Briefing document: Understanding the Royal Institute of British Architects (RIBA) Building Contracts. 5 November 2014

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1 Briefing document: Understanding the Royal Institute of British Architects (RIBA) Building Contracts 5 vember 2014

2 Table of Contents Part 1 Introduction Part 2 Why new contracts? The reason for the publication of the RIBA Building Contracts Part 3 The RIBA Domestic Building Contract and the RIBA Concise Building Contract Part 4 Comparison with other contracts 2

3 Part 1: Introduction The RIBA Domestic Building Contract and the RIBA Concise Building Contract are simple but comprehensive and are designed to facilitate successful completion of projects undertaken using them. Both RIBA Building Contracts provide an alternative for clients by offering a more userfriendly, flexible contract for use in domestic and minor works projects. For domestic projects the RIBA Domestic Building Contract is an important alternative for clients who may have been following the more risky and dispute-prone route of using commercial contracts for their domestic projects. Both contracts are written in plain English, reflect current law and contain terms to deal with the real issues that arise during modern construction works. The contracts also address several issues not covered by existing standard forms and provide simple solutions to recurring areas of dispute. This briefing introduces the new RIBA Building Contracts and sets out their major features; it compares them with contracts from other publishers and gives answers to frequently asked questions. Part 2: Why new contracts? The reason for the publication of the RIBA Building contracts With a vast number of standard form building contracts currently available in the UK market, the first question to be answered is: does the construction industry need a new building contract? The answer is yes, emphatically. Research has shown that there is a shortfall in both the domestic sector involving works to a client s home and the minor works sector concerning simple commercial building works with a need for substantial improvements in the contractual arrangements available. 3

4 Domestic Building Sector Contracts here are described in law as being between Consumers and Suppliers. The law provides additional protection to consumers over and above the rights they would have under a commercial contract. Over the years there has been a boom in the home improvements market, and the types of building work undertaken are now more substantial. However, the contracts used have not evolved to take account of the changes in the types of work nor reflected reforms in contract administration practice. For instance, while it is now common for a building contractor to undertake the design of parts of works such as plumbing or electrical installations, existing consumer construction contracts do not provide for contractor design. The RIBA Domestic Building Contract contains clauses to deal with this and several other areas that are not well covered by existing publications. These include: Instructing change: changes may be required because of an amendment to the client s requirement or unforeseen circumstance discovered after the building work has started. The process of instructing the change and agreeing any revision to the contract price is not dealt with effectively in many existing consumer construction contracts. Contract Administration: many existing consumer construction contracts restrict the power of the person overseeing the contract on behalf of the client. For instance, there may be no provision for the power to open up and inspect defective works. In practice, this may reduce the ability to ensure that the work is of a high standard. Programme: some existing contracts do not require the provision of a programme of work by the contractor. As a result, managing the timing and sequencing of activities can become difficult. Payment: the payment mechanisms in most existing contracts do not deal adequately with timing of payment and the consequences of non-payment, and this sometimes leaves the contractor at a disadvantage. 4

5 Insurance: insurance clauses in most existing contracts rarely address contractor insolvencies or recognise the difficulty customers face in obtaining adequate insurance for work at their home. Defective work: many existing contracts fail to provide a clear process for dealing with defects that appear after practical completion. This can leave the parties in a difficult position if, for example, the contractor fails to turn up to fix them or takes an unreasonable length of time to do so. Consultants: available consumer construction contracts often have no provision to record the appointment of sub-consultants (e.g. structural engineers, cost consultants) although they are increasingly used on domestic projects. Liquidated damages: these are payments from the contractor to the client to cover the client s additional costs if there is a delay caused by the contractor in completing the building work, thereby providing the client with a secure mechanism for recovery. The alternative is to go to court which can be costly and time consuming. Some existing contracts do not provide for liquidated damages. Collaboration and risk management: these provisions allow the parties to work together and manage potential risks in advance of their occurrence in the project. This means the contracts can be used as a tool for proactive management of the project, rather than only having relevance when a dispute arises. Most existing consumer contracts do not cover collaboration and risk management. Some trade associations have published domestic building contracts which are weighted heavily in favour of their members. These contracts often have terms requiring the client to pay in advance of the work being carried out, or terms releasing the contractor from timely completion of the building work, among other one-sided terms. One solution typically proposed by consultants and contract advisers, to cover for the gaps in existing consumer contracts, is to recommend the use of a commercial building contract, e.g. a small/minor works contract. However, this practice can create serious difficulties. 5

6 Commercial contracts are not drafted with consumer clients in mind and do not conform to the requirements of consumer protection legislation 1. Additionally many of the terms in a commercial building contract introduce unnecessary administrative bottlenecks for domestic projects and do not facilitate the timely completion of the building work. Such terms include payment provisions with extensive procedures and dispute resolution clauses which do not foster amicable settlements of differences. In practice, when using commercial contracts for domestic projects, substantial redrafting is required, adding legal costs, as many of the terms would have to be individually renegotiated with the consumer client. The RIBA Domestic Building Contract has been published to remove these difficulties. It is simple, drafted to comply with consumer protection regulations, is comprehensive and using optional clauses to cover a wide range of works. Compared with the small works commercial forms, it gives the client, contractor and consultant a more balanced contract which should result in successful and timely completion of residential building projects. Minor Works Commercial Building Sector This includes simple commercial building works. In this sector there are a large number of standard form building contracts and considerable confusion on the circumstances under which each contract is appropriate. However, despite the large number, these contracts typically fail to address simple issues which are recurrent in practice e.g. provision of a programme by the contractor. Even where some of the issues are addressed, the clauses are often not comprehensive. An example of this is contractor design. While existing contracts recognise this as common practice and provide an option for contractor design, they regularly fail to provide for Professional Indemnity (PI) insurance in respect of that design. In practice, this means that if there is an error in the contractor s design, the client may have difficulty obtaining financial compensation. 1 Commercial building contracts may contain terms viewed by consumer regulations as unfair terms. Also commercial building contracts are not always expressed in plain, intelligible language. 6

7 The RIBA Concise Building Contract contains clauses to deal with these issues comprehensively and several other areas that are not well covered by existing publications including: Valuation of changes: the process of assessing the costs and time implications of changes 2 instructed during the works is not always effective. In some cases, negotiations and arguments continue many months after the change was instructed, and research 3 indicates that this is a recurring subject for dispute. Programme: some existing contracts do not require the provision of a programme of work by the Contractor. As a result, managing the timing and sequencing of activities can become difficult. Completion in Sections: allowing the selection of different completion dates for various parts of the works gives a client the option to take over and make use of those parts while construction continues on other parts of the building. Completion in sections is a useful tool for management of larger projects (converting a large house into apartments, or developing a centre with several separate units) Payment: the payment mechanisms in most existing commercial contracts do not adequately deal with all types of projects; this is especially true for small commercial works of duration of 45 days or less. Contract Administration: many existing contracts do not adequately define the duties and obligations of the person overseeing the contract (consultant) on behalf of the client. This creates ambiguity. The RIBA Concise Building Contract provides clear and comprehensive clauses on the duties and powers of the consultant. Collaboration and risk management: these provisions allow the parties to work together and manage potential risks in advance of their occurrence. The collaboration clauses under some existing contracts are wide 4 and therefore not 2 Changes may be required because of an amendment to the Client s requirement or unforeseen circumstance discovered after the building work has started. 3 NBS National Construction Contracts and Law Survey An example of a widely drafted clause use in practice is shall work with each other and with other project team members in a co operative and collaborative manner, in good faith and in a spirit of trust and respect. To that end, each shall support collaborative behaviour and address behaviour which is not collaborative. 7

8 effective as they do not focus on specific issues relevant to small works. The clauses in the RIBA contracts, on the other hand, are targeted to areas where dispute arise and provide simple solutions to ensure good risk management. The RIBA Concise Building Contract is simple yet comprehensive, written in plain English; it is concise and provides all parties with an effective and balanced contractual arrangement. Part 3: The RIBA Domestic Building Contract and the RIBA Concise Building Contract The RIBA Domestic Building Contract and the RIBA Concise Building Contract follow a similar structure, with broadly similar content. Each contains slightly different features which reflect their purposes and uses as a domestic or commercial contract. There is no recommended project value for the contracts, as it is felt that this is not the main factor affecting contract choice in practice. It is, however, recommended that the contracts are suitable for projects lasting up to 12 months. Summary of the Contracts The Contracts are divided into three parts: the Agreement the Contract Details the Contract Conditions One or more other documents (called Contract Documents ) may also form part of the Contract; this includes drawings, specifications, concise description of the works or any other document that describes in detail the work that the client wants the Contractor to carry out, including any restrictions that apply. Such Contract Documents would have to be listed in the Contract Details to form part of the Contract. The Agreement This is a short document which records the agreement of the parties to the contract terms and conditions. There are options to sign as a corporate body where appropriate. 8

9 The agreement may be signed as a simple contract or as a deed. This choice determines the statutory limitation period within which a party can bring claim for breach of contract: Simple contract: 6 years Deed: 12 years Contract Details In this section, the parties describe the project-specific features of the works. It contains: Main items: general information required for most projects. These include: A description of the subject of the Contract (The Works), where it will take place, and any factors affecting how it is to be carried out Details of consultants, the documents on which the Contract is based (The Contract Documents) Items concerning the management of the Works, and facilities to be provided at the site Start and completion dates, and the consequences of failure to meet those dates Contract Price and payment Provisions for dealing with defective work, insurance and dispute resolution Optional items: these are additional provisions that allow for greater control of the Works and might be required in more complex projects. These include provisions for: Submission of a detailed programme by the Contractor Contractor design of parts of the Works Completion in sections Client to influence the choice of subcontractor ( Required specialist ) Collateral warranties/ third party rights agreements Variations to the payment procedures including payment on completion (suitable for works of duration of 45 days or less) Milestone payment* and Advanced payment* Clauses for use by public sector Clients* Contractor to request evidence of the Client s ability to the pay the contract price* A new building warranty** 9

10 Client to administer the contract without a separate consultant** * Concise Contract only ** Domestic Contract only If any of these are selected, the corresponding Optional Clauses in the Contract Conditions will apply. Contract Conditions These are the terms and conditions of contract, and they set out in detail the rights and obligations of the parties and the allocation of risks. They are also divided into Main Clauses and Optional Clauses. The main clauses apply in all cases. The optional clauses will only apply if the corresponding optional item is selected in the Contract Details. 10

11 Part 4: Comparison with other contracts We have selected four important criteria to compare the RIBA Building Contracts with other available contracts. These are the criteria Parties consider (or should consider) when deciding on the contract to choose for a project: Scope: the comparison table sets out the type of projects and procurement method the contracts are intended for, and the range of contract clauses and any other limitations Cost: the table sets out and compares the clauses available under each contract to ensure that a project is completed to budget Quality: the contracts will be compared on how well their provisions help facilitate the client/ consultant in ensuring that the contractor s work is of the appropriate quality Time: the table will compare contract clauses to clearly set out the options available in each contract to enable Parties to complete projects on time 11

12 RIBA Domestic Building Contract Comparison of the RIBA Domestic Building Contract and the JCT Contract for a Home Owner/ Occupier Contract RIBA Domestic Building Contract JCT Homeowner Contracts Description Scope RIBA Domestic Building Contract 2014 JCT Building Contract for a Home Owner/ Occupier Description of Client Residential Home Owner/ Occupier Occupier (Customer) Administration by consultant Option for Client to administer (covered under one contract) (this is in a second variant) Traditional Procurement Up-to-date on all consumer regulations, t currently including the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 Simple payment mechanism Contractor may request payment Collaborative Working Risk management option Contractor Design of parts of the work Completion in sections Cost Contract price stated (with VAT if applicable) Limited provision to adjust contract price 12

13 Rules to govern assessment of adjustment Time bar on applications for additional payment and extensions of time to ensure efficient management of claims Contractor to make savings suggestions Insurance provisions Checking regime for insurance Insurance backed guarantee against Contractor insolvency Quality Provision for retention on payments Quality of materials Fit for purpose New and suitable Access for consultant for inspection On site and off site On site only purposes Consultant may accept defective work and adjust price accordingly Work may be opened up for testing Client may influence choice of Subcontractor Clear explanation of practical completion Time Start/ Completion Dates clearly identified Liquidated damages for failure to complete Facility to request Contractor s programme Detailed rules governing application and calculation of changes to the completion date 13

14 Comparison of the RIBA Domestic Building Contract and the Federation of Masters Builders (FMB) Domestic Contract for Minor Building RIBA Domestic Building Contract FMB Contracts Description RIBA Domestic Building Contract 2014 Federation of Masters Builders (FMB) Domestic Contract for Minor Building Scope Description of Client Residential Occupier (Customer) Domestic client (property owners must be named) Administration by consultant Option for Client to administer Traditional Procurement Up-to-date on all consumer regulations, t currently including the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 Simple payment mechanism (requires payment of percentage of the contract price into a joint account) Contractor may request payment Collaborative Working Risk management option Contractor Design of parts of the work Completion in sections Liquidated damages for late completion Cost Contract price stated (with VAT if 14

15 applicable) Limited provision to adjust contract price Rules to govern assessment of adjustment Time bar on applications for additional payment and extension of time to ensure efficient management of claims Contractor to make savings suggestions Insurance provisions Checking regime for insurance Insurance backed guarantee against Contractor insolvency Quality Provision for retention on payments Quality of materials Fit for purpose New and of satisfactory quality Access for consultant for inspection On site and off site On site only purposes Consultant may accept defective work and adjust price accordingly Work may be opened up for testing Client may influence choice of Subcontractor Clear explanation of practical completion Time Start/ completion dates clearly identified Liquidated damages for failure to complete Facility to request Contractor s programme Detailed rules governing application and calculation of changes to the completion date 15

16 Comparison of the RIBA Domestic Building Contract and the JCT Minor Works Building Contract RIBA Domestic Building Contract JCT Minor Works Contracts Description Scope RIBA Domestic Building Contract 2014 JCT Minor Works Building Contract 2011 Description of Client Residential Occupier Private and local Authority Employers Administration by consultant Option for Client to administer Traditional Procurement Up-to-date on all consumer regulations, including the Consumer Contracts (it is not a consumer contract) (Information, Cancellation and Additional Charges) Regulations 2013 Simple payment mechanism (requires detailed payment provisions in accordance with statute for commercial contracts) Contractor may request payment Collaborative Working (focused on domestic and small works) (widely drafted. It is also a supplemental provision and needs to be added to apply) Risk management option Contractor Design of parts of the work (with provision for professional indemnity insurance) (in a second form Minor Works with Design with no provision for 16

17 professional indemnity insurance) Completion in sections Liquidated damages for late completion Cost Contract price stated (with VAT if (without VAT) applicable) Limited provision to adjust contract price Rules to govern assessment of adjustment Time bar on applications for additional payment and extension of time to ensure efficient management of claims Contractor to make savings suggestions (this is supplemental provision and would have to be incorporated to apply) Insurance provisions Checking regime for insurance Insurance backed guarantee against Contractor insolvency Quality Provision for retention on payments Quality of materials Fit for purpose Reasonable satisfaction of the Architect/ Contract Administrator. Access for consultant for inspection On site and off site On site only purposes Consultant may accept defective work and adjust price accordingly Work may be opened up for testing Client may influence choice of Subcontractor Clear explanation of practical completion Time 17

18 Start/ completion dates clearly identified Liquidated damages for failure to complete Facility to request Contractor s programme Detailed rules governing application and calculation of changes to the completion date 18

19 RIBA Concise Building Contract Comparison of the RIBA Concise Building Contract and the JCT Minor Works Building Contract RIBA Concise Building Contract JCT Minor Works Contracts Description Scope RIBA Concise Building Contract 2014 JCT Minor Works Building Contract 2011 Description of Client Private and Public Employer s Private and local Authority Employer s Administration by consultant Traditional Procurement Payment mechanism complies with the Housing Grant, Regeneration and Construction Act as amended Contractor may request payment Advanced payment provision Flexible payment provisions i.e. for works lasting for 45 days or less, using milestone payments Collaborative Working (focused on domestic and small works) (widely drafted. It is also a supplemental provision and needs to be added to apply) Risk management option Contractor Design of parts of the work (with provision for professional indemnity insurance) (in a second form Minor Works with Design but with no provision for 19

20 professional indemnity insurance) Completion in sections Liquidated damages for late completion Cost Contract price stated Limited provision to adjust contract price Rules to govern assessment of adjustment Time bar on applications for additional payment and extension of time to ensure efficient management of claims Contractor to make savings suggestions (this is supplemental provision and would have to be incorporated to apply) Insurance provisions Checking regime for insurance Quality Provision for retention on payments Quality of materials Fit for purpose Reasonable satisfaction of the Architect/ Contract Administrator. Access for consultant for inspection On site and off site On site only purposes Consultant may accept defective work and adjust price accordingly Work may be opened up for testing to ensure quality Client may influence choice of Subcontractor Clear explanation of practical completion Time Start/ completion dates clearly identified 20

21 Liquidated damages for failure to complete Facility to request Contractor s programme Detailed rules governing application and calculation of changes to the completion date Further information For further information on the RIBA Building Contracts visit 21

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