JCT building contracts: what's the point of amendments?

‘The one great principle of English law is to make business for itself’ (Charles Dickens, Bleak House)

Whether working in-house or in private practice, I believe it is incumbent on legal advisers to keep their drafting as simple as possible to achieve a client’s aims. It’s important to consider whether we are doing that for our building and construction sector clients.

I was asked to review a set of amendments to a standard building contract the other day. Many of the changes were cosmetic or drafting style, and I could not see how they added any real benefit to either party. There were also several new phrases and clauses, buried deep in a 100-page schedule, which shifted significant risks from the employer to the contractor.

The schedule of amendments itself was a similar length to the original contract. Effectively, I had to review two 100-page contracts and marry them up in my mind to make sense of the merged product. As I work in-house and cannot charge by the hour, I tried to minimise the time I spent, but it was still a full day’s work. The experience caused me to reflect on why law firms make such extensive amendments.

JCT and Adjudication

The Joint Contracts Tribunal (JCT) is a member constituted organisation that creates template forms of building contracts for the construction industry. The JCT has been setting standards since 1931, and it now produces the widest range of precedent documentation of any publisher in the sector. Because the JCT is made up of member bodies representing practitioners involved in all stages of the contract process, its documents are balanced and well-understood.

Construction projects require sophisticated agreements to govern complex relationships between multiple parties. This intricate web of connections is held together by a matrix of interlocking contractual provisions, honed by professional experts over nearly 100 years, to create the JCT templates.

The Housing Grants, Construction and Regeneration Act 1996, supplemented by the Scheme for Construction Contracts (England and Wales) 1998, introduced a right for parties to building contracts to refer disputes to adjudication. The process was designed to help improve cash-flow for contractors during construction projects, by providing a fast, simple and cheap resolution mechanism, and with a social purpose to keep the wheels of the building industry turning.

Over the years, adjudication has become hugely popular, and it is easy to understand why. The adjudicator applies the terms of the contract to the proven facts of the dispute. Decisions are made in 28 days, and are enforced through the Technology and Construction Court, with very limited grounds available to the losing party to appeal. The parties pay their own legal costs, if any.

While adjudication is the only dispute resolution system in England and Wales with all these features, its success in achieving the aims of speed and low cost is entirely dependent on the clarity of meaning expressed in the contracts it adjudicates on. The critical co-dependency between the terms of the contract and the adjudication process can be damaged through inappropriate amendments.

Amendments

Law firms amend the JCT standard contract forms by drafting schedules of amendments for their clients. These are stand-alone Word or PDF documents which are incorporated by reference to the unamendable JCT template. The changes operate by amending clauses, by deleting clauses and by drafting new clauses. The inference is usually that each firm’s schedule is their client’s preferred set of amendments, although it may be that same schedule is available to multiple clients. The contributing authors of each schedule will be practitioners with differing levels of experience, expertise and knowledge.

To review the schedule requires a visual comparison of the original contract alongside the schedule of amendments, and it can involve engaging in mental gymnastics to construe the meaning of the combined texts. If amendments are made to a JCT template without giving adequate thought to the disruption that can be caused to such a carefully crafted contractual structure, the consequences could endanger the proper enforcement of its terms.

It is important to understand the fundamental difference between free-standing additions to the contract template, and amendments to existing clauses in it. Independent changes that do not require cross-referencing with other parts of the JCT to understand their meaning are vastly preferable to editing by inserting words in or deleting words from existing clauses. Those latter kinds of amendments, which are in the overwhelming majority in most schedules, must be imagined as tracked changes in the reviewer’s mind, requiring advanced interpretation skills.

Sometimes it can feel like the lawyers have deployed a wrecking ball to a work of art, ending up with a partly unintelligible contract that passes unreasonable levels of risk from the employer to the contractor, and which may be unfit for purpose.

Contractors may use their own in-house lawyers, as subject-matter experts, to negotiate the contract. Internal advisers then live and breathe every contract during its performance, long after the pre-contract negotiations have concluded. Private practice lawyers may not have matching industry know-how, and once the negotiations are done, they have no vested interest in whether the amendments they sought did good or were needed.

I have also observed how some external firms can appear slow to learn lessons on how to improve their drafting, so every time they are instructed, we end up performing the same ritual dance on the same set of amendments, at significant cost and wasted time, for no benefit except for the legal fees that are generated.

‘There is a better way to do it: find it’ (Thomas Edison)

My lightbulb moment (apologies) when writing this piece was to realise the aptness of Edison’s insightful words to finding a solution to the problems caused by amendments to a contract that is already fair and fit for purpose. And the solution is incredibly simple.

The starting point should always be to use the unamended JCT contract. The onus should be on the employer’s lawyer to explain the changes needed for a particular scheme, rather than expecting the contractor to negotiate back from a firm’s standard set of amendments.

There is no evidence I have seen that amended JCTs have better outcomes or less disputes than unamended ones. There is no research I know of into what benefits amendments bring to the building and construction processes. Nevertheless, the justification for amendments advanced by some lawyers is expressed in terms of market expectations and alignment with market practice, even though each law firm’s schedule of amendments is different. It is the JCT templates that set the market standard.

How much time and money would employers and contractors save, and how could operational efficiency improve, if industry approved templates were used as the default, knowing risks are balanced fairly, and adopting only minimal changes necessary for specific projects?

It would surely boost the profession’s reputation to be seen to be fostering collaborative working in this way for the common good.

Anthony Armitage is General Counsel at Thirdway