(MMK226783) Construction Contracts & Dispute Management

Coursework cover sheet for International Construction Project Management module Report on standard forms of construction contracts in the UK and Scotland Prepared for Nawan City Council's Conversion Project and infrastructure projects.

SCHOOL OF COMPUTING, ENGINEERING AND BUILT
ENVIRONMENT
COURSEWORK COVER SHEET
FOR THE ATTENTION OF LECTURER: Brown, C. & Njie, G.
Student Name: Vanya
Matriculation Number: S2225876 Year of Study: 2022-23
Programme Title: International Construction project Management
Assignment Title: Coursework 2 (CW2 ≡ 70%)
Module: Construction Contracts & Dispute Management (MMK226783)
Student Declaration
This piece of work is not plagiarised. It is my own original work and has not been submitted elsewhere in
fulfilment of the requirements of this or any other award.
Signature: Vanya Date:22-12-2022
Your mark could have been higher if:
Please see Coursework Feedback Form for comments.
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Marker Signature: Total Mark
Marker Name: Njie, G. & Trushell, I., Dr
Date:

Table of Contents
1. Introduction:...................................................................................................................................................2
2. Literature review:...........................................................................................................................................3
2.1 Forms of Contract in the UK and Scotland:.............................................................................................3
2.2 Choosing right form of contract:..............................................................................................................4
2.3 Critical analysis between the Contract forms based on the requirement of the contract.........................4
3. Discussion:.....................................................................................................................................................7
4. Recommendation:..........................................................................................................................................8
5. References:.....................................................................................................................................................9
Total word count excluding table of content, reference list and front cover sheet- 3525 words
1. Introduction:
The construction industry is one of the biggest industries in the world, and because of the complexity
of the nature of its work, disputes are common between contractors and clients, who usually cannot come to
a satisfactory agreement. The issues generally arrive due to work completion, deadlines, payment terms, and

the nature of the job being done. The contract agreement plays a major role in resolving such disputes.
However, a single contract cannot serve all purposes; hence, a variety of standard contracts have been
developed for the construction industry over the years in many countries. These standard contracts typically
outline the rights and obligations of all parties involved, including the duration of the project, payment terms
and conditions, warranties, termination clauses, liability provisions, and dispute resolution options. The
standard form of contact can be used in both the public and private sectors. These standard forms of contract
have multiple ranges of documents, also called "suites," which are tailored for a specific project depending
on the scope and complexity of the job. Government companies generally prefer their own forms of
contracts due to the added regulations and compliance requirements associated with public sector projects.
The public sector is also moving toward standard forms of contracts, such as NEC, JCT, and SBCC, among
others.
This report has been prepared for Nawan City Council of the North-West of Scotland to assist them
with a suitable form of Contract for their Conversion Project and other infrastructure projects including their
extensive road, and associated drainage works in the city. The details of the work are as follows:
1- Supply and installation of certain items such as removal and replacement of roof structures,
associated coverings, and windows and doors of project value of around £60 million (GBP).
2- Works for the adjoining roads and drainage system, currently estimated at £18million (GBP).
3- Further, proposed work of infrastructure development works including extensive road, and associated
drainage, works in the city approximately £72 million (GBP) expected to start in year 2024.
Additional requirement in the contract form:
1- Stipulate liquidated damages, at a minimum of 10% of the contract sum per week.
2- Additional performance security which is to be set at 15% of the contract, which can be call upon at
any time they wish
3- Exclude, in the signed contracts, any reference to co-operation and force majeure, as they believe in
their mind, that these could be regarded as implied in any construction contract.
4- Infrastructure development works.
This report will analyse different forms of contracts in the UK and Scotland on the basis of the above scope
of work. The analysis will be based on a literature review of the forms of contract used in the UK and
Scotland. Further, the most suitable form of contract will be suggested based on the literature review and
analysis.
Methodology: The report will give a literature review on the different forms of contract by reviewing past
research, articles, and books. Further, the individual scope of work will be analysed in the report by looking
at the agreements that are most commonly used, what they mean, and how they can be tailored to fit specific
needs.

2. Literature review:
2.1 Forms of Contract in the UK and Scotland:
A contract ensures that the contractor will follow certain rules and regulations set out by the
government in regards to the development and construction of the infrastructure or building. Construction
contracts are often formed by oral agreement or through the signing of a formal contract (Boadu et al.,
2022). There are two primary types of contracts: standard and non-standard contracts (Murdoch & Hughes,
2007). Standard contracts typically involve a single contractor, while non-standard contracts are created by
multiple contractors who agree to share the costs and responsibilities associated with the development
project. The major goal of standardising contract forms is to define the key parameters pertaining to the
building processes and activities. This standardisation helps to avoid confusion, minimise disputes, and
create a more transparent agreement between the parties involved in the construction project. Many
construction and engineering projects benefit from the use of standard building contracts. The use of
standard form contracts has a number of benefits, and there are numerous standard forms available to match
the specific parties, tasks, and procurement channels involved in almost all construction and engineering
projects (Giblin and Hall, 2019). Standard-form of contracts provide a level of assurance that both the
contractor and client will be held accountable for their respective responsibilities, minimising the likelihood
of legal disputes arising from misunderstandings. In the RIBA construction contracts and law report 2022,
there are many forms of contracts being used within the construction industry, some of which are listed
below:
1- Joint Contracts Tribunal contracts (JCT)
2- Royal Institute of British Architects contracts (RIBA)
3- New Engineering Contract contracts (NEC)
4- Bespoke contracts
5- Scottish Building Contracts Committee contracts (SBCC)
6- Fédération Internationale Des Ingénieurs-Conseils contracts (FIDIC)
7- Association of Consultant Architects contracts (ACA)
In the UK industry, there are a wide array of standard forms of contracts available. According to
Sarah Lupton, there are nine publishing sources that have produced more than 50 standard contract forms for
use in the UK. For instance, JCT has 17 main contract forms, including variations and the two framework
agreements; further, JCT has published a large number of subcontracts, warranties, and guides, all updated
in the JCT 2016 suite. The nine main contracts of the NEC suit have 68 documents (Lupton et al., 2012).
Hence, it is imperative to have knowledge of these forms of contract before choosing one to enter into.
2.2 Choosing right form of contract:
Knowing which type of contract is right for your situation is vital, as each one carries specific risks
and benefits. According to the RIBA survey report 2022 conducted on the people working in the
construction industry, the JCT has received 59% popularity, followed by the RIBA building contracts at
15% and the NEC contracts at 13%. Whereas, FIDIC and SBCC are below 5%. Depending on the nature of
the agreement, some contracts are easier to terminate than others, while others provide more protections for

those involved in the agreement. Further, establishing the details of a contract up front can also protect the
client from unfair practices, such as substandard work or delays that could cause more financial stress
(Lawteacher.net, December 2022). For instance, poor management and the procurement process caused the
Holyrood Parliament Building project in Scotland to experience a significant time and cost overrun. The
project was started in 1997 and completed in 2004 with a 20-month delay and the estimated construction
cost of £40 million was increased to £414.4 million due to delays (Lord Fraser, 2004). Lord Fraser
concluded in his inquiry report that a detailed analysis of the project should be done before selecting the
procurement method. The standard contracts, such as JCT, NEC, and FIDIC, etc., provide this type of
security to the clients. According to the Latham report, many government firms use their own forms of
contracts; however, some may also use standard forms such as ICE 5th or JCT 80 with their own
adjustments (Latham, 1994).
2.3 Critical analysis between the Contract forms based on the requirement of the contract
As per the requirement of the Nawan City Council, a suitable form of contract is required for the
supply and installation of roof structures, associated coverings, windows, and doors. Additionally, design
and build a contract for the adjoining roads and drainage system. The contract form must consist of
liquidated damages, a performance security clause, and, most importantly, they want to exclude any
reference to cooperation and force majeure in the signed contract. As per the construction contracts, the
liquidated damages are specified as a defined payment agreed upon by the parties to be payable if one of the
parties breaches the contract. If a liquidated damages payment is considered a punishment, it is
unenforceable. The section-wise analysis is as follows:
1-Based on scope of work:
The JCT contracts are a suite of contracts widely used in the United Kingdom and Scotland for
construction work (The Scottish Government, 2018). The Joint Contracts Tribunal (JCT) was formed by the
Royal Institute of British Architects (RIBA) in 1931, and till date it has produced a wide range of standard
forms of contract. The JCT Design and Build Contract is drafted to suit projects where the contractor is to be
responsible for both completing the design of the work and the construction of the work. In such instances,
the employer will provide detailed information to the contractor, known as the employer’s requirements, and
the contractor is paid a lump sum price to complete the detailed design and construction of the employer’s
requirements (Lupton, 2012). This form of contract is very popular due to its single point of design
responsibility, which means that if a defect is found, the employer need only pursue the contractor rather
than ascertain whether it arises from faulty workmanship or the design of one of the various consultants.
The design and build contract is typically seen on a wide range of commercial projects, particularly
where the certainty of cost and speed of construction are important factors for the employer. The JCT
contracts for repair and maintenance (JCT-RM) works are designed for commercial projects when there is a
specified schedule of repair and maintenance tasks for a building or buildings. JCT-RM is typically utilised
by local governments and any other employers that are accustomed to awarding several small and medium-
sized contracts and who are therefore anticipated to have experience managing contractors' accounts,

obviating the requirement for an external contract administrator. Because of the flexible pricing and
payment provisions provided by the contract, the employer is free to request estimates for work that is billed
at a fixed price, a day rate, or other rates (Design Building Wiki, 2022). Despite its length, the contract is
concise and easy to read, meaning that all of its clauses are easy to comprehend (Lupton, 2012).
The UK's Institution of Civil Engineers (ICE) conducted an assessment of civil engineering design
and construction contractual agreements in 1985. Then, in 1986, ICE commissioned the development of a
new type of contract known as the New Engineering Contract (NEC) to meet the changing needs of the
industry (Broome, 1999). For both civil engineering and construction works, the NEC forms are flexible and
appropriate for use under a variety of procurement procedures, including design-bid-build, design-build, and
managed contracting (Lupton, 2012). The three main features of the original NEC form were reliability,
affordability, and scalability, and these attributes were the foundation of NEC’s success in the market,
allowing them to remain competitive and successful in a rapidly changing market. The NEC Forms provide
a comprehensive set of provisions that enable contractors and clients to agree on the basis of their respective
obligations, minimising legal disputes over rights, liabilities, and remedies. The NEC form was also praised
by Sir Latham in his report, and he also suggested the use of NEC contracts in government work since it
allows for the addition of special conditions that they want to add in their contract in order to prevent
corruption, security, and discrimination while maintaining an effective control over the cost and quality of
the work. The option U clauses in the NEC allow for the unique needs of each project to be addressed and
the contract tailored to suit (Latham, 1994).
The government has advised clients in the public sector to use NEC contracts rather than JCT,
including those in the areas of health, education, and local authorities (Morris, 2018). This shift to NEC
contracts represents an attempt to facilitate more collaborative and less adversarial working relationships
between public sector clients, consultants, and contractors. The standard clauses in ACAs are similar to
those in JCTs, although they can be customised and are less rigid. ACAs are more typically employed by
architectural firms with larger or more imaginative projects. ACAs are multiparty contracts that are typically
used for a single project (Lupton, 2012). There were doubts about the feasibility of the multiparty contract,
but in spite of them, the form is widely used, particularly in the UK housing industry (Murdoch & Hughes,
2007).
FIDIC is also one of the most widely used forms of the contract, which is basically designed to
handle international construction work. The FIDIC contracts are a set of standard form contracts that were
established by the International Federation of Consulting Engineers (FIDIC) in 1913, which is based in
Geneva, Switzerland. The FIDIC "Red Book" was the first publication issued in 1957 (Klee, 2018). As
globalisation spreads, the FIDIC's international influence on the building sector market has grown in the past
few years, which is why it has become the go-to set of standards for construction projects. Through its
international reach and standards, FIDIC has been able to provide consistency in the international building
sector. This has had a significant impact on the construction industry, as it has opened up new opportunities
for international firms and allowed for greater collaboration and investment in the global building sector
(UKEssays, 2017).

FIDIC contracts are also used for major domestic projects such as infrastructure and energy
improvements. The most notable was the use of the Silver Book as the foundation for the fixed-price lump
sum design and build customised contract for the Forth Replacement Crossing, which was signed in May
2011 and is now known as the Queensferry Crossing (Roberts, 2015). This was the largest infrastructure
project in Scotland, and it was an opportunity for FIDIC to showcase their unique forms of contracts
(Shackman and Climie, 2016). Originally established as an organisation to promote collaboration between
engineers, FIDIC developed its contract forms in the early twentieth century as a way of standardising
construction contracts in a global market (Klee, 2018). In Scotland, the Scottish Building Contract
Committee's (SBCC) standard forms are being used in many building contracts. The SBCC has produced
standard forms since 1964, and there have been numerous revisions and amendments issued since then.
These can make it difficult to determine the specific conditions under which the parties have agreed
(Roberts, 2015). The SBCC forms are more appropriate for projects involving complex procedures, as the
SBCC's control measures and different approaches to construction in Scotland can be taken into account.
2-Liquidated Damage and Performance security:
In FIDIC contracts, Red book 1999 the liquidated damages are an amount that is set aside from the
contractor in the event that he does not finish the work by the time for completion. Further, after revision the
liquidated damage referred as ‘delay damages’ in Red Book, 2017. It must be paid for each day that passes
between the applicable completion time and the applicable completion date of the works (FIDIC Red book,
2017). In the JCT suit of documents, the liquidated damages are not computed as a percentage; instead, they
are perceived as a calculated estimate of loss. For instance, the contractor will be responsible for covering
the employer's unpaid rental income if the project is finished a month after the handover date mentioned in
the original schedule (Chappell, 2011). In JCT contracts, a "non-completion certificate" is issued to calculate
the start date for the damages calculation. Whereas, in FIDIC contracts, the engineer doesn’t issue the non-
completion certificate to the contractor; instead, the employer is obliged to submit a claim to the engineer
with supporting documentation that verifies the contract provision, the claim's value, and the claim itself.
The engineer will formally review the claim, after which he or she will speak with each party and reach a
"fair conclusion."
In a NEC suit of contract, the liquidated damages, commonly referred to as "delay damages," are an
amount of money specified in the contract to be paid by one party to another in the event of a breach or
delay. Delay damages, as incorporated under Option X7 of the Secondary Options of the NEC contract, are
intended to compensate the contractor for any financial loss they may incur due to delays in project
completion (NEC4, ECC). In the SBCC contracts, the liquidated damage is calculated per week.
3-Force majeure:
The force majeure clause is included in the NEC3, JCT, and FIDIC. The JCT Design and Build
Contract's Section 2.26.14 lists "force majeure" as a significant occurrence that might give the contractor a
deadline extension and a reason for either party to cancel the contract in accordance with Clause 8.11.1. This

clause makes it clear that the contractor should not be held responsible for any failure to meet the contractual
obligations if they have been affected by a "force majeure" (JCT Design and Build, 2016). In the FIDIC
contract, force majeure is defined in clause 19.1 as events beyond a party’s control that are unable to be
reasonably foreseen or avoided prior to entering into the contract and are not substantially attributable to the
other party. Clause 19.1 of the NEC contract covers "in effect, a "force majeure" clause," and the
compensation is in the 60.1(19) clause, which is nearly identical to clause 19.1. (NEC4, ECC.).
Applicable law: Both NEC and JCT contracts are being widely used in the Scotland (The Scottish
Government, 2018), hence the Scottish law would stipulated as the applicable law in either JCT or NEC
contract.
3. Discussion:
After the analysis, the three forms of contracts are suitable for required work. Considering the nature
of work consisting of conversion of factory buildings into office building with allied works as adjoining
infrastructure facilities, the FIDIC form of contracts can be used. Use of FIDIC Red Book or Yellow Book is
more suited in this type of construction as these form of contracts are internationally recognized and the
design responsibilities can also be assigned to a suitable contractor. Use of FIDIC form of contract is
recommended with proper amendment to Conditions of the Particular Application, which is also called as
Special Conditions of the Contract. Other provisions such as requirement of Performance security,
Liquidated damages, retention, advance payment guarantee, different types of insurance, payment duration
and other important terms of the contract can be amended and prescribed in special conditions of the
Contract. This form of contract also allows for the appointment of direct or nominated subcontractors for
roof work, doors, and windows (joinery work), which gives the employer more control over the selection of
specialist contractors. However, the use of FIDIC contracts in the UK industry is extremely rare, and there
are few cases in the market to analyse its success in the UK and Scotland construction industries.
Further NEC contracts provide a collaborative platform on which employers, workers, and other
members of the community can negotiate an equitable solution. The NEC contract is more flexible with the
quality of the work produced, allowing employers and workers to negotiate with greater flexibility regarding
quantity and pricing and even to adapt the contract in real time to changing circumstances. As previously
stated, NEC contracts are now widely used in the government sector, and many local and state governments
have adopted NEC-style contracts for their own use. However, like FIDIC contracts, the waters of NEC
contracts still need to be tested. The JCT contracts place the majority of the responsibility on the contractor,
making them a popular choice for employers who need to ensure that project requirements and objectives
are met. It has been used in the construction industry for a very long time. The NEC contract may place the
majority of the responsibility on the contractor, making them a popular choice for employers who need to
ensure that project requirements and objectives are met. It has been used in the construction industry for a
very long time. The NEC contract may be widely adopted by the public sector due to the comprehensive
nature of its terms and conditions as well as its focus on early agreement and collaboration between

contractors and employers, but as per the requirement, JCT can serve better in terms of employer liability
and timely delivery of the work.
4. Recommendation:
In view of the above, JCT forms of contract is been recommended for the following reasons:
1- The Standard forms of JCT Contract provides for the works to be designed or detailed on behalf of
the Employer, and for the Employer to provide drawings and documentation to define the scope and quality
of the works.
2- The Standard forms of JCT Contract offers better understanding in the terms of liquidated
damages, performance security and force majeure.
JCT contracts place the majority of the responsibility on the contractor, making them a popular
choice for employers who need to ensure that project requirements and objectives are met hence it is
recommended the JCT (SBCC) Minor Works Building Contract 2016 for the supply and installation works
of removal and replacement of miscellaneous work including road work of total amount £78 million (GBP).
The JCT (SBCC) Design and Build Contract 2016 for the infrastructure development work have been
suggested for the infrastructure development work of amount of £72 million (GBP). The Scottish law will
be applied in the interpretation and enforcement of both contracts, as well as any disputes that may arise
between the parties.
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