Guidelines on Determining Mega Project Contracts

1. Works Bureau Technical Circular No. 26/2002 Special Conditions of Contract for Use in Mega Project Contracts • Guidelines on Determining Mega Project Contracts 1. Mega project contracts have some or all of the following characteristics: a) The contract sum is very large (normally exceeds $1 billion). During the construction period, there should be tight financial control because of the large sums of money involved. b) There is a need to monitor the programme and control the progress closely because the contract itself or the project which the subject contract forms an integral part of has high social or economical implication. c) The contract works are extensive and cover large areas, thus likely to have a lot of interfaces with other major projects. Hence very good co-ordination by all the concerned parties is required.

2. Works Bureau Technical Circular No. 26/2002 Special Conditions of Contract for Use in Mega Project Contracts • Special Conditions of Contract for use in Mega Project Contracts 2. A set of SCC for use in mega project contracts is attached at Appendix A. This has been drafted for use in engineering works in conjunction with the GCC for Civil Engineering Works 1999 Edition. This set of SCC may also be adapted for use in building works in conjunction with the GCC for Building Works 1999 Edition.

3. SCC for Mega ProjectSCC102 – Programme and Progress Report • A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) • Initial programme to be submitted in 7 days. • Submission of Works Programme 60 days after approval of initial programme. • Approval is needed in order to show commitment from both sides. • Clear procedures leading to approval and disapproval. • Use of Stage and Key Dates. • Submission of monthly progress report • Submission of monthly progress report as a condition precedent to payment of works done. Departure from ACP There is a power to approve programme which has substantially satisfied the Engineer’s requirement

4. SCC102 – Programme and Progress Report • Guidelines in connection with use of SCC102 1. Reference Information on Programme • Where a tender programme is requested, the successful tenderer’s programme can also be extracted for future comparison. 2. Approval of initial Works Programme • The Engineer can approve the initial Works Programme if all activities and logic are reasonable in accordance with Clause 16(2)(a) or if he is satisfied with a substantial part of the programme in accordance with Clause 16(4). The Engineer should then continue to press for the further information/amendments for the remaining activities. 3. Approval of Works Programme • The Contractor shall submit the Works Programme to the Engineer within 60 days after the approval of the initial Works Programme.

5. SCC102 – Programme and Progress Report 4. Other Programmes and Monthly Progress Report • The Contractor is also required to submit the three months rolling programme within 14 days of acceptance of Tender in accordance with Clause 16(9) of C of C and the Executive Summary Programme in accordance with the Particular Specification Clause 1.08S. The Three Month Rolling Programme usually reflects the current progress. • Under Clause 16(10) of the C. of C., the Contractor is required to submit monthly progress reports to the Engineer. The submission of the Monthly Progress Report is a condition precedent to the Engineer’s certification of interim statements. 5. Updating of the Programme • Very often, the Contractor may be reluctant to up-date the programme because entitlements to substantial EoT have not been granted. It is, therefore, quite important that the Engineer grants EoT once he considers that the Contractor is entitled to them.

6. SCC102 – Programme and Progress Report 6. Administrative Measures to ensure that the Contractor submits reasonable Works Programme • The Works Programme is a very effective monitoring tool for sequencing of works, progress and expenditure as well as for assessment of claims. An unrealistic or outdated Works Programme will have far reaching adverse consequences. Inconsistencies between programme and progress or incompatibility between various programmes i.e. 3-month Rolling Programme as against Works Programme, all reflect the Contractor’s poor planning or being unwilling to co-operate with the Engineer/Employer in using the programme. In the event that the Contractor is reluctant to co-operate with the Engineer in arriving at a reasonable Works Programme, the Project Officer should bring the matter to the attention of the Chief Engineer or higher levels. Apart from disapproving the programme by the Engineer ( whether or not under the direction of the Employer as a result of a referable decision), by placing sufficient weighting for this item in the Contractor’s Performance Report, the Engineer can give adverse reports to the Contractor through item 2.2 – Adherence to Programme, 2.3 Updating of Programme or 5.3 Adequacy of Planning of Work. A sample letter to the Engineer drawing his attention to this approach is attached at Appendix 102.2.

7. SCC for Mega ProjectSCC105 – Extension of Time • A. Background Modified for Airport Care Project Conditions of Contract (ACPCC) Salient features from ACP • Introduction of the term “Stage” for certain level of achievement. • Express provision for mitigating delay and more stringent requirements for keeping records. • Dealing with continuing effects. • Extension of time to be granted for (a) Imposition of limitation on Contractor’s methods of construction. (b) Provision of facilities, access, and services to others in excess of the Contractor’s obligation. • Granting both interim EOT and review of final EOT.

8. SCC105 – Extension of Time Departure from ACP 1. Encourage Engineer to carry out interim assessment of EoT by relaxing some requirements 2. Include inclement weather and any special circumstances as valid grounds for granting EOT 3. Absolute time bar for extension of time not to be imposed.

9. SCC105 – Extension of TimeGuidelines in connection with use of SCC105 1.Interim granting of EOT The Engineer can determine extension of time based on the actual or ‘likely’ extent or effect of delay and gives interim EOT before all circumstances are known. This encourages him to give at least a minimum extension of time as an interim measure. Noting that any final review shall not result in a decrease in any extension of time already granted in accordance with Clause 50(6). If the Engineer decides not to grant extension of time, he shall notify the Contractor as soon as practicable in accordance with Clause 50(4). 2. Granting of EOT in the absence of Contractor’s submission of claim The Engineer is encouraged to do so to avoid putting aside the issues for a long time with accumulation of EoT claims or entitlements. 3. Final Review in EoT after completion of the Works The Engineer shall within 28 days of the issue of the Certificate of Completion of the Works review and finally determine and certify the overall EoT.

10. SCC102 – Programme and Progress Report SCC105 – Extension of Time • West Pier a geological fault • East Pier a serious accident and Labour Department suspends the work for 3 months

11. SCC102 – Programme and Progress Report SCC105 – Extension of Time • Discussion • Is the contractor entitled to EOT on East Pier? • Is the contractor entitled to EOT on West Pier? • How to calculate the prolongation cost? • What is the position if the contractor accelerates the completion of East Deck? • Is the Contractor also obliged to accelerate the completion of the West Deck? • Can the Employer pay for extra cost for acceleration?

12. SCC for Mega ProjectsSCC103 – Facilities for and Co-ordination with Others • A. Background Modified for Airport Care Project Conditions of Contract (ACPCC) Salient feature from ACP (a) The Contractor is required to take all reasonable steps to ensure that the Works are co-ordinated and integrated with the design and construction of other works and is required to consult, liaise and co-operate with others responsible for carrying out such works. Departure from ACP (b) The Employer is encouraged to describe in good details the types and extent of co-ordination work in the Particular Specification and the Contractor will be entitled to sums of money where provided for in the Bill of Quantities for coordination work.

13. SCC103 – Facilities for and Co-ordination with Others B. Guidelines in connection with use of SCC103 1. Planning and preparation of Contract documents in respect of details of Contractor’s obligations in the coordination of the interface works Interface problems may arise if there are any overlap of contract works with works by others, in addition to those arising from routine utilities work. Specifications should be drafted on the interface works. (b) It is preferable that the concerned parties should be requested to forward their detailed programme and requirements for the drafter to incorporate into the Specifications, after resolving conflicts. (c) The drafter should consider whether the co-ordination on each interface works would involve the Contractor in substantial sums of money.

14. SCC103 – Facilities for and Co-ordination with Others 2.Contractor’s coordination obligation arose from alternative design of interface works • WBTC No. 12/99 stipulates that tenderers should not be allowed to submit alternative design if there is an Engineer’s design. However, if the Contractor submit design for part of the works not covered by the Engineer’s design during the tender period, or an alternative design after the commencement of the work, their implications in co-ordination of interface works should be carefully considered. • On the other hand, if alternative designs or design changes are allowed for by the interfacing contracts, such implications on the Contractor’s scope of co-ordination should be thoroughly considered

15. A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) Salient features taken from ACP 1. Use of the term Portion Handover date for both handing over of site to the Contractor and the handing back of site by the Contractor to the Employer. 2. Provision for early handing over of site to the Contractor before the Portion Handover Date as well as deferring the taking over of site from the Contractor in which case the Portion Handover Date is altered. 3. The availability and any share of access to the site as well as the use of the site expressly stated. SCC for Mega Project SCC104 – Possession of Site

16. SCC104 – Possession of Site • Departure from ACP • It is explicitly stated that the Contractor shall not be entitled to any extension of time or additional payment by reason of the Contractor being given early possession of the site or any Portion or part thereof. • Contrary to early handover of site to the Contractor, the costs such as guarding, lighting, insurance etc. resulting from the deferred handing back of the site to the Employer (at Employer’s discretion) could be recovered by the Contractor.

17. SCC104 – Possession of Site B. Guidelines in connection with use of SCC104 1. Methods of specifying Portion Handover Dates There are various means of specifying the Portion Handover Dates in the Contract Documents: (a) Handing over to the Contractor • By reference to the date for commencement of the Work or the expiry of a specified period from commencement of the Work. • By reference to a calendar date. (b) Contractor handing back the site to the Employer • By reference to the substantial completion of a Section. • By reference to a Key Date • A calendar date • The expiry of a period from commencement of the Works It should be noted that (b)(i) should be used if the Portion is linked to the substantial completion of some permanent works. (b)(ii) (iii) & (iv) are only applicable when no substantial permanent work is to be completed in the area.

18. SCC104 – Possession of Site 2. Allowance of float time Sufficient floats must be allowed between a Key Date and the scheduled handover date to another party or vice versa to avoid claims situation 3. Provision of information in the Contract documents affecting the Contactor’s right of access If there are any factors which may affect the Contractor’s possession of right of access to site, especially for those factors which could not be easily foreseen, e.g. use of access by other contractors or use of navigation channels by other contractors or public, they should be described in some details in the Contract documents.

19. SCC for Mega ProjectSCC106 – Liquidated Damages for Delay • A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) Salient features taken from ACP 1. Use of key dates to define times for completion. 2. Use of ‘Stage’ to define a level of achievement in the Works and hence liquidated damages also applies to failure to achieve the key date of a stage. 3. To achieve ‘Stage’ and to complete the ‘Works’, or as the case may be, to complete ‘Sections’ (where the Works are divided into Sections) are separate obligations of the Contractor and liquidated damages relating to them can run concurrently.

20. SCC106 – Liquidated Damages for Delay Departure from ACP 1. Allow for reduction of liquidated damages in the following circumstances :- • completion of part of the Works or part of the Sections; and • achievement of part of the Stage. 2. Capping of total liquidated damages not provided for because capping would contradict with WB policy.

21. SCC106 – Liquidated Damages for Delay • Guidelines in connection with the use of SCC 106 • Assessment of LD in general Guidelines on the assessment of LD are given at WBTC 21/96 The project officer should note paragraph 8 of WBTC 21/96 that the rational behind the calculation of any consequential losses or specific damages should be clearly stated in the tender documents as a Special Condition of Tender.

22. SCC106 – Liquidated Damages for Delay 2. Assessment of LD for Stage and its effect on LDs of Sections or Works LD of Stage and Section shall be calculated based on the following costs: LD for Stage = Cost of Permanent Work in the Stage + other specific or consequential damages if any + any temporary work required LD for Section = Cost of Permanent Work in the Section – Cost of the permanent works in the corresponding part of the stage + other specific or consequential damages + subsequent removal of temporary works to continue the work on the Section 3. Reduction of LDs upon partial completion or achievement Clause 52(2)(a) provides for LD of the Works, the Sections and the Stage to be reduced upon issue of partial certificate of completion or partial achievement.

23. SCC for Mega ProjectsSCC 108 - Stages and Key Dates • A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) • Salient features taken from ACP • Key Date and Stage are defined as follows: “Key Date” could be a date for completion of the Works, or Sections thereof or for the achievement of a Stage. It could also refer to a date for handing back a Portion of the Site to the Employer. “Stage” means a degree of achievement in the execution of the Works Identified as such and more particularly described in the Specification stipulated in Appendix 1 to the Form of Tender.

24. SCC 108 - Stages and Key Dates 2. There is a contract provision for the issuance of certificate of achievement of any Stage. 3. Achievement of a Stage shall not of itself constitute completion or substantial completion of a part of the Works • Departure from ACP The Engineer has a duty or power to certify achievement of any part of any Stage which has been achieved to the satisfaction of the Engineer and is required by the Employer for occupation or use or by any utility undertaking or other duly constituted authority for carrying out work not included in the Contract but required by the Employer.

25. SCC 108 - Stages and Key Dates • Guidelines in connection with use of SCC 108 (a). A degree of achievement in the execution of the Works to enable the interfacing works to be carried out by the interfacing parties. The work in the Stage is not taken over by the Employer or maintenance authorities. This may include the construction and maintenance of an access road for the use of interfacing contracts, completion of part of the bridge works to allow unhindered installation by interfacing contractors/utility undertakers of essential electricity cables, telephone cables, watermains and sewers which have critical commissioning dates. .

26. SCC 108 - Stages and Key Dates (b). Completion of a length of road or several lengths of roads for interfacing with other lengths of roads to be completed by another contractors before taking over by maintenance authority It should be noted that Section description to be given in the Particular Specification should include the scope and extent of works to be completed for that Section as well as any Stages which are encompassed in that Section to ensure all components of permanent works within the Section are taken over by the maintenance authority. 2. Liquidated damages for Stage and its effect on liquidated damages of Section or Works Refer to SCC 106 Paragraph B2.

27. Particular SpecificationStages of the Works Stage 1 – Key Date 1 (KD1) Interfacing Contract – Contracts for the construction of infrastructure for New Town Development Phase I Achievement – The following works shall be completed by Key Date KD1 in order to achieve Stage 1: • Formation, drainage and subbase, barrier and all buried conduits and services including manholes and other structures. • Base course. • Wearing course. • Friction course and all street furniture including • Lighting, fencing, emergency telephone, road • Marking and signing. • Utility installations. • All other work not listed. Chainages of Setting out line x (Drawing No. xxx)

28. Stage 2 – Key Date 2 (KD2) Interfacing Contract – Utility installations on the sea channel bridges, through abutments and through sea channel bridges service culverts. Achievement – The following works shall be completed sufficient to allow unhindered installation of electricity cables, telephone cables, watermains and sewers, and utilities companies shall be allowed access for such installation works:- Services Platform as detailed on Drawing Number…….. Abutments as detailed on Drawings Number…………... Services Culverts as detailed on Drawings Number…….

29. Stage 3 – Key Date 3 (KD3) Interfacing Contract – All contracts interfacing with the Works Achievement – The following works shall be completed by the Key Date in order to achieve Stage 3: Provision of an access road along the whole of the Site from the interface with …..contract in the east to the interface with….. contract in the west in accordance with the requirements in Section ….. of the Particular Specification.

30. SCC 103 –Facilities for and co-ordination with othersSCC 104- Possession of SiteSCC 106- Liquidated Damages for DelaySCC 108 – Stages and Key Dates • What is/are the design interfaces? • What are the construction interfacing(s)? • Contractor B is to be given the opportunity to construct Span X by 1 November 2008. What is the contractual arrangement? • If TCSS contractor is to lay its cable all along the two bridges, what is the contractual arrangement? What have to be included in the contract documents? How are the liquidated damages of the two bridges assessed? Column to be constructed by Contractor 1

31. SCC 104 – Possession of Site • Note: Portion B is to be handed over 200 dyas after the handover date of Portion A 1. Under the mega project conditions, how do you specify the Portion Handover Dates: • To the Contractor • Back to the Employer 2. Several months after portion B is cleaned and handed over to the contractor, some oyster farmer block the access to Portion B, can the contractor claims EOT and extra cost?

32. SCC for Mega ProjectsSCC 107 – Variations • A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) Salient features taken from ACP 1. The Engineer can order variation on one of the following grounds: a) necessary for the completion of the Works; b) desirable for any other reason to achieve satisfactory or timely completion, or improved or more economic functioning, of the Works, or on aesthetic grounds. 2. If the Engineer orders omission of the work which is subsequently let to another contractor, the Contract makes express provision for the Contractor’s entitlement to his loss of profit.

33. SCC 107 – Variations Departures from ACP 1. The Engineer may order variation during maintenance period. 2. The Contractor shall not be entitled to loss of profit if the omitted work is let to another contractor after the issue of the certificate of completion of the Works or earlier termination of the Contract B. Guidelines in connection with the use of SCC 107 1. Issue of variation order and instruction by making reference to the relevant Contract provisions (a) Whenever a variation order or Engineer’s instruction is issued, the requisite Contract clause must be quoted therein. The citation of the Contract clause provides the source and basis of the authority vested with the Engineer and the associated obligations for the Contractor to comply with.

34. SCC 107 – Variations 2. Contractor’s entitlement to loss of profit upon such omitted work being let to another contractor before the completion of the Works Clauses 60(3)(a) and 60(4) provide for entitlement to loss of profit in the event where the letting to another contractor is made before the completion of the works. 3. Variation order during Maintenance Period Clause 60(1) empowers the Engineer to order variation during the maintenance period. Circumstances giving rise to the ordering of variation during the Maintenance Period may include without limitation the following: a) variation for outstanding works; b) ordering of additional works; c) variation for compliance with maintenance authorities’ or other authorities’ requirements; d) variation on safety or emergency grounds

35. SCC 107 – Variations 4. Variation order for improved or more economic functioning or the Works or on aesthetic grounds (a) Clause 60(1) allows wider scope in the ordering of variations than is the case under the GCC 1999 Edition. Apart from ordering variations which are necessary for, or desirable to achieve satisfactory or timely completion of the Works, or to achieve satisfactory or timely achievement of any Stage, it also empowers the Engineer to order variations for improved or more economic functioning of the Works or on aesthetic ground. (b) The relevant or maintenance authorities should be consulted and their approval should be obtained prior to the ordering of variation on improved or more economic functioning of the Works, or on aesthetic grounds.

36. SCC- 107 –Variations The whole landscape area for a housing estate is due to be completed by 1st December 2008. It is now 11 November 2008. The owner wishes to install extensive ($ 8 million) special lighting and commission the lighting by 15 February 2009 before the Chinese New Year. What steps should be taken and what contractual arrangement should be made? Discuss the pros and cons of various arrangements. What would you recommend if the special lighting is to be completed by end of 2009.?

37. SCC for Mega ProjectSCC 109 – Method of Construction • A. Background Modified from Airport Core Project Conditions of Contract (ACPCC) Salient features taken from ACP • It requires the Contractor to submit for the Engineer’s consent the method of construction he proposes to adopt without detriment to the Permanent Works. • At the request of the Contractor, the Engineer is required to provide him with data on the design of Permanent Works which are relevant in preparing his submission on the method of construction. • If consent being unreasonably withheld or there are unreasonable limitations by the design criteria which could not reasonably have been foreseen, the Contractor may be entitled to cost and EoT.

38. SCC 109 – Method of Construction • Departures from ACP 1. The original ACP clause should be read in conjunction with another ACP clause regarding temporary works. The Clause under drafting should however be read with the standard SCC Clause for Independent Checking of Temporary Works. B. Guidelines in connection with use of SCC 109 1. Engineer’s Design and Method of Construction In the design stage, the future method of construction should be well considered. The designer should be fully aware of the constructability of his design and whether his design will pose severe limitation to the method of construction and their contractual implications. Usually, the method of construction should be left to the Contractor to devise unless some sequences are dictated by the logic of the design taking into account the site conditions e.g. incremental launching in bridge construction, pipe jacking in urban areas etc. in which case any critical restraints or limitations on the Contractor’s method of construction should be detailed in the tender documents. The Engineer should make reference to the method of construction, usually submitted by the contractor during the tender stage.

39. SCC 109 – Method of Construction 2. Information in the tender documents • In connection with the supply of information in the tender documents, the principle to be borne in mind is that the specification should as far as possible only impose constraints on the method of construction but should not tell the Contractor how to carry out the work. 3. Consent • The Engineer should also note that according to SCC109(4), consent to the proposed method of construction should not be unreasonably withheld or delayed *.

40. SCC 109- Construction Method 1. Can the contractor claim for cost of measures to facilitate construction: a) Under the 1999 GCC? b) Under the SCC for mega project?

41. SCC 109- Construction Method Question If the contractor wishes to claim for cost of blasting in restricted areas (area 1,2,3) to reduce charges, what is the contractual basis? Must Limit the charges to produce particle velocity to <10 mm/sec for the building