A JCT contract may look familiar, but that does not mean the risk allocation is standard. The most commercially important terms are often found in a separate Schedule of Amendments. We regularly see schedules of amendments which are as long (and sometimes longer) than the original contract terms!
Some amendments may be needed to reflect the project. Others materially change who carries the risk of design, scope, delay, payment and defects. That may affect the price, the programme, the insurance required and, ultimately, whether the contract remains commercially workable.
This article considers ten common elements of the JCT contract that are frequently amended, which are important to understand before the contract is signed.
Why are JCT contracts amended?
The JCT suite provides a familiar starting point for allocating risk and administering construction projects. However, no standard form can address every project-specific requirement. Amendments may therefore be used to reflect the procurement route, funding arrangements, development obligations, programme, design responsibility or requirements of third parties.
The fact that an amendment is common does not make it harmless. A short change to one clause may affect several other provisions or remove an entitlement that the pricing and programme assumed would be available. It is therefore important to review the amended contract as a whole, rather than considering each change in isolation.
1. Design responsibility and fitness for purpose
Design amendments can create some of the most serious and least insurable risks.
The unamended JCT position will depend on the form being used, but a contractor’s design duty is commonly linked to the reasonable skill and care expected of an appropriately qualified professional. Amendments may instead require the contractor to:
- guarantee that the completed works will achieve a stated result;
- accept responsibility for the accuracy or completeness of the Employer’s Requirements or other design information;
- comply with every requirement in a specification without qualification; or
- warrant that the works will be fit for a particular purpose.
Those obligations can impose a higher standard than reasonable skill and care. A contractor could then be liable even if it followed competent professional practice. Fitness-for-purpose obligations are also commonly excluded from professional indemnity insurance, creating a potentially significant gap between contractual liability and insurance cover.
The design provisions, Employer’s Requirements, Contractor’s Proposals and technical schedules should be read together. Any performance criteria should be clear, achievable and consistent, and the contractual duty should align with the insurance that is actually available.
2. Scope, document precedence and discrepancies
The scope of the Works is rarely contained in a single document. Drawings, specifications, schedules, Employer’s Requirements, Contractor’s Proposals and tender clarifications may all form part of the contract. Amendments often introduce a strict order of precedence or make the contractor responsible for gaps, errors and inconsistencies across those documents.
This can significantly increase the contractor’s obligations. A provision requiring the contractor to provide everything necessary for completion, whether expressly shown or not, may be relied upon to argue that missing work is already included in the Contract Sum. Similarly, accepting responsibility for errors in information prepared by others may remove an entitlement to a Change, additional payment or an extension of time.
Before signing, the parties should identify every document forming part of the contract, remove superseded material and resolve known discrepancies. Any order of precedence should produce a clear and commercially workable result, rather than simply allocating every uncertainty to one party.
3. Extensions of time and delay risk
JCT contracts identify Relevant Events that may entitle the contractor to an extension of time. Amendments frequently remove particular events, narrow their wording or transfer responsibility for delay that would otherwise sit with the employer.
The amendments may also shorten notice periods, require detailed particulars at an early stage or make strict compliance a condition precedent to entitlement. A contractor may then remain exposed to liquidated damages even where the underlying delay was outside its control.
Before tender assumptions are finalised, consider:
- which events may delay the Works and who is best placed to manage them;
- whether the contractual grounds for additional time reflect that allocation;
- when notices must be given and what information they must contain;
- whether failure to comply could extinguish entitlement; and
- whether the programme and price include risks for which the contract gives no relief.
Once the contract is agreed, the project team needs a clear notice procedure. A negotiated entitlement is of limited value if it is lost through poor contract administration.
4. Loss and expense and conditions precedent
An entitlement to additional time does not automatically carry an entitlement to additional money. Under JCT contracts, loss and expense depends on whether the event falls within the Relevant Matters and whether the contractual claim procedure has been followed.
Amendments may delete particular Relevant Matters, exclude categories of cost, impose short time limits or make notice and substantiation requirements express conditions precedent. They may also introduce exclusive-remedy wording intended to prevent the same losses being recovered through another contractual or common-law route.
The extension-of-time and loss-and-expense provisions should therefore be compared side by side. Check whether the same event gives an entitlement to both time and money, what records must be maintained, how frequently the claim must be updated and whether any failure could bar all or part of the recovery.
5. Payment applications, notices and set-off
Amendments to payment provisions can affect cash flow throughout the project. They may change due dates or final dates for payment, require extensive supporting information before an application is valid or widen the paying party’s contractual rights of set-off.
Any payment schedule must be checked carefully against the wording in the conditions. Dates should be capable of being identified with certainty and the parties should understand:
- when applications must be submitted;
- what each application must include;
- when payment notices and pay less notices are due; and
- what deductions may be made and how they must be notified.
The statutory payment regime cannot simply be contracted out of. However, a contract may impose additional requirements governing a valid application, and non-compliance can put the sum claimed at risk. Requirements for supporting documents, references or substantiation should be objectively workable and built into the payment process from the outset.
6. Retention and upstream dependencies
The percentage of retention is only part of the issue. Amendments often change the events that trigger its release or link payment to certification, completion or making good defects under an upstream contract.
For a subcontractor, that can mean retention remains outstanding even though its own work has been completed and all defects have been addressed. Release may depend on the performance of other trades or on an event over which the subcontractor has no control. The contract may also omit a clear longstop date, leaving the retention tied up for an uncertain period.
Check the percentage to be deducted, whether a retention bond may be offered, the precise trigger for each release and what happens following termination. Where release depends on an upstream event, consider whether there should be a fixed longstop date or another objective mechanism that allows the money to become due.
7. Changes, instructions and omissions
Most JCT contracts contain machinery allowing changes to the Works to be instructed and valued. Amendments may restrict the people authorised to issue instructions, prescribe a particular platform or form of communication, or make payment conditional on written approval being obtained within a short period.
These provisions can leave a contractor in a difficult position if work is requested informally or urgent work proceeds before the paperwork catches up. The contractual procedure should reflect how the project will actually operate, and the site team should know who is authorised to instruct a change.
Omissions also require attention. An amendment may seek to allow work to be removed from the contractor’s scope and given to another contractor. That goes beyond the purpose for which an omission power is ordinarily understood to operate and may materially affect overhead recovery, procurement commitments and the overall commercial bargain.
Before signing, check what amounts to a Change or Variation, who can instruct it, whether work can be omitted and given to others, and how the time and cost consequences will be assessed.
8. Liquidated damages, indemnities and liability caps
Amendments often increase the rate of liquidated damages, introduce sectional completion or impose separate damages for failure to meet milestones. The figures need to be considered alongside the programme, extension-of-time provisions and any overall limit on liability.
Exposure to damages can involve very significant sums of money and it is unsafe to assume that a high liquidated damages rate will be unenforceable. The better protection is to assess and negotiate the exposure before signing.
The contract should be reviewed for amendments that:
- preserve a claim for general delay damages in addition to liquidated damages;
- exclude particular liabilities from an overall cap;
- introduce wide indemnities for losses beyond the contractor’s control; or
- remove exclusions of indirect or consequential loss.
The combined effect can be more important than the liquidated damages rate viewed on its own.
9. Insurance, bonds and third-party obligations
An amended contract may require higher levels or longer periods of insurance, an on-demand performance bond, a parent company guarantee, collateral warranties or third-party rights in favour of funders, purchasers and tenants.
These are not merely administrative deliverables. They can carry substantial cost and liability, delay payment or prevent practical completion if they are not provided on time. An on-demand bond may also be capable of being called before the underlying contractual dispute has been finally resolved (see our article “On-Demand Performance Bonds: Why a Genuine Contract Dispute May Not Stop a Call”).
The requirements should be discussed with the contractor’s broker, bank and any proposed guarantor before the contract is agreed. Check that the required cover is available on commercially reasonable terms, that the wording of any bond or warranty is acceptable, and that obligations passed down to subcontractors and designers are consistent with the main contract.
10. Termination and suspension
Termination provisions are frequently amended to add new grounds for termination, shorten cure periods or permit immediate termination for specified breaches. Amendments may also introduce termination at will/for convenience, alter the sums payable following termination, restrict payment until the Works are completed by others or expand the costs recoverable from the defaulting party.
These provisions matter even where neither party expects the relationship to fail. Wrongful termination can itself amount to a serious breach, while an extended delay in receiving the termination account may have a major cash-flow impact.
The grounds, notice requirements, service provisions and financial consequences should all be read together. The statutory right to suspend performance for non-payment may also be relevant, but suspension and termination are different remedies with different preconditions and consequences. See our latest article on getting the strategy right when suspending for non-payment “Suspension for Non-Payment: Getting the Strategy Right”.
How should JCT amendments be reviewed?
A useful contract review does more than identify wording that differs from the standard form. It should explain the commercial effect of the changes and distinguish between risks that need to be negotiated and those that can be managed through pricing, insurance or project procedures.
Before signing an amended JCT contract:
- Confirm the precise JCT form and edition being used, and obtain every document intended to form part of the contract.
- Compare the amendments with the unamended wording and check their effect on connected clauses.
- Test the obligations against the scope, programme, tender assumptions and available insurance.
- Prioritise the amendments that could materially affect entitlement, cash flow or liability.
- Record all agreed changes in the final contract documents and ensure that conflicting drafts are removed.
- Brief the project team on the notices, records and procedures required once the project starts to ensure they know how to administer the contract noting any relevant amendments.
The particular points addressed in this article are not an exhaustive list and not every unfavourable amendment can be removed. The important point is to understand the exposure, decide whether it can be accepted or priced, and avoid discovering the effect only after a problem has arisen.
How CCC can help
Contract & Construction Consultants (CCC) reviews JCT contracts and Schedules of Amendments for employers, contractors and subcontractors. Our advice is clear, practical and focused on the provisions that matter commercially. We identify where the standard risk allocation has changed, explain the consequences in plain English and propose amendments for negotiation where appropriate.
We can also support the negotiation process and help project teams put suitable contract-administration procedures in place once terms are agreed. If you have been asked to sign an amended JCT contract.
Contact us for a free initial consultation to discuss how we can assist.
