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Are Traditional Contracts Compatible with Modern Methods of Construction?

This article will explore the compatibility of traditional contracts, such as the JCT and NEC4 suites, with modern methods of construction (MMC). What contractual provisions should be implemented when drafting amends to these contracts, and more specifically the potential issues which off-site construction may present will be considered.

What is MMC?

MMC is an umbrella term which entails anything that deviates from the traditional bricks and motor construction method. In the broadest sense, the term MMC refers to off-site construction whereby aspects of the project are manufactured and assembled away from the construction site before they are eventually delivered to the site and installed.

MMC can be a more efficient method of construction (when compared to traditional methods). Additionally, research suggest that MMC principles can reduce the carbon footprint of a project.

Risk

Given the very nature of off-site projects, it is vital that there are relevant contractual provisions within the contract to address the risk associated with MCC projects.

Where, for example, a project contains a significant MMC element (with large modules being assembled off-site) the contract needs to address how risk (and requirements relating to insurance and assurances) are apportioned in respect of design, assembly, transport, and installation of the module.

This is particularly important where there is an Employer to Contractor to Manufacturer relationship (i.e the Contractor has full design obligation and is responsible for obtaining the modules from the Manufacturer).

Risk on the Employer can be managed by bespoke clauses and collateral warrantees provided by the Manufacturer. The apportionment of risk would change if the direct contractual relationship is between the Employer and Manufacture (who are contracted not only to produce the module units but also install them). In this relationship only a collateral warranty between Employer and Installer would be required (as the Employer would have adequate assurance by way of the contractual provisions. However, in these circumstances the form of underlying contract would need to be considered (as the JCT Measured Terms might be more appropriate than a traditional building contract such as the JCT Design and Build).

Where transportation of module units is required the contract must contain provisions which sets out how the goods are transported to their destination. Such provision will also manage the risk of damage to the goods and clearly identify which party will be liable for any risk or damage during storage and even construction / installation. On a more practical level, consideration would need to be given to how the goods are stored but also which part assumes risk if the module units are delayed.

Passing of title

One of the key considerations is the ownership (or title) of materials used in the project.

Title of goods and materials is a vital element of any construction contract. For projects where there is no MMC components, contracts will, in most cases, dictate that title will be transferred upon delivery (the NEC approach) or upon payment (the JCT approach).

However, this principle is far from straightforward in projects utilising MMC. As such, the passing of title requires careful consideration. Experience shows that the traditional contracts require considerable amendment to allow for the delivery of the module components required for a MMC project and to simplify the transfer of title. Where module units are to be delivered and installed on site how the manufacture is to be paid requires consideration. As identified previously the contractual relationship between Employer, Contractor (or Installer) and the Manufacturer will dictate the mechanisms for the payment for the module.

Careful consideration will be required if the Contractor is required to pay the Manufacturer. In these circumstances the Employer may choose to include an amendment to the standard contract terms which places a positive obligation on the Contractor to pay the Manufacture upon the Employer paying for that aspect of the project. Moreover, the relationship between the Contractor and Manufacturer will need to include provision which in effect transfer title of the units to the Contractor upon payment (but also allows for novation of title and any warrantees upon Practical Completion). Essentially, any amends to the contractual relationship would need to eliminate the Manufacturer retaining title once the units have been delivered to site.

Conclusion

At present the traditional suites of contract available required substantial amendments to deal with projects which encompasses MMC. Moreover, Employers need to consider whether a differing base contract is required to suit the purpose as in some cases the standard Design and Build or Minor Works might not be appropriate particularly where the direct contractual relationship is with the Manufacturer.

For more information contact Daniel Milnes in our Construction & Infrastructure department via email or phone on 01254 222313. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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