Construction Mgmt & Economics

1. Construction Mgmt & Economics CONTRACT ADMINISTRATION 341 Kee Bee Kheng (Ms)

2. Unit Outline • General Introduction • Introduction To The Unit • Teaching And Learning Objectives • Method Of Study • Prescribed Texts • Recommended Reading • Structure Of Unit • Point Of Access To Topic Notes

3. Twelve (12) Study Topics • Introduction And Contract Law • Core Clauses, Strategies & Characteristics • Tendering And Risk • Sub Contracting • Variations (Changes) • Payments • Insurances • Time • Claims • Contract Completion & Close Out • Disputes • Computer Aided Contract Administration

4. Learning Objectives • Identify Core Characteristics of Standard Forms; • Know Various Contractual Identities & Their Roles; • Know Types Of Contracts; • Recognise Contract Admin Practices & Procedures; and • Become Familiar With Contractual Documentation & Its Interconnectivity.

5. References • Accompany Text • JCC-C Standard Forms Of Contract (Australian) • References • AS 4000, AS 2124, NEC and C21 (Australian) • PSSCOC, SIA (Singapore) • JTC (United Kingdom) • Recommended Texts • Constrn Industry Terminology, David Standen • Bldg & Constrn Contracts In Australia, Dorter & Sharkety • Constrn Law In Australia, Ian I Bailey • Contract Mgmt In Australia, John F. James

6. Types of Contract • Formal Contract • under deed or company seal (signed, sealed & delivered); • do not require any consideration (value); • rarely used in construction contracts; • have to be signed by all parties, all signatures witnessed and signed. • Simple Contract • parties in the contract identify their required elements; • perform their duties under the contract to deliver those elements.

7. Topic 1 - Contract LawLearning Objectives • What is Law? • Branches Of Law. • What is a Contract? (Simple) • The Basic Elements Of A Binding Contract. • Offer & Acceptance. • Counter Offers. • Shortcomings Of “Letters Of Intent”. • Legal Concept Of “Privity Of Contract” & How It Affects Sub-Contractors. • Self Assessment Questions.

8. What Is LAW? • Is A Body Of Rules Aimed To Guide One’s Action In Society. • It Includes: • Common Law • Is governed by the Doctrine of “Stare Decisis”. • Statue Law • Laws approved by Parliament in the form of an act. • Equity • fairness or justice. Is based on principles of conscience. • to supplement the statute or common law.

9. Branches Of Law • Criminal Law (Is public law) • Civil Law (Private Law) THE STATE Person Person Succession Family Contract Tort Property Employment Person Person

10. What Is A Contract? A legally binding agreement between two or more parties, by which rights are acquired by one or more to act or forebearances on the part of the other or others.

11. Basic Elements Of A Binding Contract • Offer & Acceptance • Intention • Capacity • Consent • Legality • Possibility • Consideration

12. Formation Of A Contract • Orally • By Conduct or “Implied Action” • By Deed • In Writing

13. Offer An offer is an expression of willingness to contract on certain terms made within the intention that it shall become binding as soon as it is accepted by the person to whom the offer is addressed.

14. Invitations To Treat/ Offer • Invitations To Treat • Advertisement • Invitation To Tender • Supply “As and when required” • Offer • to supply a specific quantity on specific date. • To supply a specific quantity over a period of time.

15. Acceptance Acceptance may be defined as an unconditional agreement, communicated by the offeree to the offeror, to all the terms of the offer, made with the intention of accepting that offer. Whether an acceptance has in fact occurred is determined from the behaviour of the parties including any correspondence that has passed between the parties.

16. Basic Elements of An Acceptance • Knowledge of the Offer. • If there is an acceptance. • How an acceptance is made? • Acceptance or Counter-offer. • Is there a communication? • According to specific instruction? • No acceptance by silence.

17. Counter Offer • A “Conditional Instruction To Proceed”. • An Attempt To Negotiate Price Or Specification. • “Paper War” • Subject To Client’s Terms & Conditions (often happen between main & sub contractors).

18. Withdrawal Of Offer • Can be anytime before acceptance UNLESS there is a condition for the offer be kept open for a period of time; • Must be communicated to the person making an offer; • Must reach the person before it was accepted; • Postal rule does not apply; and • If by fax or telex, it must be received by the person in person.

19. Discharge • Performance • Agreement • Operation of Law • Frustration or subsequent impossibility

20. Breach - Remedies • Refusal of further performance; • Rescission; • An action for specific performance; • An action for an injunction; • An action for damages; and • An action for a ‘Quantum Meruit”

21. Privity Of Contract • Only persons who are parties to the contract are affected. • Cannot impose obligations nor confer rights on others who are not privity to it.

22. Letter Of Intent • Where immediate signing of contracts not possible; • If works were done, contractor can claim ‘Quantum Meruit”; • Exception, where Letter Of Intent combines with Instruction To Proceed. The latter is a conditional acceptance of a tender (e.g. subject to acceptance of client.)

23. Is There A Contract? Example: 1 We are pleased to inform you that, subject to an acceptance of our main contract by the Client, the contract for the work will be placed with your company. 2 We are pleased to inform you that, subject to a satisfactory outcome to negotiations between us on certain points in your tender as above, the contract for the work will be placed with your company.

24. Self Assessment Questions • Explain how a contract may exist because one of the essential criteria is said to be implied. • A road bridge over a river collapses sending the cars on the bridge into the water below. One of the drivers in one of the cars is seriously injured as a result of the fall. Is the injured driver of the vehicle prevented from claiming compensation for his injuries as a result of not being privy to the contract for the design and construction of the bridge.

25. Self Assessment Questions -2 • Under what circumstances should consideration be given to the use of a Letter of Intent? • A contractor builds a house for his mother which he sells 5 years later when his mother dies. The purchaser subsequently sells the house after 4 years to a purchaser who has various inspections undertaken to ensure the house is in sound and good condition. Two years later the house develops serious and substantial cracks. To what degree do you consider the contractor to be liable?

26. Topic 2 - Strategies & Characteristics • Learning Objectives; • Background To Standard Forms Of Contract; • Contract Strategies; • Self Assessment Questions.

27. 2-Learning Objectives • Different Contract Philosophies; • Core Characteristics Of Standard Forms Of Contract; • Typical Contract Clauses; and • A System Approach To Contract Components.

28. Contract Philosophies - 1 • JCC-C • Proprietor/Builder • Fair apportionment of responsibility; • Aim the party best able to deal with a responsibility bear the risk; • e.g. Proprietor is responsible for accuracy of information whilst Builder is responsible for means & methods of construction. Neutral risks are equally shared.

29. Contract Philosophies - 2 • AS 2124 - 1992 • Based on NPWC/NBCC Joint Working Party Paper on “No Disputes”; • Set out rights & obligations of the parties; • Set out 100 circumstances where written notice may be required from one party to another; • Emphasises contract is the essential means of communication to enable proper & orderly admin of the contract.

30. Contract Philosophies - 3 • NEC (New Engineering Contract) from New South Wales; • Presume “Win-Win” scenario; • Use plain English & easily comprehensed language with guidance notes; • Separate the roles of contract administrator from certifier & assessor; • Apportion risk to the party best able to manage it.

31. Contract Philosophies - 4 • C21 • widely use in UK; • provides a clear distinction between contract management & administration; • allows up front incentive payments to contractor; • simplify delay procedures; • no Superintendent - rep of Principal & Contractor act for themselves.

32. Contract Philosophies - 5 • AS 4000 - 1997 • derives from AS 2124; • writes in plain English; • some clauses vary from AS 2124 e.g. include Intellectual Property and Novation of part of the work; and • roles & responsibilities remain unchanged.

33. Contract Philosophies - 6 • PSSCOC 95 • Adaptability • Sound Construction Management • Construction Quality • Allocation of Risks • Clarity of Language

34. JCC-C 94 1 General 2 Documents 3 The Site 4 Sub-Contracts 5 Administration 6 Execution Of The Works 7 Separate Contracts 8 Insurances 9 Time 10 Payment & Adj CS 11 Final Certificate & Final Payment 12 Determination 13 Dispute Resolution 14 Notices 15 Special Conditions 16 Appendix SIA 99 1 Architect’s Directions & Instruction 2 Methods of Working & Temp Works 3 Design & Completion Responsibilities 4 Programme 5 Make-Up Of Contractor’s Prices 6 Administration 7 Statutory Obligations 8 Setting Out 9 Access For Architect 10 Possession of Site & Commencement 11 Quality of Materials & Workmanship 12 Variations & Valuation of Additional Pay’t 13 Measurement & BQ 14 Discrepancy Or Divergence 15 Assignment & Subcontracting 16 Plant & Materials 17 Artists, Tradesmen & Other Contractors 18 Indemnities To Employer 19 Injury (Persons, Property) & W C 20 Insurance Of Works 21 Due Diligence By Contractor 22 Time for Completion 23 Extension of Time 24 Delay & LAD 25 Phase & Stage Completion 26 Partial Re-occupation 27 Maintenance 28 Designated NSC 29 Nomination & Rights of Objection 30 Payment of NSC 31 Payment of Contractor 32 Termination by Employer 33 Termination by Contractor 34 Outbreak of war 35 War Damage 36 Antiquities 37 Arbitration 38 Optimal Cl (Fluctuations) 39 Optimal Cl (Excess) 40 Appendix Conditions of Contract • PSSCOC 95 1 Definitions & Interpretation 2 S.O. & S.O. Representative 3 Contract Documents 4 General Obligations Of Contractor 5 Sub-Surface & Ground Conditions 6 Permanent Work Designed by Contractor 7 Notices & Fees 8 Setting Out 9 Programme For the Works 10 Quality In Construction 11 Administration 12 Possession Of Site 13 Suspension 14 Time For Completion 15 Expedition Progress Of Works 16 Liquidated Damages 17 Substantial Completion 18 Defects 19 Variations To The Works 20 Valuation Of Variations 21 Measurement 22 Claims For Loss & Expense 23 Procedure For Claims 24 Constrn Equipment Temp Wks Mat & Goods 25 General Responsibilities 26 Indemnity Provisions 27 Injury (Person & Property) & W C 28 Insurance Of The Works 29 Damage To Property Of Employer Or Govt 30 Assignment & Subcontracting 31 Termination By The Employer 32 Progress Payments & Final Account 33 Final Completion Certificate 34 Settlement Of Disputes 35 Recovery By The Employer 36 Governing Law & Notices 37 Appendix

35. JCC-C 94 1 General 2 Documents 3 The Site 4 Sub-Contracts 5 Administration 6 Execution Of The Works 7 Separate Contracts 8 Insurances 9 Time 10 Payment & Adj CS 11 Final Certificate & Final Payment 12 Determination 13 Dispute Resolution 14 Notices SIA 99 1 Architect’s Directions & Instruction 2 Methods of Working & Temp Works 3 Design & Completion Responsibilities 4 Programme 5 Make-Up Of Contractor’s Prices 6 Administration 7 Statutory Obligations 8 Setting Out 9 Access For Architect 10 Possession of Site & Commencement 11 Quality of Materials & Workmanship 12 Variations & Valuation of Additional Pay’t 13 Measurement & BQ 14 Discrepancy Or Divergence Conditions of Contract • PSSCOC 95 1 Definitions & Interpretation 2 S.O. & S.O. Representative 3 Contract Documents 4 General Obligations Of Contractor 5 Sub-Surface & Ground Conditions 6 Permanent Work Designed by Contractor 7 Notices & Fees 8 Setting Out 9 Programme For the Works 10 Quality In Construction 11 Administration 12 Possession Of Site 13 Suspension 14 Time For Completion

36. JCC-C 94 15 Special Conditions 16 Appendix SIA 99 15 Assignment & Subcontracting 16 Plant & Materials 17 Artists, Tradesmen & Other Contractors 18 Indemnities To Employer 19 Injury (Persons, Property) & W C 20 Insurance Of Works 21 Due Diligence By Contractor 22 Time for Completion 23 Extension of Time 24 Delay & LAD 25 Phase & Stage Completion 26 Partial Re-occupation 27 Maintenance 28 Designated NSC Conditions of Contract • PSSCOC 95 15 Expedition Progress Of Works 16 Liquidated Damages 17 Substantial Completion 18 Defects 19 Variations To The Works 20 Valuation Of Variations 21 Measurement 22 Claims For Loss & Expense 23 Procedure For Claims 24 Constrn Equipment Temp Wks Mat & Goods 25 General Responsibilities 26 Indemnity Provisions 27 Injury (Person & Property) & W C 28 Insurance Of The Works

37. JCC-C 94 SIA 99 29 Nomination & Rights of Objection 30 Payment of NSC 31 Payment of Contractor 32 Termination by Employer 33 Termination by Contractor 34 Outbreak of war 35 War Damage 36 Antiquities 37 Arbitration 38 Optimal Cl (Fluctuations) 39 Optimal Cl (Excess) 40 Appendix Conditions of Contract • PSSCOC 95 29 Damage To Property Of Employer Or Govt 30 Assignment & Subcontracting 31 Termination By The Employer 32 Progress Payments & Final Account 33 Final Completion Certificate 34 Settlement Of Disputes 35 Recovery By The Employer 36 Governing Law & Notices 37 Appendix

38. Usual Conditions • Scope of Work • Price • Time • Quality • Risk • Disputes • Owner’s Responsibility • Contractor’s Responsibility

39. Performance Obligation Right Time Risks Document Site Possession Ground Condition Information Supplied Insurance Adaptatory Variations Work Types Organisations Adjudicatory Dispute Resolution Loss/Expenses Determination Recognitory Definition Representations Administration Programme Notice Antiquities Subcontracts/Assignment Quality Temporary Works Design Materials Workmanship Defects Statutory Obligations Setting Out Grouping

41. The Needs to secure: Project Mgmt Services Design Mgmt Services Construction Mgmt Services Factors Affecting Change Types of Clients Client’s Objectives Design Requirements Other Requirements Project Procurement Method - Development

42. Client’s Objectives • Time • Cost • Quality • Risk Avoidance

43. Time • How long to complete? • Site availability. • Justifiable delay? • Key deliverables & dates. • Suspension of the work. • Extensions to finish dates. • Notices.

44. Cost • How much to complete? • Justifiable increase. • Justifiable decrease. • Key stages & costs (milestones). • Suspension of the work. • Extensions to finish work. • Notices.

45. Quality • Supervision of the work. • What if work is poor or sub standard. • Who has obligation to ensure work is satisfactory? • Changes to the work. • Suspension of the work. • Notices.

46. Traditional System • Project Leader Usually The Architect • Client - Designer - Contractor • Suitable For Projects: • with long lead time available • where specialist designer is not required • building type is simple • Contractor will construct & Designer will supervise on behalf of the Client

47. Clear demarcation between designer & construct functions. Parties are clear about their mechanics. Well & truly tested. Risks are relatively low. Modified method (remeasurement)allows flexibility with partially design, thus, overlapping for design & construction. Brief usually sketchy. Design, tendering & construction virtually done sequentially. Advantages & Disadvantages

48. Design & Build • Client wants the design & construct by one party. • Single party contract with Client to complete the building, guarantee workmanship, cost & time. • Client - Builder (Client retains some supervision). • Suitable for simple type of projects, though preferred for some complex projects. • 1992 Tasks Force Report on Construction Productivity in Singapore recommends the method.

49. Client commits requirements in advance. Incorporate builder’s experience. Integrate design & construct foster co-operation & close gap in communication & control. Client deals with one party. Overlap D & C improve speed. Client pays one fees. Changes later on may be costly. Builder carries risks, client liable for extra if design changes initiated by him. Method not fully tested. May not lead to better quality construction. Tendency for cost overrun. D&B - Advantages & Disadvantages

50. Management • Set up within the traditional JCT contractual framework. • 2 versions: • Mgmt Contracting : Client - Manager - Builder (I.e. Builder as sub-contractor). • Construction Mgmt: Client - Builder.