract prohibit the assignment of causes of action in contract without consent but leave the possibility that a cause of action in tort could remain? The reality is that any duty in tort will generally coexist with a duty in contract and so assignment of that right would be subject to the terms of the deed. While it is conceivable that certain specific circumstances might give rise to a cause of action in tort, independent of contract, no such duty had been pleaded by Aviva.

There was no valid assignment from Camstead to Aviva and therefore no reasonable grounds to bring the claim. The Judge refused Aviva's application under CPR 19.5(2) to join Camstead to the proceedings after expiry of the limitation period and granted Shepherd's strike out application under CPR 3.4(2).

Another decision in the context of losses arising from potential cladding and fire safety risks. However and importantly, the Judge has only concentrated upon a narrow aspect of what was involved being contract interpretation or limitation on a summary basis. The court did not consider the wider issues which will be looked at if or when a claim proceeds to trial.

This case is of interest to practitioners, developers and contractors alike. It provides some analysis of the JCT forms addressing the importance of notice, consent and how the transfer of assignments are treated. It demonstrates the importance of checking the status of the claimant and the effect of clause 7.2. It is easy to overlook wording which has remained in place for 34 years with scant judicial consideration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Real Estate and Construction

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Assignment of sub-contracts on termination: contractors beware 

A recent TCC decision has considered the effect of provisions which require contractors to assign sub-contracts on termination for default by an employer. The court’s decision meant that the contractor in this case had no recourse to sub-contractors in respect of claims from the employer following termination and was limited in the respects in which it could seek contribution under the Contribution Act. Similar assignment provisions appear in the JCT, NEC and FIDIC forms of contract, making the court’s findings of broad application.

Assignments on termination: an introduction

Construction contracts commonly provide for the assignment of sub-contracts to an employer upon termination for contractor default. All of the major standard forms include such rights. For example, the JCT Design & Build 2016 edition states at clause 8.7.2.3 that the Contractor shall:

“if so required by the Employer within 14 days of termination, assign (so far as assignable and so far as he may lawfully be required to do so) to the Employer, without charge, the benefit of any agreement for the supply of materials or goods and/or for the execution of any work for the purposes of the Contract”.

Similarly, the NEC4 ECC states at clause 92.2, P2:

“The Client may instruct the Contractor to leave the Site, remove any Equipment, Plant and Materials from the Site and assign the benefit of any subcontract or other contract related to performance of the contract to the Client”.

The position under the FIDIC forms is similar, although rather than conferring an absolute right to instruct assignments, the Contractor need only comply with “reasonable instructions … given by the Employer … for the assignment of any subcontract” (see, for example, Clause 15.2.3 of the Yellow Book, 2017 Edition).

Despite the ubiquity of such provisions, their scope and operation has rarely been tested. A particular point of ambiguity concerns how the contractor’s legal relationship with its sub-contractors is affected by such assignments. Having terminated for default, the employer will typically make large claims against the Contractor for the cost of completing the works, delay and other termination losses. A contractor would usually seek to pass such claims onto its supply chain where possible, but what of the assignments made to the employer? May the contractor still pass on liabilities under sub-contracts which have been assigned to the employer?

If the contractor is unable to pass on such liabilities, its exposure to employer claims may be much greater than expected. That was the position which befell a contractor in recent TCC proceedings discussed below.

Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd

In 2015 Energy Works (Hull) Ltd (“ EWHL ”) appointed MW High Tech Projects UK Ltd (“ MW ”) as its main contractor for the design, procurement, construction, commissioning and testing of a waste to energy plant in the north of England. In turn, MW subcontracted certain elements of the project to Outotec (USA) Inc (“ Outotec ”).

The project ran into difficulty, suffering significant delays, and EWHL purported to terminate MW’s contract for a “contractor default” being that the delays to completion of the works (including works to remedy defects) were such that the delay damages exceeded the contractual cap on delay damages for which MW could be liable.

MW argued that it was entitled to additional time for completion and that EWHL was not entitled to terminate for breach, and that the termination took effect as one for convenience. However, a consequence of the termination was that MW was required to assign its subcontract with Outotec, which it duly did by way of notice.

MW sought to pass on to Outotec any liability it might be found to have to EWHL. Outotec objected on the basis that its contract with MW had been assigned to EWHL. In response, MW argued that (i) the assignment of the subcontract was an assignment of future rights only (and not past or accrued rights) or (ii) alternatively that if past and accrued rights were assigned, MW could claim a contribution from Outotec under the Civil Liability (Contribution) Act 1978 (the “ Contribution Act ”).

In considering whether both accrued and future rights had been assigned, the TCC emphasised the use of the expression “ assign the subcontract ” and followed previous caselaw which had taken that term to mean the assignment of accrued and future rights. The court noted that whilst it would be possible to limit an assignment to future rights only, clear words would be required in order to do so.

As to MW’s argument that it would be an “ implausible and uncommercial interpretation ” to find that the contractual intention was for MW to lose its right to sue Outotec, the TCC disagreed and remarked that this was simply the assumption of a commercial risk by MW, and an extension to the risk that it might lose or limit its right to sue Outotec for other reasons, such as Outotec’s insolvency or as a result of a contractual limit of liability.

Contribution

Having divested itself of any direct rights to claim against Outotec, MW sought contribution from Outotec in respect of its liability to EWHL. Claims for contribution may be made under the Contribution Act where two parties are liable for the “same damage” suffered by a third party. The third party is able to claim in full against either of the wrongdoers, who will then be entitled to “contribution” from the other on a just and equitable basis having regard to the extent of each party’s responsibility for the damage. Contribution claims are often bought in construction disputes between designers and contractors in relation to allegations of defective work caused both by design and workmanship issues.

Outotec resisted MW’s claim for contribution on the basis that any damage caused by breaches of its sub-contract were suffered at the sub-contract level and were distinct from the damage suffered by EWHL under the main contract. MW claimed that defects in Outotec’s work under the Subcontract were the cause of delay under the main contract for which EWHL had terminated and were accordingly for the “same damage” as that suffered under the main contract.

The court came to different conclusions on this issue for different heads of claim:

• In relation to delay damages claimed by EWHL, the court found the answer depended on the extent to which the periods of delay overlapped under the main contract and sub-contract. Overlapping periods of delay would be for the “same damage” whereas distinct periods would not – they would concern “the same type of harm but not the same harm”.
• The termination losses claimed by EWHL (i.e. additional costs of completion) were held not to be the “same damage” as any liability Outotec may have under the sub-contract. Outotec had no obligation to satisfy MW’s time obligations under the main contract and there was therefore no route by which EWHL as assignee of the sub-contract could claim the additional costs of completion from Outotec.
• EWHL’s claim for defects against MW was held to represent the “same damage” as the parallel claim it had as assignee under the sub-contract. Although the claims arose at different contractual tiers, they related to the same damage or harm i.e. a defective plant.

Conclusions and implications

This is a significant decision which is likely to be of wide application. As noted above, provisions requiring the assignment of sub-contracts on termination for default are common within the industry and it is difficult to distinguish the wording used in the JCT and NEC forms from that considered by the court in this case. The decision may be less easily applied to the FIDIC form, given the presence of a reasonableness requirement: it might be argued, for example, that the distinction advanced by MW in the present case between the assignment of future rights of performance and accrued rights represents a reasonable balance between the interests of the employer in securing future performance of sub-contractors post-termination and the interests of the main contractor in preserving rights against its supply chain in respect of the employer’s termination.

The court’s findings as to contribution are complex and pose a number of issues for consideration in future cases. For example, the importance given to overlapping of periods of delay under the main contract and sub-contract is not articulated in any detail by the court. There is also little analysis of the employer’s position and whether its claims under the main contract and sub-contract could be cumulative in certain circumstances. For example, at least part of the delay claims under both contracts in this case were liquidated. MW’s assignment to EWHL of this claim under the sub-contract appears to be a simple assignment of a debt, which might be thought to be recoverable by EWHL in addition to the liquidated damages payable by MW under the main contract. Such a conclusion, however, is difficult to reconcile with the court’s analysis of MW’s rights under the Contribution Act.

What is clear from the decision is that assignment provisions such as those considered in this case represent a significant exposure to main contractors in the event of a termination for default. Such parties may wish to consider amendments allowing for the assignment of future rights only, or to adopt the FIDIC position of allowing the employer to instruct only such as assignments as are reasonable.

The decision may also lead to an increase in non-assignment clauses being included in sub-contracts. Such provisions effectively put the assignment of the sub-contract out of the contractor’s reach and may avoid the position which the contractor faced in the present case. Whether contractors will be at liberty to propose such restrictions themselves will depend on the terms of the applicable main contract, as some will require the contractor to ensure the assignability of sub-contracts where possible.

References:

Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 2537 (TCC).

Key contacts

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Matthew Taylor

Related content, european commission’s call for evidence on the revision of the guidelines on state aid in the aviation sector, court of appeal clarifies termination for repeated breach and late payment under the jct, hong kong’s incoming security of payment regime.

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Assign of the times? JCT clause 7.2

TCC strikes out wrongly assigned claim

Aviva Investors and others -v- Shepherd Construction Ltd [2021] EWHC 1921 (TCC)

The TCC (Jefford J) has had to consider the longstanding but little used JCT provision permitting an employer to assign the right to bring proceedings in the employer’s name to a purchaser of the building. James Leabeater QC , instructed by Dan Preston and Craig Longhurst of Fieldfisher, successfully applied to strike out a claim in which subsequent purchasers claimed to be able to sue the contractor for their alleged losses under a wide ranging purported assignment. The case illustrates the pitfalls of the JCT assignment provisions, and underlines the requirement to give notice, if notice is required, prior to trying to take an assignment.

Shepherd was engaged by Camstead Limited as the ‘Contractor’ under an amended JCT Design and Build 2005 form of contract to carry out the demolition of an existing building and the construction of new self-contained student apartments in Cambridge. The Works were divided into five Sections, with the first two being certified as practically complete in September 2008 and the final section achieving practical completion on 5 April 2009.

Camstead Limited conveyed its freehold interest in 2009 and that interest was sold again in 2021 to the Claimant Aviva entities (“ Aviva “). On 24 September 2020 Aviva and Camstead entered into a deed of assignment ( DOA ) and Aviva issued a claim against Shepherd in the TCC seeking recovery of circa £4.5m of damages arising from alleged defects in the design and/or construction of the Works. Notice of the purported assignment was not given to Shepherd until 13 October 2020.

The claim was served on Shepherd on 19 January 2021 with Aviva accepting that there had been no valid legal assignment before the proceedings were commenced for want of notice – legal assignments taking effect on notice. Notwithstanding this, Aviva claimed that there had been a valid equitable assignment and, two weeks before service, on 5 January 2021 Aviva issued an application to add the original Employer (Camstead) as a party to the proceedings. Shepherd contested the validity of the assignment and, on 10 February 2021, issued a cross-application to strike out Aviva’s claim on the basis that the Claim Form and Particulars of Claim disclosed no reasonable grounds for the Claimants to bring the claim as there was no valid assignment and, consequently, Aviva had no cause of action.

The applications were heard together on 10 May 2021.

The assignment clauses

There were two relevant assignment clauses under the Contract. Clause 7.1 provided Camstead with the right “ upon giving the Contractor 14 days’ written notice of its intention to do so, to assign the benefit of this contract by absolute assignment to any person (save any to whom the Contractor makes reasonable objection in writing before the expiry of the said period of 14 days)”. Clause 7.2 (which was unamended from the standard form) provided that:

“in the event of transfer by the Employer of his freehold or leasehold interest in or of a grant by the Employer of a leasehold interest in the whole of the premises comprising the Works or (if the Contract Particulars so state) any Section, the Employer may at any time after practical completion of the works or of the relevant Section grant or assign to any such transferee or lessee the right to bring proceedings in the name of the Employer (whether by arbitration or litigation whichever applies under this Contract) to enforce any of the terms of this Contract made for the benefit of the Employer …..”

The clause had been introduced in the 1987 form of contract and despite commentary in the JCT Guidance, there had been no sustained consideration of it in case law.

The dispute

Despite the DoA being drafted as a purported assignment of the full benefit of the contract, Aviva accepted that no prior notice had been given to Shepherd and, consequently, argued that the assignment was valid under clause 7.2. In doing so, Aviva relied on leading cases on contractual construction and business common sense to question the meaning of the clause and strive for an interpretation which would have resulted in the DoA effecting a valid assignment (as between Camstead, Aviva and Shepherd). In response, Shepherd argued, amongst other matters that:

• clause 7.2 only envisaged assignment to the immediate (or first) assignee;
• the clause only allowed proceedings to be commenced in the name of the original Employer (i.e. Camstead); and
• any proceedings could only be for losses suffered by the original Employer.

In agreeing with Shepherd, Mrs Justice Jefford, at paragraph 22 of her Ladyship’s judgment, held relevantly:

• “ all that can be assigned, as the clause [7.2] says, is the right to bring proceedings in the name of the Employer ” and so any claim would have had to have been brought in the name of Camstead; and
• “ There is no wording that would encompass a subsequent transfer by [the transferee of the original Employer] ” as in the clause “ [t]he words “any such” plainly refer to the person to whom an interest has been transferred or granted by the Employer ” (i.e. not by any other party). Therefore, only the first transferee/assignee, Hotbed, could bring such a claim in the name of the Employer.

Having found in Shepherd’s favour on these points, the Judge did not continue to consider the types of losses that could be recovered under clause 7.2, noting that “ more detailed consideration of this part of the clause must await a case in which it is relevant on the facts “.

Having found there was no claim in contract for Shepherd to answer, Mrs Justice Jefford went on to consider possible claims in tort which were captured by the purported DoA. Whilst stating that a “ contractor is inherently unlikely to owe a duty of care to the employer to prevent or avoid economic loss ” the Judge found that any tortious claim would have arisen out of the contract and, as such, assignment of the same was caught by clause 7.1.1.

The judgment concludes that Aviva’s “ application to join Camstead fails ” and Shepherd’s “ application to strike out succeeds “.

You can read the full judgment here .

Filed under

• United Kingdom
• Construction
• Employment & Labor
• 4 Pump Court
• Technology and Construction Court

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JCT contracts—termination

Produced in partnership with dac beachcroft.

Stop Press: The 2024 editions of the JCT Design and Build Contracts were released on 17 April 2024. This Practice Note is being updated to include guidance on these latest editions.

The JCT contracts contain detailed provisions for termination, setting out the grounds on which the parties may terminate and the consequences thereof. Under the JCT contracts, it is the Contractor’s employment that is terminated, rather than the contract itself. This distinction is designed to ensure that the post-termination provisions contained in the contract survive termination.

This Practice Note refers to the clauses set out in the JCT Standard Building Contract (SBC) With Quantities 2011 and 2016 editions, but comparable provisions are found within the other JCT contracts. It should be read alongside Practice Note: Termination of a construction contract.

Termination should always be considered very carefully. If the termination is wrongful, or the correct procedures are not followed to the letter, the purported termination may amount to a repudiatory breach of contract by the party seeking to terminate. In any event, if the other party disputes the purported termination,

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Related legal acts:

• Bribery Act 2010 (2010 c 23)
• Corporate Insolvency and Governance Act 2020 (2020 c 12)
• Housing Grants, Construction and Regeneration Act 1996 (1996 c 53)
• Insolvency Act 1986 (1986 c 45)
• Local Democracy, Economic Development and Construction Act 2009 (2009 c 20)
• Local Government Act 1972 (1972 c 70)

Key definition:

Jct definition, what does jct mean.

The Joint Contracts Tribunal who produce a suite of building contracts for use as a standard industry form

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