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New Standard Form of Building Contract

After more than ten years of work by the Joint Contracts Committee (" JCC"), the New Form of Contract jointly published by the Hong Kong Institute of Architects ("HKIA"), Hong Kong Institute of Surveyors ("HKIS") and the Hong Kong Institute of Construction Managers ("HKICM") was launched on 11 April 2005. Two standard forms were published, one for general Building Contracts (Private Edition - With Quantities) and one for Nominated Sub-Contract. We shall concentrate for the present purposes on the form for Building Contracts (the "New Form").

The New Form aims to achieve a more equitable allocation of risks between employers and contractors and responds in this respect to the Tang Report. There are also provisions which are designed to avoid the application of certain established legal principles. Some of the main features of the New Form are discussed below.

There is an overall requirement for all the parties including the Architect and the Quantity Surveyor to act reasonably and expeditiously in all matters under the Contract including the giving or withholding of consent, approval or agreement and valuing Variations and certifying. The term "to the Architect's satisfaction" is defined as meaning "to the Architect's reasonable satisfaction" and the term "practicable" as meaning "reasonably practicable". It still has to be seen what weight the Court will attach to these provisions in interpreting various terms of the Contract. There is for the first time an express provision that the Employer and its agents, namely the Architect and the Quantity Surveyor, have a general duty to act reasonably and expeditiously. This is consistent with the modern approach to encourage the parties to cooperate and work together to achieve the best results for any particular project.

The Contractor is now given the right to object to the person appointed to succeed either the Architect or the Quantity Surveyor and to refer his objection to arbitration. There is however no right for the Contractor to object to the appointment of the Engineer or the Architect's representative. The Architect has the right to instruct the Contractor to replace the construction manager or members of the site management and supervisory team for incompetence or misconduct but the Contractor cannot remove or replace the same unless the removal or replacement is requested by or agreed to by the Architect. This effectively gives the Architect the right to intervene in the Contractor's personnel affairs and makes it inflexible for the Contractor to make personnel arrangements according to its own needs.

The New Form introduces complex two-stage notice requirements for claiming extensions of time. The Architect nevertheless retains the right to grant extensions of time if a notice is served out of time or for any delay between the Completion Date and the Date of Substantial Completion and to finally decide the overall extension of time that he considers the Contractor is entitled to within 90 days after Substantial Completion. These provisions serve to ensure that time at large arguments such as those advanced in Gaymark Investments Pty Limited v WaIter Construction Group Limited are avoided. In the Gaymark case, the contractor's inability to claim extension of time because of its failure to comply with notice requirements was held to render time at large.

The Architect's powers to order Variations are widened. The Architect may by Variations, subject to the Contractor's right of reasonable objection , impose or change an obligation or restriction on the Contractor regarding access to the Site, use of any part of the Site or limitation of working space or working hours. The Contractor is given the right to consent to the appointment of a Nominated Sub-Contractor and to omitting work for it to be carried out by others.

The mechanism for the valuation of Variations is similar to that in the old HKIA Form. However, the effect of a substantial change in the quantity of works on the rates applicable is recognized in the New Form. Where there is a substantial change in the quantity of the work, the rates in the Contract Bills will be subject to a "fair adjustment" for the difference in quantity. The change in conditions under which the work is carried out entitling the Contractor to a fair adjustment of the rates are defined to mean physical conditions and not financial conditions. The Contractor will thus bear the risk of any increase in the financial cost of carrying out the same work under the same physical conditions.

There is also a new section on delay recovery measures permitting the Employer to get involved by issuing instructions to the Architect to instruct the Contractor to take action for delay recovery. This is something adapted from the Government Conditions for the Airport Core Programme.

There is no general obligation on the Contractor to rectify defects which are identified after the Defects Liability Period. In particular, the Contractor is not required to rectify defects or damage caused by a Specified Peril occurring after Substantial Completion.

A three-tier procedure is adopted for the resolution of disputes. Any dispute must first be referred to the Designated Representatives who are senior executives of the parties appointed under the Contract. If the dispute is not resolved by the Designated Representatives, it may then be referred to mediation followed, if not yet resolved, by arbitration. The Domestic Arbitration Rules of the Hong Kong International Arbitration Centre are expressly adopted in the New Form.

As many of the provisions bear no similarity to those in other common standard forms of contract, the legal effect and interpretation of the provisions in the New Form remain to be seen and tested by the Court. Moreover, it is not known at this stage whether this New Form will be generally accepted by the industry at large particularly employers. However, whilst the New Form has gone apparently in the right direction to promote cooperation and reasonableness, the many new provisions and more complex mechanisms provided could lead to more disputes in the short term.

Lovells Newsletter
June 2005

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