The JCT 2011 Building Sub-contracts
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Preface xiii
1 Background and Introduction 1
1.1 The Joint Contracts Tribunal (JCT) 1
1.2 Sub-contracting 1
1.3 The formation of contracts and sub-contracts 2
1.4 Standard forms of contract and sub-contract 6
1.5 The JCT Sub-contracts dealt with within the chapters of this book 7
1.6 The JCT Sub-contracts not dealt with in the chapters of this book 10
2 The Sub-contract Agreement 17
2.1 Introduction 17
2.2 The structure of the sub-contract agreement 19
2.3 The recitals 20
2.4 The articles 22
2.5 The sub-contract particulars 23
2.6 Attestation forms 35
2.7 Schedule of information 37
2.8 Supplementary particulars 38
2.9 Equivalent sub-contract provisions 38
3 Definitions and Interpretations 44
3.1 Introduction 44
3.2 Definitions 44
3.3 Interpretation 45
3.4 Reckoning periods of days 46
3.5 Contracts (Rights of Third Parties) Act 1999 46
3.6 Giving of service of notices and other documents 46
3.7 Effect of the final payment notice (or the default payment notice) 47
3.8 Applicable law 49
3.9 Equivalent sub-contract provisions 49
4 Sub-contractors' General Obligations 51
4.1 Introduction 51
4.2 General obligations 53
4.3 Sub-contractor's design 59
4.4 Materials, goods and workmanship 71
4.5 Compliance with main contract and indemnity 75
4.6 Errors, discrepancies and divergences 76
4.7 Equivalent sub-contract provisions 80
5 Time 85
5.1 Introduction 85
5.2 Time and the adjustment to the period for completion 86
5.3 Practical completion and lateness 96
5.4 Equivalent sub-contract provisions 98
6 Defects, Design Documents and Warranties 102
6.1 Introduction 102
6.2 Defects 103
6.3 Sub-contractor's design documents 107
6.4 Collateral warranties 108
6.5 Equivalent sub-contract provisions 113
7 Control of the Sub-contract Works 114
7.1 Introduction 114
7.2 Assignment and sub-letting 116
7.3 Person-in-charge 118
7.4 Access provided by the sub-contractor 119
7.5 Opening up the works and remedial measures 119
7.6 Attendance and site conduct 123
7.7 Health and safety and CDM 129
7.8 The CDM Regulations (i.e. the Construction (Design and Management) Regulations 2015) 135
7.9 Suspension of the main contract by the contractor 142
7.10 Benefits under the main contract 146
7.11 Certificates/statements or notices under the main contract 146
7.12 Equivalent sub-contract provisions 147
8 Payment 150
8.1 Introduction 150
8.2 The amount due in respect of interim payments 151
8.3 Unfixed materials 152
8.4 The amount due in respect of the final payment 153
8.5 Retention 156
8.6 Payment due dates and final dates for payment for interim payments 159
8.7 Payment Notices and Pay Less Notices for interim payments 160
8.8 The payment due date and the final date for payment for the final payment 162
8.9 Payment Notices and Pay Less Notices in respect of the final payment 162
8.10 VAT (Value Added Tax) 164
8.11 Construction Industry Scheme (CIS) 164
8.12 Interest 164
8.13 Sub-contractor's right of suspension 165
8.14 Fluctuations 166
8.15 Equivalent sub-contract provisions 167
9 Loss and Expense 171
9.1 Introduction 171
9.2 Can common law damages claims be excluded by the contract? 173
9.3 Are claims for extensions of time and loss and/or expense linked? 173
9.4 What are the grounds/requirements for loss and expense? 174
9.5 What are Relevant Sub-contract Matters? 174
9.6 Can the contractor recover direct loss and/or expense from the sub-contractor? 176
9.7 In pursuing a loss and expense claim, what does a sub-contractor need to prove? 177
9.8 What needs to be proved in a loss and expense claim document? 179
9.9 What is a global claim? 180
9.10 Common heads of a loss and expense claim 182
9.11 Prolongation costs 183
9.12 Disruption claims 186
9.13 Winter working 187
9.14 Head office overheads and profit 187
9.15 Loss of profit 190
9.16 Increased costs 190
9.17 Cost of claim preparation 191
9.18 Interest and finance charges 191
9.19 Acceleration 192
9.20 Common law damages 193
9.21 Equivalent sub-contract provisions 196
10 Variations 197
10.1 Introduction 197
10.2 What is a variation? 198
10.3 How is a variation instructed? 198
10.4 Can a variation vitiate a contract? 199
10.5 Must a sub-contractor comply with all variation directions issued? 200
10.6 Must a sub-contractor comply with all variation directions issued that may injuriously affect the efficacy of the sub-contractor's design? 200
10.7 What happens if a sub-contractor does not comply with a direction issued? 201
10.8 How should variations be valued? 201
10.9 How should variations that relate to a sub-contractor's design work be valued? 201
10.10 What is the procedure to be followed in respect of a schedule 2 quotation? 202
10.11 What are the valuation rules? 205
10.12 Equivalent sub-contract provisions 210
11 Injury, Damage and Insurance 214
11.1 Introduction 214
11.2 Sub-contractor's liability for personal injury or death 215
11.3 The sub-contractor's liability for injury or damage to property 216
11.4 The sub-contractor's liability for loss or damage to the sub-contract works 217
11.5 What Specified Perils insurance cover, in respect of loss or damage to works and site materials, does the sub-contractor obtain under the joint names all risks policies? 218
11.6 What is the sub-contractor's liability for damage to the sub-contract works? 218
11.7 What are the employer's options where terrorism cover is not available? 220
11.8 Is the contractor responsible for damage caused to the sub-contractor's plant, etc.? 221
11.9 Is the sub-contractor required to take out professional indemnity insurance? 221
11.10 When and how does the Joint Fire Code apply? 222
11.11 Equivalent sub-contract provisions 223
12 Termination of Sub-contract 226
12.1 Introduction 226
12.2 How can a contract come to an end? 227
12.3 What can cause a sub-contract to be terminated? 228
12.4 What is a breach of contract? 228
12.5 Will any breach of contract enable one to terminate the sub-contract? 228
12.6 What is a repudiatory breach at common law? 229
12.7 Why have termination provisions in the contract if the sub-contract can be terminated at common law? 229
12.8 What is the effect of a sub-contract being terminated at common law? 230
12.9 Are the effects of a sub-contract being terminated under common law or by contractual provisions the same? 230
12.10 Where can the contractual termination provisions be located in the Sub-contract? 231
12.11 Are the party's common law termination rights preserved under the Sub-contract? 231
12.12 What reasons give the contractor a right to terminate the sub-contractor's employment under the JCT Sub-contract Conditions? 231
12.13 What is deemed to be default by the sub-contractor under clause 7.4.1 of SBCSub/D/C? 231
12.14 What happens when a sub-contractor commits a specified default noted at clause 7.4.1 of SBCSub/D/C? 232
12.15 Must all notices either by the Contractor or the Sub-contractor referred to under Section 7 'Termination' of the sub-contract conditions be given in accordance with clause 1.7.4? 233
12.16 What does insolvency of the sub-contractor mean? 233
12.17 What happens when the sub-contractor becomes insolvent? 234
12.18 What does corruption entail? 235
12.19 What are the consequences of the contractor terminating the sub-contractor's employment? 235
12.20 What reasons give the sub-contractor the right to terminate his or her employment under the JCT subcontract conditions? 237
12.21 What is deemed to be default by the contractor under clause 7.8.1 of SBCSub/D/C? 237
12.22 What happens when a contractor commits a specified default noted under clause 7.8.1 of SBCSub/D/C? 238
12.23 What does insolvency of the contractor mean? 239
12.24 What happens when the contractor becomes insolvent? 239
12.25 What are the consequences of the sub-contractor terminating his or her own employment? 240
12.26 If a sub-contractor's employment is terminated for any reason, can it subsequently be reinstated? 242
12.27 Equivalent sub-contract provisions 242
13 Settlement of Disputes 245
13.1 Introduction 245
13.2 Mediation 245
13.3 Adjudication 247
13.4 Arbitration 253
13.5 Litigation 260
13.6 Equivalent Sub?]contract provisions 263
Table of Cases 265
Table of Statutes and Regulations 269
Index 271
1
Background and Introduction
1.1 The Joint Contracts Tribunal (JCT)
The Joint Contracts Tribunal (JCT) was established in 1931 and for over 80 years has produced standard forms of contracts, guidance notes and other standard documentation for use in the construction industry. In 1998, the JCT became incorporated as a company limited by guarantee and commenced operation as such in May 1998.
Currently, JCT forms require the agreement of seven constituent bodies before they are issued by the JCT. Those bodies are:
- The British Property Federation
- The Contractors Legal Group
- The Local Government Association
- The National Specialist Contractors Council
- The Royal Institute of British Architects
- The Royal Institution of Chartered Surveyors
- The Scottish Building Contract Committee
The above listed bodies are intended to be reasonably representative of the interests across the construction industry, namely, the employers, the consultants, the contractors and the sub-contractors, and the JCT sub-contract forms are naturally a reflection of these competing interests.
1.2 Sub-contracting
The regular position is that an employer contracts with a contractor, and the contractor contracts separately and independently with each of his sub-contractors.
The key point in respect of the above relationships is that, although the term 'sub-contract' is used in respect of the contract between the contractor and the sub-contractor, in all of the above cases, a contract is formed between two parties only (i.e. a contract is formed between an employer and a main contractor; a contract is formed between a sub-contractor and a main contractor).
With that in mind, it would be useful, therefore, to understand some basic principles of contract law.
Most aspects of the law of contract are set down in case law; however, there are some notable exceptions where provision is made in statute (e.g. the Sale of Goods Act 1979, the Unfair Contract Terms Act 1977 and the Supply of Goods and Services Act 1982).
Because of the nature of this book, the basic principles of contract law, as provided at section 1.3 can naturally be dealt with in outline only.
1.3 The formation of contracts and sub-contracts
There are many definitions of a contract, but in simple terms, it can be considered as being: 'an agreement which gives rise to obligations which are enforced or recognised by law'. Under English law, only the actual parties to a contract can acquire rights and liabilities under the contract. This is known as 'privity of contract'.
In respect of a main contract situation, the practical consequences of the doctrine of privity of contract are twofold:
- the main contractor carries responsibility for a sub-contractor's work, etc., so far as the employer is concerned; and
- the employer cannot take direct action in contract against the sub-contractor, unless there is a separate contract between the employer and the sub-contractor.
The effect that the Contracts (Rights of Third Parties) Act 1999 has upon this position in respect of the JCT sub-contracts considered in this book is dealt with later within this book.
The essence of any contract is agreement. In deciding whether there has been an agreement, and what its terms are, the court looks for an offer to do or to forbear from doing something by one party and an unconditional acceptance of that offer by the other party, turning the offer into a promise.
In addition, the law requires that a party suing on a promise must show that he or she has given consideration for the promise, unless the promise was given by deed.
Further, it must be the intention of both parties to be legally bound by the agreement, and the parties must have the capacity to make a contract, and any formalities required by law must be complied with. Finally, there must be sufficient certainty of terms.
1.3.1 Offer
An offer is a statement by one party of a willingness to contract on definite stated terms and intended to be binding, provided that these terms are, in turn, unequivocally1 accepted by the party or parties to whom the offer is addressed.
There is generally no requirement that the offer be made in any particular form; it may be made orally, in writing or by conduct. Of course, if a dispute arose in the future, then it would be beneficial for the offer to be in writing.
In whichever form an offer is made, it must be sufficiently definite to be capable of resulting in a contract if accepted. Its terms and conditions must be clear and unequivocal, and it must be made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed. In this context, a person includes a corporation because, in law, a corporation is a legal person; that is to say, a corporation is regarded by the law as a legal entity quite distinct from the person or persons who may, for the time being, be the member or members of the corporation.
Putting the above into context, it is generally the case that when the sub-contractor submits his estimate (i.e. his tender), this is an offer which the contractor can either accept or reject.
With the above in mind, it must be noted by sub-contractors that the submission of a tender does not (normally) conclude a contract. Therefore, the preparation of a tender in response to a tender enquiry (which would, in the normal course of events, become an offer when submitted) may involve the sub-contractor in (sometimes considerable) expense, but the cost of tender preparation is not normally recoverable as a discrete cost. Obviously, the cost of tender preparations is included within the head office overhead percentage that is added by sub-contractors onto their tenders, and the tender preparation costs so incorporated are therefore recovered by sub-contractors when their tenders are successful.
1.3.2 Acceptance
For agreement to be reached, there must be a clear and unequivocal acceptance of a clear and unequivocal offer. The acceptance must be unqualified;that is, as noted earlier, it must 'mirror' the offer.
Therefore, if in a tender enquiry, a sub-contractor was required to use Welsh slates but submitted his tender on the basis of using Spanish slates, and the contractor, upon receiving the sub-contractor's tender, accepted the sub-contractor's tender without qualification, then the contract, when formed, would be on the basis of the terms and conditions which formed part of the tender (i.e. based on using Spanish slates rather than Welsh slates).
In such a situation, if a future dispute arose, the contractor would not be able to rely on the terms and conditions forming part of the tender enquiry (i.e. that Welsh slates were required) because those terms and conditions would not form part of the contract between the parties.
As a general rule, silence does not constitute acceptance2; neither does inactivity.
Given this, the general rule is that an acceptance has no effect until it is communicated (either in writing or orally) to the party making the offer. The main reason for this being that it could cause hardship to the party making the offer if he or she were bound without knowing that his or her offer had been accepted.
Another rule is that refusal of an offer puts an end to that offer.3 Hence, if a contractor rejects a sub-contractor's offer (i.e. his submitted tender), it is, in legal parlance, extinguished and is no longer legally capable of being accepted.
An offer can be withdrawn at any time before it is accepted.4 This rule even applies where an offer is stated to be open for a fixed time. Therefore, if a sub-contractor submitted a tender (or a quotation) and stated that it remained open for acceptance within 30 days, there would be nothing to prevent the sub-contractor from withdrawing that offer in a period less than 30 days (unless the express terms of the sub-contract stated otherwise).
If an offer is stated to be open for a fixed time, then it cannot (without the agreement of the party making the offer) be accepted after that time.
However, if no time is stated in the offer, then the offer is taken to lapse after a reasonable time. The word 'reasonable' is, of course, open to interpretation, but is based on the facts of the particular case.
In certain circumstances, depending on the facts of each particular case, acceptance may be made by conduct5 (e.g. allowing possession, making payments in line with the agreed terms) or by performance6 (e.g. by carrying out and completing the sub-contract works).
1.3.3 Counter-offer
If the acceptance does not clearly and unequivocally accept the offer (e.g. it seeks to add to or vary the terms contained in the offer), then it is, simply, a counter-offer (not an acceptance), and this simply destroys the original offer.
A counter-offer has the same status as an offer in the formation of a contract, and consequently, a counter-offer must be clearly and unequivocally accepted before agreement has been reached.
Counter-offers should be distinguished from requests for information, which will not necessarily amount to a counter-offer.7 Care must be taken when requesting further information to ensure this request is not construed, in fact, as being a counter-offer.
In respect of construction works, in...
