Construction projects are often complex, involving multiple parties, significant investment and inherent risk. Clearly defining each party’s roles, responsibilities and obligations from the outset is essential to keeping a project on track and reducing the likelihood of disputes arising.
JCT contracts are among the most widely used standard form construction contracts in the UK, providing a framework for relationships between contractors, professional consultants and employers, ranging from commercial developers to homeowners. Whilst they aim to achieve a fair and balanced agreement, they are often amended to suit specific projects, meaning parties should ensure they understand the terms before entering into them.
In this guide, we explain what JCT contracts are, how they work and explore some of the key legal and commercial considerations parties should be aware of before signing.
What is a JCT contract in construction?
JCT contracts are standardised agreements used for construction projects. There are a number of different types of JCT contract covering everything from major development schemes to small residential works.
JCT contracts are widely used throughout the UK construction industry. They establish a recognised framework governing the relationship between the parties involved, which include employers, contractors and sometimes professional consultants such as architects or structural engineers.
These agreements typically set out each party’s rights, responsibilities and obligations, whilst also dealing with key issues such as payment, delays, variations to the works and dispute resolution. By clearly defining these matters from the outset, JCT contracts aim to reduce uncertainty, allocate risk appropriately and minimise the potential for disputes.
However, JCT contracts only provide a starting point and are frequently amended to reflect the specific requirements of a project or, particularly on larger developments, to provide more favourable terms for the employer.
What does JCT stand for in building contracts?
JCT stands for Joint Contracts Tribunal. Established in 1931, the Joint Contracts Tribunal is a UK-based organisation made up of representatives from across the construction industry. Its objective is to create a fair operating environment within the construction industry through the promotion and publication of standard form contracts.
Types of JCT contract
JCT Major Project Construction Contract (MP)
JCT Major Project Construction Contracts are designed for large-scale developments where both the employer and contractor have significant experience. They contain fewer administrative provisions, reflecting the expectation that the parties will have established procedures in place and that the contractor will have the capacity to assume greater risk.
JCT Standard Building Contract (SBC)
JCT Standard Building Contracts are typically used for larger and more complex construction projects where the design is largely completed before the contractor is appointed. Under this type of contract, responsibility for the design usually remains with the employer and their professional consultants, such as architects, although specific elements of the design can be allocated to the contractor where required.
JCT Design and Build Contract (DB)
JCT Design and Build Contracts are commonly used on larger construction projects where the employer wishes to appoint a single contractor to take responsibility for both design and construction. This procurement route can simplify project management by reducing the number of parties involved.
JCT Minor Works Contract (MW) and Home Owner Contract
JCT Minor Works Contracts are used for smaller projects, such as house extensions and relatively straightforward commercial works. The JCT also offers a Home Owner Contract designed for small residential projects. Typically, Minor Works Contracts are used where a professional consultant, such as an architect, appoints a contractor, whereas Home Owner Contracts are designed for situations where the homeowner is dealing directly with a contractor.
The JCT also publishes a range of other contracts and associated documentation, covering everything from construction management to urgent repair works and ongoing maintenance.
If you are unsure which type of JCT contract is most appropriate for your project, our solicitors can assist. Taking into account factors such as the scope of the project, the procurement route and the level of risk involved, we can advise on the most suitable form of contract and any amendments that should be made.
How do JCT contracts work?
JCT contracts provide a standardised framework for construction projects. However, they are often only a starting point and are amended to suit the project and employer.
- An employer, professional consultant or contractor purchases the appropriate JCT standard form contract for the project.
- The proposed contract is reviewed and any amendments prepared to reflect the project or alter the allocation of risk.
- The proposed contract, including any amendments, is shared with the relevant parties for review and negotiation.
- The parties should – but often do not – obtain independent legal advice to ensure they understand the obligations and risks contained within the contract and, in particular, the amendments proposed to it.
- Once the terms have been agreed and the contract is signed, the project can proceed.
One of the most common issues we see with JCT contracts is that contractors and professional consultants accept proposed amendments without having them properly reviewed due to commercial pressure and a highly competitive market. Whilst this may help secure work in the short term, it can result in parties assuming significant additional risk. For instance, design and build contractors sometimes accept a fitness for purpose obligation for which they do not carry indemnity insurance, with potentially disastrous consequences if something goes wrong.
The cost of having a JCT contract reviewed by an experienced legal professional is often modest when compared with the potential cost of disputes arising from unfair or onerous contractual terms later in the project.
Equally, employers should not proceed with standard form contracts without first considering whether the terms are appropriate for their particular requirements. An experienced solicitor can help employers ensure the contract accurately reflects the needs of the project, that risk is allocated appropriately and that their interests are properly protected.
What is a collateral warranty in construction?
Collateral warranties are commonly used on construction projects to provide additional protection to third parties, such as tenants, purchasers and funders, who may suffer loss as a result of defective design or construction. They create a direct contractual relationship between parties who would not otherwise have one.
For example, a tenant taking a full repairing and insuring lease on a newly constructed commercial property will usually only have a contractual relationship with the landlord. If defects later arise as a result of poor design or construction, the tenant may have no direct right of recourse against the contractor, architect or other professional consultants involved in the project.
A collateral warranty addresses this issue by creating a direct contractual relationship between the tenant and the contractor or consultant responsible for the design or construction. This means that if defects arise, the tenant may be able to pursue the party responsible directly.
Collateral warranties are described as “collateral” because they sit alongside, rather than replace, the underlying building contract or professional appointment. In effect, they extend certain rights under those agreements to another party.
How long does a collateral warranty last?
A collateral warranty will typically last for either six or twelve years, depending on whether it is executed as a contract or a deed. The party providing the collateral warranty is also usually required to maintain professional indemnity insurance at an appropriate level for the duration of the warranty.
How much does a collateral warranty cost?
There is not usually an additional cost associated with providing a collateral warranty.
Should you have your JCT contract reviewed by a solicitor?
There is no legal requirement to have a JCT contract reviewed by a solicitor. However, given the potential risks involved, seeking legal advice before entering into a construction contract is often a sensible investment.
Whilst JCT contracts are intended to provide a fair and balanced starting point, they are frequently amended to reflect the specific requirements of a project or alter the allocation of risk between the parties. Even seemingly minor amendments can have significant legal and commercial implications for employers, contractors and professional consultants.
Having a JCT contract reviewed by an experienced solicitor can help ensure the most appropriate form of contract is being used, identify any contractual red flags and ensure the terms accurately reflect the needs of the project. In many cases, obtaining legal advice at the outset is quicker and more affordable than people expect and can help avoid costly disputes further down the line.
Scott Bailey solicitor Roger Clayson has extensive experience advising employers, contractors, sub-contractors and professional consultants on non-contentious construction law, including JCT contracts, collateral warranties, appointments, guarantees and bonds. If you would like to discuss your project or arrange for a JCT contract to be reviewed, please get in touch.
