Contract Law Terms

“The works to be carried out under a contract based on the Joint Contracts Tribunal SFBC 1998 are described in the contract documents, and under Article 1 of the contract the contractor is obliged to carry out and complete those works. In return the employer pays the contractor the contract sum stated in Article 2”

Discuss the extent to which this statement adequately describes the position under the Joint Contracts Tribunal SFBC 98, and the provisions in the contract for the employer to alter the work that the contractor is required to perform under the contract.

It is an essential characteristic of legally binding contract that consideration passes between the parties to it. In simple terms that exchange is encapsulated in the foundation Articles of the SFBC 98, which provide that services are tendered in return for an agreed sum by way of remuneration. On general principles of contract law, alteration of a contract once an agreement is struck is problematic. Once offer meets acceptance the contract is perfected and terms cannot be varied without the express and informed consent of the parties to it. Indeed, where such occurs it is not that contractual obligations are altered, but rather that the old contract is dissolved and a new contract, incorporating any revised terms, is struck.

Standard forms of building contract have often been subject to criticism by the courts for being inadequately drafted, unnecessarily verbose and obscure. However, in fairness it is pertinent to note that on occasion the courts themselves have added to the difficulty by treating construction contracts as if they were for some reason subject to special rules of their own.

Since its formation in 1931, the Joint Contracts Tribunal (JCT) has drafted standard form contracts, practice guidelines and other tender documentation for use in the British construction industry. The JCT was incorporated as a company limited by guarantee in 1998. The new company has assumed responsible for producing sets of contract documents and for running the JCT Council. The latest suite of JCT contracts, which will be known as JCT 05, will be launched in May 2005. This will provide revised and updated versions of the primary building and construction contracts published by JCT, and will be periodically updated.

The JCT 98 Standard Form Building Contract, as amended, is employed when relying on the traditional procurement method of building. The contract comprises of 3 parts: articles of agreement; conditions of contract; and the appendix. Clause 2.1 of the contract establishes the contractor’s fundamental obligations under the agreement:-

“2.1 The Contractor shall upon and subject to the conditions carry out and complete the Works in compliance with the Contract Documents, using materials and workmanship of the quality and standards therein specified provided that where and to the extent that approval of the quality of materials or the standards of workmanship is a matter for the opinion of the Architect such quality and standards shall be to the reasonable satisfaction of the Architect.”.

Emcor Drake & Scull v Sir Robert McAlpine

In regard to the alteration of the work required to be performed by a contractor by an employer, in December 2004 the Court of Appeal decision in Emcor Drake & Scull v Sir Robert McAlpine underlined the importance to any ’employer’ of concluding contract negotiations before any work commences. Once works have begun, it is typically difficult and burdensome for the employer to make changes.

In this case McAlpine had chosen Emcor as their preferred M&E supplier for a PFI hospital project. Unfortunately, by the time the project programme required that the M&E works should commence, the respective parties had not finalised the principal terms of the sub-contract.

In an effort to solve the problem a letter of intent was proposed and the works were commenced. McAlpine’s procedural rules, however, determined that it was Emcor that was left to prepare and forward the letter of intent. McAlpine ultimately received a substantially amended letter of intent from Emcor later. Subsequently, McAlpine was unable to persuade Emcor to sign its intended form of sub-contract. Eventually McAlpine ordered Emcor’s workmen off the site as relations deteriorated.

In endorsing the lower court’s decision, the Court of Appeal ruled that as the formal sub-contract had not yet been agreed, Emcor owed no obligation to complete the entire programme of M&E works. Moreover, as the provisions of Emcor’s letter of intent had at no time corresponded with the terms and conditions of McAlpine’s draft sub-contract, Emcor was under no legal obligation to sign the subcontract.

Consequently, the principle of quantum meruit was applied, entitling payment of a reasonable sum for services performed by Emcor (up to the cap on costs contained in McAlpine’s orders). McAlpine was unable to recover the considerable costs of replacing Emcor on the project.

Comments

The quote under discussion offers a somewhat bald statement as to the scope of the JCT Standard Form Building Contract 1998. It is important to recognise that such model contracts do not render the entrenched rules of contract law nugatory or superfluous and Emcor is most instructive in this regard. Where the parties do not fully execute or properly complete a standard form building contract neither party can contend that the contractual terms have been agreed merely by stating in a letter of intent that they intend to enter into that standard form agreement at some future point in time. In the event that difficulties arise, the JCT Form contains provision, in Article 5, that:-

“If any dispute or difference arises under this Contract either Party may refer it to adjudication in accordance with clause 41A.”

Clause 41A of the JCT Form sets out detailed provision as to the procedures to be adopted in an adjudication and the consequences entailed in the process. The authority and scope of an adjudicator’s decision is dealt with in clause 41A.7.

It is submitted that construction contracts fall neither above nor beyond the realm of general contract law, and for good reason.

Bibliography

• JCT 98 Building Contract Law and Administration, 2nd ed, edited by Ndekugri and Rycroft (2004)
• Construction Contracts: Law and Management, Murdoch and Hughes, 3rd ed, Spon Press, (2000)
• Understanding JCT Standard Building Contracts, Chappell, Taylor and Francis, (2003)