Jacob Austin 00:00:00 Hi All! Jacob Austin here from QS.Zone. And welcome to episode 107 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 107 is all about JCT. 24 subcontracts. Picking up on some of the changes that are starting to be made by clients and main contractors alike, and what those changes mean for you. Thanks for joining me today, and as ever, if you're new to the show, then please do subscribe for more user friendly advice on all things subcontracting. So let's begin now. The JCT 24 isn't a revolution, Evolution is an evolution of the previous set of conditions. It builds on it rather than rebuilding it. But typically our main contractor friends and clients are already rolling out their new schedules of amendments. Some of them are helpful and typically some of them are less so. So today, I'm walking you through ten areas that are reportedly being consistently tweaked on JCT. 24 subcontracts think DB, sub 24 and friends. And what those tweaks will mean for you and the risk that you hold as the subcontractor.
Jacob Austin 00:01:35 Firstly, two quick points to note on the new standard forms the JCT has introduced and baked in a duty to work in good faith and in a spirit of trust and respect, which is article three of the contract. This is a bit of a mirror to the NEC suite of contracts, and it's a good sentiment, but don't let it think that this clause is going to change the way the contractor will deal with you when things go awry because, let's face it, the clues in the name contractors contract and the introduction of a spirit of trust and respect doesn't mean you shouldn't respectfully gather your records and submit notices when you need to. The other point is that email and e signing are now a mainstream part of the contract, and as a result, most notices can go by email and even critical notices if the parties opt in and set up recipient addresses in the contract particulars, that can be really useful, but it can also be dangerous depending on how it's dealt with. And that very mechanism is going to be item number one of our list of ten.
Jacob Austin 00:02:43 So let's dig in. And first off those email notices what's being changed. While main contractors and clients are standardizing email only service, that means where it's issued to and critical notices by email, but sometimes to a single generic inbox or via a portal that you might not regularly check. They may also be stipulating that your notice has to land in a precise format, whilst theirs can be served to any address on record. Now why does that matter? Well, with email notices enabled with separate concepts for standard and critical notices, that is good progress. But if it's tilted in a one sided fashion, it can uproot your extension of time or access to additional money in a claim situation. Now, perhaps there is some good reason behind there being a standard email address because, say somebody goes on holiday, somebody leaves the business, those notices will continue to flow into the correct email address and still be valid. So on the one hand, they're doing something sensible that might actually help you as well as protect themselves.
Jacob Austin 00:03:50 So this makes it really important that you know where your notices need to be submitted to, because you could fall down on a technicality by sending it to the project manager, sending it to the shows, the people that you're dealing with on a day to day basis without copying in that all important email address that makes it a valid notice. If it's not a valid notice, you probably lose the claim. If notices have to be via a portal, then request a backup option is there. If the portal is down, then email needs to count instead. And when it comes to the format of the notice itself, my suggestion is that both sides of the table need to provide the same thing. Keep it fair, and keep it simple by having the same requirements. So if your notice needs to quote clause numbers and package references from a program, then so must theirs. And if they feel like they can't adhere to it, then why should you? On to item number two extension of time. Decision time scales.
Jacob Austin 00:04:48 The decisions are faster, but the time bars are faster as well. What's being changed? So both employers and contractors are leaning into the faster timescales outlined in JCT 24. They want your particulars quickly and they shorten the windows even more on response time and time to provide further information. So this matters because under JCT. 24 the employer must ask for more information within 14 days and decide an EOT within eight weeks, which is a reduction from 12 weeks. All of that is good in theory, but only if you serve compliant notices on time. Now, the tighter timescale requires you to keep better records speculatively so that you can start using and relying them if you need them. And you also have to have a really clear map from when the event happens to when you submit a notice to when you start submitting particulars, and any further information you need to make sure that that fits with the requirements of your contract. Given that contractors are likely to have tinkered with the submission requirements, moving on to item three relevant event and relevant matters.
Jacob Austin 00:05:59 Time without money switches, so relevant events and relevant matters have been introduced for dealing with unknown asbestos or contaminated material that's discovered on site, which is sound enough. But then epidemics and changes in law or guidance after the base state have got a relevant event and an optional relevant matter. So if those options aren't selected in the subcontract, then you don't have the entitlement to the additional cost. Now, it's likely that the main contractor will replicate downstream the same conditions that they've got to their client. Perhaps this is something you could check when you look at their particulars in your inquiry document, and make sure that you're being dealt with in the same fashion. Next item number four design liability a stealthy return of fitness for purpose. This is one that happens outside of the actual contract document. And I suppose it's been happening this way for a long time, but you should keep your eyes open for it all the same. the JCT. 24 clarifies that the design duty is one of reasonable skill and care, and clearly not fitness for purpose, but what is happening is within separate scopes technical specifications, performance guarantees and warranties that fitness for purpose is creeping back in as a requirement.
Jacob Austin 00:07:21 This clearly matters because any whiff of fitness for purpose can strip out the validity of your pie insurance, especially with fire and cladding exclusions. So this is one to be vigilant on. You need to check what the documents say and exclude fitness for purpose from wherever you find it. And you need to make sure that the JCT 24 wording, which states no greater duty than reasonable skill and care, is left unamended. Collateral warranties and guarantees need to align exactly with that wording under the subcontract. Moving on to number five pie insurance. Assurance. Now, this one is quite a sensible one for me. What employers and contractors are wanting to see is that there is a detailed P.I. schedule that clearly states the exclusions. Be it cladding, fire, combustible facades, if those aren't clearly listed out, and then they see your policy document later with something else, then they will demand specific top ups at your cost. And they would be entitled to do that under the contract. So this is a point of warning. Make sure that your specific pie details are submitted to the contractor with your bid.
Jacob Austin 00:08:36 Make sure that they're then put into the contract. Those are important sub limits and exclusions that the contract now recognises may happen, but they only become valid if you record it within the contract. Then there's a further thought on commercially reasonable terms and rates. Certain sub limits and exclusions may be required to source insurance at those commercially reasonable prices and that reflects the real market. So you need to use that when it comes to renewing your insurance. If you can no longer obtain reasonably priced insurance without limits and exclusions, then make sure you demonstrate it and make use of the clause. Moving on to item number six liquidated damages after termination. Now, there was a reasonably recent decision on a case between Triple Point Technology Inc. versus PTT Public Co Limited, and it was determined in the UK Supreme Court. And this held a decision that confirmed that liquidated damages clauses would apply up to the date of termination of a contract. So imagine that you failed to meet a date and liquidated damages start becoming due. Well, one thing that the contractor might do is cancel your involvement in the contract and start appointing somebody else to pick up your scope of work and see out the contract.
Jacob Austin 00:09:59 Now, once they've done that, they then have to claim actual damages rather than liquidated damages and prove any loss that they have in order to do so. Now, the court will override that if you've agreed in writing something else. And this is a point where you'll want that standard understanding to apply. So you want to see that liquidated damages apply up to the date of termination. Now, liquidated damages prompts a further thought in that depending on your trade, you might be holding a disproportionate amount of risk for liquidated damages to the value of the contract that you're completing. So this is your opportunity to have a sensible conversation with the contractor about what they should be able to deduct from you if you get things wrong. And by that I mean, what can you sensibly cap your liability at that's palatable to both parties? Acknowledging that the liquidated damages could soon rack up a big bill in relation to your subcontract sum? Now let's move on. Number seven payment termination and the Construction Act, JCT 24 has tidied up its clauses to align with the HGCRA or Construction Act, but main contractors are often rewording termination payments and leaving ultra late pay less notice procedures in place in their schedules of amendments drifting away from the scheme within the Construction Act.
Jacob Austin 00:11:21 So here is where you need to cross-check the bespoke statement against what the Construction Act says. If they're non-compliant. The scheme may step in. You might think that sounds good for you, but if there is some kind of discrepancy, then there is some kind of room for a lawyer to get involved and waste a load of money arguing about it. Keep the final dates clear. Keep them aligned with the Construction Act, and certainly don't allow P1 certified upstream to creep in anywhere within the payment mechanics. Item number eight program and float ownership and concurrent delay. A potential clause that erases your vote so quietly in the background. Some main contractors and clients are adding clauses that say that neither the contractor or the employer owns the float. All float and the concurrent delay results in no extension of time. Now, these lean on a Court of Appeal decision between North Midland building and Sidon Homes, and that confirmed that parties can validly agree that concurrent delay won't give the contractor extra time and that upholds that regardless of any other principles.
Jacob Austin 00:12:35 If something is written down and agreed upon and signed by both parties, then they can basically agree what they want, even if it deviates from the norm or from the law. So this matters because if the contract gives all of the float to the contractor, then your program buffer becomes their tool to absorb changes, but you can still face liquidated damages if completion slips and worse, a concurrency exclusion can wipe out your entitlement to EOT. Even where there's a genuine employers or contractors risk that impacts the program, so you just lose the time. Now, it's probably out of laziness, and it's probably out of wanting to pay the least money and be able to claw back the maximum leads. And that likely arises from the client rather than the contractor. But none of that makes it reasonable. And if the contractor is unwilling to strike out concurrency exclusions altogether, then a fairer version would be aligning to the Malmaison approach, where if there is a concurrent cause of delay, then time is granted without any money, so you don't get paid, but at least you don't get punished.
Jacob Austin 00:13:43 Now, on the ownership of float, it feels unfair that if you've earned float of your own, that the contractor can erode it and then still potentially take liquidated damages if they delay you. So if there is an insistence that the contractor owns the float, then it would be fair for there to be a mutual rule that instructions that they issue can't force consumption of that float without an extension of time. Now, there's more to say on these two items, but that's probably best left for another episode so that I can keep this list fairly swift and punchy, and I may well come back and do a more detailed review on that in the future. So moving on to item nine on building safety duty holders. So what is changing here is that clauses trying to dump certain parts of the principal designer or principal contractor's duties into the specialist subcontractors camp, or blur the lines so that you look like you've accepted them without noticing. Now, this can be important to you because the duty holders obligations are quite significant, and you could be inheriting some compliance risk that you didn't price and didn't know about.
Jacob Austin 00:14:52 The principal designer and principal contractors responsibilities are to act as an additional check and to carry additional responsibility if things go wrong. So it's important for you to clarify these out. State expressly that you are not the principal contractor or the principal designer. Limit your design. If you are carrying out design to reasonable skill and care, and to compliant with your own defined scope without any implied PD or PC role. And finally, then item number ten on warranties, third party rights and the net contribution. Tug of war. So what is happening here? Funders and clients love collateral warranties, and they want them completed as a 12 year lasting liability deed. And since the Supreme Court's Abbey healthcare decision, warranties were more than likely not to be classified as construction contracts for adjudication purposes, so adjudication isn't a default option for dispute resolution. So, unsurprisingly, some client organizations are trying to add in adjudication rights as an explicit right under a collateral warranty. And at the same time, employers are trying to strike out net contribution clauses which insurers and designers are trying to put back in.
Jacob Austin 00:16:15 So why does this matter? The net contribution principle means that if you cause only a slice of a wider issue, then you would only be liable for the amount of that slice. So let's say 20% of an issue. 20% of the costs would return to you or be paid by you without a net contribution clause. You could end up jointly and severally liable for 100% of a loss, even if you only caused that 20% slice. So clearly you're going to want a net contribution clause within the warranty. And if you can't have one, then you want a cap on your liability and you want some proportionate liability wording with some linkage back to the subcontract sum. As far as adjudication is concerned if adjudication is added to the warranty. You want to see that the jurisdiction and notice mechanics are a mirror of your subcontract. I can't quite decide whether it's good or a bad thing to have adjudication. It is a cheaper method of resolving a dispute than the court itself, so it might be a blessing to have it there as long as it's approached in a sensible way.
Jacob Austin 00:17:23 But there we have it. Ten points for you to consider when entering into a JCT 24 contract. JCT 24 does give you some genuine upgrades. We're talking quicker decisions, modern ways to issue notices, clearer design risk signals. But the real game is being played as ever in the amendments. The standard form might be the pitch. The schedules of amendments are where someone quietly moves the goalposts, narrows the crossbar and increases the size of the goalkeeper's hands. What you need to do is try and get back to regulation size before kick off. Hopefully, today's episode will open your eyes to some of the potential amendments that are being made and try and keep you aware and profitable in our ever challenging industry. Hope you've enjoyed the show! My mission with the podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to somebody else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already.
Jacob Austin 00:18:30 And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at. www.QS.Zone for more information or you can check us out on your favourite socials again at QS.Zone. Thanks. I've been Jacob Austin and you've been awesome!
