The joint contracts tribunal's new standard construction contract could have substantial implications for the insurance industry. John Vasey investigates
A new set of standard conditions for use on construction projects is not usually something that gets the heart racing. However, the new major project form issued by the joint contracts tribunal has caused a considerable stir in the construction industry. It also has substantial implications for property, construction and professional indemnity insurance, particularly for the role of brokers.Why is another contract needed?The new contract was issued in June 2003. Its objective is to simplify the very lengthy existing standard conditions. It is a hefty 14,500 words but this compares with 85,000 in the tribunal's contract that it is intended to replace. It is written in clear language that is easy to understand. The new form also attempts to provide conditions that are in accordance with current construction market norms. This, it is hoped, will avoid the expensive and time consuming amendment of conditions that plagues most substantial construction projects. What is different about the new contract?The key features of the new contract include the following:
Mixed reactionsThe new contract is aimed at those who regularly participate in large projects and who have access to sophisticated advice on the processes involved. The apparent simplicity of the contract is also likely to make it attractive to people dealing with much smaller developments. They will need to be cautious, however, since the contract is only likely to work well when a high level of effort and expertise is put with the detailed documentation, particularly concerning design, that is intended to go with the basic conditions. The new contract has received a generally favourable response from the construction press and has already started to be used. Some in the industry, particularly the larger developers, have expressed reservations. The new conditions have not given them everything they wanted. For example the practice, which has grown up on major developments, of passing all the design risk to the contractor, including that for the initial concept stage, is not followed in the new conditions.Brokers asked to obtain cover under the new contract will need to adopt a different approach from that needed for traditional joint contracts tribunal contracts. The new contract does not contain standard alternative clauses for insurance of the works, existing structures and public liability. It simply provides for the cover required to be identified in an appendix to the contract. The rationale is that bespoke arrangements are often required for major projects anyway, so why clutter up the contract with lots of unnecessary standard conditions.
Marking territoryThe insurance arrangements will also have to deal with possession of the construction site remaining with the client rather than the contractor. The new contract envisages several independent contractors being allowed on the site at the same time. The detail of how such contractors are to relate to each other and to the client will need to be reflected in the insurance package.Project insurance is likely to be more common than on more traditional forms of contract.Of concern regarding professional indemnity is that the new contract creates design liabilities by use of the Contracts (Rights of Third Parties) Act [1999]. This is intended to do away with the need for collateral warranties. However, it is too early to start celebrating the end of this much resented document. Banks and tenants may still insist on having warranties, as well as the new statutory rights. Checking on the rights may well prove even more time consuming than reviewing warranties.The major contract form is just starting to be used. Whether it catches on remains to be seen. Brokers and insurers, who are asked to deal with the new contract, should take time to consider the substantially changed insurance practices required under this new form.
