Before You Sign: What Every Contractor Should Check in JCT and NEC Contracts

When reviewing contracts under JCT, NEC4, or other standard forms, contractors should focus on key areas that protect their interests and ensure smooth project delivery. The following summary highlights the principal considerations before entering into a construction contract.

1. Scope and Responsibilities

Understand your contractual obligations and whether you hold design responsibility or are engaged purely for construction. Increasingly, contracts emphasise early collaboration and shared risk. Review how design duties, change management, and coordination responsibilities are allocated.

Ambiguity over design responsibility is one of the most common sources of construction disputes. If the contract is unclear on whether you hold design liability, you could find yourself bearing the cost of design errors you never priced for, or facing professional indemnity claims without adequate cover.

2. Payment Terms

Examine the payment structure, including interim payments, retention, and final account processes. Ensure provisions comply with the Construction Act to avoid statutory terms being implied. Check how additional costs are claimed and whether timely notification is a condition precedent to entitlement. NEC contracts in particular rely on proactive notice procedures.

Failure to comply with strict notice requirements, particularly under NEC contracts, can result in the complete loss of entitlement to additional payment, even where the underlying claim is legitimate. We have seen contractors forfeit six-figure sums simply because a compensation event notice was served a few days late.

Time and Completion

Review completion dates, extension-of-time provisions, and delay damages. Both JCT and NEC allow for liquidated damages but differ in how extensions are assessed. NEC’s Early Warning procedure is crucial to maintain entitlement. Confirm whether notice requirements must be met before claiming extra time.

If extension-of-time provisions are not properly engaged, liquidated damages can accrue even where delays were caused by employer driven changes. In the worst case, a failure to serve timely notices can leave a contractor exposed to uncapped delay damages, turning a profitable project into a significant loss

4. Changes and Variations

Understand how variations and unforeseen changes are managed. JCT uses formal variation instructions, whereas NEC requires early identification and assessment through compensation events. As always, maintain accurate records of all changes and correspondence.

Variations are often the battleground of final account disputes. Without contemporaneous records and properly issued instructions, contractors regularly struggle to recover the true cost of additional work. We frequently see claims significantly reduced, or rejected entirely, at adjudication due to insufficient documentation

5. Dispute Resolution

Be clear on the dispute resolution procedures specified, adjudication, arbitration, or litigation. Construction contracts must allow adjudication at any time, but early resolution processes are encouraged to reduce disruption and cost.

The choice of dispute resolution mechanism can have a significant impact on cost and cash flow. Adjudication offers a rapid, enforceable decision (often within 28 days) which can be critical for maintaining liquidity. However, if the contract defaults to litigation rather than arbitration, be aware that court proceedings can take considerably longer and may result in public judgments that affect commercial reputation.

6. Insurance and Liability

Verify insurance requirements, liability caps, and indemnity clauses. Ensure risks are insurable and covered by existing policies. Always have your broker confirm that the required insurance can be placed and align with contractual obligations.

We regularly encounter contracts where the insurance obligations exceed what is available in the market, or where the contractor’s existing policies do not respond to the risks assumed. Signing a contract with uninsurable obligations can leave a contractor personally exposed to claims that should have been covered, a risk that is often entirely avoidable with early broker engagement.

7. Collateral Warranties and Third-Party Rights

Collateral warranties extend liability to funders, purchasers, and tenants (and potentially others) and should not impose greater obligations than those owed under the main contract. They can create liability to parties the contractor has never dealt with directly. For example, a warranty given to a funder may allow that funder to pursue the contractor for defects years after practical completion, and even potentially beyond the limitation period under the main contract if the warranty is executed as a deed.

Contractors should seek to exclude from collateral warranties consequential losses, and cap liability within professional indemnity limits. The form of warranty should be agreed at contract stage and avoid or minimize where possible payment retention linked to execution. Allow reasonable time for signature, as delays (holidays!) can occur.

8. Performance Bonds and Parent Company Guarantees

Performance bonds and parent company guarantees give the employer financial assurance if the contractor defaults. Review their scope, triggers, and financial limits carefully, they extend risk beyond the main contract. Ensure obligations are proportionate and that costs are accounted for in tender pricing.

Performance bonds typically cost between 1-2% of the bond value annually, and parent company guarantees can affect group borrowing capacity. These costs are often overlooked at tender stage, eroding margins. Contractors should also be aware that on-demand bonds (as opposed to conditional bonds) allow the employer to call on the bond without first proving a breach, creating significant financial exposure.

Summary

Close attention to these areas enables contractors to manage risk, avoid disputes, and maintain commercial control under both JCT and NEC frameworks. Our team can assist with contract reviews and provide traffic light system (RAG) reports highlighting key commercial risks and negotiation points. Please contact us for support with any standard form or bespoke construction agreement.

Need expert legal advice? Contact Sophie Thornley or Warren Kemp for professional support.