Building contractsDefining responsibilities, allocating risk and calculating damages
What this unit is about• Why a building contract is needed, and who signs it• The types of Standard forms of building contract that are available from the “JCT”• How contracts are used in a building project• What other documents constitute the complete set of “Contract documents”
Why do we need building contracts?• Building works are expensive – There is a lot of money at stake• Building works are complex – There are many different parties involved• Building works are unpredictable – Completion may be delayed – Builders may got bankrupt• Buildings are needed at specific times
The contract basics• Building contracts are the same as all other contracts – party A promises to do x if party B promises to do y• Most commonly one party will promise to pay the other party for providing a service or product – A building owner promises to pay a builder for providing a new building (This is the basis of any building contract)
What makes building contracts special?• When you buy an existing product you can satisfy yourself that it is worth the asking price before you agree to pay.• A new building does not exist when the contract is signed… – What will it be like? – How competent is the builder? – What if there are problems or delays? – What happens if the client doesn’t pay or goes bankrupt?• You need a good contract…
Types of contract• A verbal agreement is a binding contract, but fraught with perils – What was agreed? – Who agreed it? – When was it agreed?• A letter of appointment is a binding contract, but it still will not describe the building on offer in detail• Best use a Standard Form of Building Contract from the JCT
Joint Contracts Tribunal• JCT established in 1931 to draw up agreed forms of contract for the construction industry• Members – Association of Consulting Engineers – British Property Federation – Local Government Association – National Specialist Contractors Council – Royal Institute of British Architects – The Royal Institution of Chartered Surveyors – Scottish Building Contract Committee Ltd – Construction Confederation (went bankrupt in 2009)• Guidance on choosing a contract available at – www.jctltd.co.uk
First principles: the parties to the contract• The contract exists between two parties – The employer (the person who will pay money in return for the completion of the building, basically the building owner) – The contractor (the person who will provide the completed building for the agreed payment. The contractor will not necessarily construct the building, but is responsible for getting it built)• No one else is party to the main contract.
First principles: the fundamental purpose of the contract• Risk management – The contractor runs a risk that he will not be paid – The employer runs the risk that the building may be unsatisfactory in some way• The contract terms establish the apportionment of these risks between the two parties• Both parties agree to these terms
Types of JCT contract• There are a great number of JCT forms of contract, suitable for different values of building projects• The full range, with explanations of each type, can be seen on the JCT web site. Look at them here: http://www.jctltd.co.uk/category/Contract-families• The full contracts aim to reduce risk, but are complex and push up administrative costs• The simpler contracts keep costs down for small works, but will not cover all eventualities.• The entire suite of contracts was revised in 2011
JCT 2011 suite of Building Contracts1. Standard Building Contract2. Intermediate Building Contract3. Minor Works Building Contract4. Major Project Construction Contract5. Design and Build Contract6. Management Building Contract7. Construction Management contract8. Constructing excellence Contract-signed by all of bodies involved in creation of the building9. Measured Term Contract- covers on-going minor works10. Prime Cost Building Contract-costs plus profits11. Repair and Maintenance Contract12. Home Owner Contracts
Standard Building Contract (SBC)• This is the base form of contract used for large, conventional building projects where a contract supervisor is employed• It comes in three main forms, approximate quantities, full quantities and no quantities, depending on the detail available.
Intermediate and Minor Works contracts• These two categories cover projects in descending scale.• The demarcation between the size of projects is never clear. The intention is not to overburden a small project with a needlessly bureaucratic overhead• Each lesser contract increases the potential risk if there is a problem, but the scale of potential problems is also less with reduction in size of project.
Management Building Contract• Used for large, expensive projects• The Contractor is appointed as a member of the professional design team• He/She does not build anything but sub- contracts all parts of the project• The benefit is that an experienced builder can contribute to the development of the design from the outset, rather than coming in after all design is completed• Not generally suitable for small projects
Homeowner Contracts• The HO (Home owner) contracts are for use in small scale domestic construction• HO/B: Building Contract for Home Owner/Occupier (where the client deals directly with the builder)• HO/C: Building Contract for Home Owner/Occupier (who has appointed a consultant)• The employer is the owner-occupier of the house• The main purpose of these contracts is to satisfy Unfair Terms in Consumer Contracts Regulations 1999 .
Contract documents• The formal contract is only one of the so called “contract documents”• The others may comprise: – Contract drawings – Bills of Quantities – Specifications – Schedules of Works• These are all agreed, signed and kept safe and unchanged for future reference.
When is the contract used• If all goes according to plan, the signed contract documents will remain locked in a safe and may never consulted.• If something goes wrong or changes (supplier fails to deliver, heavy rain delays foundation works, architect is arrested for embezzlement…) a good contract should set out exactly the agreed course of action is to be followed.• The prime difference between the forms of contract is the fineness of the detail of the potential disasters which are addressed.
Project management• The design is complete• Permissions are granted• The contract is signed• A big project is about to start on site• Millions of pounds are at stake• This project needs to be managed• To be continued…