The past 12 months contain some interesting UK construction contracting developments, including: the release by the Joint Contracts Tribunal (JCT) of the much-anticipated 2024 updated versions of its family of contracts; the market grappling with the practical effects of the building safety regime and how to deal with gateways 2 and 3; and certain high-profile insolvencies leading to a reconsideration of performance security.
One of the most highly anticipated events of 2024 was the launch of the JCT 2024 suite of contracts. Major releases so far include the contracts for: Design and Build, Standard, Intermediate, Minor Works, Major Projects, Prime Cost and Constructing Excellence. The contract amendments are evolutionary not revolutionary with JCT endeavouring to reflect established market trends and existing case law or legislative updates, rather than trying to lead the market to new positions. Naturally, we expect the market to move away from the 2016 suite to the 2024 suite.
The JCT suite of contracts now includes an obligation to set out who the principal contractor and principal designer are for the purposes of part 2A of the 2010 Building Regulations, use gender neutral language and contain provisions clarifying the treatment of liquidated damages on termination.
Other important changes include these two. First: the addition of a fitness for purpose exclusion, removing the possibility of the contractor having an absolute obligation in ensuring that the design meets the purpose for which it was intended. Second: providing contractors with additional relief on discovery of asbestos, contaminated material or unexploded ordnance.
Regarding building safety: developers, contractors and consultants are navigating through the new rules and regime. For example, detailed discussions are taking place as to who takes on the role of principal designer. This is being debated by developers, contractors and consultants. That debate will continue until a consensus emerges as to the party that has the relevant competence to take on the role and is therefore best placed to undertake it.
There are also discussions taking place as to which party submits the application for gateways 2 and 3 of the building safety regime. There appears to be a trend developing where main contractors are being asked to submit both gateway applications on behalf of the employer. Employers seem to be taking the view that the design is controlled and developed by the contractor – especially in two stage tendering – and therefore they are best placed to make the application. As ever, if contractors are willing to assume this obligation, they must ensure they understand the risk and how they will manage it in practice.
High profile insolvencies in 2023 made obtaining performance security harder for contractors. That position has not improved in 2024 with further high-profile insolvencies in the last 12 months reminding the market that a parent company guarantee is of little comfort when the whole group, including the parent company, becomes insolvent. Stakeholders are therefore increasingly requiring contractors to provide performance bonds as well as parent company guarantees.
As a consequence of the increased demand for bonds and the environment left after these insolvencies, the bond market has hardened. Many contractors are reporting that they either cannot obtain bonds, or that they cannot be obtained at an economic price, leaving the employer with some hard choices on cost and security for performance.
Looking ahead to 2025, we expect the market to settle on an approach in respect of the various aspects of the building safety regime and an uptick in the adoption of the JCT 2024 suite.
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