Get in early: the new JCT agreement

This week, the JCT launched standard-form preconstruction services agreements – one for general contractors and one for specialists.

The agreements allow specified works and services to proceed before finalisation or award of the ultimate contract, and are useful for employers that want contractors or specialists involved early, particularly for design-and-build projects on which their input to design, programming and procurement can be invaluable.

The two forms have been drafted for use when works are being procured under a two-stage tendering procedure and where the main contract will be either the JCT2005 standard building contract, the design-and-build contract, the major project construction contract or the intermediate building contract (with or without design).

The forms can be used whether or not the contractor or specialist is to be responsible for any design; where there is to be novation to the contractor of any specialist, supply, or consultancy agreement and by both private and local authority employers.

In principle they can also be used (with minor adaptations) if the procurement method is JCT construction management, and pre-construction services are required from the prospective trade contractors. They are not suitable for use with the JCT management building contract. The guidance notes suggest that any pre-fabrication, advanced ordering or detailed design agreement is best dealt with by a separate agreement or order.

The agreements reflect the contractor’s role as an adviser during preconstruction, so have similar provisions to construction consultancy agreements and contain the design provisions usually found in such agreements. The contractor or specialist is required to exercise the level of skill, care and diligence reasonably to be expected of a contractor experienced in similar projects and must not use deleterious materials. A copyright licence is granted to the employer as long as all sums due under the agreement have been paid. Requirements for professional indemnity and public liability insurance with agreed limits of indemnity are also included.

Rights to terminate will be of comfort to employers in these uncertain times

Unless otherwise provided, the contractor or specialist will have no design liability under the agreement unless and until the main contract or subcontract is entered into. If and when that happens, the contractor or specialist’s design obligations and liability will be the same as if it had been undertaken under the main contract or subcontract. I anticipate that in many cases an employer or contractor using the agreements will make sure that the contractor or specialist is liable for design undertaken in accordance with the agreements whether or not a contract is subsequently entered into.

The agreements are flexible about payment terms. The “fee” payable for the services could be related to the payment terms anticipated under the subsequent contracts if required.

Rights given to the engaging party to suspend or terminate the employment under the agreements will be of comfort to employers, particularly in these uncertain times. The employer can suspend the whole or part of the services on 14 days’ notice. It may then at any time within six months (or some other agreed period) instruct the contractor to recommence the suspended services. The employer is obliged to pay any accrued fees and demobilisation costs “properly and necessarily” incurred by the contractor. If notice to remobilise is given, the contractor is entitled to claim remobilisation costs. If the suspension period goes beyond the specified period the contractor or specialist may give 14 days’ notice of its intention to terminate its employment. There is also a provision allowing the employer to terminate at will by giving at least 14 days’ notice.

The agreements set out all key information relating to the project and the pre-construction services. The section relating to third-party agreements is particularly useful. This enables the parties to list the documents which are key to so many projects.

The JCT has not included a standard list of pre-construction services, taking the view that these will vary.

The agreements are a welcome addition to the JCT suite and will, I am sure, become a standard feature of the procurement landscape.