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CONTRACTUAL HANDBOOKLicensed copy from CIS: edmundn, BAM Nuttall
Limited, 29/06/2012, Uncontrolled Copy.for
Steelwork Contractorsand
Other Specialist Contractors
Edited by
Roger Button, Partner,Eversheds
With thanks to Lindy Patterson Partner, MacRoberts For Chapter
23
BCSAThe British Constructional Steelwork Association Ltd.
EVERSHEDSBusiness Lawyers in Europe
Eversheds
THE BRITISH CONSTRUCTIONAL STEELWORK ASSOCIATION LTDBCSA
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BCSA is the national organisation for the Constructional
Steelwork Industry; its Member companies undertake the design, and
erection of steelwork for all forms of construction in building and
civil engineering. Associate Members are those principal companies
involved in the purchase, design or supply of components,
materials, services etc., related to the industry. The principal
objectives of the Association are to promote the use of structural
steel-work; to assist specifiers and clients; to ensure the
capabilities and activities of the industry are widely understood
and to provide members with professional services in technical,
commercial, contractual and quality assurance matters. The
Associations aim is to influence the trading environment in which
member companies have to operate, in order to improve their
profitability. A current list of members and a list of current
publications and further membership details can be obtained from:
The British Constructional Steelwork Association Ltd. Apart from
any fair dealing for the purposes of research or private study or
criticism or review, as permitted under the Copyright Design and
Patents Act 1988, this publication may not be reproduced, stored or
transmitted in any form by any means without the prior permission
of the publishers or in the case of reprographic reproduction only
in accordance with the terms of the licences issued by the UK
Copyright Licensing Agency, or in accordance with the terms of
licences issued by the appropriate Reproduction Rights Organisation
outside the UK. Enquiries concerning reproduction outside the terms
stated here should be sent to the publishers, The British
Constructional Steelwork Association Ltd. At the address given
below. Although care has been taken to ensure, to the best of our
knowledge, that all data and information contained herein are
accurate to the extent that they relate to either matters of fact
or accepted practice or matters of opinion at the time of
publication. The British Constructional Steelwork Association
Limited, the authors and the reviewers assume no responsibility for
any errors in or misinterpretations of such data and/or information
of any loss or damage arising from or related to their use. The
British Constructional Steelwork Association Ltd., 4, Whitehall
Court, Westminster, London SWlA 2ES Telephone: +44 (0) 20 7839 8566
Fax: +44 (0) 20 7979 1634 [email protected] E-mail:
Website: www.steelconstruction.org
Publication Number 32/01 Third Edition May 2001 ISBN
0-85073-035-X British Library Cataloguing-in-Publication Data A
catalogue record for this book is available from the British
Library. The British Constructional Steelwork Association Ltd.
Printed by The Chameleon Press Limited
CONTENTSForeword
........................................................................................................................
Overleaf
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Chapter 1
................................................................................................
Formation of Contracts Chapter 2 Chapter 3 Chapter 4 Chapter 5
Chapter 6
.....................................................................................................
Classes of Contract
.......................................................................................
Standard Forms of Contract
...................................................................................................
Tendering Procedures
...........................................................................................
Onerous Contract Clauses
.....................................................................................................................
Certificates
Chapter 7
...................................................................................................
Payment and Set-Off Chapter 8
..................................................................................................................
Fluctuations Chapter 9
.......................................................................................................................
Variations Chapter 10
...........................................................................
Extensions of Time and Completion Chapter 11
............................................................................................................
Costs of Delay Chapter 12
............................................................................................................................Claims
Chapter 13
.......................................................................................................
Defects of Liability Chapter 14
.......................................................................................................
Design of Liability Chapter 15
............................................................................
Supply of Goods and Misrepresentation Chapter 16
.........................................................................................................Limitation
Periods Chapter 17
.......................................................................................................................
Insurance Chapter 18
..................................................................................................
Bonds and Guarantees Chapter 19
................................................................................
Disputes and Legal Proceedings Chapter 20
....................................................................................
Insolvency of Main Contractor Chapter 21 .... JCT Standard Form of
Contract with Contract with Contractors Design 1998 Edition Chapter
22
.........................................................................................
Scottish Forms of Contract Chapter 23
...................................................................................................................
Nomination Chapter 24
.........................................................................................................
Competition Law Chapter 25
....................................................................................................................
Check List Appendix A
................................................................................
Amendments to Standard Forms
FOREWORD to the third editionLicensed copy from CIS: edmundn,
BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.The BCSA
Contractual Handbook has been comprehensively re-worked to reflect
the torrent of changes that have affected construction over the
years since the second edition was produced. As might have been
anticipated, there have been considerable developments in case law
since the last edition which have affected the position of
steelwork and other specialist contractors. More surprising has
been the impact of statute notably the Housing Grants Construction
and Regeneration Act 1996 which contains one of the few pieces of
legislation specifically designed for the construction industry.
The Commercial Debts (Interest) Act 1998, the Contracts (Rights of
Third Parties) Act 1999, the Competition Act 1998 and the Human
Rights Act 1998 will no doubt all make their mark in time. Thanks
are due to Roger Button and Ray White of Eversheds who produced
this edition, and to Lindy Patterson of MacRoberts for contributing
Chapter 23, Scottish Forms of Contract. The law is up to date as at
1 January 2001, although later changes have been incorporated where
possible.
M. Rich of Middle Temple, Barrister MSc FCIArb BCSA
CHAPTER 1
FORMATION OF CONTRACTSLicensed copy from CIS: edmundn, BAM
Nuttall Limited, 29/06/2012, Uncontrolled Copy.A contract is an
agreement between two parties which is legally enforceable.
Elements of a Binding ContractThere are five essential elements
which must exist to form a binding contract.
1. IntentAll parties must intend to create a legally binding
obligation between them.
2. CapacityAll of the parties to a contract should be capable of
entering into a legally enforceable relationship. Incorporated
bodies, partnerships and individuals (provided they are not infants
or insane) all have capacity to enter into a contract. If one or
more parties lack the capacity to enter into a contract, it may not
be enforceable.
3. AgreementAgreement is the fundamental characteristic of a
contract. In order to decide whether an agreement exists, the
Courts will consider the relationship between the parties
objectively and look, amongst other things, to see if there has
been an offer by one party and an unconditional acceptance of that
offer by the other.
4. Reasonable Certainty of TermsThe terms of the contract must
be reasonably certain. It is not necessary to have resolved every
detail, but there must be general agreement, and the parties must
intend to create a binding agreement despite any details which
remain to be agreed. For example, on a contract let on a With
Approximate Quantities basis the precise amount of work required
will not be known, but this does not prevent a binding contract
from being formed.
5. ConsiderationWith the exception of contracts executed as
deeds (dealt with in more detail later in this Chapter), there must
be consideration. Consideration is what one party agrees to do (or
not to do) to secure something from the other party. It was defined
by the House of Lords in the case of Dunlop v Selfridge (1915) as,
an act or forbearance of one party, or the promise thereof, the
price for which the promise of the other is bought... In
construction contracts the consideration is normally the promise of
the contractor (or subcontractor) to provide work and materials,
and the promise of the Employer (or main contractor) to pay a sum
of money in return. Consideration is not essential in contracts
governed by Scots law
Chapter 1
1
Formation of ContractsThere is no general legal requirement for
a contract to be written except for contracts of guarantee and
certain transactions regarding land. Although an oral agreement can
be legally binding, written evidence of the terms of a contract is
of tremendous practical significance, because it can be very
difficult to prove the terms of an oral agreement if a dispute
arises.
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Offer and AcceptanceInvitation to TreatInvitations to tender for
work may be preceded by an enquiry to ascertain whether contractors
are prepared to tender or by a formal pre-qualification process.
Often these preliminary procedures take place many months before
the actual invitation to tender is issued. Usually response to such
enquiries or participation in pre-qualification processes would not
impose any legally binding commitment on a Steelwork Contractor to
enter into a contract. Such enquiries and processes would normally
be regarded as invitations to treat, which means they are simply an
invitation to enter into negotiation. Provision of catalogues and
price lists are also invitations to treat, and do not normally bind
the supplier or the recipient to enter into a contract or to buy or
sell products at a particular price. There have, however, been
exceptional cases where an actual invitation to tender amounts to
an offer because the party issuing the invitation binds itself to
accepting, for example, the lowest tender (Harvela Investments Ltd
v. Royal Trust Co of Canada (CI) Ltd (1986)). In such
circumstances, by entering a tender a contractor may be accepting
the offer and a contract could result.
OfferTenders, estimates and quotations are all capable of being
offers. Pricing information given to main contractors and clients
for budget purposes may also be an offer if the information is
sufficiently detailed to form the basis of a binding contract if
accepted. This is because the law will look at the content of any
document to determine its nature, and although the title given to
it, e.g. budget price or pricing information will be relevant, it
will not be decisive. If a Steelwork Contractor wishes to give a
budget price but does not wish to be bound by it, it would be
sensible to include a statement in the document such as: This
information is given for budget purposes only. It does not
constitute an offer to carry out the work or provide the materials
described, and we will not be bound by it. A tender price will be
provided on request. An offer can be made to a specific person or
company, or it can be made at large. In the first case the offer
can only be accepted by the person to whom it is addressed, but an
offer at large may be accepted by any person. A tender for a main
contract will usually be an offer made to a specific person or
company and can only be accepted by that person or company.
Similarly, a tender for a domestic sub-contract will usually be
made to a specific main contractor and can only be accepted by the
main contractor. However, when a company tenders to a client or his
professional adviser for a nominated or named sub-contract, the
offer may be at large and if so, could be taken up by whomever the
client appoints as main contractor. This is important for Steelwork
Contractors because they are an early trade on most projects and
often the identity of the main contractor will not be known when
they submit their tenders for nominated or named sub-contracts.
Unless the Steelwork Contractor qualifies his
2
Chapter 1
Formation of Contractstender to the effect that he reserves the
right to withdraw it (or to revise his price) if a main contractor
unacceptable to him is appointed, he runs the risk of his tender at
large being accepted by whomever the client appoints as main
contractor. That may be contrary to the interests of the Steelwork
Contractor if the main contractor is not credit worthy or has a
poor payment record.
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Qualified TendersInvitations to tender frequently attempt to
prevent the tenderer from attaching any qualifications to his
tender. For example, all of the standard forms of tender produced
by the Joint Contracts Tribunal state that the sub-contractors
tender must be in accordance with the information set out in the
invitation. The client can determine the requirements which tenders
for work must meet and he can dismiss any tenders which are
qualified and therefore not in accordance with his requirements. On
the other hand, the invitation to tender documents may have omitted
some important information, or lack clarity or may insist upon
onerous conditions. In such cases, the tenderer must make the
commercial decision as to whether to qualify his tender. When
tendering to the client or his professional adviser on a JCT
standard form of tender, the only difficulties which should arise
from the invitation to tender are either a lack of information or
an ambiguity or conflict in the details given. In these
circumstances the. tenderer should inform the client (or whoever
issued the documents), and request that the information or
clarification required be provided and issued to all tenderers. If
there is a risk of being unable to obtain adequate supplies of
steel to meet contract completion dates, qualification may be
appropriate. However, tenderers should bear in mind that
qualification may result in their tender being rejected by the
client.
Withdrawal of TendersA tender may generally be withdrawn at any
time before it is accepted, notwithstanding any statement or
undertaking to hold the tender open for acceptance for a certain
period. Even where such undertakings are signed by the tenderer,
they are not usually legally enforceable as contracts under English
law. (They may, however, be enforceable under Scottish law). One
situation in which they will be enforceable is where the tenderer
is paid for holding the tender open for a specified period (this is
known as an option). The option may in some cases be backed up by a
bid bond which the client can call if the tender is withdrawn
during the specified period. Steelwork Contractors should also take
into account the commercial implications of withdrawing a tender.
These may include that Steelwork Contractor not being invited to
tender for further work for that client. There may also be a
technical difficulty with the withdrawal of tenders. Under English
and Scots law an acceptance is sometimes binding as soon as it is
posted, whereas the revocation of an offer must normally be
actually brought to the knowledge of the other party before it
takes effect. A tender may therefore have been accepted before the
tenderer is aware of the fact, and if this is the case any
subsequent attempt to withdraw the tender will not be successful.
Tenders which are held open for acceptance for a fixed period will
automatically lapse on expiry of that period and thereafter cannot
be accepted without the agreement of the tenderer. Some standard
forms of tender give the tenderer the opportunity to state a period
after which the tender is
Chapter 1
3
Formation of Contractsautomatically withdrawn. Tenderers should
fill in a realistic period after which they would prefer to review
their price or their ability to carry out the contract.
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AcceptanceAssuming the other criteria discussed above have been
met, a contract will be formed when one party makes an offer and
the other party unconditionally accepts that offer. Sometimes the
offer will impose restrictions on the manner in which it may be
accepted (e.g. only in writing). However in the absence of such
restrictions, an offer may frequently be accepted orally, in
writing, by e-mail or other electronic means, or may even be
inferred from the conduct of one party e.g. by starting work. As
stated above, acceptance sent by post can sometimes be binding as
soon as it is posted, even if it is never received. However, in
practice, if the letter is lost the sender may have difficulty
proving that it was posted unless it was sent by registered post or
recorded delivery. Acceptance by all other methods of
communication, such as by telephone, must actually be communicated
to the other party before it takes effect. To date there has been
no ruling on faxes or email, although it seems likely that they
will be treated in the same way as telexes, and will not be binding
until received. Given the negotiations, offers and counter-offers
which often precede the award of a construction contract, it is
sometimes difficult to ascertain precisely what offer has been
accepted. The following general rules should be borne in mind: 1.
If new terms are introduced in what purports to be an acceptance
(e.g. an order) the document is actually a counter-offer, which
must in its turn be accepted before a binding contract is
formed.
2. Acknowledgement of receipt of a tender or other offer does
not normally, in itself, constitute an acceptance of that offer. 3.
Silence cannot be an acceptance. Therefore if an offer is made and
the words added, we will proceed on the above basis unless we hear
from you to the contrary within [so many] weeks and no reply is
received, that would not in itself constitute acceptance and
therefore no binding contract. 4. The acceptance may be stated to
be subject to a formal contract. The precise effect of this phrase
depends on the state of the negotiations between the two parties.
Where further negotiations over essential terms of the contract are
contemplated, there will be no binding contract. If all the
essential terms have been agreed and the parties intend to
incorporate them into a formal document at a later stage, there may
be a binding contract. However, this will not be the case if the
parties have expressly or impliedly agreed that no contract shall
come into existence until a formal contract is executed J. Jarvis
& Sons Limited v. Galliard Homes Limited (1999).
Counter-OffersAn acceptance which purports to qualify an offer
in any respect amounts, in law, to a counter-offer. When faced with
a counter-offer, the person who made the original offer may decide
to accept it, in which case a binding contract is formed on the
basis of the counteroffer, or to decline it. The counter-offer may
be declined either expressly or by making yet another offer,
including re-submission of the original. Like any offer, in the
absence of any express time limit, a counter-offer will lapse after
the passage of time.
4
Chapter 1
Formation of ContractsContract negotiations are frequently a
series of counter-offers, but in construction contracts there are
dangers arising from the tendency to begin work before the contract
negotiations are complete. While this is an entirely pragmatic
approach, it is important to ensure that beginning work is not
deemed to be acceptance by conduct of terms and conditions with
which the Steelwork Contractor is unhappy. A typical sequence of
events runs as follows: 1. A Steelwork Contractor is invited to
tender for work on the basis of an unamended standard form of
sub-contract (invitation to treat). 2. The Steelwork Contractor
submits his tender on the basis of the standard form. (Offer). 3.
The main contractor places an order with the Steelwork Contractor
on the basis of his own terms and conditions which appear on the
reverse of that order. (Counter-offer). 4. 5. The Steelwork
Contractor acknowledges receipt of the order and begins work.
(Acceptance of Counter-Offer). Several days after starting work the
Steelwork Contractor attempts to negotiate terms of contract with
the main contractor (the Steelwork Contractor may well be bound by
the terms of the Counter-Offer).
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In the above example, the Steelwork Contractor could have
started work without tying himself to the main contractors terms
although this does not mean that the Steelwork Contractor is
working under his own terms. It is crucial that unacceptable terms
are disputed before any work is carried out, and the Steelwork
Contractor should also make clear that any off-site or on-site work
does not constitute an acceptance of the main contractors terms.
Main contractors orders frequently have an apparently innocuous
tear-off acknowledgement slip attached at the bottom. Careful
consideration should be given before such tear-off slips are signed
and returned, as they almost invariably include a statement that by
signing and returning the slip the sub-contractor is deemed to have
accepted all of the terms contained in the order. This would
probably result in the contract being concluded on the main
contractors own terms. If Steelwork Contractors wish to acknowledge
receipt of an order, they should write a simple letter
of0acknowledgement on their own stationery, making it clear that
the terms contained in the order are not accepted.
Battle of FormsThe negotiations leading up to a contract are
often a series of offers and counter-offers. This is sometimes
referred to as the battle of forms to describe each sides standard
terms and conditions being sent backwards and forwards. The leading
case on the battle of forms is the Court of Appeal decision in
Butler Machine Tool Co. v Ex-Cell-O Corporation (1979). The sellers
(Butler) offered to sell to Ex-Cell-O a machine tool on their
standard terms which included a variation of price clause.
Ex-Cell-O ordered the machine tool on their own terms and
conditions which did not contain a variation of price clause. The
buyers conditions contained a tear-off Acknowledgement slip which
contained the words, We accept your order on the terms and
conditions thereon. The sellers completed and returned the slip,
accompanied by a letter stating that they accepted the order on the
basis of their original offer. However, the Court of Appeal held
that by signing and returning the tear-off slip, the seller had
accepted the buyers terms, notwithstanding the accompanying
letter.
Chapter 1
5
Formation of ContractsA more recent case on the battle of forms
is Sauter v Goodman (1986) which concerned a contract for boiler
replacement at Windsor Castle. The key question was whether a
retention of title clause in Sauters own terms and conditions had
become part of the contract.
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Sauter had quoted to Goodman on the basis of their own terms and
conditions which included a retention of title clause. Goodman had
accepted the quotation on terms and conditions in accordance with
the main contract which was GC/Works/1 Edition 2. GC/Works/1
provides that every subcontract must include a term that, all
things for incorporation belonging to the subcontractor which are
brought onto site in connection with the sub-contract shall vest in
the contractor, in other words the exact opposite of a retention of
title clause. The Court held that Sauter had accepted Goodmans
terms (which amounted to a counter-offer) by delivering the goods,
and therefore there was no retention of title clause in the
contract. On the battle of forms, the following key principles
should be borne in mind by Steelwork Contractors: 1. An
acknowledgement slip should not be completed and returned unless
the Steelwork Contractor agrees that the conditions to which it
refers are acceptable in their entirety. 2. Rejection of the terms
of an offer should be written in unequivocal terms and should be
incapable of being misconstrued. 3. If Steelwork Contractors wish
to proceed with the work while continuing negotiations, they must
make it very clear prior to commencing work that by so doing they
are not accepting the employers or main contractors terms and
conditions.
Letters of intentLetters of intent are a minefield for the
unsuspecting sub-contractor. Steelwork Contractors are particularly
vulnerable as they are an early trade and are therefore frequently
requested to carry out preparatory work and fabrication off-site
before a formal order or contract is issued.
1. DefinitionIn law, a letter of intent is simply astatement of
the writers intentions. It does not constitute an offer,
counter-offer or acceptance, and therefore does not create a
binding contract. Letters of intent are sometimes used as a device
by the Employer (or architect or consulting engineer acting on his
behalf) whereby the Steelwork Contractor is effectively instructed
to carry out preliminary work pending the selection of a main
contractor and the execution of a sub-contract. In such cases
although a document may be headed letter of intent, consideration
of its content may reveal that it is actually an acceptance or
counter-offer which requests the recipient to carry out all or part
of the work referred to in the letter. If the so-called letter of
intent makes it clear that all the essential terms of the contract
have been agreed, commencement of work following receipt of such a
letter may lead to a contract coming into being. In the event of a
dispute as to whether or not a contract had actually been
concluded, the Court would take into account the heading of the
document but it would not be decisive in determining its nature.
The Court would look at the content of the document, and, if it was
in substance an acceptance or counter-offer, they would construe it
as such.
2. Terms of Letter of IntentWhen a Steelwork Contractor receives
a letter of intent, his first thought should be: If I act on this
and the job is subsequently cancelled (or given to someone else)
will I get paid for the work Ive done?
6
Chapter 1
Formation of` Contracts Provided the letter clearly instructs
the Steelwork Contractor to undertake the work, and the Steelwork
Contractor does not go beyond that instruction, the answer to that
question is likely to be yes: the Steelwork Contractor will be
entitled to be paid for the work he has carried out.
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As to payment for work done in reliance upon a letter of intent,
in the absence of any provisions in the letter about payment, the
Court would imply an entitlement to payment of a reasonable sum
(sometimes referred to as quantum meruit) for the work. A Steelwork
Contractors position would be strengthened if the letter included
an express undertaking to pay a reasonable price for the work
executed. If the letter simply refers to covering the costs
incurred, Steelwork Contractors should be aware that while a
reasonable price will include overheads and profit, costs may not.
The phrase loss and expense has been equated by the courts with
damages, and would therefore be preferable to costs as it would
include overheads and profit. Obviously the best position for a
Steelwork Contractor as to payment under a letter of intent would
be one where the price or the rates for his work are clearly set
out or referenced in the letter. It is vital that the Steelwork
Contractor does not carry out more work than is authorised by the
letter of intent. Ideally, the letter should identify in detail
what the Steelwork Contractor is required to do. For a Steelwork
Contractor this will normally comprise: (a) (b) (c) (d) (e)
ordering the material designing the connections preparing detailed
drawings planning the contract both on site, and at the Steelwork
Contractors works fabricating the material.
If the Steelwork Contractor is required to carry out work beyond
that specifically authorised, he should obtain a further written
instruction (including an undertaking to pay) from the party who
issued the letter of intent.
3. Obligations Regarding TimeWith the popularity of fast-track
construction the question of how quickly work must be carried out
is becoming increasingly important. If no contract is ever agreed,
it seems that there is no obligation to adhere to a particular
programme. This is illustrated by the case of British Steel
Corporation v Cleveland Bridge & Engineering Co Ltd (1981).
Cleveland Bridge had been engaged as sub-contractors to fabricate
an unusual steel lattice-work frame for a bank in Saudi Arabia.
Cleveland Bridge approached British Steel with a view to employing
them to cast nodes for the frame, but the negotiations both
regarding the specification and the terms of the contract were long
and complex. In February 1979 Cleveland Bridge sent British Steel a
letter of intent which stated an intention to place an order at the
price quoted by British Steel, but on Cleveland Bridges own terms,
which placed unlimited liability on the sellers for the costs of
any delay. British Steel made it clear they would not accept those
terms. but nevertheless constructed and supplied the nodes. The
final node was not delivered until April 1980 owing to a national
steel strike. British Steel sued for the value of the nodes and
Cleveland Bridge counter claimed for damages for late delivery. The
Court held that there was no contract because the parties had not
agreed on important aspects such as progress payments and liability
for late delivery. British Steel could not be liable for damages
for late delivery. However, they were entitled to be paid a
reasonable price for the work because it had been done at Cleveland
Bridges request and accepted by them.
Chapter 1
7
Formation of ContractsIt is not always, of course, the case that
a Steelwork Contractor who carried out work in anticipation of
entering into a contract will be able to claim a reasonable sum for
that work if the contract is not, ultimately, entered into. In
Regalian plc v. LDDC (1995) the Court rejected the contractors
argument, holding that the costs which it now sought to recover
were the costs of putting itself in the position to obtain and
perform the contract. However, this does not mean that when working
on a letter of intent, Steelwork Contractors can afford to ignore
the main contractors or employers requirements regarding programme,
because any terms subsequently agreed may apply retrospectively to
the work executed on the basis of the letter of intent. For
example, in the case of Trollope & Colls Ltd v The Atomic Power
Construction Company Limited (1963) sub-contractors had tendered
for a power station contract. In June 1959, the sub-contractors
were asked to start work on the basis of the letter of intent which
read as follows: We have to inform you that it is our intention to
enter into a contract with you for (the works). As soon as matters
outstanding between us are settled we will enter into a contract
agreement with you, and in the meantime please accept this letter
as an instruction to proceed with the work necessary to permit you
to meet the agreed programme. The parties agreed the terms of the
contract in April 1960, but the contract was never signed. The
sub-contractors subsequently argued that no contract had been
formed and therefore they were entitled to reasonable payment
rather than the prices they had quoted. They also argued that the
terms of the contract eventually agreed applied only to work
executed after April 1960, and did not cover the work executed on
the basis of the letter of intent. The Court held that a contract
came into existence in April 1960, and the terms of that contract
applied retrospectively.
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4. Authority to Write Letter of IntentIt is important that a
Steelwork Contractor checks the letter of intent is written by
someone with appropriate authority to act. A letter from the
Employer or from the main contractor should be acceptable. Where,
however, a letter is received from another party, such as a
consultant, a Steelwork Contractor should check with the Employer
or main contractor that they have the necessary authority. If a
Steelwork Contractor is in any doubt about the authority of the
person who has signed the letter, he should ask for a written
confirmation from the employer or the main contractor before
starting any work.
Payment for Preparatory Work where No Letter of Intent is
IssuedFollowing the decision of the Court in Marston Construction v
Kigass (1989), it may be possible to recover the cost of
preparatory work even where no letter of intent has been issued.
Marston tendered for a design and build contract to provide a
replacement for Kigass factory, which had burnt down. The insurers
did not pay enough to cover the cost of rebuilding so the contract
was never placed, but Marston claimed a substantial sum for the
preparatory work they had carried out over and above the
preparation of the tender itself. Kigass had not written a letter
of intent, nor had they given an assurance (requested by Marston)
that the preparatory costs would be met. On the other hand, Marston
were not given any indication that the preparatory work would be at
their risk. The Court held that Marston were entitled to be paid a
reasonable sum for the preparatory works, because they had been
done at the implied request of Kigass, and Kigass had obtained a
realisable benefit, in the form of some design work as a
result.
8
Chapter 1
Formation of ContractsNotwithstanding this decision, it is
obviously preferable for Steelwork Contractor to obtain clear
undertakings regarding payment before executing any preparatory
work as described in Letters of Intent above.
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Incorporation of Terms by ReferenceFrequently, neither the
invitation to tender nor the tender itself spells out all the
conditions which will apply to any resulting contract. They will
simply refer to conditions written elsewhere such as DOM/1. The
conditions referred to will be incorporated into the as if they
were written out in full. The Courts have held such incorporation
by reference valid even where the reference was incomplete and
partially incorrect e.g. referring to the green form as the
appropriate form for nominated subcontractors (RIBA 1965 Edition).
Where there is an indication that some step, such as signature of
documents, is to be taken, in order to incorporate conditions, the
Courts will take this into account in deciding whether the
conditions have been incorporated especially if the conditions
contain onerous provisions. In Jonathan Wren & Co & anr v
Microdec plc (Case Number 1999 TCC 8), the Technology and
Construction Court considered the case of a software supplier whose
quote stated that it was subject to their standard conditions.
Although the quote was signed and returned on behalf on the buyer,
the suppliers standard conditions were not given to the buyer. In
addition, the conditions themselves stated that they would only
become binding when signed by the parties. They were never signed.
The Court held that the suppliers standard conditions were not
incorporated into the contract. Tender documents frequently include
a general statement that the sub-contractor shall observe and
comply with all the terms of the main contract as if the same were
set out in the sub-contract. Whether such attempts to incorporate
the main contracts terms will be successful depends on the
circumstances of the individual case. In Dunlop & Ranken v
Hendall Steel Structures (1975) it was held that the incorporation
of the terms of the main contract by loose general words would not
normally bind the sub-contractor to specific terms in the main
contract. Conversely, in the case of Sauter v Goodman described
above, the Court held that relevant main contract terms could apply
between the main contractor and sub-contractor (with the necessary
changes) so that for contractor one read subcontractor, and for
Authority, contractor. Steelwork Contractors should carefully
consider whether it is appropriate to incorporate all of the main
contract terms into a sub-contract, which they may be about to
enter into. For example, if the main contractor provides for the
main contractor to provide insurance covering all of the main
contract works, it may not be appropriate to impose the same
obligation on a sub-contractor who will be responsible for only
part of the works. The Steelwork Contractor will in any event
normally expect the main contractor to provide temporary work such
as access roads and hardstandings and would therefore not wish to
accept the obligation to provide these.
Simple and Specialty ContractsA contract under hand is one which
is simply signed by the parties. It is sometimes referred to as a
simple contract. A contract which is executed under seal (i.e.
where the company seals of the parties is affixed to the contract)
or as a deed is known as a specialty contract. Until July 1990, the
common method of executing a specialty contract was to impress a
seal on the document. As part of a package of measures designed to
lighten the administrative burden on smaller companies, the
Companies Act 1989 abolished the requirement for company seals, and
introduced arrangements whereby a document
Chapter 1
9
Formation of Contractsstated to be executed as a deed, and
signed by two directors or a director and the company secretary,
had the same effect as if it had been executed under the company
seal. The main differences between contracts executed under hand
and those under seal or executed as a deed are:
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contracts under hand have a limitation period of six years from
the date of the breach of contract whereas those under seal or
executed as a deed have a limitation period of twelve years.
contracts under seal or executed as a deed do not require
consideration (see Elements of a Binding Contract above).
Interpretation of ContractIn deciding the meaning of words used
in the contract, the Courts will follow their natural and ordinary
meaning. The fact that one party may not have appreciated or
intended the meaning of any particular words or understood their
implications does not normally affect the position. However, it is
important to note that the Courts when interpreting contracts, will
take account of the factual background to the contract i.e.
information available to all parties at the time the contract was
made. This may well help in situations where there is ambiguity.
Further, where consideration of the factual background makes it
clear that the words used cannot have reflected the intention of
all parties, the Court will construe the contract so as to give
effect to that intention. This occurred in another context in
Mannai Investment Co. Limited v. Eagle Star Life Insurance Co.
Limited (1997) and in Investors Compensation Scheme v. West Bromich
Building Society (1997).
Rights of Third Parties under a ContractThe traditional position
of English law has been that Third Parties (persons not parties to
a contract) are not entitled to enforce any rights under that
contract. This is known as the doctrine of Privity of Contract. The
doctrine has been subject to a number of limited statutory
exemptions. The position has now been considerably changed by the
Contracts (Rights of Third Parties) Act 1999. When a contract
either: a. expressly provides that the Third Party may enforce a
right under the contract, or b . purports to confer a benefit on a
Third Party the Third Party may enforce provisions of the contract
as though he were a party to the contract. A Third Party may be an
individual person or company or a member of a defined class. No
consideration from the Third Party is required. There is
considerable uncertainty as to the effect of the words quoted in
(b) above. It is possible that in certain circumstances they could
be interpreted as allowing, for example, the Employer, to enforce
direct the provisions of a sub-contract against the sub-contractor.
For that reason, almost all of the standard forms are being amended
to make it clear that the contract does not intend to confer a
benefit on any Third Party. The Act came into force on 11 October
1999 and applies automatically to all contracts entered into on or
after 11 May 2000. The parties may opt into the Act before that
date. The Act does not apply to Scotland.
10
Chapter 1
Formation of Contracts
SummaryInterpretation of Contracts: The Courts will normally
adopt the natural and ordinary meaning of words used. Where there
is ambiguity, then that may be resolved by reference to the factual
background. The Courts may disregard the literal meaning of words
where it is clear from the factual background that such an
interpretation would not reflect the intention of all parties.
Third Parties: Until recently, a Third Party could not in most
cases enforce rights under a contract. This has now changed in
respect of contracts concluded on or after 11 May 2000. A Third
Party will be able to enforce provisions under a contract where the
contract expressly so provides or the contract purports to confer a
benefit on the Third Party. Elements of a binding contract: There
are five elements of a binding contract: intent, capacity,
agreement, reasonable certainty of terms and consideration.
Consideration is not necessary in contracts executed under seal.
There is no legal requirement for writing, but in practice it is
important for reasons of proof. Invitation to Treat: is merely an
offer to receive offers. Invitations to tender, catalogues and
price lists are normally invitations to treat. Offer: a document
may be an offer even if described as a budget price if it is
sufficiently detailed to form the basis of a binding contract.
Offers at large may be accepted by anyone, and therefore when
tendering to the Employer for a nominated sub-contract Steelwork
Contractors may wish to reserve the right to withdraw if an
unacceptable main contractor is appointed. The decision to qualify
a tender is a commercial one which may result in the rejection of
the tender. Offers may be withdrawn at any time before acceptance
under English law unless the tenderer has been paid to hold the
offer open. Acceptance: an acceptance must normally be
unconditional: if it introduces new terms it is probably a
counter-offer. Acceptance can be inferred from conduct (e.g.
starting work). It must be communicated to the other party, unless
made by post in which case it often takes effect when posted. If a
sub-contractor does not accept all the terms in a main contractors
order, he must communicate that fact before starting work.
Acknowledgement-of-order slips provided by the main contractor
normally refer back to the terms of the order and should not be
signed unless the sub-contractor wishes to accept all the terms
contained in the order. Letter of Intent: should include an express
undertaking to pay the contractor for preparatory work if no
contract results, and should specifically authorise the work
required. The sub-contractor should not go beyond the terms of the
letter of intent, and should ensure it is written by someone with
appropriate authority. Incorporation by reference: terms
incorporated by reference are binding, even if the reference is
incomplete or partially incorrect.
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Chapter 1
11
CHAPTER 2
CLASSES OF CONTRACTLicensed copy from CIS: edmundn, BAM Nuttall
Limited, 29/06/2012, Uncontrolled Copy.Construction contracts fall
into a number of classes or types, and the class of contract
determines whether certain documents form part of the contract and,
to an extent the basis of payment to the contractor. The most
widely used standard forms are discussed in more detail in Chapter
3; this Chapter outlines the main distinguishing characteristics of
the main classes of construction contract.
1. Lump Sum, Without QuantitiesThis type of contract
incorporates an agreement to carry out and complete a whole
project, e.g. a bridge, for a lump sum, in return for a stated cash
sum. Such a contract is normally based on drawings and
specifications which taken together define the work covered by the
price. Quantities are not part of the description of the work and
any rates incorporated in the contract are for variation purposes
only. In a pure lump sum contract, the contract price is to be
changed only where the Employers plans are varied (e.g. by a design
change), and the contractor will not be entitled to extra payment
if carrying out the work for which he tendered turns out to be more
difficult and costly than he originally envisaged. No work done or
cost incurred which is indispensably necessary to carrying out the
works may be valued as an extra. This type of contract is not
therefore suitable for a job where the extent of the work necessary
is uncertain. JCT98 Without Quantities is an example of this class
of contract.
2. Lump Sum, with QuantitiesIn this type of contract, the bills
of quantities are intended to be the exact measure of the work to
be carried out. If there are errors in the bills, or if the
contractor finds any discrepancy between the bills and any other
contract document, any corrections are treated as variations and
are valued accordingly. The rates in the bills will also be used,
where appropriate, for the purpose of valuing any variations which
may be ordered under the contract. The essential feature which
distinguishes a lump sum contract with quantities from that without
quantities is that the quantities in the bill form part of the
description of the works to be done, and thus the lump sum tendered
for the work is only in respect of the quantities set out in the
bill: the contractor is entitled to extra payment for any work done
beyond that. Any provisional sum included within the bills is
measured and valued when the work in respect of which the
provisional sum was included is carried out, unless it relates to
work which is to be carried out by a nominated sub-contractor, in
which case the work will be valued under the relevant sub-contract
terms. JCT98 With Quantities is an example of this class of
contract, although if the bills have been prepared in accordance
with SMM7, they may include approximate quantities in an otherwise
firm bill. When the contractor executes work for which an
approximate quantity was included in the bills, the rate for the
approximate quantity determines the valuation of the work, provided
the approximate quantity was a reasonably accurate forecast of the
quantity of work required. Some commentators feel that the
inclusion of approximate quantities undermines, to some extent, the
lump sum character of this form of contract.
Chapter 2
1
Classes pf Contract
3. RemeasurementA remeasurement or measure and value contract is
one where the contract price is recalculated on final measurement
using the rates set out in the tender. There may be a bill of
approximate quantities against which the contractor tenders. The
final quantities are remeasured when the work is completed and the
contractor is paid at the rates he tendered for those measured
quantities. The contractors tender total is simply an estimate
based on the proposed volume of work to be carried out, and has no
purpose other than as a basis for selection. On re-measurement
contracts variations are normally concerned with design or quality
changes rather than quantity changes. JCT98 With Approximate
Quantities and the ICE 7th Edition are re-measurement contracts.
Under JCT98 With Approximate Quantities, if the approximate bills
are not a reasonably accurate forecast of the work required, the
work is valued at the tendered rates and prices plus a fair
allowance for the difference in quantity. Work not covered by the
bills is subject to a fair valuation, or if appropriate, may be
measured on daywork.
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4. Prime CostUnder a prime cost contract the contractor is
entitled to be paid the actual cost he incurs in carrying out the
work plus a fixed fee for his overheads and profit. Architects
Instructions will not normally lead to any variation in the fee,
although additional work will be paid for as part of the prime
cost. This type of contract is normally used where an early start
is required. e.g. after fire damage. The JCT Management Contract
1998 is an example of a Prime Cost Contract.
5. Design and BuildThe classes of contract described above are
based on the traditional division of responsibilities between the
designer and contractor: they assume that a professional
practitioner (architect and/or engineer) appointed by the Employer
will be responsible for design, and the contractor will be
responsible for materials and workmanship. In recent years there
has been a pronounced move by clients away from traditional
contracting towards, amongst other things, design and build
contracts, whereby the contractor provides a total design and
construction package. The two major characteristics of design and
build contracts are that they provide for the contractors
responsibility for design and the Employer may only vary the design
of the works with the contractors consent. The JCT publishes both a
standard form With Contractors Design WCD98 and a Contractors
Designed Portion Supplement to JCT98 for use where the Contract is
to design only part of the works. WCD98 is discussed in more detail
in Chapter 21.
6. Management ContractingThere are many variants of management
contracting but in its most popular form the Employer appoints a
professional team, normally led by an architect and a management
contractor. The management contractor manages and co-ordinates the
project but does not carry out any of the work on site: this is
done by works or trade contractors, each of whom has a separate
contract with the management contractor. This method of contracting
is normally of very low risk for the management contractor, as he
is relieved of the consequences of default by the Works
Contractors,
2
Chapter 2
Classes of Contractprovided he has enforced the provisions of
the works contracts against them. It is therefore the Employer who
takes the risk of Works Contractors insolvency or failure to pay
claims. Management contracting is generally acknowledged to be
suitable only for large and complex projects, and is particularly
appropriate where an early start and fast completion are
required.
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The JCT publish a Standard Form of Management Contract - MC98.
Comments on MC98 are made throughout this Handbook.
7. Construction ManagementAnother approach to construction
projects is construction management. Under this system each of the
separate trades has a direct contract with the Employer and is paid
by him. The work on site is managed and co-ordinated by a project
manager or construction manager.
8. PartneringPartnering has no precise legal meaning. There are
various types of partnering but some common features of partnering
arrangements include: An intention for the parties - employers,
contractors and sub-contractors - to work together cooperatively,
in good faith for the benefit of the project as a whole. This
intention is sometimes supported by a commitment to a mission
statement, arrangements for early reporting of problems and a team
approach to problem-solving. Some form of risk/reward sharing. This
may, for instance, involve the parties agreeing to take
responsibility for a portion of cost overruns if the project
finishes late or over budget or to be paid a bonus if the project
finishes early or under budget.
Steelwork Contractors may derive benefits from participating in
partnering arrangements but the risks involved in such arrangements
should also be considered. In particular they should consider: The
extent to which their exposure to taking a share of cost overruns
is under their control or under the control of other parties. The
extent to which their entitlement to bonus is under their control
or under the control of other parties. Whether the roles of and
resources to be provided by each of the parties is clearly stated
or, if not, that there are fair mechanisms for agreeing these.
Sometimes the high-level partnering ideals are contained in a
non-legally binding document such as a charter leaving the legally
binding provisions to be dealt with in contracts. In some
circumstances, however, even though a partnering charter may not be
legally binding, a court may still take its provisions into account
at it did in the case of Birse Construction Ltd v St David Ltd
(1999). The Association of Consultant Architects have recently
published a Standard Form of Contract for Project Partnering PPC
2000. PPC 2000 aims to address the key recommendations of Sir
Michael Latham in his report Constructing the Team. PPC 2000
describes itself as a single, fully integrated project partnering
contract, designed to underpin a team-based approach and to promote
clarity and confidence among partnering team members,
Chapter 2
3
Classes pf Contract
9. Prime ContractingPrime contracting aims to replace the
traditional confrontational relationships with processes which
concentrate on delivering better value. Prime Contracting often
features:
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Long term relationships between the Prime Contractor and
suppliers - not just for one project. Collaborative working. Focus
on through-life costs of a project rather than solely on capital
cost. A continuous improvement regime. Acceptance by the Prime
Contractor of responsibility for almost aspects of the project from
inception.
4
Chapter 2
CHAPTER 3
STANDARD FORMS OF CONTRACTLicensed copy from CIS: edmundn, BAM
Nuttall Limited, 29/06/2012, Uncontrolled Copy.There are various
standard or model forms of contract published for use in connection
with construction projects. In this Handbook we will concentrate on
the forms most likely to be encountered by Steelwork Contractors,
namely, those published by the Joint Contracts Tribunal (JCT) and
by the Institution of Civil Engineers (ICE) and the associated
sub-contract forms published by the Construction Confederation and
by the Civil Engineering Contractors Association. The ICE have also
published the Engineering and Construction Contract - a brief
comment on this form is included at the end of this Chapter.
The JCT Forms of Main Contract and Associated Sub-ContractsThe
JCT publishes a wide variety of forms of contract. Many of these
forms were until recently subject to numerous and lengthy
amendments which made them cumbersome to work with. Fortunately, in
1998 most of the relevant amendments were incorporated into new
editions of the JCT forms with the exception of the Terrorism Cover
provisions which are still separate. In this Handbook, we will
concentrate on the 1998 editions of the JCT forms. For those
readers who wish to know more about the previous editions and the
various amendments, please see Appendix A. The forms most likely to
be relevant to Steelwork Contractors are: Standard Form of Building
Contract - JCT98 JCT98 is the main JCT document for use where the
Employer has engaged professional consultants to design the works,
and requires a contractor to carry out those works by supplying the
necessary workmanship and materials. There is no upper limit on the
size of project for which the form can be used, but it would be
somewhat complex for reasonably simple contracts of relatively low
value and short duration. Six versions of JCT98 have been
published: Private With Quantities Private Without Quantities
Private With Approximate Quantities Local Authorities With
Quantities Local Authorities Without Quantities Local Authorities
With Approximate Quantities
Nominated Sub-Contracts for use with JCT98Various documents are
issued by the JCT relating to nominated sub-contractors. These are
referred to in clause 35.4 of JCT98 and are as follows: NSC/T The
Standard Form of Nominated Sub-Contract Tender. It comprises 3
parts: Part 1: The Employers Invitation to Tender to a
Sub-Contractor Part 2: Tender by a Sub-Contractor
Chapter 3
1
Standard Forms of Contract Part 3: Particular Conditions (to be
agreed by a Contractor and Sub-Contractor nominated under clause
35.6 of JCT98)
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NSC/A The Standard Form of Articles of Nominated Sub-Contract
Agreement between a Contractor and a Nominated Sub-Contractor NSC/C
The Standard Conditions of Nominated Sub-Contract NSC/W The
Standard Form of Employer/Nominated Sub-Contractor Agreement NSC/N
The Standard Form of Nomination Instruction for a
Sub-Contractor
Domestic Sub-Contracts for use with JCT98In addition to
nominated sub-contractors, JCT 98 also provides for the appointment
of domestic (i.e. non-nominated) sub-contractors. Domestic
sub-contractors are selected by the main contractor to carry out
work which has been priced by the main contractor. JCT98 does not
specify any mandatory form of domestic sub-contract. Most large
main contractors have their own forms of domestic sub-contract, but
there is a standard form, DOM/ 1, which is published by the
Construction Confederation. DOM/ 1 is published in two parts: the
Articles of Agreement and the Sub-Contract Conditions.
Intermediate Form IFC98 Main ContractThis form is intended for
use on projects where JCT98 is considered to be too heavy-weight.
Notes on the back of IFC98 state that it is suitable for use where:
1. the works are of simple content (i.e. involving the normally
recognised trades and skills of the industry); 2. there is no
specialist complex work: 3. the work is adequately specified and
billed pre-tender The main provisions of IFC98 and the ways in
which it allocates risk are generally similar to JCT 98. However,
the contract is much shorter than JCT 98, and some of the
procedural aspects of that document have been omitted. The main
differences between JCT98 and IFC98 are: 1. JCT98 provides for the
nomination of sub-contractors, whereas IFC98 provides only for
naming, which is an upgraded form of domestic sub-contracting
whereby the architect selects the sub-contractor, but once
appointed he is treated as a domestic sub-contractor. 2. IFC98 does
not allow for conventional fluctuations. Contracts are let either
on a fixed price or formula basis. There is an embargo on oral
instructions under IFC98.
2
Chapter 3
Standard Forms of Contract
Sub-contracts for use with IFC98Clause 3 of IFC98 permits the
appointment of two types of subcontractor: named and domestic.
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Named Sub-Contracts for use with IFC98Where a named
sub-contractor is to be appointed, the Employer (or the
architect/engineer on his behalf) selects the tender list, invites
tenders, selects the sub-contractor and instructs the main
contractor to enter into a sub-contract with that sub-contractor.
The use of both a standard form of tender (NAM/T) and a standard
sub-contract (NAM/SC) is mandatory. To this extent, naming is very
similar to nomination. However, named sub-contract work will be
priced by the main contractor, and will not be the subject of a
prime cost sum. Once the sub-contractor has been selected, he is
treated like any other domestic subcontractor, albeit he has the
protection of a standard and mandatory sub-contract form. The named
subcontractor does not receive copies of architects certificates of
payment, and it is the main contractor who issues instructions to
him and awards extensions of time. For these reasons, naming under
IFC98 should be regarded as upgraded domestic sub-contracting
rather than down-graded nomination. In addition to the standard
tender, NAM/T, and the standard sub-contract, NAM/SC, there is an
Employer/Subcontractor agreement, ESA/ 1, which deals with design
carried out by named subcontractors.
Domestic Sub-Contracts for use with IFC98A standard form of
domestic sub-contract for use with the Intermediate Form called
IN/SC has been produced. This document is completely optional: the
main contractor is free to use his own terms and conditions if the
sub-contractor agrees. IN/SC is produced in two parts: the recitals
and articles of agreement. Which incorporate by reference the
separately issued conditions of contract. In view of the named
sub-contractors essentially domestic status once he has been
appointed, the terms of IN/SC are very similar to the terms of
NAM/SC.
JCT With Contractors Design Main Contract WCD98The JCT With
Contractors Design Form WCD98 is for use where the contractor is
designing the works. This form has become increasingly important,
partly because of the trend towards design and build contracts and
also because the form is used by some major private sector
employers where the contractor is required to have only a partial
design input. WCD98 requires the Employer to state his
requirements, which may be little more than a description of the
accommodation required, or anything up to a full scheme design
prepared for the Employer by his own consultants or other
professional advisers. In response, the contractor submits his
proposals for the design of the works, a lump sum price and a
contract sum analysis which will be the basis of valuing changes
(variations) in the Employers requirements. A more detailed
commentary on WCD98 is given in Chapter 21 - JCT Standard Form With
Contractors Design.
Chapter 3
3
Standard Forms of Contract
Sub-contracts for use with WCD98The JCT itself has not published
any standard forms of sub-contract for use with WCD98, and as all
sub-contractors under WCD98 are domestic, no standard sub-contract
is stipulated. However, the Construction Confederation have issued
a standard form, DOM/2. DOM/2 comprises Articles of agreement, and
a set of conditions. JCT Management Contract 1998- MC98 Main Form
MC98 comprises Articles of Agreement and Conditions. MC98 is
deliberately low risk for the Management Contractor. Essentially,
the Management Contractor manages the construction process while
the work on site is actually carried out by Works Contractors. The
JCT advises that suitable conditions for use of the Management
Contract would be where: (i) the Employer wishes the design to be
carried out by an independent architect and design team (ii) there
is a need for early completion (iii) the project is fairly large
(iv) the project requirements are complex (v) the Employer while
requiring early completion wants the maximum possible competition
in respect of the price for the building works. Under MC98, the
design of the project is to be carried out by a Professional Team
comprising an architect or contract administrator, quantity
surveyor and any other professional advisers as are necessary, for
example, consulting or structural engineers. Works Contractors may
also carry out some design work, which is catered for both by the
separate Works Contractor/Employer agreement and a provision in the
Works Contract which makes the Works Contractor liable to the
Management Contractor for the failure to exercise reasonable skill
and care in any design he carries out. The Management form is not a
lump sum contract. The quantity surveyor prepares a Contract Cost
Plan which is an indication of the price the Employer will pay for
his project (exclusive of the Management Contractors fee). The
Management Contractor is entitled to be paid the actual cost of
building the project (i.e. the prime cost). In addition to the
prime cost, the employer also pays the Management Contractors fee
for his management services, which can be either a lump sum or may
be calculated as a percentage of the contract cost plan total. The
project period is divided into two phases: a pre-construction
period and a construction period. During the pre-construction
period the Management Contractor will prepare a detailed
construction programme, assist in appointing Works Contractors and
advise on the practical aspects of design. Before the end of the
pre-construction period the Management Contractor and the
Professional Team must have agreed upon the Contract Cost Plan, and
the content of the all important third schedule of MC98 which is a
list of the services to be provided by the Management Contractor.
When the Architect decides that it is practicable to commence
construction of the project, the Employer must decide whether he
wishes the Management Contractor to proceed. In other words, there
is a break clause between the pre-construction and construction
periods, which gives the Employer an opportunity to decide whether
he wishes the same Management Contractor to continue into the
construction phase. If he does not, then the Management Contractor
is paid a separate pre-construction period management fee which is
identified in his tender.
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4
Chapter 3
Standard Forms of ContractDuring the construction period the
Management Contractor has possession of the site. He is not
contractually responsible for the prime cost of the project if it
exceeds the contract cost plan total, but he is contractually
responsible for securing the completion of the project on or before
the date of completion. His main obligation during the construction
period is to set out, manage, organise, supervise and secure the
carrying out and completion of the project through the Works
Contractors. The provisions of MC98 in terms of risk are somewhat
complex. The Management Contractor is fully liable to the Employer
for breach of obligations regarding time, workmanship and materials
by the Works Contractors. He must enforce the terms of the Works
Contracts, if necessary to the extent of taking any disputes to
adjudication, litigation or arbitration. However, the Management
Contractor is entitled to be paid by the Employer the costs of such
litigation or arbitration, provided it has been undertaken after
consultation with the Employer and the architect. Any shortfall
which cannot be recovered from the Works Contractor (for reasons of
insolvency or otherwise) is borne by the Employer and not the
Management Contractor. Similarly, the Employer may recover
liquidated damages from the Management Contractor only to the
extent that the Management Contractor recovers them from the Works
Contractors. The only exception to these relief provisions is where
the Management Contractor has incurred costs due to his own
negligence in carrying out his duties which are listed in the third
schedule.
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Works Contracts for use with MC98MC98 describes the contractors
who carry out the work as Works Contractors, not sub-contractors.
The Works Contract documentation comprises: Works Contract/1 which
is a standard form of tender Works Contract/2 which contains the
conditions of contract Works Contract/3 which is an (optional)
agreement between the Employer and the Works Contractor
ICE Conditions 7th EditionThe ICE Conditions of Contracts are
widely used for civil engineering projects. The 7th edition of the
ICE Conditions was published in September 1999. ICE 7th is a
re-measurement contract. Where there are significant changes in
quantities, the contract rates may be altered.
Sub-Contracts for use with ICE 7thThe ICE 7th prohibits
sub-contracting of the whole of the works without the prior consent
of the Employer. Sub-contracting of part of the works is permitted
but the extent of the works to be subcontracted and the name and
address of the sub-contractor must be notified to the Engineer
prior to the sub-contractors entry onto the site or, where the
sub-contractor is carrying out design, on appointment. The ICE 7th
provides for the appointment of nominated sub-contractors, but does
not make the use of a standard form of sub-contract mandatory.
Chapter 3
5
Standard Forms of ContractA Form of Sub-Contract (1998 edition)
has been published by the Civil Engineering Contractors Association
for use with the ICE 6th but as at 1 January 2000 no version has
yet been published for use with the ICE 7th.
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
The Engineering and Construction Contract - 2nd editionThe
contract comprises a set of core clauses which are to be used in
every case where the contract is used. The core clauses must be
supplemented by one of six possible sets of provisions aimed mainly
at payment which are: Option A Option B Priced contract with
activity schedule Priced contract with bill of quantities
Option C Target contract with activity schedule Option D Target
contract with bill of quantities Option E Cost reimbursable
contract Option F Management contract
Although A to F are called Main Options, at least one of them
must be chosen. In addition to the above, the parties may chose
other Secondary Options to form part of the contract. It not
necessary to adopt any of these Secondary Options and, except where
otherwise stated, they may be used in any combination. These other
optional provisions are: Option G Performance Bond Option H Parent
company guarantee Option J Advanced payment to the Contractor
Option K Multiple currencies (not to be used with Options C,D,E
and F) Option L Sectional Completion Option M Limitation on the
Contractors liability for his design to reasonable skill and care
Option N Price adjustment for inflation (not to be used with
Options E and F) Option P Retention (not to be used with Option
F)
Option Q Bonus for early Completion Option R Delay damages
Option S Low performance damages Option T Changes in the law Option
U The Construction (Design and Management) Regulations 1994 (to be
used for contracts in the UK) Option V Trust Fund Option Z
Additional conditions of contract
6
Chapter 3
Standard Forms of ContractSome of the key feature of the
Engineering and Construction Contract are: The wording of the
Engineering and Construction Contract is much simpler than that
found in the other standard forms especially the JCT forms with
none of the extensive cross referencing of provisions which is a
feature of the JCT forms. The Contract includes a mission statement
that the parties will act in a spirit of mutual trust and
co-operation. It provides for both parties to give to the other
early warning of any matter which could increase the total of the
prices or delay completion or impair the performance of the works
in use. The Contractors liability for defects in the works due to
his design that are not listed in the defects certificate are
limited to the amount stated in the contract data (in addition to
any stated damages for delay or low performance). If Option M is
incorporated into the contract, the Contractor will not be liable
for defects in the Works caused by his design provided he can prove
that he used reasonable skill and care to ensure that his design
complied with the Works Information. Bad weather for the purposes
of assessing compensation is defined as being a value which, by
comparison with weather data, is shown to occur on average less
frequently than once in 10 years.
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
Chapter 3
7
CHAPTER 4
TENDERING PROCEDURESLicensed copy from CIS: edmundn, BAM Nuttall
Limited, 29/06/2012, Uncontrolled Copy.As explained in Chapter 1, a
tender is a form of offer and will form the basis of a binding
contract if it is unconditionally accepted. This Chapter deals with
general tendering matters, particularly the Code of Practice for
the Selection of Subcontractors. The Code was published as part of
a series of Codes and Guidance Documents by the Construction
Industry Board in April 1997. This Chapter also describes the
tendering procedures under the standard forms of subcontract, and
comments upon the standard tender documents. Qualifications to
tenders and withdrawal of tenders are dealt with in Chapter
l-Formation of Contracts.
The CIB Code of Practice for the Selection of SubcontractorsThe
Code states that it is aimed at improving the quality,
effectiveness and efficiency of the construction industry. There
follows a summary of the key provisions of the Code - the numbers
in square brackets are to paragraph numbers of the Code.
QUALIFICATION Main contractors to follow a formal and systematic
qualification process as a preliminary to compiling tender lists
(if they neither maintain nor have access to an approved list).
[2.4] Criteria for qualification to include [2.3]: work quality
past performance overall competence health and safety record
financial stability insurance cover size and resources technical
and organisational ability ability to innovate Main contractors to
regularly review their list and notify any additions or
removals.[2.5] It should be noted that whilst the Code is stated to
apply to sub-contracts/sub-subcontracts of more than 10,000
(excluding VAT), there is no reason why the principles should not
be applicable to contracts of any size.
SELECTION FOR A SPECIFIC PROJECT Main contractors to draw up
preliminary list (e.g. from an approved list of qualified
subcontractors). [2.6] Tenderers on preliminary list to be asked if
they are willing to tender. [2.8] Tenderers to be assured that Code
will be applied. [2.8] Potential tenderers to be given sufficient
information to enable them to decide if they are willing to tender.
[2.9]
Chapter 4
1
Tendering Procedures Any briefing sessions must have standard
agenda to ensure consistent treatment. Points to note: The
information to potential tenderers should include: job and location
nature, scope and approximate value of the sub-contract works
including reference to the extent of any design work required the
likely dates and duration of both the tendering process and the
sub-contract works the number of tenderers being invited to submit
a formal tender whether the main contractor is already being
appointed or is also tendering the main contract tender date the
approximate value and period of the main contract, if known
whether, and how, any costs of tendering, may be shared whether the
tender will be based on bills of quantities or other pricing
documents or on specification and drawings the selection procedure
and selection criteria the main and sub-contract conditions the
names of the client and the relevant consultants
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
COMPILING TENDER LISTS Main contractors to produce draft tender
lists and seek confirmation from potential tenderers of willingness
to tender. [2.13] Potential tenderers to notify unwillingness to
tender before issue of full tender enquiry documents. [2.13]
Maximum number of invitations to tender not to exceed 6 in respect
of construct/install only. For design only, maximum is 4. For
design and construct maximum is 3. [2.15] If minimum number of
tenders is received contractor should not seek more. Design only =
3. Construct only = 4. Design and construct = 2. [2.15] Potential
tenderers to reconfirm willingness to tender if tender documents
not received within 3 months of initial confirmation of willingness
to tender. [2.18] Main contractors to identify and notify reserve
tenderers - maximum of 2 reserves to be invited to tender if
original tenderers drop out but must have sufficient time in which
to tender. [2.16/2/17] Point to note: In no case should the maximum
number of tenderers exceed six.
TENDER ENQUIRY DOCUMENTS Tenderers to be informed if information
is approximate. [3.1] Level of detail required in tender submission
to be clearly stated and it should be indicated if priced schedules
are required as well as a lump sum price. [3.1] Points to note:
Annex I to the Code lists the minimum information to be included in
tender documentation assessment criteria (should have regard to
value for money rather than lowest price); contract conditions and
amendments to standard forms; payment terms (cash retentions or
retention bonds, advance payment for materials, security of payment
and protection against non-payment); approximate dates for
commencement and completion of sub-contract works programme.
2
Chapter 4
Tendering Procedures TENDERING TIME 10 weeks for design and
construct; 6 weeks for construct only and 3 weeks for design only.
[3.5] Points to note: The time for tendering should take account of
bank holidays The above periods are suitable for most projects but
extra time could be required in certain circumstances, e.g. where
products or materials have to be obtained from distant or
unfamiliar suppliers.
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
TENDER INVITATIONS Tender invitations to be issued on the same
date for all tenderers and should state whether alternative tenders
are acceptable in conjunction with (but not instead of) compliant
tenders. [3.7] Tenderers to acknowledge receipt of documents and
confirm willingness to supply compliant tender.[3.7] The tender
invitation should also state whether tenderers are to be
interviewed and, if so, for what purpose and at what stage.
Interviews must not involve second round bidding.[3.8] Not later
than 7 days before the date for submission of tenders, tenderers
should submit in writing any clarification which they may
require.[3.9] The main contractor should inform all tenderers in
writing of its response to requests for clarification.[3.9] If the
tender documentation is consequently amended, all tenderers must be
informed.[3.9] Point to note: The Code states that its provisions
are designed to encourage compliant tenders.
TENDER SUBMISSION AND OPENING Under no circumstances should
tender prices be disclosed to third parties by the main contractor
before the award of the sub-contract. Use of cover prices is a
breach of confidentiality.[3.12] Tenders to be submitted in sealed
packages and clearly labelled as tenders for the works;
identification of tenderers names is not permitted.[3.13] Tenders
to be kept in a secure place and only opened on the date and time
stated for receipt of tenders. When opened, forms of tender should
be signed and prices should be listed against the names of the
tenderers. The person opening the tenders should sign the
list.[3.13] Bills of quantities should only be completed if they
were in the tender documentation and it is also required that they
be part of the tender submission.[3.14] Point to note: It is
suggested those inviting tenders self-certify to their tenderers
that these requirements have been met.
LATE TENDERS Tenders received after the date and time specified
for return of tenders will not be accepted.[3.15]
Chapter 4
3
Tendering Procedures TENDER ASSESSMENT Tendering enquiry
documents to provide tender assessment criteria.[4.1] Weighting
factors to be decided in advance, used consistently and a record
kept of scores awarded during the assessment.[4.1] To ensure parity
of tendering, non-compliant tenders to be rejected.[4.3]
Unsolicited tenders are unacceptable.[4.5] Any mathematical errors
to be notified to the tenderer who should be asked whether he
stands by his tender price.[4.6] The next preferred tenderers can
only be approached if the preferred tenderer withdraws or
post-tender negotiations break down.[4.9] In general, tender prices
can only be changed in exceptional circumstances e.g. where the
programme or scope of the works in respect of specification,
quantities, programme have changed or where more information has
become available.[4.11] Where a preferred sub-contractors tender is
used in a main (or principal sub-contract) tender submission, the
sub-contractor should be notified.[4.12] The identity of the
sub-contractor whose price has been incorporated in the main
contract tender should be notified to the client unless the client
has indicated that this is not necessary.[4.12] Point to note: The
provisions about unsolicited tenders, changing of tender prices and
identity of sub-contractor are designed to combat dutch
auctioning.
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
TENDER ACCEPTANCE Where a main contractor has submitted a
sub-contract tender price as part of the main contract tender which
is accepted, he should also accept that sub-contract tender
price.[5.l] Formal notification should be sent to the preferred
tenderer following acceptance of the main contract tender.[5.2]
Once a main contractor has accepted the sub-contract tender price,
acknowledgement by the preferred tenderer is required.[5.3] A list
of compliant tender prices and tenderers should be made available
to tenderers on request after a sub-contract tender has been
accepted (names of tenderers should not be matched to prices).[5.4]
Unsuccessful tenderers should be informed and arrangements made
with them to destroy or return their documents.[5.5] Main
contractors to prepare formal records of selection of preferred
tenderers.[5.6] Suites of contracts and unamended standard forms
(compatible with other contracts in the suite) from recognised
bodies to be used. The identity of the sub-contractor whose price
has been incorporated in the main contract tender should be
notified to the client unless the client has indicated that this is
not necessary.[4.12]
4
Chapter 4
Tendering Procedures Points to note: The procedures will be
different according to whether a main contractor in incorporating
sub-contract tenders as part of his tender or is inviting
sub-contract tenders post-main contract tender. It is not clear
what is meant by recognised bodies but main contractors own forms
must not be used.
Licensed copy from CIS: edmundn, BAM Nuttall Limited,
29/06/2012, Uncontrolled Copy.
TENDERING UNDER STANDARD FORMS OF CONTRACTNominated
Sub-Contractors under JCT98Nomination is a system of tendering
whereby the employer through his professional advisors, selects a
sub-contractor whom he nominates to the main contractor as a
nominated sub-contractor. The arguments in favour of nomination are
set out in detail in Chapter 23- Nomination. Clause 35 of JCT98
contains detailed provisions regarding the nomination of
sub-contractors. The nomination procedure works as follows: 1. The
architect completes the invitation to tender in part 1 of NSC/T,
and the relevant section of the employer/nominated sub-contractor
agreement NSC/W, and sends them to the competing tenderers for the
nominated sub-contract work. 2. The tenderers complete part 2 of
NSC/T, and the relevant sections of NSC/W. They return these
documents to the architect, who selects the sub-contractor, and the
employer signs the successful sub-contractors tender to signify his
approval of the architects choice. 3. The architect then
immediately nominates the sub-contractor on the standard form of
nomination instruction, NSC/N. 4. On receipt of the nomination
instruction, the main contractor must agree the Particular
Conditions set out in Part 3 of NSC/T with the nominated
sub-contractor. These include the sub-contract period and
programme, insurance details and the identity of the adjudicator
and trustee stakeholder. 5. When all of the Particular Conditions
have been agreed. the contractor and sub-contractor sign part 3 of
NSC/T and execute the articles of agreement in NSC/A. At stage 2.
the employer signs NSC/W, so at that early stage there is a binding
contract between the employer and the nominated sub-contractor.
This allows the architect to instruct the sub-contractor to proceed
with design work, purchasing goods and materials and fabricating
components before a contract is concluded between the main
contractor and the nominated sub-contractor. NSC/W also provides
for payment by the employer for such work, and this will be
mandatory if for any reason the nomination process breaks down and
no nominated subcontract is concluded. Problems often arise at
stage 4, when the main contractor tries to agree the Particular
Conditions with the nominated sub-contractor. Clause 35.8 of JCT98
allows 10 working days from the main contractors receipt of NSC/N
for an agreement to be reached. If this proves impossible, the main
contractor must give a written notice to the architect stating
either the date by which he expects to reach agreement or, if lack
of trust is not the problem, the other matters which are preventing
agreement. If the main contractor simply needs more time, the
architect may extend the time for reaching an agreement with the
nominated sub-contractor, but this will not entitle the main
contractor to an
chapter 4
5
Tendering Proceduresextension of time or loss and expense if the
prolonged negotiations with the nominated sub-contractor result in
a delay in the completion of the main contract works. If other
matters are preventing agreement, the architect must decide
whether, in his opinion, they justify a failure to agree. If he
feels they do not, he can instruct the contractor to reach
agreement with the nominated sub-contractor and execute NSC/A.
Failure to comply with this instruction would presumably entitle
the employer to implement the usual sanction for failure to comply
with architects instructions, namely employing and paying others to
carry out the necessary work and recovering the cost of doing so
from the main contractor. It is difficult to see how this would
work in practice in relation to this type of instruction, although
it may entitle the employer to employ the nominated subcontractor
as his own direct contractor. Where the architect is of the view
that there are genuine reasons for the failure to agree he must
issue further instructions under clause 35.9.2 of JCT98 either to
facilitate agreement (for example by amending the main contract
period), or to omit the work altogether or to nominate another
sub-contractor