Is it time for an international JCT contract?

This article was published on the Joint Contracts Tribunal website on 12 April 2016.

For further information, please contact David Weare, Partner, Fladgate LLP (dweare@fladgate.com)

English language standard form contracts are an appropriate choice for use on international construction projects. This was the conclusion of The Hon. Sir Vivian Ramsey at the 2015 JCT Povey Lecture which considered the international applicability of the cultural and legal concepts of using such contracts abroad.

The principal theme of the lecture was that parties may not be able to rely on various terms that might otherwise be implied into contracts when English standard forms are used overseas.

That English standard form contracts are becoming more widely used on projects outside the UK is due to a number of factors, including the greater role played abroad by UK professionals. Parties that may have established a course of dealings on particular contract terms may wish to adapt what they have already agreed for use on a project abroad rather than starting from scratch. English standard form contracts are also attractive to UK professionals, employers and lenders as they contain a tried and tested risk profile with which they will be familiar. Language also plays its part where English may be the language of the contract and project communication.

All these issues make English standard form contracts a suitable starting point for use on international construction projects. However, in terms of the practicalities of using English standard form contracts abroad, the issue is wider than one of interpretation as covered in the JCT Povey Lecture. Parties must consider the actual amendments to be made to the standard form text in order to make it work abroad. These amendments fall into two parts. Firstly, parties must consider what must be added to the standard form drafting. These amendments will vary according to the local jurisdiction of the project. It will be necessary to address through express contract amendments issues that would otherwise be implied by English law or to include drafting to cover issues which might be addressed differently in the local jurisdiction.

Secondly, it is necessary to consider the parts of the underlying standard form text which must be removed to make the contract work abroad. The advantage of using English standard form contracts is that they are drafted to reflect English law, practice and procedure, with separate versions available for Northern Ireland and Scotland. However, as things currently stand it is first necessary to remove and adapt large parts of the standard form text before deciding which amendments ought then to be incorporated to reflect the local jurisdiction. Some of the principal areas for consideration are as follows:

• Payment: English standard form contracts are drafted so they comply with applicable legislation in Great Britain regarding payment in construction contracts. Where relevant contracts do not include a valid payment regime then statute will imply terms that supersede the non-compliant contract terms. The legislation applies to affected contracts in Great Britain but will not extend to projects carried out abroad. Parties must therefore consider whether the British compliant payment procedure is to be followed or whether they wish to follow a simplified procedure that might be easier for the project team to administer whilst reducing the paperwork to be served at each payment cycle. In some jurisdictions from a common law background, parties may not have that choice where security of payment legislation, not dissimilar to that in force in Great Britain, might trump noncompliant payment terms.
• Insurance: English standard form contracts are drafted on the basis of an insurance arrangement that reflects the standard market position in the UK, but those terms require careful consideration when used abroad. In the UK, it is not uncommon to see separate insurance policies for public/products liability, professional indemnity and contractor’s all risks insurance.

However, this arrangement may not reflect the local position, especially where it might be common to group insurance risks into a single general liability policy. Drafting concerning the extent of the works insurance also requires careful review to ensure the contractor’s all risks insurance is back to back with the actual cover in place. Amendments removing references to the Joint Fire Code are also likely.

• Health and safety: English standard form contracts comply with relevant health and safety arrangements applicable in Great Britain but will require careful amendments when used on projects overseas. CDM Regulations drafting will not apply to projects outside Great Britain save where construction work is carried out in the territorial sea or an area designated for the exploration or exploitation of renewable energy. In its place, parties must import relevant local rules and regulations to ensure that works are carried out in compliance with the health and safety regime that applies in the country of the location of the site.
• Dispute resolution: Adjudication provisions feature in English standard form contracts but such clauses must be considered carefully where the project is outside Great Britain. As with the issue of payment terms referred to above, in some common law countries local legislation provides a similar statutory entitlement to adjudicate disputes. In this scenario, amendments will be required to reflect the local position, including where appropriate including details of the local adjudicator’s appointment body. Where a local statutory entitlement to adjudication does not apply, parties should consider whether a contractual entitlement should arise and, if so, what that entitlement might look like.

English standard form contracts present a suitable starting point for use on international projects. Whilst amendments will always be required to reflect differences in how the contract will be used and interpreted in the relevant jurisdiction, the use of standard form contracts abroad is not made easy where it is first necessary to scrutinise the underlying standard form text to remove drafting that is only applicable to projects in Great Britain.

This exercise can deter clients from using English standard form contracts altogether, or create longer than necessary schedules of amendments to the standard form text. As we all know from personal experience, the more extensive the contract amendments the more time and cost will be involved in reaching agreement.

A better starting point would be a standard form contract that preserves the best of current practice and procedure, that meets commonly accepted international standards but is still flexible enough to be adapted for use in multiple jurisdictions. Is it not therefore time for an international JCT contract?