Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world

Why Amending The JCT Forms Of Contract Is Not For The Faint Hearted!

January 29, 2020 | Silver Shemmings

When discussing how a project will be procured clients assume more often than not that we will suggest amending the standard form being proposed and that any amendments will run to a number of pages which is often longer than the standard form itself. This is in large part because the JCT suite of standard forms is very balanced in terms of risk transfer and is not designed to push all of the risk onto the contractor which is what most clients seek to do.

However, drafting amendments to any standard form requires a great deal of thought and care, particularly when seeking to amend standard forms such as the JCT not least because of the amount of cross referencing between the different clauses. It is not for the faint hearted.

If a client is insistent that the standard form does not represent the particular project or relationship it wishes to have with its contractor, then it is important to start in broad terms by looking at the client itself and its appetite for risk before honing-in on its aims in relation to the particular project. In this way an outline of the necessary amendments can be agreed before the specific drafting begins.

One example of where this approach was not followed is University of Warwick v Balfour Beatty Group Ltd. [2018] EWHC 3230 (TCC). This case, although successful ultimately for the University of Warwick, illustrates the pitfalls of not thinking broadly about the aims to be achieved before wading in and amending a standard form.

Warwick University employed Balfour to design and build a National Automotive Innovation centre on its campus site under a JCT 2011 Design and Build contract. Under the contract, the works were divided into four sections and provision was made for liquidated damages in the event that the completion of each section was not achieved by the completion date.

The issue in this case concerned the definition of Practical Completion and the operation of the liquidated damages provisions.

Clause 1.1 defined Practical Completion as:

“…a stage of completeness of the Works or a Section which allows the Property to be occupied or used…”

Property was “comprised of the completed Works.”

Clause 2.27.1:

When Practical Completion of the Works or a Section is achieved and the Contractor has sufficiently complied with clause 2.37 and 3.16.5, then:

  1. in the case of the Works, the Employer shall forthwith issue a statement to that effect (‘the Practical Completion Statement’) and the Employer shall from such date be entitled to enter and take possession of the completed Works with effect from such date;
  2. in the case of a Section, he shall forthwith issue a statement of Practical Completion of that Section (a ‘Section Completion Statement’);

and Practical Completion of the Works of the Section shall be deemed for all the purposes of this Contract to have taken place on the date stated in that statement.

Balfour contended that the liquidated damages provision relating to each section was inoperable because it was not possible to separately achieve Practical Completion of a section prior to Practical Completion of the whole of the Works.

In the first instance, the Adjudicator agreed with Balfour. He stated, “…the words used in the definition of Practical Completion…stipulates that an individual section only achieves practical completion at a stage of completeness which allows the completed works to be occupied and used.”

The thrust of the adjudicator’s argument is that reading Clause 1.1 in tandem with Clause 2.27.1 establishes that Practical Completion required the employer to be entitled to occupy the Works. But such entitlement under Clause 2.27.1 occurs only if there is completion of the entirety of the Works. It must be the entirety and not a particular section because the definition of Property in Clause 1.1 implies that what must be occupied is the whole of the Works rather than a particular section.

HHJ McKenna, sitting in the TCC, disagreed and allowed Warwick University’s declarations. He held that the Balfour’s construction of Practical Completion did not accord with the ordinary meaning of the words used in the contract. In particular, he stated that the construction focused too much on the meaning of one word, ‘Property’ without regard to what the parties plainly meant in the wider context of the contract. This was evident from the fact that the terms and structure of the contract clearly showed that the parties wanted to allow for the completion of the sections prior to the overall completion of the Works. For instance, the provisions for liquidated damages provided different rates for each of the four sections. Use of the word ‘allow’ meant that it was not necessary for the Property to be complete or ready for occupation. It was sufficient that the sectional work was at a stage where it permitted or enabled the final stage of completion to be achieved in due course.

The result here is unsurprising. The TCC made clear that business common sense supported a construction that made sense of the regime for sectional completion. However, HHJ McKenna was also keen to stress that this was not a case where he was giving effect to an apparent intention of the parties notwithstanding the actual words used in the contract. Rather, this was a case where the actual words of the parties in the wider context of the contract trumped a construction that relied on the definition of ‘Property’ in Clause 1.1 to the exclusion of other provisions in the contract.

Although the University of Warwick was ultimately successful, this case highlights the challenges faced by parties wishing to amend a standard form. Consideration needs to be given not just to the specific clauses which are being amended but how the particular amendments fit within the whole. Therefore, it is paramount to start from a broad perspective and work inwards rather than the other way around.

Author Harriet Butterfield is a barrister of twenty years call with over fifteen years experience in the construction and engineering sector advising and representing a variety of clients in construction and engineering, energy and utilities on the full breadth of transactional and contentious matters

Her clients in the construction sector include employer and contractor organisations in the residential, commercial and infrastructure sectors. When the need arises, she has extensive experience in all forums of ADR including representing clients in over two hundred and fifty adjudications and three arbitrations

At Silver Shemmings Ash, we provide seminars and training alongside our core activities in contentious and non-contentious matters. The purpose of these is to facilitate a greater knowledge and understanding of construction and property law. There remains a considerable lack of training in such areas for companies and this is an issue which we are looking to address.

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