Case law analysis: The JCT Short Form of Subcontract

I have sometimes heard the question asked as to why a building contract cannot be set out on a single sheet of paper, simply stating what is to be done, when it is to be done by and how much is to be paid. Whoever poses this question then tends to suggest that the industry's inclination to utilise lengthy and complicated forms of contract dealing with eventualities that do not arise is both wasteful and unnecessary.

Of course, part of the reason contracts are the length they are is that you can never be certain what will happen in the future, and contracts for multi-million pound projects need to anticipate and allow for the risks associated with long time periods and the change and delays that will almost inevitably occur.

Whether such considerations are quite so important when the works being undertaken are a small subcontract of limited scope and complexity is a different matter. Certainly, the length and complexity of subcontract documents issued by some main contractors in respect of minor subcontract packages is sometimes remarkable. When management contracting was in vogue, the works contract documentation could often be several inches thick for a works contract worth a few tens of thousands of pounds.

Some contractors recognise this as the nonsense which it is, and simply issue purchase orders for small subcontract packages. However, this is hardly ideal either, as the terms applicable to a supplier do not readily translate to the more complicated and unpredictable circumstances that arise when work has to be undertaken on site.

When the JCT published the 2005 edition of its suite of contracts, one of the documents that appears to have been overlooked by most people was the Short Form of Subcontract ('ShortSub'). This does exactly what it says on the can and sets out to provide a sensible solution to the problem I have described above. The actual conditions are five pages in length, and while the articles, recital and attestation add another four pages, the form is undoubtedly short.

So, apart from the fact that it is short, is it any good?

Limitations

My answer to that is yes, provided you recognise its limitations - these being clearly set out by the JCT in the accompanying guidance note. The most important point to note is that, as a generic subcontract suitable for use with any main contract, it will not necessarily be back to back with all the main contract terms. This means it is suitable for use only where the subcontract packages are of straightforward content and carrying a low degree of risk.

The main terms are simple, requiring the subcontractor to carry out and complete the subcontract works with due diligence and in a good and workmanlike manner, commencing after a specified period of notice and completing within the specified period of completion. The extension of time provisions are admirably straightforward, with the subcontractor having an obligation to notify delays and being entitled to a reasonable extension of time where the delay is for a reason beyond the control of the subcontractor.

This provision is a prime example of the way in which the subcontract terms are not necessarily back to back with the main contract terms, but instead offer a clear, simple and straightforward solution to a difficult problem that is only five lines in length!

As regards payment, the subcontract is always awarded on a lump sum basis, with interim payments becoming due at monthly intervals and the final date for payment being 28 days later. The amount of the payment is determined by reference to the pricing document, and a retention of 5% is kept until practical completion of the subcontract works is achieved, after which it reduces to 2.5%. Note that release of retention is not linked to practical completion of the main contract works.

Variations can be instructed and are simply valued on a fair and reasonable basis referring, if relevant, to any rates and prices in the pricing document.

Pricing document

The pricing document is clearly important for the successful operation of this subcontract and its precise contents merit a degree of consideration to ensure that the information it contains will be helpful for its intended use. Typically, it might contain a contract sum analysis, a schedule of rates, daywork rates or anything else that might assist in the valuation of interim payments and variations.

Being published by the JCT it goes without saying that the subcontract complies with the requirements of the Housing Grants, Construction and Regeneration Act, and contains compliant provisions in relation to payment and withholding notices, suspension for non-payment and adjudication. In line with JCT practice elsewhere there is an optional arbitration provision, which seems an unnecessary complication in a form of this nature, failing which any disputes that cannot be resolved by the parties or an adjudicator are referred to the courts.

Provided its limitations are recognised, I have no doubt this is a good form with a wide application. Any contractors wondering whether their procedures for the award of small subcontracts are quite up to scratch could do a lot worse than consider it as providing a solution to their problems.

The case: The JCT Short Form of Subcontract

The issue: What subcontract terms are best suited to small subcontracts?

The implication: Use of this form can help strike a pragmatic balance between providing for all eventualities and providing for none.