jct assignment clause

STEPHENSON HARWOOD

06 Aug 2021

Assignment under JCT: a costly lesson for beneficiaries

In the recent judgment of Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC), the TCC has taught a costly lesson to the beneficiary of a purported assignment who was seeking to pursue a claim against a contractor under a JCT building contract.

The crux of the case depended on the interpretation of an assignment provision in the contract that permitted the Employer to assign the right to bring proceedings in its name to a subsequent owner of the property. Despite the clause first featuring in the JCT standard form in 1987, there had been little commentary on it prior to this case.

Background to the claim

A developer called Camstead Limited employed Shepherd Construction Limited to demolish an existing building and construct new self-contained student apartments in Cambridge pursuant to an amended JCT Design and Build Contract 2005 Edition.

After completion of the works, the freehold interest in the property was conveyed twice, first to an investor called RMB and then to Aviva.

Following the tragic Grenfell Tower fire in 2017 and subsequent government guidance relating to fire risk assessments, Aviva investigated and identified various fire safety defects at the Property. Aviva issued proceedings against Shepherd in September 2020 and relied on a deed of assignment between Aviva and Camstead that purported to assign to Aviva the full benefit of the JCT contract and the right to bring proceedings. The deed of assignment was executed at or around the same time as the issue of the court proceedings in which Aviva advanced claims for damages of over £4 million, being the alleged cost of the necessary remedial works.

The court applications and assignment provisions

The judgment deals with two interim applications, the first from Aviva to join Camstead as a Claimant and the other from Shepherd to strike out Aviva's claim.

It was Shepherd's case that there was no valid assignment and so no basis to join Camstead. This argument turned on the proper interpretation of two clauses under the JCT contract, namely:

Clause 7.1.1 (amended from the standard form): " The Employer shall be entitled upon giving the Contractor 14 days' written notice of its intention to do so, to assign the benefit of this contract by absolute assignment to any person (save any to whom the Contractor makes reasonable objection in writing before the expiry of the said period of 14 days) and in this contract the term "Employer" shall be construed accordingly. "
Clause 7.2 (unamended from the standard form): " Where clause 7.2 is stated in the Contract Particulars to apply then in the event of transfer by the Employer of his freehold or leasehold interest in or of a grant by the Employer of a leasehold interest in the whole of the premises comprising the Works or (if the Contract Particulars so state) any Section, the Employer may at any time after practical completion of the works or of the relevant Section grant or assign to any such transferee or lessee the right to bring proceedings in the name of the Employer (whether by arbitration or litigation whichever applies under this Contract) to enforce any of the terms of this Contract made for the benefit of the Employer… "

The TCC noted that whilst clause 7.1.1 required Camstead to give notice of the assignment and in effect to seek Shepherd's consent, that restriction was limited in practice because Shepherd could only raise a reasonable objection once that notice was given. However, on the facts of the case, Aviva accepted that there had been no assignment under clause 7.1.1 because no notice of the purported assignment had been given to Shepherd. In the words of the TCC, Aviva had therefore 'pinned its colours to the mast' by relying on a purported assignment under clause 7.2 instead.

In response, Shepherd submitted that clause 7.2:

only permitted assignment to the first assignee (i.e. not Aviva who was the second owner of the Property); and/or
only allowed proceedings to be commenced in the name of Camstead as the original Employer under the JCT contract.

The TCC (Mrs Justice Jefford) agreed with Shepherd's arguments.

First, the TCC found that clause 7.2 is expressly concerned with a transfer by the Employer of a freehold or leasehold interest and there was " no wording that would encompass a subsequent transfer by [the first] transferee to another ". A distinction was therefore drawn between (a) the initial transfer of the freehold interest of the Property from Camstead to RMB and (b) any subsequent transfer of the freehold interest. Accordingly, the purported assignment from Camstead to Aviva, as the second owner of the Property, could not take effect under clause 7.2. The TCC went on to say that, even if clause 7.2 could be interpreted as applying to subsequent owners as well as the first transferee, it would nevertheless make commercial sense for it to be construed in a limited way. This is because, if clause 7.2 permitted Camstead to assign to any subsequent owner without consent, it would render clause 7.1.1 largely superfluous.

Secondly, the TCC found that " all that can be assigned [under clause 7.2]… is the right to bring proceedings in the name of the Employer " (emphasis added). Thus, the claim should have been brought in the name of Camstead, and Aviva could not advance a claim for its own losses. The TCC came to this conclusion because that is what the clause says and, if clause 7.2 permitted Camstead to assign to a subsequent freehold owner the right to bring proceedings and claim that subsequent owner's losses, it would have the effect of permitting an assignment of the benefit of the JCT contract without notice or consent, which would again render clause 7.1.1 pointless.

In light of those findings, the TCC accepted Shepherd's application to strike out Aviva's claim and denied Aviva's application to join Camstead to the proceedings.

Practical lessons

The TCC's primary finding that clause 7.2 only permits an assignment to the first assignee, and not any subsequent assignees, limits its application significantly. Had Aviva had the benefit of a valid assignment under clause 7.1.1 (i.e. with notice), it would not have needed to rely on clause 7.2 and that would have ultimately saved its claim from being struck out. This case is therefore a salutary reminder to ensure that you comply strictly with the assignment clause, or else risk having no recourse should things go wrong.

The other decision from the TCC that clause 7.2 only permits the assignment of the right to bring proceedings in the name of the Employer is perhaps unsurprising given the clause's clear and unambiguous wording. However, it does call into question what purpose the clause has if the assignee cannot rely on an assignment under clause 7.2 to bring a claim for its own losses. The TCC's response to this is that such an assignment gives the assignee the right to enforce the obligations of the Contractor after practical completion, such as the obligations to make good defects or to pay liquidated damages for delay. Further, although not addressed in the judgment, it is possible in limited circumstances for an Employer to recover losses sustained by a new building owner. However, the claims that a new owner can bring pursuant to a clause 7.2 assignment are not as far-reaching as might have been expected. It follows that the new owner would be well advised to seek an assignment under a provision like clause 7.1.1 instead.

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Paul Thwaite Partner

T: +44 20 7809 2341 M: +44 7881 913 246 Email Paul | Vcard Office: London

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JCT Design and Build Contract

In this article I’ll discuss the principles of Design and Build Contracts by reference to the Joint Contracts Tribunal (JCT) suite of contracts. This is followed by a clause by clause guide to using the JCT Design and Build Contract.

Chapter 1 – Introduction to the JCT Design and Build Contract

What is Design and Build Contracting?

“Design and Build is a contractual arrangement in which the contractor offers to design and build a project for a value inclusive of both the design and construction costs.”

In Design and Build Contracting there is reference to three key stakeholders:

The Employer – the client for the overall project
The Contractor – the Main Contractor on the project
The Subcontractor(s) – any Subcontractor(s) employed on the project

The simple concept that makes Design and Build Contracts different to traditional is that the Employer seeks to transfer more design responsibility to the Contractor. The Contractor has greater design input on a Design and Build Contract than with the traditional procurement route . Under the JCT Design and Build Contract, the Contractor has an equal-level of design responsibility as the Architect.

Design and Build is a modern Procurement Route in construction , unlike in other industries where it has been in use for a long period of time. Construction has lagged behind due to the emergence of architecture as a profession that has led the industry for the majority of the past century.

Chapter 2 – Where to find key Clauses

It can be difficult to identify Clauses in the JCT Design and Build Contract with ease. The table below extracts the page number and Clause reference for the important day-to-day Clauses.

Chapter 3 – How to use the JCT Design and Build Contract?

The JCT Design and Build Contract is a detailed and lengthy contract with over 100 pages, but it is designed to be simple to navigate if you know where to look. The Contract is split into three sections; the Articles of Agreement; the Conditions and the Schedules.

These sections are further broken down into subsections. Using the table below, the key Sections, Subsections, Clauses and Page numbers are identified based on the 2016 edition of the JCT Design and Build Contract.

Chapter 4 – Navigating and Understanding the JCT Design and Build Contract

1. the articles of agreement, articles of agreement and recitals (pages 1 – 2).

This section of the Contract is where you will find details of the date of the Contract and who the parties to the contract are – their registered company name, registered address and company registration number.

The Articles (pages 3 – 5)

There are nine different Articles included in this section of the contract and in effect the Articles provide headline details on the major agreements within the Contract. A description of each is provided in the table below:

The Contract Particulars (pages 6 – 17)

The Contract Particulars in the JCT Design and Build Contract state the aspects of the Contract that are bespoke and particular to the specific project. This section includes:

Where to find the Employers Requirements and Contractors Proposals
Where to find the Contract Sum Analysis (breakdown of the price of the works)
The Date for Completion of the Works
The Date for Possession of the Site
Sectional Possession and Sectional Completion dates
The rate of Liquidated Damages
The length of the Rectification Period
The Retention percentage

The Attestation (pages 18 – 24)

The Attestation pages are the area of the Contract where the signatures and details of the individuals who signed the contract can be found. You will also find whether the Contract is signed under hand or as a Deed .

There are key differences between contracts signed as a Deed or Under Hand . Executing a contract as a Deed means that the limitation period for starting legal proceedings for a breach of contract is significantly longer – 12 years rather than six if signed underhand.

2. The Contract Conditions

Clause 1 – the definitions and interpretations (pages 25 – 31).

This section deals with how the Contract is to be interpreted by the parties and potentially by any third party in the event of a dispute.

The Definitions explain the formatting of the Contract. For example, when a word or phrase in the Contract starts with a Capital Letter this is a defined term in the Contract. This means the term can be defined by the list of definitions on Page 25 of the Contract, which explain exactly what that word means in the context of the Contract.

Knowledge of this fact makes understanding and using the Contract much easier. Here are some examples:

“ Contract Sum ” is defined in the Contract as “the sum stated in Article 2”.
“Business Day” is defined as “any day which is not a Saturday, a Sunday or a Public Holiday”

With regards to Interpretation , pages 29 to 31 detail how the Contract and the terms and conditions within it are to be interpreted. This is useful to understand in the event there is a disagreement regarding any matters during the project.

An example of its application could be used in the event there is a disagreement about the Scope of Works:

The Employer states that a brick wall is included in the Scope as it’s shown in the Contract Scope of Works document.
The Contractor states the brick wall is excluded by referring to an email where it was excluded during Tender Stage. This email excluding the brick wall is however not included in the Contract.

In this case, Clause 1.3 of the JCT Design and Build Contract regarding Interpretation is useful as it states:

“The Agreement and these Conditions are to be read as a whole. Nothing contained in any other Contract Document or any Framework Agreement, irrespective of their terms, shall override the Agreement or these Conditions.”

This means that the Contract Document is the entire agreement between the two parties and only documents included within it are relevant. Therefore, the Contractor’s email excluding the brick wall is irrelevant as it’s not a Contract document.

An understanding of the Interpretation clauses is important as it allows the parties to understand what the agreement is with clarity. It’s good practice to refer to this section before signing a Contract.

Clause 2 – Carrying out the Works (pages 32 – 41)

Clause 2 of the JCT Design and Build Contract lays out what the Contractor’s obligations are. Clause 2 includes many Clauses and Sub-Clauses which define the criteria under which the Works will be completed. The Clauses are summarised below:

Contractor’s Obligations – Clauses 2.1 and 2.2 are focused upon the minimum expectations of the Contractor for the Works with a failure to meet the requirements effectively being a breach.

The Contractor under Clause 2.1 is required to “complete the Works in a proper and workmanlike manner” and to comply with the Laws of the country, including Health and Safety while Clause 2.2 focuses on materials, goods and workmanship selection in order to ensure these are suitable.

For example. the Contractor is obligated to “take all reasonable steps” to make sure its employees and operatives working on the project hold Construction Skills Certification Scheme (CSCS) cards which, in theory, would increase the quality of the workmanship and Health and Safety practices across the project.

Possession – Clauses 2.3 to 2.6 detail the process of the Employer handing over the site to the Contractor. From the Date of Possession, the Contractor is obligated to “regularly and diligently proceed” which means that the Contractor must maintain regular progress of the Works. This wording obligates the Contractor to work every day moving forward until the works complete.

Clause 2.4 also states that if the Contract Particulars allow it, the Employer can delay the Date of Possession by up to six weeks.

Contract Documents – Clauses 2.7 to 2.9 provide an explanation on where the contract Documents shall be held; what constitutes construction information and also how the site boundaries are defined. It’s is key that, on the Date of Possession being provided to the Contractor, the Employer should have already defined the site boundaries to the Contractor.

Discrepancies and Divergences – Clauses 2.10 to 2.16 are important clauses in respect to the commercial management of the project.

Given large volume of documents included in the contract, there will be a discrepancy between contract documents. These Clauses explain how to manage discrepancies and confirm who is responsible and whether the matter constitutes a Change that often leads to an impact in terms of time and money.

An example of the application of this Clause is as follows:

If the Contractor identifies a discrepancy within the Architect’s Drawings (Employer’s Requirements) the Contractor is to notify the Employer of this and can confirm the cost of both and their intention to complete the cheaper option. If the Employer chooses the more expensive option, this is treated as a Variation to the contract sum .

Design Work, Liabilities and Limitation – Clause 2.17 allows the parties to understand the Design Liability and Limitation of the Contractor under the JCT Design and Build Contract. The Contractor has major obligations and the same level of responsibility as the Architect under a JCT Design and Build Contract. This is confirmed by the following wording:

“…the Contractor shall … have the same liability to the Employer … as would an architect or other appropriate professional designer…”

Fees, Royalties and Patent Rights – Check this Clause to understand the impact of Fees, Royalties and Patent Rights deriving from the design works. What the contract says here is that any Royalties or Fees (relating to the Employer’s use of the design) are deemed to be included by the Contractor in the Contract Sum and cannot be charged as extra.

Unfixed Materials and Goods – property, risk etc. – This Clause relates to ownership and payment of Materials on and off site as well as who holds the risk for damage to these materials.

Where payment for materials on site has been made, the materials become the property of the Employer and ownership of the materials is transferred. In terms of which party is responsible for loss or damage to them once ownership is transferred, check which Insurance Option, B or C, has been selected in Schedule 3 ( Insurance Options ).

Adjustment of Completion Date – More commonly referred to as Extension of Time , the Adjustment of the Completion Date Clauses are found from 2.23 to 2.25. These are some of the most important and commonly used Clauses in the Contract as they explain the grounds upon which a Contractor must submit a Notice of Delay and how a Contractor is able to adjust the completion date (apply for an extension of time ).

Often, the Commercial success of a project hinges on the Contractor making regular Notices of Delay. Read our article on Giving Notice for more information on this.

Relevant Events – A Relevant Event is an event during the progress of the works that causes a delay to the completion date and potentially gives the Contractor rights to request an Extension of Time . Clause 2.26 defines in detail what constitutes a Relevant Event under the JCT Design and Build Contract. For more explanation of Relevant Events please refer to our article titled the JCT and Relevant Events

Practical Completion, Lateness and Liquidated Damages – These Clauses deal with matters relating to Practical , Sectional and Non-Completion under Clauses 2.27 and 2.28. A key matter which often drives disputes is covered under Clause 2.29 which defines the exact rules that the Employer must follow if they wish to apply Liquidated Damages due to late completion by the Contractor.

Partial Possession by Employer – This Clause allows the Employer to take Partial Possession of the Project during the construction works and before Practical or Sectional Completion .

Taking Possession in “parts” is interesting as in some cases the Employer can request the early Possession of parts of the site and should this happen it can be of benefit to both parties. For the Contractor, it can lead to the early release of retention and a reduction in their insurance obligations and the value of Liquidated Damages.

This kind of arrangement is not uncommon and an example of when this could happen is in the Construction of a Residential Tower. It may be that that the Tower is 10 storeys high and when levels 1 to 5 are finished, the Employer can move tenants in on these floors while Fit-Out works on the upper levels finishes.

Defects – Clauses 2.35 and 2.36 state what the Contractor is required to do upon completion of the project in regard to defects and making good any defects during the Rectification Period . This Period is usually 12, 18 or 24 months long. The length of the Rectification Period is confirmed on page 9 of the contract (in the Contract Particulars).

Contractor’s Design Documents – Clauses 2.37 and 2.38 state how and when the Contractor must provide As Built Drawings which are drawings showing the final details of the project as constructed. These are required as during the construction process elements of the design are often changed on site due to physical constraints not foreseen during design.

As Built Drawings are important and tied to the release of the Practical Completion certificate by the Employer. The Contractor needs to have a procedure in place for managing and issuing As Built Drawings to ensure this does not impact the release of the Practical Completion Certificate.

The Clause also confirms that by signing the Contract, the Contractor grants the Employer unreserved rights to use its drawings and that this will not infringe any Copyright legislation.

Clause 3 – Control of the Works (pages 42 – 46)

Access and Representatives – Clauses 3.1 and 3.2 are very simple and confirm that, always, the Contractor must allow the Employer access to the works and further, that the Contractor must appoint a nominated Site Manager at the start of the Works to be approved by the Employer.

Sub-Contracting – these conditions describe the basis upon which the Contractor can subcontract elements of the work. The Contractor is not permitted to subcontract the whole or any part of the Works and, perhaps more importantly the Design, without the Employer’s prior consent. It is rare for consent to be withheld as the Employer must always act reasonably. However, the terms do require the Contractor to notify and receive consent.

Employer’s Instructions – This section confirms the Contractor’s obligations to comply with reasonable instructions from the Employer. Should reasonable instructions not be complied with in seven days, the Employer can instruct others to complete the works and where an a dditional cost (a cost higher than it would’ve been incurred using the Contractor) is incurred, this can be deducted from the Contract Sum .

The Contractor does have a right to reasonable objection of instructions under Clause 3.9.2 which states that any instruction which alters the standard of any of the materials or goods can be reasonably rejected by the Contractor given their design obligations on the project.

CDM Regulations – Clause 3 refers to both parties’ statutory obligations to one another regarding the CDM Regulations.

Clause 4 – Payment (pages 47 – 55)

Contract Sum and Adjustments – This section of the Contract is all about money and on what grounds the Contract Sum can be adjusted. Clause 4.2 states that the only reasons for adjusting the Contract Sum are for costs associated to the following:

Agreed Variation Works
Agreed Acceleration Works
Agreed Fluctuations (see Contract Particulars)
Agreed Loss and Expense
The Instruction of Provisional Sums

Taxes – Clauses 4.4 and 4.5 refer to the application of VAT and CIS taxes to the Contract Sum.

Payments and Notices – Clause 4.7 to 4.11 deal with the construction payment process under the JCT Design and Build Contract. This payment mechanism is compliant with the most recent UK legislation from 2009, the Local Democracy, Economic Development and Construction Act and the Clauses are summarised as below:

Clause 4.7 – Explains that the Employer shall make Interim Payments to the Contractor and that the Due Date shall be seven days after the Valuation Date and five days later the Employer shall submit their Payment Notice to the Contractor.
Clause 4.8 – This clarifies what must be included in a Payment Notice and that it should show “the basis on which the [payment value] has been clarified.”
Clause 4.9 – States that 14 days after the Due Date the Final Date for Payment falls. This date is the date when the Employer will transfer funds to the Contractor. This Clause references a “ Pay Less Notice ”; for more information on what a Pay Less Notice is refer to our article titled the JCT and Pay Less Notices.
Clause 4.10 – This Clause clarifies the “Pay Less Notice”; for more information on what a Pay Less Notice is refer to our article titled the JCT and Pay Less Notices.
Clause 4.11 – In the event of non-payment or non-compliance with the above-mentioned Clauses, the Contractor has the right to suspend works and the process for doing so is explained in this Clause.

Interim Payments – calculations of sums due – Clause 4.12 to 4.15 identify the different valuation methods available to the parties under the JCT Design and Build Contract.

Listed Items – Clause 4.15 refers to “Listed Items” in the Contract that are pre-agreed items to be included in interim payments for payment off-site. Listed Items will include the value of such materials and once paid, ownership passes to the Employer.

Retention – Clause 4.16 to 4.18 confirms how the Retention value (see 4.18.1 of the Contract Particulars) is withheld and then paid back. During the Contract Works 100% of the retention is withheld form payments and then when the works reach Practical Completion 50% of the retention is released, with the remaining 50% released upon expiry of the Rectification Period .

Loss and Expense – Loss and Expense is cost that results from the impact of Relevant Events . Where a delay event has caused costs for either party this can be claimed as Loss and Expense and added/subtracted from the Contract Sum .

Clause 4.20 clarifies the basis for doing this and states that “as soon as is reasonably” possible the Contractor must notify the Employer of Loss and Expense (also known as a Relevant Matter ) and provide cost advice including any evidence of the costs in support. Within 28 days, the Employer must then reasonably confirm their acceptance or otherwise to these costs.

Final Statement and Payment – Clause 4.24 obligates both parties to act promptly to conclude any commercial discussions after Practical Completion of the Works. The Contractor is required to submit their “Final Statement” (final cost assessment) within three months of Practical Completion and the Employer then has two months to conclude its assessment.

Clause 5 – Changes (pages 56 – 58)

General – This Clause deals with Changes or as they’re more commonly known, Variations. Clause 5.1 clearly defines what matters are considered Variations.

The Valuation Rules – these Clauses deal with how each party must Value the price of any variation and assessment falls under two main headers:

Measured Works (Clause 5.4) – Where there is an increase in the Scope of Works the price should be consistent with the price in the Contract Sum Analysis . For example, if the Contract Sum Analysis says Curtain Walling is charged at £500 per m² and there is an instruction for an extra 10m² this is to be charged at 10m² x £500. If there is no applicable rate in the Contract, then “a fair valuation shall be made” by both parties.
Daywork (Clause 5.5) – Where the works can not be valued in line with Clause 5.4 – perhaps because they’re particularly one-off in their nature, or unique works not included in the Contract – they’re to be valued on a Daywork basis as per the rules in this Clause.

Clause 6 – Injury, Damage and Insurance (pages 59 – 66)

Personal Injury and Property Damage – Clauses 6.1 to 6.6 deal with the Contractor’s obligations regarding Insurance and having suitable cover in place in the event of Personal injury or Property damage. This insurance protection must be held and maintained throughout the lifecycle of the project.

Insurance of the Works and Existing Structures – Clauses 6.7 to 6.14 are to be read in conjunction with the Contract Particulars and the Schedules of the JCT Design and Build Contract. The Contract Particulars (page 13) state which Insurance Option has been selected (Option A, B or C) and Schedule 3 details the implications of implementing this.

Professional Indemnity Insurance – Professional Indemnity Insurance, often referred to as PI cover, must be held by the Contractor to cover its professional expertise in the field of design. The Contractor holds the same level of liability as an Architect under the JCT Design and Build Contract and must hold Professional Indemnity insurance confirming this level of expertise.

Joint Fire Code – compliance – Clauses 6.17 to 6.20 are to be read in conjunction with the Contract Particulars if the particulars state the Joint Fire Code applies. If it does apply refer to these Clauses for its application.

Clause 7 – Assignment, Performance Bonds and Guarantees, Third Party Rights and Collateral Warranties (pages 67 – 69)

Assignment – Assignment is a legal term used in contract and property Law. It is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. The JCT Design and Build Contract does not allow Assignment of the Contract by either the Contractor or the Employer and Clause 7.1 confirms this.

Performance Bonds and Guarantees – Clause 7.3 states that if the Contract Particulars (page 15) confirm that the contract includes for a Performance Bond then immediately upon signing of the Contract, the Contractor is to provide a Performance Bond to the Employer.

Third Party Rights from Contractor and Collateral Warranties – Clauses 7A to 7E deal with the rights of 3 rd Parties to the Contract.

An example of a 3 rd party is a future Tenant or a Funder who may have rights to the Contract at a later stage. These 3 rd parties may need to enforce specific terms of the contract and these Clauses give them the rights to do so.

For example, if the project was supposed to use certain, long-lasting, materials which it does not, these Clauses allow the 3 rd party to enforce a contract term or to highlight a breach.

Collateral warranties are more express agreements associated with specific 3 rd parties such as a known tenant and provide for the duty of care in the Contract to be extended by one of the contracting parties to the 3 rd party (not in the contract). A simple example of the relevance of this is the Design and Build Contractor owes a duty of care to the future occupier of the development in so far as any subsequent defects which may arise are concerned.

As with Performance Bonds and Guarantees, always check the Contract Particulars (page 16) to see which 3 rd Party Rights or Collateral Warranties apply to the specific Contract.

Clause 8 – Termination (pages 70 – 75)

General – This Clause deals with Contract Termination. The JCT Design and Build Contract require one or both parties to meet certain obligations. If these obligations are not met, the parties involved can enforce contract termination Clauses to void and close the contract.

One of the most common reasons for Termination is when one of the parties becomes insolvent and can no longer administer their obligations. Clause 8.1 details what the definition of insolvent means regarding a Company; a Partnership; an Individual or a Person.

Termination by the Employer – Clause 8.4 states the various reasons for which the Employer is permitted to terminate the Contract. The Employer must give notice stating the breach and the Contractor then has 14 days to remedy the breach. If the Contractor does not remedy, the Employer can terminate the Contract “on, or within 21 days from” the expiry of the 14-days.

If the Contractor is terminated, Clause 8.7 details the steps the Employer can take to appoint other persons to complete the works.

Termination by the Contractor – Clause 8.9 states the differing reasons for which the Contractor is permitted to terminate the Contract.

One of the main reasons is a lack of payment in accordance with Clause 4.9. Lacking payment is one of the primary drivers for Contractor Termination and the Contractor must give notice of any breach giving the Employer 14 days to remedy the matter. If the Employer does not, the Contractor has the right to terminate the Contract “on, or within 21 days from” the expiry of the 14-day period.

Termination by either Party – Clause 8.11 deals with more general causes for Termination whereby events outside of both parties’ control occur (i.e. civil commotion, terrorism, government intervention etc.). Where these events cause serious delay to the Contract either Party can give notice of their intention to terminate as per the rules in Clause 8.11.

Consequences of Termination – Clause 8.12 confirms how costs (Loss and Expense) flows as a result of termination and how both parties should act in the case of termination.

If the Contract is terminated by the Contractor – the Contractor must as soon as is reasonably possible (within two months) prepare and submit details of the account including the value of the works completed; the cost of removal from site and any other loss and expense incurred. The Employer then has 28 days to assess the submission and is obligated to reasonably pay what is due.

Clause 9 – Settlement of Disputes (pages 76 – 77)

General – In the event of a dispute, the JCT Design and Build Contract provides three different remedies that are available to the parties to stimulate resolution. Each have their advantages and disadvantages and are more suited to certain applications which should be considered dependant on the context of the dispute.

Mediation – The JCT Design and Build Contract advocates the cheapest and quickest route. Mediation is a structured process where a neutral 3 rd party (The Mediator) assists the parties in resolving the dispute through specialist negotiation techniques.

The problem with Mediation is that the result is non-binding and the Mediator cannot impose a decision on the parties. Any settlement must be on the basis that the parties voluntarily agree to accept it. With more contentious or high-value matters this is unlikely.

Adjudication – Adjudication is another common form of dispute resolution that became familiar in UK construction with the implementation of the 1996 Housing Grants Construction and Regeneration Act. Adjudication is quick and relatively inexpensive but is still likely to be costlier for both parties than Mediation depending on the complexity of the issue.

Clause 9.2 details how the parties can instigate Adjudication and refers to the Contract Particulars for details of who the nominated contract Adjudicator is. The benefit of using Adjudication over Mediation is that the decision is binding. However, it’s possible for the ruling to be overruled if the dispute is referred to Arbitration or litigation (Court).

Arbitration – This is a form of alternative dispute resolution which enable the parties to resolve disputes outside the courts. Arbitration sees any dispute being concluded by Arbitrators (a panel of one or more persons) and the decision is legally binding and enforceable. Clause 9.3 details the procedures and roles of both parties and the Arbitrator under the Contract.

The Contract Schedules

Schedule 1 design submission procedure (pages 78 – 79).

This section of the Contract is where you will find details on exactly how the Design Submission Procedure works and how the parties are to interact during the design stages of the project.

The Conditions state that:

The Contractor shall submit its drawings to the Employer
Within 14 days of receipt of these drawings, the Employer shall communicate to the Contractor, whether the document is considered to be A, B or C Status Contractor.

What do these statuses mean?

A Status: The document is 100% perfect and the Contractor can proceed.
B Status: The Contractor can proceed with the document but must incorporate the comments of the Employer.
C Status: The Contract cannot proceed and must resubmit the document for approval.

A practical note here is that this process can be mis-used to the detriment of the Contractor and progress of the works. Please consider therefore, that the Employer is only able to mark a document with a B or C status where:

“the Employer [expressly confirms] that it is not in accordance with the Contract”

Therefore, the Employer must explain – by reference to the Contract – exactly why the Design Submission is not suitable. The Employer cannot simply state B or C status on the grounds of whether they like the design for example.

Schedule 2 Supplemental Provisions (pages 80 – 85)

This section details Supplemental Provisions that are to be used in the Contract if the Contractor Particulars state they’re to be used (see page 6, 7 th Recital). Where these Supplemental Provisions are stated as “Apply” then the Terms included in the Schedule become enforceable conditions to be followed by both parties.

Schedule 3 Insurance Options (pages 86 – 88)

In Clause 6 of the Conditions it is noted that Insurance Options A, B and C could be chosen at the outset of the Contract. Schedule 3 simply details what the practical implication of the various options are and how they’re enforced. Refer to page 13 of the Contract Particulars to see which Insurance Option applies to the specific contract.

Schedule 4 Code of Practice (page 89)

The Code of Practice is a Schedule which relates to Clause 3.13.3 of the Conditions (page 45) for Work that is not considered to be in accordance with the Contract and is designed to make the operation of opening or testing the Works simple and standardised. This Clause provides a detailed procedure of what to do in this instance.

Schedule 5 Third Party Rights (pages 90 – 94)

This Schedule refers to Clause 7 of the Conditions regarding 3 rd Party Rights. Check the Contract Particulars (page 16) to see which, if any, 3 rd Party Rights apply to the specific Contract and then follow this Schedule for the procedure for applying the rights.

Schedule 6 Forms of Bond (pages 95 – 103)

The JCT Design and Build Contract simplifies the process of using bonds in the Contract by providing standard templates for; Advance Payment Bonds (Part 1); Off-Site Material Bonds (Part 2) and Retention Bonds (Part 3) within Schedule 6.

Check pages 10 to 12 of the Contract Particulars to see whether Bonds apply to the Contract and if so, use these standard templates to implement them.

Schedule 7 JCT Fluctuations Option A (pages 104 – 107)

On very large schemes which last for several years, the JCT Design and Build Contract has a Fluctuations provision. Fluctuation provisions provide a mechanism for dealing with the effects of inflation which on major, long-lasting projects, can be significant.

On larger schemes, the contractor can provide a tender based on current prices and then the Contract, using Schedule 7, makes provision for price fluctuations to specified items over the duration of the project.

The Fluctuation Clause in the JCT is almost exclusively limited to larger projects as with shorter projects, the Contractor is deemed to have included for any minor fluctuations within their Contract Sum. To see if the Fluctuation provision applies in the Contract check page 10 of the Contract Particulars.

Chapter 5 – Summary and Conclusion

Since inception, the JCT Design and Build Contract has grown in popularity and usage in the UK Construction Industry. There are few Employers who dislike the Contract as it provides a high-quality alternative to the Standard Building Contract and offers increased cost certainty from an earlier stage.

This form of contract is however complex and must be studied in detail at tender and contract execution stage so that both parties understand their obligations under the Contract form.

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Assign of the times? JCT clause 7.2

The assignment clauses

The dispute.

clause 7.2 only envisaged assignment to the immediate (or first) assignee;
the clause only allowed proceedings to be commenced in the name of the original Employer (i.e. Camstead); and
any proceedings could only be for losses suffered by the original Employer.
" all that can be assigned, as the clause [7.2] says, is the right to bring proceedings in the name of the Employer " and so any claim would have had to have been brought in the name of Camstead; and
" There is no wording that would encompass a subsequent transfer by [the transferee of the original Employer] " as in the clause " [t]he words "any such" plainly refer to the person to whom an interest has been transferred or granted by the Employer " (i.e. not by any other party). Therefore, only the first transferee/assignee, Hotbed, could bring such a claim in the name of the Employer.

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Practical Law

What are the benefits and disadvantages of the JCT's assignment provisions?

Practical law resource id a-037-9972 (approx. 5 pages), what are the benefits and disadvantages of the jct's assignment provisions.

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Assignment, construction law, and legal black holes: another illustration

David Sawtell is a barrister at 39 Essex Chambers and PhD student at the University of Cambridge.

David Sawtell

Time to read

The decision of Jefford J in Aviva Investors Ground Rent Group GP Ltd v Shepherd Construction Ltd [2021] EWHC 1921 (TCC) illustrates one of the potential difficulties encountered when the current owner of a building, who was not the original contracting party with the contractor, seeks to bring a claim for construction defects. The new building owner has a loss in the form of remediation costs, but no contractual claim. The original employer has the benefit of the contract, but no practical interest in bringing a claim. An assignment of the original employer’s rights to the current owner is a commonly used device to bridge that gap, which has sometimes been described as a ‘legal black hole’. The Aviva v Shepherd case demonstrates some of the difficulties that may be encountered in the process.

The importance of assignment

Subject to limited exceptions, the normal rule in English contract law is that for a party to bring a successful claim for breach of contract, they have to be a party to that contract. There are many reasons, however, why a contracting party may want to allow another party to take on their right to claim under a contract. In construction, the party engaging the contractor (the employer) might want to allow a new owner of the building to claim for any breach of contract against the contractor in their own name. Subject to any contractual prohibition, it is generally possible for the employer to transfer the benefit of the construction contract to the new owner by way of assignment.

By an assignment, the party who has suffered the loss can acquire the benefit of the construction contract. The original employer is often not the party who now owns the building suffering from construction defects. The party with the claim for breach of contract would not be the party who has suffered the loss. The danger is that the financial loss for the cost of remediating those defects may “ disappear . . . into some legal black hole, so that the wrongdoer escaped scot-free ” (Lord Keith of Kinkel in G.U.S. Property Management Ltd. v. Littlewoods Mail Order Stores Ltd 1982 SLT 533, 538). The House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd accepted that the original contracting party may be entitled to enforce against the contractor on behalf of the third party. This option, however, may not be open to the new owners. The original employer might not exist anymore or be insolvent, or otherwise unwilling or unable to bring a claim on behalf of the new owners. Instead, it is often preferable for the new owners to have the benefit of the construction contract themselves by way of an assignment.

The law of assignment is, however, technical. As Hudson on Construction Contracts (14 th edition, Sweet & Maxwell, 2021) accurately reflects at paragraph 9-002:

“The pitfalls associated with the assignment of the benefit of quality obligations have not yet been resolved so satisfactorily. The standard forms of contract have not solved all of them, nor have they been solved by legislation.”

The facts of the case

The claimants in Aviva v Shepherd had to overcome a contractual prohibition on the employer being able to assign the benefit of the construction contract. The House of Lords in Linden Gardens upheld the validity of such prohibitions on contractual assignments. The standard form construction contracts (including the commonly used JCT contracts) reflect the fact that the contractor will want to deal with the original employer during the construction phase, but that the employer may well want to assign the benefit of the construction contract after practical completion. If the assignment was invalid, then the Aviva claimants had no claim.

The original employer, Camstead Ltd, had engaged Shepherd to build new student apartments in Cambridge. After practical completion, Camstead conveyed the freehold interest in the property to a group of companies. The freehold was conveyed a second time to the Aviva claimants. It was then discovered that the building had a number of construction defects relating to both fire safety and other issues.

Camstead entered into a deed of assignment with the Aviva companies, transferring its rights under the contract. The Aviva claimants issued proceedings against Shepherd. Shepherd applied to strike out the claim on the basis that there was no valid assignment from Camstead to the Aviva claimants.

The ultimate conclusion of the case was that the new owners of the building had failed to circumvent the prohibition on assignment and that consequently the assignment from Camstead to them was ineffective, leaving them without a claim.

The prohibition on assignment

The contract in the Aviva v Shepherd case contained a slightly modified form of the standard JCT wording, at clauses 7.1.1 and 7.2.

Clause 7.1.1 stated that, “ The Employer shall be entitled upon giving the Contractor 14 days’ written notice of its intention to do so, to assign the benefit of this contract by absolute assignment to any person (save any to whom the Contractor makes reasonable objection in writing before the expiry of the said period of 14 days) and in this contract the term “Employer” shall be construed accordingly .”

Clause 7.1.1, therefore, allowed the original Employer to assign the benefit of the contract to any person before or after practical completion, but only upon giving notice to the Contractor, Shepherd, who was able to make a reasonable objection.

Clause 7.2 stated that, “… in the event of transfer by the Employer of his freehold or leasehold interest in or of a grant by the Employer of a leasehold interest in the whole of the premises comprising the Works or (if the Contract Particulars so state) any Section, the Employer may at any time after practical completion of the works or of the relevant Section grant or assign to any such transferee or lessee the right to bring proceedings in the name of the Employer (whether by arbitration or litigation whichever applies under this Contract) to enforce any of the terms of this Contract made for the benefit of the Employer …..”.

Clause 7.2 provides for an exception to the requirement for notice and implied consent under Clause 7.1.1: after practical completion of the works and in the event of the original Employer transferring their freehold or leasehold interest in the premises, the Employer could grant or assign to that transferee or lessee the right to bring proceedings in the name of the Employer without notice to or consent from the Contractor.

No notice of the assignment to Aviva had been given. It was accepted that they could not rely on Clause 7.1.1. The question for Jefford J was whether they could, instead, rely on Clause 7.2.

The answer to this turned on its correct interpretation. For a number of reasons, it was held that the assignment was ineffective and that Aviva therefore did not have a claim against Shepherd. The main point for Jefford J was that the reference to ‘the Employer’ in Clause 7.2 was held to be to the original employer. The transfer of the freehold to Aviva was not from Camstead, but from a subsequent transferee. Clause 7.2 did not encompass a transfer from that first transferee to a second onward purchaser. That was enough to dispose of the claim. Jefford J then went on to hold that, in any case, all that Clause 7.2 allowed to be assigned was the right to bring proceedings in Camstead’s name, as opposed to bringing them in the Aviva claimants’ own name.

No assignment of the tortious claim

The Aviva companies’ argument that Clause 7.2 did not prohibit an assignment of any rights in tort was also rejected. It was unclear how far this argument would have got the Aviva companies in any case: following Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9 , it was extremely doubtful that Shepherd owed Camstead a relevant duty of care in tort. Jefford J noted that there was no apparent authority as to whether these clauses prohibited transfers of claims in tort. She ultimately concluded that any duty that Camstead could rely on would only arise from the existence of the contract and the contractual obligations. This was a benefit of the contract which was therefore caught by Clause 7.1.1.

Conclusion - technical difficulties

The technical difficulties encountered by the Aviva claimants were real ones. It is quite common for contracts and collateral warranties to contain a prohibition on onward assignment of the benefit of the construction contract to subsequent transferees after the first transfer from the original employer to a new lessee or freehold owner. This can be overlooked in company group restructuring or in other conveyances. Assignment provisions need to be read carefully and complied with to avoid falling into the kind of pitfalls encountered in this case. Unfortunately, this is yet another illustration of the potential obstacles that a subsequent owner of a defective building might face when seeking to recover their losses from the original contractor.

How to cite this blogpost (Harvard style)

Sawtell, D. (2021) Assignment, construction law, and legal black holes: another illustration. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2021/08/assignment-construction-law-and-legal-black-holes-another (Accessed [date])

Sheffield (Head Office)

How to successfully claim and manage change under jct (article 73).

Date: 07 Apr 2022

Download: How_To_Successfully_Claim_And_Manage_Change_Under_JCT_%28Article_73%29.pdf

Categories: Commercial, Contractual, Planning & Programming | Articles

Introduction

Change, in its broadest sense, commonly arises during the life of a Construction Project.

This “ Change ” could be a change in scope, quantity or how the work can be carried out which may or may not have a financial impact. However, “ Change ” can also be the Contractor being on site longer than anticipated or the Contractor may become entitled to loss and expense which changes the overall project value.

Every Contract should contain mechanisms that set out the procedures for claiming and managing change. In this article, we will consider change in terms of alteration to scope, quantity, quality, methodology and the like (what is commonly referred to as “ Variation ”) we will also explain how change should be presented and claimed under the JCT Suite of Contracts.

What is Change?

“ Change ” or “ Variations ”, as they are often referred, are modifications to the Contract Works. These changes may be to a Party’s performance under the Contract, for example, the addition, omission or alteration of work or the conditions to which the work is to be carried out. Changes can be instructed by the person administering the Contract or may be deemed Variations for example, compliance with a new Statutory Requirement. The Contractor is required to adhere to Statutory Requirements so has to incorporate changes as necessary, regardless of whether an instruction has been received.

The most commonly used standard forms of Construction Contract all contain express provisions to claim and manage change. These “ Variation ” clauses enable these changes to occur in a manageable straightforward manner. Without such provisions, introducing a change can be complicated and time consuming, as it would require changing the initial agreement itself or entering into an entirely separate Contract.

Change under JCT

As with most Standard Forms of Contract, the JCT Suite of Contracts contain provisions which enable “ Variations ” to be made. Each of the JCT Contracts provides its own specific definition of what a change is and the process of managing and valuing change.

The JCT Design and Build (DB) Contract 2016, for example:

“ The term “Change” means:

The addition, omission or substitution of any work;
The alteration of the kind or standard of any of the materials or goods to be used in the works;
The removal from site of any work executed or Site Materials other than work, materials or goods which are not in accordance with this Contract;
Access to the site or use of any specific parts of the site;
Limitations of working space;
Limitations of working hours; or
The execution or completion of the work in any specific order ”.

The JCT Standard Building Contract (SBC) and Intermediate Building Contract (IC) contain similar definitions but use the term “ Variation ” as opposed to “ Change ”.

The JCT Minor Works Building Contract 2016 (MW) contains a simplified mechanism:

Clause 3.6.1

“ The Architect/Contract Administrator may without invalidating this Contract issue instructions requiring an addition to, omission from, or other change in the Works or the order or manner in which they are to be carried out (a ‘variation’). ”

It is important that the Parties to a Contract are familiar with the specific obligations with regards to Change/Variation and understand what constitutes a Change/Variation under that Agreement.

Managing Change Under JCT

Each of the JCT standard forms of Contract specifies how changes are to be managed and each standard form contains slightly different mechanisms, terminology, and obligations. However, the different JCT forms all generally contain a similar approach.

Below are some of the requirements contained within the JCT Standard Building Contract (SBC) With Quantities 2016, which address the management of change:

Clause 2.15 requires the Contractor to notify the Architect/Contract Administrator, with appropriate details, as soon as it becomes aware of any departure, error, omission or inadequacy of the Contract Bills and Contractor’s Design Portion-related documents (Employer’s Requirements). This is to ensure any discrepancies are dealt with at the earliest opportunity, enabling changes in cost and/or time can be managed accordingly.
Clause 3.10 places an obligation on the Contractor to comply with all instructions issued to him by the Architect/Contract Administrator, save for the exclusions identified within Clause 3.10.
Should a Contractor not comply with an instruction within 7 days, Clause 3.11 allows the Employer to employ and pay others to execute work of any kind that may be necessary to give effect to that instruction. The Contractor shall be liable for all additional costs incurred by the Employer in connection with such employment, and an appropriate deduction may be made from the Contract Sum. This provides the Employer with further surety that changes will be incorporated into the Project.
Instructions are often provided that are not in writing, for example verbal instructions. To ensure that these changes are captured, Clause 3.12 stipulates that the Contractor shall confirm the terms of an instruction in writing to the Architect/Contract Administrator within 7 days. Should the Architect/Contract Administrator then not dissent by notice to the Contractor within 7 days from receipt of the Contractor’s confirmation, the instruction shall take effect as from the expiry of the latter 7-day period.

Valuing the Change

Once Entitlement to Change / Variation has been established, valuing the Change needs to be considered. At this point it should be noted that not every Change results in a change to the Contract Sum.

Prior to valuing Change / Variation under JCT Contracts, the following factors need to be considered:

The character of the work. Is the change similar in character to works undertaken elsewhere?
The conditions of the work. Dependent on the stage of the works when the change is required, may mean that access is constrained and/or productivity is reduced, potentially bringing about an increase in the cost to undertake the change.
The quantity of work undertaken. The volume of work required under the Change may have an effect of the cost of the works, due to economies of scale. For example, if a plasterer is instructed to carry out 1m2 of plastering in isolation, the cost per m2 will likely increase significantly compared to carrying out, say, 100m2.
It may be prudent to ascertain if the Change will impact on Preliminaries and a decision may be required as to how to present such a claim. Unlike NEC the time impact of a change does not necessarily need to be considered and presented at the time as a claim for Change is presented.

Each of the JCT Contracts contains is own requirements when valuing a change. However, generally the Valuation Rules are:

Where the Contract contains a Bill of Quantities, a Schedule of Work or a Contract Sum Analysis, the works requiring a change should be measured and quantified using the same rules of measurement as that used to establish the rates in Bills of Quantities, Schedule of Work or Contract Sum Analysis. For example, if a Bill of Quantities contains a m3 rate for excavating trenches, any variation requiring excavation works should be measured on the same basis and not deviated to an alternate measurement for instance a linear metre rate.
In situations where the change effects a lump sum item, allowances or percentage adjustments are to be applied from the Bills of Quantities.
Where the Contract contains approximate quantities, if the approximate quantity identified in the Contract is a reasonable forecast of the quantity of work undertaken, then the rate in the Bills of Quantities are to be used in the valuation. Should the approximate quantity in the Contract not be a reasonable forecast of the actual work carried out, the rate in the Bills of Quantities should be used as a basis for the valuation and a fair allowance made for the change in quantity.
Should a Change not be of similar character to work set out in the Contract priced documents, the Change is to be valued at fair rate and prices.
In some circumstances, usually due to the nature of the work in question, change may be valued on a “daywork” basis, which is a resource time, plant, and materials utilised basis usually calculated on the basis of pre-agreed rates or pre-agreed percentage uplift to demonstrable costs.

When it comes to claiming and/or managing change under JCT, there is not a “ one size fits all ” approach. Each of the JCT Contracts provide its own definition of what constitutes a change/variation, although they clearly follow a broadly similar approach.

The parties need to ensure they are comfortable with the provisions of its individual Contract when it comes to managing a change, to ensure that the correct Notices are submitted and the correct procedures are followed. Similarly, the valuation rules of any change will also be identified within the Contract, giving parties guidance on how any change is to be valued and these should be followed to avoid disagreements.

Some practical tips for managing change are:

Ensure that you can link the claimed change to an instruction or a new Statutory Requirement.
Advise as soon as possible of a change or a potential change.
Follow the valuation mechanisms correctly.
Provide sufficient information and make any presentation easy to follow (marked-up drawings, relevant correspondence and instructions, photographs, provide a brief narrative explanation of the change, wherever possible refer sums claimed back to the original contract).
Include any change into any interim account claim / application for payment.
Provide evidence of actual cost if possible.
If valuing change as a daywork, ensure the daywork sheets are signed and the correct rates and percentage uplifts are utilised.

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The wrongs of assigning rights

JCT assignment provisions seldom fall under the court’s microscope. This makes a recent TCC decision about such clauses in the context of whether an employer could be joined to a cladding claim all the more important. This is not a final judgment but is instead a consideration of an interim strike out application involving Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC).

In 2007, the defendant contractor (“ Shepherd ”) entered into a standard form JCT Design and Build Contract 2005 edition (the “ Contract ”) with the employer (“ Camstead ”) to build student flats in Cambridge. The Contract was made under seal for which the limitation period is 12 years.

There were five sections of works which achieved practical completion between September 2008 and April 2009. Camstead transferred the freehold in 2009 to a group known as the “Hotbed companies” who sold it on to the claimants (“ Aviva ”) in 2012.

Following updated government guidance on fire safety in January 2020 in the wake of the 2017 Grenfell tragedy, Aviva investigated the cladding and allegedly identified defects.

In September 2020, Aviva and Camstead entered into a deed of assignment. This purported to assign to Aviva the full benefit of the Contract and the right to bring proceedings.

At the same time as entering into the purported assignment in September 2020, Aviva issued proceedings against Shepherd for c. £4m in relation to remedial works arising from the alleged defects. Aviva notified Shepherd of the purported assignment three weeks later.

In January 2021, Aviva applied to join Camstead as a claimant; CPR 19.5(2) provides for the addition of a party to proceedings after the end of any relevant limitation period. Shepherd cross-applied to strike out the proceedings under CPR 3.4(2) on the basis that no reasonable grounds had been disclosed to bring the claim because there was no basis to join Camstead, no valid assignment and therefore Aviva had no right to bring the claim. They succeeded.

JCT assignment clauses

Two assignment clauses were scrutinised. Clause 7.1 gave the employer (Camstead) the right to assign the benefit of the Contract to any person: (i) if it provided 14 days' written notice to the contractor (Shepherd); and (ii) subject to any reasonable objection by the contractor before the expiry of the 14 days.

The Judge, Mrs Justice Jefford, referred to a hypothetical position in which there was no reasonable objection as meaning the contractor was giving implied consent. The unamended form of clause 7.1 provided that “neither the employer nor the contractor shall assign the contract or any rights under it without the written consent [our underlining] of the other” .

Clause 7.2 (which was in its unamended form) applied if the employer transferred the freehold or leasehold and entitled the employer to assign to "any such” transferee or lessee, the right to bring proceedings in the employer’s name to enforce the contract.

Aviva accepted that the lack of notice (or consent) required under 7.1 meant there had been no valid legal assignment of the right to sue but argued that there had been a valid equitable assignment under clause 7.2.

The decision

The Judge found that, under clause 7.2, only the right to bring proceedings in the name of the employer could be assigned; thus proceedings had to be brought in Camstead’s name. Aviva was the wrong claimant. Furthermore, the words of the clause meant that the right could only be assigned to the first transferee, Hotbed. The clause could not be construed in a way which would cover the subsequent transfer by Hotbed to Aviva. Further, the clause did not permit an equitable assignment of the benefit of the contract (without notice or consent). Otherwise, this would mean the limitation in clause 7.1 would have no substantive effect since the employer would always be able to assign in equity, to any future owner, the right to bring proceedings without notice or consent.

She also found that clause 7.2 expressly concerned the assignment of contractual rights and was not a basis for an assignment of rights in tort.

It is, the Judge decided, “ inherently unlikely ” [our underlining] that a contractor will “ owe a duty of care to the employer to prevent or avoid economic loss ”. Why, asked the Judge, would a contract prohibit the assignment of causes of action in contract without consent but leave the possibility that a cause of action in tort could remain? The reality is that any duty in tort will generally coexist with a duty in contract and so assignment of that right would be subject to the terms of the deed. While it is conceivable that certain specific circumstances might give rise to a cause of action in tort, independent of contract, no such duty had been pleaded by Aviva.

There was no valid assignment from Camstead to Aviva and therefore no reasonable grounds to bring the claim. The Judge refused Aviva’s application under CPR 19.5(2) to join Camstead to the proceedings after expiry of the limitation period and granted Shepherd’s strike out application under CPR 3.4(2).

Another decision in the context of losses arising from potential cladding and fire safety risks. However and importantly, the Judge has only concentrated upon a narrow aspect of what was involved being contract interpretation or limitation on a summary basis. The court did not consider the wider issues which will be looked at if or when a claim proceeds to trial.

This case is of interest to practitioners, developers and contractors alike. It provides some analysis of the JCT forms addressing the importance of notice, consent and how the transfer of assignments are treated. It demonstrates the importance of checking the status of the claimant and the effect of clause 7.2. It is easy to overlook wording which has remained in place for 34 years with scant judicial consideration.

For further examples in our series of articles focussed on cladding related claims, see our articles about RG Securities and Martlett Homes .

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UK: The Wrongs Of Assigning Rights

JCT assignment provisions seldom fall under the court's microscope. This makes a recent TCC decision about such clauses in the context of whether an employer could be joined to a cladding claim all the more important. This is not a final judgment but is instead a consideration of an interim strike out application involving Aviva Investors Ground Rent Group GP Limited and Aviva Investors Ground Rent Holdco Limited v Shepherd Construction Limited [2021] EWHC 1921 (TCC).

Following updated government guidance on fire safety in January 2020 in the wake of the 2017 Grenfell tragedy, Aviva investigated the cladding and allegedly identified defects.

In September 2020, Aviva and Camstead entered into a deed of assignment. This purported to assign to Aviva the full benefit of the Contract and the right to bring proceedings.

JCT assignment clauses

The decision

The Judge found that, under clause 7.2, only the right to bring proceedings in the name of the employer could be assigned; thus proceedings had to be brought in Camstead's name. Aviva was the wrong claimant. Furthermore, the words of the clause meant that the right could only be assigned to the first transferee, Hotbed. The clause could not be construed in a way which would cover the subsequent transfer by Hotbed to Aviva. Further, the clause did not permit an equitable assignment of the benefit of the contract (without notice or consent). Otherwise, this would mean the limitation in clause 7.1 would have no substantive effect since the employer would always be able to assign in equity, to any future owner, the right to bring proceedings without notice or consent.

She also found that clause 7.2 expressly concerned the assignment of contractual rights and was not a basis for an assignment of rights in tort.

There was no valid assignment from Camstead to Aviva and therefore no reasonable grounds to bring the claim. The Judge refused Aviva's application under CPR 19.5(2) to join Camstead to the proceedings after expiry of the limitation period and granted Shepherd's strike out application under CPR 3.4(2).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Challenging final statements under JCT contracts

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20 December 2021

Under Construction - Q4 2021 – 1 of 4 Insights

Construction contracts generally provide mechanisms for the payment of the final account to the contractor once completion of the works and correction of any defects has occurred.

Concerning Joint Contracts Tribunal (JCT) contracts, the conclusivity provisions mean that the final account process can be determinative of certain matters between the parties and so prevent challenge unless the final statement is disputed in accordance with the contract procedures. The Technology and Construction Courts (TCC) has recently provided guidance on whether issuing proceedings is necessary to prevent a final statement becoming conclusive under a JCT Design and Build contract form.

Raffaele Mincione, the Employer, engaged CC Construction Ltd, the Contractor to carry out the design and build of the shell and core of a new house under a JCT Design & Build Contract (2011) edition.

Following practical completion on 15 November 2019 and the expiry of the Rectification Period on 15 November 2020, the Contractor submitted a Final Statement on 5 October 2020 in the sum of £479, 957. But, it was alleged that the Employer did not receive it.

The rectification period expired on 15 November 2020 and the Contractor subsequently re-submitted its final statement to the Employer, attaching the letter of 5 October 2020, which the Employer received on 4 December 2020.

The Employer disputed the final statement by email on 18 December 2020 which said "I give notice that I dispute the content of the final statement in its entirety". He further asserted that liquidated damages were in fact due to him in the sum of £340,000 for delays in completing the works.

The Contractor alleged that the Employer's email was not effective in disputing the final statement because the effect of the inclusion of the words "subject to clause 1.8.2" in clause 4.12.6 of the contract meant that in order to prevent a Final Statement becoming conclusive, the Employer also had to begin proceedings by adjudication, arbitration or otherwise

The parties brought a claim to the TCC to address, among other things, whether the Employer's email of 18 December 2020 was sufficient to dispute the Contractor's final statement and so prevent its conclusivity.

Decision

HH Judge Eyre QC concluded that a "reasonable recipient of the Employer's letter of 18 December 2020 would be in no doubt that the Employer was disputing the Final Statement" [94]. The letter therefore was an effective notice of dispute.

In interpreting clause 4.12.6 of the Building Contract, the judge concluded that the phrase "subject to clause 1.8.2" actually applied to the words that followed it, rather than words that preceded it. Clause 1.8.2 is another mechanism to prevent a Final Statement from being conclusive but only applies in circumstances where proceedings are already 'in play' before a due date and is intended to "prevent the outcome such proceedings being forestalled by the issue of a Final Statement".

Clause 4.12.6 therefore provided two alternative routes for preventing a Final Statement from conclusive, namely a notice disputing the statement or the issue of proceedings before the due date. The inclusion of the words "subject to clause 1.8.2" was simply to "make it clear that that the operation of clause 1.8.2 is not affected by clause 4.12.6". In other words, if a party does not issue a notice disputing a final statement before proceedings that are then in play at the time of a due date, then that does not mean that the final statement will then become conclusive and supersede the outcome of those proceedings. So, as a matter of language, "clause 4.12.6 provides for different rather than cumulative means of preventing a Final Statement".

Comment

The judge's decision indicates it is not necessary to issue proceedings following a notice disputing a final statement to prevent it from being conclusive. A written notice can be sufficient in disputing a final statement, provided that the notice provisions of a contract are always followed. But, as ever the circumstances of the matter must be considered carefully before issuing such a notice.

While Judge Eyre's decision may seemingly do away with the 'two stage process' as previously thought to be the case, it may be that there is still some benefit in continuing on that basis. In circumstances where the parties have taken completely polarised positions, and are entrenched on those views, it may be beneficial to refer the matter to an adjudication anyway to obtain a final determination on the matter, rather than engage in protracted commercial negotiations about the final account.

Also, it remains unclear about the extent of detail or information a party should give when disputing a final statement if it only relies on a written notice. Nevertheless, it can be concluded that a notice disputing a final statement must be drafted clearly and unequivocally in terms of its purpose with reference to clause 4.12.6.

To discuss the issues raised in this article in more detail, please reach out to a member of our Construction team.

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JCT contracts—termination

Produced in partnership with dac beachcroft.

The JCT contracts contain detailed provisions for termination, setting out the grounds on which the parties may terminate and the consequences thereof. Under the JCT contracts , it is the Contractor’s employment that is terminated, rather than the contract itself. This distinction is designed to ensure that the post-termination provisions contained in the contract survive termination.

This Practice Note refers to the clauses set out in the JCT Standard Building Contract (SBC) With Quantities 2011 and 2016 editions, but comparable provisions are found within the other JCT contracts. It should be read alongside Practice Note: Termination of a construction contract.

Termination should always be considered very carefully. If the termination is wrongful, or the correct procedures are not followed to the letter, the purported termination may amount to a repudiatory breach of contract by the party seeking to terminate. In any event, if the other party disputes the purported termination, the terminating party could find itself involved in a costly dispute.

In this regard, it is important to be aware that, under the JCT contracts:

a notice of termination must

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Understanding Retention Clauses in JCT Contracts

I. introduction.

Understanding the nuts and bolts of retention in construction contracts is a prerequisite for practitioners in the construction field, particularly those dealing with JCT contracts . The primary purpose of cash retention is twofold: it provides a security for the completion of works and rectification of defects, and it serves as a monetary incentive for the contractor to fulfill their obligations.

Retention provisions in building contracts , specifically in various JCT standard form contracts like JCT minor works , JCT intermediate , JCT design and build , and JCT management contract , play a vital role in managing both the expectations and liabilities of the contracting parties. The nuances of these provisions, from retention percentages to retention release post-practical completion and making good defects, require careful navigation.

II. Retention Provisions in JCT Contracts

Retention provisions in JCT contracts act as a security blanket for employers, ensuring the completion of work and rectification of defects. These provisions are customizable and can vary based on the specific type of JCT contract .

A. Standard JCT Retention Clauses

Standard JCT contracts typically stipulate a default retention of 3% if not otherwise specified. This is deducted during interim valuations except in cases where amounts are stated as retention-free. The release of retention is contingent on two milestones: 50% at practical completion and the remaining after issuing a defects liability certificate.

B. Variations in Other JCT Contracts

Variations exist in other forms of JCT contracts , like JCT minor works and JCT intermediate , where the default retention stands at 5%. JCT design and build and JCT management contracts have unique structures for valuations, payments and retention applications.

Understanding the intricacies of JCT standard form contracts is integral to the smooth operation of construction projects. In these contracts, the retention particulars are clearly defined. Generally, the retention percentage is specified in the contract. Retention bond requirements are also outlined therein. If these details are not explicitly mentioned, a default retention of 3% is applied.

Interim valuations deduct retention, barring amounts stated as retention-free.
There is a structured release of retention , with 50% released at practical completion .
The remaining 50% is released upon issuing the making good defects certificate. This encourages defects rectification .

There are considerable variations in retention provisions across different JCT contracts , each catering to specific project needs.

JCT minor works have a default retention of 5%. However, there are no retention bonds available. Half of the retention is released upon practical completion .
In JCT intermediate contracts, the retention percentage, similar to minor works, is set at 5% by default. However, the calculation is based on the amount paid, not the amount withheld.
JCT design and build contracts exhibit differences in valuation and payment notices, which may impact the retention process.
Lastly, the JCT management contract stipulates a separate retention for works contractors, different from standard provisions.

Understanding these variations is crucial for both contractors and employers to ensure proper management of construction retention.

III. Key Considerations

When dealing with retention provisions in JCT contracts , key aspects demand attention.

A. Financing and Insolvency Risks

Both the employer and contractor face potential insolvency risks. The cash retention held by the employer deemed a trustee for the contractor under JCT standard form , often isn’t in a separate account.

B. Administration for Release

Effective administration for retention release is crucial, especially as personnel might change between project completion and retention release. Proper records can mitigate this risk.

C. Dealing with Defects and Latent Defects

Defects, including those appearing later ( latent defects ), can delay retention release. Although small retentions might not incentivize defects rectification , contractors remain entitled to release after fulfilling obligations.

D. Alternatives to Cash Retention

Consider bond alternatives for contracts with low retention amounts, like in some JCT minor works or JCT intermediate contracts. But, always weigh the risks of removing cash retention.

Studying the dynamics of building contracts , a critical risk that emerges pertains to financing and insolvency. In the context of JCT standard form contracts, the employer may fall into insolvency before the release of retention. This poses a significant risk as the contractor may then struggle to recoup the held-back retention amount.

The scenario can also flip, with the contractor becoming insolvent before rectifying defects, which they are obligated to do under the defects liability clause.
This is where JCT contracts exhibit their unique feature – the JCT management contract deems the employer as a trustee for the contractor. However, a potential pitfall here is that these funds are often not held in a separate account.

Understanding these risks is vital in navigating the complexities of JCT design and build , JCT minor works , and JCT intermediate contracts.

Managing the release of retention in a JCT contract is no small task, and it’s one that can be hampered by personnel changes. It’s not uncommon for the team handling a project at the time of practical completion to be different from the one present during the defects rectification period.

To navigate these challenges, maintaining accurate and comprehensive records is paramount. These should include details about the initial building contract , progress reports, and any communications regarding the retention. This information plays a crucial role in administering the release of retention funds in the JCT standard form , JCT minor works , JCT intermediate , JCT design and build , and JCT management contracts .

Remember, a well-documented project can mitigate potential disagreements and ensure a smooth transition from completion to retention release.

Within the scope of JCT contracts , managing defects is a critical aspect. This is because outstanding defects can pose significant delays in the release of retentions. However, it’s essential to note that small retention amounts might lack the necessary incentive for contractors to rectify defects.

Despite these challenges, it’s important to remember that after fulfilling their obligations, including defects rectification , contractors are still entitled to the release of the retention. This is a significant element of the JCT standard form .

Outstanding defects can delay the release of retentions
Small retentions may not provide enough incentive for defects rectification
After fulfilling their obligations, contractors are still entitled to the release

While cash retention, often found in JCT standard form and JCT management contracts , is a conventional method to secure the contractor’s obligation, alternatives do exist and can be more viable in certain circumstances.

Bonds: Instead of deducting retention, bonds may serve as a more efficient alternative. They can act as a security to ensure the contractor fulfils their duties, particularly in JCT minor works and JCT intermediate forms where retentions are low.

However, the decision to replace cash retention with bonds should not be taken lightly. Employers and contractors must weigh the risks associated with removing cash retention, including possible financial implications and the task of ensuring the bond’s adequacy for defect rectification post practical completion .

IV. Conclusion

In the labyrinth of JCT standard form building contracts, understanding the nuances of retention provisions and their implications can be a game changer.

From the JCT minor works , JCT intermediate , JCT design and build to JCT management contract , the retention clauses vary but are all geared towards ensuring practical completion and rectification of defects post-completion. The default percentages, bonds availability, and release terms differ across the forms.

Contractors and employers must navigate potential risks such as insolvency and administrative challenges related to the release of retention. They must also judiciously handle defects and consider alternatives to cash retention.

In the end, retention in JCT contracts is a tool for enforcing obligations. However, it requires careful consideration and management to ensure it serves its purpose without impeding the contractual relationships or project completion.

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JCT Design and Build Contract

Chapter 1 – Introduction to the JCT Design and Build Contract

Chapter 2 – Where to find key Clauses

Chapter 3 – How to use the JCT Design and Build Contract?

Chapter 4 – Navigating and Understanding the JCT Design and Build Contract

The Articles (pages 3 – 5)

The Contract Particulars (pages 6 – 17)

The Attestation (pages 18 – 24)

2. The Contract Conditions

Clause 2 – Carrying out the Works (pages 32 – 41)

Clause 3 – Control of the Works (pages 42 – 46)

Clause 4 – Payment (pages 47 – 55)

Clause 5 – Changes (pages 56 – 58)

Clause 6 – Injury, Damage and Insurance (pages 59 – 66)

Clause 7 – Assignment, Performance Bonds and Guarantees, Third Party Rights and Collateral Warranties (pages 67 – 69)

Clause 8 – Termination (pages 70 – 75)

Clause 9 – Settlement of Disputes (pages 76 – 77)

The Contract Schedules

Schedule 2 Supplemental Provisions (pages 80 – 85)

Schedule 3 Insurance Options (pages 86 – 88)

Schedule 4 Code of Practice (page 89)

Schedule 5 Third Party Rights (pages 90 – 94)

Schedule 6 Forms of Bond (pages 95 – 103)

Schedule 7 JCT Fluctuations Option A (pages 104 – 107)

Chapter 5 – Summary and Conclusion

Assign of the times? JCT clause 7.2

The assignment clauses

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In this series

Regulation of embodied carbon emissions: a step closer?

Is now the time for the abolition of cash retentions in the construction industry?

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Multiple Dwellings Relief abolished

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JCT contracts—termination

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