PRINCIPLE OF CONTRACT LAW (PART 1 OF 3) 1 Learning Outcome - - PDF document

PRINCIPLE OF CONTRACT LAW (PART 1 OF 3)

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Learning Outcome

Understand the principles of contract law & construction contract law

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What is a Contract?

“A legally binding agreement made between two or more parties, by which rights are acquired by one or more to acts or forbearances

• n the part of other.”

Bearson, J. (2002). Anson’s Law of Contract (28th Edition). Oxford: Oxford University Press.

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What is a Contract? (Cont’d)

An agreement formed between 2 parties to: Do something Not to do something; or Acquire rights With the intention to have legal consequences Intended to be legally enforceable

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1) The invitation to treat (Scots law only)

Process of forming a contract begins with this Not part of the Contract One party invites another to make an offer I.e. “Invitation to tender” letter sent to competing contractors (and enclosing the tender docs) acts as the employer’s invitation to treat.

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2) The offer

Express willingness to be bound by the proposed contract terms Time-bound (States a period of time in which the offer must be accepted before the offer will lapse) I.e. The tender price submitted by a contractor after pricing the design and proposed contract terms contained in the tender documents is its offer I.e. The employer will receive several offers from competing tendering contractors/tenderers

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3) The acceptance

An offer made by one party must be accepted by the other party for the contract to exist Must be unconditional (matching the terms of the offer) Negotiation will be required if any terms/qualifications added by the contractor to its tender offer are unacceptable – “counter

• ffer” from the employer to the contractor

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4) Consideration

Scotland – acceptance of an offer is sufficient to form the contract England – consideration is also required Consideration = price a party pays for the right to enforce the

• ther’s promise

I.e. The consideration is the tender price (which will become the Contract Sum) requested by the Contractor from the Employer in return for completing the Works Promissory estoppel is a legal principle that a promise is enforceable by law, even if made without formal consideration, when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment.

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5) Capacity

The parties must be legally able to enter into a contract. Parties must not be insane, drunk, incapable, etc. Companies must comply with any limitations of their legal incorporation

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6) Intent

Both parties must mean to create a contract Each party must: Understand what they are “agreeing” to Form the agreement of their own free will

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7) Form (Formalities)

The contract is created by agreement alone (i.e. an offer and acceptance) Other aspects provide clarity about what has been agreed and how long the agreement will last for. These refer to the “formalities” of the contract, not the standard “ forms” of construction contract The formalities of the contract are its terms. The contract terms are defined in its clauses. The contract clauses establish certainty about what has been agreed

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8) Execution

The act of signing the Contract to bring it into effect is called “execution”. Together with attestation, it formalises the agreement and puts the Contract into place. The method of executing the contract determines the duration

• f liabilities arising from it:-

In Scotland, 5 years for a “simple” contract, 20 years for a “probative writ” In England, 6 years for a “simple” contract, 12 years for a deed

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Other issues

Communication of acceptance The party making an offer can state how its acceptance must be communicated (i.e. fax, email, phone) If such a condition is set, an acceptance that does not comply with it is invalid When and acceptance is to be communicated by post, the “postal rule” applies. The contract is created when the letter of acceptance is posted, not when it is received

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Other issues (Cont’d)

Forming a construction contract Ensure the contractual relationship between the parties is formed without ambiguity A letter of intent is not a suitable substitute for an executed contract. Bad practice where organisation often “forget” or delay in executing the Contract The agreement between Employer and Contractor must be formalised in a way that: Defines and incorporates the agreed conditions Defines and incorporates the Contract Documents Defines the Contract Sum Distributes risks to the parties by assigning liabilities

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Other issues (Cont’d)

Expressed & Implied Contract Terms Contract terms impose obligations on parties, grant them rights

• r duties of parties

Contract terms can be expressed or implied Expressed terms are written into the Contract or are made verbally Implied terms are not stated in the Contract but are understood to be present by the parties

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Other issues (Cont’d)

Fit for Purpose -v- Skill and Care Where an employer relies solely on a Contractor to design and construct an entire building, a term of reasonable fitness for purpose will be implied JCT Design and Build have amended this usual implication by inserting a special clause, cl.2.17.1. Cl.2.17.1 expressly states that the contractor has the same liability as an architect, i.e. reasonable skill and care This is a valuable concession to contractors which is not available under most other design and build contracts

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PRINCIPLE OF CONTRACT LAW (PART 2 OF 3)

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Learning Outcome

Ending a contract Remedies Assignment and novation Third party rights and collateral warranties Sub-letting Insurance, guarantees and bonds

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Ending the Contract

A contract can be discharged: By agreement If either party materially breaches the contract (and the contract supports termination) If either party is in repudiatory breach a breach so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages) If either party becomes insolvent (by contractual convention)

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Frustration/impossibility:

Frustration arises when a party is unable to fulfil its obligations under the Contract, but is not in breach. Frustration occurs without the liability of either party. Circumstances change, preventing the project from being completed. Frustration typically occurs in two ways: 1) If the task becomes impossible (supervening impossibility) Such impossibility usually arises due to facts that the promisor had no reason to anticipate and did not contribute to the occurrence of. (i.e. landslip, flooding) 2) If the task becomes illegal (supervening legality) Supervening illegality is when a statute or regulation or court decision makes the object of an offer illegal.

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Termination (Ending the Contract)

Section 8 of SBC/Q governs Termination Defines the processes that parties must follow to “determine”the Contract - i.e. bring it to an end. Termination does not completely end the Contract. After termination:

Principal obligations can no longer be enforced. e.g. Contractor no longer obliged to complete the Works; Employer no longer obliged to pay for the Works. Remaining obligations continue to have effect. e.g. Dispute resolution methods continue to exist.

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Termination by the Employer

The Employer can terminate the Contract if:

the Contractor defaults (cl.8.4); the Contractor becomes insolvent (cl. 8.5); or the Contractor commits acts of corruption (cl. 8.6).

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Termination by the Employer

Default by the Contractor:

“Specified defaults” are defined by cls. 8.4.1.1 to 8.4.1.5 Employer must provide notice of intent to terminate Contractor due to default (cl. 8.4.2). Contractor has 14 days to correct the default. If not done, Employer can terminate within 21 days (cl. 8.4.2). Employer must send a final notice that Contract is determined.

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Termination by the Employer

Insolvency of the Contractor (Cont’d):

The Contractor is automatically terminated if it applies for bankruptcy, liquidation or receivership. The Contractor must notify the Employer if this occurs (cl. 8.5.2). The Employer must still notify the Contractor that the Contract has been determined (cl. 8.5.1). The Contractor can be reinstated if terms can be agreed with the liquidator (cl. 8.3.2). The Employer may employ another Contractor to complete the Works (cl. 8.7.1). The new Contractor can use all tools and plant left on site (if the Employer did not request their removal under cl. 8.7.2.1). Any unwanted equipment left on site by the insolvent Contractor can be sold by the Employer

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Termination by the Employer

Insolvency of the Contractor (Cont’d):

The Employer must give any profit to the insolvent Contractor. The original Contractor’s subcontracts may be assigned to the Employer. An insolvent Contractor is not entitled to further payment until the Works are completed. The Employer’s direct loss and expense incurred as a consequence of appointing a replacement Contractor will be deducted from any payment due (cl. 8.7.4.1). If these costs exceed the payment due, the insolvent Contractor will owe the difference to the Employer (cl. 8.7.5).

• Cl. 8.8 governs the payment of any outstanding sums if the Employer does

not continue with the Works after terminating the insolvent Contractor.

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Termination by the Contractor

The Contractor can terminate the Contract if:

the Employer defaults (cl. 8.9); or the Employer becomes insolvent (cl. 8.10).

The Contractor can determine its own employment under the Contract if:

the Employer causes certain “specified defaults” (cl. 8.9.1); or certain “specified suspension events” arise (cl. 8.9.2).

The Contractors notification procedure mirrors the Employer's (cls. 8.9.1; 8.9.2; 8.9.3).

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Termination by the Contractor

Insolvency of the Employer

The Contractor can determine the Contract if the Employer become insolvent.

• Cl. 8.10 defines the Contractor’s procedure, and mirrors cl. 8.5, which the

Employer must follow to determine the Contractor. The definition of “insolvency” provided by cl. 8.1 dictates when the Employer or the Contractor can determine the Contract.

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Termination by Employer or Contractor

• Cl. 8.11 governs determination of the Contract by either party.
• Cl. 8.11.1 defines the events that can cause either party to

determine the Contract. These are events that frustrate the Contract. Neither party is liable for causing them e.g. supervening illegality or supervening impossibility make it impossible to complete the Works.

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Remedies for Breach of Contract

Required when a party fails to perform its obligations arising from the Contract Material breach The contract will be brought to an end “determination of the contract”. Non-material Breach Damages will be paid by the party in breach to return the affected party to their original position These damages are unliquidated (Their amount must be determined by the Court because it was not agreed beforehand)

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Specific implement or damages?

A remedy is the device provided by the Contract to compensate an innocent party for the loss or expense it incurs as a consequence of the other party’s breach. Specific implement:

It requires the court to grant an order requiring a party to perform a specific act. (In England, specific performance is an equitable remedy available for breach of contract and may be granted in addition to or instead of damages.) Allows the innocent party to compel the party in breach to fulfil its

• bligations.

Only possible when the innocent party must be able to insist on the Works being completed. It is seldom possible to prove this requirement, causing most remedies to be in the form of damages.

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Withholding payment under the Construction Act

The Housing Grants, Construction and Regeneration Act 1996 clearly defines the circumstances in which payment due under a construction contract can be withheld. Before withholding payment, a party intending to do so must give notice of this intention to withhold payment, sating:

the amounts that will be withheld; and the grounds justifying each withholding.

• Cl. 4.13 defines the process the Employer must follow if intending

to deduct from the amount due under an Interim Certificate. In Singapore context, refer to Security of Payment Act (SOPA)

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Suspending performance

The Housing Grants, Construction and Regeneration Act 1996 clearly gives a party the right to suspend work if:

payment has not been made by the due date; and notice explaining why payment is being withheld has not been received. The Contractor’s statutory right of suspension is accommodated by cl. 4.14 in SBC/Q.

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Recourse under Tort

A party can owe a duty to another in the absence of a contract (Each party has a Duty of Care towards the other) Organisations still have obligations to each other irrespective of contract In construction, liability under delict (Tort) is most likely to arise due to negligence.

All other possibilities are governed by standard contracts.

A claim for recompense under delict requires:

a duty of care to not be fulfilled; and the innocent party to suffer loss.

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PRINCIPLE OF CONTRACT LAW (PART 3 OF 3)

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Learning Outcome

Understand Privity of Contract Assignment and novation Third party rights and collateral warranties Sub-letting Insurance, guarantees and bonds

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Privity of contract

A contract between two parties can only create rights and liabilities between those two parties. Historically, third parties cannot be affected, and cannot affect, a contract to which they are not a party. The “privity principle” = the rights and obligations created by a contract are only enforceable by the parties to it In construction, third parties often require rights as a consequence of the Contract between two parties as they are affected by the parties work (i.e. owners of adjoining buildings, underwriters, etc.) The construction industry has historically used collateral warranties to create a duty of care between a party to a Contract and a third party that is not part of the Contract.

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Privity of contract (Cont’d)

The strict application of the doctrine of Privity of Contract can now be moderated in one of the following ways: 1) Assignment. 2) Novation. 3) Contracts (Rights of Third Parties) Act 1999 4) Collateral Warranties.

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Assignment

Under common law, a party can assign its rights to another party, but not its obligations. Assignment takes place when the original party transfers some or all

• f the contractual rights to someone who is otherwise outside the

contract.

Eg:- a contractor obtain finance by assigning the rights of payment under a contract as collateral (security) for a loan

• Cl. 7.1 requires a party wishing to assign rights arising from SBC/Q

to obtain the written consent of the other party.

• Cl. 7.2 allows the Employer to assign its rights with regard to the

Contractor's obligations to the purchaser or tenant of the Works.

This gives the purchaser the Employer’s rights to the correction of defects, for example.

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Novation

It is not possible for one party to a contract to assign the whole contract (i.e. rights and obligations), to a third party and simply disappear Novation is the creation of a completely new contract to replace the original one. Instead of assigning rights created under the Contract, the Contract is terminated and a new one created with the new party. In design and build procurement, novation allows the Employer’s design team to be transferred to the winning Contractor. Novation creates problems of liability

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The Contracts (Rights of Third Parties) Act 1999

Empowers third parties by expressly given rights by a contract between two other parties (e.g. SBC/Q between Employer and Contractor) to enforce those rights. Construction examples:

The Contractor may be obliged to not disrupt an adjoining business.

The adjoining business is the third party. The Contractor would be liable to it if disruption did occur.

A third party may be given the right to damages if the actions (or inactions) of the Employer or Contractor cause it to incur loss and/or expense.

SBC/Q applies the Construction Act through cls. 7A and 7B; plus Schedule 5.

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Collateral warranties

A collateral warranty is another contract formed between one of the parties to the main contract and a third party. For example, the Contractor takes out a collateral warranty with a third

party to satisfy a condition of the main Contract with the Employer.

“Collateral” = related to and dependent on another contract “Warranty” = captures a promise made from one party to another A collateral warranty overcomes the problems caused by the privity principle. SBC/Q accommodates the use of collateral warranties as an alternative to third party rights in: Part 2 of the Contract Particulars Defines the warranties the Contractor must provide C.l.s. 7C to 7E

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Sub-contracting under SBC/Q

Two methods (i.e. appointing subcontractors / “sub-letting”). The Contractor can select and appoint subcontractors to complete all or part of the Works (cl. 3.7). The Contractor must obtain the CAs written consent before appointing (cl. 3.7.1). The CA will not withhold the provision of consent (cl. 3.7.1). The Contractor is vicariously liable for the performance of all subcontractors. “Listed” subcontractors are chosen by the Contractor to complete a designated part of the Works from a list of at least three subcontractors provided by the Employer (cl. 3.8).The Contractor is free to choose any subcontractor from the list

• provided. The Contractor or Employer can add to the list (cl.

3.8.2).

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Sub-contracting under SBC/Q (Cont’d)

From a contractual viewpoint: “Domestic” subcontractor = listed subcontractor. “Domestic subcontractor” is not defined by SBC/Q. “Listed subcontractor” is not defined by SBC/Q. All subcontractors have the same contractual standing Both domestic and listed subcontractors are “sub-contractors” under SBC/Q (cl. 3.8.4). The Contractor is vicariously liable for their performance, irrespective of how they were introduced to the project. Cl. 3.9 defines mandatory terms

• f

sub-contractors

• appointment. Note cl. 3.9.2.5 (re collateral warranties).

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Nominated subcontractors

Why does JCT SBC/Q not allow “nominated subcontractors?” Nominated subcontractors and nominated suppliers were widely used under JCT98.

“There appears to have been little use of the provisions for Nominated Sub-contractors and little appropriate use of the Nominated Supplier Provisions. The provisions of JCT98 for listing of sub-contractors have been retained and, in the JCT's view, the specifying of a supplier is a matter generally better dealt with in the Contract Bills or other Contract Documents.” JCT (2005). Standard Building Contract: Guide (SBC/G). London: Maxwell & Sweet.

JCT2011 share the same stand as JCT2005.

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Indemnity

= a legal exemption from incurred liabilities or “Indemnity” penalties. When a risk is transferred to another party, it indemnifies (pays compensation) that party against that risk.

If an event against which a party has sought an indemnity occurs, it will not bear the cost of resolving it.

Insurance policies provide an indemnity.

The insurance company indemnifies the policy holder against specified risks in return for payment of a premium. The indemnity should return the policy holder to their original position.

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Insurance

“An insurance contract is an agreement whereby one party, the insurer, in return for a consideration, the premium, undertakes to pay the other party, the insured, a sum of money or its equivalent upon the happening of a specified event which is against the insured’s financial interest.”

Eaglestone, F. Insurance under the JCT Forms.

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Two types of insurance must be considered:

1) Liability insurance

The insurance company undertakes to indemnify the insured against the damages and legal costs which would occur if the insured became liable for those damages or costs. This causes the risk borne by the insured to be passed to the insurer.

Examples: Car insurance, Public liability insurance, Professional Indemnity insurance (“PI” insurance)

2) Loss insurance

The insurance company undertakes to compensate the insured for loss or damage that the insured suffers itself rather than loss or damage that a third party suffers (which would be covered under liability insurance). The insurance company is not required to provide an indemnity against the actions of third parties as loss insurance does not consider third parties;

• nly the insured.

Loss insurance remains valid even if the insured incurs loss or damage due to its own mistakes (and negligence in some policies).

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Guarantees and bonds

The Contractor may be required to provide a guarantee or a bond to prevent it non-performance. Although

• ften

required, guarantees and bonds are not accommodated in a non-amended SBC/Q. Bonds and/or guarantees are usually requested by the Employer. A bond is provided by a third party which underwrites the Contractor’s fulfillment of its Contractual obligations. A guarantee is provided by the Contractor's parent company for the same purpose. Performance Bonds are common. Retention bonds are becoming common.

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TYPES OF CONTRACTS

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Learning Outcomes

Understand types of Contracts Identify various types of construction contract

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Types of Contract

Contracts have different types based on their payment systems. Two main payment systems are: Price based: These involve lump sum and measure (re-measurement)

• contracts. Prices are submitted by the contractor in his tender.

Cost based: These involve cost-reimbursable and target cost contracts. The actual costs incurred by the contractor are reimbursed, together with a fee for overheads and profit.

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Three types of contract available:

1)Lump Sum Contracts: Where the Contract Sum is determined before construction starts. A “lump sum” contract fully completes the design so that the Contract Sum can be accurately determined before construction works is started. The Contractor undertakes a defined amount of work in return for an agreed sum (Relevant standard form is The JTC2011 SBC/Q) Pros: high degree of certainty about the final price, easier contract administration in the event of no or minimal change Cons: not suitable when substantial change is expected

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Three types of contract available (Cont’d):

2)Measured Contracts: Contract Sum is not finalised until after completion, however the method of determining the Contract Sum (i.e. measuring the Works) is agreed between the Employer and the Contractor before the Works start (Relevant standard form is The JTC2011 SBC/Q) Pros: some flexible for design change, time is saved in not preparing full BQs at initial stage (but re-measurement of the Works are required once complete), allow work to commence on site when the design is only in outline form Cons: contract is quantity based and adversarial (only the rates form part of the contract not the quantities, more risk than lump sum contracts (but probably with programme advantage), final price may not be determined until long after the Works are complete, less initiative for designer to complete designs at earlier stage

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Three types of contract available (Cont’d):

3)Cost Reimbursement Contracts: Contract Sum is determined by calculation of the Contractor’s actual labour, plant and materials cost, to which a previous agreed percentage addition is made to cover the Contractor’s

• verheads and profit (cost plus).

Cost plus a percentage fee Cost plus fixed fee Cost plus fluctuating fee Cost reimbursement based on a target cost Pros: provide extreme flexibility, allow and require high level

• f client involvement

Cons: little incentive for the contractor to perform efficiently, no estimate of final price at tender

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Using NEC Contract as example:

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Principles of Standard Forms of Contract

The construction industry uses Standard Forms of Contract to: Save time in writing new contracts Provide a check list of issues to agree Incorporate previous judicial decision Promote familiarity

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The Contract Documents

Contract incorporate several documents Under traditional procurement, these are: Articles ofAgreement Conditions of Contract Contract Drawings Contract Bills of Quantities Specification

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Families of Standard Forms of Contract

JCT (and SBCC) - Scottish Building Contract Committee NEC FIDIC ICE GC/General Works ACA

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Families of Standard Forms of Contract (Cont’d)

JCT (Joint Contracts Tribunal) – comprehensive, cover every procurement route relationship, most widely used. NEC (New Engineering Contract)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

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Families of Standard Forms of Contract (Cont’d)

FIDIC (Fédération Internationale Des Ingénieurs-Conseils) – international standard, used predominantly for infrastructure projects ICE (Institution of Civil Engineers) – for civil engineering projects

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Families of Standard Forms of Contract (Cont’d)

GC/Works – used by central Government, becoming less common

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Families of Standard Forms of Contract (Cont’d)

IChemE (Institution of Chemicals Engineer) Partnering Contracts (i.e. ACA PPC 2000 (2004 revision) - ACA (Association of Consultants Architect), NEC3 X 12 Option, JCT/Be Constructing Excellence contract)

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TENDERING & PROCUREMENT (PART 1 OF 2)

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Learning Outcomes

and difference between Understand tendering strategies tendering and procurement Discuss practical application of Tender Strategies Understand Project Constraints and Procurement Assessment Criteria (PAC) Study main features, pros and cons of Traditional Procurement routes Appreciate importance of procurement strategy to influence project success

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between tendering and Difference procurement:-

1)Procurement is the overall act of obtaining goods and services from external sources (i.e. building contractor) and includes deciding the strategy on how those goods are to be acquired by reviewing the client’s requirements (i.e. time, quality and cost) and their attitude to ask. 2)Tendering is an important phase in the procurement strategy but procurement involves much more than simply obtaining a

• price. Tendering is the bidding process, to obtain a price and how

a contractor is actually appointed.

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Three main types of tendering strategy:

1) Single-stage tendering – most common strategy by obtaining a price for the whole of the construction Works through issuance

• f Invitation to tender documents to a number of competing

contractors who are all given the chance to bid for the project based on identical tender documents.

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Three main types of tendering strategy(Cont’d):

2)Two-stage tendering – become more common in recent years and is often used where time is constrained (enable overlap of design and tendering process). Used when the design process would benefit from the technical input of a contractor in the later design stage (to obtain the early appointment of contractor. Preferred contractor is chosen on the basis of the quality of their bid,

• verhead

the quality of their team and and profit allowance rather their prelim price, than via bid for constructing the entire project. Pre-construction services agreement will be put in place for work with the professional to the preferred contractor to complete the design.

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Three main types of tendering strategy(Cont’d):

3)Negotiated T ender - effectively a single-stage tender with a single contractor who returns with an initial price. This is then negotiated with the client’s professional team (usually quantity surveyor (PQS)). Competitive advantage of a formal bidding process is compromised. Not viable for quasi-government projects.

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Practical Application of Tender Strategies – Part 1 of 4

Producing the pre-tender estimate (PTE) Choosing the most suitable tender Strategy RIBA Plan of Works/APM work plan Setting up the tender including selection of tendering contractors Assessing a suitable tender period

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Practical Application of Tender Strategies – Part 2 of 4

Producing/compiling the tender documents Invitation to tender letter Form of tender Contract conditions Instructions to tenderers documents Project information (preliminaries/works/information/employer’s requirements) Design information Pricing document Typical appendices

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Practical Application of Tender Strategies – Part 3 of 4

Considering how project-specific factors/abnormal influence a tender Issuing the tenders During the tender process Tender queries Tender adduenda Mind-tender interviews Tender withdrawals

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Practical Application of Tender Strategies – Part 4 of 4

Receiving tenders Opening tenders Reviewing the tenders Checking for errors and conflicts Equalisation / Normalise process Post-tender interviews Checklist of further items to review Post Tender (draft scoring and evaluation of findings) Tender report and notifying tenderers

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Project Constraints

Time Requirements Cost Requirements Quality Requirements

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Procurement Assessment Criteria (PAC) 9 criteria

1) Timing 2) Controllable variation 3) Complexity 4) Quality level 5) Price certainty 6) Competition 7) Management 8) Accountability 9) Risk avoidance

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Procurement Options

• Procurement Arrangement Options(PAO)

1) Traditional 2) Design and Build 3) Construction Management 4) Management Contracting 5) Prime contracting 6) Private Finance Initiative (PFI)

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Traditional Procurement Route Main Features:

Design is fully developed before commencement of construction Follow RIBA Plan of Work T ender documentation based on drawings, specifications and Bills of Quantities, Approximate Quantities or Without Quantities Tenderers are invited to tender a price to complete thedescribed Works management of) design & Cost relatively certain upfront Split of responsibility for (and production

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Traditional Advantages:

Fair competition, satisfactory public accountability Relatively low tender preparation/tendering costs Procedures are well known Changes to design are reasonably easy to implement and value Full control over design quality

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Traditional Disadvantages:

No concurrent working (slow to start on site and long duration) Vulnerable to claims (additional time and money) in the event that design is incomplete Non-involvement of Contractor in planning or design (poor buildability) Design risk rests with the client Fragmented nature leads to adversarial participants, possible conflict relationships, poor and communication between confrontation

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Traditional

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Traditional Traditional Procurement Variant Route:

1) Traditional sequential Contractors bid on completed design and cost documents basis of partial 2) Traditional accelerated A Contractor is appointed earlier on the information, by negotiation or in competition 3) Traditional with re-measurement A re-measurement contract uses bills of approximate quantities. The accepted tender sum is a lump sum based on a fixed period, but the quantities used to prepare the tender will be re- measured on completion

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TENDERING & PROCUREMENT (PART 2 OF 2)

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Learning Outcomes

pros and cons

• f

Non-traditional Study main features, Procurement routes

• f procurement strategy to influence

Appreciate importance project success Understand Partnering Concepts Procurement Report

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Design & Build Main Features:

Tender doc usually comprise brief to outline scheme stage :

Building function Space requirements Building services performance criteria Outline specification of key elements (i.e. finishes, key features, etc.)

Single point of contact (Contractor is appointed to complete the design and construct project Suitability (suited to all clients, including inexperienced clients, suited to project requires cost and time certainty), not suitable for complex or high quality buildings Minimisation of variations (design responsibility lies with the Contractor, leading to cost and time savings (compared with traditional procurement

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Design & Build Advantages:

Client interacts with a single point of responsibility Inherent buildability A firm price can be agreed prior to construction Shorter overall duration (compared to traditional) Contractor’s design liability can be extended to include fitness for purpose

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Design & Build Disadvantages:

Client needs to appoint Contractor before design is complete No design overview unless Consultants are appointed by Client Difficult for clients to prepare an adequate brief Contractors’ bids are difficult to compare Design liability limited by use of standard contracts Client changes can be expensive

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Design & Build Risks:

Low cost risk as most design and build contracts let on lump sum basis Low time risk as the Contractor will use set time goals and be held to them High design / quality risk as Contractor develops the design. Develop and construct procurement route can be used to

• vercome this

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Design & Build

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Design & Build Variant The Design & Build Variant

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Design & Build The Design & Build Variant Novated Design & Build / Two-Stage Design:

Competitive Design and Build Client prepares “client’s requirements” documents Several Contractors tender design proposals brought to (typically) scheme design stage Winning contractor appointed on basis of design content (including predicted cost) The appointed Contractor then completes and constructs the design Novation of the initial design team is required

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Design & Build The Design & Build Variant Develop & Construct

Contractor develops the concept design, contractor

• nly

responsible for the design development

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Design & Build The Design & Build Variant Package Deal

“Off the shelf” product Employer able to view similar completed buildings

Turnkey

Complete package handled by Contractor from commencement to completion Contractor does everything including fit-out Idea : Take possession = turn the key

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Construction Management Main Features:

A Construction Manager advises the client The Employer contracts directly with the numerous Works Contractors Shorter communication lines give quicker responses

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Construction Management Advantages:

Potential to reduce project duration Individual packages let competitively Opportunities to improve buildability Breaks down traditional adversarial barriers Concurrent working is inherent Clarity of roles, risks and relationships for all organisations Late changes easily accommodated

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Construction Management Disadvantages:

No cost certainty at outset Needs informed client, able to take an active role in the project Clients may not appreciate their risk exposure Risks adopted by clients in return for control Needs a good quality brief Requires a competent project team Needs effective control of time and information

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Construction Management Risks:

Medium cost risk as total cost is not known until last package let Medium time risk as no single organisation is solely response for timed completion Low quality/design risk due to close working of client, designers and Works Contractors Clients have historically had problems with Construction Management as they have not appreciated the risks associated with control

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Construction Management

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Management Contracting Main Features:

Management Contractor advises Client on programming, division ofthe project into work packages and buildability and obtain tenders Work divided into series of packages Each package is awarded on a lump sum, fixed price basis to separate Works Contractors Construction of each package can start as soon as the Client approves its design Design and construction overlap considerably Relies on clear communication and co-operation, and mutual trust between Employer and Contractors

116

Management Contracting Advantages:

Concurrent working is inherent Potential to reduce project duration Opportunities to improve buildability Breaks down traditional adversarial barriers Late changes easily accommodated Work packages tendered competitively

117

Management Contracting Disadvantages:

Needs a good quality brief Poor price certainty Requires a good quality project team Difficult to resist Works Contractors’ claims

118

Management Contracting Risks:

Medium cost risk as total cost is not known until last package let Medium time risk as total duration is determined by package selection Low quality/design risk due to close working of client, designers and Works Contractors Client relies on estimated costs until the last package has been tendered and let A Guaranteed Maximum Price (GMP) may be negotiated with the Management Contractor to move cost risk from the client

119

Management Contract

120

121

Prime Contracting

A form of procurement in which the client enters into a relationship with a contractor who provides a single point of contact (prime contract) for a supply chain to deliver one or more projects (long term relationship). The contractor is reimbursed subcontractor costs (prime costs) and a fee for overheads and profit (i.e. a prime cost contract, cost plus contract or cost reimbursement contract).

122

The Private Finance Initiative (PFI) Main Features:

A public sector client procures a service from the private sector Several private sector organisations collaborate to provide the service New buildings or infrastructure is usually required The quality of service is specified; the quality of capital assets is not (other than functionality) Capital assets are financed, designed, constructed, and operated by the private sector Capital assets may be retained by the private sector at the end of the agreement

123

The Private Finance Initiative (PFI) Main Features (Cont’d):

PFI schemes run for long time periods The private sector is exposed to many risks Financing risks Demand risk (continuity and certainty) Technology risk PFI schemes convert public sector capital expenditure into revenue expenditure PFI schemes are complex collaborations and generally involves 3 types

• f organization:-

The public sector client The private sector provider of the required service Funders and investors

124

The Private Finance Initiative (PFI) PFI Scheme Participants: The public sector client:

instigates the project to advance its primary strategy is usually inexperienced in PFI procurement is advised by central government bodies procures the service from the private sector via a single contractual link procures the service from a Special Purpose Vehicle (SPV) created by the private sector

125

The Private Finance Initiative (PFI) PFI Scheme Participants (Cont’d): The private sector service provider:

The private sector service provider comprises several private sector organisations that collaborate to provide the service via the Special Purpose Vehicle (SPV) The SPV is an legal entity created by the collaborating private sector organisations that:

• Procures design, construction and operating expertise from

the construction industry Secures finance from funders and investors Distributes risks inherited from the client

126

The Private Finance Initiative (PFI) PFI Scheme Participants (Cont’d):

the capital required to

The funders and investors:

The funders and investors provide construct new infrastructure Funders provide the majority of finance as loans that are repaid during scheme operation Investors provide further finance through part ownership of the scheme. They are paid dividends in addition to repayment

• f stock investments

Funders and investors influence the private sector service provider to ensure they will earn the required return on their investments

127

The Private Finance Initiative (PFI) PFI Scheme Participants (Cont’d):

“The consortium” comprises all the collaborating private sector

• rganisations

Construction designers, constructors, operators Funders and investors The SPV

128

129

The Unitary Charge:

In return for access to the service the client makes regular payments to the SPV This is the “unitary charge” The private sector uses the unitary charge to:

• Finance the construction of new infrastructure

Finance the

• peration
• f

that infrastructure to a performance level agreed with the client Earn a profit

130

PFI (NON-TOLL BASED)

131

PFI (TOLL BASED)

132

Partnering concepts

Collaborative approaches: Recognise that success is more likely if organisations work together for the good of the project, rather than themselves Are implemented as: Short term project partnerships; or Long term strategic partnerships Reply on a neutral third party to help organisations partner by facilitating the process of establishing common ground and shared attitudes

133

Partnering defined “Partnering is a set of strategic actions,

which embody the mutual objectives of a number of firms achieved by co-operative decision making aimed at using feedback to continuously improve their joint performance.”

JCT Constructing Excellence contract

134

Partnering defined

All partnerships must: Develop mutual objectives

• Solving problems collaboratively and simply

escalate into disputes

• Measure

performance to characterise before they continuous improvement (Measuring continuous improvement) In addition, they should: Share common values and cultural norms among partners

• Incentivise partners to continually improve
• Provide value for money to the client

135

Forming Partnerships

Forming a partnership requires a step-change from traditional practice An independent facilitator will guide the process Usually through a series of workshops Linked to commercial development if strategic partnering Linked to project process if project partnering Facilitator aims to build common understanding, practices and goals among partners

136

Value for money and partnering

A criticism of partnering is the difficulty of ensuring value for money Achieving VFM from partnering requires: Comparison

• f

partnership performance against

• ther

procurement routes (using additional metrics than costalone) Demonstrating continual improvements in performance throughout partnership life Reforming the partnership after periods of operation Removing underperforming organisations

137

Target Costing

If actual cost < target cost Contractor and client share the saving Target cost must be realistic and not inflated If actual cost > target cost Contractor and client share the additional cost If actual cost > GMP Contractor and client share the additional cost below GMP Contractor bears all additional cost above GMP

138

Procurement Report

1.Executive Summary 2.Introduction / purpose of the report 3.The project scope 4.Client’s objectives 5.Summary of procurement options 6.Review of options (advantages / disadvantages) 7.Recommended strategy

139 140

141 142

*Providing all issues resolved during 2nd stage, if not the 2 stage would score lower ** Client at risk during the 2nd stage negotiations

143

*Providing all issues resolved during 2nd stage, if not the 2 stage would score lower ** Client at risk during the 2nd stage negotiations

144

STAKEHOLDER MANAGEMENT

145

Learning Outcome

Understand Stakeholder Stakeholder Management & Engagement Stakeholder Analysis and Register

146

What should you do with stakeholder throughout the project? 1)Identify all of them 2) Determine their requirements 3) Determine their expectations 4) Determine their interest 5) Determine their level of influence 6) Plan how you will manage them 7)Plan how you will communicate with them 8) influence and Manage their expectations, engagement 9) Communicate with them and stakeholder 10) Control communications engagement

147

1) Identify all of them As early as possible Stakeholders discovered late in the project will likely request changes, which can lead to delays Internal/External, Primary/Secondary, Direct/Indirect, Overt / Covert People, groups

• r
• rganisations

that could positively or negatively impact or be impacted by the project

148

2) Determine their requirements consequences if Conduct requirements reviews Inform people the negative requirements are found later

149

3) Determine their expectations More ambiguous than stated expectation, may be unidentified requirements Intentionally or unintentionally hidden Unidentified expectations will have major impacts across all constraints Once captured, expectations are analysed and may be converted to requirements and become part of the project

150

4) Determine their interest Determine level of interest to plan strategy to increase stakeholder’s interest and level

• f

engagement Determine stakeholder’s interests related to the project and, where appropriate, attempt to either build these interests into the project or implement them as reward Engagement levels: unaware, resistant, neutral, supportive, leading

151

5) Determine their level of influence To some degree, each stakeholder will be able to negatively or positively effect a project Should be identified upfront and managed accordingly Power / Interest, Power / Influence, Influence / Impact, Power / Urgency / Legitimacy Analyse potential impact or support (i.e. keep satisfied, manage closely, monitor (minimum effort), keep informed.

152

used for Multiple classification models stakeholders’ analysis such as:

Power / Interest Grouping the stakeholders based on their level of

authority (power) and their level of concern (interest)

Power / Influence Grouping the stakeholders based on their level of

authority (power) and their active involvement (influence)

153

Multiple classification models used for stakeholders’ analysis such as (Cont’d):

Influence / Impact Grouping the stakeholders based on their active

involvement (influence) in the project and their ability to effect changes to the project’s planning

• r execution (impact)

Salience model (Power / Urgency / Legitimacy) Describing classes of stakeholders based on their

power (ability to impose their urgency (need for immediate attention), and legitimacy (their involvement is appropriate).

154

High High Power Low Interest KeepSatisfied Manage Closely Monitor (MinimumEffort) Keepinformed

155

6) Plan how you will manage them

Plan before taking action Plan how to keep them involved in the project and

how to manage their interests, influence and expectations

156

7) Plan how you will communicate with them

T

• keep stakeholders involved and get them to

relate their thoughts and concerns to plan how information will be shared

Remember communication as the most frequent

causes

• f

problems

• n

projects so careful prevent communication planning can help problems

157

expectations, influence and 8) Manage their engagement doesn’t end during

Managing

stakeholders project initial stage the life of the

On-going

process throughout project

158

9) Communicate with them

Stakeholders

are included in project presentations and receive project information, including progress reports, updates, changes, etc.

Regular engagement with stakeholders

159

10) Control communications and stakeholder with engagement

Good

communication and relationships stakeholders are critical to success

Essential to monitor both areas and to determine

if and where communication and/or relationships are breaking down and then adjust approach as necessary

Manage closely, keep satisfied, keep informed,

monitor

160

Stakeholder Analysis

Classification tools such as power/interest grids

can be used to group stakeholders

Group by qualifications lie authority level, impact

• r influence, or requirements

Help better manage stakeholders on the project

161

Stakeholder Register

Compilation of stakeholders’ information May include stakeholders’ name, title, supervisor,

requirements and expectations, influence, attitude about the impact project, project role, contact information, major and the classification the individual falls into, and other relevant information

162

and Stakeholder Analysis Matrix (SAM)

Stakeholder

analysis information management strategies

Sensitive information not to be published

• No. Stakeholder

Influence/Interest Impact Assessment Potential Stakeholder Management Strategies 1 2

163

CONTRACT ADMINISTRATION (PART 1 OF 3)

(Refer to JCT2011/ SBC/Q for this Module)

164

Learning Outcome

Structure of Contract Documents Purpose of clauses and parts of JCT2011 SBC/Q

165

Contract Documents comprise:

(Refer to JCT2011 Notes 6.1)

The Agreement and its Conditions (should be from a standard form) The Contract Drawings The Contract Bills (the Bills of Quantities, including their ‘preambles’ & specifications)

166

The Contract Sum

When the Contract is executed, the selected tenderer’s tender price becomes the Contract Sum The Contract Sum is the amount the Employer will pay to the Contractor in the event that there is no design changes required during construction and no damage arise. The Contract Sum is defined in JCT2011/ SBC/Q Article 2:

167

Employer’s Obligations:

Payment of the Contract Sum (Article 2) Possession of the site (cl. 2.4) Administration of the Contract

• Appoint:

The Architect / Contract Administrator (Article3) The Quantity Surveyor (Article 4) The CDM Coordinator (i.e. planning supervisor”) if none then the Architect (Article 5) The Principal Contractor (Article 6) An arbitrator, if agreed to have one (Article 8; cl. 9.3)

If QS or CA quits, Employer must appoint a replacement within 21 days (cl. 3.5)

168

Employer’s Obligations (Cont’d):

Insurance and Indemnity (Cl. 6.7 to 6.11), in the event that the Employer will insure the Woks against “all risks” during construction, Joint name policy , risks to be covered (cl. 6.8), Option B to the construction of new buildings (Schedule 3, cl. B.1 to B.3), Option C applies to construction in or alteration of existing buildings (Schedule 3, cls. C.1 to C.4), Employer’s negligence is not offset by Contractor’s public liability insurance, which is also required (cl. 6.1) Confidentiality – prevents the commercial information relation Employer from sharing to the Contractor with any third parties Health & Safety – must ensure that Works do not commence until HSE plan is in place, The Construction (Design and Management) Regulations (CDM) (Cls. 3.23, 3.24)

The Construction (Design and Management) Regulations (CDM) are the main set of regulations for managing the health, safety and welfare of construction projects.

169

Contractor’s Obligations:

T

• construct the Works as described in the Contract. Obligation

created by Article 2 C.l. 2.1 requires the Contractor to complete the Works in a “proper and workmanlike manner” in compliance with the Contract Documents. Quality of workmanship Materials (cl. 2.3.1), workmanship (cl. 2.3.2) “as described”. If the BQ do not define the required quality of materials or workmanship, the work must be “of a standard appropriate to the Works” (cl. 2.3.3) If the CA is not satisfied with the quality of materials or workmanship, he can instruct the Contractor to remedy this (cl. 3.19) and cost to be borne by Contractor

170

Contractor’s Obligations (Cont’d):

Insurance and Indemnity (Cl. 6.7), in the event that the Contractor will insure the Woks against “all risks” during construction, Joint name policy to also indemnify the Employer (cl. 6.2), risks to be covered (cl. 6.8), Option A applies to the construction of new buildings (Schedule 3, cl. A.1 to A.4), Public liability insurance is also required (cl. 6.1). Insurance against Personal Injury and Property Damage & Insurance against Damage to the Works Access and supervision – Contractor is obliged to grant access to the site to the CA (cl. 3.1), Employer’s representative (cl. 3.3) and keep a competent person-in-charge on the site at all times (cl. 3.2)

171

Contractor’s Obligations (Cont’d):

Health & Safety – to comply with all relevant Statute (i.e. the law), even though they have to anyway (c.l. 2.1) – Contractor liable to the Employer for any breach caused by non-compliance with Statute – CDM Regulations, Health and Safety at Work Act 1974. Health and Safety at Work Act 1974.

Often referred to as HASAW or HSW, this Act of Parliament is the main piece of UK health and safety

• legislation. It places a duty on all employers "to ensure, so far as is reasonably practicable, the health,

safety and welfare at work" of all their employees.

172

The Employer’s Agents

An Agent is a person exercising contractual powers on behalf of someone else. The organisation employing the Agent is called the Principal. Once the Principal has employed an Agent, it will be bound by the acts of that Agent. Under JCT2011, the Architect, Engineers, Clerk of Works, and Quantity Surveyor are the Employer’s agents.

173

The Architect (CA)

The rights and responsibilities of the Architect are definedby: the law; the terms of appointment (e.g. the RIBA StandardAgreement for the Appointment of an Architect);and the JCT2011 SBC/Q Contract Conditions.

174

The Architect (CA) (Cont’d)

May not profit from his appointment other than his fee. May not delegate his responsibilities except as defined by the Contract. Under JCT2011 SBC/Q the Architect’s rights to delegate are narrow and accurately defined. Must act in his Principal’s interest. Owes a duty of care to his Principal (i.e. the Employer). Owes a duty of care to the Contractor.

If the Contractor suffers loss due to false or negligent information from the Architect, then damages due.

175

The Clerk of Works

The Employer is entitled to appoint a Clerk of Works to act as an inspector on site on his behalf (cl. 3.4) The Clerk of Works inspects the quality of materials and workmanship and may issue directions to the Contractor. The Clerk of Works can only direct the Contractor on matters that the CA can (later) instruct (cl. 3.4) A Clerk of Works direction has no effect until confirmed by the CA within 2 days of the direction being given (cl. 3.4) The CA’s confirmation is considered to be an Instruction

176

The Quantity Surveyor

Prepares interim valuations (cl. 4.11) and evaluates the Contractor’s applications for payment, if submitted - they usually are (cl. 4.12) Calculates the amount of Retention on each interim valuation (cl. 4.18.2) Ascertains the amount of the Contractor’s Loss and Expense, if instructed to by the CA following the Contractor’s submission of a claim (cl. 4.23.3) Values Variations and provisional sum work (cl. 5.2) and re-measure work for interim valuations, if required (cl. 5.4) Agrees payment for Fluctuations with the Contractor (Schedule 7

• para. A.5, B.6, or C.4)

Prepares each interim’s Gross Valuation in accordance with The Valuation Rules (cl. 5.6) – QS ascertain then CA issue an Interim Certificate.

The QS will always prefer to value using cl. 5.6 rather than cl. 5.7(Daywork Rates).

177

Requirements of a certificate

Certificates document achievement or occurrence of key events in a project Certificates must:

• leave no doubt as to their content and consequences
• be issued when required by the Contract
• be issued in accordance with the procedure defined by the

Contract

• be issued by the correct party
• be issued to the correct party

The CA must give the Contractor a copy of all Certificates sent to the Employer (cl. 1.8).

178

CONTRACT ADMINISTRATION (PART 2 OF 3)

(Refer to JCT2011/ SBC/Q for this Module)

179

Learning Outcome

Purpose of clauses and parts of JCT2011 SBC/Q

180

Payment under SBC

from the Construction Act regarding Corporates several obligations payment practice, including: The Employer has 14 days from the issue of an Interim Certificate to pay the certified amount to the Contractor (cl. 4.13.1) If it does not,then:

• The Contractor can charge interest on the outstanding amount at 5%

above the base rate (cl. 4.13.6; cl. 1.1);

• The Contractor can suspend the Works (cl. 4.14); and
• The Contractor can terminate its own employment if payment still
• utstanding a further 14 days past the due date (i.e. 28 days after

certificate issue (cl. 8.9.1.1)

181

Interim payments

Interim valuations are performed at agreed regular intervals by the QS to ascertain the current value of the Works This is the Gross Valuation In principle, the difference between one Gross Valuation and the immediately preceding Gross Valuation is the amount to be paid by the Employer for that period’s work This amount is subject to Retention (and other Employer “set-

• ffs” as permitted by SBC/Q)

182

Retention

Retention is governed by cls. 4.10, 4.18 and 4.20. An agreed Retention Percentage is withheld by the Employer from each payment due following a Gross Valuation. Retention is deducted at the full Retention Percentage stated in the Contract Particulars from Works not yet covered by a Practical Completion Certificate (cl. 4.20.2.1) Retention is also deducted at the full Retention Percentage from materials on site and Listed Items (cl. 4.20.2.2) Retention is deducted at half the Retention Percentage stated in the Contract Particulars from Works that are covered by a Practical Completion Certificate but are not yet covered by a Certificate of Making Good - i.e. during the Rectification Period (cl. 4.20.3)

183

Terminology

Interim - Something that happens several times at regular intervals - SBC/Q defaults to valuations at monthly intervals. Gross Valuations (cl. 4.16) The QS’s ascertainment of the total value of the partially completed Works on the date of each interim valuation. Interim valuations (cl. 4.11) The QS’s monthly activity of ascertaining the amount due in an Interim Certificate. This requires a Gross Valuation. Interim Certificates (cls. 4.9, 4.10, 4.13) The regular certificates denoting the interim payments that must be paid by the Employer to the Contractor. Retention (cls. 4.10, 4.18, 4.20) A proportion of the sums otherwise due to Contractor withheld by the Employer until the end of the project to ensure the Contractor to complete the Works. Retention Bond (cl. 4.19) As alternative of the Employer deducting Retention, the Contractor can obtain a Retention Bond which will pay out to the Employer if the Contractor defaults on its obligations.

184

Payment generally

Contract parties are free to agree: The sum to be paid for the Works. Whether payment is to be in instalments. When instalments are due and how they are to be paid.

185

Paid when paid” clauses

Grants, Construction and Payment under The Housing Regeneration 1996 Act: Sections 109 and 110 establish the Contractor’s statutory right to periodic payment. Section 110(1) requires that a mechanism for ascertaining payments is provided by construction contracts. Section 113 prohibits “paid when paid” clauses

These were typically used by the Contractor with its subcontractors and were considered unfair.

186

Content of a Gross Valuation

When ascertaining each Gross Valuation, the QS will include: those parts of the Works “properly executed” on the date of valuation (cl. 4.16.1.1) materials or goods stored on site and clearly identifiable as being destined for inclusion in the Works (cl. 4.16.1.2) materials or goods stored off site but identified in the Contract Documents as “Listed Items” and therefore clearly identified as being destined for inclusion in the Works, (cl. 4.16.1.2)

187

Interim Certificates: procedure

The Contractor can (and usually does) make an application for payment under cl. 4.12 in advance of the interim valuation. The Contractor’s application will typically include:

Works completed to date, charged at “bill rates.” Works completed in response to CA Instructions requiring variations, charged in accordance with the Valuation Rules (cls. 5.6 to 5.10). Wherever possible, variations should be measured and suitable bill rates applied (cl. 5.6 - “Measurable Work”). If a variation “cannot properly be valued by measurement,” Daywork may be used (cl. 5.7 - “Daywork”). All Dayworks sheets must be signed by the Clerk of Works.

188

Interim Certificates: procedure (Cont’d)

The QS conducts an interim valuation as required by the CA to ascertain the “Gross Valuation” so that an amount payable by the Employer can be stated as due in an Interim Certificate (cl. 4.10). The QS will attend the site to:

Confirm and value the work completed (cl. 4.16.1.1) Confirm and value any materials or goods stored on site and due to be incorporated in the Works (cl. 4.16.1.2) Confirm presence of any Listed Items (this may require a visit to the Contractor’s or supplier’s storage facility) (cl. 4.16.1.3)

189

Interim Certificates

Each Gross Valuation must “adjust” the Contract Sum to incorporate additions or deductions caused by Variations, additions and deductions (cl. 4.16): here are some deductions…

Liquidated Damages (if Non-Completion Certificate issued) (cl. 2.32.2.2) Errors in setting out that do not have to be amended (cl. 2.10) Cost of employing an alternative contractor to rectify defects the Contractor is refusing to fix (cl. 2.38) Cost of employing an alternative contractor to implement instructions the Contractor is refusing to do (cl. 3.11) Value of Works not in accordance with the Contract which does not require to be replaced (cl. 3.18.2)

The updated Contract Sum is the Gross Valuation (cl. 4.16).

190

Instructions vs. Variations Instructions

Instructions address how the Works are being completed

(Instructions are issued to change the way in which Contractor are working or correct parts of the Works that have been assembled incorrectly)

Instructions are usually issued when the CA or Clerk of Works

• bserves the Contractor to be acting contrary to the Contract

Documents (e.g. work “not in accordance”) The Contractor will not be paid to comply with an instruction The instruction was required because the Contractor was not doing what it should have been doing. The Contractor would be paid for complying with an instruction if the instruction was issued in error

191

Variations

Variations change the definition of the Works themselves. CA can

• nly issue instructions in accordance with their right to do so

under SBC/Q cls. 3.14 to 3.22.

Two types of Variations:

• Variations

that change the content

• f

the Contract Documents (cl. 5.1.1)

• Variations that oblige the Contractor to use certain working

methods (e.g. working at night) (cl. 5.1.2)

192

CA’s instructions

Traditionally called “Architect’s instructions” (or “A.I.s”) Contract “Contract Now that any suitable organisation can adopt the Administrator role, instructions are also called Administrator’s instructions” The purpose of an instruction is to direct the Contractor’s work. An instruction may:

require site practice to be changed require the Contractor to correct its mistakes vary the definition of the Works - i.e. issue a “Variation” (‘Variation’ is an alteration of the Contract Document)

193

CA’s powers to instruct

The CA can only issue instructions where allowed by SBC/Q All instructions must be in writing (cl. 3.12.1) Verbal instructions must be confirmed in writing within 7 days, or Contractor’s written acceptance of a verbal instruction becomes a CA’s instruction if a CA’s instruction is not issued within 7 days

• f the Contractor’s acceptance

194

CA’s powers to instruct (Cont’d)

A Variation is required cl. 3.14 The Works are to be postponed cl. 3.15 A Provisional Sum is to be spent cl. 3.16 Inspection of the Works is required cl. 3.17 Work not in accordance must be corrected cl. 3.18 Workmanship not in accordance must be corrected cl. 3.19 The work is otherwise not satisfactory cl. 3.20 A person is to be excluded from the site cl. 3.21 Antiquities have been discovered cl. 3.22

195

Contractor’s right to query instructions

The Contractor has the right to “reasonably object” to an instruction if: the Contractor believes the CA cannot issue it, or has done so in error it would change the working conditions as given in clause cl. 5.1.2 under which the Works are to be completed (cl. 3.10.1) The Contractor can ask the CA to prove that it has the right to issue the instruction (cl. 3.13) The CA must notify Contractor of the SBC/Q provision that empowers the instruction “forthwith”

196

Adjusting the Contract Sum

The Contract Sum can be increased or decreased if:

• a Variation has been issued (cl. 4.3.1.1)
• an Acceleration Quotation or a Variation Quotation has

been submitted by the Contractor and accepted by the Employer (cl. 4.3.1.2)

• a change in premiums the Contractor must pay for any “all

risk” insurance of the Works they were obliged to take out (cl. 4.3.1.3).

197

Valuing variations (Measurable Work)

5.6.1 To the extent that a Valuation relates to the execution of

additional or substituted work which can properly be valued by measurement or to the execution of work for which an Approximate Quantity is included in the Contract Bills and subject to clause 5.8 in the case of CDP Works, such work shall be measured and shall be valued in accordance with the following rules:

1.where the additional or substituted work is of similar character to, is executed under similar conditions as, and does not significantly change the quantity of, work set out in the Contract Bills, the rates and prices for the work so set out shall determine the valuation;

5.6.1

2.where the additional or substituted work is of similar character to work set out in the Contract Bills but is not executed under similar conditions thereto and/or significantly changes its quantity, the rates and prices for the work so set out shall be the basis for determining the valuation and the Valuation shall include a fair allowance for such difference in conditions and/or quantity; 3.where the additional or substituted work is not of similar character to work set out in the Contract Bills, the work shall be valued at fair rates and prices; 4.where the Approximate Quantity is a reasonably accurate forecast of the quantity of work required the rate or price for the Approximate Quantity shall determine the valuation; and

198

Valuing variations (Measurable Work) (Cont’d)

5.6.1

.5 where the Approximate Quantity is not a reasonably accurate forecast of the quantity

• f work required, the rate or price for that Approximate Quantity shall be the basis for

determining the valuation and the Valuation shall include a fair allowance for such difference in quantity. Provided that clauses 5.6.1.4 and 5.6.1.5 shall apply only to the extent that the work has not been altered or modified other than in quantity.

2.To the extent that a Valuation relates to the omission of work set

• ut in the Contract Bills and subject to clause 5.8 in the case of

CDP Works, the rates and prices for such work therein set out shall determine the valuation of the work omitted. 3. In any valuation of work under clauses 5.6.1 and 5.6.2:

1.measurement shall be in accordance with the same principles as those governing the preparation of the Contract Bills, as referred to in clause 2.13; 2.allowance shall be made for any percentage or lump sum adjustments in the Contract Bills; and 3.allowance, where appropriate, shall be made for any addition to or reduction of preliminary items of the type referred to in the Standard Method of Measurement, provided that no such allowance shall be made in respect of compliance with an Architect/Contract Administrator’s instruction for the expenditure of a Provisional Sum for defined work.

199

Key events in project progression

Date for Possession contract period starts

Date for Completion [of the Works] / Completion Date contract

period ends - these dates may, or may not, be the same

Note: If the CA judges the Works to be incomplete on the Completion Date (which may, or may not, be the Date for Completion in the Contract Particulars), it issues a Non-completion Certificate (Clause 2.31). Issue of a Non-completion Certificate obliges the Contractor to pay Liquidated Damages to the Employer at the rate in the Contract Particulars

Practical Completion the Works are practically completed - half the Retention is released (Practical Completion Cert, c.l. 2.30) Making Good Defects the Works and all snagging are fully completed - the remaining Retention is released (Certificate of Making Good, c.l. 2.39) Final Certificate the final account is settled (c.l. 4.15)

200

The Rectification Period

The Final Certificate is the final outcome of the Contract, issued after Rectification Period has ended. The Rectification Period commences after issue of the Practical Completion Certificate (cl. 2.34). which the The Rectification Period is a period of time in Contractor must make good all defects (cl. 2.38). Default duration is 6 months (Contract Particulars).

201

Events prior to Final Certificate

Interim Certificates will have been issued at regular intervals to direct the Employer's payments (cl. 4.9.1) The Practical Completion Certificate has been issued (cl.2.30) Further Interim Certificates have been issued every two months during the Rectification Period to permit further adjustment of the Contract Sum and any payments from Employer to Contractor (cl. 4.9.2) Damages for Loss and Expense have been agreed in accordance with clause 4.5.2 (because the Contract Sum has to be adjusted) The Certificate of Making Good has been issued (cl. 2.39)

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The Final Certificate (cls. 1.10 & 4.15)

Signifies the CA’s satisfaction with the Works. Issued within two months (cl. 4.15.1) after either: the end of the Rectification Period (cl. 4.15.1.1) the issue of the Certificate of Making Good (cl. 4.15.1.2); or settlement of the “final account” in accordance with cl. 4.5 (cl. 4.15.1.3) States the finally adjusted Contract Sum (4.15.2.1) States the sum previously certified (and paid) plus the amount of any advance payment paid pursuant to cl. 4.8 (4.15.2.2) States the final balance due

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Legal standing of the Final Certificate

It provides

• cl. 1.9 defines the effect of the Final Certificate.

conclusive evidence that:

• the Works have been completed in accordance with the

Contract Documents and all Instructions (cl. 1.9.1.1);

• all required adjustments of the Contract Sum have been

taken into account (cl. 1.9.1.2);

• all extensions of time due under cl. 2.28 have been granted

(cl. 1.9.1.3);

• all loss and expense due to the Contractor has been paid

(cl. 1.9.1.4).

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CONTRACT ADMINISTRATION (PART 3 OF 3)

(Refer to JCT2011/ SBC/Q for this Module)

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Learning Outcome

Purpose of clauses and parts of JCT2011 SBC/Q

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Time generally

When a contract is formed requiring the Contractor to do something that takes time to complete: Time is “at large” if the Employer doesn’t care how long the Contractor will take The Contract does not define the time available for the Works The Works must be completed in a “reasonable” time Time is “of the essence” if the Employer must have the Works completed by a specified date The Contract will specify a date by which the Work must be completed

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Delays – in essence

In contract law, the “prevention principle” states: A party cannot benefit from its own breach of contract to the detriment of the injured party. e.g. The Employer cannot oblige the Contractor to keep a Completion Date if the Employer’s actions (or inactions) have caused the delay. In this situation, time becomes “at large” The Contractor’s express obligation to complete the Works by the Completion Date is replaced with an implied obligation to complete them within a “reasonable” time.

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Delays – in essence (Cont’d)

Delays caused by the Contractor (The Contractor bears its own costs and the Employer’s) Delays caused by the Employer (The Employer bears its own costs and the Contractor’s) Delays caused events that neither the Employer or Contractor can control (These are known as “shared risk events” or “neutral events”,

neither party is liable - so both bear their own costs

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Extension of time: principles

Most construction contracts lie somewhere between time “at large” and time “of the essence.” They define a time period for completion of the Works by establishing: the Date of Possession (of the site by the Contractor) the Date for Completion (of the Works by the Contractor) and the Date for The time between the Date of Possession Completion is the “contract period” If a delay occurs, the SBC/Q provides for ... Extension of Time; Liquidated Damages; and Loss or Expense

... which determine where the loss caused by the delay will lie.

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Relevant Events (cl. 2.29)

Relevant Events is not Relevant Matters. Relevant Events justify an extension of time. Relevant Events caused by one of the parties are defined by cls. 2.29.1 to 2.29.6. Relevant Events caused by neither party are defined by cls. 2.29.7to 2.29.13.

• cl. 2.29.6 defines a “catch-all” Relevant Event to reduce the number

required.

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Extension of time:

Situation 1: If the Contractor (or someone working for it) delays the Works: The Contractor is in breach The contract period will not be extended Contractor bears its own additional costs Contractor may have to pay Liquidated Damages to the

Employer to compensate for its breach of Contract upon late completion

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Extension of time:

Situation 2: If the Employer (or someone working for it) delays the Works:

The Employer is in breach

The contract period will be extended Employer bears its own additional costs

• Employer pays damages to reimburses the Contractor for

any Loss and Expense caused by the delay

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Extension of time: principles

Situation 3: If the Works are delayed by an event that neither party can control: Neither party is in breach The contract period will be extended Contractor pays its own additional costs Employer pays its own additional costs No damages are paid by either party

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Liquidated Damages (cls. 2.30 to 2.32)

Paid by the Contractor to the Employer if the Works are not completed by the Date for Completion (or Completion Date) Aside: Read the cl. 1.1 definition of Completion Date carefully. If this occurs, the Contractor is “in delay.” Damages are paid at a rate agreed when the Contract was executed the Employer’s Defined in the Contract Particulars Liquidated Damages must accurately evaluate monetary loss caused by late completion. They must not be a penalty

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Claims principles

Claims are a form of damages, but it is important to note:

Liquidated damages (for example): The Contractor compensates the Employer to cover the Employer’s costs incurred due to late completion. The Contractor is in non-material breach. Claims for loss and expense: The Employer compensates the Contractor to cover the Contractor’s unexpected costs incurred due to the Employer’s actions (or inactions). The Employer is in non-material breach.

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Extension of time vs. Loss and expense

Extensions of time: Granted if a Relevant Event occurs that requires the Contractor to be given more time to complete the Works. Loss and Expense: Claims for payment are made by the Contractor to recover unexpected loss or additional expenditure due to delay or disruption caused by others. There is no direct link between extensions of time and claims for loss and expense An extension of time does not always justify a claim.

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Types of claim

Contractual claims Follow the procedures defined by the Contract (Usually settled quickly and simply) Common law claims Result from breaches of implied Contract terms (Can be recovered using the Contract or litigation) Quantum meruit claims If no prior agreement of cost Ex gratia claims (Ex-gratia claim is one where no legal remedy is available to the contractor but arise out of hardship, also called Sympathy claim)

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Relevant Matters vs. Relevant Events

Relevant Events justify additional time Relevant Matters justify additional payment Relevant Events include uncontrollable circumstances. Relevant

Matters do not. The Contractor cannot be expected to recover costs from the Employer caused by an event that neither party could control.

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The “Heads of Claim”

The documentation submitted by the Contractor to support a claim

is called the “Heads of Claim”

The Heads of Claim must clearly state the loss and/or expense

arising due to each Relevant Matters

Must document:

Additional preliminaries costs Reduced labour productivity Extra waste or unused materials Increase in the cost of resources (i.e. inflation) Extra head office overheads and profit required Additional finance charges Correspondence, site meeting, photographs

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Appreciation of contributions to these Lecture Notes:

Lecture Notes from Liverpool John Moores University Lecture Notes from Heriot-Watt University Published Documents from Royal Institution of Chartered Surveyors (RICS) Published Documents from Royal Institute of British Architects (RIBA) Published Documents from Project Management Institute (PMI)

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