- 04 July 2019
- Construction
Build UK recently published six recommendations to its members as to provisions which it says should not be included in construction contracts. In this article we look at what the recommendations are, why they have been made, and what impact (if any) they may have on negotiations. The recommendations are set out in the table below together with our comments on the likely impact of each recommendation.
| Build UK recommendations | Likely impact of these recommendations | |
| 1. | Fitness for Purpose – Do NOT include ‘fitness for purpose’ standard of care for design clauses (except in the process sector)
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Design risk is already negotiated as standard. The employer will want to ensure the contractor has Professional Indemnity Insurance before going ahead, and fitness for purpose obligations are usually not covered by PI insurance. They can, however, but contained in specifications and other technical schedules, not just the main contract clauses, so it’s important to review all the documents making up the contract. |
| 2. | Unquantifiable Risks – Do NOT include delay/loss and expense risk clauses which allocate risk to the contractor where that risk is not reasonably ascertainable for dealing with:
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Contractors generally want to avoid taking responsibility for unquantifiable risks. JCT contracts provide existing provisions for the contractor to be given extended time in circumstances out of their control. A common negotiated mid-point is for the contractor to have time, but not money, if these issues arise. |
| 3. | ‘Specified Perils’ – Do NOT include that ‘specified perils’ (as defined in JCT contracts) will not give rise to an extension of time where caused by the contractor or sub-contractor | Specified perils are already included as a Relevant Event in JCT contracts, so this recommendation is really that amendments to this provision in the standard form should be resisted. |
| 4. | Breach of Contract – Do NOT include a blanket indemnity for breach of contract
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Contractors already usually avoid a blanket indemnity for breach of contract on the grounds that it is unreasonable. |
| 5. | Uncapped Liabilities – Do NOT include contractor/sub-contractor liability clauses which are uncapped (although aggregate liability clauses with carve outs for fraud, misrepresentation, personal injury/death or wilful default are acceptable)
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It is already common for contractors to seek to cap their overall liability, and there is provision for this in JCT standard forms. Caps may be to overall liability or to certain aspects only e.g. design liability. Bear in mind that liquidated damages for delay are sometimes described as a “cap” but in fact all they do is fix the amount of damages for the relevant period (usually a week). Without an overall cap on liquidated damages for delay, they will continue to add up until practical completion. |
| 6. | Performance Securities – Where appropriate:
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Pure on demand bonds are expensive and hard to come by, so this is not surprising. It is already standard to seek to include “no greater liability” clauses in PCGs and in collateral warranties. |
Why has Build UK made these recommendations?
The recommendations proposed by Build UK are not unanticipated, as they have been discussed for some time. Many of them are in any case already common in construction contract negotiations. By formalising the recommendations, Build UK’s aim is to:
- create a common ground amongst the supply chain and clients regarding contractual practice in the construction trade
- enhance procurement practice
- eradicate what it terms ‘poor market practices’, such that the construction industry will become more ‘sustainable in terms of productivity, innovation and profitability’
Acceptance and implementation of these recommendations would encourage both collaboration, and a more pragmatic allocation of risk throughout the supply chain. However, given these recommendations are not novel the impact of the official recommendations may be limited, particularly bearing in mind other market factors impacting the construction industry.
It should be noted that these recommendations are not binding, but are proposals, with further and regular review of these suggestions due to take place.
Build UK published six recommendations to its members as to provisions which it says should not be included in construction contracts.
What impact are the recommendations likely to have on contract negotiations?
In practice, these recommendations are unlikely to substantially affect the outcome of contract negotiations. This is because, as mentioned previously, many of Build UK’s suggestions are already often seen in contract negotiations. Whether those amendments are accepted comes down to the bargaining power of each party in a negotiation.
About this article
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SubjectBuild UK’s 6 tips for construction contracts
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Author
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Expertise
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Published04 July 2019
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.
About this article
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SubjectBuild UK’s 6 tips for construction contracts
-
Author
-
ExpertiseConstruction
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Published04 July 2019