Different Types of Construction Contracts Explained

May 11, 2022

contract-signing

When beginning a construction project, understanding the different types of construction contracts is crucial. They provide details of what needs to be built, how it will be built, and how much it will cost.

Construction contracts list out all of the parties responsible for the design and construction, defining their scope and their liabilities. Different contracts are used depending on the size, cost, and scope of the project. This means that selecting the correct contract is vital for a successful and smooth delivery, from Stage 0 (strategic definition) all the way through to Stage 7 (usage and occupation). There are several construction companies that provide standard, modifiable, and bespoke contracts. Many standard forms of contracts tend to minimise the amount of time and cost involved in negotiating a contract.

Working with your Architect will help you to navigate them and select the right one for your project.

The main construction organisations are:

• JCT
• ACA
• CIB
• FIDIC
• NEC

In this article, we will discuss in more detail each of these construction organisations.

What is JCT?

JCT stands for the Joint Contracts Tribunal, this was formed in 1931 by the RIBA. JCT produces an array of popular construction contracts which can be used for large-scale complex projects, through to smaller repair projects.

Their series of contracts are popular as they are accessible for those new to construction contracts. They also have the ability to keep the needs of clients and contractors in balance.

There are 40+ contracts available through JCT, some of which cover the appointment of subcontractors. One of the main advantages of JCT contracts is the management of the contract administrator. They play a key and impartial role, guiding all parties through the contractual procedures. JCT states that their contracts are ‘produced to minimise the transaction cost of entering a contract and to provide benchmark provisions in standard form contracts.’ The main disadvantages of the JCT contracts are that they attempt to cover all eventualities leading to a lot of procedural rules. They also rely on a master programme for the phase(s) of construction works which may not be updated or reviewed if the programme changes.

For contractors, the main disadvantage or advantage of JCT contracts is that they are lump-sum contracts. This means that contractors and subcontractors carry the risk if the project costs increase due to changes in the design or delays.

What is ACA?

ACA stands for the Association of Consultant Architects. Their building agreements provide a series of flexible clauses that allow you to produce a bespoke contract. This can be useful for design and build contracts for example, where more standard forms may not provide the required clauses.

Bespoke contracts, if not checked by a legal professional, can be precarious. It is best to discuss bespoke contracts with your contract administrator.

These contracts are commonly used where the construction is more expansive and creative in form. The ACA, along with the CIC (Construction Industry Council), produce the PPC 2000, which is the Project Partnering Contract. This is a single multi-party contract that includes, clients, contractors, consultants, and specialists.

ACA contracts increase productivity and encourage sustainable practices with a more predictable end-product.

The SPC is a supplementary contract for specialists who were not originally a part of the PPC contract team.

What is CIB?

CIB stands for The Construction Industry Board. They are responsible for the creation of the Complex Projects Contract in 2013, (now known as the Time and Cost Management Contract 2015).

They are aimed at complex and engineering projects where time management was a key factor. This was the first contract to take into consideration the usage of BIM (building information modelling) to coordinate different specialists during the process of designing and implementing a project.

CIB uses a working schedule that predicts the likelihood of a completion date, altering it to any of the changes in the timing of design and construction. This means that all files are sent in a digital format.

The Working Schedule and Progress Records are assessed by a Time Manager and audited for quality assurance.

What is FIDIC?

FIDIC stands for the International Federation of Consulting Engineers (Fédération Internationale Des Ingénieurs-Conseils). They are a series of contracts that were published in 1999. This includes 4 main forms:

• The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer;
• The Yellow Book: Conditions of Contract for Plant and Design-Build;
• The Silver Book: Conditions of Contract for EPC/Turnkey Projects;
• The Green Book: Conditions of Short Form of Contract.

Later, four more contracts were introduced, these were:
• The Blue Book: Contract for Dredging and Reclamation Works;
• MDB/FIDIC Contract: FIDIC conditions incorporated in the standard bidding documents of multilateral development banks;
• The White Book: Client/Consultant Model Services Agreement;
• The Gold Book: FIDIC Design, Build and Operate Projects.

FIDIC contracts place the engineer in the role of agent and contract administrator. These contracts were created to provide a fair allocation of risks between the parties and to rely upon the party most able to control these risks. The main contracts used are the red and yellow books, these are accessible and standardised with 20 general conditions.

The contracts are divided into two main parts. The first part covers the general contract terms, the rights and obligations of each party and the different procedures governing payment, variation, certification, and dispute resolution.

The second part introduces specific clauses, including names of those appointed in the role of Engineer, or the employer’s agent, and an appendix of sample documents to be used during the procurement process. The hierarchy of the documents within the FIDIC contracts is determined by their order, thus the higher on the list, the higher the priority of any included clauses.

The disadvantages of the FIDIC contracts are that some are heavy on construction jargon which can make them less accessible. An advantage is that the 2019 ‘FIDIC Golden principles’ contract prevents the modification and deletion of some of its
general terms.

signing-contract

What is NEC?

NEC stands for New Engineering Contract. NEC contracts are suitable for large public sector projects, such as schools, hospitals, or council-led projects. Or where the budget is more than £5 million.

Like the FIDIC series of contracts, the NEC contracts have been designed for international use. This gives contractors the ability to select the contract language with adherence to local governing law.

These contracts are often more complex and can be expensive to administer. Although they are more customisable, they allow for a clearer delineation of tasks for all parties.

The advantages of the NEC contracts are that they demand a detailed set of documents that comprise the project programme. These must be submitted on a regular basis by the employer for further control over the works.

Contractors can also gain bonuses for early completion, incentivising higher levels of productivity and increasing the likelihood of the project being completed on time.

NEC also includes an early warning provision, encouraging all parties to make timely requests for time extensions that also warn other parties of potential time delays. This creates a more transparent and collaborative working relationship among parties.

This breakdown of the types of construction contracts will allow contract administrators to find the best contract for their projects. Despite design and build contracts being more common, there is a multitude of other contract types available
that may be more suitable for your project.

This is especially true as we have identified. Our project in Westcott, which was situated in greenbelt, AONB and AOGLV, utilised the JCT minor works contract with the contractor’s design. We worked with contractor Jack Auletta to produce drawings for
this project.

It is vital that you assess the requirements of the client, the complexity of the design and the speed of delivery, alongside the advantages/disadvantages of each provider. These factors will allow you to make a better assessment of which contract will hit the right balance for you and the wider project team.

If you'd like to receive more advice on which contract to use on your construction project, feel free to contact us today on 02081441737 or drop us an email for expert advice.

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