JCT '80 Amendment 18: How the JCT have interpreted the requirements of the Construction Act

JCT '80 Amendment 18: The Construction Act and a little more

Caroline Cummins and Paul Smith consider how the JCT have interpreted the requirements of the Construction Act

The Joint Contracts Tribunal (JCT) in its 18th amendment to the Standard Form of Building Contract 1980 Edition has gone further than most of the standard forms in its amendments to comply with the requirements of Part II of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) which came into force on May 1st 1998. It has incorporated some of the other suggestions for reform set out in Sir Michael Latham's report 'Constructing the Team' including the application of interest on late payment, and it has included other amendments to the conditions which will be of considerable impact.

Adjudication

In response to the Construction Act, the JCT has devised its own adjudication procedure which is set out in Clause 41(A). The requirements of the Construction Act are considered in our Special Report which was issued in April this year. Here we look at some interesting features of the adjudication procedure devised by the JCT which give an indication of the approach which the JCT has adopted.

The key points to note are:

• Identity of the Adjudicator The parties can agree who shall be the Adjudicator, alternatively the Adjudicator will be nominated by a person named in the Appendix or, by default, the RIBA. The Adjudicator must execute the Standard Agreement for the appointment of an Adjudicator issued by the JCT.
• Materials submitted to the Adjudicator The party referring the dispute must give the Adjudicator: -particulars of the dispute together with a summary of the contentions on which he relies -the statement of the relief or remedy which he seeks - any material which he wishes the Adjudicator to consider.

The other party must then send the Adjudicator within 7 days of the date of referral, a written statement of the contentions on which he relies and any material which he wishes the Adjudicator to consider.

The Adjudicator must act as an Adjudicator and not as an expert or an arbitrator (we shall not attempt to explain the difference in this article if indeed it is possible to do definitively).

The Adjudicator shall not be obliged to give reasons for his decision.

• The Adjudicator's powers The Adjudicator has wide powers although, in conformity with the Construction Act he must act impartially and may take the initiative in ascertaining the facts and the law. He must reach his decision within 28 days of receipt of the referral. The contract sets out some illustrations of how he may proceed and specifically entitles him to: -open up, review and revise any certificate, opinion, decision, requirement or notice issued, given or made under the Contract -require further information -visit the site -obtain information and advice from others on technical and legal matters -provide for interest to be paid.
• Costs of the adjudication: The parties shall meet their own costs although the Adjudicator may direct who should pay the costs of any test or opening up that is required. The Adjudicator shall state in his decision how payment of his fee and reasonable expenses is to be apportioned as between the parties.
• Status of the decision: The decision is binding until the dispute is finally determined by a court or an arbitrator or until the parties agree after the decision has been given that it shall be permanently binding on them.
• Enforcement: By legal proceedings (not arbitration).

The adjudication provisions set out in Amendment 18 are rather unadventurous but they are probably compliant with the Construction Act.

Arbitration

Amendment 18 deletes the old clause 41 entirely. Not surprisingly, it has adopted the JCT 1988 edition of the Construction Industry Model Arbitration Rules (CIMAR) (please see the article about these Rules in this Bulletin).

Those parties who wish to challenge adjudicators' decisions promptly may now refer all and any disputes to arbitration before Practical Completion.

Arbitrations during the course of the works may prove to create a distraction from the main task in hand, namely getting the project completed.

The payment provisions

Put in simple terms, the payments procedure set out in the amended clause 30 is as follows (with the new provisions in bold):

• Interim Certificates are issued by the Architect at the times specified in the Appendix (clause 30.1.3). Interim valuations are made by the Quantity Surveyor whenever the Architect considers them to be necessary for the purpose of ascertaining the amount to be stated as due in the Interim Certificate (clause 30.1.2.1).
• The Interim Certificates state the amount due, what it relates to and the basis on which it was calculated (clause 30.1.1.1)
• The Contractor may, not later than 7 days before the date of an Interim Certificate, submit to the Quantity Surveyor an application which sets out what the Contractor considers to be the amount of the gross valuation. If the Contractor submits this application, the Quantity Surveyor must make an interim valuation. If the Quantity Surveyor disagrees with the Contractor's gross valuation, then he must point out the areas of disagreement in a statement (clause 30.1.2.2)
• The final date for payment pursuant to an Interim Certificate is 14 days from the date of issue of each Interim Certificate (clause 30.1.1.1)
• If the Employer fails properly to pay what is due to the Contractor by the final date for payment, simple interest will be applied to the outstanding sum at 5% above the base rate of the Bank of England (clause 30.1.1.1)
• The Employer is entitled to withhold money from any amount due under an Interim Certificate (clause 30.1.1.2)
• Not later than 5 days after the date of issue of the Interim Certificate the Employer shall give a Notice to the Contractor specifying the amount he proposes to pay, to what the payment relates and the basis on which it is calculated (clause 30.1.1.3)
• Not later than 5 days before the final date for payment the Employer may give a written notice to the Contractor which specifies any amount proposed to be withheld from what is due, the ground(s) for such withholding and the amount attributable to each ground (clause 30.1.1.4).
• If the Employer fails to pay the Contractor in full by the final date for payment (in circumstances where he has not served a notice of withholding payment under clause 30.1.1.4) and continues to fail to so pay for 7 days after the Contractor has sent him and the architect written notice of his intention to suspend performance of his obligations under the contract and his grounds for so doing, then the Contractor may suspend performance until payment in full occurs (clause 30.1.4)

The provisions in clause 30.8 as regards the Final Certificate require similar notices. The final date for payment of the balance due to the Contractor is 28 days from the date of the Final Certificate, and again interest is payable if that sum is not paid by the final date.

Condition 30 now requires at least one and potentially three new notices every time an Interim Certificate is to be issued - namely the notice of payment, the notice of withholding payment and the Quantity Surveyor's statement under clause 30.1.2.2.

However, it may be that the JCT envisaged that the Interim Certificate itself would satisfy the requirements of the notice of payment (set out in clause 30.1.1.3), the only difference being that it is the Architect who issues the Interim Certificate and the Employer who must indicate how much he intends to pay. There may not be a necessity for a separate notice.

The right to suspend performance

The statutory right to suspend performance of all its obligations under the contract if the Contractor is not paid the right amount on the final date for payment is enshrined in clause 30.1.4. As required by the Construction Act the Contractor must give the Employer at least 7 days written notice of his intention to suspend performance; under JCT '80 the notice must also be given to the Architect.

Also in accordance with the Construction Act, the Contractor is given an extension of time for any period of suspension. Section 112(4) of the Construction Act states that any period during which performance is suspended "shall be disregarded in computing for the purposes of any contractual time limit the time taken...to complete any work directly or indirectly affected" by the suspension.

The JCT has gone a step further and included any delay arising from the suspension as a Relevant Event in clause 25.4.18. This will mean that if the period of the suspension in fact causes a delay which is in excess of the actual period of suspension, then the Contractor will be entitled to an extension of time which reflects the delay rather than the period of suspension. Of course the actual delay may be less than the period of suspension, in which case the extension of time may be less. However, it may be that, if an Architect awards less time, he will not be complying with the Construction Act which directs that the period of suspension shall be disregarded and thereby may impose a minimum amount of time which can be awarded and thus prevent the Architect from awarding less. However, as there is no sanction in the Construction Act for parties whose contracts do not comply with the provisions regarding suspension, it is difficult to see how far such arguments can take one - unless it is to the courts.

The JCT has also included a provision entitling the Contractor to his loss and expense arising out of a suspension, so long as the suspension was not "frivolous or vexatious". Of course, the Construction Act gives the Contractor the right to suspend for the most technical breach of the basic obligation to be paid the right amount at the right time. If a Contractor suspended because he was owed £2.50, this may be considered frivolous.

The right to suspend has also been woven into clause 28 - the right to determine. Thus, a period of suspension may become a right to determine the contract if it continues for the sufficient period specified by the contract.

Information Release Schedule

In Amendment 18, the JCT has tackled the problems which can arise relating to the provision of information.

In the Articles of Agreement, there is an additional sixth recital which states that "the Employer has provided the Contractor with a schedule ("Information Release Schedule") which states what information the Architect will release and the time of that release." Where the sixth recital has not been deleted, clause 5.4.1 places an obligation on the Architect through the Employer to ensure that the information referred to in the Information Release Schedule is released at the time stated in it. The Information Release Schedule can be varied from time to time provided that the Employer and the Contractor agree to the variation - such agreement is not to be unreasonably withheld or delayed.

If further drawings or details are required by the Contractor, the Architect must provide them and must do so at a time when it is reasonably necessary for the Contractor to receive them. This imposes an onerous duty on the Architect to be aware of the Contractor's progress and requirements for information. The Contractor, however, simply has a duty to inform the Architect of what he requires and when, if he has "reasonable grounds" for believing that the Architect is not aware of these requirements.

The Contractor is entitled to an extension of time and loss and expense if he can show that his progress has been delayed because the Architect has not complied with the dates set out in the Information Release Schedule or with the requirement for further information.

The Information Release Schedule will be welcomed by Contractors. Architects may very well dislike this amendment because it will assist the Contractor in substantiating claims for delay due to late information. No doubt the Information Release Schedule is designed to avoid disputes about the provision of information, but there is clearly room for abusing the system which may cause conflict.

Valuation of variations

The JCT has introduced an Alternative A in clause 13.4.1 which provides that the Contractor shall submit a price for complying with a variation before the work is undertaken. This procedure formalises what often happens in practice.

Advance payment

The JCT has introduced a mechanism whereby the Employer may make advance payment to the Contractor secured by an on demand Payment Bond. The bond itself is fairly standard in its form and provides for minimal conditions to be satisfied by the Employer before the Surety pays out.

Giving or service of notices or other documents

Sensibly, the JCT has stated that an address for service should be agreed but if it has not been agreed, then service is effected by delivery to the addressee's last known principal address or to a company's registered or principal office. Clearly it is best to agree an address for service of notices as the registered office of the company may simply be a box number.

Conclusion

Amendment 18 includes substantial changes to the Standard Form, possibly the most challenging of which - the Information Release Schedule - is not required by the Construction Act. Amendment 18 is the Construction Act and A LOT more.