Inform Practice Note #8

Inform Practice Note #8 August 2008 (Version 2 - October 2008) Remunerating Professional Service Providers cidb s Inform Practice notes provide guidance and clarity in achieving client objectives in construction procurement and delivery. Practice notes inform clients and practitioners on how to embrace best practice and how to deal with issues that may arise. They are aligned with, but do not replace regulation. Content 1. Introduction 2. Lump sum fees 3. Time charge fees 4. Percentage of the cost of construction fee 5. Target cost contract 6. Guaranteed maximum price contract 7. Term service contract 8. Expenses 9. Standard pricing strategies provided in Standard forms of contract 10. A practical approach to procuring services relating to construction works on a competitive basis 2 2 3 5 8 9 9 10 10 11 Synopsis: Professional service providers (PSPs) may be remunerated for their services in a number of ways. The selected method of payment is dependent upon how well the scope of services is defined. Frequently such providers are paid time charges and expenses or a percentage of the construction works cost where the percentage varies for each discipline. Tender assessment schedules need to be included in tender documents to enable tenders based on such methods of payment to be compared and evaluated. This practice note presents an overview of the different methods that are used to remunerate professional service providers and indicates, where relevant, how such methods may be reduced to a comparative offer to enable tenders to be compared. It also indicates which payment methods are provided in each of the standard forms of contract for professional services that are included in the cidb Standard for Uniformity in Construction Procurement and provides a practical approach to the procuring of services relating to construction works on a competitive basis. Fee competition amongst professional service providers who are competent to provide a service is not about fee cutting. It is all about competitive advantage those who have extensive experience or context specific knowledge require less time to perform the service than those that don t. 1

cidb Standard Conditions of Tender comparative offer means the tenderer s financial offer after the factors of non-firm prices, all unconditional discounts and any other tendered parameters that will affect the value of the financial offer have been taken into consideration. F.3.11.2 Scoring Financial Offers Score the financial offers of remaining responsive tender offers using the following formula: N FO = W1 x A where: N FO = the number of tender evaluation points awarded for the financial offer. W 1 = the maximum possible number of tender evaluation points awarded for the financial offer as stated in the Tender Data. A = a number calculated using either formulas 1 or 2 below as stated in the Tender Data. Formula Comparison aimed at achieving 1 Highest price or discount 2 Lowest price or percentage commission/fee Example of an activity schedule Option 1 Option 2 A = (1+ (P-Pm)) A = P/Pm Pm A = (1+ (P-Pm)) A = Pm/P Pm where: Pm = the comparative offer of the most favourable tender offer. P = the comparative offer of tender offer under consideration. Stage Activity # Activity description Price (Rand) 1 1.1 1.2 1.3 2 2.1 2.2 2.3 3 3.1 3.2 4 4.1 4.2 Total 1. Introduction Professional service providers (PSPs) are usually paid for their services on the basis of one or more of the following: A lump sum for a completed activity or task; Time charge; A percentage of the cost of construction; and/or Expenses. The contract documents need to: Clearly state the basis upon which payment is to be made; and Document the agreed lump sums, time charges, percentage and expenses, as relevant. Professional service providers need in a competitive selection process to tender lump sums, time charges, a percentage, expenses or a combination thereof, as relevant. Employers and their agents in turn need to be able to reduce these tendered parameters to a comparative offer to enable an equitable and fair comparison to be made. 2. Lump sum fees Lump sum fees are due whenever an activity (or an agreed output or deliverable) is completed. The tenderer takes the risk of being able to provide the service at the prices in the activity schedule (lump sums). The employer, on the other hand, carries some of the risks associated with changes in the scope of work necessitated by events and circumstances beyond the professional service provider s control. This method of payment may only be used where the scope of work at tender stage: Is fully known and is capable of being priced and programmed; or Contains the employer s objectives and sufficient information to enable the tenderer to develop a scope of work and a programme for the project which may then be priced. 2

The activity schedule may be developed by either the employer or the professional service. Lump sum (or activity based) contracts are easy to administer as they are linked to the completion or an activity. The total of prices (sum of all lump sums) may be readily used to compare tender offers. It is advisable to require tenderers to submit a schedule containing the names of staff proposed for the project together with their anticipated time inputs and applicable time charges. This will enable the reasonableness of the total of prices to be established and provide the basis for establishing additional fees due in the event that the scope of work is changed. Alternatively, the reasonableness of the total of fees can be benchmarked against an applicable guideline tariff of fees published by a built environment council (see percentage fee). 3. Time charge fees Time charge fees are based on agreed hourly, weekly or monthly rates for staff named in the contract or defined categories of staff and the time worked by such staff. Fees are usually due on an agreed date every month. The financial risk is largely borne by the employer who has complete flexibility in determining the precise scope of work. The professional service provider has little incentive to contain costs. This method of payment is commonly used where it is difficult to define the scope and length of services, e.g. when work is done on an ad hoc basis or has a high research or development component. Time-based payments need to be closely monitored and administered to ensure that the assignment is progressing satisfactorily and payments claimed present value for money. A tender assessment schedule needs to be drawn up to enable tendered time charge fees to be compared. Parameters such as assumed time periods and total annual cost of employment should be stated in this schedule to allow a comparative price for tender evaluation purposes to be calculated. The Guidelines on hourly Fee Rates for Consultants as published by the Department of Public Service and Administration, or if relevant, guideline tariff of fees or indicative time based fee rates published by a statutory council, should be used as a benchmark to evaluate the offered time charge fees and to determine the reasonableness thereof. 3

Tender Assessment Schedule The rates tendered in the Pricing Data shall be reduced to a common base for comparative purposes as follows: 1 2 3 4 5 Tendered rate, R/h Assumed no of hours Total price (col 3 x col 4) 1 Lead professional/discipline specific team leader 1.1 Professional architect 300 1.2 Professional Engineer/Engineering Technologist 200 (civil) 1.3 Professional Engineer/Professional Engineering Technologist (structural) 275 2 Professional staff with adequate expertise and relevant experience who carry direct technical responsibility for one or more specific activities related to a project. 2.1 Professional architect/senior architectural 1 200 technologist 2.2 Professional Engineer /Engineering 800 Technologist (civil) 2.3 Professional Engineer/Professional Engineering Technologist (structural) 1 100 Subtotal A 3 Salaried professional or technical staff (all disciplines) with adequate expertise and relevant experience performing work of an architectural or engineering nature with direction and control provided by any person contemplated in categories 1 or 2. Tendered cents per hour for every R100 Assumed total annual cost of Assumed rate, R/h Assumed number of hours Total price (col 4 x col 5) total annual cost of employment employment (col 2 x col 3)/100 R250 000 3 500 Subtotal B 4 Site staff (all disciplines) with adequate expertise and relevant experience who are responsible for construction monitoring activities on a full time basis. Factor Total annual cost of employment for Total price duration of contract R650 000 Subtotal C Subtotal A R... Subtotal B R... Subtotal C R... Total (comparative price) for tender evaluation purposes R... Note: The Department of the Public Service Administration s Guidelines for the hourly fee rates are accessible from the website www.dpsa.gov.za (click on Documents archives; click on all documents and scroll down to Guidelines on Hourly fee rates for Consultants). 4

4. Fees based on the cost of construction works Structural engineering services partaining to building projects (normal services) Cost of the Works Basis of Fee Calculation For projects up to R340 000 A Lump Sum or on a Time Basis Range of brackets Where the cost of the works exceeds But does not exceed Primary Fee Percentage R340 000 R910 000 R42 500 12,5% on the balance over R340 000 R910 000 R4 570 000 R113 750 10,0% on the balance over R910 000 R4 570 000 R9 700 000 R479 750 10,0% on the balance over R910 000 R9 700 000 R22 200 000 R941 450 8,0% on the balance over R9 700 000 R22 200 000 R1 941 450 7,0% on the balance over R22 200 000 Guideline fees published by the various Built Environment Councils (f=1,0) Percentage fee (%) 16 14 12 10 8 6 4 2 0 1 10 100 1000 Project stages Architect Quantity surveyor Engineer 2 Engineer 4 Cost of works (R million) Construction project manager Engineer 1 Engineer 3 No SACAP stages ECSA stages SACPMP 1 Appraisal and definition Report stage (time basis) Project initiation and briefing 2 Design concept Preliminary design stage Concept and viability 3 Design Development Design and tender stage Design development 4 Technical Documentation Working drawing stage Bid documentation and procurement 5 Contract administration and inspection Construction stage Construction and contract administration 6 Project close out A fess can be based on the estimated or actual cost of construction works. Guideline tariffs of fees are published by the Engineering Council of South Africa, the South African Council for the Architectural Profession, the South African Council for the Quantity Surveying Profession and the South African Council for the Project and Construction Management Professions for work performed by persons registered with such councils. All these councils base their guideline tariffs on the following formula: Total fee payable = (PF + SF) x f where: PF = primary fee (tabulated amount in Rands based on the range within which the cost of construction works falls SF = secondary fee (tabulated percentage based on the range within which the cost of construction works falls multiplied by the portion of the cost of construction works above a stated value or the cost of construction works divided by 100) f = ECSA: factor by which fee is to be multiplied to reflect nature and complexity of the work, e.g. rural roads, alterations to existing works, reuse on duplicated works, = SACQSP: appropriate percentage, apportioned in relation to the service which reflects the nature and content of the required service = SACAP: adjustment for partial service, repeated buildings, reuse of drawings and related documents on other projects etc. = SACPCMP: factor to make fees more appropriate 5

Guideline tariff of fees The following guideline tariff of fees are published by statutory councils in South Africa Engineering Council of South Africa South African Council for the Architectural Profession South African Council for the Project and Construction Management Professions South African Council for the Quantity Surveying Professions Guideline Scope of Services and Tariff of Fees for Persons Registered in terms of the Engineering Professions Act, 2000. Recommended Tariff of Fees in Respect of Services Rendered by a Person Registered in terms of Section 19(2) of the Act in Private Consulting Practice. Guideline Scope of Services and Tariff of Fees For Persons Registered in terms of the Project and Construction Management Professions Act, 2000. Tariff of Professional Fees. These guideline tariff of fees have generally been designed on the following assumptions: The client appoints each discipline or sub-discipline separately or in the case of multidisciplinary services, the fees for each discipline are calculated separately. There is no adjustment to the fee due to scope changes as the final cost of construction reflects the changes in scope made during the design and construction of the works. The contracting strategy that is employed is the design by employer strategy i.e. the contractors is not responsible for the design of the permanent works. A limited number of standard factors can be applied to a basic fee to take account of the nature and complexity of different types of work. The work flow follows prescribed project stages. Generic scopes of services are required to implement the stages, which in some instances are based on the use of a particular form of construction works contract. These guideline fees are not really designed for the award of contracts based on fee competition as: Tenderers can at best only tender a discount or a surcharge against a particular scale provided that the f factors are specified in the tender documents; and Tender offers can only be reduced to a comparative offer in multidisciplinary contracts provided that a breakdown of the estimated construction costs associated with each discipline is provided. The fee payable, expressed as a percentage of the total cost of works reduces as the cost of works increases. Percentage fee (%) Guideline percentage fees published by the various Built Environment Councils (f=1,0) 16 14 12 10 8 6 4 2 0 1 10 100 1000 Cost of construction works (R million) The fee due at any point in time is usually a percentage of the total fee payable, in proportion to the stage of services that has been completed. This method of payment is commonly used to pay professional services providers for their services where the scope of work is ill defined or the scope of services and project definition at tender stage is very broad. It allows the professional service provider to develop the scope of work as the project unfolds. 6

Tender Assessment Schedule The parameters tendered in the Pricing Data shall be reduced to a common base for comparative purposes as follows: Normal services The estimated cost of the works, excluding VAT equals R1,5 million Percentage fee = 10 x f x C -0,1 = 10 x.. x (1,5) -0,1 =.. where C = cost of construction works in millions of Rand, excluding VAT f = factor by which the percentage fee is to be multiplied to reflect nature and complexity of the work or the content of the required service (or both). Fee = Percentage fee x R 1 500 000/100 =. x R 1 500 000/100 = (subtotal 1) Additional services Provide level 4 construction monitoring service: R../ month x 15 months (subtotal 2) Expenses Description Unit Quantity Rate (Rand) Printing: size A0 No 100 Printing: size A1 No 100 Printing: size A2 No 1 000 Printing/copying: No 5 000 size A4 (reports and tender documents only) Compilation and No 50 binding of reports/ tender documents, books of drawings Subtotal Amount (Rand) Summary: Subtotal 1 R... Subtotal 2 R... Subtotal 3 R... Total (comparative price) for tender evaluation purposes R... It should be noted that: This method implicitly lacks incentives to produce an economical design or other service; The cost of construction is largely a function of the market and bears no relation to the cost of professional services; and The final cost of construction (and therefore the final fees) is not established until after the construction is complete, whilst most professional costs are expended much earlier and even before construction starts. There are a number of ways in which tenderers may tender a percentage fee, including the tendering of: Option 1: a percentage fee in relation to the final cost of the construction works contract Option 2: a percentage fee adjustment from a published guideline tariff of fees Option 3: the factor to be applied to the primary and secondary fee provided for in a published guideline fee Option 4: a factor applied to a standard formula which enables the fee to be calculated for a particular cost of construction Each of these options has merit in particular applications. Option 1 allows professional service providers in multi-disciplinary projects to tender a single percentage to cover all fees applicable to the project. This option not only enables comparisons to be readily made when tenders are evaluated, but also simplifies the calculation of fees due. Option 1, however, does not compensate the client or the professional service provider should the final cost of construction works be significantly different from the estimate, if any, provided at tender stage since the percentage is fixed and does not vary in proportion to the value of the construction works. A tender evaluation schedule will need to be developed and included in the returnable documents for tender evaluation purposes where Option 2 and Option 7

Target cost (initial) Target cost concept Target cost (final) adjusted for variations in the scope of work PSP s final cost 3 are used in the procurement of multidisciplinary services. An assumed breakdown of the costs of works relating to each discipline should be included in such a schedule so that a total fee for comparative purposes may be calculated. The calculations to arrive at a fee are laborious are usually require a through understanding as to how the tariffs are derived. Rand PSP s Pain (share of cost overrun) PSP s Gain (share of savings) The following formula produces a curve with a similar shape to those used to develop the guideline tariff of fees published by the various built environment councils. Percentage fee = 10 x f x C -0,1 where C = cost of construction works in millions of Rand, excluding VAT. The client may require the professional service provider to assume all risk relating to cost overruns i.e. require that the PSP assume 100% of the pain. This approach may result in the PSP taking a conservative approach to the setting of the target. If the percentage fee is multiplied by a factor f to reflect the nature and complexity of the work or content of the required service (or both), a percentage fee can readily be arrived at. The use of the aforementioned formula multiplied by an f factor (Option 4) compensates for significant differences between the final cost of construction works and that provided at tender stage and obviates the need for breaking down the costs of work relating to each discipline. It also only requires that an f factor be tendered. Consideration should be given to capping fees payable when estimates of construction works are developed at the time that the concept report is finalised. The percentage fee should be based on the estimated cost of construction and only adjusted should the actual construction cost be less than the estimated cost. Alternatively, the cost of construction should be the total of the prices at award of all construction works contracts excluding VAT and: Any amount provided for in the contracts for the performance of work or services that are unforeseen and cannot be specified at the time the contract was concluded; Provision for price adjustment for inflation; or Other provisions of a budgetary nature. 5. Target cost contract A target cost is agreed by the employer and the professional service provider before the work commences. (The professional service provider may be required to tender a target cost at tender stage. Alternatively, he may be required to negotiate a target after 8

the award of the contract once preliminary services have been performed on a time charge basis to fully scope the project or to prepare a concept report for the project.) The professional service provider is paid for services performed on a time charge basis (sum of the products of each of the applicable staff charges multiplied by the total time appropriate to that rate spent in providing the services) and is paid his share of the difference between the final cost of the services and the target cost, adjusted for any changes in the scope of work, in terms of a pain (share of cost overrun) and gain (share of savings) formula that is set out in the contract. The target cost is increased or decreased whenever the employer changes the scope of work. The target cost change is based on the impact that such changes have on the cost of the service. The target cost is, however, not reduced when the professional service provider proposes a change in the scope of work which is acceptable to the employer. A target cost contract is accordingly a contract in which the financial risks are shared by the employer and the professional service provider in agreed proportions. It provides an incentive to professional service providers to minimise time charges and depending upon its formulation, may ease the pain on professional service providers where cost overruns occur or the target is difficult to establish with certainty. It also provides an incentive to the client to support the professional service provider in the performance of his or her service and an incentive to the professional service provider to eliminate unnecessary work. This method is used when: Fairly good estimates of price can be made at tender stage; or The design concept has been developed after the award of a contract to the professional service provider. The adjustment of the target for changes in scope allows the impact of such changes to be readily taken into account. The NEC3 Professional Service Contract defines: A Task as work within the services which the Employer may instruct the Consultant to carry out within a stated period of time. Task Order as the Employer s instruction to carry out a Task. Tender assessment schedules will be required to reduce tenders to a comparative basis at tender stage. Where the tenderer is required to tender a target cost, the target cost and the time charges need to be considered and combined in the assessment sheet as changes in the scope of work will be assessed on the basis of time charges and these charges will determine the amount paid to the professional service provider. 6. Guaranteed maximum price contract A guaranteed maximum price contract is one in which the professional service provider is paid time charges and expenses up to a ceiling price. In this arrangement, the professional service provider is at risk should the total time charges exceed the ceiling price. 9

There is no incentive in a guaranteed maximum price contract for the professional service provider to offer the client a savings in the provision of the service. 7. Term service contract A term service contract is one in which various items of work are priced as a lump sum or stated to be on a time charge basis. These parameters form the basis for the pricing of a task which the employer requires when the professional service provider is issued with a task order. In a term service contract: The professional service provider is at risk of being able to perform the instructed tasks at the agreed rate or staff rates; and The employer retains control over the individual tasks that are to be carried out. 8. Expenses Professional service providers may not at the time of tender be able to forecast and price some of their expenses or costs. As a result, the contract may make provision for the payment of such items separately from the fee. Recoverable expenses and costs include those relating to the production and reproduction of documentation, maps, models, presentation materials and photography requested by the Employer, travelling, accommodation, payments made for specialised services and studies in the provision of the service and the provision of staff to verify that the works are being completed in accordance with the requirements of the contract, that the designs are being correctly interpreted and that appropriate construction techniques are being utilised (construction monitoring services). Expenses may be paid on the basis of invoiced amounts from service providers or suppliers, provided that such amounts are at open market rates, or at the applicable rate stated in a published document e.g. the National Department of Public Work s document entitled Rates for Reimbursable Expenses as published on their website (www. publicworks.gov.za) or the Schedule of Disbursements published on the ECSA website (www.ecsa.co.za). Suitable markups are often allowed on such expenses to compensate the professional service provider for uncovered costs. Alternatively, professional service providers may be required to tender rates for expenses, in which case, assumed quantities should be provided in a tender evaluation schedule to establish a common base for comparative purposes. 10

9. Standard pricing strategies provided for in Standard forms of Contract Standard NEC3 Professional Services Contract contracting options The standard contracting options are: Option Comments A Priced contract with activity schedule Lump sum priced contract in which the risks of being able to provide the service at the agreed prices in the activity schedule are largely borne by the Consultant. The Employer carries some risk through the compensation event procedures. Only used when the scope of work at tender stage is fully known and capable of being priced and programmed. C Target contract Target contract in which the financial risks are shared by the Employer and the Consultant in agreed proportions. Adjusting the target share as between Employer and Consultant will vary the risk between one principally carried by the Employer to one principally carried by the Consultant, and to any stage in between those extremes. Used when fairly good estimates of scope and price can be made at tender stage. Also used when the scope of work is finalised after some initial work is undertaken in terms of Option E. The target is adjusted for compensation events other than changes in Scope approved by the Employer which are proposed by the Consultant which reduce the total Time Charge. This provides an incentive to Consultants to propose changes to reduce costs. E Time based contract Type of cost reimbursable contract in which the financial risk is largely borne by the Employer, who has complete flexibility. The Consultant carries some risk as he has to allow for the disallowed costs. Used with consultants when work is done on an ad hoc basis or has a high research component. G Term contract A term contract in which various items of work are priced or stated to be on a time basis. Thus the risk of being able to perform the instructed tasks at the agreed rate or staff rates is largely borne by the Consultant, whilst the Employer retains control over the individual Tasks to be carried out. In effect a cost reimbursable contract as the Consultant is only used when the Employer requires work to be done. The cidb Standard for Uniformity in Construction Procurement requires that use be made of the following standard forms of contract for professional services: cidb Standard Professional Services Contract NEC3 Professional Services Contract The cidb Standard Professional Services Contract provides for activity based payments as a default option and requires that any other pricing strategy be described in the Pricing Data. The NEC3 contract makes provision for the following standard pricing options: A: Priced contract with activity schedule C: Target contract E: Time based contract G: Term contract The NEC3 form of contract needs to be modified to make provision for the provision of services on a percentage fee basis. 11

Recommended project stages: Project stage * Key deliverable at end of stage 1 Preparation Client accepted strategic brief 2 Concept Client accepted concept report 3 Design development 4 Production information 5 Manufacture, fabrication and construction Client accepted design development report Completed and client accepted production information Construction works capable of being used by the client as intended 6 Post completion Completed contracts Principal actions associated with the key deliverable Define the project objectives, business need, acceptance criteria and client priorities and aspirations. Establish project criteria, including the function, mix of uses, scale, location, quality, cost, value, time, safety, health, environment and sustainability. Establish the detailed brief, scope, scale, form, and budget for the project, including the obtaining of site studies and construction and specialist advice. Determining the initial design criteria, design options, cost estimates, and the selection of the preferred design option. Develop in detail the approved concept to finalise the design and definition criteria. Establish the detailed form, character, function and cost plan, defining all components in terms of overall size, typical detail, performance and outline specification. Produce the final detailing, performance definition, specification, sizing and positioning of all systems and components. Confirm that design intent is met. Manufacture, fabricate and construct works in accordance with the production information. Rectify parts of the work that are not in accordance with the contract. Finalise contract. * Each stage has a clear start and an end point and a defined level of detail. Each ends with a specific deliverable. Projects stages my run. The above project stages lend themselves to any contracting strategy that is adopted as the deliverable at the end of each project stage forms the basis for executing the next stage e.g.: Contracting strategy Management contractor (contract under which a contractor is responsible for the planning and managing of all post-contract activities and for the performance of the whole of the contract) Design and construct (contract in which a contractor designs a project based on a brief provided by the client and constructs it) Develop and construct (contract based on a scheme design prepared by the client under which a contractor produces drawings and constructs) Design by employer (contract under which a contractor undertakes only construction on the basis of full designs issued by the employer.) Service provided by a contractor in relation to project stage in terms of an engineering and construction contract Stage 2 Stage 3 Stage 4 Stage 5 12

10. A practical approach to procuring services relating to construction works on a competitive basis The starting point is to rework the project stages associated with the guideline tariffs of fees published by the various councils to create a single and generic one which defines the key deliverable associated with the end of each project stage. This allows the boundaries between the stages to be clearly defined and provides the end outcome for the services. These stages should be independent of procurement processes and activities to allow the services associated with the next stage to be transferred to another party, or to adopt a different contracting strategy, as necessary. The key deliverable at the end of each stage serves as the basis for performing the next stage. There is little need to be too specific about the services as professional service providers should be required to provide the services associated with any stage with the skill and care normally used by professionals providing similar services. Accordingly a high level description of the design and monitoring obligations of the professional service provider will usually suffice. Professional service providers need to provide inputs to the project preparation stage on a time basis and preferably develop the concept report on a time basis, e.g. in terms of the NEC3 Professional Service Contract (Option E: Time Based Contract). Professional service providers should be able to develop and price an activity schedule or tender a percentage fee based on the concept report. Any changes to the concept report in the development from one stage to the next needs to be treated as a change in the scope of work and the resulting impacts on time and cost need to be assessed in accordance with the provisions of the contract e.g. in terms of the compensation event procedure provided for in the case of an NEC3 contract. If desirable, the activity schedule or percentage fee can become the target in a target cost contract e.g. in terms of the NEC3 Professional Service Contract (Option C: Target contract). This approach allows the employer after project stage 2 to: Invite tenders on a design and construct basis; Call for tenders for the services associated with project stages 3 to 6; or Negotiate a target cost with the original professional service provider who provided the services up to stage 2 on a time basis to provide the services associated with stages 3 to 6. 13

Recommended contract data for use with the NEC3 PSC is used: a) Where stages 1 and 2 are in terms of Option E and 3 to 6 are in terms of Option A or C The conditions of contract are the core clauses and the clauses for main Option A/C, dispute resolution Option W1 and secondary Options. of the NEC3 Professional Services Contract June 2005 (with amendments June 2006) except that for project stages 1 and 2 main Option E is used. The project stages are: Project stage Key deliverable at end of each stage as described in the Scope No Description and accepted by the Employer 1 Preparation Strategic brief 2 Concept Concept report 3 Design development Design development report 4 Production information Production information 5 Manufacture, fabrication and construction Construction works capable of being used by the Employer as intended. 6 Post completion Completed project contracts (Note: Include the full tabulation of the project stages on page 10 in the scope of work) b) Using Option A when the Prices are based on the cost of construction Delete clause 11.2(15) in Option A and replace with: 11.2 (26) The Price for Services Provided to Date is the total of the Prices for each project stage which has been completed and a proportion of the Price for each project stage which is the proportion of services completed in that project stage. Delete clause 11.2(18) in Option A and replace with: 11.2 (27) The Prices are calculated for each of the project stages in terms of the following formula unless later changed in accordance with this contract: Price = (10 x C -0,1 ) x f x AP x C/100 where (10 x C -0,1 ) Is the basic percentage fee: f Is a factor by which the basic percentage fee is multiplied to reflect the nature and complexity of the services AP Is the apportionment factor associated with a particular project stage C Is the total of the prices at award of all contracts concluded by the Employer with Others on the same project in millions to two decimal places of the currency of this contract to construct the works designed by the Consultant as part of the services, excluding Any taxes which the law requires the Employer to pay the Others and Any amount provided for in the contracts with the Others for The performance of work or services that are unforeseen and cannot be specified at the time the contract was concluded, Provision for price adjustment for inflation, or Other provisions of a budgetary nature. Until all contracts within C have been awarded, estimated values of C are used to calculate the Prices. When all contracts have been awarded, the Prices are recalculated using the final value for C. Note: insert the following in the data provided by the Consultant. The apportionment factors are as follows: Project stage Apportionment factor (sum of factors = 1.0) No Description 3 Design development 4 Production information 5 Manufacture, fabrication and construction 6 Post completion 14

Recommended contract data for use with the NEC3 PSC is used (continued): c) Using Option C when the Prices are based on the cost of construction Delete clause 11.2(18) and replace with: 11.2 (27) The Prices are calculated for each of the project stages in terms of the following formula unless later changed in accordance with this contract: Price = (10 x C-0,1 ) x f x C / 100 where (10 x C-0,1 ) is the basic percentage fee f is a factor by which the basic percentage fee is multiplied to reflect the nature and complexity of the services AP is the apportionment factor associated with a particular project stage C is the total of the prices at award of all contracts concluded by the Employer with Others on the same project in millions to two decimal places of the currency of this contract to construct the works designed by the Consultant as part of the services, excluding Any taxes which the law requires the Employer to pay the Others and Any amount provided for in the contracts with the Others for - The performance of work or services that are unforeseen and cannot be specified at the time the contract was concluded, - Provision for price adjustment for inflation, or - Other provisions of a budgetary nature. Until all contracts within C have been awarded, estimated values of C are used to calculate the Prices. When all contracts have been awarded, the Prices are recalculated using the final value for C. The total of the Prices using the final value of C is used when assessing the Consultant s share in clause 54. Note: insert the following in the data provided by the Consultant The apportionment factors are as follows: Project stage Apportionment factor (sum of factors = 1.0) No Description 3 Design development 4 Production information 5 Manufacture, fabrication and construction 6 Post completion 15

It also allows the employer after stage 3 to proceed on a develop and construct basis or to proceed to the end of stage 4 and call for tenders for contractors to only construct the works on the basis of full designs issued by the employer. Professional service providers that are commissioned to prepare the concept report or part thereof for a particular procurement should be permitted to tender for the remaining project stages if all the information which was made available to, and the advice provided by, that professional service provider which is relevant to the tender is made equally available to all potential tenderers. Pretoria Head Office +27 12 482 7200/+27 86 100 cidb Gauteng Provincial Office Pretoria 0861 428 222 cidbgp@cidb.org.za Western Cape Provincial Office Cape Town 0861 927 222 cidbwc@cidb.org.za Eastern Cape Provincial Office Bisho 0861 222 327 cidbec@cidb.org.za Framework agreements (see inform practice note # 15) can be used to create a 3 to 4 year working relationship with a limited number of professional service providers following a competitive selection process. In terms of this arrangement, professional service providers who have entered into framework agreements can be tasked to provide the inputs to the strategic briefs and to develop the concept reports in terms of a time based contract. Competition amongst those who have framework agreements with the employer can be reopened for the completion of project stages 3 to 6 on an activity schedule basis, a percentage of the construction cost fee or a target cost basis. Alternatively, the open or qualified procedure may be used to solicit tenders from the open market to provide such services. Northern Cape Provincial Office Kimberley 053 861 9631 cidbnc@cidb.org.za Free State Provincial Office Bloemfontein 0861 377 222 cidbfs@cidb.org.za KwaZulu-Natal Provincial Office Durban 0861 596 222 cidbkzn@cidb.org.za Limpopo Provincial Office Polokwane 0861 222 765 cidblimpopo@cidb.org.za Mpumalanga Provincial Office Nelspruit (Mbombela) 0861 678 222 cidbmpumalanga@cidb.org.za North West Provincial Office Mahikeng 0861 243 222 cidbnw@cidb.org.za Anonymous Fraud Line 0800 112 432 Call Centre: 0860 103 353 email: cidb@cidb.org.za www.cidb.org.za BM 12934 10/2013 16