All contractors in the construction industry work under contract. Most believe a contract is a signed document. While this is the most common form, binding contracts can take several forms, including the popular JCT Contract.
An agreement in writing is called an “express contact”. This may be a simple email accepting an offer, or a lengthy legal document requiring signature. However, an agreement can also be verbal, and this is known as an “implied contract”.
Given this, we can see that every individual working in the construction sector is doing so under contract. This is true irrespective of the role that person is performing, be it as a director, quantity surveyor, site manager or apprentice.
Furthermore, a home extension or government project requires an agreed contract before work commences. One party receives a product or service, and the other receives money in return.
Risks of Poorly Drafted Construction Contracts
- If every party working in construction is under contract, what particulars are included within the agreement?
- Over the years, we have seen many unfair and overly aggressive clauses inserted into contracts with contractors. For example, these range from unrealistic payment durations, with the worst being 4 years from application, to requirements that make the contractor a prisoner of the agreement.
- Of the millions in UK construction, it's estimated only 10% know the contract requirements and obligations under which they work.
Standard Forms of Construction Contract
JCT Contracts
The most common standard form of construction contract in the UK is the Joint Contracts Tribunal or JCT. Most project managers learn contract management this way. "Variations" is now the preferred term in construction for a contract change.
Due to the standard forms available for different applications and project procurement requirements, the JCT contract suite is an industry favourite. These include Minor Works and a standard contract for Sub-Contract Design and Build.
Additionally, the JCT provides guidance notes on all standard contracts with contractors, which are very popular, along with Warranty and Bond standard forms.
NEC Contracts
The New Engineering Contract or NEC contract is growing in popularity and is now the second most common form of construction contract in the UK.
NEC contracts are published by the Institution of Civil Engineers, with the most recent NEC4 version being released in 2017.
People often say “within the spirit of the NEC” as the contract aims to enforce collaborative working relationships. NEC contracts are flexible for all project types, regardless of size or discipline. They can be used in the UK and abroad for all types of procurement.
Bespoke Contracts
Bespoke contracts are drafted for specific purposes, like unusual projects, or to procure subcontractors under stricter conditions than standard contracts.
Therefore, bespoke contracts must always be reviewed before acceptance due to the high risk of excessive conditions on the employed party. However, employing parties are often open to negotiation, allowing bespoke contracts to be discussed and amended for a fairer agreement.
National Construction Contracts and Law Survey
The NBS carried out a National Construction Contracts and Law Survey in 2012, which was the largest survey to date. The aim of the survey was to determine the industry’s position and understand the preferences of procurement.
The survey showed that 60% of respondents employed the JCT contract most often, with 72% using it at least once in the last year. 16% of respondents used the NEC contract most frequently, with 29% confirming that they had used it at least once in the last year.
Construction Contract Disputes
In the more recent National Construction Contracts and Law Survey 2015, the NBS found that:-
Almost half of those (Contractor’s or Clients) who responded said that had had to deal with at least one dispute in the last year – with most disputes occurring between clients and main contractors (according to 76% of respondents) or between a main contractor and subcontractor (29%).
Disputes can be avoided through early planning, regular reporting, and active client engagement. These requirements are difficult to maintain. Contractors and subcontractors often fail to meet their duties while delivering project requirements. This failure leaves the contractor at risk of damages, delay losses, countercharges, and ongoing costs.