Application Study on JCT Contract for Construction Market of Real Estate in China

Transcription

1 International Journal of Management Science and Engineering Research Volume 1, Application Study on JCT Contract for Construction Market of Real Estate in China Lai Yifei, Huang Rui, Li Keyang Economics and Management School of Wuhan University, Wuhan, Hubei, China Received 15 June 2014; Accepted 9 July 2014; Published 10 July Science and Engineering Publishing Company Abstract The real estate is a comprehensive industry of China's service industry. The paper briefly introduces the JCT contract and proposes solutions by discussing the problems in application of JCT-model in the Real Estate operating management. The purpose of this article is making the public in real estate industry understand more about the JCT contract improves the level of the real estate construction market management and impels the development of Chinese real estate architecture industry. Keywords JCT Contract; Construction Market of Real Estate; Operation Management Introduction The study of industry on the international contract has been focused on the FIDIC contract for a long time around the world while it is little mentioned about the JCT contract mode for ignored the important influences of JCT contract in domestic Construction Market of Real Estate and underestimated the application prospective. As developers in Hong Kong have been accustomed to use the JCT contract of United Kingdom, the JCT contract, which they familiar with, is adapted to all the projects in its territory. Nowadays, Hong Kong-funded- project occupies a large share in the construction market of real estate and has a huge attraction to this area in Mainland China; as a result its contract management mode has also a great influence on the trend of the domestic contract management. So, it's necessary to study about the JCT-model and to understand its characteristics, for promoting the combination of the JCT contract with the Chinese national condition and impel the development of architecture industry in China. 1 The JCT Contract The Origin of JCT Contract System The Standard Form of Building Contracts published by the Royal Institute of British Architects at 1902s, who has a far-reaching effect on Commonwealth areas, is the basic standard contract for building engineering. Later in 1931s, this contract was issued again in the name of the Joint Contract Tribunal, and now, it is commonly called the JCT contract. JCT(Joint Contract Tribunal) consists of eight parts, including the Royal Institute of British Architects (RIBA), the Royal Institution of Chartered Surveyor (RICS), the International Federation of Consulting Engineers (FIDIC), Building Employers Confederation and the International Association of Professional Contractors. In 1998s, it registered in England. So far, JCT has formulated a variety of standard contracts, guide-lines and other standard texts which are widely used in the area of building industry (Zhifu Ren, 2007). The Introduction of JCT Contract System The JCT contract is made up by a huge system of contracts and documents and has a Partnering Charter with- out legal restriction of 2 pages. Besides it offers different standards of clauses to the buildings of Foundation items: 1. The humanities and social science research program of Ministry of Education "The Measure Research on Real Estate Bubble "(No. 10YJA630077) 2. The Science and Technology Support Plan of Hubei "The Regional Diversity Research of the Real Estate Market in Hubei Province"(No. 2013BKF009) 21

2 International Journal of Management Science and Engineering Research Volume 1, 2014 various size, characters or construction conditions. The standard contract is defined by regulations of the JCT contract as "An assemblage of consistent contracts and texts which are used collectively for a particular project". The standard contract of JCT series covers extensive aspects by divided into 9 categories: ⅰ) Standard construction contract: there are 6 sort of standard construction contracts which are compartmentalized by local governments, private investment, the bill of quantities or approximate quantities, or the bill without quantities; ⅱ) Contractor s design contract; ⅲ) The fixed-price contracts; ⅳ) The standard turnkey contract; ⅴ) Intermediate Form Of Building Contract; ⅵ) The small construction contract; ⅶ) The contract of management; ⅷ) The unit price contract; ⅸ) The standard texts of subcontract. The texts of JCT contract include: consulting contract; main contract between award contractor and main contractor; subcontract between main contractor and subcontractor; standard format of subcontract between subcontractor and sub-subcontractor; design contract between award contractor and professional designer; format of tender; contract format for supplying goods; format of mortgage contract and security (Yinglian Zhang and Zhenjing Fu, 2007). The latest version of the JCT contract is JCT05 that published in 2005s. Now, the most widely -used version in the world are the following contracts: the six versions of JCT98 (traditional format), the JCT98 with design of contractor; intermediate format contract in 1998s(IFC98); minor works contract (MW98), the management contract of JCT in 1998s, the construction management system in 2002, the standard clause contract of JCT in 1998s, the owner's contract of JCT and ect. The basic JCT Contracts in version 4, JCT80, which was revised for publication in 1980s, the 5th version, JCT91 was published in 1991s. These two contracts are all applied to price contract. When the amount of quantities in practical engineering changes a lot, the contract price could be adjusted. Also, the JCT80 and JCT91 contract applies to the traditional model in project management too. In order to fit the development of the project management mode, contractors included design JCT contract standard format was published in 1981, it applies to the design-construction management mode. JCT-CD81 contract terms apply to the total price contract. Contractor makes a guaranteeing maximum price (GMP) for owner, and the project cost which is below the GMP will be shared by the owners and contractors. The management contract standard format JCT-MC87 applies to management contracting model, published in 1987 by JCT is equivalent to the risk contract management (CM) mode. It is commonly used for large, complex projects, requires an independent design and needs a tight construction period. However, JCT-MC87 does not apply to the contract of the aggregate price, the cost pay to the contractor is the sum of basic fee and management fee, similar to the the way of cost recovery. The entire project is decomposed into many separate work packages and qualified contractors compete separately for each work, which helps to reduce the total cost of the project. The Characteristic of JCT Contract The JCT Contracts implement a dual supervision by architects and surveyors, for example, architects examine and approve progress claims, and surveyors examine and approve the claim for compensation. Take the JCT98 (traditional format) for instance, the most prominent feature is the duality role of the architect. On one hand, architect is appointed and salaried by contractees. In the case of some purpose, the architect regarded as an agent of the contractees, completely represents their interests. For an example, decided to issue an instruction of modify the project, as an agent of the conractees, the civil law is applicable of to architect, that is to say, the behavior of the legal consequences is undertook by the contractees. On the other hand, in other cases, the architect assumes the responsibilities to make a decision or present his ideas by independent professional ethics in accordance with the contract without favoritism contractees or contractors. For the decision made by the architects, the contractor can demand the architect to provide the relevant information of it. If the contractor is not satisfied, according to the contract, he can file the dispute resolution procedures complied while obey his decision, namely to transfer the adjudication to a referee s hand, or by the way of the court action. But in the quality of raw materials or process standards, 22

3 International Journal of Management Science and Engineering Research Volume 1, architects can make a final certificate in accordance with the contract terms. If within 28 days after the final certificate has been made, the contractee and the contractor did not file the contentious procedure encore, the ultimate decision of the certificate should be complied with. The Existing Problems of JCT Contract when Applied in Chinese Mainland The employment of JCT contract can promote the development of domestic construction market. However, any advanced foreign experiences all should be combined with the domestic national conditions. In fact, in current engineering to which JCT contract is applied, there have been numerous disputes. It illustrates that apply JCT contract practically in the domestic market exist still some problems. Mainly for the JCT contract is somewhere different from the domestic law, and it is not combined with China's national conditions, and domestic contractors do not understand it well. In the contract dispute caused by these problems, both owners' and contractors' interests have been compromised. These problems need to be improved and solved. JCT Contract Is Different from some Statutes of Domestic Law Dismembered the contract, subcontract, further subcontracting are prohibited by the Chinese law, appointing suppliers is limited, and set a quality responsibility of tolerable life period, which are different from JCT con- tract. So it is cannot be awkwardly understood that the JCT contract is totally correct. JCT contract should be integrated into our law, learn it from our engineering practice experience and lessons existing. The Specific Requirements for Contractors of JCT Contract is Different The JCT contractor is required contractors to have a strong sense of risk, a strong technical strength, a good project coordination and management level. The contract demands the contractor undertake all the risks. The general contractor is required to totally accept the project locale, including the ground, underground and surroundings. Besides, the general contractor is also required to assume the caretaking duty, including the coordination of all subcontractors TABLE 1: THE COMPARISON BETWEEN JCT CONTRACTS AND DOMESTIC CONTRACT MANAGEMENT MODEL Project JCT contracts domestic contract the form of contract Process contract, bound volumes of correspondence during the tender. Contract of standard form. responsibilities of architects the depth of design mechanical and electronic synthesis material brand control material procurement mode the use of materials subcontract management water and electricity fees of subcontract product protection material storage security Traditionally, the architect can be engaged in the project management business. Require the contractor to deepen design (electro mechanics are issued with system conditions diagram), and approved by the designer. The Contractor shall coordinate the electrical and mechanical piping layout to ensure that it meets the specifications. It need to be stated as some brand or similar products in the technical requirements. Designated supply, rarely supplied by the first party. Almost all materials are subject to the approval of the architects and owners be- fore being used. The total package manages subpackage, responsible for subpackage responsibility to the owners, including quality, safety, duration. Temporary water and electricity of construction are provided freely by the total package. The total package is responsible for the protection before the completion of the product. The total package need to be responsible for all site material (include sub-pack- age) security, and the stolen materials at their own expense. Confined for design work In addition to the curtain wall and other special professional, the rest are construction drawings, without deepening the design. The designer design mechanical and electronic synthesis. Designated brand The first party supplies more The main material requires to be tested, and needs no approval in advance. In practical operation, the total package is mainly to manage the progress and civilized construction of the nominated subcontract, without their quality and safety, owners directly investigate the quality and safety responsibilities of the nominated subcontract. Fees of temporary water and electricity of sub-package is measured separately, which is deducted from progress payment by the owner. Each contractor is responsible for product protection in its contract. Each subcontractor is responsible for the security of the materials. 23

4 International Journal of Management Science and Engineering Research Volume 1, 2014 and design coordination, duration, quality and handling a variety of government related procedures, moreover, a subcontractor cannot be charged. Ensure that any dispute between the main contractor and subcontractors or between subcontractors is not involved with the owners (Yifei Lai, etc, 2006). The Management Mode is Different between JCT Contract and Domestic Contract Their different parts are as follows, in Table 1. In the table, the most special is that the architect is the client's agent, and has its own independent professional standards and philosophy as well. It seems difficult to reconcile these two identities; however, such coordination is due to the design of the JCT contract. Once the contract is accepted, it is binding on either party. The differences between the JCT contract and the domestic construction contract reflect the cultural differences between the legalese. British contract law is part of a universal law, which is the case law while the Chinese contract law is closer to continental law system. The cultural differences between the legalese influence the signing and implementation of the construction contract. The Differences between JCT Contract and Domestic Construction Engineering Contract Terms The main differences between JCT contract and domestic construction engineering contract terms are as follows, in Table 2. Solutions Combine Tightly the JCT Contract with the Chinese National Condition The construction project operate as a role of capital, only the engineering works fall into line with earlier employed or sold and receive an ideal progress and quality, the time value of money can be fully used in order to obtain a higher asset of it. Especially to the extensive Hong Kong-funded projects which are extensively invested, want to accelerate the running speed of capital and desire an early capital return with less fund cost. It makes most of Hong Kong-funded projects do design, construction and modification at the same time for cutting down the planning period, the tender period, the design phase and the construction preparing period. To carrying on the project successfully in order to achieve the limit time and quality standards, the aim of overthrowing contractors should be abandoned in fulfillment of contract. The Owners need a better understanding about Chinese national conditions and combine it with JCT-model through analyzing self-strength and self-request or learning from the past experiences. Searching for, finding out and training a right contractor to establish a long-term cooperative relation with him, so as to realize the fulfillment of the contract and reduce the dispute. TABLE 2: THE DIFFERENCES OF THE PRINCIPAL TERMS BETWEEN THE JCT CONTRACTS AND CONSTRUCTION CONTRACT. Project JCT contracts domestic contract description of the status of the construction site None, but require the contractor explore himself, introduce all the scene status, including underground. Yes, not including underground. performance guarantee Performance security Generally is deposit. government charges It has the obligation to make the owners harmless from, even with government regulations. It should be borne by the contractor, with government regulations. the principle of including government charges or not Setted out by contract Not setted out by contract. the effective date of contract The day that the bid-winning notice is sent out The day that contract is signed. provisional sums The owner instructs the contractors or designate contractors to implement. Not appoint. not paying as scheduled cause the construction can not be normal by the owner Not specially required Stipulate explicitly. the care or coordination of subcontract Stipulate in detail Not describe in detail. the partition of Total subcontracting obligations With distinct boundaries table Not clearly demarcate. quality fine Contractor bear restoration costs. Part of the contract contains fine besides repair. technical Specification Contract accompanied by the technical specifications, and implement the higher Appoint correlative national norms. compared with national norms calculation rules of engineering quantities With separate detailed calculation rules. Only appoint to use domestic fixed. dispute Settlement Submitted to the local Arbitration Commission. Generally submitted to the court. 24

5 International Journal of Management Science and Engineering Research Volume 1, As a project, the execution of real estate construction is based on a team that includes designers, engineers, quantity surveyors, the turnkey contract, nominated sub-contract and ect, which form an interact system. This system result in a team-based project management, so that owners can be the main part in market operation who is in charge of integrating the real estate's resource instead of being a producer only cares about the resource in the enterprise. Furthermore, every part of a construction project is in common interest with each other, owners and contractors should all abandon the confrontation mode for striving to have a win-win situation. So, owners need to study and solve the problems encountered in the application of the JCT contract by summarizing and accumulating new experiences of combining JCT contract and Chinese national conditions in the process of engineering practice (Nicolas King, 2012). Improve the Domestic Contractors Level of Project Management Domestic contractors are necessary to adapting to the development of the real estate construction projects for the purpose of gearing to international standard, review its own deficiencies more often by requirement of project turnkey contract and JCT contract, strengthen the project management through the way of improving comprehensively their own competitiveness. a) The domestic contractors should continue to raise the level of construction management, and raise vigorously the level of technology as well (Jasen Wu, 2011). b) Broadening the horizons to find out the current trends of the international engineering contractor, to know more about the widely-used agreement contract of international engineering project. At the same time, study seriously on JCT system contract and learn from the past experiences by studying the similarity situation of in the past. c) Pay attention to collect and keep evidences, claim for compensations to subcontract when it necessary in order to safeguard their rights and interests. d) Establish a platform for feeding back the information as well as sharing it, in further to build a costly repository. e) Study the JCT contracts mode carefully; strengthen internal communication when tender begins. Research every technical requirements, every commercial terms, responsibility and engineering extent, understand engineering status and the surrounding circumstances in depth, evaluate all the risks with no one missing, give a reason- able offer, refuse to participate in vicious competitions. Improve the risk awareness to reduce the possibility of risk costs by forms of insurance, guarantees etc. f) Establish an assessment system for changes. To each of them, except to estimate the fees of change, it needs technicists assess the impact of duration in time with calculation sheet such as network map etc, and report to owners in limited time which is engaged in the contract. g) In every project, it not only should be in pursuit of effect, but also maintaining the company's brand image. No matter the profitability of the project is well or not, it needs to adopt a positive attitude to organize construction, in aim of achieving owners requirements of quality and engineering duration. In case of protecting self-interest, help owners achieve overall objectives of the project, in order to win the friendly compensation and opportunities for long-term cooperation with the owners. Conclusions The JCT Contract model has been extensively used in the Chinese construction market, and along with Hong Kong enterprises ever-accelerating pace and gradually increased influence, JCT contract is bound to be more widely used, to get more attention. In view of broad application prospects of the JCT contract, and has a positive effect in promoting the development of China's construction market. In the light of the domestic real estate construction market, it is especially necessary to understand and study the JCT contract. Through the adoption of effective measures and methods, to solve the problems caused by applying the JCT contract to the real estate construction market in China, to promote real estate construction market in China to conform with international, and push forward the development of domestic real estate construction market are the targets that all engaged in domestic building industry unremitting effort to achieve. Through the joint efforts of the owners and contractors, the JCT contract model is bound to be closely integrated with China's national conditions soon. And through the application, healthy competition can be created among contractors to 25

6 International Journal of Management Science and Engineering Research Volume 1, 2014 promote to improve the technical level of the construction industry and the level of project management, to regulate the construction market. A strategic partnership can be established extensively in the construction market, to promote steady and rapid development of China s real estate construction market. REFERENCES GC21 Contract for general using of Australia, edition 2, 2006, Jasen Wu, Contract management in International construction engineerings, construction technology press, Beijing, John Murdoch,Will Huges. Construction contracts law and management, SponPress, 2000, pp Nicolas King, C21 Construction Contract of Australia, Sydney University press, Yifei Lai, Bin Xia and Qing Zhang, engineering project management, Wuhan University press, Wuhan, Yifei Lai, Yueqian Liu, Zhigang Zheng, Develop and operate management of the real estate, Wuhan University press, Wuhan, edition 2, Yinglian Zhang and Zhenjing Fu, The analysis of dispute settlement in international project contracts, Journal of Shijiazhuang railway institute, vol 20, No.2, 2007, pp Zhifu Ren, Discussion of the way to solve disputes in construction engineering contract in China, Project management, No.1, 2007, pp