UK construction contracts and procurement round-up

by Dentons


Our round-up of news relating to contract issues and the standard form contracts commonly used in the construction industry.

FIDIC second edition, 2017, Red, Yellow and Silver Books launched

Since our last briefing in November 2017, FIDIC has launched the second editions of the Red, Yellow and Silver Books in the 1999 suite of contracts. The changes made to these FIDIC contracts for major works (the so-called "rainbow suite") are extensive, wide-ranging and cement the contracts' place as highly-valued standard forms for use on construction and engineering projects.

The amendments almost double the size of the contracts and bring more transparency, clarity and certainty to the provisions. FIDIC's key aims in making the changes were to: reduce the scope for disputes by focusing on dispute avoidance; reflect current international best practice; enhance project management tools and mechanisms; and address issues that have arisen over the years in relation to the 1999 editions.

The risk allocation and the underlying principles of balancing the risk sharing have not been affected fundamentally by the changes. However, the administrative burden on the parties has increased with more emphasis on the prescribed action that parties must now take. Detailed procedural steps are set out as well as the consequences of lack of action.

Key amendments, which are similar across the three new books, include the following:

  • Changes are made to the terminology and formatting and to improve consistency across the suite. For example, the contracts distinguish between "claim" and "dispute" to emphasise the difference between dispute avoidance and resolution and the process of making a claim. "Notice" is now a defined term., "Review" is also a new term and there is a new provision on how to interpret the contract.
  • Changes are made to avoid disputes about whether a party has given a proper notice under the contract, which is important given that 70 or so of the sub-clauses have notice requirements.
  • Additional time limits have been added as have time-bars, which result in a loss of rights if not complied with. Five of the time-bars apply to the dispute resolution and claims processes.
  • More detailed requirements in relation to the Programme are set out.
  • The payment mechanism remains largely the same except for amendments to improve clarity in the provisions.
  • Provisions dealing with bribery and corruption are included enabling contracts to be terminated or staff removed if found to be engaging in corrupt, fraudulent, collusive or coercive practices.
  • Guidance notes have been included to address building information modelling and advise users of issues with which the contract should deal.
  • Enhanced contractor's design obligations, changes to limits on liability and express terms to deal with concurrent delay are also included.
  • Terms dealing with compliance with applicable health and safety laws and other such obligations as well as requirements in terms of quality management and compliance verification have been expanded.
  • The claims process and the process for avoiding and resolving disputes are dealt with separately as a means to encourage the latter by negotiated settlement, for example, and to underline the difference between a claim under the contract and a dispute. Employers and contractors are now subject to the same claim process and this process is set out in detail.
  • A dispute avoidance/adjudication board (DAAB) is set up – thereby placing the focus on dispute avoidance while retaining the option of amicable settlement. Failure to comply with a DAAB decision can be referred to arbitration under the contract.
  • The amendments introduce FIDIC's "Golden Principles" (in the guidance notes), to which drafters must have regard when amending the general conditions of contract.

The first editions remain available for use.

Second edition, BIM Protocol released

The second edition of the Building Information Modelling (BIM) Protocol (the Protocol) has been released by the Construction Industry Council (CIC). The new edition of the Protocol reflects the current standards and practices for using BIM. It was prepared by Beale & Co for the CIC with the support of the CIC BIM Forum, the CIC Liability Panel, King's College Centre of Construction Law and other organisations such as the JCT, the NEC, .be, BSI, the ACE and other consultees.

The Protocol, which was drafted for use with all common construction contracts and supports BIM working at Level 2, remains the only standard UK BIM protocol. It provides guidance in four sections at the start of the Protocol including an explanation of the changes made in the second editions, how to use it and what items appear in the appendices.

Click here to access the CIC's webpage and the Protocol.

Government launches a simplified Public Sector Contract

The Government Legal Department (GLD), in collaboration with the Government Digital Service and DLA Piper, has condensed the Crown Commercial Service Contract into a slimmer Public Sector Contract. This exercise was carried out to make it easier for small and medium-sized enterprises (SMEs), which may not have ready access to legal advice or wide procurement experience, to bid for work.

The focus on using plain English and avoiding legalese means that SME bidders will no longer have to plough through complex, long contracts. The new contract should save government money too. Provisions that are only used infrequently have been moved into modular schedules. SMEs will be able to choose the elements of the contract appropriate to their works. The new contract also includes some new corporate social responsibility obligations.

It is expected that public sector buyers with access to legal teams will adapt the new contract to suit their own specialised requirements.

(Source: GLD lawyers open up £12bn of government work to SMEs)

Welsh government to use project bank accounts

At the end of 2017, the Welsh government launched a new project bank accounts policy "to support ethical business practices in government-funded construction, infrastructure and service contracts". An updated procurement advice note and guidance, which public sector bodies are being encouraged to use, was published in December 2017 to support the policy.

The Welsh government intends to lead by example and will, from 1 January 2018, use project bank accounts "unless there is a compelling reason not to do so, on all conventionally-funded construction and infrastructure contracts and service contracts fully or part-funded by the Welsh Government with a value of £2m or more, which are delivered by the Welsh Government".

In making the announcement, Mark Drakeford, Cabinet Secretary for Finance, thanked the Specialist Engineering Contractors' Group in Wales for raising awareness of the challenges faced by many sub-contractors in securing payment. The commitment to project bank accounts is intended "to deliver fairness and to enable smaller businesses to prosper through delivering contracts in Wales".

(Source: Written Statement – Project Bank Accounts, 6 December 2017. You can access the procurement advice note and guidance referred to above through this link also.)

You can read more about what the UK government is doing in relation to late payment issues here: The latest measures to deal with late payment issues on UK construction contracts.

The Contract (Third Party Rights) (Scotland) Act 2017 now in force

Scots law has always recognised that a contract can create an enforceable right in favour of a third party. This is known as a jus quaesitum tertio (JQT). The Scottish position is in contrast to the position in England and Wales, where, before the introduction of the Contracts (Rights of Third Parties) Act 1999, the doctrine of privity meant that only the contracting parties could have rights arising out of their contract.

Despite the existence of a JQT, case law has created onerous requirements for its application, including a requirement that the right in favour of the third party must be irrevocable. Consequently, JQTs have not proved that useful on Scottish building contracts.

Following recommendations made in July 2016 by the Scottish Law Commission (Report No 245), the Contract (Third Party Rights) (Scotland) Act 2017 came into force on 26 February 2018. It enables third parties to enforce contract undertakings made for their benefit. Parties can choose whether to exclude third party rights from their contract but it is expected that collateral warranties (although no longer needed) will still be used in Scottish construction projects. At present, it is unclear whether third parties will be able to adjudicate.

The key features of the new law are set out in Kirsti Olson's article: Third party rights in Scotland – all change? (This article was first published in Construction Law on 1 March 2018.)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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