Our contracts monitor Michael Phipps, Principal of Thurston Consultants, continues his examination of revisions to JCT’s Minor Works Building Contract 2005, highlighting some apparent oddities.
The JCT Project Bank Account Documentation 2010 (PBA) has just been received. This follows on from the consultation documents with the same name which were issued in 2009. It contains three relevant parts: the Project Bank Account Agreement, the Additional Party Deed and the Enabling Provisions for a Project Bank Account together with a Report on the Project Bank Account Consultation.
At first sight it appears that this could be a very useful, time-saving document and some comment on its contents will be made after the completion of this examination of the effect of Revisions 1 and 2 of the Minor Works Building Contract 2005.
This review of the Minor Works Building Contract 2005 Revision 2 2009 (MWR2) and, in particular, the Minor Works Building Contract with contractor’s design 2005 Revision 2 2009 (MWDR2), continues with the very important Section 4 Payment. The list of changes made by Revision 2, which appears on page 46 of MWDR2, shows that this section contains a lot of starred items indicating that they have been subject to “substantive textual changes”. The obvious question to be answered is whether or not they improve the document.
The first change is made by Revision 1 in 4·2. The opening words ‘Where at the date of this Contract’ have been deleted and replaced by “If”. This certainly is an improvement because where all the formalities of making a contract are carried out in the proper manner that date is easy to determine. Unfortunately, this rarely happens in practice. As a result the date on which a contract is made is likely to be unknown by the parties.
While this might not seem to be important in most cases it might well become a matter of significance in the event of a dispute. The wording of 4·2 has been re-ordered and it has collected a footnote ([29] in Revision 1) directing the user to the entries in the Contract Particulars under the Fifth Recital and clause 4·2.
Deletion of the unnecessary word ‘either’ from 4·3·1 by Revision 1 presages the type of tightening of the text which has been made throughout this section. Similarly, ‘which’ has been removed by Revision 2 from an otherwise unaltered 4·3·2 but the hanging paragraph of 4·3 is starred. It has been re-ordered and shorn of superfluous repeated words and the final sentence from the Revision 1 version has been deleted as it was already covered in 4·5·1 of MWDR2 (4·6·1 of MWDR1).
Revision 2 re-numbers 4·5 of Revision 1 to 4·4. A new heading “Interim payments on and after practical completion” replaces ‘Penultimate certificate’. That term, which has long been in use, has been banished as provision has now been made for the regular issue of payment certificates at 2 months intervals up to the expiry of the Rectification Period “(unless otherwise agreed)”. This requirement follows on from the certificate which the Architect/Contract Administrator must issue within 14 days of the date of practical completion of the Works. Given that long delays in making payments once the Works have been completed have been an all too frequent occurrence this change is welcome. The last two sentences of what was 4·5 in MWDR1 have been deleted in 4·4 of MWDR2 as they are not needed.
The combination of Revisions 1 and 2 has resulted in the replacement of ‘and’ by “or” and also of ‘and/or’ by “or” in 4·5·1 and 4·5·2 of MWDR2. The result is easier to read and provides one less thing for users to puzzle over. In addition 4·5·1 now refers to a “payment certificate” which is the description commonly used.
The changes made in 4·5·3 of MWDR2 are simply adjustments to the reference numbers resulting from the fact that 4·6 of MWDR1 has become 4·4 in MWDR2. Where there is a failure by the Employer to pay an amount due to the Contractor the position is covered by 4·6 of MWDR2 which has been substantially changed from the equivalent text of 4·4 of MWDR1. It extends the coverage, which previously applied only to progress payments as set out in 4·3, to those new payment certificates which are to be issued after the date of practical completion under 4·4. It is no longer thought necessary to repeat the fact that the payment in question is from the Employer to the Contractor. Other superfluous words have been deleted leaving a clear and concise statement of important rights of the Contractor with particular reference to 4·7 and section 6.
Significant changes have been made by Revision 2 in 4·7 which sets out the circumstances which give the Contractor a right of suspension. Payment in full is now stated to include any VAT properly chargeable in respect of that payment. It no longer says that the Contractor may ‘suspend performance of his obligations’ but simply that he may suspend performance “until payment is made in full”. The notice requirements etc are otherwise unchanged from the 2005 Edition.
The Contractor is required by 4·8·1 of MWDR2 to supply all documentation reasonably required for the computation of the amount to be finally certified by the Architect/Contract Administrator. This must be done within the period, starting from the date of practical; completion, which is set out in the Contract Particulars at reference 4·8·1. There is a fall-back position of three months unless a different period is stated. The requirement that the final certificate ‘shall state to what the amount [it certifies] relates’ has been deleted. The last sentence is curious because it says that
“The Final Certificate shall state the basis on which the amount has been calculated”. From this it would appear that “Final Certificate” is a defined term in the usual JCT style which should appear among the definitions in 1·1. Of course, it is not to be found there and if you look down the rest of 4·8 you will find that it is rendered in lower case. It seems to be no more than a simple typographical error.
Another apparent oddity occurs in 4·8·2 of Revision 2. The Party by whom the balance is payable under the final certificate becomes (‘the paying Party’). Although this almost certainly a departure from the established JCT style it is nevertheless very useful in 4·8·2 to 4·8·4. It allows for the fact that a payment might be due from the Employer to the Contractor or from the Contractor to the Employer to be simply stated. As 4·8·2 stood in Revision 1 it only envisaged a payment from the Employer to the Contractor.
Similarly, 4·8·3, 4·8·4 and 4·9 have been widened by the same means. The first of those covers the withholding or deduction of an amount by either Party from any balance due to be paid under the final certificate. And 4·8·4 states that if the paying Party does not give a written notice under 4·8·2 (stating the amount proposed to be paid, etc) the amount stated as due in the final certificate must be paid, subject only to any notice given under 4·8·3.
The application of the new term in 4·9 taken with deletion of repeated or unnecessary words reduces the text considerably but does not change the meaning. Either party can become entitled to interest at the Interest Rate in the same way as is the case in MWDR1. We can now see that what, on the face of it, seemed to be an unusual or even an odd choice of term has proved to be extremely handy. Even so, it would look out of place in the list of definitions in 1·1. But the alternative ‘the Paying Party’ does not seem quite right either.
The changes examined so far, and in particular those which broaden the scope of the Contract in section 4, lead one to wonder just how distinct from other JCT Forms the Minor Building Works Contracts are now.