Just How Good is the JCT Home Owner Contract?
After recently completing a ‘grand design’ of his own using JCT’s Minor Works contract (MW11), Julian Record investigates whether JCT’s Home Owner contract (HO09) might have been a better bedfellow?
Having recently studied the JCT’s home owner contract I confess that I like the elegant simplicity and straightforward nature of this contract which at only 11 pages long is considerably shorter than the 45 page Minor Works contract. For the inexperienced client that is a positive starting point but the structure and the language are also refreshingly simple to follow, being the contract specifically designed for use by home owners. As JCT’s baseline commercial contract, the Minor Works contract follows the usual format of Articles, Recitals, Contract Particulars and Conditions of Contract.
However, the Minor Works contract is in fact quite a sophisticated document and, although intended for smaller projects domestic or otherwise, can be used on larger ones provided that the project requirements are relatively straightforward. It carries more weight and authority than HO09, a clear example of this being the damages provisions for late completion which are incorporated into MW11. There is now even a ‘with contractor’s design’ version which allows for design portions to be undertaken by the contractor with the remaining design being the responsibility of the employer. It is though not a full design and build contract version and is really only intended to cover discreet elements against a set of Employer’s Requirements such as, for example, the design of prefabricated roof trusses or underfloor heating.
Returning to HO09 it also comes in two forms: where the home owner has appointed a consultant (HO/C); and where the home owner has not (HO/B). JCT have also kindly produced a consultant appointment document (HO/CA) to sit alongside the former, again making it simple and easy to use.
Anyhow, without much further ado let’s look at some of the key provisions.
Both HO09 and MW11 only allow for a start and completion date and there is no specific requirement in both to produce a programme although there is nothing to prevent such a requirement being included in the specification. Furthermore, both contracts do not allow for either commencement or completion in contractually binding phases, so if this is required, the Intermediate Building Contract may be more suited rather than amending the contracts. In reality where works are undertaken in an occupied property some phasing will be necessary for the employer to use or occupy part of the works during the time that the contractor is on site. If this is the case it should also be made clear in the tender documents so the contractor may allow for appropriate screening and temporary works, and agreement should be reached with the contractor over suitable arrangements. Be aware though that failure to grant as much access as is necessary to complete the works will entitle the contractor to an extension of time!
Extension of time
Both HO09 and MW11 provide for extensions of time for variations and for reasons beyond the contractor’s control which is deliberately vague and will include the specified perils and relevant events detailed within the Standard Building Contract 11. Delays arising from weather will always be tricky and may not be limited to exceptionally adverse weather as that would rely on the adoption of an implied term. In all likelihood it will depend on the situation and how familiar your contractor is with the JCT suite of contracts. If not at all then it would be best to assume that any bad weather which delays the works will necessitate an extension of time.
Unlike HO09, MW11 also requires that the contractor must give written notice to the contract administrator ‘If it becomes apparent that the Works will not be completed by the Date for Completion’. This is useful for managing the employer’s expectations and avoiding disappointment and dispute though a good contract administrator should also be closely monitoring progress and providing such early warning particularly in the case of HO09 where no such provision arises.
HO09 makes provision for either a single payment or stage payments, subject to a 5% retention deduction which is a very simple and effective way to organise payment provided it is carefully implemented. The stages need to be carefully defined and quantified so as to avoid front loading or advance payments from occurring which is largely avoided by payments in arrears for work completed under MW11.
The above aside, maintaining cashflow is particularly critical for small contractors and it is not unusual for advance payments to be required so it is vital that bank references are sought, financial checks undertaken and references obtained from recently completed projects to ensure that the risk of default, having paid over a significant sum of money, is reduced.
HO09 provides for release of the 5% retention after 3 months/rectification of any faults whereas MW11 contains far more sophisticated payment provisions in line with recent statute including the release of half the 5% retention at completion and a longer rectification period if so required.
Loss and Expense
Within the extensions of time provisions HO09 also provides that the contractor can claim any reasonable costs where delayed by the customer (e.g. for variations, delayed or restricted access) or consultant (e.g. late instructions, issue of information). In the case of MW11 the position is subtly different and provides that valuations of variations shall include the amount of any ‘direct loss and/or expense’. However, this is the only instance within MW11 where the contract administrator may make such an award so if the contractor suffers losses not related to a variation as in the case of delays by the consultant or contract administrator, then these might have to be referred to adjudication, arbitration or litigation, unless some agreement can be reached.
Liquidated damages for non-completion
HO09 contains no provision for damages for late completion, usually expressed at a rate of £x per week or month, which would be reason enough for me to look first towards MW11. In reality, however, the incorporation of liquidated damages provisions in a domestic context will at best be treated with extreme suspicion and at worst will either scare off many builders or they will refuse to accept such terms. That is even before they are used in a delay scenario which is often not the case, being used more as a negotiating ploy and to manage performance. Conversely their presence does provide reassurance to clients and, as already touched on, they provide a lever with which to help manage performance.
Use of named or nominated sub-contractors
Neither HO09 or MW11 provides for the appointment of named or nominated sub-contractors thus avoiding a complicated area of contract law. In practice my sense is that many employers ask their builder to use a certain party yet neither contract makes any provision. This is a risky area for any employer and should be treated with extreme caution as it will expose the employer to delay claims for the non-performance of the sub-contractor for ‘reasons beyond his control’. If this is unavoidable then you at least need to keep a close eye on matters to ensure there are no slip ups.
HO09 requires the contractor to hold ‘all risks’ insurance for damage to the works and for unfixed materials. The employer must also advise his householder insurer that he is about to have work done and if the works exceed a certain threshold usually between £20k to £50k in value then an additional premium may be applicable. The insurance provisions under MW11 are more sophisticated and provide for a greater range of projects though in the case of a residential occupier the contractor should have insurance in place for the works (clause 5.4A) with the employer insuring the existing structures and contents (clause 5.4C). In both cases the level of insurance required must also be filled in – this is typically £2m and it is strongly recommended that a certificate of insurance and a copy of the policy is obtained and checked for omissions. A common omission is insurance against damage caused to property which is not the result of the negligence of the contractor. For example, subsidence or vibration resulting from the carrying out of the works might cause such damage, even though the contractor has taken reasonable care. This is a risk which may be quite high with certain projects, such as those on tight urban sites or in close proximity to old buildings, and in such cases it may be advisable to take out a special policy for the benefit of the employer.
Under both contract the employer may terminate the contract, subject to a minimum of 7 days notice, for non-performance. In the case of insolvency HO09 provides that the ‘contract will come to an end unless the insolvency practitioner makes a suitable arrangement’ which somewhat limits the employer’s powers by comparison with MW11 which allows immediate termination by notice. Both contracts stipulate that no further monies become due until the work has been finished by another contractor. !
So in summary, despite the added sophistication and detail offered by MW11 both forms lack many protocols and procedures which come with the larger contracts as quite rightly you don’t need a sledgehammer to crack a nut! Indeed both rely on good communication and a pragmatic approach to work. Miss these vital ingredients and any project will fail, which in a nutshell is no different with much larger projects. I like the simplicity of HO09 and would have no hesitation using it ….especially if it were to include some damages provisions!
For a snapshot of some of the key differences between the two contracts please refer to the attached JCT Home Owner Contract TABLE and if you would like to see the published article then please go to JCT News.