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Understanding Construction Contracts in the UK: Types, Requirements And Key Differences

Construction contracts are essential in the building industry. They define the terms, costs, responsibilities, and timelines for projects, offering legal protection for both contractors and clients. This guide will cover what construction contracts entail, their types, submission requirements, benefits, and key aspects, along with answers to common questions.

What is a Construction Contract?

A construction contract is a legally binding agreement between a client (or project owner) and a contractor. It outlines the specifics of the work to be completed, including timelines, costs, materials, responsibilities, and conditions. These contracts play a crucial role in the industry, ensuring that projects proceed smoothly and any potential disputes are managed within a clear legal framework.

Why Use a Construction Contract?

Construction contracts are essential to:

  1. Provide Clarity and Security: Contracts set out clear obligations, expectations, and standards for all parties, minimizing misunderstandings and ensuring quality.
  2. Ensure Legal Protection: They legally bind the contractor to deliver the specified work and protect the client if the contractor fails to meet the terms.
  3. Define Payment Terms: Contracts specify payment schedules, milestones, and other financial arrangements to avoid payment disputes.
  4. Manage Risks: Contracts allow for risk management, detailing clauses on delays, unforeseen issues, and penalties for non-compliance.

Types of Construction Contracts in the UK

Several construction contract types cater to different project needs. Here are the three primary types:

1. Fixed-Price Contracts

  • Also known as Lump-Sum Contracts, these specify a total price for the entire project. This type of contract is often used when project costs can be accurately estimated upfront.
  • Pros: Predictable costs, minimal surprises for clients.
  • Cons: Any unforeseen expenses are typically covered by the contractor.

2. Cost-Plus Contracts

  • In a cost-plus contract, the contractor is reimbursed for the actual costs of materials and labour, along with a percentage or fixed fee as profit.
  • Pros: Flexible and beneficial for projects with unpredictable costs.
  • Cons: Final costs can be unpredictable, as they depend on the materials and time required.

3. Time and Materials Contracts

  • This contract type is based on the time spent by workers and the materials used for the project. It is commonly used when the scope of work is undefined at the beginning.
  • Pros: Flexibility in terms of project changes.
  • Cons: Cost can escalate if the project duration or material costs exceed expectations.

Common Construction Contracts in the UK

In the UK, the Joint Contracts Tribunal (JCT) and New Engineering Contract (NEC) forms are among the most commonly used. Here’s an overview:

  1. JCT Contracts
    • Established by the Joint Contracts Tribunal, JCT contracts are traditional, widely used for building projects across the UK. They are designed to be straightforward, detailing each party’s obligations and covering common issues like delay clauses, extensions, and payment schedules.
  2. NEC Contracts
    • The NEC (New Engineering Contract) form promotes collaboration and flexibility, often used in complex or large-scale infrastructure projects. NEC contracts encourage cooperation, with a focus on risk management and joint decision-making.
  3. FIDIC Contracts
    • Used worldwide but less common in the UK, FIDIC (Fédération Internationale Des Ingénieurs-Conseils) contracts are popular for international projects and emphasize fair distribution of risk between parties.

Submission Requirements for Construction Contracts

Winning a construction tender typically requires a thorough and compliant submission. Here are key submission elements:

  1. Detailed Proposal: Outline project costs, timelines, materials, and personnel. Be as specific as possible.
  2. Compliance Documents: Ensure all legal and regulatory compliance is in place, including health and safety standards, insurance, and licensing.
  3. Project Experience: Showcase relevant projects your team has completed, focusing on similar scopes or sizes to the current tender.
  4. Risk Management Plan: Describe your approach to handling unforeseen circumstances, delays, and potential hazards.
  5. References and Testimonials: Provide evidence of client satisfaction and successful project delivery.

Adherence to these requirements not only improves your chances of winning the contract but also demonstrates professionalism and reliability.

How Construction Contracts Work

In a typical construction contract process, several stages occur:

  1. Tendering and Selection
    • Clients issue a request for tender, and contractors submit bids. The client selects the winning bid based on criteria like cost, experience, and proposed timeline.
  2. Contract Agreement
    • After selection, both parties sign a formal contract specifying the project’s terms and conditions, including payment schedules, timelines, and deliverables.
  3. Project Execution
    • The contractor begins work, adhering to the contract terms. This phase involves continuous communication, compliance with quality standards, and regular updates.
  4. Completion and Handover
    • Once work is complete, the contractor hands over the project to the client. A final inspection and sign-off confirm that all work is satisfactory and within the agreed terms.
  5. Post-Completion Obligations
    • Depending on the contract, the contractor may be responsible for addressing any defects or providing ongoing maintenance within a specified warranty period.

 

Understanding construction contracts is essential for both clients and contractors to ensure a smooth and compliant project lifecycle. By choosing the right contract type—whether it’s a JCT, NEC, or another form—you can achieve transparency, manage risks, and build successful project partnerships.

Need help with construction tender submissions or navigating contract complexities? Contact Construction Tenders for expert guidance on winning and managing your construction projects with ease.

Related Blog: 5 Reasons Why You Aren’t Winning Tenders for Roofing Work

FAQs

What is the difference between JCT and NEC contracts?

JCT contracts are more traditional and straightforward, often used for building projects where roles and responsibilities are clearly defined. NEC contracts promote a collaborative approach with a focus on flexibility and proactive risk management, making them more suitable for complex or high-risk projects.

What are the three types of contracts in construction?

The primary types of construction contracts are:

  1. Fixed-Price Contracts: Set total project cost.
  2. Cost-Plus Contracts: Reimburses actual costs plus a profit margin.
  3. Time and Materials Contracts: Based on the time and materials used.

What are the most common construction contracts?

In the UK, JCT and NEC contracts are the most commonly used construction contracts. JCT contracts are preferred for straightforward building projects, while NEC contracts are chosen for collaborative and flexible project management in complex or large-scale infrastructure.

Types of Procurement in Construction: A complete guide

Understanding the Types of Procurement in Construction

Read this to get ahead on the different types of procurement in construction

On its own, procurement is difficult, and more complications arise when it comes to types of procurement in construction. So, let’s take some time to look over the methods of procurement in construction.

What is procurement?

In essence, procurement is a process of obtaining a product or service. In your case, it specifically relates to providing the materials/labour needed to complete a job/product. For most construction firms, a clear, concise, and cost-effective strategy is needed to complete the job. Budget, quality, and timeline are heavily considered here.

When it comes down to it, price and quality are where the competition element lies in construction procurement. If the buyer discovers a cheaper contractor which rivals or exceeds the quality of its competitors, it’s a no-brainer.

How many types of procurement in construction are there?

So, across the UK’s construction sector, there are generally two elements within the construction process. There are other processes, but the ones below are the one’s you’ll most likely encounter. Let’s work our way through them.

Pre- Qualification questionaries- What are they and how do they compare to PAS91’s?

So, the first of our types of procurement in construction is pre-qualification questionnaires.

Also known as PQQ’S, they are used by buyers in the initial stages of construction procurement.  A frequent question we get asked is ‘what is the difference between PPQ’S and PAS91’S?

Well, the biggest difference is the length of the documents, with PAS91’s being on average larger.

Dependent on the buyer, they could also utilise SQ’s (selection questionnaire’s) or SSQ (Standard selection questionnaire’s). You could state that this is the first gate you need to cross. Basic requirements are covered here so that whoever bids for the contract is meets the minimum needs. Depending on whether the process was open or closed, a PQQ and ITT could be required as well. Although its dependent on the size of the contract, the document will include:

  • Health & safety policy- Following on from your insurance, what measures are you taking to ensure the health and safety of everyone involved?
  • Your financial stability- Are you able to cover the project adequately? Can you feasibly deliver the project? In most cases if your annual turnover is worth less than half of the contract, you won’t be selected. They may require a brief inclusion of recent accounts to verify your financial status.
  • Supplier identity- Where are you based, how long have you been practice etc.
  • Quality Assurance policy- How are you ensuring that the work you provide is standardised in its quality? This could include
  1. Audits/inspections
  2. Training or other means of quality assurance
  3. The issue of underperformance, and how you tackle this with your employees
  4. A review of your policies and how you comply with best practice.

Optional requirements

Depending on the buyer, they could also request:

  • Insurance cover- In the event that something goes wrong or awry, are you insured? This is a necessity. If you’re not insured, you won’t be able to get past this stage of the procurement process.
  • Relevant references- This won’t be as in-depth as later parts of the process, but it’s still required
  • What’s your capabilities/capacity? – Similar to finances, if you can’t cover the needs of the client due to your size, you’re unlikely to progress. You need to prove your capability to the buyer.
  • Equal opportunities policy- How are you ensuring that discrimination is eliminated, and fair opportunities sustained within your company?
  • Environmental management policy- We’re all moving towards a greener planet, so what measures are you taking to play your part? This could include:
  1. Covering carbon emissions and how you’re reducing them.
  2. Ensuring environmental awareness through training.

For most of these questions, the PPQ will require a brief answer. Another option is a score in which to describe your proficiency in the given question. Either way, you’ll need to elaborate on your scores/brief answers later in the process.

ITT

So, you’ve passed the PPQ with flying colours, proving you fulfil the requirements for the contract. Now it’s time for the ITT. It’s here that the buyer invites you to tender. Time has been utilised efficiently due to the PQQ shortlisting the potential contractors.

Within the construction industry, this document may include:

  • Instructions to tenderers explaining the process
  • Query process and resolutions
  • The timescale of the tender process (deadlines for tenders)
  • Drawing schedules
  • Site waste management plan
  • How the buyer will provide feedback for unsuccessful tenderers

The response

Now you know what the ITT may contain, it’s good to cover what you should respond with:

  • List of staff- This could include C. V’s to further validate their suitability.
  • Prior experience
  • References
  • A completed tender pricing document

In summary

So, we’ve arrived at the end of this blog regarding types of procurement in construction. You now have a greater understanding of:

  • The function of both the ITT’s and PPQ’S
  • The difference between PPQ’s and PAS91’S
  • The basic and optional requirements of PQQ’s
  • What ITTs require and how you should respond.

Now you’re better equipped to understand the types of procurement in construction, you may be wondering how we can help…

Hudson Succeed

Our Tender Writing service covers PAS-91s, PPQ’s, and much more. We will complete the written, technical, and professional ability sections and/or PAS91 modules on your behalf.

Alternatively, our Tender Ready service will see our team of bid writers prepare case studies and policies.  Each are essential in passing pre-qualification questionnaires and PAS91s – in-line with best practice across the industry.

If you are looking for new opportunities for construction projects, look no further than Construction Tenders. Our dedicated, tender tracking portal, sources tendering opportunities, specifically for the construction sector. Get in touch to book a free live demo and see how the system can help your business.

If there’s anything we can help with, get in touch with our bid writers who can help with the bid writing process.