JCT Contracts: friend or foe?

Generally, construction contracts can be similar in scope and structure, but there are dangers lurking for those who do not pay enough attention to the precise terms of the contract, relying on standard terms or structures of the contract, irrespective of the actual arrangement between the parties. In light of Bennett (Construction) Ltd v CIMC MBS Ltd (formerly Verbus Systems Ltd) [2019] EWCA Civ 1515 (“Bennett”), it is useful to consider the wider implications of construction contracts, in particular in assessing the purpose of JCT contracts and the potential pitfalls that can befall clients who use them.

Purpose of JCT contracts?

JCT contracts are a standard form of contract with the purpose of facilitating the process of constructing buildings. These contracts assist the construction industry in three main ways: first, they minimise the transaction costs of entering into a contract because it is provided for the clients in a standard form. This is especially useful if the budget is tight and costs need to be minimised.

Secondly, and similarly, this also reduces the time spent on creating a contract, ensuring that projects can proceed in a timely manner with reassurance that the contracts are commonly used by other construction professionals. If necessary, the clients are still able to change provisions of the contract to the parties’ specific needs or requirements.

Thirdly, they provide benchmark provisions in standard form contracts, thereby assisting clients who wish to create their own contract but are not sure what mandatory provisions to put in place.

Therefore, JCT contracts act as a platform for the construction industry to assist in reaching timely and cost-effective contracts that meet the desired standard of provisions for construction contracts. However, despite these benefits, there are many significant problems with relying on JCT contracts without legal advice.

Problems

First, whilst parties are entitled to adapt any part of the JCT contract, they do so with words, terms or provisions which are nebulous, ill-defined or inconsistent. This can be seen in Bennett, where the parties used a JCT contract but changed the provision involving interim payments. The term “sign-off” was applied inconsistently across the contractual documents, resulting in a dispute as to what this term meant. The dispute was whether “sign-off” meant actual signing-off of the items in question or simply the delivery of the items in accordance with the contractual agreement. The parties could not rely on any definition of the term “sign-off” because one was not given in the contractual documents. Despite the ordinary meaning of the word, it was still judiciable as to the meaning of “sign-off” agreed between the parties.

Additionally, the essence of the JCT contract being a standard form invites an element of casualness or informality. Parties may quickly amend the standard form because they are using the JCT contract to save time and do not want to waste time on the amendments. Too much reliance could be placed on the industry-accepted standard form of the contract that the parties may be led into a false sense of security that even minor changes made to the JCT contract will not lead to disputes in the future. Obviously, this can result in inconsistencies and uncertainties of the terms or provisions across the contract, with a potential lengthy and costly legal battle to determine the outcome of the dispute.

Secondly, parties may decide not to alter the JCT contract at all and agree to the standard form provided. Yet, the conduct of the parties or circumstances of the arrangements may be so different to what is stipulated in the JCT contract that it does not properly represent the meeting of the minds or what is actually agreed between the parties. Should a dispute break out, it causes significant difficultly with identifying what was agreed and trying to prove this via the contract. The court, legal representatives and clients would then have to go through the arduous task of assessing what part of the contract, if any, truly represents the meeting of the minds, and what part was agreed by conduct.

Both situations mentioned above can damage professional relationships, cause delay to the construction works and lead to substantial legal costs. Parties should seek legal advice and properly scrutinise the terms before entering an agreement, especially if terms or provisions have been changed. Whilst it is recognised that this will inevitably incur costs and take longer, in the long term it could alleviate any potential dispute hidden in the contract, where the costs and length of time will be more significant. Parties will still save time and money as they are not creating the contract from scratch.

Solicitors and other legal professionals should assess the circumstances of the arrangements between the parties, ensuring they will or can mirror what is in the contract. This is not always possible as arrangements may subtly change over time, but at least a thorough check occurred from the commencement of the contract.