Essay: JCT And NEC Contracts - A Detailed Analysis.

Both NEC and JCT contracts are part of standard family of contracts used for procuring of work or consultancy services and other work and services which revolve around general scope of goods and service provision in UK. The JCT contract is a traditional standard building contract that is used in UK whereas the NEC contracts are designed to be used for international use with a choice of law and the language that is to be used. This article will analyze various application and incidences which takes place under the application of both the JCT and NEC contractual provisions. The various sections that will be discussed in this article include provisions of the letter of intent, how early possession of the property can be achieved, implication of using contractual mechanisms as well as ascertain whether the liquidated damages can be sought under the JCT and NEC contracts.

JCT contract is a type of contract which focuses on risk and liabilities whereas the NEC contract enhance collaborative approaches to be used to manage a contract. Both contractual provisions regulates and provides a brief descriptions and further requirements as to what rules and regulations should be used to enhance and guide the relationship between the contractors and other stakeholders in the construction.

The letter of intent is a document that is provided to express an intention of entering into a contract in future. it does not create any contractual relationship until the contract has been signed by the parties involved. The letter of intent is a commercial convenience term and not a term that has substantive legal meaning.  The use of a letter of intent in a construction project as supported in Diamond Build Ltd v Clapham Park Homes Ltd [2008] Is a simple contract which has sufficient certainty which shows commencement date of the contract. It also details requirements for the contract to proceed diligently, the date in which the contract is expected to be completed as well as the total sum of money that the project will be used until completion. For a letter of intent to be considered to be a contract, it must contain all the provisions of a contract that is it must have an offer, acceptance, considerations and an intention to create legal relations. Acceptance of the letter of intent require a contractor to sign and date a duplicate copy before returning it to the employer however, work can proceed even if the letter of contract has not been signed but the conduct of the parties can indicate that they have accepted to work on the abiding terms as it was in the case of Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [2018].

Summary of Case Law and Contract Provisions

In both the JCT and the NEC contracts, the letter of intent is usually issued by the employer to the contractor detailing the nature of work that the employer wants the contractor to work on. It also outlines the final agreement that the parties will negotiate and conclude on a later date before signing the contract formally. For the letter of intent to be substantial enough to create legal intent, it should be specific detailing the requirements of the contract with special details such as compliance with indemnity issues as argued in the case of Twintec Ltd v Volkerfitzpatrick Ltd [2014]. With regards to this contract, despite the fact that the contract commenced, the fact that work was carried out with the use of varied letter of intents, since the agreement was not finalized implies that the letter of intent was not correctly drafted and implemented and therefore, this created a possibility of the contract to be executed without correct time plan and cost considerations. Ideally, the letter of intent is supposed to be drafted and sent to acknowledge and make the parties to abide by the rules and regulations set out in regards to how the parties will be conducting the transaction. This contract lacks uniformity therefore because it was not formalized before the contractor commenced work hence resulting to issues of delay and other expenses which are difficult to file a law suit challenging them because they occurred at a time when the agreement did not incorporate the use of a letter of intent to make the parties to be committed to the deal. To ensure that no individual is compelled to pay for additional charges, the NEC and JCT contract provisions sets a minimum threshold price that should be paid to the contractor and should be based on the bill of quantities that was compiled for the contract to be executed.  Hence implying that no financial losses will be made in the course of executing the contract between parties. 

The default position of most building contracts provides exclusive possession of work and site to the contractor until the work has been fully completed. Once the project has been completed, exclusive possession of the site will be passed back to the employer from the contractor. This takes place not unless the contract has an express term which provides sections that details completion and when the contractor can complete and hand over the project to the employer. However, the JCT contract type allows the employer to take partial possession of the project subject to the consent of the contractor. in the same juncture, the employer and the contractor can agree to have early usage of all or part of the work while it’s still under construction. The partial possession and usage of the project is based under the provisions of clause 2.6.1 of the JCT intermediate building contract with contractor design.  

Process of Letter of Intent

On the other hand, the NEC provisions also allows partial possession if the contractor want to use part of the project unless it suits the conditions and agreement with the superintendent. Clause 35.1 of NEC contract provisions provides employer with the right to take over the work not later than two weeks but in an event that the project has delayed for some time, the employer has a right to request the contractor for permission to take over and use part of the property while the other one is still under construction.

A contractor is allowed by the contract from early possession of the property until completion and handover of the property to the client. Within the contract agreement, it should state possession date or commencement date and if not stated, the site should be handed over to the contractor within reasonable time after signing of a contract.

The contractor can take an early possession of the property if sections of the property has been completed construction by subcontractors and therefore, there is need for the contractor to take up the property and use it for other functions prescribed. In many occasions, a contractor will have to negotiate with the superintendent on whether they can be allowed to occupy the property for various reasons agreed by both parties. Therefore, negotiations forms root of an agreement on whether the contractor can use the property for various reasons.

Requiring the contractor to furnish the employer with a bond will help in pushing the contractor to deliver the project within the allowed 18 months that they had agreed for the contract to take. Failure to complete in the 18-month period, the employer will take the bond and use it as compensation for failure to deliver the project within the allowed time.

A construction bond is a type of bond used by construction project investors as an assurity to protect against disruptions or any financial loss that is caused by failure of the contractor to complete the project within the accepted time plan. On the other hand, also collateral warranties can be used whereby it involves a contract under which a party that is involved warrants a third party beneficiary that has fulfilled their obligations under the building contract appointment. The bond issued and collateral warranty provides an opportunity through which the parties in a contract can be safeguarded in case there is a violation or failure to deliver the contract as agreed. Through the use of option X8 of NEC contracts, collateral warranty is allowed and same sentiments were shared in a case of Chudley v. Clydesdale Bank plc [2019] that beneficiaries can use collateral for defense

JCT and NEC Provisions

Failure of AA construction Limited to execute the contract as agreed in the contract to deliver the project within 18- month period will force them to lose the bond and warranty to Beta Construction company who will use it for compensation. Application of bond and warranties will make the employer to be assured that the project will be delivered within the allowed timeframe based on the fact that the contractor tend not to follow the requirements given, they end up facing a challenge of not being able to deliver the project in time hence the bond and warranty will cushion the employer against any loss that they are likely going to suffer as a result of negligence or failure of the contractor to deliver the project in accordance with the required guidelines as issued by the employer. These mechanisms are therefore effective in putting the contractor on check to ensure they can deliver quality work.

Can the client seek liquidated damages for the collapsed wall?

Liquidated damages is an estimate of intangible or hard to define losses that are incurred by one party in a contract and levied on them for failure to adhere to contract regulations. Under NEC contracts, selection of option X7 provides filing and seeking of delayed damages. The contract provides that delayed damages must be deducted as they are part of assessment done by the project manager whenever they occur. Such damages contribute to delaying project delivery creating forfeitures which are harsh to contractor as provided in the case of United Scientific Holdings v Burnley Council [1978].

When a project fails to pick up such as this one whereby the wall collapsed, it implies that the contractor use fault materials and this can be treated as negligence on the part of the contractor to deliver quality work. In determining on whether the contractor can be held liable or not for the collapsed wall, the court will rely on common sense to guide on making decisions whether the decision will be accepted or not based on provisions of Great Eastern Hotel Co Ltd v John Laing Construction Ltd & Anor [2005]. Since the contractor did the work and it has not been done to satisfactory level which led to the collapse of the wall, it must be compensated because its deemed as a waste of resources and therefore, the employer has a right to compel the contractor to pay for the work that was submitted and failed to reach the satisfactory standards recommended.

Process of Early Possession in JCT and NEC Contracts

Based on provisions of clause 2.29 of the NEC contracts, the liquidated damages can be sought if there is a possibility that the work has been submitted and not in the right format as required. This means that under the provision of this clause, a client can file for compensation if the work submitted is not up to the required standards which are recommended for any work of this kind. In the case of Bovis Lend Lease Ltd v Braehead Glasgow Limited [2000], liquidated damages can be sought if there is a breach of the contractual provisions such as failure of the contractor to construct the project in accordance with the law.

The JCT clause 2.32 also provides the employer with a right to claim for liquidated damages in an event that there is a breach of contractual obligations which makes the contractor to develop a substandard project as it was in this case and therefore, this implies that the contractor will be forced to pay for damages of extension of time and cost which arised as a result of use of substandard materials in the project.  

Conclusion.

Provisions of NEC and JCT provide guidelines with regards to how construction contracts should be carried out in UK. Based on analysis of relevant clauses in the contract, the employer can take partial possession of the project while it’s still under construction or they can decide to wait until the project is completed before they can take control. On the other hand, in case the employer wants quality work to be submitted, they will have to incorporate the use of bonds and warranty as a way of compelling the contractor to deliver quality work or else be penalized for such losses that they have caused at the site. Lastly, liquidated damages can be sought in a construction project if the loss experienced is as a result of negligence of the contractor in ensuring that they oversee and deliver quality project as agreed in the contract.

Reference.

Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [2018] EWCA Civ 2222

Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 (TCC)

Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC)

Bovis Lend Lease Ltd v Braehead Glasgow Limited [2000] EWHC Tech 108

United Scientific c Holdings v Burnley Council [1978] AC 904 HL.

Clause 2.6.1, JCT

clause 2.25, JCT

Clause 35.1, NEC

Clause 2.29, NEC contracts