Contracts: Making amends

Amending standard form building contracts is done more than is necessary and can sometimes even change the nature of the contract. Amendments might be done so as to change the risk apportionment or simply because of office practice without regard to risk – whatever, problems frequently arise. In addition to any imbalance of risk created there is also potential for inconsistency, conflict and or incoherence in the contract. Consequently, the effect of an amendment may become costly in an unknowing way.

JCT Standard forms of contract are devised by experienced practitioners to meet a specific procurement route and to apportion risk fairly between the parties. Project specifics are achieved through completion of the contract particulars and by the selection of the various options provided within the contract. It is not intended that the forms should be amended generally.

Nevertheless, not all amendments are wrong; the industry has clearly changed and JCT itself recognises through the use of its digital contracts that amendments sometimes need to be made. However, JCT takes a similar view to that stated by RICS’s ISurv, namely, “take care to amend only what is completely necessary”.

The industry has clearly changed and JCT itself recognises through the use of its digital contracts that amendments sometimes need to be made

That is sound advice because many disputes under construction contracts flow from amended provisions of a standard form. Just such a situation arose in the case of Grove Developments Ltd vs Balfour Beatty Regional Construction Ltd [2016] in the Technology and Construction Court.

The JCT Design & Build Contract 2011 (DB2011) contained a series of bespoke amendments and it was those specific to payment that caused a problem. Under DB2011 the method of payment is either by stage payments (Alternative A) or periodic payments (Alternative B) which is determined by making the appropriate selection in the contract particulars; either by inserting the stages for interim payments or the first date for an interim application as relevant. In the Grove case it was found that the “Contract Particulars in respect of Clause 4.7 elected for stage payments in accordance with Alternative A and deleted, by striking through, the option of periodic payments in accordance with Alternative B. In respect of the stages referred to in Clause 4.8.2, the parties agreed and wrote: ‘To be agreed within two weeks from date of contract’.”

The standard contract, however, requires the stages either to be inserted in the contract particulars or to be set out in an annexed document referred to therein, not as in this case, to be agreed later. Amending the contract in this way was the first mistake. Despite the intention of using stages for payments these were not agreed – second mistake. Instead, the parties agreed a payment schedule that set out interim valuation dates during the period from shortly after commencement through until the month of the date for completion. Apparently, no one questioned what the position would be regarding further interim payments in the event of a delay – third mistake. That is surprising, especially so for experienced commercial organisations. What is perhaps not surprising is that a delay to completion occurred. The court was then asked to consider the point on further payments and it decided no further interim payments were payable: the payment schedule having failed to cover any period of the works beyond the stated date for completion.

The Grove case is an illustration of how, having got things wrong, making amends for the error is fraught with difficulty

Strictly, a payment schedule is unnecessary under DB2011 where the contract particulars are completed properly. Clearly the use of a payment schedule may be dangerous in that it can create questions regarding the schedule’s status and whether it overrides or conflicts with standard provisions. If it takes the place of the standard provisions, as in the Grove case, problems become manifest and any deficiency can prove troublesome and expensive. A deficiency, as in that case, will not necessarily invoke the scheme for construction to fill in any gaps. Where a payment schedule is to provide supplementary details by way only of supporting details, that is another matter and indeed understandable. Its intention is to assist the payment process but in doing so care must be taken to ensure that is all it does. It is essential that it is compatible with the standard form provisions and certainly best that it is not made a contract document.

The Grove case is a perfect illustration of how, having got things wrong, making amends for the error is fraught with difficulty because agreement between the parties will usually be required – something that frequently proves difficult, if not impossible. This case is yet another example of not making decisions at the appropriate time and failing to follow the standard provisions in the contract. Why change the standard contract provisions when there is no need? If either Alternative A or B under clause 4.7 of the contract had been properly selected and completed, the particular problem would not have arisen.

Peter Hibberd is the past chair of the Joint Contracts Tribunal