Why are standard form contracts used in construction?

Construction differs from many other sectors in the widespread use of formalised systems of standard contracts, the two most common of which are the Joint Contracts Tribunal (JCT) and the New Engineering Contract (NEC).

But why are these systems used?

Construction projects tend to be far more complex than other commercial arrangements, such as those in the manufacturing or service sectors, often with numerous parties involved in any given project, each dependent on the others undertaking their work competently and on time.

Construction projects also tend to be relatively high-value and high-risk for the parties involved, with contractors or sub-contractors often working on just one or a handful of projects at a time.

Risks in the construction sector are high not only in terms of the risk of things going wrong in the first place, whether in terms of weather-related delays or delays in the delivery of goods and raw materials, but they are also high in terms of the consequences of things going wrong.

The nature of construction projects means it can be impossible for one party to proceed with discharging its responsibilities until another party has completed its work.

This means it could be easy for a delay or dispute to put a construction business’s survival in jeopardy and for that to have a ripple effect through the sector.

JCT and NEC construction contracts are designed to provide mutual consistency throughout the procurement of a construction project, therefore sharing responsibilities and, in turn, risks proportionately and fairly across the parties involved.

The use of these standard form contracts also reduces time and cost, which is important when a given construction project can involve numerous contractual relationships.

Moreover, standard form contracts benefit from precedent because they have been tested in court and lawyers and the parties to those contracts can be confident as to how the courts will interpret the various provisions.

At the same time, you can be confident in the comprehensiveness of standard form contracts, knowing that they have been tested in practice repeatedly and so are likely to cover the majority of potential issues and disputes effectively.

Finally, these standard form contracts have been designed with input from across the industry, meaning they reflect the needs and interests of all parties involved and are straightforward to understand and follow in practice.

This is the first in a series of blogs covering standard form construction contracts. In future blogs, we will be covering issues including: