RICS APC COACHING

Contract Practice

Slides 1 of 3

July 2021

• Basic contract law and legislation

• Contract documentation

• Various forms of contract and subcontract

• When different forms should be used• Basic contractual mechanisms and procedures at

various stages of the contract

• Third party rights including the relevant legislation and the use of collateral warranties

Contract Practice Level 1

Contract Practice Level 2

• Producing Contract Documentation

• Carrying out contractual mechanisms and procedures relevant to the financial management aspects of your project, such as change procedures, valuations, loss and expenses and final accounts.

• Understanding general contractual provisions such as letters of intent, insurances, retention bonds, liquidated damages, early possession, practical completion and other common contractual mechanisms.

• Common Law system founded in the UK and spread through countries where UK had an influence.

• UK, India, Australia, Canada and USA amongstothers

• The law developed by judges, courts and similar tribunals

• Decide individual cases but in addition have precedential effect on future cases

• Civil Code system originating in Europe but many countries now have a civil code

• Europe, Middle East, South America amongst others

• Specific contract conditions – General and Particular

• Implied terms arising from the contract

• Common Law including Torts

• Torts – Negligence, Nuisance,Trespass

• Statute Law

• Common law is the basis of contract law

• The law developed by judges, courts and similar tribunals

• Decide individual cases but in addition have precedential effect on future cases

• Is a legal system giving great precedential weight so that consistentprinciples apply

• Stare Decisis – to stand by things decided

• The law passed by the legislature

• The legislature in the UK is the Parliament which consists of the House of Commons (an elected body) and the House of Lords

• Acts of Parliament e.g. Law of Property (MiscellaneousProvisions) Act 1994

• An unlawful violation of private right, not created by contract

• It is a collection of civil law remedies

• Entitles a person to recover damages for loss and injury

• Caused by the actions omissions or statements of another person in breach of a duty or obligation imposed at law.

• Negligence occurs when a party fails to demonstrate the kind of care a prudent person would take in the same situation and an injury results from the action or inaction

• Law of Contract forms the basis of trade and commerce

• A Contract is an exchange of promises

• Creates legal obligations on both parties

• Creates remedies if the parties fail to meet obligations• Parties deemed to be of equal bargaining strength

• The course is based on the Laws of England and Wales

• This is a “common law” system

• The main alternative system is a “civil code” system

• Difference between conditions, warranties and innominate terms:

• conditions – goes to the root of the contract. Entitles the injured party to damages and to repudiate the contract

• warranties – entitles the injured party to damages but notnecessarily repudiation

• Warranties has 2 distinct meanings:

• the First as an express term of the contract as described previously

• the second is a warranty often provided to an Employer by a sub-contractor where the subcontractor has carried out design

• called a direct or collateral warranty

• Opposite of Express Terms

• Implied Terms, implied by the court, by custom or by statute:

• implied by the court

• implied in fact

• Implied in law• implied by custom – but not contrary to the express

terms

• implied by statute – e.g. Sale of Goods Act

The structure of the courtsUK Supreme Court

Appeal only, on points of law

Justices of the Supreme Court

Court of Appeal

Appeal only, on points of law to either the Criminal or Civil Divisions:

Lord Chief Justice, Heads of Division and Court of Appeal Judges

High Court

Chancery, Queen’s Bench and Family Divisions. All three divisions hear appeals from other courts, as well as “first

instance” cases.

High Court and Deputy High Court Judges

Crown Court

Jury trial for all indictable and some either-way criminal offences. Appeals against conviction and sentence from the magistrates’ court.

Circuit judges, Recorders and juries

Magistrates’ CourtTrial for most criminal offences. Some civil and family matters.

Magistrates, District Judges (Magistrates’ Courts), Deputy DJ (MC)s

Upper Tribunal

Appeals from the First-tier Tribunal

Upper Tribunal Judges

County Court

Trial for most civil cases.

Circuit judges, Recorders, District Judges, Deputy District Judges

First-tier

Appeals from executive agency decisions.

Tribunal judges and members

Employment Appeal Tribunal

Appeals from the Employment Tribunals

Employment Appeal Judges and members

Employment Tribunal (England&Wales; Scotland)

Claims about matters to do with employment

Employment Judges and members

There are a number of other tribunals outside of this structure (for example, School Exclusion Panels) - their supporting legislation explains their individual appeal routes.

• 5 key elements to a Valid Contract

• An agreement made between the parties consisting of :

• Offer;

• Acceptance; and

• Consideration

• Intention to create legal relations

• Certainty as to the terms of the Agreement

• Express an intention to enter into a contract

• Must be cautious to ensure correct wording• Should state that only legally binding in respect of the

limited work to be carried out

• Preferable to state an upper limit in value terms of the work to be carried out

• See Supplementary Information 6

• Difference between contracts “Under Hand” and “Under Seal – as a Deed”

• Contracts Under Hand – limitation period is 6 years

• Contracts Under Seal – limitation period is 12 years

• Certain events such as the exposure of latent defects has a long stop period of 15 years

• Form of Contract

• The Agreement which the parties sign

• The Conditions which normally includes the General Conditions and any Particular Conditions

• Appendix to Tender which contains variable information e.g. retention percentage, level of damages etc.

• Bills of Quantities

• Included if applicable to the particular contract

• Specification• Included as Contract document in some forms of

contract

• Drawings• The contract drawings are those used in the

preparation of the Bills of Quantities or those forming the basis of a lump sum bid

• Contract Sum analysis

• Shows a breakdown of the lump sum tender –rereferred to as Activity Schedule in NEC

• Schedule of Works/Approximate Quantities

• Utilised where Bills of Quantities not used

• See following examples from JCT

• Articles ofAgreement

• Recitals

• Articles• Contract Particulars

• Attestation

• Primary Contract Documents

• Contract Data

• Letter of Tender

• Letter ofAcceptance

• Contract Agreement

• Where the Agreement is signed by the parties

• The “signature” can be:

• “under hand”

• as a deed• Under hand

• parties sign by hand and witnessed by a thirdparty

• As a Deed• Acompany executes the contract by imprinting its

common seal in the presence of a Director and theCompany Secretary

• FIDIC has General Conditions and then Particular Conditions amended for the particular project

• JCT has clauses which contain alternative wording

• Some Employers have standardized amendments to the FIDIC General Conditions

• Ensure all amended and correct rates are shown

• Include any adjusting amount in the General Summary

• Sign Bills of Quantities “These are the Bills of Quantities referred to in the Contract”

• Specification

• “This is the Specification referred to in the Contract”

• Drawings• “This is a Contract Drawing” or “This drawing was

used in the preparation of the Bills of Quantities”

TYPES OF CONTRACT

• JCT 2016 – Joint Contracts Tribunal – used primarilyfor building work in the UK. Similar contracts used incountries part of commonwealth

• NEC4 2017 – New Engineering Contract

• FIDIC 2017 – Federation International des IngenieursConseils – used extensivelyinternationally

Type of Contract JCT NEC FIDICFixed Quantities With QuantitiesLump Sum Option A with

Activity ScheduleApproximate Quantities

Approximate Quantities

Option B Red Book

Design and Build Design and Build Yellow BookManagement Management Option FConstruction Management

Construction ManagementMajor Project

Type of Contract JCT NEC FIDICIntermediate

Small works Minor Works Short ContractCost Plus Prime Cost Option E

Measured TermTarget Cost Options C and DPartnering Constructing

ExcellencePFIFrameworkLump Sum/ Turnkey

Silver

• JCT define 3 main types of contract

• Traditional

• Design and Build

• Management

• Nature of the project

• Scope of the project

• Extent of design control required

• Relationship with contractor – traditional role or greater input to design and/or management

• Requirement for certainty of Pinal cost

• The importance of completion dates

• Restrictions on access, working hours, adjacent properties etc.

• Likelihood of changes

• Clients' aversion to risk

• Long term contractor relationship

• Traditional types ofcontract

• Based on Bills of Firm Quantities

• Based on Bills of Approximate Quantities

• Based on Drawings and Specification

• Based on a Schedule of Rates

• Based on CostReimbursement

• Employer commissions Architect or Engineer to prepare a full design

• Quantity Surveyor prepares Bills of Quantities based on the drawings and specification's

• Contractor prices Bills ofQuantities

• The design must be completed (or nearly completed)

• Contractor supplied with Drawings, Specification's and Bills of Quantities

• Quantities and Unit Rates form part of the Contract

• The Quantities are adjusted in the event of errors• Variations can result in re-measurement of particular

quantities

• Advantages

• Parties have a clear picture of their commitments• The unit rates form a sound basis for pricing

Variations

• Adetailed breakdown of the tender is available

• Disadvantages• Length of time required to prepare complete

design and Bills of Quantities

• Problems may arise if extensive Variations issued resulting in extensive re-pricing

Type of project utilising JCT with quantities 2016

• Employer commissions Architect or Engineer to prepare a design but not necessarily complete

• Quantity Surveyor prepares Approximate Bills of Quantities

• Contractor prices Bills of Quantities

• The design need not be fully completed

• Contractor supplied with Drawings, Specification's and Approximate Bills of Quantities

• Unit Rates form part of the Contract

• Quantities are subject to re-measurement

• Advantages

• Work can proceed prior to design completion• The unit rates form a sound basis for pricing

Variations

• Disadvantages

• Parties less certain of their overall commitments• Re-measurement of quantities required at each

monthly valuation

• Road project utilising NEC44 with Approximate Quantities

• Two main types:

• Lump Sum - where design complete - normally used for smaller projects such as renovations or subcontract work

• Design and Build – where outline design complete but Contractor responsible for detailed design

• The design must be completed (or nearly completed)

• Contractor supplied with Drawings and Specification's

•

• Contractor responsible for preparing Quantities

• Contractor sometimes requested to prepare a Schedule of Rates to facilitate pricing of Variation Orders

• Advantages

• Parties have a clear picture of their commitments• Less time to prepare tender documents as no Bills

of Quantities

Disadvantages• No detailed breakdown of the tender sum readily

available

• Problems may arise if extensive Variations issued as no unit rates available

JCT Minor Works Building Contract

• Three main types:

• Standard Schedule

• Ad-hoc Schedule

• Examples from previous Projects - where design complete - normally used for smaller projects such as renovations or subcontract work

• Schedule prepared under relevant trade headings

• Two alternatives:

• Contractors invited to tender rates for each item• Contractors invited to tender percentage additions

or deductions to the rates

• Advantages

• Reduced time to prepare Contract documents

• Design can be at any stage

• Bills of Quantities not required

• Disadvantages

• Difficulty of comparing tenders

• Contractor paid for costs plus an agreed percentage fee

• The system can be inefficient as the higher the costs it can be seen to the Contractor’s advantage

• Royal projects inSaudi Arabia

• Contractor paid for costs plus an agreed fixed fee

• The system can be inefficient as the Contractor has no incentive to controlcosts

• Design and Build types of contract

• Client’s brief ranges between a simple accommodation schedule to a design outline

• Contractor prepares proposals based on the design brief

• Client loses control over detailed design

• Possible savings in time as work can proceed in parallel to design

• Design and Build types of contract

• Package deal or turnkey

• Design and Build

• Contractor’s design for specific elements

• Only the outline design has to be completed

• Contractor supplied with outline Drawings and Specification's

• Contractor responsible for preparing Pinal design• Contractor sometimes requested to prepare a

Schedule of Rates to facilitate pricing of Variation Orders

• Advantages

• Single point responsibility for design

• Work can commence at an earlier date

• Contractor can (sometimes) offer cheaper and more buildable designsolutions

• Less time to prepare tender documents as no Bills of Quantities

Disadvantages

• Employer loses control of the detailed design

• No detailed breakdown of the tender sum readily available

• Problems may arise if extensive Variations issued as no unit rates available

Utilised FIDIC Design and Build version – Yellow book – project in Abu Dhabi

• Utilised on EPC and Turnkey projects

• Only the outline requirement has to be provided• Contractor supplied with Outline Requirements and

Specification's

• Contractor responsible for preparing design• Contractor sometimes requested to prepare a

Schedule of Rates to facilitate pricing of Variation Orders

• Advantages

• Contractor can offer economic and buildable design solutions

• Contractor can often offer duplicate designs from previous projects

Disadvantages

• Employer loses control of the overall design

• No detailed breakdown of the tender sum readily available

• Problems may arise if extensive Variations issued as no unit rates available

LNG Plant in Nigeria – FIDIC SilverBook

Process Plant – FIDIC SilverBook

• Management types ofcontract

• Management contracts – where the Contractor manages the trade contractors who are contractually accountable to him

• Construction management contracts – where the Construction Manager manages the trade contractors but trades contracts with Employer

• Contractor paid an overall fee

• Contractor responsible for overall management of the project and administration of subcontractors

• Contractor enters into contract with the various trade/sub-contractors

Management Contracts can be used for a wide range of projects

• CM paid an overall fee

• Contractor responsible for overall management of the project and administration of subcontractors

• Employer enters into contract with the various trade/ sub-contractors

• Very common in the USA

• Advantages

• Work can begin as soon as early packages have been designed

• Overlapping of design and construction can make time savings

• Contractor’s knowledge and management experience are available

• Contractor can contribute to buildability

• Disadvantages

• Uncertainty as to the Pinal cost of the project

• Variations may increase:

• Greater opportunity to change design• Interface between packages

• Target contract value agreed prior commencement

• Contractor paid for costs plus an agreed percentage fee

• Bonus paid to Contractor if Target Cost not exceeded

• Penalty paid by Contractor if Target Cost exceeded

• Agreements covering a set period – often 3 to 5 years

• Often using TargetCost approach

Sewage Treatment Plant carried out by Yorkshire Water as part of a framework agreement

• Used on long term maintenance contracts using schedule of rates

• Contracts can combine the characteristics of two or more types ofcontract

• Lump Sum contracts can include some provisional quantities, provisional sums and prime cost (PC) sums

PFI is an output-based approach where the public sector procures 'services ' from the private sector for a long term (typically over 25 years) in return for an annual payment (unitarycharge)

The public sector transfers the responsibility for design, construction, operation and investment to the private sector

It is an integrated/whole life approach - you 'Build, Evaluate, Stay Throughout ' to manage the asset (BEST)

CLIENT ORGANISATION

(e.g. NHSTrust, Local

Authority)

SPECIAL PURPOSE COMPANY

Design & Build

Partner

Funding Structure

10- 30% Equity70- 90% Debt

FM Service Partner

(Soft & Hard)

LENDERS

INVESTORS

Equity?

Deb

t(longterm)

Equ

ity

Prin

cipa

l&

Inte

rest

Rep

aym

ent

Ret

urns

(d

ivid

ends

)

Life cycle Reserve/ Returns

Payment Charge

Capital &Operational Cost

• PFI – Private Finance Initiative

• PPP – Public Private Partnership

• BOT – Build Operate Transfer – Typically on road and bridge projects where the contractor designs and builds, operates for 25 years collecting tolls then transfers to the governmental authority

• JCT has collaborated with Constructing Excellence to develop the JCT - Constructing Excellence Contract.

• The JCT - Constructing Excellence Contract can be used to procure a range of construction services.

• It is specifically tailored for use in partnering and where participants wish to engender collaborative and integratedworking practices.

• JCT standard forms• SBCSub/D/C 2011- standard form where the

subcontractor is not carrying out design• SBCSub/C 2011- standard form where the

subcontractor is carrying out design• FIDIC

• Conditions of subcontract for construction 2011• NEC

• Engineering and ConstructionSubcontract

• Option A: Lump Sum priced contract with activity schedule

• Option B: Re-measurement priced contract with bill of quantities

• Option C: Target Cost contract with activity schedule

• Option D: Target Cost contract with bill of quantities

• Option E: Cost Reimbursable contract

• Option F: Management Contract

• Activity Schedule – Each Activity is priced as a Lump Sum

Type of Contract JCT NEC FIDICFixed Quantities With QuantitiesLump Sum Option AApproximate Quantities

Approximate Quantities

Option B Red Book

Design and Build Design and Build Yellow BookManagement Management Option FConstruction Management

Construction ManagementMajor Project

Type of Contract JCT NEC FIDICIntermediate

Small works Minor Works Short ContractCost Plus Prime Cost Option E

Measured TermTarget Cost Options C and DPartnering Constructing

ExcellencePFIFrameworkLump Sum/ Turnkey

Silver