New Build UK guidance to improve contractual practices published

The guidance should be read in conjunction with Build UK's contract terms recommendation, published last year. The guidance sets out in detail why Build UK believes that the six contract terms identified in the recommendation have the potential to impact on collaboration and create inefficiencies. It also provides alternatives that Build UK believes will more effectively manage the issues addressed by that term, with reference to the JCT and NEC standard forms of contract.

Construction law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law, said that the guidance "adds some helpful flesh to the bones" of the contract terms recommendation.

"The additional explanation ought to facilitate greater understanding and, in turn, implementation of their recommendations," he said.

"The guidance is another welcome contribution to the ongoing debate in the industry around greater collaboration, best practice and what constitutes fair and appropriate allocation of risk in the supply chain," he said.

Build UK has recommended that contractors avoid broad 'fitness for purpose' clauses, however they are worded, except in the process engineering sector where such clauses are industry practice. Contractors should also avoid blanket indemnities for breach of contract; instead reserving indemnities for "limited and specific categories of losses" where the party giving the indemnity is clearly at fault and where it is most appropriate for them to 'own' that risk, according to Build UK.

The construction trade body also recommends that parties should avoid passing extension of time or loss and expense risk to contractors for dealing with asbestos, fossils and antiquities, unexploded bombs or the carrying out of, or failure to carry out, work by a statutory undertaker where the time and cost impact is not reasonably ascertainable at the point when the contract is entered into. It believes that these risks should instead be captured by the risk register and appropriate early warning mechanisms put in place, backed by provisions allowing contractors to recover additional time and reasonable loss and expense in the event their works are delayed by circumstances outside of their reasonable control.

Build UK has recommended the avoidance of clauses stating that 'specified perils' will not give rise to extensions of time where caused by the contractor. Instead, it recommends that parties should adopt the standard JCT position with its emphasis on sharing of risks, and consider appropriate insurance and compromise arrangements. Uncapped liability should also be excluded, except for aggregate cap carve-outs such as fraud, misrepresentation or personal injury, according to Build UK.

Pure on-demand performance bonds should not be used as a form of performance security, while collateral warranties and parent company guarantees that do not include 'no greater liability' clauses or equivalent rights of defence should also be avoided, said Build UK. It believes that performance security should instead be treated as a 'menu of options' from which the appropriate and necessary form of security is chosen based on the parties and the project in question.

Build UK's recommendation is not binding on its members, who are free to negotiate their own contractual terms with their clients.