Jacob Austin (00:00:17) - Hi, all. Jacob Austin here. Owner of QS.Zone. Welcome to episode number 22 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cashflow and grow their business. Today's episode, number 22 is going to be on JCT Subcontracts. Now, the reason for going to this topic today is I was asked a couple of questions by somebody around about what their subcontract is and how do they know what their terms and conditions are. And on the one hand, you sort of might think, how do you not know? Because at the end of the day, you've signed up to these conditions. You're working on a job, you sent in applications, you've been paid some money already, you've signed and returned a subcontract, and this must be a rare one, but you've actually got a copy back from the main contractor that their directors have signed off as well. So how do you get into a position where you don't know what the terms are? Well, it's not a stupid question, as you might think, because for whatever reason, it isn't always clear.
Jacob Austin (00:01:19) - Well, if you think about how some of these deals come about, you can sort of understand, because a lot of the time it's done on the basis of an inquiry that goes out. If you pay more attention to the drawings rather than reading the document, then you miss over what the subcontract is going to be. And understandably, because you might be in a rush to price the scope, price the drawings do the actual work without considering what the implications are of the document, i.e. the contract. Then the next thing that happens is there's a bit of haggling and you go to a pre start meeting and the pre start meeting minutes. They discuss when are you going to start on site. They're going to discuss your program. Some of the safety aspects. How are you perhaps going to go about doing some of the work. And because a lot of the time we're talking to practical people, we're talking between the site manager and you from the subcontractor. Your bread and butter is discussing your work. So the thrust of all of the discussions tend to be more around about the practicalities of the job, rather than delving into the contract.
Jacob Austin (00:02:19) - And to the largest extent, that is how it should be, because these are the important discussions that you need to have to understand where the risks are in the work, where the logistical issues are, how you can iron some of those out, and how you can both get the job done as quickly and as pain free as you possibly can do it. At the same time, it is vital that you understand and you know what those conditions are that you're signing up to because you've got to operate the subcontract. You've got to know where to issue a notice. If you have to issue one, and you've got to understand what the change procedure is. So in answer to the first question, then what is the JCT subcontract? In a nutshell, it's a standard form of a subcontract. It's typically used in the construction industry. It's a legally binding document that sets out the rights and the obligations of the main contractor and the subcontractor, and to some extent, the employer. JCT stands for Joint Contract Tribunal, and this is the original body that is put together that subcontract along with the main contract.
Jacob Austin (00:03:22) - Now there's a number of different types. So you've got standard building subcontract, you've got the design and build subcontract, you've got variations with quantities without quantities, and then you've got other agreements, minor works, intermediate works. And there are particular differences in between each of those contracts. But to a large extent a lot of the conditions are the same. And what you usually see is that whatever the head contract, the main contract is the same or a similar form is used downstream to you, the subcontractor. Now, when I've worked for main contractors in the past, I haven't always done that. And it might be the case that for some really small orders and I'm talking something in the region of, say, £2,000 to £5,000, it's not necessarily worth going to the full extent of rolling out a full subcontract. Certainly, if the risk involved with that small bit of work is pretty small. So if you're one of the specialists that comes in at the back end of a contract, perhaps fire stopping man, mastic man, cleaner, you might be operating under some fairly basic conditions, because the risk on your trade is pretty small, and it's not worth the time of drafting out a full subcontract to cover off such a small piece of work.
Jacob Austin (00:04:35) - But by and large, the main contractor is going to want the same conditions cascaded down to you and the same amendments, a lot of the time are redrafted to take the main contract conditions and pass on the same obligations downstream to you guys, the subcontractor. Now, he should be getting right at pricing stage, a proper pucker inquiry document from your contractor, and that should tell you quite clearly what the main contract conditions are and what you're expected to work under as a subcontract. If you don't get that, you need to ask the question. And I know some people send out emails, there might not be a lot to them. And it's like, here's a couple of drawings. We want your price to do this work, but without knowing what the conditions are. You can't fully price all of the risk, and you might be exposing yourself to things that you don't want. So as I say, you have to ask the question. If you don't get that proper inquiry document and it doesn't tell you on the front page, this is the kind of subcontract you will be working under.
Jacob Austin (00:05:36) - So then the next question that I got asked is, how come the document that I've been sent doesn't have any conditions in it, it just has amendments. And how do I know what contract I'm signing up to? And this is a bit of an interesting question, because different contractors approach this in slightly different ways, but it's fairly typical to not include the full set of JCT conditions in a subcontract order. And what happens is they are satisfied or they're incorporated by reference. So if you were to go into a shop and try and buy a JCT subcontract, let's take the JCT 2016 design and build subcontract just for example, what you'll find is four different books. You get one which is the full subcontract. So this has got the agreement itself and the conditions within it. The next thing that you get is the agreement on its own. And that document is a lot shorter, a lot thinner, and it's around about 32 pages, something like that altogether. Then you can buy the conditions as a separate book to that.
Jacob Austin (00:06:38) - And the mystery fourth book is a subcontract guide. And the guide you might expect to tell you everything you need to know about a JCT subcontract, but rather helpfully, it's written in the same stick up the arse language as the contract itself is. Which means you've got to read it, reread it, and refer to 2 or 3 different places in the subcontract before you can understand what it's telling you in some instances. Now, what typically happens when a contractor sends you an order is they don't go out and buy one of those agreements. They have their own standard form. And as I said, some contractors like to do this in different ways to others. So what I'm trying to give you here is a flavour of how you need to interpret what you've got. Obviously I can't read your document for you, so all I can do here is tell you a couple of ways that I've seen it done and hope that that helps you understand. Now, the JCT idea behind splitting all of these things up is that what you can do is go and buy the agreement.
Jacob Austin (00:07:35) - You can fill that out by hand in pen, and that then means that they don't have to print out the 80 odd pages of conditions every time you want to set a subcontract up. I haven't bought one of these things for a while, but the last time I saw one in a shop, it was around about £35 just to buy the 30 page agreement document. And the understanding is that people all know what the JCT is. They all know what the conditions are. Clearly not quite all because otherwise I wouldn't get this question. But because they are ubiquitous and commonly known of, it's generally accepted that you don't have to print out or buy even the full document every time we set a subcontract up. So what the contractor will do is take all of the information that's required by the subcontract agreement and tell you what that information is, either as part of a document called the order, or they will do it elsewhere in a separate document. And that might be as part of the pre-order meeting. Or it might be a separate document altogether, which basically replicates the recitals, the subcontract particulars and the information.
Jacob Austin (00:08:44) - So if you were to look at the subcontract agreement, the first thing that you see is the agreement itself. And that is exactly what it says it is. This is a basic form that says who the contractor is and who you are. It quotes your legal entities and your registered offices, and it then goes on to say what you're being appointed for as part of the wider contract. So this might be done over 1 or 2 pages saying, I'm Mister Contractor. You're Mister Subcontractor. You're being appointed for steelwork, groundworks, brickwork, whatever. As part of a project to construct a new building at whatever the property is. And then what you should see is a document that either tells you the recitals, the articles, the subcontract particulars, and all of the rest of the subcontract documents. Or it should tell you where to find all of those nuggets of information within the other documents. It's common for these to be stated in a table straight after the agreement, or for them to form a large part of the pre-order meeting.
Jacob Austin (00:09:48) - Some people call that a POM, some call it a pre-let meeting, some call it pre award meeting. And what the contractor basically has to do is provide all of the same information to fill in the blanks within the standard agreement. So the recitals are a little bit like what they sound. These are a set of standard statements that get recited, if you like, into each subcontract. These are all quite broad statements that set out the basis of the agreement. So it says things such as the main contract works are being carried out on the behalf of the employer, and the contractor is appointing you to carry out a specific package. It says that the contractor has provided you documents to tender. With that, you've submitted your price in accordance with those documents, and that the contractor has read your proposals and is satisfied with them. It also tells you that main contract information is available, and it's set out in a table for you to view as part of the subcontract, and it makes a statement that you have opportunity to see it.
Jacob Austin (00:10:50) - The main contract that is or relevant parts of it, or that you've been provided a copy of it. Other statements say that you've provided basically a quote for the job. It identifies whether there's an overarching framework agreement, and then it also states that there are further supplemental provisions to the subcontract, which can be applied or excluded in the subcontract particulars. So we'll mention those provisions when we get to subcontract particulars. But that covers what the recitals are. And as I say, there's only one bit that really gets edited there, which is the statement around what you're being asked to do as a subcontractor. The articles of agreement are a separate section, and they are quite straightforward, but they are really important. They set out in plain language that what you are agreeing here is the whole subcontract. And it tells you specifically here as follows. The subcontract consists of the subcontract agreement, the main contract information schedule, the design and build subcontract conditions subject to modifications are set out in another schedule, if there are any, and the numbered documents, and this is the first bit where things can go a little bit wrong.
Jacob Austin (00:12:02) - Because if any of those documents are different to those documents than you priced on, then what you're actually doing by signing up to the agreement is stating that those are the correct documents, and you are signing your life away to that very effect. Now, on some occasions there is a quote included within the numbered documents, and in that instance that may then create a further problem, because if you've referred to documents within your quote, there's then the potential for there to be competing documents within the same agreement. If your quote isn't included in the order, then as I said previously, you are signing up to say that whatever documents are in this order are the documents you're working to. So this goes back to an early episode of the podcast Number two, which was the Holy Trinity of Subcontracts. These are the documents that are telling you what you're doing. So they need to be right. So this is an important thing that you need to check, because otherwise you're agreeing to carry out whatever is shown on those subcontract drawings.
Jacob Austin (00:13:02) - The next article is you agreeing to carry out the work in accordance with the subcontract and the subcontract documents. And in this instance, because I'm referring to the design and build contract, it says where necessary you need to design the work and that design will be in accordance with the CDM regs, and that the contractor can instruct you to change the design and therefore the work. The next item is around the subcontract sum. Now there's two parts to this clause- there's an A and a B to article three. They are worded the same barring the second. The B clause is for remeasurement situations. So if article three A has been filled out, this is saying you've agreed to carry out the works on a lump sum basis, and the only amendments will be if there are changes, whereas article three B tells you what the subcontract tender sum is. And then it says that you might be paid a different amount on a remeasurement basis. So there's a slight nuance to this. Then when you're reading a separate table, if the contractor is using some pre-order meeting minutes to satisfy the articles of agreement, then if they state what the subcontract tender sum is, then they're expecting it to be a remeasured contract.
Jacob Austin (00:14:18) - If it says subcontract sum, then they're basically stipulating that it's a lump sum agreement. So now you can be aware of what those two different technicalities mean. Article four says that either party can refer any disputes to adjudication. And article five is an optional article which states whether arbitration can apply to the subcontract or not. Obviously, you get the right to an adjudication. At any rate, it's enshrined in the subcontract here in article four. But also it's a statutory requirement as it's part of the Construction Act. So what this is saying is whether both parties are agreeing that if an adjudication isn't suitable, rather than going to court an arbitration is the next logical step to resolve any disputes. And then the final article, article six tells you that English law applies, and you have to petition an English court to settle any dispute. The next thing that you've got as part of the agreement. Is the subcontract particulars. These are the bits of the contract that are likely to change in between different subcontracts. So it starts off by defining the conditions whether any framework conditions apply as well.
Jacob Austin (00:15:29) - And then it states whether any of the supplemental provisions are applicable to the subcontract in this instance under the design and build subcontract, those are collaborative working health and safety, cost savings and value improvements, sustainable development and environmental considerations, performance indicators, the notification and negotiation of disputes. Then it tells you who the nominated parties are, who can be called upon to settle those disputes. Obviously, it's not saying that there are going to be disputes, but this is basically saying that the two parties will come together in the event of any dispute and have good faith negotiations to try and get to an answer rather than first refer the dispute to adjudication. Now, if that clause is activated, you can of course carry on to adjudication if you don't reach an agreement. But some adjudicators have been known to frown upon, if you like, people that haven't tried to settle the dispute themselves, particularly when this clause is activated because you're both agreeing, in effect, to at least try and negotiate before, as they see it, wasting the adjudicators time on sorting out your argument.
Jacob Austin (00:16:42) - Next is a statement to say whether the arbitration process, which was article five under the Articles of agreement, why it couldn't be stated in the Articles of Agreement, whether it applies or not in one place, God knows there are hundreds of these examples where the JCT contract refers to 20 different places for you to find out one thing. Next, you agree whether the BIM protocol applies, then you agree the design submission procedure, whether that is the one that's built into the subcontract as standard, or a separate procedure which is stated elsewhere, and this could be incorporated as a separate numbered document. Next, you agree the base date of the subcontract. The base date is important because if there are changes of law after the base date, then these can be treated as a change. It's also important if the fluctuations clauses apply, which they commonly don't. The next item that needs to be agreed is where notices have to go for each of the parties. This doesn't have to be used. It should be used if you're trading from a different address than your registered address.
Jacob Austin (00:17:48) - If it's left blank, then you have to serve a notice on the registered address. And sometimes that's not really appropriate. For example, if you've set your registered address to be, say, your accountant's address, then you would want to clearly specify another address here so that you're not losing any time whilst they forward you important correspondence relating to your construction job. That might not be appropriate, and it may also lose you some all important time in dealing with that notice. Then you've got the program. So the program is more than just the dates when you're going to complete the work in this design and build subcontract. It also states the period for which you need to complete the design, the period which the contractor needs from receipt of your drawings to get back to you with any comments. That's followed by the period of manufacture, if there is one, and then it basically adds them all up to say the overall lead in period. Adding all of those dates together or periods together rather gives you a lead in period of X.
Jacob Austin (00:18:48) - Then you have the notice to commence period. Then finally you have the period for completing the work on site. So all of these periods are stated in weeks. There's two options here as well. If there is one whole subcontract period then this is stated in a period of weeks. If there are various sections of work, then those separate sections are given their own periods of various weeks. There's also a statement to include any further details that are required to clarify the sections, and it can also be used to include other obligations, such as if you need to achieve a certain thing by a certain date, but it isn't quite subcontract completion. Next, you're agreeing collateral warranties, any third party rights, and who these might be cascaded to, and that should refer you to another numbered document, presumably with a list of warranties and a template warranty for you to agree to. Then you agree. Attendances. So these are the things that the contractor is going to provide to you, to enable you to do the work.
Jacob Austin (00:19:50) - So that can either be in the form laid out within the subcontract agreement, or it can be referred to as a separate numbered document. So typically, because most contractors aren't using the form of agreement, they will point you out to schedule of attendances or there will be one as part of, say, a pre award meeting of some sort. There is a note at the bottom of the standard schedule that says note materials. Fuel, power and or water for commissioning and testing are excluded, so these aren't usually provided by the contractor as an attendant. So unless you agree otherwise, under the standard subcontract terms, you have to provide your own power, water and so on for testing and commissioning. The standard form also points you at agreeing the location of any temporary buildings and the fire provisions or firefighting provisions, and it typically states that the contractor will be providing those. There's also a statement about rubbish saying that rubbish from carrying out the subcontract works is to be disposed of in the following manner. If that is left blank, then it is down to you to dispose of the rubbish.
Jacob Austin (00:20:59) - You agree whether any of the fluctuations clauses apply, you agree. The Interim Valuation date and the standard contract allows for the first valuation to be on a different day. As the rest of the valuations, there is a clause for agreeing whether anything is paid for before it comes to site. Typically, the contractor will want to avoid that altogether, but if it is agreed, there is also a clause for adding a bond to say that a bond must be in place before any payment for off site materials can be made. The retention is stated. The standard percentage is three, so if it's left blank and there's no retention mentioned anywhere, the standard percentage is three. If you intend for them to not be any retention, you have to specifically state nil or write a zero in this section. The release dates are also stated here. The dates are also stated here for the main contract, completion date and the rectification period of the main contract. Then you have the option of a subcontractors retention bond along with the amount and the period that that needs to be held for.
Jacob Austin (00:22:08) - They work right. So next up, the note in the standard agreement says that they work rates are to be all in. There's a few options it gives you here. The most common of those options is that you list out a set of rates that you're likely to use on a job. Those are enshrined into the contract. And then when day work is completed, it's charged at those rates. Alternatively, you can refer to a wage fixing body such as the Rics and then agree a percentage uplift to that rate. The Rics rate is a better rate. And what I mean by that is it represents the cost of your employing somebody. So it factors in the hourly rate any holidays, employers, national insurance and pension contributions. But that's it. So then you do need to add to it for the supervision overheads and profit and so on. You then have insurance. This covers both personal injury and property damage insurance. And for the design and build contract it covers the professional indemnity insurance or product liability insurance.
Jacob Austin (00:23:12) - Obviously if you're not designing anything that bit can be omitted. There is also a further section to describe how certain portions of the subcontract work need to be before subcontract completion or section or completion can be granted. So a little bit like what we were saying in episode 20 of the podcast where we were talking about completion. Whilst it doesn't define practical completion, what it does do is say that you can't achieve practical completion of a particular section or perhaps of the whole subcontract works if there are no sections without things that you specify on this list being fully complete, and the term that they call it is fully, finally and properly incorporated into the main contract works, then you have clauses relating to the settlement of disputes. And what these do is clarify either who the named adjudicator is going to be, if there has to be an adjudication, or who the agreed nominating body of the adjudicator is. If there isn't one specified, then it gives the same for arbitration. If arbitration is specified as well, then finally, the last thing that makes up the subcontract particulars is the numbered documents.
Jacob Austin (00:24:25) - And those numbered documents are where you'll find all manner of the other appendices. These will include policies, scopes, drawings, health and safety documents, and all of the other goodies the contract wants to pass your way. Typically that will include the contractor's schedule of amendments to the subcontract, but as I was saying earlier, it doesn't usually include the subcontract terms and conditions itself. So because they've referred to the JCT 2016 design and build, subcontract or insert the name of another subcontract here. Having my BBC moment, that is sufficient in the eyes of the law to say that those conditions will apply so they are incorporated by reference, rather than being physically incorporated into the document. So you now should be able to pick up your subcontract and start to recognize those elements that we've mentioned in today's show within your document. And that should start giving you an understanding of how the conditions are being applied and what you're agreeing to. Sometimes it's not always straightforward. And in spite of what some people might tell you, it's not that the contractor is trying to hide the conditions from you.
Jacob Austin (00:25:37) - It is just common custom and practice. And the same thing happens downstream from the client when they are appointing the contractor. A document is put into place which satisfies the recitals, the articles and the particulars of the contract, and then the rest is sort of deemed to apply. So you should now be able to find your way around a JCT subcontract agreement. And I would very much encourage you to pick up your subcontract, give it a read and pick out those details. And a very good thing for you to do would be to pick them out and have a contract one sheet with those pertinent items on, and it will save you delving through that 300 page lovely bound document every time you want to establish a fact.
My mission is to help the 1 million SME subcontractors working within our industry. If you've taken away some value from today's episode, I'd really love it if you share the show and pass on that value to somebody else who would benefit from hearing it. And thank you so much for tuning into today's show.
Jacob Austin (00:26:39) - If you like what you've heard and you want to learn more, please do find us at QS.Zone. That's the letters QS, dot, Z, O, N, E, and in there you can find our training and support system for like minded subcontractors. And you can subscribe to our time templates, how to videos, interviews and much more. It's less than the price of your cup of coffee per day, and you can cancel anytime. We're also on all your favourite socials at @QS.Zone. Thanks again! I've been Jacob Austin and you've been awesome.
