New standard form of contract
On 23 June 2003 the JCT launched their new standard form construction contract - the Major Project Form (MPF 03). The form is intended for use by experienced and knowledgeable developers and contractors for projects worth in excess of £10million.
The JCT's decision to draft a form of contract for such specific use is a response to the way in which the suite of JCT contracts is being heavily amended in practice for use on large-scale projects. The structure and content of the MPF 03 is therefore intended to reduce the need for extensive schedules of amendments to the forms of contract by reflecting the commercial realities of risk allocation and concentrating on the specific needs of employers and contractors involved in major projects.
MPF 03 – look and feel
Whilst MPF 03 is a design and build contract, it is not simply a shortened version of the JCT With Contractor's Design 98 form - it is a whole new form of contract.
The structure of the document is similar to WCD 98 in some respects, in that it includes Contract Conditions, an Appendix, the Employer's Requirements and the Contractor's Proposals. In addition, there is a Pricing Document although this goes beyond the Contract Sum Analysis found with WCD 98.
However, the typical JCT approach to the Contract Conditions has been discarded. The Contract Conditions are now much shorter, and are worded in a plain English style with the Conditions split into 8 distinct themed sections. In addition, in an attempt to make the contract as clear and straightforward as possible, certain terms or definitions which are generally recognised as JCT style definitions have been altered. Some of the changes are simply cosmetic (e.g. "Employer's Requirements" and "Contractor's Proposals" have now become "Requirements" and "Proposals", and "Defects Liability Period" is now "Rectification Period"). However, other changes are of a more commercial effect (e.g. using the term "access" rather than "possession"). A more controversial move has been the inclusion of a definition of "Practical Completion" and "Practical Completion of the Project" - previously unheard of in a JCT standard form.
A key feature of MPF 03 is that it assumes that parties entering into the contract have the relevant industry expertise and know how necessary to undertake their obligations in relation to a project without having to prescribe procedural elements in the contract. As a result, vast swathes of the prescriptive detail and procedural mechanisms usually associated with the JCT standard forms have been omitted, resulting in a contract which is only a sixth of the size of WCD 98. An obvious example of the way in which the length of the contract has been reduced is the way it has been reworded to allow for sectional completion without the need for a sectional completion supplement.
In addition, MPF 03 does not include the usual lengthy JCT provisions which deal with issues such as VAT and the provision of Construction Industry Scheme Certificates, on the basis that the parties will have their own administrative procedures in place to deal with these issues. The contract treats insurances and adjudication in an equally short hand fashion:
- MPF 03 anticipates that insurances for large scale projects will be bespoke and that the interests of the parties are better served by simply appending the insurance policy to the contract; and
- the adjudication provisions are reduced to a simple statement of reliance on the Scheme for Construction Contracts. There is a straightforward process for selecting a named adjudicator in the Appendix, nominating a body for appointing an adjudicator if the named adjudicator is unavailable and the Contract establishes a final fall back position in which the Royal Institute of Chartered Surveyors will appoint an Adjudicator for the dispute. The option of choosing mediation which has been included is also new for JCT.
Execution, Assignment, Third Party Rights
The Contract is to be executed as a Deed - there is no option for executing the contract under hand. This was felt to be appropriate for the size of project for which the contract is intended.
The Employer's rights of assignment of the benefit of the Contract are unrestricted. The Employer also has the right to assign both the benefit and the burden of the contract to a Funder at any time. This reflects the way in which the more restrictive assignment provisions in JCT WCD are often amended.
A new departure is the inclusion of a Third Party Rights Schedule. This is intended to replace collateral warranties in favour of Funders, Purchasers and Tenants. The rights set out in the Third Party Rights Schedule are similar to those commonly found in the BPF/JCT forms of warranty for design and build contracts. Traditionally, however, funders in particular have proved resistant to using third party rights and have insisted on collateral warranties and it remains to be seen whether they will be open to adopting this approach.
Risk allocation
MPF 03 is a design and build contract and places the majority of the risk with the Contractor. It was the intention of the drafters that the parameters of, in particular, design risk allocation should be very clear so that the Contractor could correctly ascertain and price that risk.
Design
Design obligations
The principles of MPF 03 are that design responsibility beyond what is included in the Requirements is to be placed with the Contractor, and that the Employer's involvement in design issues beyond producing the Requirements will be limited to resolving discrepancies in the Requirements and Proposals and reviewing drawings.
There is a clear statement that the Employer is liable for the Requirements – a useful clarification not present in the other JCT forms. The Contractor's design obligations under MPF 03 are primarily reasonable skill and care, save for absolute obligations in relation to statutory requirements and performance specifications provided in the contract. However, in the Guidance Notes which accompany MPF 03, there is an optional clause which can be included which imposes fitness for purpose obligations on the Contractor. Provision has also been made for the selection of materials and the contract specifies that they should be in accordance with the Ove Arup & Partners publication "Good Practice in the Selection of Construction Materials".
Submittal of Drawings
MPF 03 incorporates in the Contract Conditions the commonly used "A, B, C" system for submittal and approval of design documents. If the Employer does not approve the design documents it has to justify its position by making full reference to the contractual position which it believes the design documents fails to comply with. Note also that the Employer is not required to pay for any works where the document has not been marked either A or B.
Novation
The contract formally recognises the commercial practice of novating the design team to the Contractor. However, no standard form of novation agreement is provided so this will have to be drafted on a bespoke basis. Note also that MPF 03 contains a provision which threatens non-payment if the Contractor fails to enter into novation agreements with the design team.
Dealing with discrepancies
- in the Requirements: the Contractor is allowed to choose which position to adopt but if the Employer is not happy with the Contractor's election then he may instruct the Contractor to take the other option and this will constitute a change in the Contract.
- between the Requirements and the Proposals: the Employer will be entitled to choose his preferred option and this will not constitute a change and the Contractor will not be entitled to time or money.
Ground conditions
Ground conditions are dealt with expressly in the contract. The rule is that the Contractor will be responsible for ground conditions and will not be able to claim time or money where amendments to the Requirements or Proposals are required to deal with such ground conditions. If the Appendix states that Clause 8.2 is to apply, however, then any amendment which is agreed by the Employer is to be treated as giving rise to a Change if the ground conditions could not reasonably have been foreseen by an experienced and competent contractor on the Base Date having regard to information concerning the Site that the Contractor had or ought reasonably to have obtained.
Completion
As with JCT WCD, the Contractor is to commence the Project and to proceed regularly and diligently with it so as to achieve Practical Completion on or before the Completion Date. Obligations are also imposed on the Contractor to use reasonable endeavours (rather than best endeavours as per JCT WCD) to prevent or reduce delay to progress or to completion.
The Contractor is required to notify the Employer when in its opinion Practical Completion has occurred (a new requirement, but one which reflects site practice) and if it agrees the Employer issues a statement recording the date of Practical Completion. If it does not agree the Employer notifies the Contractor of the work required to be carried out to achieve Practical Completion and the Practical Completion notification process occurs once those works have been completed.
The grounds for claiming an extension of time are more limited than for JCT WCD. There are now 8 grounds as opposed to 18. The usual suspects such as breach by the Employer and the instruction of a Change are there. In addition, there is a ground for claiming an extension of time for "force majeure". This may include grounds previously expressly set out in JCT WCD (e.g. strikes).
If the Contractor becomes aware that the progress is being delayed it must notify the Employer "forthwith" of the cause of delay and its anticipated effect. If the cause of delay is a ground giving rise to a claim for an extension of time then documents supporting the claim must also be provided. If the Contractor claims an extension of time then the Employer must notify its decision on the point within 42 days of receipt of a notification. There is no automatic obligation on the Employer to review the Contractor's extension of time entitlement after Practical Completion - the Contractor must provide documentation to support any further adjustment to the Completion Date within 42 days after Practical Completion and the Employer notifies its decision within 42 days after that.
Changes
The Contractor is now obliged to comply with the Employer's instructions and does not have the right of reasonable objection found in JCT WCD.
If either party considers that an instruction gives rise to a Change or an event happens that the Contract requires to be treated as a Change it must notify the other "immediately". There is provision for the Employer to require a quotation for a proposed Change before instructing it. If this does not happen, then the Contractor must provide to the Employer within 14 days of the Change being identified details of its proposed valuation of the Change together with information as is reasonably necessary to permit a fair valuation. In addition, the Contractor must provide further details in relation to the Change within 42 days after Practical Completion if it requires any further adjustment.
Loss and/or Expense
There is an entitlement under MPF 03 for the Contractor to claim loss and/or expense. This is not limited to "direct" loss and/or expense and therefore may include losses which would not be recoverable under a typical Clause 26 claim.
The grounds for which loss and/or expense can be claimed are limited and, essentially, relate only to breach by the Employer and Changes. Again, the Contractor must notify the Employer as soon as it becomes aware that regular progress is likely to be affected by any of the grounds giving rise to a claim for loss and/or expense. It must also take all practical steps to reduce the loss and/or expense to be incurred. There are obligations on the Contractor to provide its assessment of the loss and/or expense incurred or to be incurred together with such information as is reasonably necessary to enable ascertainment of such loss and/or expense. The Contractor must update this information on a monthly basis until all relevant information has been provided. On receipt of any such information the Employer notifies its ascertainment within 14 days. Again, there is an obligation on the Contractor to provide updates within 42 days after Practical Completion if it thinks any further ascertainment is due.
Payment
The procedures for payment are:
- the submission of a detailed application for payment not later than 7 days before any date when an interim payment advice should be issued by the Employer;
- the issue of an interim payment advice by the Employer accompanied by a statement setting out the amount of the payment proposed to be and the basis on which that amount was calculated;
- the submission of a VAT invoice for the amount stated in the payment advice. The amount stated as being payable becomes due on the date of receipt of the VAT invoice, with the final date of payment being 14 days thereafter. Interest is payable at 5% above base rate for late payments.
Interim payment advices are due prior to Practical Completion on the dates stated in the Appendix. After Practical Completion, further interim payment advices must be issued at intervals of not less than one month.
After expiry of the Rectification Period, the final payment advice must be issued by the Employer. This is final and binding upon the parties in relation to the amounts due from the Employer to the Contractor unless within 28 days of such final payment advice being issued the Contractor disputes any aspect of it by adjudication or litigation.
The principles are that all matters relevant to payment should be dealt with within the "payment advice", including set-offs and withholdings. As a result, the payment advice may result in payments being due from the Contractor to the Employer - a new departure. However, there is also the option available to the Employer of issuing a notice of withholding. To be effective, it must be issued no later than 7 days before the relevant final date for payment.
The basis on which payment is to be made is set out in the Pricing Document. There are 4 options:
- Interim valuation
- Stage payment
- Progress payment
- Some other method to be agreed by the Employer and the Contractor.
The default option is interim valuation. There are no provisions dealing with retention in the Contract Conditions – but these may be included in the Pricing Document.
Egan
There are nods in the direction of Egan in the following respects:
- the Contractor is encouraged to suggest amendments to the Requirements and/or the Proposals which, if instructed as a Change, would result in a financial benefit to the Employer (e.g. by a reduction in the cost of the Project or a reduction in the life cycle costs associated with the Project). If this is instructed, then on Practical Completion the Employer is liable to pay the Contractor the proportion identified in the Appendix of the agreed financial benefit.
- if the date of Practical Completion is earlier than the Completion Date, the Employer must pay the Contractor a bonus calculated at the rate set out in the Appendix for the period of early completion.
It is also possible to use the JCT Partnering Charter with MPF 03.
Conclusion
MPF 03 is a useful and workable addition to the JCT suite of contracts. It has clearly identified the risks imposed on the Contractor – one of its aims – and this should enable Contractors to price risk appropriately. It remains to be seen however whether Employers will refrain from issuing Schedules of Amendments for use with the form. The author suspects not, not least because a form of novation agreement will be required and the Employer may have other requirements which it wishes to reflect in the Contract Conditions (e.g. in relation to the provision of bonds and guarantees and other issues specific to the Employer/Project in question). It also remains to be seen whether Funders will overcome their reluctance in respect of third party rights and be willing to accept them in lieu of warranties.
For further information please contact Victoria Peckett at victoria.peckett@cms-cmck.com
