General Principles of Contract Management
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- Dortha Chase
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1 General Principles of Contract Management Training to DEME (2016) Mark Castell Regional Managing Director
2 What we do Our dispute and advisory team, delivering high-level commercial and contract management, procurement advice, planning and programming services, dispute resolution support and training and seminars. Our project controls team, delivering commercial management, quantity surveying, and planning services throughout the project lifecycle. Our expert witness support service. World-class quantum, delay, and technical experts for litigation and provision of internationally experienced adjudicators, arbitrators, and mediators. Provision of project management alongside transaction advisory services to clients for the delivery of concession projects using PFI, PPP and DBFO procurement options.
3 GROUP OVERVIEW Driver Group is a global construction consultancy, providing construction and engineering focused services since 1978 Stock exchange listed plc. AIM (2005) Driver Trett established in 2012 when Trett Consulting became part of the Driver Group. Market leader in expert witness, planning, commercial and disputes. Over 500 global staff. > 40m turnover. Network of offices across Europe, Africa, Americas, Asia Pacific, and the Middle East. Global reach with projects undertaken worldwide.
4 DRIVER GLOBAL PRESENCE
5 On days 1 and 2, to: General principles of contract management Workshop Objectives Increase your awareness and understanding of contract management. Demonstrate how you can improve the DEME Group s contractual and commercial position in both the pre-contract and post-contract phases of projects. On day 3, to: Introduce the main FIDIC standard forms of contract. Explain the philosophy of the main FIDIC standard forms of contract and what their use means. 5
6 Some questions to start with
7 Q: What is common to every project? A: Contracts, whether with a client, a supplier or a subcontractor. Q: What is a Contract? A: Simply speaking, it is an agreement. Q: What is the objective of a contract? A: To define the relationship and how the parties act the rules of the game. 7
8 Q: What is contract management and what does it cover? A: Management of: Risks & opportunities Change Entitlement Claims The Client or Subcontractor It should include the avoidance of Disputes Is this not project management? 8
9 Q: When should the management of contracts begin? A: At the conception of a contract. Q: When should the management of contracts end? A: At the finalisation of all matters. 9
10 Contracts involve a process from conception to grave Understanding the clients needs and the risks involved Making an offer, or tender Forming a legal agreement Understanding the parties obligations under the agreement Monitoring the parties actions against these obligations Identifying any variance Invoking the terms of the contract according to the circumstances Issuing and / or receiving requests for payment and additional time Agreeing financial and other matters 10
11 From time to time, you may have experienced a bad contract. What do we mean by the term bad contract? Discrepancies / anomalies Unclear wording Too much risk Technical difficulties Price too low Schedule too tight etc 11 11
12 Q: Is it true (or fair) to say that a bad contract is the fault of those involved at the tender stage? A: No. Why? Q: Is it true (or fair) to say that an unprofitable project is the fault of those involved at the implementation stage? A: No. Why? 1212
13 Q: Who is involved in managing a contract? Revised Q: Who should be involved in managing a contract? A: Everyone within the business... I suggest that this could be the key challenge with respect to contract management 13
14 As managing contracts must be from conception to grave ; course agenda follows this. Days 1 and 2 Tendering Procurement and sub-contracting Construction contracts and letters of intent Setting up the project Planning & progress Financial issues Management of change Dispute resolution Day 3 FIDIC introduction Overview of differences between different standard forms Specific requirements of FIDIC contracts 14
15 The tender stage What is its main purpose? Photograph credits to FreeDigitalPhoto.net & Grant Cochrane
16 The priority is for a tenderer to understand what will be expected of him. This involves: Studying all parts of the RFQ or tender documents. Verify all documents have been received Verify the correct documents have been received Recognising the responsibilities to be placed on the parties. Risk and opportunity management. Identification Quantification Evaluation 16
17 The client will have considered risk allocation. Remember: Risk should be allocated to the party best able to manage it. Standard Forms of Contract (such as one of the FIDIC or BIMCO forms) generally allocate risk reasonably and fairly. What type of risks should be considered? 17
18 Some Contracting Risks 1. Clear scope of work 2. Provision of bonds, guarantees 3. Security for payment 4. Physical conditions and access 5. Practicality of schedule dates 6. Use of specialist suppliers/sub contractors/ third parties 7. Extension of time provisions 8. Safety provisions
19 More Contracting Risks 1. Clarity of the contract wording and provisions (no discrepancies) 2. Wording and provisions that can be easily understand by all concerned 3. Document submittals at, or just after commencement 4. Conditions precedent clauses 5. Notice requirements 6. Requirement for record keeping 7. Change process 8. Claims process
20 Contracting risks are often indicated by: Manner in which contract was secured The consultants and their roles The level of definition of the works Feasibility The procurement status Financial circumstances Political aspects Legal / contractual New concept 20
21 Apart from risk allocation, why else should major revisions to Standard Forms of Contract be considered carefully by tendering contractors? The revisions may prevent the contract from working in certain circumstances. In other words, links from one clause to another may be broken. 21
22 What opportunities exist at tender stage? To understand the customer s needs To see whether the proposed contract describes the same thing To influence the customer s way of thinking To influence the provisions of the contract (terms and conditions) To influence the allocation of risk To agree the duration for undertaking the works To agree the price for undertaking the works To agree security of payment etc 22
23 Management of the tender stage also requires. Clarifying the responsibilities and / or risks. Document control essential single point communication? Register of questions and answers summarises status Records of any verbal discussions and meetings how? Establishing a commercial strategy for the project. 23
24 Exercise 1 tender phase 24
25 Procurement and sub contracting
26 Risk sharing and allocation Risk should be allocated to the party best able to manage it. In sub-contract relationships, risk that is passed on should be stepped down. Sometimes risk is retained at main contractor level.
27 Examples of typical risks Clear scope of work (including design) and interface Provision of bonds and guarantees Practicality of programme dates within overall duration Extension of time provisions Notice and reporting provisions Safety provisions If we are main contractor, what do we want to happen with these risks in our subcontracts? If we are a subcontractor, what do we want to happen with the contents of the main contract?
28 Which terms and conditions are to be used for a subcontract? The main contract conditions? Revised main contract conditions? If so, how to revise? The DEME standard terms? Revised DEME standard terms? If so, how to revise? The phrase back to back with the main contract? If so, what does it mean? 28
29 Back to back A commonly used phrase that can lead to practical problems How can applying the provisions of a main contract to a subcontract work in practice? Is Contract Price the same as Subcontract Price? Are all the main contract conditions applicable? Involvement of the client (i.e. approvals)? Values of bonds? Insurance coverage? It s not a shortcut for proper drafting of sub-contracts Can create a strong potential for disputes 29
30 Examples of subcontract wording Article 3.1 says that Subcontractor shall be deemed to have full knowledge of the provisions of the Main Contract... Contractor shall (if requested) make available a copy of the Main Contract. Article 3.2 says Subcontractor shall carry out and complete Subcontract Works so that no act or omission of the Subcontractor shall result in any breach of the Main Contract by the Contractor. Article 3.3 says to the extent that such obligations and liabilities relate to the Subcontract Works, the Subcontractor shall perform the obligations and assume the liabilities of the Contractor under the Main Contract. Article 3.4 says Subcontractor shall indemnify the Contractor against any claim, arising from any breach or non observance of such obligations or non compliance therewith. 30
31 An example of main contract wording Article 15 (c) says that Contractor must make all the terms and conditions of Contract (as far as the same are applicable ) terms and conditions of Subcontract and must not permit any alteration of the Subcontract without the prior written consent of Company and must enter into a Subcontract with the Subcontractor accordingly. 31
32 Which terms and conditions are to be used for the subcontract? The main contract conditions? Revised main contract conditions? If so, how to revise? The DEME standard terms? Revised DEME standard terms? If so, how to revise? All can work but in all cases, the parts of the main contract relevant to the subcontract need identifying (and possibly revising), and then be incorporated into the subcontract. 32
33 Contracts Photograph credits to FreeDigitalPhoto.net & Boians Cho Joo Young 33
34 A contract is an agreement, which should be based upon the mutual understanding that was built up in the tender stage. 34
35 Contractual agreement But, to be a legal contract, there must be: Capacity (i.e. authority) Offer, acceptance and consideration What is what? What is a counter offer? 35
36 Offer and Acceptance with POs You receive a Purchase Order from a customer that does not refer to a DEME quotation or terms. The Purchase Order includes certain terms and has on the back of the document, the customer s general terms and conditions. The first general term and condition says that acceptance of this order constitutes unconditional acceptance of these conditions. What is the Purchase Order? What should you do? 36
37 Contractual agreement But, to be a legal contract, there must be: Capacity (i.e. authority) Offer, acceptance and consideration What is what? What is a counter offer? A requirement (i.e. the scope of work) A willingness to undertake the requirement Terms of contract for the requirement 37
38 Contract terms comprise Express terms To allocate responsibilities and risks To set out who does what and when To provide for time and money To provide for changes in scope i.e. variations To provide for changes in duration i.e. EoT Implied terms generally from Statute or Civil Code
39 Construction Contracts 39
40 Contract Considerations Type of payment: Lump sum Target price Unit rates / re-measurement Reimbursable Type of industry: Dredging Energy Building Industrial Infrastructure Type of arrangement: Employer & contractor Contractor & subcontractor Turnkey Design & build 40
41 Contracts vary in contents but they should however: Allocate functions / responsibilities Define remuneration (payment) Allocate risk between the parties Including defining limitations on liability Identify the applicable law and language Provide for changes in scope Provide for changes in duration
42 What is the consequence of a party failing to comply with the contract? 42
43 Failure to comply is a breach of contract Follow contractual procedures if an express term If an implied term, potential claim for damages
44 Stated damages for delay Stated damages for late completion allow definition of risk, if it is the only remedy for delay. If none stated, damages still apply. Liquidated damages (LDs) must be a genuine pre-estimate of the likely damage and not a penalty (under English Law).
45 What if works are to start prior to a contract being in place? 45
46 Who s problem is it? Who should resolve it? What can you do / ensure happens? It is the customer s problem. It may however, be in your interest to start. Resolution needs to be undertaken together. But you must ensure the basis upon which work is started should be defined in writing
47 One available option is... Letters of Intent Advantages: When customers / employers are faced with time constraints in negotiating full contract documentation To enable the start of the procurement process where there are long lead in times, the start of engineering or mobilisation Alternative to delaying contract commencement Offers protection to the contractor
48 Letters of Intent Difficulties: Sometimes unclear as to the extent of the parties commitment (i.e. entire project, initial works) Are they binding? Often, one party s intention towards another and no agreement. Sometimes the description of work to be performed or material to be procured is inadequate
49 Letters of Intent Required inclusions for agreement: A full description of the work to be done and a direction to start work The time period or end date that the work must be done by The payment to be made maybe a maximum The terms and conditions governing the work
50 Consider the following (exercise 2) 50
51 Part 1 Example Letter of Intent sent by main contractor to sub-contractor As you know from our meeting this morning, we have just received a letter of intent from [X] for the [Y] project, which includes your [equipment]. In our turn, we are pleased to confirm that it is our intention to enter into a sub contract with [you] for your [equipment], this will be generally be on the basis of the Sub Contract document that we discussed this morning (ref ) We also agreed that we would incorporate your final comments on the draft Sub Contract and that you would provide details of the Advance Payment Bond, ondemand Performance Bond and insurance that you can offer. The main contract commencement date is Please acknowledge receipt. Consider what this letter is saying and what your response would be
52 Part 2 Second example Letter of Intent sent by main contractor to sub-contractor This is to place a letter of intent (LOI) for [W] works to [X]... by [Y] strictly in accordance with the following terms and conditions and to give an authorisation to proceed immediately with the engineering, procurement and manufacturing in accordance with this requisition. Sections then cover matters including: Scope and Price Payments Terms Delivery Terms and Date Contract Documents Etc. Consider what this letter is saying and what your response would be
53 Setting up a project
54 Internal issues to be addressed Organisational At project level Inter company conflict Role of Project Manager Project definition Specified time, cost, quality Risk management Available resources What happens at DEME? 54
55 Do you? Have a process for transferring knowledge internally; from tender to implementation personnel? If so, what is discussed? Who is involved? Does this process repeat when more implementation personnel join the project? Does it repeat again prior to the offshore phase?
56 Do you? Review your contract to identify obligations and the need for project-specific systems? If so, what for? Notices Deliverables Discrepancies Securities and guarantees; insurance requirements Planning Payments Correspondence and reporting
57 Do you? Have a kick off meeting with the client? If so, what do you cover: Confirmation and clarification of scope or uncertainties Agreement of formats / procedures for reporting and coordination Communication routes / details How useful is a kick off meeting with the client when considering commercial strategy for a project?
58 Planning and Progress
59 The Planning process The planning process involves deciding What to do How to do it When to do it What resources to use
60 Planning and Programming A programme is a project management tool used to monitor and control the project It is not just a picture 60
61 61
62 Consider Should the contractor submit a programme (schedule) early in the implementation stage? On what basis should this programme (schedule) be put together? Should the submitted programme (schedule) be the real one? How should the programme (schedule) show sub-contracted works? Should the programme (schedule) be agreed? 62
63 The programme (schedule) should: Reflect contract requirements (the baseline) Show contract milestones Show intended sequence of works Incorporate any resource constraints Show the critical path 63
64 Critical path The Critical Path - Why it is important? Determines the earliest completion date for the project. Determines the earliest and latest completion dates for individual activities. Calculates float. Identifies which activities are important to the completion of the project. Identifies areas of risk. Identifies areas where action should be taken to reduce the project duration or recover from delays. The Critical Path - Shortest route between work and the pub
65 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping Complete Link Activity
66 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping Complete Critical Critical Activity Link
67 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping Complete Design Order concrete Order bricks Critical Critical Activity Link
68 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping Complete Design Order concrete Order bricks
69 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping 5 Complete 6 Design 7 Order concrete 8 Order bricks
70 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping 5 Complete 6 Design 7 Order concrete 8 Order bricks
71 Critical path analysis New Wall No Activity Time (days) Excavate the trench Pour the foundation Raise the brickwork Place the coping 5 Complete 6 Design 7 Order concrete 8 Order bricks Total Float
72 Exercise 3 planning 72
73 Activity No Description Duration 010 Apply hand brake Find spare wheel 2 min 030 Check that there is air in the spare wheel 1 min (if 020 & 030 are unsuccessful the whole sequence is obsolete) 040 Find something to chock wheels 2 min (safety should be planned into a project) 050 Chock car wheels 1 min 060 Find car jack & wheel brace 2 min 070 Loosen wheel nuts 6 min 080 Position jack 3 min 090 Raise car 4 min 100 Remove wheel nuts 1 min 110 Remove wheel 1 min 120 Install spare wheel 1 min 130 Replace wheel nuts 1 min 140 Tighten wheel nuts 2 min 150 Lower car 1 min 160 Final tighten wheel nuts 2 min 170 Remove jack 1 min 180 Stow jack, wheel brace & punctured wheel 2 min 190 Remove chocks 1 min 200 Wipe hands 1 min 210 Complete 0 Make a programme (schedule) for: When you are alone When you have a friend helping When you have two friends helping 73
74 When you are alone Activity Activity Description Duration Hour 1 Barchart for Wheel Change - Alone (35 minutes) No Minutes Apply hand brake 0 20 Find and remove spare w heel 2 30 Check air in spare tyre 1 40 Find something to 'chock' w heels 2 50 Chock car w heels 1 60 Find and remove jack & brace 2 70 Loosen w heel nuts 6 80 Position jack 3 90 Raise car Remove w heel nuts Remove w heel Install spare w heel Replace w heel nuts Tighten w heel nuts Low er car Final tighten w heel nuts Remove jack Stow jack, brace & punctured w heel Remove chocks Wipe hands Wheel change complete 0 Project : Wheel Change Date : 1 Jan 2015 Prepared by : Superplan Legend : Current Plan 74
75 When you are with a friend Activity Activity Description Duration Hour 1 Barchart of Wheel Change - With a Friend (26 minutes) No Minutes Apply hand brake 0 20 Find and remove spare w heel 2 30 Check air in spare tyre 1 40 Find something to 'chock' w heels 2 50 Chock car w heels 1 60 Find and remove jack & brace 2 70 Loosen w heel nuts 6 80 Position jack 3 90 Raise car Remove w heel nuts Remove w heel Install spare w heel Replace w heel nuts Tighten w heel nuts Low er car Final tighten w heel nuts Remove jack Stow jack, brace & punctured w heel Remove chocks Wipe hands Wheel change complete 0 Legend : Project : Wheel Change Driver Passenger Date : 1 Jan 2015 Prepared by : Superplan 75
76 When you are with two friends Activity Activity Description Duration Hour 1 Barchart for Wheel Change - With 2 Friends (24 minutes) No Minutes Apply hand brake 0 20 Find and remove spare w heel 2 30 Check air in spare tyre 1 40 Find something to 'chock' w heels 2 50 Chock car w heels 1 60 Find and remove jack & brace 2 70 Loosen w heel nuts 6 80 Position jack 3 90 Raise car Remove w heel nuts Remove w heel Install spare w heel Replace w heel nuts Tighten w heel nuts Low er car Final tighten w heel nuts Remove jack Stow jack, brace & punctured w heel Remove chocks Wipe hands Wheel change complete 0 Legend : Project : Wheel Change Driver Passenger Date : 1 Jan 2015 Prepared by : Superplan 2nd Passenger 76
77 Resource planning and critical path Activity Activity Description Duration Hour 1 Barchart for Wheel Change - With 2 Friends (24 minutes) No Minutes Apply hand brake 0 20 Find and remove spare w heel 2 30 Check air in spare tyre 1 40 Find something to 'chock' w heels 2 50 Chock car w heels 1 60 Find and remove jack & brace 2 70 Loosen w heel nuts 6 80 Position jack 3 90 Raise car Remove w heel nuts Remove w heel Install spare w heel Replace w heel nuts Tighten w heel nuts Low er car Final tighten w heel nuts Remove jack Stow jack, brace & punctured w heel Remove chocks Wipe hands Wheel change complete 0 Legend : Project : Wheel Change Driver Passenger Date : 1 Jan 2015 Prepared by : Superplan 2nd Passenger Critical path Driver Passenger 2nd Passenger 77
78 zoek blokkeer blokken de wielen Trek zoek het controleer los de handrem reserve druk in wielbouten Changing wheel zoek krik verwijder Plaats de krik de en wieldop krik auto verwijder verwijder plaats plaats wiel zet bouten wiel wiel reserve bouten vast trek plaats wielbouten wieldop laat auto verwijder berg krik, maak wiel is zakken krik de sleutel handen verwisseld verwijder blokken/st
79 Progress reporting Involves: Measuring actual progress Updating your plan or schedule for this actual progress Forecasting the impact in the future Making a report This has to be done in context of the contract with your client. For this, you will require details from your subcontractors but who should report in the context of their contract with you. 79
80 Contractors Progress Records & Monitoring The need for progress records & monitoring Accurate assessment of status of project Accurate & agreed records in case of dispute Record and keep results How deal with changes? Plot and compare results Analyse trends - predict the future Compare different trends Contractor may not want to declare the actual status of project Contractor may not want accurate & robust records confuse the issue
81 Consider The items the contractor should include in its progress reports. Should the contractor prepare different progress reports for internal circulation to that submitted to the customer? If so, what would be the differences? 81
82 Other required records These include, for example: Correspondence As-built, it s easier to do as the project advances Daily reports including weather and numbers of resources The reasons for decisions to move resources Effects of changes Consider how and where they are kept. Remember, for subcontract and main contract activities. 82
83 Financial issues
84 Common valuation options On a lump sum basis On a lump sum basis with schedule of rates On a lump sum basis with bill of quantities On a re-measurable basis with bill of quantities Cost plus What do each mean? 84
85 For lump sum contracts Only changed for adjustments allowed the contract (i.e. instructed variations and claims) No change resulting from a contractor revising its design 85
86 For re-measurement contracts Changed for adjustments allowed the contract (i.e. remeasurement, instructed variations and claims) Is there a difference between re-measurement and variations? Needs a method of measurement What does re-measurable on a net basis mean? 86
87 Interim payments 87
88 Common interim payments options Based on actual value of work undertaken Based on a pre-agreed schedule Based on achieving milestones 88
89 Issues to be addressed How calculate value of work undertaken? Front loading of schedule Effect of poor progress Variations how much and when? Completed/part completed Agreed/disputed Definition of each milestone is it clear or controllable? Achievement of milestone means what? 89
90 Timing of Payments Are these milestones clear? Controllable by the contractor? 10% of purchase price at order confirmation 10% of purchase price at order of main materials 10% of purchase price at mobilisation onsite 20% of purchase price at completion of section 1 20% of purchase price at completion of section 2 20% of purchase price at completion of all works onsite 10% of purchase price at issue of as builts 90
91 Issues to be addressed Remember, the client s primary obligation is to pay the contractor for the work undertaken. Late payments recourse? Adherence to contract procedures is essential Agreed format in the contract, or one to be agreed? Issue a request for payment or an invoice? Agreed procedure, or one to be agreed? Timing of request and / or invoice 91
92 No contract goes completely to plan
93 Indicators of potential problems-at tender Manner in which contract was secured The consultants and their roles The level of definition of the works Feasibility The procurement status Financial circumstances Political aspects Legal / contractual 93
94 Early days of project execution Drawings, information and Holds Approvals Relationships Consultants performance Access to works Local authority / government bodies Payment The manner in which early problems are dealt with Performance of nominated sub-contractors 94
95 The project under way Major design changes Policy changes by client Many variations Lots of day work Long information outstanding list Inability to procure long lead items Payment problems Valuation problems Interim payments not detailed Widening gap between application and certification Programme slippage Problems with sub-contractors Labour disputes Poor drawings Arguments about consultants responsibilities Acceleration Tone of letters Relationships 95
96 The Management of Change / Variations
97 Example areas of change Additional or omitted work Varied or modified work Substituted work Standard of work Physical or geological or marine conditions Time of year work carried out Location work is carried out New or revised drawings being issued Holds being placed on drawings Identity of owner representative/ consultants/ subcontractors/ vendors Identity of contractors personnel Late access to site Late issue of material So can affect scope and/ or schedule and/ or conditions 97
98 The customer can change The scope of work The location of the work / equipment within The timing and extent of access to site The amount of information available to the Contractor The period for drawing review / approval The period for responding to requests for information The extent of interference The amounts and timing of payment The supervisory staff or personnel The type of equipment or materials it provides 98
99 The contractor can change its: Method of working Sequence of working Coordination of the work processes Timing of undertaking the works Quality or standard of the permanent works Submission of required records and notices Workers, staff or supervision personnel Provision of access / facilities / materials to Subcontractors Design Use of Subcontractors 99
100 The subcontractor can change its: Method of working Sequence of working Timing of undertaking the works Quality or standard of the permanent works Submission of required records and notices Workers, staff or supervision personnel Manning levels Price of work Location of off site works Design 100
101 In Construction / Engineering projects, change means what? Something different from the contractual agreement. It can affect scope and/ or schedule and/ or conditions And can be initiated by: subcontractor s and/ or contractor s and/ or customer s. 101
102 Management of change Involves awareness that change will occur, recognition of the change itself and the subsequent actions - 5 steps 102
103 Management of change 1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects 103
104 Contracts contain obligations and responsibilities What if the obligations within the contract are unclear? Is there a contract clause for dealing with anomalies? Does it matter whether such a clause exists? 104
105 As an example The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be : [a] [b] [c] [d] [e] [f] [g] [h] The Contract Agreement (if any) The Letter of Acceptance The Letter of Tender The Particular Conditions These General Conditions The Employer s Requirements The Schedules, and The Contractor s Proposal and any other documents forming part of the Contract If an ambiguity or discrepancy is found the Engineer shall issue any necessary clarification or instruction. 105
106 Contracts contain obligations and responsibilities What if the obligations within the contract are unclear? Is there a contract clause for dealing with anomalies? Does it matter whether such a clause exists? Contracts also foresee / allow certain types of changes What types? 106
107 As an example The various types of foreseeable changes can include: 1) Failure of the client to give the contractor right of access to site. 2) Failure of the client to provide the contractor with free-issue materials. 3) The existence of unforeseeable physical conditions. 4) Suspension of part or all of the works. 5) Instructed variations. 6) The contractor proposes value engineering. 7) The whole or part use of Provisional Sums. 8) Force Majeure. 107
108 Allowable and foreseeable changes - issues What constitutes each type of change? Has the correct procedure been followed? Who has the authority to initiate each type of change? Are there any limitations or restrictions? 108
109 As an example In the case of instructed variations, further relevant details are often contained elsewhere and can include: 1) The definition of a variation (i.e. what can it comprise). 2) The communications rules (i.e. for the instruction). 3) The language for these communications. 4) Who has the authority to issue instructions that are a variation. 5) Who has the authority to receive instructions that are a variation. 6) Whether instructions need to be complied with; or if not, in what situations. 7) Variation valuation rules. 109
110 Management of change 1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects 110
111 Early identification is essential Be aware that changes will occur Appreciate that the correct contractual process may not always be followed Refer back to the baseline as a reference point Constantly monitor events, occurrences and communications to identify the cause or effect of change Drawings new ones, revisions and holds Progress updates Cost reports 111
112 Management of change 1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects 112
113 Contractual processes- issues What type of change has occurred? What is the correct procedure to be followed in this case? Written notification is often required. 113
114 Notices Notices must often be submitted to the client when a contractor is aware (or sometime worded as should have been aware ) of an event or circumstance that gives rise to entitlement to a possible claim for time and / or money. The notices are sometimes subject to restrictions on timing and can also be condition precedent to payment of additional money and / or award of more time. Notices must state the event and be clear it s notice of a potential claim Notices are for the benefit of the recipient. Notices cannot be refused. 114
115 Compliance with instructions Properly given instructions must sometimes be complied with without agreement of the time and money effect. There may be circumstances however, in which this is not the case. For example: If the materials and / or equipment cannot be procured. If it impacts on any overall guarantees that are part of the contractors obligations. 115
116 Management of change 1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects 116
117 Record Keeping Why? What type? Should they be agreed? How should they be maintained for future use? 117
118 Management of change 1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects 118
119 The effects of change Time / schedule Cost Value Direct Indirect 119
120 Valuation of change What type of change has occurred? Any procedural requirements for the valuation? Time frames for submission Time frames for response What is the correct method for valuation to be followed? Money value, cost or cost and profit? Time prospective or respective? Consider direct and indirect effects. 120
121 Under many contracts a variation is: Simply, an instructed change to the baseline scope of work. Valuation should include time impact as well as money impact. Valuation rules will normally apply money is value or cost plus profit; time either prospective or respective. And a claim? Simply, a request for reimbursement, from one party to another, of the money and / or time consequences flowing from an event that the contractor was not required to anticipate. Valuation rules will normally again apply money mainly cost or cost and profit; time either prospective or respective. 121
122 Money impact
123 Good Quantity Surveying Practice Use contract unit rates for valuing work of similar character undertaken under similar conditions Use contract unit rates as a basis for valuing work of a dissimilar character or undertaken under dissimilar conditions Do not use contract unit rates for quite different work. Consider cost plus reasonable profit. 123
124 Time impact Extension of Time claims
125 Extension of Time An Extension of Time does not mean an entitlement to additional money An Extension of Time relieves contractor liability to pay damages for delay An Extension of Time establishes a new completion date An Extension of Time allows the client to impose damages for any delay after the new completion date 125
126 Extension of Time - considerations Contract provisions define the basis of entitlement Delay to be on the critical path Ownership of float Effect of concurrency Choice of delay analysis technique 126
127 Delay analysis techniques Time extensions after completion of project (retrospective): Impacted As-Planned Time Impact Analysis Collapsed As-built As-planned v- As-built (plus Windows Analysis)
128 Retrospective or Actual Based Analysis Activity ACTIVITY A ACTIVITY B Original Completion ACTIVITY C Why Delay? 128
129 Delay analysis techniques Time extensions after completion of project (retrospective): Impacted As-Planned Time Impact Analysis Collapsed As-built As-planned v- As-built (plus Windows Analysis) Time extensions during currency of project (prospective) Impacted As-Planned Time Impact Analysis
130 Prospective or Model Based Analysis Activity ACTIVITY A ACTIVITY B Event Original Completion ACTIVITY C Estimate of Delay 130
131 Delay analysis techniques Time extensions after completion of project (retrospective): Impacted As-Planned Time Impact Analysis Collapsed As-built As-planned v- As-built (plus Windows Analysis) Time extensions during currency of project (prospective) Impacted As-Planned Time Impact Analysis
132 Impacted as-planned method The as-planned programme Activity A Activity B Activity C Activity D Activity E Completion
133 Impacted as-planned method Impact (add) the delaying event Activity A Activity B Activity C Activity D Activity E Completion Delaying event
134 Impacted as-planned method Reschedule the programme Activity A Activity B Activity C Activity D Activity E Completion Delaying event Impacted completion date (extension of time)
135 Impacted as-planned method Advantages Quick Simple to carry out and understand Transparent As-built programme not required Can demonstrate acceleration and mitigation Disadvantages Theoretical conclusions Requires a reasonable and robust as-planned programme Ignores actual progress Can hide concurrent delay
136 As-planned v as-built method The as-planned programme Activity A Activity B Activity C Activity D Activity E Completion
137 As-planned v as-built method Plot the as-built programme Activity A Activity B Activity C Activity D Activity E Completion
138 As-planned v as-built method Identify the employer delay events Activity A Activity B Activity C Activity D Activity E Completion
139 As-planned v as-built method Assess delaying effect of events Activity A Activity B Activity C Activity D Activity E Completion (extension of time) (contractor culpable)
140 As-planned v- as-built method Advantages Simple to understand Transparent Does not require a networked programme Relies upon actual progress Disadvantages Subjective assessment of critical delays Depends also on opinion Requires as-built programme
141 Delay analysis methods Which technique should be used? Consider: Contract conditions Records available Time available Applicable law Value of dispute Most practical and common sense approach in circumstances
142 Delay analysis techniques An X indicates the factual material that is required for a particular analysis in some cases there are alternatives, as indicated in the table: Factual material Type of analysis Impacted asplanned Time impact analysis As-planned programme without network Networked as-planned programme X Updated as-planned networked programme As-built records X or X and X Collapsed as-built X and X As-planned v asbuilt X or X and X or X From SCL Delay and Disruption Protocol, paragraph 4.13
143 Case Study The Delayed Project 143
144 Task Taking the position of the sub-contractor, contractor or client, your team has to prepare a presentation (max 5 minutes). This presentation is then to be explained to the other party, the presentation should include: Current status of the project and anticipated future programme. The factual background to the delay and the over-run on man-hours. The contractual situation. Your team will be required to present its case based upon an analysis of the technical, factual and contractual aspects. 144
145 Recovering time and / or money impact following a change 145
146 Recovery of entitlement Requires timely notice Require a well drafted document, showing: Contractual entitlement Narrative / story Cause and effect Apportionment Quantum of time or money Requires recognition of strengths and weaknesses
147 6 Steps for making an Extension of Time Claim 1. The contract 2. The records 3. The facts 4. The planning analysis 5. The Scott Schedule 6. The Statement of Claim 147
148 6 Steps for making an Extension of Time Claim Step 4 The planning analysis 1 STEEL FRAME Sub-Contractor A Planned Completion 2 WALLS & ROOF Main Contractor 3 SWITCH GEAR Sub-Contractor B 4 ACCESS GANTRY Main Contractor Delay 3 Inherent Design Fault Discovered plus 1 week s float 200T CRANE Main Contractor Approved Programme 148
149 6 Steps for making an Extension of Time Claim Step 5 The Scott Schedule Event No Description Brief Facts Clause Notice Ref Relevant Docs Activity Affected Period of Delay 1 Design Fault to Access Gallery The connection detail for the upper part of the gantry was identified as being underspecified on The engineer was immediately notified. A revised drawing was issued on and the works proceeded on (ii) Letter MOM Drg 201 rev A dated Progress report Act 4.AG 2 wks 149
150 6 Steps for making an Extension of Time Claim Step 6 The Statement of Claim In accordance with clause x, the contractor claims a 2 week extension of time arising from Event 1, notified on , all as particularised in the Scott Schedule and planning analysis. 150
151 ENTITLEMENT/OBLIGATION CAUSE GIVES RISE TO ENTITLEMENT/BREACH EFFECT [THE BURDEN OF PROOF]
152 Dispute resolution
153 Dispute avoidance 1. A clear, comprehensible contract The enquiry Scope Conditions Risks The negotiated agreement Shared understanding 153
154 Dispute avoidance the basics Have a commercial strategy Work procedures Agree records Encourage, submit and respond to notices Publish in compliance with the contract 154
155 Dispute resolution - generally Non-binding Negotiation us Mediation us with help Conciliation us with more help Mini trial us with even more help Expert determination them Adjudication them Binding Arbitration them Litigation them 155
156 Mark Castell Regional Managing Director Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici 156
157 General Principles of Contract Management Training to DEME (2016) Ernst Jan de Jong Senior Consultant
158 As managing contracts must be from conception to grave ; course agenda follows this. Days 1 and 2 Tendering Procurement and sub-contracting Construction contracts and letters of intent Setting up the project Planning & progress Financial issues Management of change Dispute resolution Day 3 FIDIC introduction Overview of differences between different standard forms Specific requirements of FIDIC contracts 2
159 Introduction to FIDIC 3
160 FIDIC (Fédération Internationale des Ingénieurs-Conseils) Federation of national associations of consulting engineers Based in Geneva Founded in 1913 with original founding members from France, Belgium and Switzerland UK joined 1949, USA joined 1958 Seen as international from 1970s and members from about 70 counties
161 FIDIC aims High ethical standards High professional standards Development of engineering profession in developing countries
162 FIDIC documents Standard Forms of Contracts since 1957 Guides to Standard Forms of Contracts Tendering procedures Model Agreements
163 Standard Forms of Contract 7
164 General principles of FIDIC Standard Forms of Contract - 1 Often known by their colour i.e. red, yellow, silver, blue. Historically based on Anglo Saxon type contracts. So, more reliance on documentation. Drafted for general use on an international basis. So, applicable law and ruling language needs to be stated. Modifications may be required in some jurisdictions. These should be included as revisions.
165 General principles of FIDIC Standard Forms of Contract - 2 FIDIC standard forms are generally accepted to be well-written and capable of being understood by users. They recognise there will be problems and potential for conflict and dispute on projects but set out processes to resolve them including: Placing a significant administrative burden on the parties and; Requiring the parties to deal with issues at the time.
166 The Current FIDIC Standard Forms of Contract 10
167 Current FIDIC Main Standard Forms of Contract Green (1999) Blue (2006) Red (1999) Pink (2010) Yellow (1999) Silver (1999) Gold (2008)
168 Current FIDIC Main Standard Forms of Contract Blue book. Dredgers Contract Red book. Construction Contract Green book. Short Form Pink book. MDB Construction Contract
169 Current FIDIC Main Standard Forms of Contract Yellow book. Plant and Design-Build Contract Gold book. DBO Contract Silver book. EPC/Turnkey Contract
170 When do you use which standard form? For dredging & reclamation works, the Blue book
171 Otherwise, which contract should be used? STRAIGHTFORWARD PROJECT? < $500K or < 6 months yes no no Little employer involvement no major unforeseen risks EMPLOYER DESIGN? no yes CONTRACTOR DESIGN All types of project with potential for high unforeseen risks yes Ongoing operation no yes yes
172 Overview of Current FIDIC Standard Forms of Contract 16
173 The Blue book 17
174 Generally Blue Book FIDIC produces the General Conditions (15 clauses) and does not anticipate separate Particular Conditions to be used (however notes for guidance are included). Appendix used to contain project-specific information. Rules for Adjudication, Adjudicator s Agreement and Forms of Securities are included. Agreement records offer and acceptance and signifies a contract has been entered into. Tenderers issued with Specification and Drawings
175 Blue Book General Conditions Clause 1 - General Provisions Clauses 2 to 4 - The Employer, the Engineer and the Contractor Clause 5 - Design by Contractor Clause 6 - Defined Risks Clauses 7 and 8 Time for Completion and Taking Over Clause 9 - Remedying Defects Clauses 10 and 11 Variations, Claims, Contract Price and Payments Clause 12 - Default Clauses 13 and 14 Risk, Responsibility and Insurance Clause 15 Resolution of Disputes
176 Generally Blue Book Clause 1 includes: Definitions (sub-clause 1.1). Priority of documents provisions (sub-clause 1.3). Applicable law and ruling language stated in Appendix (subclauses 1.4 and 1.5). Communications shall be in writing, transmitted using methods and issued to addresses stated in Appendix (subclause 1.5).
177 Generally Blue Book Employer has a limited role after contract is signed (clause 2). Engineer appointed as representative of Employer acting after contract is signed (clause 3). Engineer can delegate specific duties and authority to assistants (sub-clause 3.1). Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.2). Contractor appoints Contractor s Representative who is the only person authorised to receive instructions (sub-clause 4.2).
178 Generally Blue Book Responsibility of design (and fitness for purpose) with the Contractor for those parts specified in the Appendix (clause 5). Responsibility for Defined Risks with Employer (sub-clause 6.1). Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clause 7.1). Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clause 8.2). Period for remedying defects stated in the Appendix (subclause 9.1). No period for remedying defects for dredging works defined in the Appendix (sub-clause 9.2).
179 Generally Blue Book Only the Engineer (or delegated assistants) can vary the Works (sub-clause 10.1). Variations is a defined term. Early warning notices shall be issued by either Party as soon as they are aware of any delay or disruption to the Works or any possible claim for additional money (sub-clause 10.3). The claim procedure is to be followed when a Defined Risk occurs and Contractor incurs Cost or suffers delay (sub-clauses 10.4, 10.5). Valuation / payment to be as specified in the Appendix (subclause 11.1). The Engineer certifies the monthly interim payments to be paid to the Contractor (sub-clause 11.4). DAB appointed to resolve disputes on an ad-hoc basis (clause 15)
180 The Red book 24
181 Generally Red Book FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included). Appendix to Tender used to contain project-specific information. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included. Letter of Acceptance signifies a contract has been entered into. Tenderers issued with Specification, Schedules (includes Bill of Quantities) and Drawings
182 Red Book General Conditions Clause 1 - General Provisions Clauses 2 to 4 The Employer, the Engineer and the Contractor Clause 5 Nominated Subcontractors Clauses 6 and 7 - Staff, labour, plant, materials and workmanship Clause 8 Commencement, delays and suspension Clauses 9 and 10 Tests on Completion and Employer s Taking Over Clause 11 - Defects Liability Clause 12 Measurement and Evaluation Clause 13 Variations and Adjustments Clause 14 Contract Price and Payment Clauses 15 and 16 Termination and suspension Clauses 17 to 19 Risk, Insurance and Force Majeure Clause 20 Claims, Disputes and Arbitration 26
183 Generally Red Book Clause 1 includes: Definitions (sub-clause 1.1). Communications shall be in writing, transmitted using specific methods and to the addresses stated in Appendix to Tender. Allowable electronic systems of transmission also stated in Appendix to Tender (clause 1.3). Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4). Priority of documents provisions (sub-clause 1.5). Contract Agreement to be put into place after contract entered into if Letter of Acceptance used (sub-clause 1.6). Otherwise, signifies contract entered into.
184 Generally Red Book Employer has a limited role after contract is signed (clause 2). Engineer appointed as representative of Employer acting after contract is signed (sub-clause 3.1). Engineer can delegate specific duties and authority to assistants (sub-clause 3.2). Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.3). Contractor appoints Contractor s Representative who is the only person authorised to receive instructions (sub-clause 4.3).
185 Generally Red Book Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2). Provision for Tests on Completion (clause 9). Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clauses 10.1 and 10.2). Period for undertaking outstanding work and remedying defects stated in the Appendix to Tender (sub-clause 11.1). Performance Certificate issued at the end of Defects Notification period and confirms Employer acceptance of the Works (sub-clause 11.9)
186 Generally Red Book Works to be valued on a re-measurable basis (clause 12). Only the Engineer (or delegated assistants) can vary the Works (sub-clause 13.1). Variations is a defined term. The Engineer certifies the monthly interim payments to be paid to the Contractor (clause 14). Notice shall be issued by Contractor whenever it considers it to be entitled to more time and / or money and within 28 days of being aware (or should have been aware). Failure to comply means a loss of rights to claim (sub-clause 20.1). Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1). DAB appointed to resolve disputes (sub-clause 20.2).
187 The Yellow book 31
188 Generally Yellow Book FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included). Appendix to Tender used to contain project-specific information. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included. Letter of Acceptance signifies a contract has been entered into. Tenderers issued with Employer s Requirements
189 Yellow Book General Conditions Clause 1 - General Provisions Clauses 2 to 4 The Employer, the Engineer and the Contractor Clause 5 Design Clauses 6 and 7 - Staff, labour, plant, materials and workmanship Clause 8 Commencement, delays and suspension Clauses 9 and 10 Tests on Completion and Employer s Taking Over Clause 11 - Defects Liability Clause 12 Tests after Completion Clause 13 Variations and Adjustments Clause 14 Contract Price and Payment Clauses 15 and 16 Termination and suspension Clauses 17 to 19 Risk, Insurance and Force Majeure Clause 20 Claims, Disputes and Arbitration 33
190 Generally Yellow Book (as Red Book) Clause 1 includes: Definitions (sub-clause 1.1). Communications shall be in writing, transmitted using specific methods and to the addresses stated in Appendix to Tender. Allowable electronic systems of transmission also stated in Appendix to Tender (clause 1.3). Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4). Priority of documents provisions (sub-clause 1.5). Contract Agreement to be put into place after contract entered into if Letter of Acceptance used (sub-clause 1.6). Otherwise, signifies contract entered into.
191 Generally Yellow Book (as Red Book) Employer has a limited role after contract is signed (clause 2). Engineer appointed as representative of Employer acting after contract is signed (sub-clause 3.1). Engineer can delegate specific duties and authority to assistants (sub-clause 3.2). Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.3). Contractor appoints Contractor s Representative who is the only person authorised to receive instructions (sub-clause 4.3).
192 Generally Yellow Book Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1). Intended purpose must be specified in the Employer s Requirements as defined in sub-clause Treatment of errors in the Employer s Requirements provided for by the experienced contractor test (subclause 5.1). Resolution could be as a Variation or a claim. Procedure for the Engineer to review and / or approve submitted documents (sub-clause 5.2).
193 Generally Yellow Book (mainly as Red Book) Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2). Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12). Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clauses 10.1 and 10.2). Period for undertaking outstanding work and remedying defects stated in the Appendix to Tender (sub-clause 11.1). Performance Certificate issued at the end of Defects Notification period and confirms Employer acceptance of the Works (sub-clause 11.9)
194 Generally Yellow Book (mainly as Red Book) Only the Engineer (or delegated assistants) can vary the Works (sub-clause 13.1). Variations is a defined term. Works to be valued on a lump sum basis (clause 14). The Engineer certifies the monthly interim payments to be paid to the Contractor (clause 14). Notice shall be issued by Contractor whenever it considers it to be entitled to more time and / or money and within 28 days of being aware (or should have been aware). Failure to comply means a loss of rights to claim (sub-clause 20.1). Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1). DAB appointed to resolve disputes (sub-clause 20.2).
195 The Silver book 39
196 Generally Silver Book (as Yellow Book) FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included). Appendix to Tender used to contain project-specific information. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included. Letter of Acceptance signifies a contract has been entered into. Tenderers issued with Employer s Requirements
197 Silver Book General Conditions Clause 1 - General Provisions Clauses 2 to 4 The Employer, the Employer s Administration and the Contractor Clause 5 Design Clauses 6 and 7 - Staff, labour, plant, materials and workmanship Clause 8 Commencement, delays and suspension Clauses 9 and 10 Tests on Completion and Employer s Taking Over Clause 11 - Defects Liability Clause 12 Tests after Completion Clause 13 Variations and Adjustments Clause 14 Contract Price and Payment Clauses 15 and 16 Termination and suspension Clauses 17 to 19 Risk, Insurance and Force Majeure Clause 20 Claims, Disputes and Arbitration 41
198 Generally Silver Book (as Yellow Book) Clause 1 includes: Definitions (sub-clause 1.1). Communications shall be in writing, transmitted using specific methods and to the addresses stated in Appendix to Tender. Allowable electronic systems of transmission also stated in Appendix to Tender (clause 1.3). Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4). Priority of documents provisions (sub-clause 1.5). Contract Agreement to be put into place after contract entered into if Letter of Acceptance used (sub-clause 1.6). Otherwise, signifies contract entered into.
199 Generally Silver Book (different to Yellow Book) Employer has a limited role after contract is signed (clause 2). Employer s Representative may be appointed to act on Employer s behalf after contract is signed (sub-clause 3.1). [Prime duties restricted to monitoring progress, quality and testing] Employer or Employer s Representative can delegate specific duties and authority to assistants (sub-clause 3.2). Contractor shall comply with instructions in respect of the Works given by the Employer or Employer s Representative (sub-clause 3.4). Contractor appoints Contractor s Representative who is the only person authorised to receive instructions (sub-clause 4.3).
200 Generally Silver Book (different to Yellow Book) Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1). Intended purpose must be specified in the Employer s Requirements as defined in sub-clause Contractor generally responsible for the accuracy of the Employer s Requirements (sub-clause 5.1). Procedure for the Employer to review submitted documents (sub-clause 5.2).
201 Generally Silver Book (as Yellow Book) Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2). Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12). Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clauses 10.1 and 10.2). Period for undertaking outstanding wok and remedying defects stated in the Appendix to Tender (sub-clause 11.1). Performance Certificate issued at the end of Defects Notification period and confirms Employer acceptance of the Works (sub-clause 11.9)
202 Generally Silver Book (different to Yellow Book) Only the Employer (or delegated assistants) can vary the Works (sub-clause 13.1). Variations is a defined term. Works to be valued on a lump sum basis (clause 14). The Employer assesses the monthly interim payments to be paid to the Contractor (clause 14). Notice shall be issued by Contractor whenever it considers it to be entitled to more time and / or money and within 28 days of being aware (or should have been aware). Failure to comply means a loss of rights to claim (sub-clause 20.1). Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1). [Responsibility for nearly all risk with the Contractor] DAB appointed to resolve disputes (sub-clause 20.2).
203 Confirm your understanding 47
204 Exercise Low High Employer design Re-measurable Engineer Appendix Contractor design Lump Sum Employer s Representative Appendix to Tender Particular Conditions For each book: 1. Who has design responsibility? 2. What is the basis of valuation? 3. Who supervises the Works? 4. Where do you find the project specific data? 5. Arrange in the order of risk to Contractor (low to high).
205 Answer - 1 Design responsibility project specific Employer design Contractor design Contractor design Valuation project specific Re-measurable Lump Sum Lump Sum Engineer Engineer Engineer Employer s Representative Appendix Appendix to Tender Appendix to Tender Appendix to Tender Particular Conditions project specific Particular Conditions anticipated Particular Conditions anticipated Particular Conditions anticipated
206 Answer - 2 Low High But, where should the Blue Book be placed? It depends on the specific project
207 Some particular concepts of FIDIC standard forms 51
208 Formation of a contract 52
209 Formation of a contract FIDIC Blue Book Form of Agreement Printed form to avoid letters of intent. Step 1: Employer part completes for tender documents: 53
210 Formation of a contract FIDIC Blue Book Form of Agreement Step 2: Contractor completes offer as part of tender: 54
211 Formation of a contract FIDIC Blue Book Form of Agreement Step 3: Employer completes acceptance to effect a Contract: 55
212 Formation of a contract So, Employer signing the Acceptance part of the Agreement and the Contractor receiving a copy signifies the contract coming into full force Any changes from negotiations should be noted and initialled 56
213 Formation of a contract FIDIC Yellow Book Letter of Tender Contains statements including: We accordingly offer to design, execute and complete the Works and remedy any defects therein, in conformity with this Tender for the lump sum of.. We agree to abide by this Tender until [] and it shall remain binding upon us and may be accepted at any time before that date. If this offer is accepted, we will provide the specified Performance Security, commence the Works... and complete the Works within the Time for Completion. We guarantee that the Works will then conform with the Schedule of Guarantees. Unless and until a formal Agreement is prepared and executed, this Letter of Tender, together with your written acceptance thereof, shall constitute a binding contract between us. 57
214 Formation of a contract Employer Letter of Acceptance signifies the contract coming into full force Refer definition at sub-clause includes annexed memoranda Contract Agreement either follows, or used instead of a Letter of Acceptance 58
215 Design 59
216 Design Specification & Drawings According to Sub-clause 1.1.2, Specification includes the Employers requirements in respect of design to be carried out by the Contractor According to Sub-clause 1.1.3, Drawings are the Employers drawings of the Works
217 Design Employer s Requirements According to Sub-clause , ERs must specify (cannot imply) for each part of the works The purpose The scope The design Other technical criteria Note; satisfying the Employer s Requirements shown by successful Tests on Completion
218 Design Responsibility for errors in the Employer s documents Blue book - Sub-clause 5.2 states that Employer shall be responsible for Specification and Drawings Yellow book - Sub-clause 5.1 provides for a period for the Contractor to identify errors in the Employer's Requirements If any found within period, corrected and treated as Variation if it is deemed that an experienced contractor exercising due care would not have found it pre-tender submission. Under Sub-clause 1.9, if any found outside of period, becomes a claim if it is deemed that an experienced contractor would not have found it pre-tender submission.
219 Design Fitness for purpose Blue book sub-clause 5.2 provides an obligation that the Contractor s design under the contract (if any) shall be fit for the intended purpose to be inferred from the Contract Yellow book sub-clause 4.1 provides an obligation that the Works be fit for the purposes for which the Works are intended as defined in the Contract The obligation for fitness for purpose is more onerous that designing with due skill and care i.e. Suitability of end product versus design process Plus, responsibility for fitness for purpose cannot be passed to anyone else or insured
220 Design Fitness for purpose continued Yellow book sub-clause 4.1 also provides an obligation to provide all Works necessary for stability or for completion, or safe and proper operation of the Works Remember; satisfying Fitness for Purpose is shown by successful Tests on Completion
221 Contractor design submittals Yellow book Clauses 5.2 deals with submission of documents Yellow book provides for submission for review and/or for approval Blue book Clauses 5.1 deals with submission of design Blue book provides for submission for comment or rejection Note the detailed procedure. What s the difference between the Engineer's obligations?
222 Role of the Engineer 66
223 The Engineer Clause 3.1 states (blue book) The Engineer and any assistants shall exercise their duties and authority in a fair manner and in accordance with the Contract. Clause 3.1 states (yellow book) Except as otherwise stated in these conditions: Whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer.
224 The Engineer Clause 3.5 gives the exception Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. 68
225 Communication 69
226 Communication Clause 1.5 states (blue book) Communications for any matter shall be In writing In the language stated in the Appendix Sent by one of the methods stated in the Appendix Clause 1.3 states (yellow book) Communications for any matter shall be In writing Delivered by hand, mail, courier or one of the electronic means of transmission stated in the Appendix to Tender Clause 1.4 states (yellow book) The language for communications shall be that stated in the Appendix to Tender
227 Confirm your understanding 71
228 Exercise Assuming a longer duration FIDIC project, list with clause references: The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award The things that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award 72
229 Exercise - answers The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award: Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance. Sub-Clause 4.2 [Performance Security] states that the Contractor shall provide to the Employer Performance Security. Sub-Clause 4.3 [Contractor s Representative] provides for the Contractor to appoint a Representative who will have the authority to act for the Contractor (including issuing and receiving communications). A detailed time programme (and separate report) under sub-clause 8.3 [Programme]. If Sub-Clause 14.4 [Schedule of Payments] applies and the Contract does not contain a schedule of payments, the Contractor shall submit to the Engineer within 42 days of the Commencement Date, non-binding estimates of the expected payments during each quarterly period. If Sub-Clause 14.2 [Advance Payment] applies, the Contractor shall provide to the Employer an advance payment guarantee. Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer.
230 Exercise - answers The things that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award: Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance. Sub-Clause 2.1 [Right of Access to Site] says that the Employer shall give the Contractor right of access to, and possession of parts of the Site as stated in the Appendix to Tender. Sub-Clause 3.2 [Delegation by the Engineer] allows the Engineer to assign duties and / or delegate authority to Assistants; this would include authority to communicate with the Contractor on certain matters. Not less than 7 days notice of the Commencement Date (sub-clause 8.1). If Sub-Clause 14.2 [Advance Payment] applies, the Employer shall pay the advance payment in accordance with Sub-Clause 14.7 [Payment]. Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer.
231 Subcontracting 75
232 FIDIC requires a Contractor to obtain consent to sub-contract works Blue book Clause 4.3 Contractor shall not subcontract the whole of the Works. Contractor shall not subcontract any part of the Works without the consent of the Engineer. Yellow book Clause 4.4 Contractor shall not subcontract the whole of the Works. shall be responsible for the acts and defaults of any Subcontractors as if they were the acts and defaults of Contractor. shall not be required to obtain consent for suppliers of Materials, or a subcontract named in the Contract. The prior consent of the Engineer shall be obtained to other proposed Subcontractors. shall give the Engineer not less than 28 days notice of the intended date of commencement of each Subcontractor s work 76
233 Time Issues 77
234 Blue Book - Programmes Clause 7.1 Contractor shall start on Commencement Date. Shall proceed expeditiously and without delay. Shall complete within the Time for Completion. Clause 7.2 The Contractor shall submit a programme to the Engineer as stated in the Appendix. There is no requirement for agreement of the programme. Is the programme contractual?
235 Clause 8 programmes Clause 8.1 notice of Commencement Date Clause 8.2 Time for Completion Clause 8.3 Programme to be provided within 28 days of Notice to Commence detailed Clause 8.3 Engineer has 21 days to reject Clause 8.3 Contractor to proceed in accordance with it Clause 8.3 revised programmes to be submitted in various situations 79
236 Blue book progress reports No provisions What would you do?
237 Clause 4.21 progress reports Clause 8.1 notice of Commencement Date To be submitted monthly until completion of all work Comprehensive - shall include: a) Charts & descriptions of progress for each stage b) Photographs c) Manufacture report d) Contractor s personnel & equipment e) QA documents, test results etc f) Notices of claims g) Safety statistics h) Comparisons planned versus actual progress, risks and mitigation measures 81
238 Clause 8.6 rate of progress If, at any time: a) Actual progress is too slow to complete within the Time for Completion, and / or b) Progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3 other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time] 82
239 Clause 8.6 rate of progress continued then the Engineer may instruct the Contractor to submit a revised programme Unless the Engineer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and / or in the numbers of Contractor s Personnel or Goods, at the risk and cost of the Contractor If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer s Claims] pay these costs to the Employer, in addition to delay damages (if any) under Sub- Clause 8.7 below. 83
240 Valuation & Payments
241 Valuation Blue Book Options see Appendix: Payment on a lump sum basis Payment on a lump sum basis with schedule of rates Payment on a lump sum basis with bill of quantities Payment on a re-measurable basis with bill of quantities Cost plus 85
242 Valuation 1999 editions Payment on a re-measurable basis (but option for lump sum) Payment on a lump sum basis (but option for remeasurable) Payment on a lump sum basis
243 Blue Book Contract Price and Payments Clauses 11.1 and 11.2 refer Works valued as stated in the Appendix Any advance payment is subject to a guarantee and is progressively reduced as works proceeds Clauses 11.3 and 11.4 refer Interim payments subject to issue of Performance Security and evidence of insurance Contractor submits monthly Statement Engineer certifies amount within 28 days of receipt of Statement and Employer pays in same timeframe. Payments subject to retention 87
244 Blue Book Payments Clauses 11.5 and 11.6 refer Payment of retention for dredging and other works Clause 11.7 refers Final payment requires final account submission Clause 11.9 Entitlement to financing charges for late payments Clause 12.2 Default by Employer for failure to pay; or for Engineer failure to certify 88
245 Yellow Book Contract Price and Payments Clauses 14.1 and 14.2 refer Contract Price is lump sum (option for remeasurement) Any quantities are estimated but may not be measurable (see particular conditions) Any advance payment is subject to a guarantee and is progressively reduced as works proceeds First interim payment also subject to issue of Performance Security 89
246 Yellow Book Payment Procedure Clause 14.3 Contractor submits Statement at end of stated period 6 copies in approved form and including supporting details (including progress report) Clause Schedule of payments may apply. Payments may be adjusted for actual progress. Clause Payment for plant and materials may apply certain conditions attached Clause 14.6 Engineer issues Interim Payment Certificate within 28 days of receipt of Statement Certificate does not indicate acceptance or approval 90
247 Yellow Book Payment Procedure Clause 14.7 Employer pays within 56 days of receipt of Statement (different for advance payment) Clause Contractor entitled to interest for late payments without giving notice Clause 16.1 Engineer failure to certify or Employer failure to pay also gives rights for Contractor to slow down and / or suspend Works (notice needed) Clause 14.9 half retention release at issue of Taking Over certificate and passing Tests on Completion (plus success in the Tests after Completion if appropriate) Clause 14.9 remainder of retention release at expiry of Defects Notification Period unless still works to be done 91
248 Yellow Book Payment Procedure Clause Contractor issues Statement at Completion within 84 days of Taking Over certificate. Engineer certifies as Interim Payment Certificate Clause Contractor submits draft final statement within 56 days of receipt of Performance Certificate (issued under Clause 11.9 and confirms Contractor has met all obligations and works accepted) When agreed, Contractor issues Final Statement 92
249 Yellow Book Payment Procedure Clause At same time Contractor also issues discharge that amount is in full and final settlement Clause Engineer issues Final Payment Certificate within 28 days of receipt of above Clause 14.7 Employer pays within further 56 days 93
250 Variations
251 Variations The Engineer under clause 10.1: Has the power to instruct Variations to limits in Appendix. Cannot instruct omissions from the Works if then done by others. Has power to reach agreement on valuation. May request quotation in advance (time and cost). May instruct without agreement of consequences. 95
252 Variations The Contractor under clause 10.1 (& 10.5): Must notify Engineer if instruction requires: Mobilisation of extra major dredging equipment. Early mobilisation of planned major dredging equipment. Shall comply with instructions from the Engineer (see also clause 3.2) unless the above occurs and no agreement on time and cost consequences. Shall submit a build up of time and cost consequences, if not agreed, within 28 days of instruction. 96
253 Valuation of variations Clause to include time and cost consequences. Clause financial valuation: An agreed lump sum. Rates in the Contract. Using the rates in the Contract as a basis. Appropriate agreed new rates or as considered appropriate by the Engineer. If instructed, at day work rates. 97
254 Variations Clause Can no longer be instructed after issue of the Taking Over Certificate 2. New procedure whereby Contractor may be requested to indicate effect on programme and value of works of a proposed change 3. Contractor has limited rights to object to a variation, but can be over ruled 4. Timely notice to claim additional payment is condition precedent to payment 98
255 Variations Clause 13.1 does not set out the types of changes that can be made i.e. authority for variations A variation is defined (Clause 1) as a change to the Employer s Requirements 99
256 Procedure Clause 3.3 states that the Contractor must comply with all instructions from the Engineer Clause 13.1 does stipulate limited reasons for not doing so Clause 13.3 also provides for a Contractor s proposal to be requested prior to an variation being instructed 100
257 Valuation of variations Adjustments to the Contract Price are to be agreed or determined by the Engineer Reasonable profit is to be included 101
258 Claims
259 Clause 10.6 Employer s claims Employer to submit particulars to the Contractor and Engineer No criteria regarding timing of issue is given Engineer to check the Employer s submission, consult with Parties and if possible agree the amount. Otherwise, Engineer shall determine Can deduct monies due 103
260 Clause 2.5 Employer s claims Employer or Engineer to give notice and particulars to the Contractor To be given as soon as possible after being aware of the event or circumstance that gives rise to claim Engineer to agree / fairly determine (clause 3.5) Can deduct monies due 104
261 Employer s claims Clause 2.5 provides for and sets out procedure Claims include: Electricity, water & gas consumption clause 4.19 Equipment & free issue materials clause 4.20 Rejection / retesting clause 7.5 Failure to do remedial work clause 7.6 Revised methods cause additional costs clause 8.6 Delay damages clause 8.7 Failure to pass tests on completion clause 9.4 Extension to Defects Notification Period clause 11.3 Failure to insure clauses 18.1 /
262 Clause 10.3 Early Warning Either Contractor or Employer to notify other as soon as they are aware of circumstance that gives rise to entitlement. Parties to minimise effects. Entitlement to additional payment / extension of time limited to what due had Contractor given prompt notice and taken reasonable steps. 106
263 Contractor s claims Clause 10.4 Clause 10.4 Clause 10.5 Clause if Cost caused by the Defined Risks, entitlement to recover, subject to any more specific provision. - if necessary to change Works, dealt with as a Variation. - itemised make-up to be submitted within 28 days of any event that gives rise to entitlement. - Engineer to check, consult and agree time and cost effects, or determine. 107
264 Clause 6.1 Defined Risks Defined Risks include: Use or occupation by the Employer except as specified. Design by the Employer / Engineer. Any unforeseeable operation of the forces of nature. Any failure by the Employer or Engineer. Any unforeseeable physical obstructions or conditions. Adverse climatic conditions (refer to Appendix for baseline). Delay or disruption caused by a Variation. 108
265 Clause 20.1 Contractor s claims Notice is mandatory and to be submitted within 28 days of being aware of an event or circumstance that gives rise to entitlement Notice must be worded so the potential for a claim is recognised Notice is condition precedent to additional payment / extension of time 109
266 Clause 20.1 Contractor s claims Records shall be kept, Engineer permitted to view Fully detailed claim to be submitted within 42 days of any event or circumstance that gives rise to entitlement including full supporting particulars Further claims to be submitted on a monthly basis if on-going Late submission of details may prejudice Contractor s position Final submission within 28 days of end of effects 110
267 Clause 20.1 Contractor s claims Engineer to respond with 42 days of submission May request further particulars but must respond on principles of claim Interim payments allowed for amounts substantiated Engineer to agree / fairly determine (clause 3.5) 111
268 Contractor s claims Clause 20.1 provides for and sets out procedure Claims include: Delayed drawings or instruction clause 1.9 Late access or possession clause 2.1 Setting out reference point errors clause 4.7 Adverse unforeseeable conditions clause 4.12 Extension of Time clause 8.4 Interference with tests clause 10.3 Variations clause 13.3 Change in law clause 13.7 Force Majeure clause
269 FIDIC Exercise identifying the changes 113
270 Ground condition claims 114
271 Site data Blue book sub-clause 2.3 Employer to provide all data in Employer s possession relevant to the execution of the Works Yellow book sub-clause 4.10 Employer to provide all relevant data in Employer s possession In both books, Contractor is responsible for interpreting the data and for inspecting Site and making enquiries to the extent practicable (taking account of time and money
272 Blue Book Clause 2.3 Employer to make available all relevant site data. Clause 2.3 Contractor responsible for interpretation and inspecting Site. Clause 6.1 One of the Defined Risks is physical obstructions or conditions, which were not reasonably foreseeable by an experienced Contractor, and; The Contractor immediately notified to the Engineer See also Clause 10.3 Early Warning Comply with instructions Submit claim in accordance with clause
273 Yellow Book Clause 4.10 Employer to make available all relevant site data. Clause 4.10 Contractor responsible for interpretation. Clause 4.10 Contractor deemed to the extent that it was possible to have identified all risks etc. Clause 4.11 sufficiency of tender 117
274 Yellow Book Clause 4.12 Unforeseeable (refer clause ) physical conditions and obstructions. Notice to be given if adverse conditions met that are considered to be Unforeseeable Continue with Works and comply with instructions Submit claim in accordance with clause 20.1 Engineer to agree / fairly determine (clause 3.5) Money adjustment is Cost and Engineer to take account of more favourable conditions elsewhere 118
275 Extension of Time claims
276 Clause 7.3 Extension of Time Entitlement if delay caused by the Defined Risks Contractor to submit an application Engineer to consider supporting details, consult and extend time as appropriate. 120
277 Clause 8.4 Extension of Time Clause Lists grounds for entitlement Yellow Book (a) to (e) Clause Refers to clause 20.1 i.e. notice, submissions of details Clause 8.4 entitlement if completion for Taking Over is delayed No provision for Engineer to unilaterally award Extension of Time 121
278 Blue Book - Completion Clause 8.1 Notice of Completion Clause 8.2 Taking Over Certificate Clause Taking Over Certificate for Part of the Works
279 Completion Clause 8.1 Notice of Commencement Date Clause 8.2 Time for Completion Clause 9.1 Contractor s Obligations for Tests on Completion including provision of As builts and O & M manuals Clause Taking Over Certificate for the Works and Sections Clause Taking Over Certificate for Parts of the Works Clause 12.1 Contractor s Obligations for Tests After Completion 123
280 Clause 7.4 late completion Amount as agreed between the parties Subject to reduction for partial completion Whether Employer has suffered damage is not relevant Comprises Contractor s entire liability for delay 124
281 Clause 8.7 delay damages Amount as agreed between the parties Not subject to reduction for partial completion Whether Employer has suffered damage is not relevant Refers to sub-clause 2.5 (procedure) Comprises Contractor s entire liability for delay 125
282 Defects Notification Period 126
283 Period for Notifying Defects Clause 9.1 Completion of outstanding work and remedying defects Period stated in Appendix 127
284 Defects Liability Clause 11.1 Completion of outstanding work and remedying defects Period stated in Appendix Clause 11.9 Performance Certificate 128
285 Dispute resolution
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