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 NEC Engineering and Construction Contract is a commonly used alternative. 

FIS has produced a factsheet on managing tenders and pricing in an inflationary climate that includes a number of standard clauses that you should consider including in your estimates –  you can download this guidance on managing contractual positions in an inflationary period here.

Fluctuation clauses have been included in most standard form contracts.  These are often removed in ammendments.  Further information on fluctuations is provided below.

FIS has also produced template letter that can be used as a guide for members who find themselves stuck in a fixed price contract  and price changes are now impacting on the viability of the project

Template Letter Inflation

A variation is a change in obligations or restrictions for the relevant work package.  Variation clauses are incorporated into most standard form contracts and include general conditions such as the addition, omission or substitution of work, material alterations, rework where fault cannot be leveled at the contractor, access issues, working hours etc.

It is always best practice to get a variation in writing from an individual with the right authority and, particularly if this impacts design to ensure that you are not taking design liability.  You should the same time agree valuation and ensure that cost schedules are understood, this simplifies the reconciliation at the end of the contract.  Remember a contractor should be entitled to additional prelims on a variation so long as the work isn’t valued purely on the basis of a day rate and contract allows.  

Fluctuations are effectively variation of price clauses.  Over the past decade construction has tended to evolve to a fixed price tender market with fluctuation clauses routinely struck from contracts, but in the wake of severe labour and material shortages the question begs whether fixed prices are reasonable in such a volatile market.  Fluctuations allow for costs to be varied in line with movements in core costs such as material, labour, levies and taxes.  There is some evidence that customers are starting to recognise the risk of volatility and members are encouraged to enquire about the potential for fluctuations to be permitted.  A challenge can be agreeing an index/methodology for agreeing fluctuations.

• JCT wording on fluctuations in price of labour, materials and taxes
• RICS guide to fluctuations

The contract period should be agreed and clear to all at the outset of a project, but programmes will often shift.  Most standard forms of contract recognise this potential and incorporate extension of time clauses to cover instances when the contractor is not culpable and liquidated damages for those instances where blame can be apportioned.  Before signing the contract it is vital to review delay clauses and ammendments to understand liabilities for losses or potential for termination that may arise or conversely what you may be entitled to if delays manifest (depending on who is at fault).  You can use the FIS Project Risk Management Tool to assist.

It is sensible to ensure that key dates/timings of notifications are identified, recorded, clearly communicated to all of your project team and adhered to.  If sub contracting elements of the work, where necessary, ensure that liabilities are reflected and cascaded in a manner that will allow you to adhere to dates and timings in your upper contract (i.e. if you get informed at midnight, that may not give you time to inform your client in accordance with your contractual requirements).  This is particularly relevant in a time when material or labour supply may be erratic or productivity and programme have been impacted by events such as COVID.

Template Extension of Time Notices 

Most standard forms of contract provide detail of appropriate notice of delay.  Essentially they make it a contractual responsibility (regardless of blame and responsibility) to ensure that as soon as it becomes “reasonably apparent” that work is likely to be delayed, notice must be given to the relevant party and an estimate of how long that is likely to last provided.  Further notification are required to inform the client of changes to circumstance that will impact the timings (either way).  Some template resources to support this have been shared by our friends at BESA to support members of FIS.

JCT Extension of Time Notice

NEC Extension of Time Notice

NEC3 early warning notice

As a result of some of the contractual concerns arising from pandemic, in 2020 FIS worked with specialist Quantum Expert Damian James to produce a toolkit, the contents of this toolkit remain relevant and helpful examples to support you in if confronted by delays.

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

Covid-19 clause – extensions of time and additional cost
It is sensible for companies to be proactive and try to ensure that there is protection in their contracts against the effects of Covid-19.  ClarksLegal has provided an example clause, for inclusion in tender packages.

Access the FIS Legal Helplines via 0121 707 0077 if you have any specific questions on above or need contractual/legal help.

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

Read the FIS Position Paper on Retentions

Ammendments to Contracts

In 1931 the industry recognised that risk should be shared fairly through the supply chain. To this end the first standard contracts that defined the roles and responsibilities of the various parts of our industry from design through to specialist, the JCT contracts, were established.  This system has been abused and manipulated and now we see contracts that have reams of amendments often larger that the initial contract and invariably designed to squeeze risk down the supply chain.  FIS is dedicating to campaigning for fair payment and fair contracts and supports the recommendation in the Industrial Strategy, Construction Sector Deal to “Promote the use of un-amended forms of contract on publicly funded projects where this is possible” and ensure that this sustainable approach to improve contractual and payment practices and performance more broadly within the sector.

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.

Key area of focus include issues and clauses related to Fitness for Purpose, Unquantifiable Risks, Specified Perils, Breach of Contract, Uncapped Liabilities and Performance Securities.  

The Construction Leadership Council has committed to working closely with Government, Build UK and other stakeholders to encourage the adoption of these recommendations.

New Normal in Contractual Practice-Unreasonable contract clauses

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

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.

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.

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

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 – Scotland

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.

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 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 Liability – How to manage risk of non-compliance

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

Downlad the FIS Guidance Note on Design Liability and responsibility to meet the Building Regulations

A vital consideration if taking (or assuming) design liability is how you manage and insure any risks.  FIS recommend referring to the FIS Product Process People (PPP) Quality Framework.  You should also refer to advice on insurance, particularly Professional Indemnity Insurance – remember it is important to ensure that your policy covers you at the time of claim for the duration of any claims liability period.

How to manage design liability and understand your responsibility
We have worked with Anderson Strathern to produce guidance on managing design liability and understanding your responsibility. This useful document will help contractors undersand the risks of taking on design responsbility.

For more information on Appropriate Business Insurance click here

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 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

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.

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

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Many contractors or manufacturers have never considered the concept of vesting materials offsite, but shortages and logistical issues and the impact of changes like the Domestic Reverse Charge VAT can lead to decisions around stock levels and have implications on cash flow.  If you are facing the potential of cash tied up in product and materials that is in a factory and can’t be delivered due to delays or logistical issues, a vesting certificate could be a life saver.

FACTSHEET: Vesting Certificates and how they can support Cash Flow

In 2020 FIS ran a webinar with expert QS Anthony Manson that looked at how Vesting Certificates can be used:

WEBINAR:  Vesting Certificates and how they can support Cash Flow