Construction Contracts: Hierarchy of Contract Documents

The issue of hierarchy of documents within a building contract has recently been reviewed by the Technology and Construction Court. This is a perennial problem - the sheer volume of documents to be included in a building contract means there is a high risk of discrepancies between them and the question of which, if any, document should take priority will need to be resolved to decide which provision prevails.

Background

The case in which this issue arose concerned a dispute over the applicability of two conflicting interim payment provisions. The contract in question incorporated the JCT Design & Build Contract (Revision 1) 2007, as amended by specific amendments agreed between the parties. In line with the JCT payment mechanisms, alternative B had been selected. The Employer’s Requirements (also part of the contract documentation) also contained provisions dealing with payment.

The Court first looked to see to what extent the JCT terms could be made to work in conjunction with the payment provisions in the Employer’s Requirements. The Court found that the two differing sets of payment provisions could not be made to work together, not least because the conflicting provisions produced different starting points (and therefore end points) of the payment mechanism. As a result, the Court was required to choose between the two payment mechanisms and apply one over the other.

The point needed to be resolved, because the question of which set of payment provisions prevailed would determine whether the Employer’s withholding notice had been served in time.

The hierarchy of the contract documents

The Court held that one of the general rules of the interpretation of contracts is that where a term has been specifically drafted for a contract, then that term will take precedence over a standard term. However, this rule is rebuttable and does not apply to all contracts. It can be overridden by an express term of the contract. Clause 1.3 of the standard JCT conditions states that “The Agreement and these Conditions are to be read as a whole but nothing contained in the Employer’s Requirements, the Contractor’s Proposals or the Contract Sum Analysis shall override or modify the Agreement or these Conditions.” The Court found that this displaced the general rule referred to above such that the (amended) JCT provisions prevailed.

A Useful Reminder

The case provides a useful reminder that if you are going to amend JCT contracts you must do so by amending the Articles and Conditions themselves - it is not sufficient to bury conflicting provisions in technical documents such as Employer’s Requirements.

The judge also said that provisions such as clause 1.3 in JCT serve a useful purpose and acquire particular importance in building contracts “where the impression can sometimes be given that the draftsman has included in the contract every piece of paper that related, no matter how tangentially, to the project in question…. Some form of hierarchy or precedence is vital in these circumstances…”

This again is a useful reminder to those putting contracts together that (to put it at its lowest) it is not helpful simply to include correspondence, minutes of meetings etc within contract documents without fully considering what they are intended to achieve and whether there is a better way of going about it. Indeed, in the case of JCT, such a course of action is very unlikely to have any impact on the Articles and Conditions at all.

The position should perhaps be contrasted with other standard forms of contract e.g. NEC. The standard NEC terms do not contain a clause setting out the hierarchy of contract documents - nor do they define the “contract” nor list those documents that form part of the contract. Therefore, if this dispute had occurred under a NEC form of contract the outcome may have been significantly different given that there is no obvious provision negating the general rule that negotiated clauses take precedence over standard terms.

Reference: Fenice Investments Inc v Jerram Falkus Construction Ltd [2009] EWHC 3272 (TCC)