construction contracts

2014

CONSTRUCTION CONTRACTS

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CONTRACTS

“It is not the beauty of a building you should look at;

its the construction of the foundation that will stand the

test of time.”

- Unknown

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Provides, based on what is known at the time of contract, for what is ultimately Deliverable, by

When and at what Price;

Deals with a relationship (not necessarily founded on good faith, mutual cooperation and trust)

just as much as it deals with the Deliverable.

Defines or restricts the extent to which the common law would otherwise govern the

relationship.

Defines the relationship - it is not a mere formality in the process.

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The Deliverable: To define the Deliverable, with the degree of accuracy possible at the time,

and to allow the Deliverable to evolve in a controlled manner;

The Price: To define the Price of the Deliverable based on what is known and what ought to be

reasonably foreseeable to an experienced contractor at the time, and to provide for the Price to

change in a controlled manner;

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The When: To define the Time for Completion of the Deliverable based on what is known and

what ought to be reasonably foreseeable to an experienced contractor at the time, and to allow

the Time for Completion to change in a controlled manner;

The Risks: To respectively allocate the foreseeable and unforeseeable / likely and unlikely risks

to each of the Parties; and

Possible Disputes: To provide a mechanism to principally avoid, but to otherwise effectively

deal with disputes.

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THOUGHT FOR THE DAY

- The type of contract form to be used will depend on the Employer’s preference as well as the Works to be executed

- Many employers use standard form contracts developed and published by industry-based organisations

- The idea of standard form contracts is to include provisions which are beneficial to both parties to the contract in accordance with good practice

- Some contracts are, however, not based on the approach of good practice

- Therefore it is important to know the three R’s:

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THOUGHT FOR THE DAY





- Therefore it is important to know the three R’s:- Rights

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THOUGHT FOR THE DAY





- Therefore it is important to know the three R’s:- Rights- Responsibilities

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THOUGHT FOR THE DAY





- Therefore it is important to know the three R’s:- Rights- Responsibilities - Risks

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THOUGHT FOR THE DAY






- Within standard form contracts you will find your three R’s within the General Conditions of Contract read together with the amendments thereto as set out in the Contract Data and Special / Particular Conditions

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THOUGHT FOR THE DAY






- Within standard form contracts you will find your three R’s within the General Conditions of Contract read together with the amendments thereto as set out in the Contract Data and Special / Particular Conditions

- The obvious benefit of the standard form is common understanding and the resultant efficiency in Tender and Execution Phases.

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THOUGHT FOR THE DAY

• The role players are:

• Employer

• Main Contractor

• Sub-contractor

• (Designer / Supplier / Manufacturer etc)

• Importantly:

• Familiarise yourself with the contract

• Be aware of all changes to standard form contracts

• Strict compliance

Integrity,quality,consistency.

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Standard Forms

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AVAILABLE STANDARD FORMS

What Standard Forms are available for use (and required to be used by State Owned Entities):

Construction

FIDIC

NEC

JBCC

GCC

CIDB standard forms

Professional Services

NEC PSA

CIDB Standard Forms

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The FIDIC Suite (latest is 1999)

• Silver Book – EPC;• Yellow Book – Design & Build;• Red Book – Construction Work; and• Green Book – Minor Work.

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• New Engineering Contract:

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• New Engineering Contract • Engineering and Construction Contract

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• New Engineering Contract • Engineering and Construction Contract• Construction Short Contract

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• Joint Building Contracts Committee Series 2000 (5th Edition 2007):

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• Joint Building Contracts Committee Series 2000 (5th Edition 2007):• Principal Building Agreement;

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• Joint Building Contracts Committee Series 2000 (5th Edition 2007):• Principal Building Agreement;• N/S Subcontract

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• Joint Building Contracts Committee Series 2000 (5th Edition 2007):• Principal Building Agreement;• N/S Subcontract

• General Conditions of Contract for Construction (2004)

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• The standard forms of contracts can, and usually will, be changed to fit the different requirements for different projects or to suit the requirements of a particular employer

• These conditions may change the rights and responsibilities of the employer and contractor

Global reach;local specialistknowledge.

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Before Signing

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BEFORE SIGNING

• Completion Date

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BEFORE SIGNING

• Completion Date

• Contract Price:

• Lump Sum / Re-measurable

• CPA?

• Cost Plus

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus

• Payment Structures: Progress / milestone based

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus


• Bond Requirements

• Performance

• Retention

• Advanced Payments

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

• Material Terms

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

• Material Terms

• Programming Requirements

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BEFORE SIGNING

• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

• Material Terms


• Entitlements to Extension of Time and Additional Costs

• Variation Orders

• Omissions

• Delays

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BEFORE SIGNING• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

• Material Terms




• Omissions

• Delays

• Limitation of Liability

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BEFORE SIGNING• Completion Date

• Contract Price:


• CPA?

• Cost Plus



• Performance

• Retention


• Penalties

• Material Terms




• Omissions

• Delays

• Limitation of Liability

• Resolution of Anticipated Disputes

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Contract Phases

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CONTRACT PHASES

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CONTRACT PHASES

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CONTRACT PHASES

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CONTRACT PHASES

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CONTRACT PHASES

Global reach;local specialistknowledge.

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It’s not just a contract

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CONSTRUCTION CONTRACTS – IT’S NOT “JUST A CONTRACT”

An evolving “merx” against a backdrop (very often over an extended period of time) of

evolving circumstances (both unforeseeable and foreseeable, albeit not always predictable).

Reasonable programming.

Breach (albeit not material) is expected. A degreed of breach is the rule rather than the

exception and events or circumstances giving rise to disputes are common place; not because

of the nature of the industry players but rather the nature of activity.

Risk is considered (not avoided at all costs), understood and allocated.

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Principal Drivers: Traditional: Time, Cost and Quality – modern approach includes Health

&Safety.

Quality: Workmanship and Performance (as appropriate).

Time and Cost are moving targets - One of the Parties has to accept the risk. The extent / lack of

planning and the proper allocation of risk are a key factors in Time and Cost optimisation.

Health & Safety: statutory requirements and corporate policy considerations. The concept of

best practice and zero harm is most often required and/or adopted in mature jurisdictions and

by responsible corporations.

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Main Contractor Rights:

Timeous Payments

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Timeous Payments

Variations or alterations

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Timeous Payments


Extensions of Time

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Timeous Payments


Extensions of Time

Access to the Employer

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Timeous Payments


Extensions of Time


Dispute Resolution Mechanisms

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Timeous Payments


Extensions of Time



Termination of the Contract

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Timeous Payments


Extensions of Time



Termination of the Contract

Appointment of sub-contractors

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Main Contractor Responsibilities:

Completing and Maintaining Works

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Guarantees and insurances

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Administrative procedures

Reporting on progress

Updated programmes

Substantiation of claims

Contemporaneous documents

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Updated programmes



Notifications

Early Warning

Notice of Claim – Time periods

Fully detailed claim

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Updated programmes



Notifications

Early Warning



Security

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Updated programmes



Notifications

Early Warning



Security

Instructions

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CONSTRUCTION CONTRACTS – IT’S NOT “JUST A CONTRACT” Main Contractor Responsibilities:





Updated programmes



Notifications

Early Warning



Security

Instructions

Subcontracts

Claims

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CONSTRUCTION CONTRACTS – IT’S NOT “JUST A CONTRACT” Main Contractor Responsibilities:





Updated programmes



Notifications

Early Warning



Security

Instructions

Subcontracts

Claims

Compliance

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CONSTRUCTION CONTRACTS – IT’S NOT “JUST A CONTRACT” Main Contractor Risks:

Financial Loss

Errors in calculations

Poor management

Delays

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Financial Loss


Poor management

Delays

Penalties

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Financial Loss


Poor management

Delays

Penalties

Insolvency of Employer

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Financial Loss


Poor management

Delays

Penalties

Insolvency of Employer

Termination of the contract

Recovery of damages

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CONSTRUCTION CONTRACTS – IT’S NOT “JUST A CONTRACT” Sub-Contractor:

Three R’s will mainly depend of Scope of Works

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Responsibility is towards Main Contractor

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Weaker position

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Weaker position

Similar rights to those in Main Contract

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Weaker position


Warning lights in contract:

Reduction of / set-off from certified payments

Pay when paid

No DAB / Arbitration Procedure

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Weaker position




Pay when paid


Retention percentages

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Weaker position




Pay when paid



Defects liability periods

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Weaker position




Pay when paid




Changes to notification periods

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Weaker position




Pay when paid




Changes to notification periods

Time barring

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Important:

Notification Procedure Time barring

Strict Compliance

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DISPUTE: NOW WHAT?

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DISPUTE: NOW WHAT?

• Claims procedure

• Determination

• Dispute

• DAB / Arbitration

• Court

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DIFFERENCE IN APPROACHPRACTICAL EXAMPLE

Contractor 1

Realistic Tender

Guarantees and finance

Signed Contract

Took possession

Timeous notice: delays


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DIFFERENCE IN APPROACHPRACTICAL EXAMPLE

Contractor 1

Kept to progress chart

Reported regularly

Completed snag list

Completed work

Received final payment

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QUESTIONS?

Thank you

construction contracts

Documents

time of contract

daythe type of contract

good practicesome contracts

executedmany employers

employers preference

good faith

test of time

controlled manner