10 December 2019
The JCT Management Contract is a form of contract that we rarely see used, particularly when compared to the traditional or design and build forms. Nevertheless it remains an alternative form of procurement on projects which require an early start on site prior to completion of the design. However, employers need to be aware of the implications of using this procurement method given its differing risk profile compared to the more common procurement options. This article provides an overview of the key provisions of management contracting.
Under a management contract, the Employer appoints a Management Contractor and the Management Contractor then appoints the trades direct, through a number of works contracts. It would be easy to look at the structure of management contracting and equate it to a traditional contracting model but in practice the risk profile for an Employer is very different, for the reasons we have set out below.
Unlike a traditional or design and build procurement, the Management Contractor is not required to carry out any construction works but instead is paid a fee to manage construction works carried out by others. The Management Contractor in effect provides services and not works. Whilst the Management Contractor enters into and enforces Works Contracts, crucially, they are not responsible for the Works Contractor's performance.
The key elements of the Management Contractor's role are:
There is no lump sum fee payable to the Management Contractor, instead the Management Contractor's remuneration is based on the cost of the works packages plus agreed fees (to cover the Management Contractor's overheads and off-site activities), so it is similar to a 'cost plus' arrangement. Construction will often start prior to the point where many of works packages are tendered and let and, as a consequence, there is cost uncertainty at the outset of the project for the Employer.
Where the works run into delay, the Management Contractor is liable to pay liquidated damages to the Employer if the completion date is not met, but is reimbursed by the Employer to the extent that the delay is not the fault of Management Contractor and sums cannot be recovered from the relevant works contractor (or works contractors).
If one works contractor affects another works contractor the Management Contractor can recover from the Employer the cost of pursuing the defaulting works contractor and of defending itself, provided that the Management Contractor is not in breach of contract itself. In addition, the Management Contractor is responsible to the Employer only for the amounts recovered from a defaulting Works Contactor.
Liability for defects rests with the Employer unless it can be established that the Management Contractor was negligent in carrying out their services.
So why would an Employer choose to use management contracting?
In practice, the risk profile of management contracting is more akin to construction management, the key difference being that, unlike construction management, the Employer does not appoint the works contractors direct.
Management Contracting is an alternative procurement method for use by employers. The Management Contractor plays a key role of supervising the separate works contractors and for overseeing delivery of the project, but prior to the use of the JCT Management Contract, employers need to be aware of, and be comfortable with, the differing risk profile introduced by management contracting compared to other procurement routes.