JCT Design & Build 2024 - it's here, but should you rush to use it?

It's been 8 years since we were last treated to an update to the JCT suite. 8 long years that have seen significant change; Brexit finally "got done", the tragedy at Grenfell, a pandemic swept across the globe, and wars have broken out. A lot of these issues caused short and medium term pain in the construction industry, and have led to new 'market positions' arising in the risk appetite of parties embarking on projects together.

You could therefore forgive the JCT drafting committee if they took a populist approach to their review of the 2016 suite, addressing a whole host of risk profile issues to help out the contractors facing unsustainably low margins and some of the highest insolvency rates ever endured in the industry.

Not so for the contracting stalwart of the UK's construction industry. There are many commentaries on the changes that have been made, and we're not looking to repeat that here - suffice to say it is more 'evolution than revolution'.

A cynic may suggest that the changes are a mix of the bare minimum required for the new Building Safety regime (though for many asset classes not enough), with some virtue signalling towards sustainability, collaboration and the Construction Playbook. On the other hand, anything that streamlines contracting, improves clarity, and reduces some of the changes that lawyers routinely spend time (read "money") drafting and negotiating must be a good thing. And no one can criticise efforts to improve collaboration and focus on sustainability.

So, should you be looking to jump straight to using the 2024 suite as each contract family is released?

Inevitably, the answer is ‘it depends’ – it depends on which side of the table you sit, what type of asset you're building, and what the funding arrangements are. We take a quick look at the competing interests of those stakeholders next.

Contractors

Contractors will welcome two new grounds for claiming extensions of time and (if opted into) loss and expense - impacts of an epidemic and changes of law including the CLCs guidance and Site Operating Procedures.

They will rejoice at the carefully placed footnote encouraging the introduction of an overall cap on liability (“the Parties may wish to agree an overall cap”). If the JCT thinks it's normalised, then it must be reasonable to include it, no? Taking a moment here, the proposed wording from the JCT 2024 Guide is, as it happens, a decent starting point; though care is needed when it comes to the carve outs.

An express exclusion of fitness for purpose is helpful, if not just to remove one item from every contract manager’s checklist of tender qualifications.

Unidentified asbestos, contamination and unexploded ordinance are now wrapped up into an entitlement to both time and loss and expense; this will be especially welcome to contractors working in urban and brownfield sites where these risks are most frequently encountered.

Clarity around termination and (crucially) the payment process that follows will be popular, arguably amongst administrators of insolvent contractors more than anyone else, but in the current economic conditions that is not to be ignored.

Our view is that Contractors may be happy to propose moving to the JCT 2024 suite sooner rather than later, where they are given the option of doing so.

Employers

Employers will not like having to defend against the argument that overall caps on liability must be ‘market’ now and should be introduced. The discussion will of course quickly move to the appropriate level of that cap, but it’s still a very significant concession to have to fight from the outset.

Employers will be glad that their lawyers have slightly fewer amendments to draft in order to cover the new Building Safety roles and requirements generally. However, that will depend significantly on the asset being constructed. If your asset will be a "higher risk building" then there's no mention of the Gateway regime, the golden thread of information, etc - you will still find yourself needing new clauses for all of that and there's no shortcut to arguing where the risk of these processes and delays should sit (spoiler alert, you're probably going to have to share, at least until the Regulator has established a clear way of working). In fairness, the JCT does recognise this point, but took the decision not to presume the correct risk allocation for “higher risk buildings”. We wonder whether a formal JCT-issued addendum might be beneficial (if not already planned) now that the transitional arrangements are all but gone?

Employers will like that collaboration and sustainability are now baked-in, though they may have routinely applied the relevant supplemental provision anyway. That said, for Employers to whom sustainability is a key value for their asset, they are likely to adopt more involved and detailed provisions (The Chancery Lane Project has a number of starting points that may be of interest).

They will like that fluctuations provisions now live in the cloud and not in the hard copy JCT - out of sight, out of mind!

Employers, then, may not rush to use the JCT 2024 suite – there will be some early adopters but ultimately we feel that it is more likely that as our clients look to update or refresh their construction precedents, they may then choose to move to JCT 2024 in order to reduce the drafting required to update their 2016 suite for the Building Safety Act changes. Exceptions to this may be for those embarking upon the construction of “higher risk buildings” where so much new drafting will be required anyway; Employers may as well bite the bullet and move to the JCT 2024 suite (but being aware that there will be some new fights to be had over relevant events, relevant matters, and ‘to cap or not to cap’).

Lenders and Funders – the decision makers?

We think this is the key lens through which the success of the new JCT 2024 suite will be judged. After all, if Lenders and Funders don't like the 2024 suite, they will insist against its use – otherwise Employers won't get finance, and projects simply won't happen.

Any concerns of Employers with the new JCT 2024 suite will be amplified when it comes to the Lenders and Funders. Passing more risk back up to Employers will mean that Lenders need to scrutinise even more carefully their borrower’s proposed cost plan, programme and contingency, and may even mean Employers need to deploy higher levels of equity before being able to draw down funds. In turn this will also lead to higher costs of project monitoring. With margins in the construction industry generally still so tight, some of the new relevant events and relevant matters could be the difference between a successful and a failed project, and they will not be welcomed.

We don’t feel that Lenders and Funders will lead the way in insisting on the JCT 2024 suite be used – but may be agnostic as to whether their borrowers decide to do so – it may, of course, be more expensive in terms of due diligence (and those costs tend to be passed to the borrowers). Ultimately the key consideration will again be the type of asset and whether the Lender and Funder teams have familiarised themselves with (a) the new JCT suite generally and (b) the requirements of the new Building Safety legislation – our market-leading Building Safety experts are already speaking to clients about these risks and where we see the developing market positions starting to form.

A final note – the Public Sector

For a long time now, the NEC suite of contracts has been the ‘go to’ choice for public sector projects, on the basis of its ethos of proactive project management and collaboration. However, that project management-heavy philosophy can often cause as much trouble for Clients as it claims to solve. It’s also worth noting that the NEC4 suite was released in 2017, and also lacks the same legislative updates that the JCT 2024 suite introduces. With the JCT’s move to improve collaboration and outwardly point to its improved alignment with the Construction Playbook, it remains to be seen whether the JCT will steal a bit of a march on the NEC here and find itself being increasingly used on public sector projects. That would be seen as a huge win for the JCT 2024 drafting team.