Bell & Scott

Welcome to Bell and Scott’s Construction Update, a quarterly e-publication bringing you the latest news and developments in Construction Law.

This update is edited by the head of our Construction Team, Brandon Malone, a solicitor advocate, accredited by the Law Society of Scotland as a specialist in Construction Law.

With the new suite of SBCC contracts gradually filtering through, this edition of Construction Update focuses on some important issues arising out of the standard forms.

For advice, guidance or information on construction law issues contact Brandon Malone on 0131 226 6703 or by email at b.malone@bellscott.co.uk.

Design and build is a tricky business. At one end of the design and build spectrum, a developer goes to a contractor and says “I’d like you to design and construct a 10,000 square foot office block on my site,” and leaves all of the detail to the contractor. The contractor then picks a design team (or uses in-house designers) and is fully liable for all design on the contract. At the other end of the scale, the developer says “I would like you to take full contractual liability for the (already completed) design and construction of this 10,000 square foot office block. Please take over the contracts of my design team and accept all liability for the design they’ve produced to date.” In this scenario the contractor has no control over the design (since it’s already complete) and no say in the selection of the design team (since they’re already in place). Of course, in practice, these extremes are rare. The norm is that some design has been carried out by the time the contractor has been appointed, but not all of it. How do standard form contracts deal with this?

The Scottish Building Contract Committee (SBCC) has not yet issued its revised “With Contractor’s Design” (Design and Build) contract. However, when it does, it will follow the line of the 2005 JCT design and build contract form, which explicitly provides that the Contractor is not liable for any design contained in the Employer’s Requirements. This provision became necessary because of the case of CIS v Henry Boot Scotland Ltd in 2002. In that case, it was held that the JCT wording requiring a contractor to “complete” the design “so far as it was not contained in the employer’s requirements” had the effect of requiring the contractor to review and approve all of the pre-existing design before going on to complete it. This came as a bit of a shock to contractors. So to reverse the effect of this case, the new JCT form makes it clear that any design contained in the employer’s requirements is not the contractor's responsibility (although the contractor can still be liable if there is a breach of statutory requirements such as the Building Regulations).

However, developers being keen to offload as much risk as possible onto the contractor, we are bound to see attempts to reverse that contractual position, and make the contractor liable for all pre-existing design. Is that fair? Well … as we lawyers tend to say, “that depends”. It’s all a question of balancing the risk appropriately.

There’s nothing wrong in principle with a developer requiring a contractor to accept liability for the full design of a building, including pre-existing design. It’s very attractive to the developer to do this because it means that there is a single point of responsibility (the contractor) in the event of there being a problem during the construction of the building, or if a latent defect comes to light after completion.

From a contractor’s point of view, there’s nothing wrong in principle with accepting responsibility for existing design, so long as risk is properly priced, and so long as the contractor secures effective rights against the existing design team, in case they’ve made a mistake. That’s not as straightforward as it might seem.

Design and build contracting is a minefield. In this article I’ve outlined some issues thrown up by the new JCT/SBCC design and build contract. There are many others. For anyone planning to work with a design and build contract, it’s worth taking detailed advice – particularly if the standard form has been amended.

Litigate or Arbitrate (or Neither)

An interesting change of priorities in the new JCT and SBCC forms is that litigation has usurped arbitration as the default dispute resolution mechanism. Why is this?

Traditionally, litigation was seen as being slow and expensive, and so arbitration became the favoured method of dispute resolution in construction contracts. For many years, arbitration was the default dispute mechanism in construction contracts. However, over the years, arbitration became as formalised, lengthy and expensive as litigation. In fact arbitration became even more expensive than litigation in that parties had to pay the arbiter’s fee and venue hire (Judges don’t charge for their time – at least not yet – and court fees are comparatively low).

Adjudication, the 28 day quick fix dispute mechanism introduced by the Housing Grants, Construction and Regeneration Act 1996, sent the use of arbitration into sharp decline, and now, JCT and SBCC have put the final nail in the coffin.

Under the old forms, arbitration was the default option, and if parties specified no choice in the contract, they were bound to go to arbitration. That has been changed in the new forms. Now, if parties make no choice, the default option is litigation.

So is this the end for arbitration? Not necessarily. It is still open to contracting parties to specify that they would like to go to arbitration. The Chartered Institute of Arbitrators (Scottish Branch) has produced a Scottish Construction Arbitration Code, which seeks to make arbitration more attractive to contracting parties, by making the procedure more akin to the short practical dispute process that arbitration used to be.

Whether this will see a revival in arbitration remains to be seen, but to really bring Scottish Arbitration back to the forefront of dispute resolution, we need to see an Arbitration Act coming out of the Scottish Parliament, and that requires parliamentary time … so don’t hold your breath.

JCT V SBCC – a Breach of the Treaty of Union?

Well, no, probably not. However, despite the SBCC’s stated aim to mirror the balance of risk set out in the JCT contract in SBCC forms, there is one material respect in which Scottish contractors are worse off than contractors in England and Wales. That’s thanks to an anomaly in the SBCC contract: time bar.

In England and Wales, the Limitation Act 1980 provides that a contractor’s liability for breach of contract ceases twelve years after the breach (or six years if the contract is executed informally). There is therefore no need for a limitation clause in a JCT building contract.

In Scotland, the position is different. The 1980 Act doesn’t apply. Instead, we have the Prescription and Limitation Act 1973 which provides that a right prescribes five years after it becomes enforceable. So Scottish contractors are better off – right? Wrong. The five year period doesn’t start to run until the breach of contract causes loss, which in the case of a building, has been held to mean ‘physical damage’. Even then, if the loss is not discoverable, the claim takes another twenty years to prescribe. In other words, the right to bring a claim against a Scottish contractor is almost indefinite.

The case of Strathclyde Regional Council v Border Engineering (1998) is an example of a contractor being held liable in an action raised more than twenty years after practical completion.

Scottish contractors are therefore exposed to a much longer period of liability for their works than their counterparts south of the border. To even things up, it would be a simple matter of inserting a time limitation clause in the SBCC form preventing an action being raised more than twelve years after PC. But is it there? Indeed it is not. There is no time limitation clause in the SBCC contract. A “devolution issue” to take before the Scottish Parliament? Perhaps not, but something for contractors to bear in mind. A very short additional clause could restrict liability to a reasonable period. Leave it out, and you could be getting hauled back from your retirement villa in the south of France to give evidence in a four week proof before the Court of Session on a contract you signed off twenty-five years ago.

On 1st June 2005 the Chartered Institute of Arbitrators and the Law Society of Scotland are holding a joint conference in association with the RICS and the Adjudication Society.

The conference will take place at the Weston Link, at the National Galleries of Scotland in Edinburgh.

Brandon Malone, Head of our Construction Team is one the of the speakers on a panel which includes Lord Clarke, Head of the Commercial Court, Mr Justice Rupert Jackson, Head of the Technology and Construction Court in England and Wales, Janey Milligan, Vice Chairman of RICS Scotland, and Nigel Cornwell, Head of Litigation with Skanska.