Managing risk is a critical factor in the construction industry, where complex projects, multiple stakeholders, and ever-changing regulations present constant challenges. At our recent Risk Workshop, NAS Partners Holmes & Hills provided crucial insights into key areas of construction contract risk management. With updates to JCT 2024, a growing focus on collateral warranties, and an emphasis on avoiding common pitfalls with payment notices and termination risks, contractors need to stay informed to protect their business. Here are the key takeaways from the workshop.
1. JCT 2024 Contract Updates
The newly released JCT 2024 contracts introduce key changes that impact contractors. One significant update is the reduction in time allowed for submitting and processing Extension of Time (EOT) applications. Contractors must now operate under tighter deadlines, with employers required to determine EOT requests within eight weeks, down from twelve in previous versions. While this speeds up the process for main contractors, subcontractors face tighter deadlines too, creating additional pressure to meet these timeframes or risk non-compliance.
Another crucial change involves relevant events—new triggers such as the discovery of asbestos and the effects of epidemics have been added. Employers may try to shift these risks onto contractors by amending the terms, so it’s important to review schedules carefully to avoid taking on undue risk.
2. Risks Around Collateral Warranties
Collateral warranties continue to be a significant area of risk, particularly with the Supreme Court ruling in the Abbey Healthcare case. The ruling clarified that warranties will only be considered construction contracts if they go beyond the original building contract’s obligations. This means contractors may face adjudication for work long after project completion. This can lead to challenges in defending claims due to the passage of time. To mitigate this, contractors should carefully review warranty terms and push back against excessive liabilities.
3. Termination Clauses: Managing the Risks
Termination clauses were another focal point of the workshop. JCT 2024 includes new provisions for payments upon termination. These now feature clearer mechanisms for issuing and responding to termination payment notices. While this brings clarity, it also introduces risks. Contractors must be vigilant in responding to Pay Less Notices and ensuring all required termination procedures are followed to avoid financial losses.
A significant change is the use of liquidated damages up to the point of termination and the shift to general damages post-termination. While liquidated damages are predetermined, general damages are based on actual losses. These are harder to predict and could result in higher costs for contractors.
4. Key Takeaways for Contractors
- Be proactive: Stay informed about changes in JCT 2024 and how they impact contract timelines and relevant events.
- Review warranties: Ensure collateral warranties don’t expose you to undue risk or lengthy adjudication processes years after project completion.
- Understand termination risks: Follow proper procedures to avoid breaches and financial penalties, and be prepared for general damages post-termination.
By staying on top of these legal and compliance risks, contractors can avoid costly disputes and ensure smoother project delivery.
In Summary: Navigating Compliance in a Changing Landscape
The legal landscape in construction is constantly evolving, and contractors must stay ahead by understanding the risks in their contracts. From JCT 2024 updates to collateral warranties and termination clauses, our workshop offered valuable insights to help businesses navigate these complexities. Contractors must take a proactive approach to reviewing contract terms, managing deadlines, and mitigating potential risks.
Following these steps helps contractors avoid financial losses, legal disputes, and risks in large construction projects.
To view the presentation in full, watch the video on YouTube: https://youtu.be/EZZ8J1VGqAo
With thanks to Homes & Hills Solicitors for delivering the Construction Contract Risk Management part of our workshop. Holmes & Hills Solicitors are the national legal partners to the NAS. They offer NAS Members benefits including free initial consultations and preferential legal fees. Visit their website if you’d like to get in touch with them: https://www.holmes-hills.co.uk/
For a full list of NAS Member benefits, click here: https://www.shopfitters.org/membership/
