1.1 This report has been written, to explain and critically examine the reasons why the Joint Contractual Tribunal 1998 has been amended from its original publication.
1.2 Since the Joint Contractual Tribunal issued the Standard Form of Building Contract, 1998 Edition, it has been amended 5 times with new clauses and sundry amendments.
1.3 The amendments have been brought out annually since the Joint Contractual Tribunal issued the Standard Form of Building Contract, 1998 Edition was introduced.
1.4 In brief the amendments are as follows.
a) Amendment 1, June 1999 – Construction Industry Scheme (CIS)
b) Amendment 2 & Guidance notes, January 2000 – This amendment relates to the Contracts (Rights of Parties) Act 1999; Interim Certificates; Adjudication and Contribution, levy and tax fluctuations.
c) Amendment 3, January 2001 – Terrorism cover/Joint Fire Code/Standard Method of Measurement
d) Amendment 4, January 2002- Amendment covering extensions of time/loss and expense/advance payment
e) Amendment 5 and Guidance Notes, July 2003 – Construction Skills Certification Scheme Organisation/Institution
1.4 The amendments have been introduced for numerous reasons. They may have been introduced due to breaches or changes in the situations that affect the JCT. They may also have been implemented due to the introduction of other legislation that affects contractual procedures.
1.5 Due to the style of the construction industry, changes occur regularly and new procedures, legislation and regulations have to be updated regularly. Not only during the construction phase are there important changes but also in all the politics and management surrounding the industry.
1.6 The contractual preparation during the setting up and execution of construction projects is very complex, and due to constant changes in the environment and human evolution, situations change constantly. This calls for information literature and publications to be kept up-to-date.
2.1 Amendment 1
2.1 Amendment number 1 of the Standard Form of Building Contract, 1998 Edition was issued June 1999.
2.2 The amendment incorporated the Construction Industry Scheme (CIS). The Introduction of this scheme works in regards to contractors and sub-contracts.
“Where a subcontractor holds a Registration Card, the contractor must make a deduction from all payments for labour of an amount on account of the subcontractor’s tax and National Insurance contribution (NIC) liability.”1
2.3 The CIS system is where contracts and sub-contractors are issued with a credit card sized registration card, which is issued by the Inland Revenue.
2.4 Every project or job that they work on, they must supply the contractor with the information from the CIS card. This information is then used to pay the contract or sub-contract.
2.5 Dependant upon which CIS card the contract or sub-contract has, derives whether or not they pay their own income tax and national insurance themselves.
2.6 This method is split into 2 processes: –
a) Construction Industry Scheme (CIS) 4, when paying the sub-contractor/employee the employer/main contractor will deduct any statutory payments to government i.e. Income Tax at whatever the rate and National Insurance Contribution at whatever rate this is.
b) Construction Industry Scheme (CIS) 5, 6, is when the employer/main contractor pays the sub-contractor/employee in full. The sub-contractor then pays his or hers own Income Tax and National Insurance Contributions and any other statutory contribution. The sub-contractor/employee will probably have their own accountant, which sorts this out.
2.7 Sub-contractors who obtain Construction Industry Scheme cards can be individuals/one man bands or they can be established companies, Limited Companies.
“To qualify for a Subcontractors Tax Certificate (CIS6), individual subcontractors have to have been up-to-date with their tax affairs during the previous three years and have had an annual turnover from construction work (net of materials) of at least ï¿½30,000 for a continuous period of three years within the previous four years”2
2.8 Self employed or limited company subcontractors who do not qualify for a subcontractors tax certificate should apply for a Registration Card (CIS4).
2.9 Due to the flexibility of the construction industry, i.e. people can change projects constantly, there is no way of keeping track of individuals’ situations with regards to when they are working and when they were being paid, officially and unofficially.
2.10 The introduction of the Subcontractors Tax Certificate is to try and keep record of operatives involved in construction projects, making sure that they pay their statutory contributions and cash in hand jobs are avoided.
2.11 This will save money being lost in the industry.
2.12 The CIS system is an excellent system introduced into the construction industry and the incorporation of it into the Standard Form of Building Contract means things run more efficiently. It simplifies the payment system for sub-contractors and contractors working on different projects.
3. Amendment 2
3.1 Amendment number 2 of the Standard Form of Building Contract, 1998 Edition was issued January 2000.
3.2 The amendment is the introduction of 5 sundry items as listed below in brief:-
I. Contracts (Rights of Third Parties) Act 1999 – contracting out
II. Issue of Interim Certificates
III. Contribution, Levy and tax fluctuations
IV. Labour and materials cost and tax fluctuation
3.3 Item I. Regards to a third party involvement in the contract: –
“Notwithstanding any other provision of this Contract nothing in this contract confers or purports to confer any right to enforce any of its terms on any person who is not a party to it”3
3.4 An example of this is in the case of Darlington BC v. Wiltshier Northern Ltd 1 WLR 68,76.
“The case for recognizing a contract for the benefit of the third party is simple and straightforward. Principle certainly requires that a burden should not be imposed on a third party without his consent.”4
3.5 The Third party to a contract should not be persecuted in conjunction with the contract, obviously not without reason, if the contract fails to meet its expectations.
3.6 Basically third parties should have rights under contracts. They organise their affairs in the faith of the contract.
3.7 Item II. Issue of Interim Certificates. A clause has been entered that requires parties to the contract to issue their interim certificate payments every month consecutively after the date of the first payment indicated in the initial form of contract.
3.8 This item has been introduced so that there is a standard structure in which
architects issue their certificates and when main contractors pay.
3.9 Item III / IV. Contribution, Levy and tax fluctuations / Labour and materials cost and tax fluctuation, initiates requirements on the main contractor and contractors working on a project. The new clause amends the original so that the taxes on the disposal of waste are omitted.
3.10 Also the option for the employer to decided whether to include fluctuations on fuel tax has been omitted.
3.11 And finally fluctuations no longer only apply to the materials and goods that a contractor specifies on a list. If the contract has any further items that may need introducing into the list due to unforeseen circumstances that may arise in the project, fluctuations may apply to these too, as problems can arise easily in the industry.
3.12 These items were introduced due to the confliction of parties during a contract.
3.13 Item V. Refers to adjudication and disputes during the construction process. The aim of the amended item is to solve any dispute and initiate the responsibility. This may involve an expert opinion, also costs will be instructed to be paid by the person the adjudicator specifies.
4. Amendment 3
4.1 Amendment number 3 of the Standard Form of Building Contract, 1998 Edition was issued January 2001.
4.2 The amendment is titled Terrorism cover/Joint Fire Code/Standard Method of Measurement.
4.3 There are 11 items in total that were introduced under this amendment.
4.4 Items 1-6 refers to terrorism cover in contracts. The provisions are that main contractors are to take out insurance provisions that cover them for loss or damage by fire or explosion howsoever caused.
4.5 The terrorism act has now being looked at very closely since September 11th 2001. Due to mankind’s current views on religion and politics, terrorism has become a major problem in most countries. This has a major effect on the construction industry. Terrorists often target buildings and construction.
4.6 An act of terrorism is as follows:-
“an act of any person acting on behalf of or in connection with any organization with activities directed towards the overthrowing or influencing of any government de jure or de facto by force of violence”.5
4.7 Insurance against this should be compulsory to all construction firms, so that in the unforeseeable event that a tragedy like this would occur, companies are covered.
4.8 Items 7-9 refers to Joint Fire Code compliance; various clauses have been introduced to ensure that remedial measures by the contractor are taken.
4.9 The objective of the Joint Fire Code is to reduce the incidence of fires in construction-related works.
4.10 It sets out a series of procedures to be followed and standards to be met that should minimize the risk of accidental or malicious fires.
4.11 The insurance requirements of a building contract is that of ensuring that the employer is properly protected from the financial implications of incidents relating to the building project that give rise to claims. Although the building site will be under the control of the contractor, any incidents giving rise to legal claims are frequently the subject of a claim against the employer rather than the contractor, perhaps because he is felt to be of more substance.
4.11 Item 10 refers to Construction Industry Scheme and change of wording so that payments should be sent within 14 days of the end of the income tax period.
4.12 Item 11 refers to the modification of references to the Standard Method of Measurement. This basically tidies up various items in the SMM, deleting various clauses.
5. Amendment 4
5.1 Amendment number 4 of the Standard Form of Building Contract, 1998 Edition was issued January 2002.
5.2 This amendment covers Extension of Time / Loss and Expense / Advance Payment.
5.3 Similar to the item 4.8 of this report, amendment 4 is two items being introduced and wording deleted and inserted. Item 1: –
“The extension of the time granted under clause 25ï¿½4ï¿½19 seeks to rectify this situation and thereby, to preserve the Employers own right of recourse to the liquidated damages provisions in the contract.”6
5.4 Item 2 refers to loss and expense occurred by the contractor and although they don’t automatically give rise to a claim of loss and expense, matters have been considered entitling the contractor to ascertain loss and expense which may result under the express contractual provisions. The new clause deals with this accordingly.
6. Amendment 5
6.1 Amendment number 5 of the Standard Form of Building Contract, 1998 Edition was issued July 2003.
6.2 This amendment covers Construction Skills Certificate Scheme (CSCS).
6.3 Amendment 5 consists on 1 item.
6.4 The item is basically from the employer’s point of view, and encouraging contractors and sub-contractors, who are employed in the execution of projects, to be registered cardholders of the Construction Skills Certificate Scheme.
“CSCS aims to register every competent construction operative within the UK not currently on a skills registration scheme. Operatives will get an individual registration card (similar to a credit card), which lasts for three or five years. The CSCS card also provides evidence that the holder has undergone health and safety awareness training or testing.”7
6.5 The introduction of the Construction Skills Certificate Scheme was an excellent idea. It helps regulate the industry. People with this card are fully qualified and have proof that they are.
6.6 The scheme is aimed at providing the industry with well-qualified, proven tradesman.
6.7 The incorporation of this into the Standard Form of Building Contract, is an excellent idea, it will hopefully improve the overall structure and quality of the industry.
7. Future Amendments
7.1 The Standard Form of Building Contract, 1998 Edition will no doubt be amended in the near future, due to the nature of the industry that we work in. Technology, objectives and ideas change so frequently that it would be easy for literature and legislation to fall behind quickly.
7.2 The Introduction of the amendments helps improve the development and growth of the industry. They keep it running efficiently and effectively with as little inconvenience as possible.
7.3 The JCT 98 contract is not only aimed at the large construction firms that use contractual procedures on a daily basis but it is also designed to help small firms right down to sole sub-contracts. It has an affect on all sorts of construction work and projects taking place and helps them to be safe, efficient and profitable working environments.