Getting there: Revision to JCT contracts

The JCT has recently published a second revision to most of its 2005 suite of contracts. One aim of the latest changes is to address the principles adopted by the Office of Government Commerce (OGC) in the Achieving Excellence in Construction (AEC) initiative.

The goal of the AEC initiative is to increase efficiency, effectiveness and value for money in public procurement. We therefore see in revision two, among other things, the introduction of collaborative working, key performance indicators (KPIs) and the acceleration provisions that are found in the OGC-endorsed NEC3 contract.

Revision two addresses these and other principles through new supplemental provisions. These are the often overlooked optional clauses at the back of JCT contracts. There are seven new provisions covering acceleration, collaborative working, health and safety, cost savings and value improvement, sustainable development and environmental considerations, performance indicators and monitoring and notification and the negotiation of disputes.

Although these provisions are optional, there is a presumption that they will apply. However, one of the great improvements in revision two contracts is that the contract particulars ask you to state whether each individual supplemental provision is to apply, where previously the parties stated whether the supplemental provisions were to apply or not on a blanket basis.

All this sounds good so far. Where the new supplemental provisions fall down, however, is in their drafting. Although the aims of the JCT are laudable, the drafting lacks contractual teeth, so employers and contractors will need to beef up the provisions.

The cost savings and value improvement provisions, for example, encourage (but do not oblige) the contractor to identify value engineering items and notify the client of these. The drafting does not encourage the parties to address the issue at the outset, or legislate for how savings are to be split. The uncertainty of the supplemental provision is hardly likely to encourage the contractor to go out of its way to identify potential cost savings, as there is no certainty as to how, if at all, it is to be rewarded for this.

True, an employer may wish a design-and-build contractor to undertake a value engineering exercise once it becomes involved and without a sharing money saved with the employer. In these circumstances, the contractor will know this from the outset and price the process accordingly. The revision two approach lacks any form of structure from either party’s perspective.

The contractor is also encouraged to suggest changes that may result in an improvement in environmental performance in the construction phase and also in the later use of the building. Again, there is no benefit for the contractor if it makes any such suggestions, apart from any increase in overhead and profits it may receive if the employer instructs a change.

The supplemental provisions also add collaborative working obligations, but it is surprising that the value engineering and sustainable development provisions do not talk about the contractor discussing proposed changes with the design team. This would have seemed like a sensible development of the principle.

A further change is the introduction of KPI provisions. These are most likely to apply if the contractor is party to an overarching framework agreement with the client. The drafting fails, however, to address the issue that KPIs are often backed up by penalties for missing, or incentives for hitting, targets. If parties want the contract to address the consequences of meeting or falling short of KPIs they will need to amend the wording.

Although the introduction of principles advocated by the OGC is a sensible step, the lack of enforceable obligations imposed by the revision is a missed opportunity. If employers and contractors wish to adopt these principles and are prepared to incentivise contractors to meet OGC aims, the parties will need to agree amendments to the new provisions or additional clauses to meet these aims.