As Simon Tolson notes, little has been written about the Major Projects Form (“MPF”) which has been with the industry the best part of five years. However, the talk on the grapevine is that the Government’s honeymoon with the NEC family may be about to change. Perhaps it is time to dust off your prep notes on the MPF?
Guidance note[1]
The JCT warns in its Guidance Notes that this form of contract is not for everyone. 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 MPF 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 subcontractors.[2]
The JCT specifically decided to call the “new”[3] form of contract the “Major Project” form in order to try and deter, or dissuade, 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, is 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. The MPF is in its infancy, relatively speaking. Thus far it has been used on the Oval to my knowledge, but take-up is beginning slowly but against the competition now of NEC3.
Risks, responsibilities and contractor freedom
Under the new MPF, the contractor assumes significantly more responsibility and risk than under traditional JCT forms. The quid pro quo is that the contractor should have greater freedom as to how and in what way he delivers the project. The intention 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. There is no requirement or expectation that the employer will issue any further information, as all design and production information beyond that contained in the employer’s “requirements” will be produced by the contractor.
Design responsibilities
The allocation of design responsibility is something that 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 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 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 dependent 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”. The contract makes it clear 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.[4] The 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, including design of the employer’s requirements, the contractor gives an otherwise strict, unqualified assurance that the design of the project will comply with these three “exceptions”. 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 indemnity insurers will react to these new standard form proposals.
Curtailment of contractor’s entitlement to EOTs
The provisions relating to time, commencement and completion have been simplified and cropped. In particular, the list of events entitling the contractor to an extension of time has been quite radically curtailed.[5] The contractor is no longer entitled to time for exceptionally adverse weather, civil commotion, local combination of workmen, strikes, delay on the part of nominated subcontractors or suppliers, difficulties in securing labour, goods or materials, delay on the part of statutory undertakers (although this may now be covered by the new provision entitling the contractor to an EOT for interference with the contractor’s regular progress by “others” on the site) and changes in law after the base date. A number of the traditional relevant events, such as failure to give access to the site, are now covered by a general catch-all, employer default provision which entitles the contractor to an EOT for “any breach or act of prevention” on the part of the employer or his representatives or advisers.
Loss and/or expense
The scope for claiming loss and expense is reduced significantly. Any instruction which is a change shall not under this form either individually or in conjunction with other changes give rise to loss and expense. This means contractors will need to price changes rather more accurately to ensure sound recovery of loss and expense. Loss and expense are payable by the employer:
- if there is an act of breach or prevention by the employer in matters other than those permitted by the contract or that are not stated as giving rise to a change;
- where there is interference with the contractor’s regular progress by others; and
- where the contractor validly exercises its right of suspension.
Practical completion, acceleration and early completion bonuses
For the first time, the new JCT contract contains a definition of practical completion. This definition of practical completion requires that the project be complete for “all practical purposes” but makes the point specifically that the project may for “all practical purposes” be practically complete notwithstanding the existence of minor outstanding works which do not affect its use. The definition also envisages that any stipulations considered essential to the issue of whether the project is to be considered practically complete, or not, should be set out in the requirements.
Production and delivery of the health and safety file, as-built information and O&M manuals are all expressed to be conditions precedent to practical completion.
The contractor can only be instructed to accelerate where he is in agreement and the provisions conferring bonuses for early completion are an option. To incentivise the contractor to complete before practical completion, the contract provides for the contractor to be paid a bonus if completion occurs before the completion date. For a bonus to apply, the appendix needs to have been filled in, otherwise the principle in Glenlion Construction Ltd v Guinness Trust[6] holds true. A contractor under most standard forms is entitled to plan the early completion of the works, but this will not impose unilateral obligations upon the employer to facilitate that early completion.
Payment
The payment procedures are simple and straightforward. Payment is made 14 days after receipt of the contractor’s VAT invoice. There are no hedges and traps for the unwary, provided they produce a sensible pricing document. The payment provisions provide options including interim valuations (Rule A), stage payments (Rule B), and schedule of payments (Rule C) which the parties can decide to incorporate. interim payments remain the predominant method, and a single payment notice is to be issued, covering any amounts to be withheld. The form therefore combines the requirements of the Housing Grants Act by the provision of a single notice, thus attempting to avoid arguments as to whether a withholding notice has been properly served at the correct time and/or in the correct format.
Interim payments will therefore be made monthly, but through the use of the pricing document it is possible to adopt a range of options for the payment of the contract sum, including interim valuations, stage payments, scheduled payments or any other terms which the parties may wish to agree. Another first for the JCT (and a significant break from tradition) is that the new MPF does not envisage any sort of retention.
Third party rights
Probably the most novel changes 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 the rights of funders, purchasers and tenants 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 Rights 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, 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 or whether it too will be subject to heavy amendment.
From a funder’s perspective, the new Third-Party Rights Schedule only grants rights for the funder to call upon the contractor to procure copyright licences rather than actually conferring licences. Instead of a “spread” of risk between contractor and others, the funder must rely solely upon the contractor’s covenant. Another concern for funders may be that the Third-Party Rights Schedule only allows the assignment of the funders’ rights to another funder, not a purchaser or tenant, acquiring an interest in the project 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 Third-Party Rights Schedule including that the contractor will be the sole covenantor in respect of the project. Further, the definitions of purchasers and tenants are wide and make no distinction between a tenant of a significant part of the project, e.g. a threshold number of floors, and a tenant of an insignificant part which would not usually 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 Third-Party Rights Schedule; and neither the Contracts (Rights of Third Parties) Act 1999 nor the Schedule deals adequately with the risk of “double jeopardy”, namely the risk of being sued more than once in respect of the same loss.
Ground conditions
There is an option here: an employer that wishes the contractor to accept responsibility for ground conditions (which are conditions or man-made obstructions in the ground that necessitate amendment to either the requirements or proposals) can leave the MPF unamended. This is a sensible compromise. If it is happy to accept that ground conditions give rise to a “change”, then it can tick the relevant option in the appendix and operate clause 8.2. Experience tells in real life few employers will do so. If clause 8.2 applies, any ground conditions which could not have been foreseen by an experienced and competent contractor at the base date will constitute a change.
However, it will only be a change by reference to the information about the site which the contractor had received or could reasonably have obtained.
The contract therefore specifically addresses the issue of unforeseen ground conditions and gives the parties the option of ground conditions being either the contractor’s risk (which is the default option) or alternatively treating unforeseen ground conditions in similar manner to clause 12 of the ICE conditions.
Making good
The “rectification period” is a key stage of the contract. The intention is that at the expiry, quality, financial and commercial matters will have been dealt with. Fat chance, some may say, but that is the intention, hence all the health warnings about entering such a contract and the maturity required of all its players.
At the end of the rectification period, the employer issues a statement to the contractor. This is similar to a certificate of making good defects and should be done promptly. The statement will either state the contractor has made good the defects, or in circumstances where the contractor has been requested to undertake remedial work and has not done so within a reasonable time of the expiry of the rectification period, the statement will indicate that the employer will instruct others to rectify the defects and give an estimated cost of rectifying the defects. Alternatively, the employer can elect not to have the defects rectified as under JCT contracts pre-98. If the employer decides not to rectify the defects, the employer can make an appropriate deduction from the final payment advice. The final payment advice should be issued concurrently with the Rectification Statement and will be final and binding in relation to any financial matters unless they are disputed within 28 days of issue.
Disputes
One final point of interest, as with the JCT 05 family, there is no provision for arbitration in the new contract. Disputes are to be resolved by mediation, adjudication and/or litigation. Adjudication will be conducted in accordance with the Scheme. Accordingly, I believe, and it is a view shared by the British Property Federation, that this form offers the single-point responsibility for design-and-build procurement that is required.
Summary
At fewer than 15,000 words, the MPF is a slip of a girl compared with what much of the industry has wrestled with under JCT WCD 98. This comes of more modern drafting but the bulk of it is due to the contract taking a “less is more approach”. As you prepare MPF contracts for signature, you need to ensure that the documents you are adding cover all the central issues of insurance, payment arrangements, tests and inspections.
[1] The JCT has also published a 24-page set of Guidance Notes for use with the MPF (which appears to partly contradict the aim of producing a shorter and simpler contract that should be sufficiently self-explanatory).
[2] The JCT Sub-Contract first published in June 2004 reflects the format and approach of the contract and anticipates that the subcontractor will be similarly experienced in undertaking work.
[3] A June 2003 virgin. The MPF is considerably shorter than any of its contemporary JCT contracts, for example it is 80% smaller than the 1998 With Contractor’s Design contract.
[4] 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.
[5] To preserve the liquidated damages provision, the MPF provides an extensive list of relevant delay events, but this list does not include exceptional weather conditions, industrial disputes, the inability to obtain labour and/or materials, or delays in statutory approvals. These excluded items are therefore at the risk of the contractor.
The MPF adopts the following principles for making an extension of time:
- the employer should implement any agreement reached regarding changes, acceleration or cost savings;
- regard must be given to any failure by the contractor of clause 9.3, i.e. using reasonable endeavours to prevent or reduce delay to the works; and
- a fair and reasonable adjustment should be given regardless of any concurrent culpable delay.
[6] (1987) 39 BLR 89.