Introduction to JCT Standard Building Contract 2016 – 3. Summary of the Conditions

The conditions are broken down into 5 sections, as follows:

1. Section 1 – Definitions and Interpretation
2. Section 2 – Carrying out the works
3. Section 3 – Control of the works
4. Section 4 – Payment
5. Section 5 – Variations
6. Section 6 – Injury, Damage and Insurance
7. Section 7 – Assignment, Performance Bonds and Guarantees and Collateral Warranties
8. Section 8 – Termination
9. Section 9 – Settlement of Disputes

In the JCT Contract, the printed form takes precedence over the written form. The written form is when someone has inserted additional comments to the contract by writing on it.

Section 1 – Definitions and Interpretation

This section provides specific definitions of words used in the contract, denoted with a capital letter.

Section 2 – Carrying out the works

This section deals with the scope of work being carried out in general terms.

Section 3 – Control of the Works

This section deals with controlling the works through the architect’s instructions as issued under the control of the contract.

Section 4 – Payment

This section deals with payment processes and conditions.

Section 5 – Variations

This section deals with managing variations that occur during the construction process.

Section 6 – Injury, Damage and Insurance

This section deals with 3 parts. Injuries to persons, damage to property and the works insurance.

1. Injury to persons
2. The contractor is liable to the injury to any person on the site or off the site. The contractor must have adequate public liability insurance in place to cover the general public outside of the site and general workman insurance to cover the workman on site.
3. Damage to Property
4. The contractor is liable for damages to the existing property. By property, this does not mean the ‘works’. Property relates to anything other than the works. This will also include other neighbouring buildings. Therefore, the contractor must have adequate insurance to cover damage to any building other than the works inside and outside of the site.
5. Works Insurance
6. This relates to the works insurance. The contractor must have adequate insurance in place to protect the works from damage. This can be for new builds or refurbishment of a combination of both. For new builds, there are 3 options:
7. Where the employer takes out the insurance in the form of structural warranties
8. Where the contractor takes out the insurance for new builds
9. Existing insurance of a building (ie refurbishment)

Combined, this section gives liability and protection to people, the buildings and the works.

Section 7 – Assignment, Performance Bonds and Guarantees and Collateral Warranties

This section deals with assignments, performance bonds and guarantees and collateral warranties.

Assignment is when the employer wants to pass on the benefits of the contract to someone else, for example, a buyer or a funder. The contract allows the employer to do this and the contractor can not withhold this agreement. An assignment is different from a novation. A novation is where the benefits, obligations and liabilities are passed on to a third party. A novation is not allowed under the JCT contract. An assignment benefits only and not benefits and obligations.

Performance bonds if the contractor defaults or does not perform as expected then the performance bond will back it up. The performance bond is taken out by the contractor commonly it is 10% of the contract value. If the contractor is in default of the contract, then the employer can call upon that 10% of the performance bond. This is a backup for the employer should the contractor default.

Guarantees A guarantee is when you have a parent company(s) acting as the guarantor. Same as a performance bond, if the contractor defaults the guarantor will pay out.

Collateral Warranties is to form a contractual relationship between the employer and any specialist sub-contractor. This is required because often during construction, the contractor would have used specialist sub-contractors to design and complete various elements of the works. If faults are discovered later and the main contractor has dissolved his company and ceases trading then under normal circumstances the employer can not pursue the sub-contractor because his relationship was with the main contractor. Therefore, collateral warranties make it possible for employers to pursue specialist sub-contractors if the main contractor is no longer around as it creates a contractual relationship with them. This is also applicable to other members of the team where there is no direct contract in place.

Section 8 – Termination

With termination under the JCT contract, there has to be 3 possible options:

1. When the contractor has defaulted under the contract. There is a list of defaults set out in the contract. A notice of default has to be issued to the contractor to rectify it. If the contractor does not rectify it then the employer can terminate the employment under the contract.
2. When the employer fails to perform under the contract and has defaulted as listed under the contract in Section 8. The contractor can ask the employer to put it right and if he does not then he can terminate the employment under the contract
3. When both the employer and the contractor have agreed to terminate the employment under the contract. This could be because the works have been suspended for over 2-months

It is good practice to say ‘to terminate employment under the contract’ and not ‘to terminate the contract’. This is to allow the provisions of the contract to still be valid but the employment to be terminated. If you terminate the contract then you can not reply to the clauses as the contract will no longer exist.

Section 9 – Settlement of Disputes

This section deals with the settlement of disputes.