Update on standard forms of engineering and construction contracts
There is a wide selection of industry contracts to choose from when embarking on a construction and engineering project. The main ones we work with are published by NEC, JCT, IchemE, FIDIC, ICC, LOGIC and MF1.
Which form is appropriate will depend on a variety of factors, such as:
- where design risk should sit;
- the importance of control, delivery time and cost;
- whether there is a need for performance testing;
- whether liability for losses, such as personal injury, death and property damage, should be allocated on a “knock for knock” basis;
- whether the project is overseas; and
- caps on liability.
Changing times, requirements and legislation mean these industry forms are updated, or new contracts are introduced from time to time. Here are some changes that recently have been made or which are being proposed to some of the suites.
To add to the amendments published in January 2019 and October 2020, NEC published further amendments in January 2023. Click here to see which contracts are amended and what the changes are.
In summary, the changes to those contracts to which they are specifically relevant relate to:
- Climate change: to enable users to state their climate change requirements in the Scope and set financial incentives for suppliers to achieve the requirements through their climate change plan;
- Working from home: to facilitate the contractor’s recovery of costs of staff working at home;
- Use of design-related documents: to clarify and extend the ability of the client to use the supplier's design and documents prepared for design;
- Dispute resolution: to clarify that the Adjudicator decides the procedure and timetable for the adjudication, in keeping with the requirements of Part II of the Housing Grants, Construction and Regeneration Act 1996;
- Two-stage tendering: Option X22 (early contractor involvement) has been amended to provide further flexibility in the development of a project in Stage One and to provide greater clarity over the process to follow if the works do not proceed to Stage Two;
- Contactor’s design liability: to limit to reasonable skill and care;
- Limitation on liability: to allow a total limit on liability to be included in the Contract Data / Subcontract Data;
- Damage to the client’s property: to make the Service Provider liable for loss or damage to the client’s property which arises from the Service Provider Providing the Service and to include the ability for the client to limit this liability if it wishes to do;
- Payment on termination: to bring the Supply Short Contract in line with the other contracts in respect of payment due to the supplier in the case of a termination due to a Purchaser’s default or for the Purchaser’s convenience.
A new suite is anticipated to be available by the end of 2023. Currently, the proposed key changes can be broadly grouped as follows:
Changes in law:
- To address obligations under the Building Safety Act 2022;
- To include the new grounds for insolvency under the Corporate Insolvency and Governance Act 2020; and
- To clarify if and when liquidated damages will apply following the insolvency of a contractor before the works are complete (following the Supreme Court’s decisions in the case of Triple Point Technology Inc v PTT Public Company Ltd).
Recent market conditions:
- To introduce extensions of time (with optional loss and expense) for epidemics and the exercise of statutory powers;
- To introduce loss and expense for ground/building related conditions such as UXOs (unexploded mines/bombs), asbestos and/or contamination; and
- To move the lengthy fluctuation provisions out of the standard contracts into an optional online document to be incorporated by reference, as needed.
Modern operating practices:
- To cater for gender-neutral language and electronic signatures/service of notices.
The Institution of Chemical Engineers has published the Blue Book, which will be particularly useful for the development of process plants and manufacturing facilities and other performance-related projects.
It is an engineering, procurement and construction management contract (EPCM) under which:
- The Employer appoints an EPCM contractor to provide engineering and design services;
- The Employer, procured with the assistance of the EPCM contractor, will directly appoint suppliers and trade contractors to adopt the EPCM’s design and to deliver the works under multiple contracts; and
- The EPCM contractor will manage the works contractors on behalf of the Employer.
The benefits of using the Blue Book include:
- Risk: Employers avoid paying a ‘main contractor’ a premium for taking on a ‘one-stop shop’ risk for design and workmanship and contractors avoid taking on the high risks of fixed time and cost turnkey contracts;
- Resource: Employers have access to a greater resource pool for specialist work;
- Time: The project potentially can be delivered faster;
- Cost: The Blue Book has various payment options, such as reimbursable, fixed fee and target cost. It also facilitates potential cost savings as there is no risk premium added for one contractor taking on all the risk;
- Control: Employers have greater control and oversight of the costs and progress of their projects and their supply chain; and
- Jurisdiction: The Blue Book can be issued globally.
FIDIC has set up a task force to develop its own EPCM by the end of this year.
Please get in touch if you would like to discuss the forms of contract you propose to use or would like to discuss the pro and cons of and risks imposed under them. Contact Lucilla Waugh on 0191 211 7984 or email [email protected]