Whether the contract will be executed as a deed (Agreement: both contracts)

2.13 The decision as to whether the contract will be executed as a deed or as a simple contract (sometimes referred to as ‘under hand’) will affect the length of time the contractor will be held liable for a breach of the contract. Under the Limitation Act 1980, in the case of a simple contract the time limit for bringing an action for any breach is six years from the date of the breach, and in the case of a contract entered into as a deed it is 12 years. In the latter, the contractor’s risk is obviously greater, which may result in higher tender prices. If no entry is made, the default will be six years.

The site, and whether the building will be occupied (item C: both contracts)

2.14 If the building is to be occupied during construction, this will have significant implications for the contractor’s programme and the contract price. It is almost always slower, and more expensive, to work around partial occupation than it is if given a free run of the site. For example, added health, safety and security measures will be needed, such as the provision of protected access routes to the occupied parts. It will not be sufficient to simply indicate ‘yes’ as required: full details of the planned occupation will be needed (see para. 4.2). As well as indicating occupation, the client is also required to indicate any working hour restrictions (item E), and which facilities (electricity, parking, etc.) the contractor may use free of charge (item F, cl. 2.5).

Contract documents (item D, both contracts)

2.15 All the documents that will form the contract bundle should be clearly identified in the tender package. Many of these will have been prepared by the contract administrator and other consultants identified above, however there are some exceptions. If a contractor’s design proposal is required, this will also be a contract document, and details of what is required from the contractor at tender stage, and possibly post-tender but before the contract is executed, should be set out (this should be referenced here and also under item P, see para. 2.27 below). The tender documents may include documents prepared by a required specialist, or by other consultants who are not listed.

2.16 In the 2014 edition the parties were invited to rank the documents in order of priority. Although this was optional, it was a sensible provision, and the parties could consider adding in a ranking, provided the ranking is carefully thought through and practical (feedback on the 2014 edition suggested it was not being applied properly). Ranking helps to avoid arguments later when, as is almost inevitable on most projects, it is discovered that there are inconsistencies between them (note that it would still be possible for a lower priority document to supplement the material in a higher priority document, however it would not be able to contradict it: see RWE Npower Renewables v JN Bentley Ltd). The two matters to consider are, of course, quality and quantity, and it may be that the ranking is different for both these, e.g. the specification being the key document for defining quality, and the bill of quantities for amount. It will be particularly important, where the contractor is undertaking design, to state whether the client’s requirements for the design (probably included in the specification) or the contractor’s design proposals prevail. Effectively this will determine whether, in cases of conflict, the contractor’s primary obligation is to meet the specification requirements, or merely to provide what was set out in the contractor’s proposals, even if it is later discovered that those proposals do not meet the client’s design requirements. Normally a client would prefer the former approach.

The contract administrator and other appointments (items G and H, both contracts)

2.17 The names of the firms engaged by the client should be set out, rather than the individuals, although the main point of contact within each firm could be noted. The contract administrator has a key role in the contract (see Chapter 3) and, although identified, is not a party to the contract (cl. 5.1). The client may replace the contract administrator with another firm at any time, provided it notifies the contractor (cl. 1.3). The contract administrator may not be the only appointment; the client may also have engaged engineers, quantity surveyors and, possibly, a project manager. These should be listed under item H, and the client must inform the contractor of any later appointments as set out in cl. 1.3). The other consultants have no defined role under the building contract, and all communication should be with the contract administrator, but it is sometimes useful for the contractor to be aware of who else is advising the client.

Regulatory consents, fees and charges (item I, both contracts)

2.18 This item asks the parties to indicate who will be responsible for obtaining and paying for ‘regulatory and statutory consents, fees and charges’. It will almost always be the case that the client takes responsibility for planning permission because, unless the project is to be entirely designed by the contractor, which is unlikely, the contractor will not be engaged at the time planning permission is usually sought. The application and any permission issues are normally resolved before going out to tender (the RIBA Plan of Work 2013 notes that ‘Planning applications are typically made using the Stage 3 output’). It is possible, however, that the contractor may be required to deal with Building Regulations approval on small projects (by means of a building notice), but for more complex schemes the client will take responsibility. In the case of party wall consents, under the Party Wall etc. Act 1996 the building owner is required to serve notices on all adjoining owners of intended work on or near the site boundaries, and in many cases to appoint surveyors to act on its behalf. It is not possible to require the contractor to take on these roles under the building contract; a separate appointment would be needed (with either the contractor or another consultant).

Contract price (item K, both contracts)

2.19 Both contracts give two options for setting the contract price: ‘Contract Price’ or ‘Contract Price calculated in accordance with the Pricing Document listed under item D’. It is not entirely clear what this distinction means. Even if the ‘Contract Price’ option is selected, which the guidance notes describe as the ‘lump sum’ option, the contractor would still be entitled to additional amounts in the event of changes to the works, etc. (see para. 6.6). A pricing document would be very useful to assess these changes, for example the pricing document could be a fully priced bill of quantities, or a schedule of works or a contractor-prepared price breakdown; therefore, selecting ‘Contract Price’ does not preclude the need for a pricing document.

2.20 The second option has no space for entering a total Contract Price, so the effect of selecting this option would to create a measurement, rather than a lump sum contract. What is probably intended is that for this option the pricing document will be in the form of a schedule of rates. This will give rates for all types of work envisaged, but not quantities, and will have been prepared by one of the client’s consultants. Alternatively, if preferred, the contractor can be asked to prepare the document. The schedule of rates option is useful for projects where it is difficult to assess the likely quantity of work in advance, such as in refurbishment work, where the extent of repair work cannot be ascertained until demolition work is complete. However, there will be no overall contract sum, and it may be difficult to control the overall budget.

Liquidated damages (item L, both contracts)

2.21 The Contract Details require the parties to insert an agreed amount of liquidated damages per day, and the contractor should be informed of the rate at the tender stage. This is an amount to be allowed by the contractor in the event of failure to complete by the date for completion (cl. 10.1; note that if the works are divided into sections under optional clause 17, several different rates may be applied).

2.22 As a result of two decisions in the Supreme Court, it is no longer considered essential that the amount is calculated on the basis of a genuine pre-estimate of the loss likely to be suffered (Cavendish Square Holdings v El Makdessi and ParkingEye Limited v Beavis). Provided that the amount is not ‘out of all proportion’ to the likely losses, the damages will be recoverable without the need to prove the actual loss suffered, irrespective of whether the actual loss is significantly less or more than the recoverable sum (BFI Group of Companies v DCB Integration Systems). In other words, once the rate has been agreed, both parties are bound by it. Of course, for practical reasons, the rate should always be discussed with the client before inclusion in the tender documents, and an amount that will provide adequate compensation included, to cover among other things any additional professional fees that may be charged during this period. If ‘nil’ were to be inserted into the contract particulars then this would preclude the client from claiming any damages at all (see Temloc v Errill). If no sum were entered, the client may be able to claim general damages, but if this were the intention it would be better to set this out clearly rather than simply to leave the section blank.

2.23 If completion in sections is selected in item R, rates of liquidated damages are required for each section. Note that in this case, the rate should reflect the realistic losses to the client of not getting access to that section, which may not necessarily relate to the floor area of that part. In addition, the professional fees element may not be proportionally reduced.

Dispute resolution (item N, both contracts)

2.24 Three forms of dispute resolution are listed in the RIBA Building Contracts: adjudication, mediation and arbitration. In DBC, all three can be selected, or none, or any combination. In CBC, the adjudication option is preselected to ensure that the contract complies with the Housing Grants, Construction and Regeneration Act 1996 (as amended), which requires that all contracts covered by the Act include the right to adjudication. Otherwise, the same applies as for DBC, i.e. the parties may choose any combination.

2.25 It is important to give careful consideration to the choice of dispute resolution options. The differences between them are significant, and it might not be possible for one party to persuade the other to use a different system after a dispute has arisen; this therefore is the only opportunity to determine how matters will be resolved. In particular it should be noted that whereas adjudication is preselected in CBC, it is optional in DBC. This is because adjudication could be seen as favouring the contractor, given the short response times that may be difficult for a lay client to deal with. If selected, the provisions will nevertheless be binding (the courts have held that consumer clients are bound by an adjudication agreement in a standard form contract, as it does not significantly affect the balance of power between the parties) (Lovell Projects v Legg & Carver). The different options and their implications, including for the completion of item N, are discussed in Chapter 10.

Contractor design (item P, both contracts)

2.26 If this item is selected it requires the client to indicate which aspects of the works are to be designed by the contractor. It is important that any aspect, whether a component, element or system (such as services), is delineated with care, as otherwise there may later be disagreements as to who is responsible for interfaces between these and any consultant-designed areas. It is very important that this entry is completed carefully and the consultant and client must give careful consideration to the issue of liability before sending out the tender documents.

2.27 As well as indicating which parts are to be designed by the contractor, the client is likely to want to stipulate requirements that the designed parts should meet. It would be sensible for the contract administrator to indicate in item P exactly where these requirements are set out (quite often this will be in the form of a performance specification). In addition, if the contractor is to be required to submit design proposals at tender stage, then this should be made clear in the tender documents, including the nature and extent of the submission required. Similarly, it may be sensible to set out details of any information to be submitted during the works, and the dates by which it will be required (cl. 15.2).

Insurance-backed guarantee and new building warranty (items U and V, both contracts)

2.28 These items require the client to set out details of any insurance-backed guarantee and/or new building warranty that will be required. These are similar products; the term ‘new building warranty’ is used mainly in the context of new homes, whereas ‘insurance backed guarantee’ can be applied to any type of building work. The National House Building Council’s (NHBC) Buildmark scheme is a well-known example of a new building warranty, which covers homes built by NHBC-registered builders. The scheme protects the homeowner against defects for ten years; for the first two years the builder is responsible for putting right any defects, and during the third to tenth years any damage to a home resulting from building defects is covered by an insurance policy. It will also protect the homeowner if the builder goes bankrupt during the course of the work but before completion. Various trade associations offer a range of insurance-backed guarantees for domestic and commercial work, for example the Federation of Master Builders’ Build Assure scheme, which offers a variety of packages, from simple liquidation cover to ten years’ protection against structural damage. If selected, the insurance-backed guarantee is to be provided before the start date (cl. 20.1).

Collateral warranty/third-party rights (item X, CBC only)

2.29 A collateral warranty is a separate contract entered into by the contractor and a third party, typically a purchaser or tenant of the completed building or a project funder. They are particularly important if the contractor is undertaking design, as without one the purchaser, tenant or funder will not be able to recover its losses should the building later develop defects.

2.30 If the client wishes the contractor to provide such a warranty, this should be made clear in the tender documents (if not the contractor may later agree to provide one, but the client would not be able to insist that it does). The details of to whom the warranty is to be provided and the form of warranty to be used should also be given. Standard forms of warranty are published by the JCT, although these may require some modification for use with the RIBA Building Contracts. The contractor must execute the warranties as set out within 14 days of being requested to do so by the client (cl. 23.1).

2.31 As an alternative to the use of a collateral warranty, the contract refers to the use of a third-party rights agreement. This facility was introduced by the Contracts (Rights of Third Parties) Act 1999. Until this Act came into force, it was a rule of English law that only the two parties to a contract had the right to bring an action to enforce its terms (termed ‘privity of contract’). Now, the Act entitles third parties to enforce a right under a contract, where the term in question was intended to provide a benefit to that third party. The third party could be specifically named or it could be an identified class of people. The Act, however, allows for parties to agree that their contract will not be subject to its provisions, and many standard forms adopt this course in order to limit the parties’ liabilities. Both RIBA Building Contracts state: ‘Third parties have no rights under the Contract’ (cl. 11.4). The concise contract, however, states that this is ‘unless item X of the Contract Details has been selected’ and provides for the client to require the contractor to enter into a ‘Third Party Rights Agreement’ (cl. 23.1), details of which must be set out in the Contract Details. It should be noted that there are no standard forms of agreement available for use with the RIBA Building Contracts, therefore the parties would need to draft their own.