Setting out your contractual arrangements for your projects can be difficult. FIS does not produce an FIS contract, but recommends the use of the JCT contracts, depending on your circumstances.  Since 1931 JCT has produced standard forms of construction contract, guidance notes and other standard forms of documentation for use by the construction industry.  Today JCT provides a larger and more comprehensive range of contract documentation than any other contract-producing body in the UK construction industry.  JCT became a Limited Company in 1998 and the organisation is comprised of seven member bodies. The members of the company represent the sectors of the industry who are the key participants (i.e. signatories) in the contract process.  FIS maintains membership through BuildUK and our helplines and support is primarilly aligned to working with JCT (and the Scottish Equivalent – the Scottish Building Contract Committee (SBBC).

Download the FIS Factsheet:  Which JCT/SBBC Contract Should I Use?

The cheapest way to manage any dispute is not to have it at all.  Paperwork is everything, well documented, clear presentation and meeting all deadlines set down in the contract may not guarantee the avoidance of disputes.

The FIS Risk Management Toolkit provides a section on contractual management offering a range of best practice tips to help establish a process that helps to avoid disputes.

Contract Terms to Avoid

Build UK has published comprehensive guidance to support its recommendation on contract terms. A New Normal in Contractual Practice provides a detailed rationale for why the six contract terms identified within the recommendation should be avoided and how to more effectively manage the underlying issues. The recommendation, which is non‐binding, seeks to form a common ground between clients and the supply chain and ensure a fairer allocation of risk.

A-New-Normal-in-Contractual-Practice-2020

The Conflict Avoidance Process

CAP is a contractual mechanism, which helps parties to avoid getting embroiled in pro-longed and damaging disputes. Where disagreements begin to develop, CAP enables parties to address and resolve matters early, collaboratively and inexpensively.  The process recommends standard clauses that you can include in tour contract. 

Sample CAP Clause – January 2021

Find out more about the RICS Conflict Avoidance Process (supported by FIS and the Construction Leadership Council) here

The Conflict Avoidance Pledge supports the Conflict Avoidance Process by committing signatories to:

• Adopt early intervention techniques throughout the supply chain, to try to avoid, manage and/or resolve issues before they escalate into disputes.
• Embed conflict avoidance mechanisms into projects with the aim of identifying, controlling and managing potential conflict, whilst preventing the need for formal dispute resolution procedures.
• Identify potential disputes early and use conflict avoidance measures in practice.
• Work with the industry to identify, promote and use these mechanisms.
• The Pledge was initiated by several of the UK’s leading professional bodies for construction and engineering. Together they form the Conflict Avoidance Coalition Steering Group.

Find out more about the Pledge here Conflict Avoidance Leaflet – March 2021

FIS has signed the Conflict Avoidance Pledge and are encouraging our members to do the same find out more here.

Dispute Resolution

From time to time contractual disputes will arise.  These can be solved through legal recourse, or more commonly in construction through Alternative Dispute Resolution (ADR) options such as mediation, adjudication or arbitration.  It is vital before you enter into a dispute that you understand your rights and responsibilities.  The mechanism by which a dispute can be resolved is often determined within a contract, but FIS is onhand to advise members on disputes and to steer you towards the most appropriate option.  We can also offers access to an Independent Advisory Service on problem installations, covering all matters relating to suspended ceilings, partitioning, drylining, plastering and access floors. This covers materials, ancillary equipment, systems, their application and installation.

What is Mediation?

Mediation is a procedure in which a third party acts as an intemediary to the dispute to assists the parties in finding a settlement – the mediator may provide suggestions, but the aim is to find a mutually agreeable solutions.  Mediation does not provide a legally binding outcome, but the Courts may advise a dispute is mediated before undertaking a more expensive legal process.

What is Arbitration?

In the case of arbitration, the matter is referred to a suitibly qualified arbitrator, with technical knowledge in the field, to decide on a solution.  Arbitration clauses are often incorporated within contracts and the process runs as a tribunal – decisions are binding.

What is Adjudication?

Adjudication is a common method of resolving dispurtes related to construction contracts. It  involves the appointment of an “agreed adjudicator” and follows a formal process where by one party sets out the details of their dispute (“the aggrieved party”) and a response is then provided by the other party.  The adjudicator then reviews before provding a final a decision.  The whole process typically takes around 28 days and the decision is final and binding.

The Construction Industry Council have published an excellent Guide to Adjudication available here.

What is a Smash and Grab Adjudication

A “smash and grab” adjudication is where the contractor typically relies on the employer’s failure to get its paperwork in order to “grab” money quickly through an adjudication. It usually arises when the employer fails to serve a valid pay-less notice in time in accordance with the construction contract.

The Art of Getting Paid (slides from a workshop hosted at FIS Members Conference 2019)

For more details on the FIS Independent Advisory Service click here

To access specialist FIS Dispute Resolution Advice phone the FIS Team on 0121 707 0077 or Email: info@thefis.org 

RICS Disputes Resolutions Service Launches Summary Adjudication – As the economic effect of the Covid-19 impacts severely on the construction industry, there are many contractors in the smaller end of the market who are struggling to access dispute resolution even under the reduced cost of Low Value Adjudication (LVD MAP) process.  For a limited period initially until the end of July, as a specific response to the needs of the industry, RICS are now offering Summary Adjudication for claims below £20 000.

What is the Low Value Dispute Adjudication process?

RICS have introduced a Low Value Dispute Adjudication process (<£50k) and your dispute should fall in the scope of this.  This offers the opportunity to contain costs.  As an indicative, beyond the £300 “set-up” fee, below gives you an idea for the costs.

There are potentially travel expenses and additioanl costs if a site visit is required.

The process for initiating an adjudication would be:

1. Write to set out disputes and what is owed
2. Send Notice of Adjudication
3. Go to RICS by completing the Application Form and attach a copy of Notice of Adjudication.

 RICS will then appoint an Adjudicator, who will issue a timetable. You have 7 days from the date of the Notice to send in the Referral so you need to have most of that put together before you do anything else. The Referral is the full detail of your claim.  Under the LVD process there are limitations on the amount of information that can be reviewed.  Should all be wrapped up within 28 days of the adjudication starting.

 The adjudicator can apportion cost, e.g. 50:50.  Any subsequent court proceedings would likely centre on failure to comply with adjudication rather than picking over the bones of the dispute (as I understand it, the alternative is to prove the process wasn’t conducted legally so if using RICS process you should be on fairly safe footing), so significantly cheaper than going to the hearing in court.

 You can use a representative to support, if not a lawyer there are specialist surveyors who can help, contact FIS if you would be interested in a referral.  

 Parties in an adjudication can still settle before the ruling, but you would still be liable for costs.

 More on the Low Value Dispute Adjudication process (<£50k) here

FIS Contract Management Tools

Contract Health Check Tool – members using this tool are entitled to a 20 min free clinic with QS Damian James, this can be booked via info@thefis.org

Detailed Claim Template – Document to support the substantiation of a suspension / delay to work due to the COVID-19 Pandemic

Notice of Claim – Document to support the notification of a suspension / delay to work due to the COVID-19 Pandemic

FIS continues to call for the abolition of retentions on the basis that they are an out-dated mechanism to manage quality and remain abused by contractors who use retentions to withhold cash and delay or even avoid payment.  In recent years legislation has tried to drive change, for example the Housing Grants Construction Act of 1996 forced the removal of pay when paid clauses . The Construction Act 2011 reinforces this by ensuring that that release of retention to subcontractors could not be linked to an unrelated occurrence within a main contract but must be triggered by something specific to the sub contract.  In truth this has not had a huge impact on the abuse of retentions.

The JCT Standard Contracts allows for retentions with 3% on the main and 5% included in the sub contract.   In terms of management of these retentions half should be released on issue of the certificate of practical completion and the remainder on final completion (the standard form contracts use different expressions to refer to this; expiration of the Defects Liability Period; the Certificate of Completion of Making Good Defects; the Defects Certificate or the end of the Defects Correction Period). The sub contract should mirror this with the first half released on practical completion of the works and the remainder as defined by the Retention Release Date, which should be written into the contract.

FIS is a member of Build UK who have set down a plan to move to zero retentions by no later than 2025. To achieve this, they have set down a Roadmap to Zero Retentions with milestones to show that progress is being made.

Find out more about the BuildUK Zero Retentions Map here

Find out more about consultations in Scotland and the possibility of Retentions held in Trust here

Accounting for Retentions

In their accounts, contractors will generally deal with retentions in one of the following ways:

• include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment (see BIM42700 onwards), or
• defer recognition of retentions until their receipt becomes virtually certain.

Each of the above accords with generally accepted accounting practice and should be followed for tax purposes unless an unrealistically conservative view has been taken.

Further details are available here from the HMRC Business Income Manual

Free model LOSC contract for use between FIS members and their labour only subcontractors.

The contract has been designed to help members who employ labour-only subcontractors to ensure that both parties to any contract fully understand their responsibilities, particularly with regard to heath and safety, quality and payment of national insurance and income tax.

• LOSC contract – England
• LOSC contract – England LOSC contract – Scotland

Template Notices (thanks to BESA for producing these and sharing with our Membership)

JCT notices

NEC notice updated

NEC3 early warning notice

A Project Bank Account (PBA) is a ring-fenced bank account from which payments are made directly and simultaneously by a client to members of his supply chain. PBAs have trust status
which secures the funds in it and can only be paid to the beneficiaries – the supply chain members named in the account. Payments out of the PBA are made simultaneously to all parties.

The account is held in the names of trustees; likely to be the client and lead contractor (but could also be members of the supply chain). The advantage of trust status is that in the case of
insolvency monies in the account due for payment to the supply chain is secure and can only be paid to them.

PBAs are suitable for a very wide range of project values – even for projects as small as £1m or less, depending on the size of the supply chain.

Guide to Project Bank Accounts (Members Only)

Mandatory consideration of Project Bank Accounts in Scotland

Following the successful completion of the trial programme recommended by the Review of Scottish Public Sector Procurement in Construction, the Scottish Government has introduced project bank accounts on public work projects to protect subcontractors from insolvency and payment abuse. From 31 October 2016 project bank accounts were made a tender requirement on building projects over £4m and civil engineering projects valued over £10m.  This was reviewed again in March 2019 and the an estimated award value was lowered to at least £2,000,000 for building projects and £5 million on Civil Engineering Projects.

Project Bank Accounts – Revised Thresholds and Procedures – CPN 1/2019

Project Bank Accounts: availability and accessibility to subcontractors – CPN 7/2020

.

Insolvency describes a situation when a company or individual can’t pay what they owe on time, or when the value of their assets is less than the money they owe. The ICAEW guide provides an excellent guide to insolvency and restructuring. The law (mainly the Insolvency Act 1986) sets out formal legal processes for insolvent companies. Not every business with a debt problem ends up needing a formal solution.  Please note that this Guide was published ahead of the changes announced as part of the new procedures to help businesses cope with the impact of COVID-19.  An outline of this is provided below.  More information will be provided here once available.

ICAEW_Guide_to_Insolvency

Government amends insolvency law to help companies keep trading while they explore options for rescue

Under new plans, the UK’s Insolvency Framework will add new restructuring tools that mirror the USA’s Chapter 11 procedure, a well-established model adopted by countries around the world.  This includes:

• A moratorium for companies giving them breathing space for from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;

• Protection of their supplies to enable them to continue trading during the moratorium; and;

• A new restructuring plan, binding creditors to that planThe proposals will also include key safeguards for creditors and suppliers to ensure they are paid, while existing laws against fraudulent trading and the threat of director disqualification will continue to act as an effective deterrent against reckless misuse of these new measures.

The Government will also temporarily suspend the wrongful trading provisions to give company directors greater confidence to use their best endeavours to continue to trade during this pandemic emergency, without the threat of personal liability, should the company ultimately fall into insolvency.

The Forgotten Duty Holder

As we all probably know, contractors – including employers, employees, installers, designers, manufacturers and any construction site worker – have responsibilities under the Health and Safety at Work etc Act 1974 (HSWA) to look after the health and safety of employees and non employees and to ensure that they are taking reasonable care for the health and safety of themselves and others that are affected by their acts or omissions at work.  This article explores the, now very real, installer being prosecuted as a ‘producer’ under the General Product Safety Regulations 2005 (GPSR) for supplying an unsafe product by virtue of its installation.

The Forgotten Duty Holder

A key role for FIS is to represent and support the members in regulatory matters, through our own in-house team and by virtue of our membership of umbrella bodies such as BuildUK and CPA, the organisation is uniquely placed to advice you on all things legal and regulatory in the sector.  We do this through our specialist helplines listed below and a regular flow of information through our newsletter.

Download our Handy List of Regulations and Standards Relevant to the Finishing and Interiors Sector

What is a Collateral Warranty?

A collateral warranty gives its beneficiary a direct contractual link to the specialist contractor so that should the specialist contractor be at fault and the beneficiary suffers loss as a direct result of that fault, the beneficiary can sue the specialist contractor directly for breach of the terms of the warranty to recover its loss.  A collateral warranty is therefore a form of security against the risk that any of the party(ies) between the beneficiary and the specialist contractor becomes insolvent.

Download the FIS Guidance Note on Collateral Warranties here

What is Design Responsibility and why must a contractor be alert to the Risks?

As a specialist contractor you may increasingly become involved in not only installation, but also design of the work which you are installing. Significant legal obligations arise from your work as a designer. In many instances you may undertake the same legal liability as an architect or other professional designer – possibly an even greater liability. Therefore, if your installation fails to work because of a fault in your design or an error in its concept, you may find that the client looks to you to rectify the failure.

Download the FIS Guidance Note on Design responsibility – When can a specialist contractor be classed as a Designer

Download the FIS Guidance Note on Design Responsibility – Reasonable Skill and Care or Fitness for Purpose

What is a Parent Company Guarantee (PCG)?

A PCG is an agreement whereby a parent or sibling company guarantees to the employer or main contractor that its subsidiary/sibling will properly perform its contractual obligations.  A PCG is designed to givesthe beneficiary additional security for the specialist contractor’s performance.

Download the FIS Factsheet:  Parent Company Guarantees

When is visiting site a provided item under the main contract (i.e. when can I charge)?

Depending on the form of contract being used, attendances may or may not be provided under the main contract. Specialist contractors working as sub-contractors need to be aware of those attendances which will be provided to them free of charge and other attendances which they will need to cost into their contract during the tender stage.  For example, within the accompanying Articles (DSC/A) to the JCT Domestic Sub Contract Conditions with Sectional Completion DSC/C/SC 2002, Article 3 provides (in Clause 3.14) for a number of items of attendances which the contractor shall provide free of charge to the subcontractor.

Download the FIS Site Attendances Check List for Interior Fit-Out Contracts

FIS members are entitled to free specialist telephone advice, with access to subject experts covering employment issues, contractual and legal, health and safety and tax and business.  To access this service simply call the FIS office on 0121 707 0077.