East Midlands Branch CIOB

1. East Midlands Branch CIOB CONTRACTUAL AWARENESS WORKSHOP Tuesday 8th September 2009 CIOB working in partnership with Conica Consulting

2. Tony Clarke FCIOB, MCIPS, FFB • Trained as project manager • Extensive experience in Building & Civil Engineering • Owner manager of chartered building company • Top 50 consultancy business • Own consultancy business • Main areas of expertise • Procurement and project management • Disputes analysis and resolution • Seminars and training CIOB working in partnership with Conica Consulting

3. Seminar Content • Introduction • Some simple rules around contracts • Main Contracts, Sub Contracts, Supply Agreements • Getting properly paid • Making and receiving claims under contract • Summary and conclusions CIOB working in partnership with Conica Consulting

4. 1.0 Introduction • Building for long time in UK….. • Time & materials, or ‘bargain’ - lump sum fixed price • Mid 1800’s saw move away from this system • Role of consultants increased; controlled design process • Standard forms of contract introduced, unique QS role • Wider range of payment, measure & value & variants • Inefficient, ineffective, widely criticised by Clients • 1994 Latham Review saw major reform • Especially, in procurement, contracts, payment • Partnering, NEC, JCT , PPC 2000, Adjudication, HGCRA • However, some things haven’t changed all that much! CIOB working in partnership with Conica Consulting

5. Basic Model CLIENT The Design Consultants Architect Contract Administrator CONTRACTOR Sub-contractor Sub subcontractor CIOB working in partnership with Conica Consulting

6. Modern D&B Variant CLIENT Employer Requirements Consultants Architect Contract Administrator CONTRACTOR Contractor Proposals Sub-contractor Assignment- Novation Sub subcontractor CIOB working in partnership with Conica Consulting

7. Pitfalls • High risk, low margin business subject to price warfare • Employer warrants ‘complete design’ OR • Contractor takes partial or complete design reposnsibility • Design process is sequential, takes long time • In basic mode Contractor responsible for ‘build only’ • Teamwork? Integration? Cooperation? Shared design? • Subcontractors have no voice • Changes, role of CA , ‘relevant events’- grounds for claims • System is unfair, adversarial, lacking in trust • Each party defends own interest at expense of others • Contracts culture is both cause and effect. CIOB working in partnership with Conica Consulting

8. 2.0 Simple Rules of Contract 2.1 Oral versus written 2.2 Have we got a contract? 2.3 Starting work without a contract 2.4 Tender enquiries- what are they? 2.5 Expressed terms versus implied 2.6 Unfair and onerous terms 2.7 Letters of Intent 2.8 Changes 2.9 Payment Issues, timing, amounts, set-off 2.10 Defects CIOB working in partnership with Conica Consulting

9. Simple Rules -continued CIOB working in partnership with Conica Consulting

10. Simple Rules- continued CIOB working in partnership with Conica Consulting

11. 3.0 Types of Contract Service Contract CLIENT Main Contract MAIN CONTRACTOR DESIGNER Subcontract SPECIALIST Supply Agreement SUPPLIER CIOB working in partnership with Conica Consulting

12. Types of Contract CIOB working in partnership with Conica Consulting

13. Latham’s 13 Requirements In ‘Constructing the Team’ Sir Michael Latham set out 13 requirements for a modern contract. What are they? CIOB working in partnership with Conica Consulting

14. Latham’s 13 requirements CIOB working in partnership with Conica Consulting

15. Comments on 13 requirements • Probably true ALL current standard forms • Since July 1994 , extensively revised • Now comply with Latham’s 13 principles • To greater or lesser extent, and in different ways • JCT retain basic approach using work & risk types • 5 different Main Contracts • NEC use payment method as their approach • Same contract, 7 ways of allocating risk & paying CIOB working in partnership with Conica Consulting

16. CIOB working in partnership with Conica Consulting

17. JCT 2005 Format-SBC/AQ • Articles of Agreement • Contract Particulars • S1 Definitions & Interpretation 12 Clauses • S2 Carrying Out Works 41 • S3 Control of Works 26 • S4 Payment 26 • S5 Measurement & Valuation 10 • S6 Injury Damage Insurance 16 • S7 Assignment, 3rd Party Rights, CW’s 05 • S8 Termination 12 • S9 Settlement of Disputes 08 Mediation, Adjudication, Arbitration • Schedule 1 CDSP • Schedule 2 Pre-priced changes • Schedule 3 Insurance Options • Schedule 4 Code of Practice for Defects • Schedule 5 3rd Party Rights • Schedule 6 Forms of Bonds • Schedule 7 Fluctuations Options CIOB working in partnership with Conica Consulting

18. NEC 3 Main Contract • Option A Priced with Activity Schedules • Option B Priced with Bill of Quantities • Option C Target with AS • Option D Target with Bill • Option E Cost Reimbursable • Option F Management Contract (Fee) • Option G Term Contract (Schedule) Note; there is also a NEC Short Contract CIOB working in partnership with Conica Consulting

19. NEC 3 in a diagram Flow Charts & Guidance Notes Option A Subcontract Core Clauses Option B Secondary Clauses Option C Professional Services Contract Option D Contract Data Option E Adjudicators Contract Option F Works Information Option G CIOB working in partnership with Conica Consulting

20. NEC 3- Format Core Clauses • General • The Contractor’s main responsibilities • Time • Testing and defects • Payment • Compensation events • Title • Risks and insurance • Termination Dispute Resolution • Option W1 • Option W2 Secondary Option Clauses X1-20 (3,8,9,10,11,19 not used) Additional Conditions of Contract- Z Clauses Schedule of Cost Components Contract Data CIOB working in partnership with Conica Consulting

21. JCT & NEC- Subcontracts • Both follow Head Contract approach • Flow down in back- to- back fashion • Risk, roles, reward, responsibilities • To fully understand how to operate them • Follow Flow Charts & Guidance for NEC • JCT published guidance • BEWARE of using non- standard forms • AND onerous amendments to standard forms CIOB working in partnership with Conica Consulting

22. Service Contracts • JCT maintain status quo • Consultants appointed to project using JCT • Employed on usual terms. • NEC change contract, retain everything else • Services, fee scales & crucially- • Reasonable professional skill & care & PII • All remain unchanged CIOB working in partnership with Conica Consulting

23. Supply Agreements • JCT & NEC do not publish standard forms • Large suppliers insist on their terms • Large Contractors insist on theirs! • Beware the ‘Battle of the Forms’ • Person who fires last shot wins • In absence of written terms • Records, records, records. CIOB working in partnership with Conica Consulting

24. 4.0 Getting Properly Paid • HGCRA 96- ALL parties to construction contracts • Have right to KNOW date when payment is due • No set- off without withholding notice • All standard forms including JCT, NEC, GC Works • Amended to take this into account • This raises some interesting issues • What is a construction contract? • Must it be a written contract? • Is there a prescribed process for making payments? • Is there a set timescale for making them? • How does set off work under the Act? • What if there is genuine disagreement about payment? CIOB working in partnership with Conica Consulting

25. Workshop 1 CIOB working in partnership with Conica Consulting

26. Workshop 2 • What is process under JCT 2005 SBC/AQ • See Section 4 of the contract • How would this flow into a subcontract? CIOB working in partnership with Conica Consulting

27. 5.0 Claims under contract • What is a claim? • How does it arise? • Basic principles • Time claims • Money claims • Time & money claims CIOB working in partnership with Conica Consulting

28. Claims- basics • Claims are regrettable but often unavoidable for Contractors • A Claim is request for extra payment -arise from breach of contract • Payment can be time, money, or both- no automatic link • No breach, no entitlement, no claim, no payment • Remedy for breach is indemnity • Put back in position you would have been to extent that time and money can do so as if the breach had not occurred • Contracts list ‘allowable breaches’ • JCT – Relevant Matters • NEC- Compensation Events • Procedures for dealing with them set out in contract -use it or lose it • Entitlement- what can be claimed- also set out in contract CIOB working in partnership with Conica Consulting

29. Workshop 3-Time Claims • Who ‘owns’ time in a project? • How is time calculated? • What is the status of the programme? • What happens when delays occur occur? • JCT approach • NEC approach • How is delay assessed • Who does what and when?- the importance of notices. • What happens if further delays occur • What happens if 2 causes of delay occur at once? CIOB working in partnership with Conica Consulting

30. Workshop 4 -Money Claims • What ‘money’ can be claimed? • What happens when money claims arise? • JCT approach • NEC approach • How is ‘money’ assessed? • What about ongoing monetary losses? • What about LAD’s • Why no automatic link between time & money? CIOB working in partnership with Conica Consulting

31. Summary & Conclusions • ‘Rules’ of contract-simple, easy to understand • Not so easy to apply in real World! • That is why we have printed standard forms • Most modern forms comply with Latham • Set out clearly, roles, responsibilities, risk, reward • And all aspects of payment including Claims. • Claims best avoided if possible, but if not • Then follow relevant provisions of contract • Clever legal argument rarely ‘wins’ a claim • RECORDS, RECORDS, RECORDS. CIOB working in partnership with Conica Consulting

32. Conica Consulting • Conica works with Clients & Contractors in UK construction industry • We offer independent arms length advice about- • Procurement of construction programmes & projects • Commercial aspects of contracts • Settlement of disputes • Seminars and training for Clients and Contractors • Tony Clarke FCIOB, MCIPS, FFB, Registered Adjudicator • Willow House • Beaumont Hill • Great Dunmow, ESSEX CM6 2AW • 07590 695212 • Tony.clarke@conicaconsulting.com CIOB working in partnership with Conica Consulting