setting the standard for construction contracts jctnews · pdf fileout under a jct standard...

Last year’s CIOB Construction Manager ofthe year awards not only illustrate theextraordinary ability of some of our bestconstruction managers but highlights arange of very interesting projects, themajority of which were carried out under aJCT contract.

The CIOB has four major categories ofproject, namely, New Build/Refurbishment,Restoration, Residential and PFI. The largestcategory is New Build/Refurbishment Projectswhich is sub-divided into eight value bandsranging from those under £2m to those over£45m. The Residential Projects category isdivided into those under £14m and thoseabove.

David Wilson of Morgan Ashurst plc was theoverall winner of the 2009 CIOB Manager ofthe Year Award and his success came fromhis work on £9.4m De Grey Court, York StJohn University project which was carriedout under a JCT standard form of buildingcontract.

Of the 11 categories that identified thecontract type no less than 8 gold medals wereawarded to construction managers working onprojects which were carried out using JCTcontracts. These projects, in addition to DeGrey Court, included the University of Oxford’sNew Biochemistry facility, Redcar & ClevelandCollege, Winterflood Theatre and StoweSchool Girls Boarding House. The followingthree projects were built using JCT 2005:

BMA’s Refurbishment – a £9.3m restorationthat successfully overcame design changesand unexpected existing construction.

Sunrise Senior Living – a £16m 114 roomcare home built by Wates Construction inKnowle, Birmingham that was carried outbefore the end of an ambitious 63 weekcontract duration.

Shrewsbury Theatre Severn – a £19.3mproject built by Willmott Dixon Constructionthat successfully dealt with an unexpectedneed for substantial archaeologicalinvestigations.

The gold award winners and the variety of theother projects in the finals, which includesprojects ranging from a 197,000 sq ftheadquarters building (30 Crown Place,London), a 130,000 sq ft refurbishment of theOld Bailey and the Princess AlexandraMaternity Wing for the Royal CornwallHospital Trust to the projects such as TheSquare, North Hampshire Key Workerresidential project and Forum House,Wembley, show the wide use of JCTcontracts and their effectiveness in practice.

JCTNEWSTHE JCT CONTRACTS UPDATE FOR THE CONSTRUCTION PROFESSIONAL

April 2010

3 4 6 10

Setting the standard for construction contracts

Sunrise Senior Living

BMA House refurbishment

The Effectiveness ofIneffectiveness -Amendments to theUK's PublicProcurement Rules -Dan Preston

“Pay now & arguelater – or I’ll wind youup” - James Bowling

Safeguarding thefuture of theconstruction industrythrough training - Neil Gower

Important health &safety issues arise ontermination of aconstruction contract – What do you needto know? Dr SimonJoyston-Bechal andShy Jackson

Tough times outthere…securingperformance andprotection againstnon-performance- Philip Baker andLily Humphries

Chairman's Letter2 8

MANAGING JCT CONTRACTS

TEN004 JCT NL REBRAND:Layout 1 14/05/2010 17:13

One of the great challenges for us in theyear 2010 is to work out the nature ofgrowth that is compatible withsustainability of our environment andindeed the human race. Most people seegrowth as essential as it provides workand provides the potential for improvingliving standards. However, theconsequences of the current forms ofgrowth on our environment areunwelcome in many ways, not least thefact that they are unsustainable. Thisposes a rather profound question: howdo we go about tackling the problem?

Readers may ask what this has to dowith their everyday involvement withconstruction. Very little, at one level,because most of the day to day nitty-gritty will continue: business as usual.But at another level it has everything todo with construction because the builtenvironment creates a tension with thenatural environment. Not just in terms ofland use and its effect on such things asflooding and food production but also interms of the use of raw materials,emissions and waste. Most politicalparties, if asked, would say that theywish to see a recovery in constructionactivity, increased house building andgrowth in our infrastructure. Most of uswould agree. How that might be possiblein a sustainable way is of course anothermatter – low carbon construction is onlypart of the answer.

Over the next ten to twenty years therewill be a substantial increase in worldpopulation and also a shift in theeconomic balance between countries,particularly between east and west andbetween developed and emergingnations. Those changes will create avariety of pressures that will changeeveryone’s lives – some for the better butcertainly not all.

The changing patterns offer opportunitiesfor those businesses that understand theshifts in demand and can cross nationalboundaries. In understanding the shifts indemand one is concerned not just in itslocation but also in its nature. The type ofwork that is available and needs to bedone will change. The level and nature ofconstruction activity will certainly changeand the proportion of rebuild, renovationand refurbishment must start to increaseif we are to start to tackle some of theproblems that are before us. There will bean incredibly difficult transition as we startto adjust our wants and our values.Whether it is to realize the opportunitiesprovided by the shifts in demand or justsimply to survive, we must start to thinkdifferently because clearly there are limitsto growth in its current form.

There is no single answer to how we goabout tackling the problem ofsustainability but the question mustremain at the forefront of our minds sothat we really do act differently. As wechange, the impact upon constructionand construction projects will be seen.This change is just starting but it willgather pace. For some businesses it willbe an opportunity, for others it will betheir demise. Inevitably, growth will startto be seen differently and it will becomeless related to the concept of materialwealth and more to do with a generalwell-being that demands less of ourenvironment and more of us.

Peter HibberdChairman of JCT

2 CHAIRMAN’S LETTER

JCT NEWS

Peter Hibberd

Redefining Growth



3

The JCT has met with ConstructionSkillsand the Department for Business,Innovation and Skills (BIS) to discuss thecurrent Government initiative toencourage apprenticeships and training.No one can doubt the need to safeguardthe future of the industry by training theworkforce and the JCT Council is verysupportive of what this initiative is seekingto achieve. As always, however, care willneed to be t aken to ensure that a costbenefit analysis is carried out to ensurethat disproportionate costs are notimposed on individual projects.

ConstructionSkills have formulated draftLocal Authority Pilot GuidanceDocumentation to assist a client-basedapproach to developing andimplementing an Employment and SkillsStrategy on local governmentconstruction projects. BIS is supportingthe development of equivalen t guidancedocumentation for central governmentdepartments and agencies, and JCT asthe producer of the most widely usedstandard form building contracts isengaging with ConstructionSkills and BISto support the aims of this initiative.

Documentation produced byConstructionSkills is currently beingpiloted with ten local authorities andcomprises:

• Good practice information on use of anEmployment and Skills Strategy and thedevelopment of an Employment andSkills Plan, including delivery issuessuch as development of thecontractor's Method Statement, reviewof subcontract order details andmonitoring and support from the localauthority client

• Legal policy and process advice for theprocurement of contracts, includingrelevant EU procurement regulationsand constraints, proposals forappropriate EU procurem entdocumentation and guidance onappropriate contract clauses andrelevant performance indicators

• Template benchmarks so that localauthority clients can assess the degreeto which particular types and size ofproject are able to support employmentand skills in the areas of new entrants,the existing workforce and developmentof a skills, culture and infrastructure

• Further legal policy and processadvice for planning policy anddevelopment control

• Appendices that include templates foran Employment and Skills Plan, for EUprocurement documentation and forrelevant contract clauses.

The structure of the guidancedocumentation is based on the NationalSkills Academy for ConstructionProgramme, and benefits fromexperience gained on existing NSAfCprojects.

In addition to training and employmentopportunities i t is proposed thatwhenever relevant clients let a newconstruction contract they will considermaking it a requirement that successfulcontractors have apprentices as aproportion of the project workforce.

Please send an e-mail to [email protected] if yourself or others in your organisationwould like to receive copies of JCT News, or to amend your contact details.

Safeguarding the future of the constructionindustry throughtrainingNeil Gower - JCT Chief Executive


JCT NEWS

4

The Insolvency Act 1986 vs. TheConstruction Act 1996

The recession is posing a real test of the‘Construction Act’ 1996. Adjudicationenforcements in the TCC are increasing.However, a statutory demand or a windingup petition can also be used and theattractions are obvious; it is quick andcheap. It can frighten a debtor into paying.But can the creditor really say – I am entitledto be paid; and if yo u don’t pay, you aredeemed to be insolvent?

A party who will not pay an indisputable debtis generally considered insolvent; CornhillInsurance v Improvement Services [1986] 1WLR 114. But here two competing principlesstruggle for mastery. Under the ‘ConstructionAct’ debts can indeed become indisputablydue. But are those debts, arising onunchallenged certificates or adjudicators’decisions, also indispu table under theInsolvency Act 1986? After all, the sum duehas not been finally determined; only held sounder a “pay now, argue later” regime. Theperson required to pay is shut out temporarilyfrom raising his arguments. He can still referthe dispute to litigation or arbitration, or bringa cross-adjudication. In the end, the “debtor”might owe nothing. The court will not usuallyallow a petition where the debt is disputed ongenuine grounds, save where there are“special circumstances”. Is the fact that adebt under the ‘Construction Act’ isindisputably due now, under statute, such a“special circumstance”?

Three cases indicate clearly that it is not. InRe: Case no. 1299 of 2001 [2001] CILL1745, Guardi v Datum [2002] CILL 1934and the very recent case of Shaw v MFPFoundations & Piling [2010] EWHC 9 (Ch)the Court held that the mere fact that thedebt was indisputably due under the‘Construction Act’ did not mean that the debtwas indisputable for the purposes of theInsolvency Act 1986. The “pay now, arguelater” philosophy of the ‘Construction Act’does not mean that, without further analysis,

a company will be wound up (or an individualmade bankrupt) where there are outstandingcross-claims or othe r disputes which mightextinguish the amount said to be owed.

These cases followed the approach of theCourt of Appeal in Re: Bayoil SA [1999] 1WLR 147. There, a petition was presentedagainst unpaid freight (payable at commonlaw without set off or deduction). But the CAheld that just because the law said freightwas to be paid without set off, that was not a“special circumstance” entitling the credi torto wind the debtor up. The petition wastherefore dismissed.

However, there is an important qualification.The Court will not simply accept at facevalue a suggestion that the debtor hascross-claims. The debtor has todemonstrate that his dispute is genuine.That usually means getting on with hisclaimed dispute, by starting his ownadjudication on the cross-claims. If he doesnot, the Court can (and usually will) infer thatthe alleged “cross-claims” are not genuine,and that the petition should be allowed toproceed; see Case no. 1299 of 2001,where it was said that if the debtor hadforegone a “reasonable opportunity” toadjudicate his cross-claims, the court wouldusually allow a petition to proceed.

That was also the conclusion reached by thejudge in Guardi Shoes v Datum Contracts.In this case the judge refused to continue aninjunction to restrain a petition, because thedebtor hadn’t utilised the contractmechanism, which allowed for a cross-adjudication and payment only of theresulting balance.

Similarly, in Shaw v MFP Foundations &Piling [2010] EWHC 9 (Ch), HHJ StephenDavies decided, following both Guardi andCase no. 1299, that each case was to bedecided on its own facts, and that in theinstant case, there were genuine cross-claims which meant that the statutorydemand would be set aside.

What if there is no cross-claim, but thedebtor says – I dispute the certificate’samount, even though I failed to serve anotice of withholding? Here there is simplyan allegation of over-valuation, withoutreference to a cross-claim. The debtor’sremedy is to refer the certificate to anadjudicator for re-assessment. It issuggested that if he does not do so (or if theadjudicator upheld the valuation) the debtorwould have to pay or be wound up/madebankrupt. That would be consistent with thereasoning in Case No. 1299 and Guardi vDatum, where the debtors failed to use thecontract mechanism to have their alleged“disputes” decided.

What about an adjudicator’s decision thatthe paying party says is simpl y wrong on themerits? If the Court were to conclude thatthe debtor had a real prospect ofdemonstrating that he might ultimatelyoverturn the adjudicator’s award in litigationor arbitration, the Court might refuse thepetition. For example, in George Parke vThe Fenton Gretton Partnership [2001]CILL 1713 a statutory demand was setaside where the debtor had startedproceedings in the TCC claiming that on aproper determination, he was in fact owedmoney by the contractor.

This is a difficult decision (andcomparatively early in the case law).Coulson J has suggested extra-judiciallythat Fenton Gretton is a case on its ownfacts[1]. It might be said that followingGuardi and 1299 the more likely outcomewould be that if the debtor did not pay, thenthe petition would succeed.

However, I suggest another analysis might be:

1. The insolvency court could exercise itsdiscretion to dismiss the petition if it wassatisfied that there were genuine disputeson the merits and the debtor could showa strong possibility that the adjudicatorwas wrong.

“Pay now & argue later – or I’ll wind you up”James Bowling - 4 Pump Court



5

2. The debtor would have to overcome thefact that he had already lost thearguments in question before theadjudicator – so the error would have tobe plain on the face of the decision, or byreference to easily provable facts.

3. Subject to that (high) hurdle, evidence ofthe debtor taking steps to overturn theadjudicator’s decision would beanalogous to the steps held sufficient todefeat a petition in t he “cross-claimcases”.

There is some support for this approach inthe recent case of Shaw v MFPFoundations [2010] EWHC 9 (Ch) where thejudge explained and reconciled the GeorgeParke case with the decisions in Guardi andCase No. 1299. Although that was a cross-claim case, the reasoning seems to supportthe test set out above. The judge said this:

“where a statutory demand is founded on anadjudicator’s decision, if the debtor canshow that he has a substantial cross-claim,the insolvency regime does not contemplatethat he should be shut out from raising thosematters in opposition to bankruptcyproceedings simply because he could have,or even unsuccessfully did, also raise thosematters before the adjudicator.”

This can be seen by reference to an extremecase: it seems unlikely, for example, that theadjudicator’s decision in Bougyes v DahlJensen [2000] BLR 522 – where it was clearthat the adjudicator had mistakenly orderedrelease of the retention – would havesupported a winding up petition for themistakenly ordered amount. In this context itis also worth noting that in Harrow & Milnerv Teasdale (No. 1) [2006] EWHC 54 (TCC) itappears that a statutory demand was setaside by consent where the debtor, havinglost the adjudication, commenced arbitrationover the same question.

But the insolvency courts will not bebamboozled by technical arguments. If the“dispute” is only that there is a technicaldefence in that the adjudicator lackedjurisdiction, the insolvency courts will usuallyexpect the debtor to apply to the TCC for adeclaration of non-enforceability. Forexample, in Jamil Mohammed v Dr. MichaelBowles [2003] Adj.LR 03/14 the courtrefused to set aside a statutory demand onthe basis that the paying party claimed thatthe adjudicator had lacked jurisdiction.

The Registrar held that it was for the payingparty to apply to the TCC to determine thatquestion; as he had not done so, thestatutory demand would not be set aside.

This is consistent with the approach Isuggest above; the insolvency court clearlyaccepted there could still be a bona fidedispute about the sums due notwithstandingthe adjudicator’s decision; but it took theview that it was for the debtor to helphimself, as in the “cross-claim cases”, bytaking steps to show that his dispute was agenuine one with real prospects.

The above cases demonstrate that –perhaps inevitably given what is at stake –the insolvency courts’ approac h is lessabsolutist than on enforcement in the TCC.Again, this was referred to in George Parkeand more recently in Shaw.

The thread running through all of these casesis that where there is a debt which is, on theface of it, indisputably due under the‘Construction Act’, that does not lend itspecial weight in an insolvency court.Nevertheless, the burden is on the payingparty to demonstrate, to a hig h standard ofproof, that he has good prospects ofdemonstrating that the debt will not be duewhen all disputes are litigated out – and thathe is taking steps to bring that about. Often,the paying party will have to show that hehas got (or is in the process of getting) afavourable result “going the other way” froman adjudicator or from the Court in order todischarge that burden.

The recent changes t o the ‘Construction Act’1996, although not yet in force, seemunlikely to change the principles outlinedabove. Similarly, although there is not yet anyclear binding authority as to whether anadjudicator’s decision gives rise to anindependent obligation to pay, or whether itmerely recognises an existing right (see thediscussion in David Mclean HousingContractors v Swansea HousingAssociation [2002] B LR 125) it seemsunlikely that that debate is affecting theapproach of the insolvency courts. Themessage is clear; debtors who wish to avoidinsolvency will have to be proactive.

James Bowling is a Barrister at 4 Pump Court Chambers. If you wish todiscuss any of the points raised in thisarticle please telephone the clerks on 020 7842 5555.

[1] Coulson J, Construction Adjudication, 2007, at pp336-368, para 12.42-.12.45.


6

JCT NEWS

Introduction to the rulesgoverning public procurement

Where a UK Public Sector Authority isseeking to acquire goods, services orengineering or building works they willalways need to consider the applicability ofthe Public Contracts Regulations. TheRegulations were developed to incorporatethe Procurement Directive issued by theEuropean Union into UK law. Their purposeis to open up the public procurementmarket, ensure there is free movement ofgoods within the European Union andensure that contracts are tenderedadopting an open and fair process.

The Regulations set out procurementprocedures which must be followed beforeawarding a contract when its valueexceeds set thresholds, unless the contractqualifies under a specific exclusion. Thethreshold for works contracts, from January2010, is £3,927,260.

The 2006 Regulations have been criticisedfor failing adequately to address some ofthe more serious breaches of procurementlaw, including the direct award of contractswithout genuine competition. As a result,important changes were made on 20December 2009 when the Public Contracts(Amendment) Regulations (No 2992) cameinto force, implementing the EuropeanUnion's Remedies Directive (2007/66/EC).

The changes provide more effective andextensive remedies for entities who sufferas a result of breaches of the Regulations.The amended Regulations apply tocontract award procedures commenced onor after 20 December 2009. Thosecommenced prior to that date, whether byadvertisement or the seeking ofexpressions of interest, will be governed bythe 2006 Regulations and will not attractthe extended remedies of the 2009Regulations.

The 2009 Regulations provide for furtherinformation to be given earlier to allunsuccessful parties, a new mandatorysuspension in circumstances of a challengeand a new remedy of ineffectiveness,enabling the courts to set aside contractsthat are entered into in breach of theRegulations.

The provision of information and the standstill period

The right for an unsuccessful bidder tochallenge a contract award by a publicauthority is an established principle offairness and transparency. A ten-daystandstill period, commencing from the dayafter the issue of a contract award notice,gives bidders a short period of time inwhich to consider whether to challenge theaward. The basic requirements of thestandstill period remain the same under the2009 Regulations, which clarify that theperiod is 10 days, providing the notice issent by fax and/or email and up to 15 daysif issued by non-electronic means.

Under the 2006 Regulations, thecontracting authority was required to issuea letter to all of the entities who applied toparticipate in the tender process. That lettertriggered the start of the standstill periodand had to include the identity of thesuccessful bidder, details of the evaluationcriteria and a comparison of the scores ofthe recipient and the successful bidder. Ifrequested by a bidder within 48 hours, aformal debrief had to be provided morethan three days before the end of thestandstill period.

The 2009 Regulations require the authorityto provide all unsuccessful bidders with aletter setting out full reasons for thedecision at the start of the standstill period,rather than during a debrief. This gives anaggrieved party up to an additional sevendays in which to consider whether tochallenge an award.

The letter must be issued as soon aspossible following the decision to awardthe contract and must include details ofthe award criteria, full reasons for thedecision including a comparison of thescores of the recipient and successfulbidder and confirmation of when thestandstill period ends.

The letter must be sent to all candidatesincluding parties who expressed interestbut did not submit an offer, unless theparty's application was rejected with fullreasons at an earlier stage in the process.

Whilst the Regulations provide for severalderogations from the standstill period, it isunwise for authorities to assume that theyare completely absolved. In particular, caselaw has highlighted that, in certaincircumstances, a form of standstill periodmay still be required for a Part B servicecontract (contracts for services specified inPart B of Schedule 3 of the Regulations (forexample legal services) which are exemptfrom some of the provisions of theRegulations).

Mandatory suspension

Where an aggrieved bidder decides tochallenge the decision of an authority pre-contract, the powers available to the courtremain much the same under the 2009Regulations, including the ability to setaside unlawful decisions and/or awarddamages. The effectiveness of such pre-contractual remedies has been somewhatdiminished by the conduct of parties who,despite knowledge of challenge, seek toconclude the contract to avoid the need torestart a procedure.

The 2009 Regulations seek to address thisconduct by imposing an automaticsuspension of the process wheneverproceedings are commenced to challengea contract award.

The Effectiveness of Ineffectiveness – Amendments tothe UK’s Public Procurement RulesDan Preston - Associate, Reynolds Porter Chamberlain LLP


The suspension prevents the authority frompushing through the conclusion of thecontract and preserves the pre-contractualremedies. The suspension remains in forceuntil the court brings it to an end by way ofan interim order or the proceedings areotherwise determined.

Ineffectiveness

Although the changes relating tosuspension and standstill are significant,arguably the most important changeintroduced by the 2009 Regulations is anew remedy of ineffectiveness.

Under the 2006 Regulations, once acontract had been entered into, the courthad no power to set it aside, meaning thataggrieved bidders were only able to claimdamages as a result of any breach. Incontrast, the 2009 Regulations require thecourt to make a declaration ofineffectiveness if any of the requisitegrounds is present, specifically:

1. the award of a contract without priorpublication in the Official Journal of theEuropean Union;

2. a breach affecting the chances of theaggrieved bidder to win the contractcombined with the deprivation of theopportunity to start proceedings beforethe contract was entered into (e.g.failing to observe the standstill period);and/or

3. the award of call off contracts above theapplicable threshold and in breach ofthe Regulations.

The court is required to declare thecontract ineffective unless exceptionalcircumstances exist whereby it is in thegeneral interest to maintain the contractualrelationship. Where a court decides thatthere is an overriding reason to maintain thecontract then it is obliged to imposealternative penalties including civil financialpenalties (which must be proportionate,dissuasive and effective) and/or shorteningthe duration of the contract.

The UK has decided to implement theremedy of ineffectiveness prospectivelymeaning that only outstanding obligationsare not to be performed; there is noattempt to undo services already provided.Furthermore, the court is given flexibility tomake orders which deal with theimplications of a declaration ofineffectiveness, providing that such order isnot inconsistent with provisions alreadyagreed by the parties. A caveat to theparties' ability to decide their ownarrangements is that they cannot beincompatible with the remedy, therefore,provisions allowing for a fresh contract tobe automatically entered into upondetermination are ineffective.

Time Limits

Proceedings for breaches of theRegulations must be started promptly andwithin three months of the date upon whichgrounds for the challenge first arose. The2009 Regulations do not address therecent decision of the Advocate Generalsuggesting that time limits only commencewhen the bidder should have known of thegrounds but it is likely that a court willconsider such circumstances whenconsidering whether to use its discretionalpower to extend the three month period.

There is a separate time limit for seeking adeclaration of ineffectiveness which is 30days from the date of publication of anOJEU contract award notice (or the bidderbeing informed of a reasoned decision) or, ifno such notice is served, 6 months fromthe date the contract is entered into. Thecourt cannot extend these time limits.

Practically speaking

The amendments to the Regulations shouldencourage mistreated bidders to pursuechallenges against illegally awardedcontracts. Under the 2006 Regulations, abidder had to seek an interim injunction toprevent an authority from entering into acontract. Not only did claimants face a raceagainst time to commence proceedingsbefore the end of the standstill period butalso the burden of establishing thatdamages were an inadequate remedy.

As an additional hurdle, a bidder also hadto provide an undertaking to be liable forcosts incurred by the authority in delayingthe procedure, if the authority successfullydefends the challenge. Whilst a court canstill require a bidder to provide anundertaking in return for upholding a periodof suspension, the suspension itself isimposed automatically and, at least,provides additional time to investigate acomplaint.

Additionally, all bidders will have a vestedinterest in ensuring that public procurementprocesses are conducted in accordancewith the Regulations, failing which thesuccessful party will be susceptible to thecontract being declared ineffective.

Parties to a procurement process canmitigate the chances of challenge and theimpact of a declaration of ineffectiveness bytaking practical steps including:

• Always observing a standstill period;

• Providing prompt notification of anaward with a full set of reasons to eachunsuccessful bidder;

• Publishing a voluntary ‘transparencynotice’ expressing intention to concludea contract where an authority believesthat prior publication of a contractnotice in the OJEU is not required; and

• Including contractual clauses detailingwhat will happen if a contract isdeclared ineffective.

Ultimately, whilst the impact of theamendments will be seen over theforthcoming months, they serve as areminder to authorities and bidders alike toensure that public procurement proceduresare undertaken strictly in accordance withthe respective provisions of theRegulations.


7


8

JCT NEWS

The current economic climate hasresulted in projects being stopped, eitherbecause one of the parties has becomeinsolvent or as an attempt to limit costs.Either way, we are seeing parties relyingmore on the contractual terminationprovisions of their contracts and vacatingconstruction sites before the works arecompleted. While the usual contractualprovisions are clear, upon termination it isalso necessary to ensure the safety ofanyone who might come onto the site orthose nearby: all the more so, when theworks are incomplete and where, forexample, safety barriers are removed bythe contractor. It is tempting simply tovacate the site but this is unlikely toaddress health & safety concerns.

Transitional duties can continue beyondthe date of termination of the contract orof the contractor’s employment. Thefocus of the leaving party will be to makeas clean and swift a break as possiblebut it must also do everything reasonablypracticable to ensure that its departuredoes not expose any workers ormembers of the public to risks to theirhealth or safety. Practical advice wouldbe to carry out a termination/handoverrisk assessment, to deal with risks arisingfrom the handover and also todemonstrate compliance with thecontractual and statutory obligationsidentified below.

What are the duties on termination?

Duties on termination are based both oncontractual and statutory provisions.Each contract will have its own specificprovisions but Clause 8.12 of the JCT2005 form, for example, provides that thecontractor is to remove with reasonabledispatch temporary buildings, plant, toolsand equipment. The words "and in suchmanner and with such precautions as willprevent injury, death or damage" used inthe 1998 edition in reference to theindemnity given to the employer havebeen omitted because they aresuperfluous.

Important health & safety issues arise on termination ofa construction contract – What do you need to know?Dr Simon Joyston-Bechal and Shy Jackson - Pinsent Masons LLP



9

Regardless of any contractual provisions,duties also arise under health & safetylegislation. Sections 2, 3 and 4 of theHealth and Safety at Work Act 1974require a company to do everythingreasonably practicable to ensure thehealth and safety of its staff and of otherworkers and members of the public whomay be affected by its activities, whetheror not in relation to premises a partycontrols. A contractor should, therefore,do everything reasonably practicable toensure a safe handover and in practicethis may mean that some of thereasonably practicable steps persist afterthe termination date.

Duties also exist under CDM Regulation 5and 6 to co-operate so far as isnecessary and to co-ordinate so far as isreasonably practicable with the Client,CDM Co-ordinator and sub-contractorsto ensure health and safety. This willinclude co-operation and co-ordinationfor the safe handover of the site.

Regulation 3 of the Management ofHealth and Safety at Work Regulations1999 also needs to be considered, sinceit requires that a company makes asuitable and sufficient assessment ofrisks for the purpose of identifying themeasures it needs to take to comply withits H&S obligations (i.e. a riskassessment).

Such duties arise by virtue of the criminallaw and will also often arise under acommon contractual provision whichrequires parties to comply with statutoryrequirements, e.g. clause 2.1 of the JCT2005 form.

Practical steps on termination

In view of the above obligations, partiesshould treat the H&S aspects of ahandover in the same way as any otherH&S issues. A written risk assessmentshould be undertaken to identify and dealwith the risks arising from the handoverand also to demonstrate compliance withits obligations. This will involve thedevelopment of a plan for the safehandover to include matters such asliaison, co-operation and co-ordinationwith all the other parties. Anotherpractical step is to ensure that any namesor logos are removed or painted over sothey do not appear on the site andhoardings, making it clear the contractoris no longer to be held out as responsiblefor the site.

In addition, careful thought should begiven to any hazards or risks that may notbe apparent at handover and everythingreasonably practicable should be done todeal with them. In some cases this willmean physical steps need to be taken(e.g. to secure the site and identify withappropriate signage any hazardous areasthat are not immediately apparent). Thismay include the continuation of sitesecurity for a short time until theclient/employer can reasonably beexpected to pick this up (or takeresponsibility for not doing so). It wouldalso include passing on any specialinformation relating, for example, tohidden hazards or part-finished work thatitself presents a hazard.

It is important to note that the contractorwill often be identified on the HSE's filesas the Principal Contractor for the projectunder the CDM Regulations. It should,therefore, in writing inform the HSE, theclient/employer and the CDM co-ordinator that it is handing responsibilityfor the site back to the client/employerand that it is no longer to be regarded asPrincipal Contractor on the site.

Conclusion

Leaving the site before the works arecompleted presents special problemsdue to the state of an incomplete site andthe need to ensure the safety of anypersons who might be affected. This isnot only a requirement under the contractbut also under health & safety legislationand a failure to take the necessary stepscould result in significant penalties. Froma practical perspective, this is an issuebest considered on termination by boththe employer and the contractor, so thatthey take co-ordinated action and limitany potential risks.

However, taking care to assess any suchrisks and putting in place acomprehensive plan will help to ensurethat the risk of injury is minimised and sotoo is the chance of facing additionalliabilities at a time when the terminationevent itself is usually the focus ofattention. If in any doubt, specialistadvice should always be sought.


10

JCT NEWS

Tough times out there...Securing performance and protection against non-performancePhilip Baker, partner and Lily Humphries, trainee solicitor - LG

In these uncertain economic times, andmore than ever before, the importance ofsecuring performance and protectionagainst non-performance in constructionprojects is paramount. But what suitablemechanisms can be employed? Here are afew key considerations.

Contractual arrangements underpin everyconstruction project. Having a sound androbust contract in place is crucial. However,a contract alone may prove ineffectualwhen trying to ensure performance, wherethe main incentive is just to avoid litigation.

Incentives such as retention and bonuses(the stick or the carrot?) can be used tocomplement contractual documentation.Withholding payment for failure to perform,or the enticement of receiving extrapayment for the achievement of keymilestones, can prove to be useful leverage,particularly where margins are tight on bothsides: although there is some debate as tothe usefulness of small retention funds.

Performance bonds are another favourite,although we have seen a hardening of thebond market in recent months. Bonds maybe conditional or "on-demand". Theseproducts, issued by banks or insurers,impose an obligation upon the issuer tomake a payment in certain specified events,normally material breach of contract or theinsolvency of the contractor.

In their strongest form, on-demand bondsrequire the bond issuer to make a paymentwhenever demanded, independently of theterms of the contract pursuant to which thebond is provided. Payment under aconditional bond usually depends on theparty making the call proving its loss, thusimposing an additional burden. The mainadvantage of a performance bond is that itgives an employer a "pot of money" (usually10% of the contract sum) to draw upon if itneeds to regroup its professional team andfind another contractor to finish a project.

Likewise, guarantees can provide suitableprotection against non-payment or non-performance. Unlike bonds, guarantees relyon a third party agreeing to be directly liablefor the failure of a contracting party to payor to perform. These guarantees normallycome from a bank or a parent companyand, in the latter case, are particularlyuseful in providing leverage and access tomoney or resources held outside thecompany with which a contract has beenconcluded.

Obviously, cash remains king at themoment and more favourable terms canoften be achieved through the offer of anadvance payment. There are of coursedangers with advance payments, so it isvital that they are documented properly andsupported by an advanced payment bond,which can be called to allow the return ofan advance payment if things go wrong.

Looking forward, the JCT has recentlyproduced documentation enabling projectbank accounts (PBAs) to be used inconjunction with main JCT standardcontract forms (see the February 2010edition of JCT News). Briefly, a PBA is abank account where money owing to acontractor and sub-contractors isdeposited by an employer and drawn fromas necessary during a project.

This gives more security for payments andshortens payment times across the supplychain. That being said, the extent of thatsecurity is, of course, dependent upon theamount and timing of money paid into thePBA and this can vary appreciably. PBAshave met with a mixed reaction, but mayprove to be useful mechanisms in the futureshould they become more widely used.


JCT Contracts Digital ServiceTHE EASY WAY TO TAKE CONTRACTS FROM DRAFT TO COMPLETIONJCT Contracts Digital Service allows you to edit your JCT Contracts on screen, print multiple draftcopies and easily manage the whole process from first draft to completion.

• Provides JCT Contracts and guides on one disk

• Lets you edit contracts and tracks deletions, insertions and changes

• Allows electronic exchange of draft contracts with user changes tracked in colour on screen

• Step-by-step question and answer format so each field on the contract is completed correctly

• Gives you unlimited printing of draft contracts free of charge

• Includes an archive of JCT 98 contracts and amendments

• Dedicated Network Support Team on hand to help with any technical questions

TAKE A VIRTUAL TOURWhy not explore the functionality of the CD-ROM in full, by taking an online tour.Log onto: www.jctcontracts.com/demo.html

ASK IN STORE OR SEE ONLINE TO FIND OUT HOW JCT CONTRACTS DIGITAL SERVICE CAN REVOLUTIONISE CONTRACT DRAFTING FOR YOUR BUSINESS.



setting the standard for construction contracts jctnews · pdf fileout under a jct standard...

Documents