The JCT Major Projects Form - Risks, Responsibilities and Contractor Freedom

Little has been written about the Major Projects Form ("MPF") which has been with the industry for the best part of 5 years. However take up is beginning slowly so perhaps it is time to dust off your prep notes.

The JCT has published a 24 page set of Guidance Notes for use with the MPF. Whilst, this appears partly to contradict the aim of producing a shorter and simpler contract which should be sufficiently self explanatory, the MPF remains considerably shorter than any of its contemporary JCT contracts. For example it is 80% smaller than the 1998 With Contractor’s Design contract.

The JCT warns in its Guidance Notes that the form of contract is not for everyone. They say it is designed for use by experienced Employers who require limited procedural provisions in the contract form and have their own sophisticated in-house procedures and protocols and Contractors with whom they regularly work. Also, given the fact that under this new form of contract the Contractor assumes more risks and responsibilities than under traditional JCT standard forms, the JCT is particularly ‘nervous’ that work should only be carried out under the new Major Project Form of Contract by experienced, knowledgeable contractors who can carry out proper risk analysis and put in place appropriate risk management systems. This should be recognised if anyone looks ‘green’ in the gene pool. The same applies to Sub-Contractors.

The JCT specifically decided to call the ‘new’ form of contract the ‘Major Project’ form in order to try and deter, or dissuade, yellow inexperienced Employers and Contractors from adopting it in lieu of WCD on ‘run of the mill’ design and build projects. It remains to be seen whether this form of contract is taken up exclusively for ‘Major Projects’ or whether, as one rather suspects, it creeps into general usage after a time lag which by all accounts still running.

The MPF is still a hard edged document; it adopts provisions designed to encourage modern and best practice in procurement, but it is nevertheless not a partnering arrangement.  There are toughly framed rights and remedies within its various provisions. 

Under this ‘new’ form of contract the Contractor assumes significantly more risks and responsibilities than under traditional JCT standard forms. The quid pro quo is that the Contractor should have greater freedom as to how and in what manner he delivers the Project.

The intention of the Contract is that having defined its ‘Requirements’, the Employer should then permit the Contractor to undertake the Project without the Contractor being constrained by or reliant upon the Employer for anything more than access to the Site, the review of Design Documents and payment. In particular, there is no requirement or expectation that the Employer will issue any further information to the Contractor, as all design and production information beyond that contained in the Employer’s ‘Requirements’ will be produced by the Contractor.

The Guidance Notes suggest that depending upon the manner in which the Employer’s ‘Requirements’ are formulated, the Contractor could find itself responsible for virtually the entire design of the Project or, possibly, just the design or the design detailing of specific elements of the Project. The allocation of design responsibility is something which will need to be clearly spelt out in the tender documents.

The new contract expressly states that the Contractor "shall not be responsible for the contents of the Requirements or the adequacy of the design contained within the Requirements" (as with JCT 05 - DB, ICD, and MWD) but it is not immediately apparent how, or on what basis, the Contractor can seek recompense for additional time and/or costs incurred in overcoming any shortcomings in concept or detailed design contained within the Employer’s Requirements. Perhaps it is intended that in circumstances where the Employer’s general expectations and requirements are at variance with specific concept or detailed designs contained within the Requirements one falls back on the provisions dealing with discrepancies within the Requirements which entitle the Contractor effectively to choose between discrepant provisions at the Employer’s cost. However, what if an element of the design for which the Contractor is wholly responsible is dependant upon an element of design provided in the Requirements, how then does one deal with inadequacies in the Employer’s design?

With three notable exceptions the Contractor’s design warranty is generally one of skill and care, albeit "the skill and care to be expected of a professional designer appropriately qualified and competent in the discipline to which such design relates and experienced in carrying out work of a similar scope, nature and size to the Project".

In fact, the contract expressly states that the Contractor does not warrant that the Project, when constructed in accordance with the Contractor’s designs, will be suitable for any particular purpose. Thus, the Employer defines his requirements and the Contractor carries out work in accordance with them, although he is not responsible for the adequacy of design contained within the requirements. The Contractor takes on, as in WCD, reasonable skill and care obligations but not fitness for purpose. However, he warrants that his design will use materials selected in accordance with the current version of "Good Practice in the selection of Construction Materials" prepared by Ove Arup.

The three exceptions to the skill and care warranty are compliance with:

• the Statutory Requirements;
• any performance specification contained within the Requirements; and
• the guidance on the selection of materials contained within the publication "Good Practice in the Selection of Construction Materials" prepared by Ove Arup & Partners.

Subject to the Contractor not being responsible for the contents of the Employer’s Requirements or the adequacy of designs contained therein, the Contractor gives an otherwise strict, unqualified assurance that the design of the Project will comply with the Statutory Requirements, performance specifications and stipulated guidance on the selection of materials.

The new design provisions, however, are generally in line with what one frequently sees by way of amendment to WCD it remains to be seen how professional/design indemnity insurers will react to these new standard form proposals.

Probably the most novel change innovative provisions in the contract (but in common with JCT 05) are those relating to Third Party Rights. The contract endeavours to do away with the need for collateral rights by utilising the provisions of the Contracts (Rights of Third Parties) Act 1999 and setting out Funders, Purchasers and Tenants rights in a special Third Party Rights Schedule appended to the Contract.

The idea is that Funders, Purchasers and Tenants will be able to enforce their rights directly against the Contractor pursuant to the Act without the need for a multitude of collateral warranties.

Regrettably the rights set out in the Third Party Schedule appended to the contract are based upon the rights conferred by the existing JCT collateral warranties in favour of a Funder, Purchaser and/or Tenant (MCWa/F and MCWa/P&T) which are something of a notorious 'fudge' of conflicting interests and have not really found favour in the market. It remains to be seen whether the new Third Party Rights Schedule finds favour with Funders, Purchasers, Tenants and Contractors or whether it too will be subject to heavy amendment.

From a Funder's perspective the new Schedule only grants rights for the Funder to call upon the Contractor to procure copyright licences rather than actually conferring copyright licences and instead of a 'spread' of risk between Contractor, sub-contractors and sub-consultants the Funder is required to put all his eggs in one basket and rely solely upon the Contractor's covenant. Another concern for Funders is (or may be) that the Schedule only allows the assignment of the Funders' rights to another Funder providing finance or re-finance not a Purchaser or Tenant acquiring an interest in the Project from the Funder following realisation of the Funder's security in or over the Project.

Purchasers and Tenants will have similar concerns to Funders plus the added concern that their rights are restricted to the recovery of "the reasonable costs of repair, renewal and/or reinstatement of any part of the Project to the extent that a Purchaser or tenant incurs such costs and/or a Purchaser or Tenant is or becomes liable either directly or by way of financial contribution for such costs". Contractors will have a myriad of concerns about the new Schedule of Third Party Rights including the following: the Contractor will be the sole covenantor in respect of the Project; the definitions of Purchasers and Tenants in the new contract are very wide and make no distinction between a Tenant of a significant part of the Project, e.g. a complete building or a threshold number of floors in a given building, and a Tenant of an insignificant part of the Project which would not ordinarily justify the grant of a collateral warranty, e.g. a kiosk;

it is not clear how, if at all, the Contractor can enforce the Funder's payment obligation and/or its guarantee of payment by the Funder's appointee following exercise of the Funder's step-in rights under the Schedule; and neither the Contracts (Rights of Third Parties) Act 1999 or the Schedule deal adequately with the risk of 'double jeopardy' - the risk of being sued more than once in respect of the same loss.

At fewer than 15,000 words, the Major Project Form is a slip of a girl compared with what much of the industry has wrestled with under JCT WCD 98. This is partly the result of more modern drafting but the bulk of it is due to the contract taking a ‘less is more approach’. As you prepare Major Project Form contracts for signature, you need to ensure that the documents you are adding to it cover all the central issues of insurance, payment arrangements, tests and inspections.

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.