Understanding JCT Lump Sum Contracts: A Detailed Glossary Of Construction Terms – Part 1

Author: Bart Kolosowski
Published: October 17, 2023

Introduction

Navigating the complexities of construction contracts can be a daunting task, even for seasoned professionals. The Joint Contracts Tribunal Standard Building Contract (JCT SBC) 2016 is one of the UK’s most widely used forms of construction contract, but its terms can often be technical and multifaceted. This article aims to demystify the JCT SBC 2016 by providing a comprehensive glossary of its essential terms, organised into focused sections. From contract formation to the roles of stakeholders, financial matters, time management, and even down to the nitty-gritty of risk and termination, we’ve got it covered.

Designed as a quick yet in-depth reference guide, this article is especially beneficial for architects who might not be fully versed in all the intricacies of quantity surveying and contractual terms. By gaining a better understanding of the terminology used in JCT SBC 2016, you’ll not only ensure smoother project execution but also minimise potential disputes and misunderstandings.

We’ll delve into each section methodically, ensuring that every term is not only defined but understood in the context of its application. Whether you’re an Employer, Contractor, Architect, or any other stakeholder in a construction project, this glossary offers an invaluable roadmap for navigating your contractual obligations and rights.

With that said, let’s embark on this enlightening journey through the JCT SBC 2016 form of contract.

 

Contract Formation

Navigating the complexities of a construction project starts with a solid understanding of the contractual foundations. In this section, we’ll delve into key terms and concepts related to Contract Formation as outlined in the JCT SBC 2016 form of contract.

Articles of Agreement: These serve as the foundational legal documents where parties formally agree to the contract’s terms. They are critical because they establish the legal framework for the entire project.

Contract Particulars: This document sets out the project-specific details like the start and end dates, contract sum, and parties involved. It complements the Articles of Agreement and is crucial for clarity and mutual understanding.

Conditions: Often found in the ‘Conditions of Contract,’ these stipulate the legal terms, obligations, and standards to be adhered to during the project. They form the detailed “rules” underpinning the entire contract.

Contract Drawings: These are the architectural and engineering diagrams that provide the visual blueprint for the construction project. They form part of the contract and set the project’s scope and standards.

Contract Sum: This is the total amount agreed upon for the construction project. It’s usually derived from the Bill of Quantities and is fundamental in determining the financial scope of the contract.

Execution as Deed: When a contract is executed as a deed, it’s signed, sealed, and delivered, offering a higher level of contractual commitment. This method is often chosen for its longer limitation period for bringing claims.

Third Party Rights: These are rights conferred on individuals or entities who are not directly a party to the contract. They usually come into play for sub-contractors or other stakeholders, providing them with specific rights or benefits.

Collateral Warranties: These are separate agreements related to the primary contract, usually providing assurance or benefits to third parties like funders, landlords, or future owners.

Bonds and Guarantees: These financial instruments offer added security, ensuring the contractor’s performance and financial viability. They are usually required by the employer as a safeguard against contractor default.

Notices: These are formal communications related to the contract, like progress updates or claims. They must be delivered in the manner specified in the contract to be legally valid.

Governing Law: This outlines the jurisdiction and the legal rules that will apply in case of a dispute. Knowing the governing law is essential for understanding your rights and obligations under the contract.

As we move on to other aspects of the JCT SBC 2016, these foundational terms lay the groundwork for understanding the complexities involved. In the next section, we’ll focus on the roles and responsibilities of key stakeholders involved in a construction project.

 

Stakeholders

After laying the foundation with contractual terms, the next logical step is to understand the roles of various stakeholders involved in a construction project under this specific contract.

Employer: The entity, usually the client, for whom the construction project is undertaken. The Employer has the ultimate responsibility for payment and overall decision-making.

Contractor: The party responsible for carrying out the construction works as per the contract. They liaise closely with the Architect and the Contract Administrator to deliver the project to specifications.

Architect: Usually acts as the project’s designer and may also take on the role of Contract Administrator. They are responsible for the design and often oversee construction to ensure it meets the design intent.

Contract Administrator: Appointed to manage the contract on behalf of the Employer. They are responsible for issuing instructions, certifying payments, and generally ensuring the contract terms are adhered to.

Quantity Surveyor: An independent professional responsible for estimating and monitoring construction costs. They usually prepare the Bill of Quantities and evaluate any variations or changes to the initial plans.

Sub-Contractor: A third-party firm or individual contracted by the main Contractor to carry out specific parts of the construction work. They are responsible to the Contractor and not directly to the Employer.

Named Sub-Contractor: Sub-contractors specified by name within the contract. The Contractor is obliged to use these sub-contractors unless otherwise agreed upon.

Specialist Consultants: Experts hired for very specific tasks that require specialised knowledge, often in fields like structural engineering, mechanical systems, or environmental sustainability.

Principal Designer: The individual or organisation responsible for planning, managing, and coordinating health and safety during the project’s design phase.

Principal Contractor: A contractor appointed by the Employer to coordinate the construction phase, especially regarding health and safety issues.

Funder or Investor: An external party who provides the necessary financial resources for the project. Their interests are usually protected through various clauses in the contract.

Statutory Undertaker: A company or organization authorised by legislation to carry out specific public services such as water, gas, and electricity supply.

Understanding the roles of these stakeholders helps in effective coordination and smooth project delivery. The next section will delve into financial matters that govern the project under the JCT SBC 2016 form of contract.

 

Financial Matters

Having unpacked the roles of the key stakeholders, it’s imperative to delve into the financial mechanisms that keep the wheels of the project turning. This section aims to clarify the financial aspects as laid out in the JCT SBC 2016 form of contract.

Contract Sum: This is the agreed-upon total cost of the project, often derived from a priced Bill of Quantities or similar pricing document.

Interim Payments: Payments made to the Contractor during the course of the construction based on completed work, usually certified by the Contract Administrator or Quantity Surveyor.

Fluctuations: Provisions that allow for adjusting the Contract Sum due to labour, materials, or other costs changes.

Loss and Expense: Additional costs that either party can claim, usually the Contractor, under specific circumstances defined in the contract.

Variations: Changes to the original scope of work which can result in adjustments to the Contract Sum and/or completion dates.

Relevant Matter is a term used to describe any subject, event, or information that gives grounds to a variation.

Provisional Sums: Budget allowances for specific works or materials not yet fully defined at the contract stage.

Liquidated Damages: Predetermined damages set in the contract, to be paid by the Contractor in the event of delayed completion.

Retention: A percentage of the contract value held back by the Employer as security against defective or incomplete work.

Final Account: The agreed sum of all costs, adjustments, and changes signifies the contract’s financial close.

Payment Certificates: Documents are issued to confirm the payment amount, usually following a valuation of completed works.

Interim Certificates: Specifically, payment certificates issued at regular intervals specific in the contract, usually monthly.

Price Adjustment Formulae: Mechanisms to adjust contract prices in response to changes in labour rates, material costs, etc.

Value Added Tax (VAT): Tax levied on the supply of goods and services related to the project.

Base Date: A reference date for contract pricing, affecting material costs and labour rates.

Cost Plans: Early-stage estimates prepared by the Quantity Surveyor to inform budgeting and design decisions.

Contingency: An allocated sum within the Contract Sum designed to cover unexpected costs.

Daywork: A provision allowing the Contractor to be paid for certain work on a time and materials basis.

Priced Bill of Quantities: A detailed breakdown of materials, labour, and overheads, forming the basis for the Contract Sum.

Unfixed Materials and Goods: Items purchased but not yet installed or incorporated into the works, considered when valuing interim payments.

Financial management is a cornerstone of any successful project, and these terms lay the groundwork for understanding the intricate financial landscape. In our next section, we will explore the time-related elements and deadlines specified under the JCT SBC 2016 form of contract.

 

Time-Related Matters

After understanding the financial landscape of a construction project, the next logical step is to grasp the temporal aspects that govern it. This section will shed light on time-related terms outlined in the JCT SBC 2016 contract form.

Date of Possession: The date on which the Contractor is granted access to the site to commence work. This date sets the timeline for all subsequent activities and obligations.

Completion Date: The contractually agreed date by which all construction works must be finished. Failure to meet this date may result in Liquidated Damages, unless an Extension of Time is granted.

Extension of Time (EOT): A formal extension of the original Completion Date, usually granted in response to a delay caused by a Relevant Event or other reasons as stipulated in the contract.

Programme: The planned schedule of works, often illustrated through a Gantt chart or similar tool, that outlines key activities, their sequence, and timing. It serves as a roadmap for project execution and is usually submitted by the Contractor for approval.

Critical Path: The sequence of stages that dictates the minimum time needed to complete the project. Any delay in activities on the critical path will directly impact the Completion Date.

Relevant Event: As specified in the contract, an occurrence entitles the Contractor to apply for an Extension of Time. Relevant Events are usually beyond the Contractor’s control and may include things like adverse weather conditions, strikes, or changes in law.

Understanding these time-related terms will equip you with the tools to manage schedules and anticipate potential delays effectively. In the next section, we’ll explore quality and contract completion as defined under the JCT SBC 2016 form of contract.

To be continued…

Part 2 : Understanding JCT Lump Sum Contracts: A Detailed Glossary Of Construction Terms – Part 2

Related Articles

  • Construction contracts

    Value Engineering: Optimising Functionality and Cost

    Introduction Effective collaboration between clients and architects is vital in achieving the best functional outcome at an affordable cost. Value engineering is the process of...

  • Construction contracts

    Employer’s Agent 101: Closing a project

    Introduction In this continuation of our series, we now focus on a critical stage in construction projects: completion. Following our previous discussions on the Employer’s...

  • Construction contracts

    Employer’s Agent 101: Overseeing Construction

    Introduction Continuing our previous exploration of the initiation stage [Employer’s Agent 101: Starting a Project], we now focus on the Employer’s Agent (EA) role in...