A Guide to Construction Contracts in the UK

Construction projects are notoriously complicated and challenging from a technical, logistical, and financial perspective. In addition, construction projects have a level of organisational complexity not seen in many other sectors owing to the sometimes hundreds of different design consultants and specialist subcontractors on any given project.

For this reason, there are many various types of construction contracts that need to be used in different circumstances given that project’s specific organisational requirements. This article seeks to clarify the various forms of construction contracts in the UK and how you can best select them for your project.

Introduction to UK construction contracts

Contracts are formal legal agreements designed to regulate the rights and responsibilities of both parties involved in the project. Although many construction projects are arranged informally and rely on verbal contracts between the client and the contractor, a properly drawn-up and formal contract will help avoid disputes and provide clarity and transparency on the expectations of both parties.

What is a construction contract?

A construction contract is a written agreement between a client and a contractor that sets out the services to be provided, the cost of those services, and the delivery schedule. The contract may also include details about the quality of work, who will inspect the work, how the parties will resolve disputes, and how the parties can terminate the agreement.

Construction contracts can be entered into for several different reasons, whether to replace an existing contract, perform new work, or carry out a repair or maintenance project. They can also be used for public or private projects, large or small, and can be tailored to meet specific requirements.

Types of standard form construction contracts

There are various types of construction contracts that you may encounter during your career. Knowing each kind of contract’s key features will help you navigate the contractual process and select the most suitable construction contract for your project.

Standard Form Contracts are designed to cut down on the time and expense of contract negotiations. In the UK, we have two leading ‘families’ (better known as suites) of construction contracts. The two main suites are:

• The New Engineering Contract (NEC) forms of contract.
• The Joint Contracts Tribunal (JCT) forms of contract.

The two contract suites are typically used for different project types: construction projects with private funding often employ JCT contracts, whereas those with public funding use NEC contracts.

For Contractors being asked to sign up to the standard form contract, I believe there should be little to no fear as these Terms and Conditions are relatively well balanced. For example, the Joint Contracts Tribunal (JCT) comprises seven members representing a broad spectrum of interests and experience in UK Construction. The body was, and is, in place to produce balanced, standard forms of contract to provide a proportional allocation of risk between contracting parties; this is precisely what it does in its standard form.

Types of construction contract and procurement routes

So, let’s now imagine yours is a privately funded project and that you will therefore be using the JCT. Let us turn to the variants of construction contracts in the JCT suite.

There are several types of construction contracts that may be used for a variety of different construction projects, depending on their size and complexity. Within each suite of construction contracts, you have a host of different contract templates appropriate for different procurement routes, depending on the complexity of your project.

If we consider the JCT, you have a long list of different contracts, and I have previously broken down the main contracts in the JCT family. In headline, though, these are the following primary JCT contracts:

• JCT Minor Works Building Contract (for projects up to £250,000)
• JCT Intermediate Building Contract (for projects up to £1 million)
• JCT Standard Building Contract (for projects over £1 million)
• JCT Design and Build Contract
• JCT Construction Management Contract

Within each suite of contracts, different forms should be selected depending on the procurement route you are taking on a project. If you want to learn more about the procurement routes under JCT, you can read my other article available here.

Limitations of Contract and the Formalities in Construction Contracts

Construction contracts are unique in that they are governed by both general principles of contract law and special rules of the industry. The general restrictions of contract law apply to all construction contracts, such as formation, contractual capacity, intention to create a legal relation, consideration and breach of contract.

However, the specific rules of the construction industry apply to the formality of these contracts, such as the signatures required for an effective contract, the formal terms of a contract, the types of agreement and the requirements for the contract to be binding.

One area in which UK Construction Contracts are unique is when it comes to payment. Payment is one of the most critical issues in any construction contract. Following years of dispute and challenge on payment, the construction industry had its own rules concerning payment drafted – Part II of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996) and Part II of the Scheme for Construction Contracts (the Scheme).

Key provisions in a standard construction contract

When reviewing a construction contract, it is crucial to understand the entire contract and the implications of the various clauses. In previous articles and eBooks, I have done a clause-by-clause review of multiple agreements, and you can find my review of the JCT Design and Build contract here. In general, when you review construction contracts, the key provisions to consider are:

• Scope of Work: This outlines the work to be carried out. It will include details such as the type of construction to be performed, the specification of the products, the access and logistics of the site and many other critical elements. The Scope of Work really is the heartbeat of the contract.
• Contract Price:  The contract price is the amount of money paid for the project. It may be a flat fee lump sum, or subject to a formula based on the costs being incurred.
• Variations: Construction projects change throughout the lifecycle of a project, with clients wanting different products and systems used as things change. Therefore, understanding how to value variations and agree on changes to the programme and the final price is critical.
• Completion Date and Overall Period: Often, we focus on the inclusion of the programme of works for a good reason. We need to understand the structure of the works and how the various trades interface. One thing to pay particular focus to, though, is the Completion Date and Overall Period of the Works, which is often just a date noted in the Contract Particulars, which takes precedence over the more detailed programme.
• Payment Schedule: Construction payments are particularly complex owing to the nature of works and services, often being completed in a bit-part fashion over many months. Therefore, payment provisions and schedules jct standard from c-link are often detailed and complex; ensure these are understood and comply with the Act (see above), as if they do not, they will be irrelevant and the statute of the Act will prevail.
• Dispute Resolutions:  This section describes the process for resolution when a dispute arises between the client and the contractor. It is essential to understand this from the outset. If there are no provisions for Dispute Resolution, these are provided by statute.

Summing up

Construction contracts set out the terms and conditions of a project; if you don’t have one agreed upon, this can be incredibly problematic if a dispute arises. The UK has several standard construction contracts that can be used for different projects depending on their size and complexity. It is crucial to understand the key provisions in a standard construction contract as they will outline the work to be carried out, the amount of money spent, and the scopes of the various parties involved.

Understanding the different types of construction contracts in the UK will help you navigate the process and select the best arrangement suitable for your project. Keep in mind that with a formal construction contract, you’ll benefit from all sorts of guarantees, including quality and on-time completion and conversely, a poorly drafted contract could leave you at risk of misunderstandings and disputes.

 

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.