Procurement Group: Construction Contracts

Constructing Excellence

On Thursday 18th May, the procurement group were joined by Marie-Claude Hemming, CECA, to discuss her work with the CLC on onerous contract clauses. The onerous clauses group grew out of CLC contractual guidance group and their aim is to prevent the use of onerous clauses, improve levels of collaboration and improve outcome quality.

In 2021, the group produced a discussion paper to consider how we can recalibrate contractual custom and practice and plan to develop a collaborative view from industry on fairness, consider existing contract forms and develop collaborative approaches.

Marie-Claude enthused that the group is open to all, if you’re interested, get in touch with her to find out more. However, what she really needs is examples of onerous clauses from across the industry to build evidence of the poor practice that takes place within construction. Please do reach out to her to share (anonymously) your experiences and help to lobby for change!

JCT Constructing Excellence Form of Contract

This form of contract is designed to be used to procure a range of construction work and services and is specifically tailored to promote collaborative working. While it is appropriate for the public sector, it could also be used by Local Authority to partner with suppliers and can be used throughout the supply chain, or as a form of collaborative alliancing contract.

 

This form of contract, while dealing with the usual requirements of a construction project, also contains the contractual principles to support a successful alliance i.e. shared objectives, transparent performance, measurement, aligned commercial interests and collaborative governance, all of which underpin shared risk management.

How Does the Constructing Excellence JCT Form of Contract Differ from Other JCT Contracts?

  • it encourages and underpins collaborative working and the formation of intergreated teams.
  • it introduces the concept of an overriding principle of collaboration, under which parties have to support collaborative behaviour.
  • it encompasses all stages of the supply chain and introduces the idea of a project team, which includes the client, who are required to meet regularly.

 

FAC-1 and NEC Forms of Contract

FAC-1

This form of contract was published in response to the need for a form of framework agreement that is standardised across construction. This was then supplemented by the Constructing the Gold Standard Review.

 

The structure of this contract is to appoint a number of alliancing members with the responsibility to carry out alliancing objectives. Sitting behind that, is the creation of a way in which information can be shared e.g., specified contractual meetings and responsibility to share information and be able to rely on the information from others.

 

Benefits

The main benefit of this form of contract is its compliance with the Construction Playbook, Public Contract Regulations and Constructing the Gold Standard.

NEC4 Alliance Contract

This form of contract is not comparable to FAC-1 as it is an actual works contract rather than a framework arrangement. The NEC4 form of contract attempts to tackle the use of bilateral contracts and acts as a multiparty contract to attempt to enable alliancing by trying to replicate the commercial reality and practicality of projects.

NEC4 Agenda
  1. Multi-party contracting. This is the NEC’s version of alliancing and recognises the issues with bilateral contracting and that a project is a team effort.
  2. Building a team. Early contractor involvement and supply chain engagement are required, with timetabled inputs that facilitate collaboration.
  3. Avoiding blame culture. In attempting to avoid blame culture, this form of contracts states that parties are only to be held accountable if they are in willful default. This means that the client has to accept a large amount of risk as they are ultimately responsible. This is also true of a dissolvement of a team- should they choose to no longer work together, they can choose to disband the team, leaving the client with nobody to finish the project.
  4. Incentivisation. This contract uses joint incentivisation to encourage teams to meet their objectives. To achieve this a client must be set from the outset and any savings within this are shared by all parties.
  5. Client risk. Client’s hold a large amount of the risk in this form of contract in order to avoid blame culture. This is something that must be considered when setting contracts.
Key Takeaways

The positive features of all these contracts centre around the need for communication and collaboration, including open discussions around risk and alternative dispute resolution.

 

There is a need to identify what onerous clauses are- what should not be included in a contract. Providing this information will enable a better understanding and awareness of unnecessary contract clauses and how to avoid them.

 

The industry would benefit from a unit to oversee the application of clauses to check for onerous clauses and potentially apply penalties to those using them. This would need legislative input.

 

470 thoughts on “Procurement Group: Construction Contracts”

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