JCT Design & Construction

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A NEW APPROACH TO THE

JCT DESIGN AND BUILDCONTRACT


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y the same author

A New Approach to the Standard Form of Building Contract (MPT, 1972,The Construction Press Ltd, 1974)

A New Approach to the ICE Conditions of Contract, Volume 1 (The Con-struction Press Ltd, 1975)

A New Approach to the ICE Conditions of Contract, Volume 2 (The Con-struction Press Ltd, 1976)

A New Approach to the (FIDIC) International Civil Engineering Contract

(The Construction Press Ltd, 1979)

A New Approach to the (JCT) 1980 Standard Form of Building Contract

(The Construction Press Ltd,

A New Approach to the (JCT) 1980 Standard Form of Nominated Sub-Contract (Construction Press, 1982)

A New Approach to the (DOM/1) Standard Form of Building Sub-Contract

(Construction Press, 1983)


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A NEW APPROACH TO THE

JCT DESIGN AND

CONTRACTGlyn P Jones

MSc ARICS MCIOB 149749

mmm

mm*


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CONSTRUCTION PRESSLONDON AND NEW YORK


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CONTENTS

Preface vii

Chapter 1 The design and its life-cycle costs 1

Chapter 2 Choosing the right bid 7

Chapter 3 The risks involved 9

Chapter 4 A commentary on the clauses 13

Chapter 5 The reason for flowcharts 33

Chapter 6 Flowcharts 35


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Construction Pressan imprint of: LongmanGroup Limited

Longman House, Burnt Mill, Harlow,Essex CM20 2JE, England .

ssociated companies throughout the world

Published in the United States of America byLongman Inc., New York

GlynP Jones, 1984

All rights reserved; no part of this publication may bereproduced, stored in a retrieval system, or transmittedin any form or by any means, electronic, mechanical,photocopying, recording., or otherwise, without theprior written permission of the Publishers.

First published 1984

British Library Cataloguing in Publication DataJones, Glyn

A new approach to the JCT Design and BuildContract.1. Joint Contracts Tribunal. JCT Designand Buiid Contract 2. Building Contractsand specifications Great BritainI. Title692'.8 TH425

ISBNO-86095-904-X

Set in 1MB Press Roman and Univers byLonsdale Typesetting Services, Lancaster


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PREFACE

It was only a matter of time before 'design and build' grew and came of agein the UK. Contractors knew markets existed for the direct selling of theirconstruction wares. They knew packages or bids containing inclusive designservices would appeal to many but no 'official' standard form of contractexisted for those who wished to offer, or accept, design/build deals.

Now, the construction industry has what it wants - a JCT Contract

with a pedigree near perfect. Standard in form, rock-anchored into a long

lineage of ways and words familiar to the industry's practitioners, it has the

flexibility needed to satisfy and protect most kinds of client - from the

one-off customer who knows not what he wants (exactly), to the Local

Authority that does know, or the commercial client who has his own team

of conceptual designers needing their outlines developed into drawings,

details and specifications.

Fusing design and building technique together into a full parcel of services

undoubtedly sharpens attitudes to riks, methods, time, cost, quality and

warranties. Furthermore, it forces design/build bidders to compete on three

fronts rather than one (price). Design and their design's life-cycle costs now

become part of the bid battle.

Contractors, to succeed on the second and third front, need to tune in tosocial trends, the tax world, the land of lease-back, and learn to play thediscount tables until they are as adept with present values of future poundsas they are with the future values of present ones; convincing clients theirdesign's package includes not only the most acceptable design/cost choice

but also the lowest life-cycle cost commitment.

Of course, the ogre of overall unending liability will hover low overdesign/build contractors unless the client chooses to utilise the clause 2facilities to grant certain reliefs where perhaps novel designs are invited.Otherwise the general fear of major mistakes may slow down the emergenceof bright new British design/builders until the storm clouds surroundingliability are driven away,

This form of contract should hasten the return of people's confidence in

buildings. It should encourage the marketing of buildings, offering clients

a choice of product, price, quality, longevity, pay-back terms, and life-cycles;

enabling the construction industry to take more and more risks with a

greater degree of certainty that profits will be gained rather than losses

suffered.

This book endeavours to clarify this Contract for practitioners, intro-

ducing also chapters on matters of design, bidding and risks. The manuscript

and charts were all converted into print by Margaret Smith, who managed

it all in her usual inimitable way and I extend to her my thanks for such

excellence.

Glyn P JonesKing Faisal UniversityDammim

March 1984


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THE DESIGN AND ITS LIFE-CYCLE COSTS

Introduction

The traditional procedure for clients wishing to buy new buildings, or rehabilitate old ones, has been to select anindependent professional designer and to tell or discusswith him what he wants, what he can afford, and whataesthetic standards he has in mind. The chosen architectin turn arranges for contractors to bid for the constructionof his design on the client's property.

Tills distinct two part process has disadvantages wellknown to everyone concerned with the design productionand procurement of buildings.

The 'design-and-build' process provides differently fora one step way of procuring construction work by thosewho prefer the designer to be also the builder; they thencan speak to one person about design, time, and price ina composite way and invite bids composed of these threeunified elements.

Construction work increasingly requires closer integra-

tion of specialisms whose designs and their execution must

interlock into ever tighter fits. This is generally acknow-

ledged to be less easily achieved when a design team acts

independently from the construction team.

Fusing the designer's and builder's minds togetherundoubtedly sharpens up attitudes to matters of risk,technique, time, quality, cost and warranties. It forces the

designer to listen to the builder for they are one, acting andthinking in unison, in their search for optimum solutions.This frequently topples design choice from its usuallydominant and unassailable place. Design matters have to

This may worry traditionalists who see all delicatedesigns being bludgeoned into oblivion by brash builders.However, many would argue the relatively free rein enjoyed

by designers under the conventional two step rules hasproduced no appreciable increase in beautiful buildings. Inany case there is no reason to prevent designers becoming

builders rather than builders becoming designers.

The design/build contract

In commercial fields the client may. to the designer's reliefor dismay, show no interest at all in aesthetic standards. Hissole concern may be to own a new factory or warehouse, fitfor a certain purpose, built anywhere within a certain areain the fastest possible time at the lowest possible cost andto last for twenty years. Furthermore, he may wish to havelittle or nothing to do with it until it becomes ready for hisoccupation.

On the other hand, the client may want a memorableand monumental building. He may have very strong viewson aesthetics and the social amenities needed to partner his

proposed project. He may already own land upon which tobuild; it may (at his cost) have been surveyed above andbelow ground; an approved design in outline or even in de-tail by his own, or a consultant, architect may be available;a budget price fixed; specialists lined up to do ancillarywork; a full specification may be to hand; an agent of theclient may be engaged and ready to oversee the whole

In both the above cases, and in an;/ permutation be-tween the two, the JCT Standard Form of design/buildcontract accommodates the client's contractual require-ments and safeguards to a considerable extent his interestswhich are to have, for a lump sum price, the kind of build-ing he wants, built well, and completed when he wants it.

The JCT contract does not prevent construction delays.It does, however, reduce the chance of completion beingdelayed. Damages, prefixed by the client, will in the usualway arise unless certain stipulated events have caused thedelay. The contract could quite easily have dispensed withthese and other safeguards of the contractor by placingthese risks upon his shoulders, but a price would of course

be paid by the client whether or not those risks mate-rialised. The JCT reckoned when putting together theirconditions that optimised risk-sharing would give the clientthe safest set of terms for the lowest initial cosl bids by non-gambling bidders. These conditions do not therefore offerclients risk-free arrangements.

The risk-sharing to be found in all JCT contracts isfrequently attacked by contract commentators who havedifferent views on tiie share to be carried by the client.They would prefer io see most risks borne by the con-tractor.

Such a policy ignores its inevitable effect; the higher therisk the higher the bids from non-gambling bidders. Shrewdclients wantto take certain risks for they know there lies

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a chance of gain as well as loss. A client may prefer theopportunity to carry the risk of inflation for in so doinglie will benefit from lower initial bids and in his estimation

bear a reasonable chance of low losses in honouring hiscommitments to pay cost increases.

Loading the non-gambling contractor with 'speculative'risks offers him exclusive rights .to the certainty of either

a profit or loss. In the former case the client will have paidmore for his building than it is worth and in the latter casethe contractor may at worst become insolvent or at least

become anxious to reduce his losses by cutting every cornerhe encounters.

Competition

It is sometimes claimed that because design/build arrange-ments reduce the numbers competing they thereby reducecompetition. However, conventional tendering proceduresin the UK call for competition on one front only namely,

price, whereas design/build arrangements generate compe-tition, to the client's advantage, on two if not three fronts:

(i) Price (ii) Design (iii) Life-cycle costs (thefuture user's costs).

Contractors will readily accept defeat if their price istoo high but will not easily continue to accept rejection ongrounds of inferior designs; nor will they be pleased if theirlowest bids are ignored in favour of higher initial cost bidswhich promise lower life-cycle costs. Losing bidders willsoon respond by improving their designs, making it harderfor inexperienced gambling cut-price contractors to enterthe arena or gain any foothold at the expense of unsuspect-ing clients. The poor designer will tend to stay in the fieldof 'build' only where his lower-than-cost bids will entice

the unwary.

The design and its life-cycle costs

The contractor's bid is only part of the picture. The advan-tage of a low initial tender may be offset by a vision ofhigh frequent maintenance and repair costs. A more com-

plex attractive design or layout may generate higher staffrunning costs or may diminish the efficiency potential ofa building.

If the client, or his adviser, adds together the initialbuilding costs, future maintenance costs and running costs,then takes account of interest charges with inflation on thesums concerned, a much clearer picture emerges in whichhe questions whether to accept a higher initial bid for adesign with lower future costs, or to take a lower initial bidwith higher future costs to be paid at some time other than

the present.In commercial constructions these considerations

become even more important since differential taxes mayapply or tax concessions may be there for the taking.Grants or low interest loans may beckon the client toconsider carefully what he builds and where he builds it.These factors should influence budgets, designs and bids.The design/build contractor must tune in carefully to thetax world, the land of lease-back, and the range of ways toreduce a client's financial commitment in a building he mayonly wish to have for a fraction of its eventual life-span".The marketing of building has hardly begun unless it canoffer clients a choice of product, price, pay-back terms and

warranties on quality, longevity and recurring costs.The principles involved in life-cycle costing are tied

closely to time, interest payments or receipts, and inflation.

Interest and inflation

Money must either incur interest charges if it is borrowedor gain interest if it is saved. The sums of clients' moniesinvolved in future maintenance, repairs or running costsmust therefore carry this burden of theirs from the momentthey are 'born'. From the day the designer conceives theirfuture those various cost sums must begin to accumulatetheir interest. An account of every future pound to be

spent must be drawn up and converted (discounted) hackinto its present-day value after allowing for its interest andthe effects of inflation.

There are, as every schoolboy knows, tables available(Compound Interest Tables) to show the future worth of

present money. There are also tables available (DiscountTables) to show the presentworth offuture money.

It can be seen at a glance from compound interest tablesthat 100 of present-day money will amount to 110 inone year's time at 10% interest. If the sum of 110 remains

where it is for a second year the original 100 will havegrown to 121 and so on.

On the other hand, it can be seen from discount tablesthat 100 in one year's time is future money whbh at 10%interest has a present-day equivalent of 90.909 becausethat is the sum needed at 10% interest to amount to 100in one year's time. Similarly 100 discounted for two years

at 10% has a present value of 82.644 and so on.

Compounding puts a future value now on a present sumof money. Discounting put a present value now on a futuresum of money.

Tables are also available to convert a known annualfuture sum required at the end of every year of a building'slife into an equivalent present-day lump sum (Present Valueof per annum Tables).

The above principles are all involved in assessing design/cost alternatives enabling the future expenditures of differ-ing proposals to be compared upon an equal footing of

present values by discounting.

For example, if two design/build bids have widelydiffering design proposals the bids will also differ widely.Without closer examination of the submissions it is impos-sible to say at a glance which bid is best. The cheaper bid'A' will lead to heavier maintenance costs sooner and willhave only half the life-span of bid 'B'. However, the firstcost comparison (below) still shows bid 'A' to be betterthan bid 'B'.

This first cost comparison has obvious faults in that itassumes present pounds are the same as future ones; it alsoignores the points made earlier that any saving in initial costor the time delay in spending money on maintenance etcshould be reflected in the interest saved if that money was

borrowed, or the interest earned if that money wis investedelsewhere. Thus, the second cost comparison (Table 1)using a 5% rate of discount shows bid 'A 1 to be by far the

best.

This will not surprise entrepeneurs for they have knownfor years it pays to delay all sums payable for as long as

possible when the money is being borrowed (as it often is)and similarly so when the sums are owned since interestwould be received or profits would be earned by the moneyconcerned.

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The question which discount rate should be used? depends upon the client's store of money, source of bor-rowing and the uses he could otherwise put saved money to;there is also the problem of inflation trends and taxationrates in the future. These pose difficulties for those whomay wrongly think discounting presents absolute answers.

Discounting in principle and the rate chosen in practice aresimply an open declaration of several assumptions thattaking into account everything we know about the client's

borrowing power, or profit potential, together with theerosion in value expected a figure of 5% compositelyrepresents a fair allowance to be made on the capitalconcerned.

Table 1 Comparisons of proposals 'A' and 'B'

Proposal 'A 'Initial bid 10 000 Estimated maintenance costs2000 every 15 years

Life-span 30 years

Proposal 'B'Initial bid 25 000

Estimated maintenance costs 1 000 every 20 yearsLife-span 60 years

1st comparison (over 60 years) Bid'A'

Bid'B'

2nd comparison (over 60 years)discounting monies @ 5%

Bid'A'

Bid'B'

Initial cost 10000 25000 10000 25000

maintenance cost after 15 years 2000 nilThe present value (PV) of ,. _ ,

2000 (15yrs> x 0.481 =

962

after 20 years 1 000 ,on , 1000(20yrs>

x 0.377 =

377

remove and reconstruct after 30 years 12000 nil ,an , 12000OOyrs) x0.231 =

2772

maintenance cost after 40 years 1 000 ,,ft , 1000 x 0.142 =

142

after 45 years 2000 nil , . _ , 2000 t45^

x 0.111 =222

26000 27000 13956 25 519

heating/cooling/lighting system 40% Less cost efficient inrunning terms than bidder 'Y'. If bidder 'X' redesigned hissystem to produce a per annum running cost of about22 000 instead of 25 000 he would once again be thelowest all-round bidder. The fact that 'X' had also aninferior roof needing replacement after thirty years was far

less cost significant since the sum involved would not arisefor thirty years whereas his inferior heating scheme meantannually paying more than the sum under bid 'Y'.

The net real interest rates (ie, net after tax, real allow-ing for inflation) used in cost comparing is important. Likemoney values, rates are not static nor are they valid overlong-term periods. Where the pace of inflation overtakes therate of interest payable the client's real rate of interest will

become negative, meaning the investment of capital into projects is more than worth while, particularly since theactual recurring amounts of the future running costs arelikely (because of the high inflation) to increase sharply.

Clients may prefer to use a special rate or 'opportunity

cost' rate in bid comparisons, taking the cold view theyneed not build at all if a comparison shows the proposed

project would unprofitably tie up monies that could be putto better use in other activities. Thus the discount rate maywell be up to 5% higher than normal risk-free investmentrates.

The client's life-cycle costs will include not only hisoperating staff costs but also operating services (cleaning,security, etc) and operating charges (rates, insurances,water, etc). In this respect each bidder's design should bevetted for efficiency in savings achievable by each design.For instance, the client may normally spend l-2!4%of hisuser costs in the replacement or maintenance of furniture.

Now if a bidder can show designs incorporating built-infurniture at costs lower than the client's per annum charges,taking into account a net real rate, ie after tax allowancesetc, then the bidder's bid concerned will come to the fore.

Bidders who can convince clients their particular designscontain lower per annum recurring costs will score evenmore. For instance, interior cleaning costs will amountgenerally to about 25-30% of all the user's future costs,thus any design improvement in this area will show greatsavings. A carpeted floor design has an initial cost equal to

Table 1 shows that design/build bids must be carefullycomposed and judiciously selected. The design/build

philosophy is reputed to give the client greater certaintyof receiving what he wants when he wants it but this willnot lead to long-term client satisfaction unless the life-cyclecosts resulting from the chosen design are also introduced

into the equation on a discounted basis.

Table 2 illustrates these points, showing also the stronginfluence of regularly recurring (annual) sums cropping upover a long life-span.

It can be seen from Table 2 that bidder 'X' has puthimself out of the running mainly because he proffered a


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only 40% of the total life-cycle cost, the remainder being40% spent on cleaning it and 20% on replacement.

On a broader scale the initial cost of a building may also,as in the case above, amount to only 40% of the total life-cycle cost, the remainder being taken up by fuel costs(10%), maintenance and repairs (10%), insurances, rates,water, etc (10%) and cleaning (30%).

Thus the capital cost committed to acquiring an asset,though a smaller proportion of the whole life-cycle cost,

commits the client to further unavoidable future payments.The design/build bidder who recognises this and regu-

larly reminds himself to design accordingly and to presenthis bid in a way that demonstrates this may succeed whereothers fail.

Forecasting trends and life-cycle costs

The design/build bidder, to be successful, needs to observeand acknowledge within his designs changes or trends insocial and economic fields.

The most obvious of these lies perhaps in productioncharges which may affect fuel and power. Climatic changesor trends towards colder winters/hotter summers wouldinfluence his designs. Age distribution changes may alsorequire marginally higher or lower heating systems, averagetemperature calculations, etc. Employment and incomelevels need to be observed, so too do consumption andexpenditure rates; population changes; production anddistribution changes; political changes and marketingtechniques.

Forecasting and 'market research are closely related.There are leading, coincidental, and lag indicators toguide design/build bidders in the right directions. Forinstance, birth rates and geographical distributions areleading indicators for (design/build) school and home

bidders. Coincidental indicators include unemploymentrates, retail index rates and crime rates. The 'Bank Rate' isan important lag indicator.

These all provide a blurred picture of what is happening.If crime rates against property increase designers must

acknowledge these trends in their proposals. If the un-employment rate increases disproportionately in certainareas the design/build bidder may incorporate propositionsincluding special governmental concessions and financialinducements to clients. If the economy moves into higherBank Rates the bidder's design and life-cycle cost calcula-

tions will reflect these monetary trends.If any factor relied upon in the bid changes the con-

tractor and client should react and reappraise the design/cost picture, making suitable changes bearing in mind totallife-cycle costs can amount to many times the initial costconcerned.

There is generally an increasing tendency for labourcosts to rise faster than material costs. Labour also plays a

prominent and often irreducible part in the client's futurecosts. If such trends continue and we continue to demandhigher standards of comfort and cleanliness then the initialcapital cost is likely to shrink as a proportion of the totallife-cycle cost. The amount of capital needed to be spent

to save future more expensive man-hours therefore callsfor close correlation but it is not worth spending capitalindiscriminately simply in the blind pursuit of savingfuture running costs. The rate of interest mustappear inthe picture when optimising designs, initial costs and futurecosts.

Design factors which influence life-cycle costs

The design/build bidder is anxious to lower his 'free' designcosts and to raise his bid success rate; the client on theother hand is anxious to receive lower bids for betterdesigns having lower life-cycle costs. Both have similarobjectives in keeping down initial costs. The bidder, tosucceed, must economically propose efficient cheap build-

ings, aesthetically pleasing, and likely to last 30-60 years.He may also put forward alternatives to the Employer'sRequirements within his Proposals, or different designshaving different quality standards and different completiondates. Furthermore, he must make certain he avoids designerrors and omissions since the ogre of design liability underclause 2 hovers over all his proposals whatever he does orthe Employer requires him to do. The consequences ofdesign errors or omissions may amount to enormous sumsif, viewed over their long-term future, left unremedied toaffect adversely life-cycle costs.

Tender comparisons (over 60 years)discounting rate = 5%

Bid Bid

'X' 'Y'

Initial bids 1 000 000 1 200 000

Design differences (user costs) (a)Heating/cooling/lighting system estimated costsper annum :

Bid 'X' Bid 'Y' Difference25000 15 000 10000

(b) Planned maintenance-estimated costsper annum : 8 000 5 000 3 000

13000

discountedper annumpayments over 60 yrs @5% 1 8,929 = 246 077

(c) Remove and reconstruct roofcovering after 30 years 12000 nil

discounted to present value @ 5% x 0.231 = 2772

1 248 849 1 200 000

1

Table 2 Comparison of proposals 'X' and 'Y'


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These matters might weigh heavily to influence designand in turn dictate life-cycle costs. The Employer's Re-quirements may however require bidders to innovativelymove away from 'safe' designs, raising the risks of failure.In such cases the increased risks will increase bids unlessthe increased risks are shared equally or carried altogether

by the Employer.Rather than be heavily involved in dictating designs the

Employer may prefer to stay at arm's length, stipulating inhis 'Requirements' the barest bones of his needs in termsof quantity, quality and economy (see also Practice NoteCD/1A).

Quantity

The statement of quantity would include:

(a)Area of accommodation, detailing the purpose/s(b)Any particular heights (factory clearances etc)(c)Floor loadings

(d)Particular insulations needed (sound/thermal etc)(e)Air change rates (dust levels, air conditioning requirements etc)(f)Heating/hot water loads(g)Lighting needs(h) Electrical loads/supplies (slngle/3 phase etc) (i)External needs (car parks, loading facilities etc) (j)'Green' areas, paved areas.

Quality

The statement of quality would include:

(a)External elevation/roof description and life expectancy

(b)Internal finishes(c)Windows, doors etc.

Other elements (eg, stairs, lifts etc) may be included.

Economy

The statement concerning economy may even include abudget sum, ie, a figure establishing the limit of expendi-ture set by the client. Clearly this will result in bids being

judged on the merits of their designs and quality standardsoffered for the sum suggested or a figure below or close tothe budget set.

A statement concerning life-cycle costs may also bemade detailing:

(a)maintenance cost limits (annual and intermittent)

(b)operating cost limits:(i) cleaning

(ii) caretaking/security(iii) gardening(iv) rates, water(v) insurances

(vi) energy, fuel

(c) Repair and renewal cost limits:(i) roof coverings(ii) external walls

(iii) windows, doors(iv) interior floor finishes(v) interior walls, partitions

(vi) ceilings(vii) heating/cooling equipment and hot water(viii) light/power equipment(ix) external works

The chosen Contractor could also be required to providedetails of anticipated cash flow to correspond with his pro-gramme for construction to completion.

The above listed parameters though reasonably compre-hensive hardly touch upon the building's appearance, shape,colour, character and form; they are virtually all functionalremarks collectively communicating the client's needs interms of size, purpose and general level of quality.

However, these initial and earliest remarks or decisionsconcerning a building's size, purpose and general level ofquality have a pronounced effect upon the bid price for

they may well account for 8090% of the total concerned.

The most influential statement in setting cost concernssize, ie, Gross Floor Area. Other factors will of courseinfluence the total, such as shape, location, inflation,market conditions and ground conditions, but none willgenerally move the initial price to be paid quite as muchas 'area'.

There follows a brief appraisal of the more influentialof cost indicators which may be written into an 'Em-

ployer's Requirements1 or 'Contractor's Proposals'.

- (a) Gross Floor Area

This factor dictates both initial and recurring costs (clean-ing, maintenance, etc). It includes circulation space. Lowercirculation areas generally signify more economical designs

but an ultimate 'open-plan' may prove unacceptable orcounter-productive.

Commercial clients solely interested in net or usablefloor areas may be heavily influence^ in their choice oracceptance of bids if wide variations appear between grossand net areas. For instance, if the gross floor area (GFA)cost in the bid of bidder 'A1 equals SOO m2 and contains25% circulation area the client's profitable space cost risesto (800 x 1/0.75) 1067 m2. If the bid of bidder 'B'equalled 850 m2 but contained only 20% circulation spacethen the client would prefer bid B on the basis (850 x1/0.80) of 1062 m2 being a lower sam for the rentablearea.

The initial cost per m2 wil! tend tc reduce as the GFAincreases; wall to floor ratios will reduce; lift/stair area tofloor area ratios will reduce and in general bids expressedin terms of net floor area cost per m2 will fall as the floorarea increases.

In the case of housing bidders' comparative costs for2, 3 and 4 bedroom units will show ittractive reductions

per m2 as the number of bedrooms increases and evenbetter cost savings if expressed per occupier.

Clients should therefore interpret figures given inContractor's Proposals or bids with care, checking the

bidder lias not gone too far in cutting down circulationspace or in proposing an unbalanced mix of 2, 3 and 4

bedroom units ignoring the social, functional and aesthetic

reasons for limiting cost savings.

(b) Storey heights

This factor mostly affects wall and partition costs withtheir recurring maintenance costs but it also of courseaffects energy expenditure. It may marginally influencestair and lift costs, and, by increasing loadings, affectfoundation costs.

Various storey heights within one building pose annoy-ing problems to designers, who may tend to smooth thingsout by choosing one all-purpose height less cost efficient


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than a multiplicity of heights. Heights in factories, governedby production needs, clearly command careful considera-tion to enable the client to flexibly change his production

plans without raising the roof yet not spending sumsinitially upon unnecessary height.

(c) Square IndexThe most efficient plan shape of all lies in a circle but the

best practical plan shape begins of course with the square.The Square Index is a number indicating the extent towhich the perimeter of a particular building exceeds thatof a building of the same area on plan which is a perfectsquare.

n

Square Index =

where P= perimetera - area on pl an (not the GFA).

--------25.981---------.

4x 25.981

Bidders know the cost of enclosing buildings may equal25-30% of the bid total. Plans B and C are therefore 49%less cost efficient than Plan A in respect of the external wallelement.

However, Plans B and C may lend themselves to moreeconomic division wall arrangements, circulation areas andstructural cost decreases due to decreased spans but thesegains must be weighed against the heavier expenditure inenclosing the space concerned.

Bidders may therefore be more inclined to 'square up'buildings unless they can otherwise achieve cost savingselsewhere by use of standard span components, etc.

In the case of housing 'squaring up' will however havethe opposite effect where terraces are concerned for it willincrease the external portion of the wall enclosing the plan.

(d) Density of vertical division

The amount of enclosing walls, load-bearing walls and parti-tions within a building is cost significant. The 'density' ofsuch walls can be expressed in the form of an index whichtakes account of the contribution made to the enclosure ofrooms by the perimeter walls:

Density of Vertical Division =------ -^------

where p - perimeter length at each floorL = length of partition walls A =gross floor area.

Certain shapes lend themselves to more economicaldivision of areas:

67.500

10.

000

,

1 68.75 mj 'B'

155) + 30

675

Although Plan B economically achieves the division offour areas by using only 30 metres of division wall the'poor' Index gained of 0.159 shows it obtained its divisionat the expense of using more external wall than Plan A.

Optimising plan shapes and comparing their verticaldivision density Indices can profitably lower bids andlower future running costs to the satisfaction of both clientand contractor.

(2x 67.500) +(2 x 10.000) _

4XV675 "

0

,ood

.

C(675m1)

\oop6CM

1

A(675m2) s - r = 1.00

67.500-

B

(675 m3)

- 0.159d =

25.981-


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c ...

10.00004X103324)+ 51.962 =

O /D

1.49


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CHOOSING THE RIGHT BID

Introduction

Having earlier emphasised the importance of life-cycle costsand the less important role played by initial costs it is clearthe client should not necessarily accept the lowest bid. Norindeed should he accept any bid at all if the designs pro-ferred commit him to irreducible and unavoidable excessexpenditure into the long-term future.

A rational way of judging both bidders and their bids isneeded.

Selecting bidders

Only if the client selects the right sort of bidders In theright numbers will he receive the 'right' bid. There is noadvantage at all in the client receiving a low bid from acontractor who has insufficient experience, skills, integrityor competence to carry out the project.

Clients who regularly place construction contracts willhave lists of "approved1 companies and need no informationto enable a choice of right bidders to be made. However,'one-off clients ought to select with great care their bidders

by requiring them to provide informative details of:

1, Technical experience2. Managerial resources3, Financial resources4. Safety record and industrial relations5, Punctuality record6. Reputation for quality.

1. Technical experience

Questions here should seek to discover how well equipped

the contractor concerned is in terms of expertise and pre-vious experience of projects similar to the one proposed.

2. Managerial resources

This enquiry will examine staff qualifications, their experience, organisational structure and spans of control.Particular information should be sought on the persons(and their calibre) who would be made directly responsiblefor the proposed project.

3. Financial resources

Balance sheet information and the financial relationshipsbetween a parent company and its subsidiaries may beexamined together with the rates of equity to loan capitaland amount of fixed interest loan capital assessed. Anyimposition or managerial restrictions in force by the com-

pany's Bank should be investigated in greater detail.

Performance bonds appear the answer to any financialunease but the 'premium1 cost would of course be in-directly paid by the client.

4. Safety record and industrial relations

These matters may appear of no concern to the client,however he does, in clause 25, take the risk that delayscaused by any "local combination of workmen, strike orlock-out" may require an extension of time to be granted

by the client to the contractor. In any case no clientshould accept the bid of any contractor having a known

bad safety record resulting from inefficient safety manage-ment.

5. Punctuality record

Completion on time may be crucial to the client. In suchcases great weight will be rightly given to a past record of

punctuality. In this connection details of the companies'planning department, their use of CPM techniques, andtheir use of time control systems will teach the client muchabout the bidders' attitude to timely completion.

6. Reputation for quality

The right questions here should disclose the sort of reputa-tion the contractor has, the work entrusted to him becauseof liis high standards and any involvement in arbitration orlitigation in respect of alleged defects. The latter must beviewed with great care particularly if the cases concernedinvolve projects the contractor did not design, since theline between faulty work and faulty design is frequently

blurred.

Having selected bidders he can rely upon the client mustfinally choose no more than about six and no less thanabout four of those to compete against one another. Effi-cient non-gambling bidders will in normal times decline to

participate in a design/build competition if more than sixbidders are invited. They know the higher the number ofbidders the lower will be the bid and if an 'open" competi-tion is allowed the lowest bid is quite likely to be below cost\

On the other hand, the lower the number of biddersbelow about 4-6, the higher the winning bid.

If a considerable amount of design work is involved inbidding the client may find few bidders prepared to risk the

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17/33

THE RISKS INVOLVED

Introduction

Clients may wish to know what sort of risks they run underthe JCT design/build Contract and require their advisersto inform them. There are four classes of risk identifiableunder the Contract:

1.Fundamental

2.Pure3.Particular4.Speculative

1. Fundamental risks

These include the risk of war, nuclear fall-out, and othersimilar unlikely events. No insurances are required; thegovernment stands any reparation costs that might arise.

2. Pure risks

Damage to the Works by fire, lightning, storm, etc, is a'pure risk'. Insurances are required under clause 22. The

premiums payable form part of the price to be paid bythe Employer (client).

3. Particular risks

These risks may arise from particular construction tech-niques to be employed in executing the Works, such as

piling., demolition or dewatering, which may unavoidablycause damage to property other than the Works.

Insurances are to be "maintained" by the Contractorunder clause 21 for certain Particular Risks for an amount

of indemnity the Employer may specify in his Require-ments to cover these risks. The client should seek expertadvice on these matters. The premiums (and any specialsurvey fees) will form part of the price to be paid by theEmployer (client).

4, Speculative risks

These risks are quite unlike the previous three categorieswhich if they occurred would cause loss only, no benefitswould accrue.

Speculative risks differently offer the certainty of eitherprofit (benefit) or loss.

Both parties are (or should be) therefore interested intaking these risks. The Employer takes, for instance, therisk ofexceptionally adverse weather delaying completion.His potential benefit lies in lower bids; his potential loss liesin lost liquidated damages. The Contractor takes the riskof ordinary adverse weather delaying him. His potential

benefit lies in the lap of the gods who may send down fair

weather; his potential loss arises if his allowance within hisbid for bad weather is more than consumed by the weatheractually encountered. It can be seen the JCT has shared therisks of weather between the parties granting them both thecertainty of either profit or loss; the more likely event ofordinary adverse weather being carried by the Contractor.

Other examples of risk sharing exist in the Contract.However, commentators sometimes see' the arrangementsas one-sided bias against the Employer. Somehow they seeonly the certainty of loss for the Employer whereas he

statistically stands to benefit from lower bids every timeand sometimes to doubly gain if the risk he carries mani-fests itself only mildly, or not at all.

Risks of interest to the parties include:

(a)the risk of design faults(b)the risk of bad ground conditions

(c)the risk of changes(d)the risk of delay in completion and disruption toregular progress(e)the risk of defective work(f)the risk of inflation.

(a) The risk of design faults

The JCT have, in clause 2.5, marginally lowered the Con-tractor's liability from the standard normally to be expectedof design/build contractors to a level expected of any archi-tect or professional designer. The Employer may if hewishes go even further and limit the Contractor's liability toa fixed ceiling excepting where dwellings are concerned.

Obviously any lowering of liability must not be con-sidered unless the potential risk can be accommodated andthe resulting lower bid benefits are substantial! The detailsof clause 2 liabilities are discussed further in Chapter 4.

(b) The risk of bad ground conditions

The state of the site and its sub-strata are crucial to theWorks and surroundings. The Employer must (clause 7)define the boundaries but need do no more.


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The Contractor must have satisfied himself on all aspectsof the site, including unforeseeable difficulties that mayexist in the sub-surface and hydrological conditions.

Bidders will not normally investigate the sub-strata.They expect the Employer to provide them with sub-strata surveys sufficient to base their bid upon, includingthe design of foundations, drainage, etc. If no such details

are made available they will qualify their bid to excludeunderground work or will make assumptions concerning theground and base their bids accordingly.

The Employer should therefore commission the neces-sary data and maybe a consultant Engineer's interpretationand presentation of that information concerned.

Whether or not the data are sufficient and representativeof the ground between boreholes for their purposes must

be a matter for decision by the bidders. The bidders willalso decide the ground's condition and its suitability forconstruction purposes. They will decide for themselves howto deal with any groundwater, rock or sand, unless theEmployer's adviser particularly specifies otherwise.

The Employer's adviser will write into the subsoil surveya disclaimer stating the information is not guaranteed tomatch the conditions encountered nor is the information to

be taken as a warranty of the ground's suitability for anyparticular purpose.

The Employer and his adviser or agent should also avoidgiving any further or unintended assurances, written or oral,inside or outside the Employer's Requirements in respectof the subsoil's condition or suitability for any particulardesign.

Where factually correct data are provided the bidderscarry the risks of the ground's condition. However, if the

facts in a subsoil survey given to bidders are found to beincorrect a question of negligence arises. The Contractormisled would seek compensation from the Employer, whowould in turn seek recovery of the sum from the consultantwho produced the erroneous report. His professional in-demnity policy would come into play in such circumstances.

(c) The risk of changes

Changes and provisional sum instructions tend to disrupt

the regular rhythm and progress of the Contractor's work.Changes also upset his arrangements to carry out his otherwork not part of the Change Order itself.

The JCT recognised the possibility of ordered changescoming at an inopportune time for the Contractor. Itarranged its Contract's terms (in clause 12) in such a wayas to allow the Contractor to review his rates and prices, to

charge the Employer accordingly, and to recover (underclause 26) any loss and/or expense caused by the irregula-rity arising. Furthermore, the Contract allows the time loss(under clause 25) to be added to the time for completion.

The money involved is (under clause 3) to be paid overto the Contractor as soon as it is in whole or in part ascer-tained.

The Employer can avoid the clause 26 payment of lossand/or expense in an 'open-ended' way by negotiating andagreeing in writing a sum in advance for a change to beinclusive of any rate or price change together with the dis-ruption that may be caused. However, if no such agreementis possible then the Contract's terms must be adhered to.

Whenever a change or provisional sum instruction re-quires work not similar in character to, orsignificantlychanges the quantity of, work originally laid down, or ifthe work must be executed under dissimilar conditions tothose prevailing prior to the change order or provisionalsum order, then a review of the rates and prices for thechanged or provisional sum work is called for.

The keywords "similar" and "significantly" in clause12.5.1 are therefore crucial since they form the bench-marks from whence the Contractor's entitlement to a newrate or price is judged and allowances made whenever achange or provisional order brings about work of dissimilar

character to that originally envisaged or substantiallychanges the conditions under which it is to be carried outor varies the quantity of work to a substantial extent.

Clause 12.5.3 also provides for an allowance to be madefor any necessary additional sum for "site administration,site facilities and temporary works". On the other hand, tothe Employer's advantage, any reduction of such facilities,temporary works or administration, entitles the Employerto an allowance for the savings that may be brought about

by certain changes.

None of the keywords, referred to above, have in theContract been defined. It has been left to the parties touse the plain and literal meaning of the words "similar","significantly", "site administration" . . . etc to arrive atagreeable rates etc or fair allowances. If they fail to agreeamongst themselves the Contract requires them to go toarbitration on the matters.

(d) The risks of delay in completion and disruption toregular progress

If the Employer wants completion 'at all costs' by a parti-cular date, he will not wish to accept the operation ofclause 25 in its standard form. However, striking out theclause, apart from putting up the price, might raise prob-lems for the Employer if subsequently he was in some waythe cause of delay to the Contractor.

Clauses 25 and 26 recognise that both parties may bene-fit from their contents and thus an optimum balance ofrisk and price should ensue. The Employer concedes thatcertain events ("Relevant Events") will justify an extensionof time, also certain matters ("listed matters") are tojustifyreimbursement to the Contractor of any loss and/or expensearising due to material disruption to regular progress.

Not every reader of contracts sees any fairness towardsthe Employer in clauses 25 and 26. They appear not toconsider fully the implications of the alternatives; that non-garnbling contractors would raise their bids as their risksrise regardless of the possibility that no delay or disruptionmight ever occur.

A claimed loss might in its simplest, form occur directlyand clearly from a clause 26 listed matter. But more com-

plicated circumstances may arise involving a chain of eventsinitiated perhaps by an Employer's breach involving eventsat the Contractor's risk or breaches of the Contractor.Multiples causes and effects of overlapping or concurrentevents might generate intertwined liabilities difficult tounravel, or ascertain, for the Employer to verify.

Until the losses are "ascertained" the Contractor cannotreceive their addition to the Contract Sum (clause 26.3) norwill he be entitled to their inclusion in "the next InterimPayment" unless a divisible part of the claimed loss can beascertained (clause 3).

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The word "ascertain" has the following plain meaning:

to make oneself certainto establish as a certaintyto find out or learn for a certaintyto make sure of, get to knowto make certain, or definite; to decide, fix, limit.

Clearly, certainty is the keynote of the Contract's atti-tude to loss and/or expense. The Employer may howeverbe presented with uncertain claims in which case he isunder no obligation to pay anything until it is established(at least in part, see clause 3) as a certainty. The onus ofconvincing the Employer of the claim's validity rests withthe Contractor (clause 26.1.1 & .2).

An Employer's agent may be capable of vetting suchmatters but where substantial sums and difficult mattersare involved a professional quantity surveyor experiencedin such claims may be required to advise on the questionsraised,

(e) The risks arising from defective work

The Employer runs the risk that defects, shrinkages orother faults, which are the Contractor's liability, may en-title the Contractor to the Contract's (clause 16) rights toenter and remain upon the Works to remedy them at a timeafter Practical Completion when the Employer may haveexpected to have his buildings to himself.

This risk can be curtailed if the Employer uses his rightsto have any work or materials not in accordance with theContract remedied straightaway rather than allow them toaccumulate at the project's end.

If) The risks of inflation

Tlie Employer may well seek the advice of a quantitysurveyor before deciding which clause of those available(36, 37 or 38) should be utilised. The kind of project, itstime-scale, and future cost trends need to be considered

prior to adopting one or other of these clauses.


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A COMMENTARY ON THE CLAUSES

Introduction

This chapter examines the contents of certain clauses andcomments upon their function and working in conjunctionwith other clauses of the Contract.

Clause 2 Contractor's obligations

The heading is misleading. As can be seen from the sub-

headings the clause deals not only with the "Contractor'sobligations" but also with document status (2.2), dis-crepancies (2.4), and the treatment of errors within or

between documents (2.3). Furthermore, an Employer'sobligation is also referred to within the clause, ie to givewritten notice of any discrepancy or divergences he mayfind. The Employer must also make decisions in respectof discrepancies and issue instructions to correct anydivergence concerning site boundaries,

However, the clause does principally set down two mostimportant matters:

1. The Contractor's obligation to carry out and com-plete the Works

and 2. The Contractor's obligation in respect of any defector insufficiency in the design.

The Contractor's dual obligation expressed firstly inArticle 1 and in more detail in this clause is to carry outand complete the Works referred to in the Employer'sRequirements and Contractor's Proposals and for that pur-

pose to complete the design for the Works. The clauserecognises the important word "design" used in Article 1 is

on its own not precise and that the parties may for instancehave agreed that the Contractor will be responsible forgaining initial planning consents (Development ControlRequirements). This may therefore be said to be part of theContractor's "design" obligation. The Employer's Require-ments or Contractor's Proposals may on the other handstate the Contractor is notto do everything or decide every-thing nor to choose the kind, quality, texture and colour ofevery conceivable material, nor all of the goods, nor to setstandards of the Works in every detail. There may therefore

be variable arrangements concerning matters of gainingstatutory consents or choosing things. Matters may befurther complicated where the Employer intends to partlydesign in detail a particular element or to put forward hisoutline design for the whole of the Works or if he provideshis own soil reports or has himself gained outline planningconsent. The Employer cannot under this Contract nomi-nate sub-contractors or suppliers of his own choosing buthe may reserve the right to judge certain standards by wayof 'on-the-spot' inspections as and when the particularwork is carried out or when certain materials or goods aredelivered.

It is intended that any such diverse arrangements arewritten into the Employer's Requirements or the Contrac-tor's Proposals. Whatever then remains to be done, otherthan described or stated in either of these two documents,

by way of design is by this clause 2 made the Contractor'sresponsibility. The Contractor has a duty therefore to doeverything in the way of design necessary for the purposeof carrying out and completing the Works so far as he isnot specifically relieved of that obligation by any particular

description or statement to be found in the Employer'sRequirements or Contractor's Proposals.

Delineating where one party's or the other's designobligations begin and end may however still prove to be

blurred in practice. Obviously the simplest arrangementwill in this respect prove best, where tie Contractor doesabsolutely everything, including gaining planning consents,designing everything, deciding the suitability of the site

and its sub-strata.Insofar as the design of the Works is the responsibility of

the Contractor he carries the same liability to the Employeras would an architect or engineer or other professional de-signer working in the conventional independent way. Thisrequires the use of reasonable skill anc care by the Con-tractor in his design work but will not imply the resultingWorks will be fit for their intended purposes, In a conven-tional design-and-build Contract where the Employer doesnot put forward his own choice of materials or goods ordesign but just takes what he is offered by the Contractorthis would normally inipliedly promise aot only reasonableskill and care in design but also the finished Works would

be fit for their purpose,

However, whenever the Employer in his Requirementsmakes his intended purposes known to the Contractorthere will be grounds to claim a failure to use reasonableskill and care if the design fails to enable these known

purposes to be achieved.

The Contractor's liability for any Joss of use of theWorks due to his design defects or for loss of the Em-

ployer's profits or other consequential losses may in this

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Contract be expressly limited by agreement between theparties to a particular amount to be named in the Appen-dix 1. If such an amount is written into the Appendix,

putting a ceiling upon the Contractor's liability (thusindirectly lowering the Contract Sum), the arrangementwill not relieve the Contractor of his unavoidable clause6 obligation to comply with all Acts and statutory rules,nor his separate clause 24.2 liability to pay or allow tothe Employer liquidated damages (also to be stated inAppendix 1) for any failure to complete the construction

by the Completion Date or any extended Date.

Where the Contract involves work for or in connectionwith the provision of a dwelling or dwellings (new or rehab'including flats) the parties cannot rely on any arrangementat all to restrict or exclude the Contractor's design liabili-ties. There are unavoidable and more onerous requirementsstatutorily imposed by law under the Defective Premises Act(section 1(1)) which requires the Contractor additionally tocarry an absolute liability to see that any work of his for orin connection with the dwelling/s results in places fit forhabitation when completed. Furthermore, the duty is owed

not only to the Employer but to every purchaser and sub-sequent purchasers of such dwellings.

If the Employer's Agent imposed Changes (see CD 42)in design which resulted in defects, undetectable before-hand by a reasonably competent Contractor, it may be

possible for the Contractor to use part of the Act (section1(2)) to seek relief from the responsibility imposed in thisway upon him.

The otherwise unavoidable Defective Premises Act'ssection 1(1) can alternatively be replaced by an 'approvedscheme' of protection for the dweller, such as the NHBCscheme which may be written into Appendix 1 whereby(under section 1(2) of the Act) there is arranged a parti-cular contract (eg, NHBC Agreement HB5) to be made

between the Employer or Contractor and each dwellingpurchaser providing for a written warranty to build in anefficient and workmanlike manner, of proper materials, soas to be fit for habitation. Where such a scheme is involvedthe Employer's Requirements should include its applicationthus bringing clause 2.5.2 into play adding an obligationupon the parties to each do everything necessary for thescheme's documents to be issued.

Although everything written above indicates how important the Employer's Requirements and Contractor'sProposals are in setting out obligations, statement CD 16clearly stipulates the contents of the Employer's Require-ments or Contractor's Proposals or the Contract SumAnalysis cannot override or modify any provisions in theArticles, Conditions or Appendices.

Nothing contained in the Employer's

Requirements, Conlraclor's Proposals,

or the Contract Sum Analysis must

override or modify the application or

interpretation of the Articles of Agree

ment, Conditions, or the Appendices

CD 16 2.2

Thus, although the Employer's Requirements or Con-tractor's Proposals may be specially drawn up to expressthe parties' intentions, if these intentions run against theConditions etc as they stand then statement CD 16 willrender the words within the Employer's Requirements orContractor's Proposals ineffective. If the Requirements andProposals are united in placing an obligation upon the Con-tractor, or granting him some special relief, in contradiction

to the Conditions, Articles, or Appendices then whatever iscontained in the Conditions, Articles or Appendices will

prevail. The parties must therefore ensure CD 16 does notnegate their real intentions. They must also ensure correctcompletion of the standard Articles and Appendices takes

place. If they wish to enter into non-standard arrangementsCD 16 must be suitably altered.

For example, the parties may intend to limit the Con-tractor's liability for the consequences of his design errorsand may have written this into the Employer's Require-ments and/or Contractor's Proposals with an amount statedas a limit to the liability. However, failure to enter thisamount or the correct amount in the proper place in the

Appendix will result in CD 16 negating the non-standardarrangement as written in the Requirements or Proposalsand in the absence of any sum written into the Appendixwill open the Contractor to a no-limit liability.

Clauses 3 and 15 Contract Sum Interim Payments

Clauses 3 and 15 when combined with clauses 12.6 and 30are collectively concerned with prompt payment to theContractor of monies as he progresses. The Contract's

policy of prompt, and almost full, regular payment to theContractor by the Employer of absolutely everything statedin the Conditions, on the dot, every month, can be avoidedto a limited extent by the use of "Alternative A" in clause30 wherein predetermined stage payments of stipulatedamounts cumulatively recorded in Appendix 2 can bewritten into the Requirements and/or Proposals after agree-ment by the parties, prior to entering into the Contract.

The objective of clauses 3, 15, 12.6 and 30 remainshowever to ensure the Contract Sum, together with anyamounts to be added (or deducted) as laid down in theConditions, is to be doled out to the Contractor in a strictlyregular way under either Alternative 'A' or 'B' as he pro-ceeds towards practical completion. Many of the amountsto be added (eg, for clause 12 Changes or clause 26 losses)are difficult to ascertain. It is this difficulty that clause 3recognises. It permits partial ascertainments to be takeninto account by the Contractor in his computation of theInterim Payment due to him from the Employer. This

partial ascertainment does not encompass guess-work orapproximations. It means the ascertainmen; (establishingas a certainty) of parts of the whole concerned.

If the Contractor does not properly add or deduct partor whole amounts in the computation of his Interim Pay-ment Applications the Employer is entitled to utilise CD601, issuing a notice to the Contractor giving his reasonsfor stating the Contractor's version of the total amountstated as due is not in accordance with the Contract.Simultaneously the Employer must pay the amount hehimself reckons is due.

If the Employer does not recognise the Contractor'sright to take into account ascertained amounts in part orin whole in his Interim Payment Applications the deprived

Contractor must wrestle not only with the precise meaningof the word "ascertained" in clause 3 but also with thewords "properly due" found in his safety net remedialclause 28.1.1.

It is never easy to be absolutely right about anythingother than the simplest of issues. Exactitude in making evenfinal valuations is difficult; in Interim valuations their tern-

porariness and limited life lead practitioners inevitably toapproximation. There are good reasons to do so for work is

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in progress and incomplete, furthermore the words used inthe Conditions though superficially clear often raise doubts,as for instance in the words "total value of the materialsand goods delivered". Do the words "total value" here in-clude the Contractor's estimated costs of unloading, storage,wastage, breakages, etc? It seems some inexactitude isunavoidable and inevitable in any Interim sums chosen forthe purpose of setting a value at a particular moment duringthe progress of a project. It is the claiming of sums impro-

perly due rather than marginally inexact sums that CD 601is aimed at.

The Contractor must of course comply with any stipu-lations written into the Requirements concerning anyaccompanying details to be provided to the Employer(see CD 642 or 683) with each Application for interim

payment.

Clause 4 Employer's instructions

Practice Note CD/IB gives a list of clauses under which theEmployer is empowered to issue instructions (see page 6).

This list is not comprehensive. Further rights are containedin the Conditions and these are laid out in the Flowchartsunder CD 69.

Any instructions given by the Employer to the Con-tractor's person-in-charge are deemed to have been given tothe Contractor. The person-in-charge must therefore ensurehe immediately complies with instructions of the Employer(or his Agent) provided the Conditions expressly empowertheir issue.

This strict obligation to respond immediately to all suchissued instructions has four safety devices available to theContractor:

1.A right exists (in CD 69) to query the validity of anyinstruction.2.A fight exists (in CD 73) to treat all unwritten instructions as invalid until they are put into writing.3.A right exists (in CD 6364) to reasonably object toa proposed Change in previously imposed obligationsor restrictions under clause 12.1.2.4.A right exists (in CD 190192) to reasonably refusean instruction involving an unreasonable Change inthe design of the Works.

Most instructions are likely to arise from the Employer'sdesire to change his original Requirements or to changesomething the Contractor would, according to his Proposals,otherwise carry out. Clause 12 empowers the Employerto make such changes and defines (very widely) the term"Change" to include matters concerning imposed obliga-tions or restrictions on access to or use of the parts of thesite, working space and hours, and the order of working.However, clause 4 places a brake on the Employer freelyand unreasonably making such particular changes if theContractor makes reasonable objection.

If an issued instruction is empowered, is in writing, andis not one the Contractor can object to under CD 6364 orCD 190-192 then the Contractor must set to immediatelyand comply. Questions concerning the time (extension)needed and any money (extra) involved if the instructionis a Change are all secondary to the obligation to comply,although the Contractor is obliged to simultaneously givewritten notice to the Employer under clause 25 if it isimmediately apparent his Works' progress will be delayed.

No financial deal is necessary before the obligation to

comply comes into force. Money matters in respect ofChanges are taken care of under clause 12.4 whereinthe parties may agree if they wish a 'lump sum' deal onthe Change, otherwise they are obliged to settle any dif-ferences using the detailed rules of valuation written intoclause 12.5.

The word "forthwith", meaning immediately and with-out delay, should be read reasonably of course in each

particular circumstance. (Eg, How soon could the requiredresources be assembled and put to work? What statutorynotices would have to be given or permits secured? Whatreorganisation or reconsideration of the Contractor'soriginal plans, programme, designs and arrangements would

be needed?) A minor Change sought by the Employer mayhave major repercussions on the Contractor's otherwiseregular progress. The Employer must make due allowancefor these things before turning to CD 65/66.

The Employer should also be wary of clauses 25 and 26.The former pushes the completion date onwards and thelatter entitles the Contractor to recoup from the Employerany direct loss and/or expense he may incur if his regular

progress becomes materially affected. However, clause 12.4

The Employer may emplov and pavother persons to execute any workwhatsoevernecessary to give effect to anexpressly empowered instruction

CD 65

if within 7 days aftef receipt of awnotice from the Employer requcompliance, the Contractor doecomplyCD 66

rittenring snot4.1.2

presents a possible safety net for the Employer if he canpersuade the Contractor to freely make an agreement overthe desired Change (before the work commences) in whichthe sum agreed upon will be in full and final settlement,including any sum that may arise under clause 26.1 to .3,also to include the rights under clause 26.4.

Prior financial agreements over Change orders are un-fortunately a rarity. There is a tradition in the constructionindustry of getting on with the work first and arguing its

value later (sometimes years after). If the Employer wishesto avoid this he should stipulate in the Requirements whataction is to follow the issuing of Change orders, bearing inmind of course that CD 16 will not allow any overriding ofthe standard rules where the Requirements conflict. In anycase the Employer may utilise his rights under clause 30.3.4to refuse payment of anything "not in accordance with thisContract", stating as his'reasons that the words of clause 3(CD 5456) require the parties to establish the amount asa certainty before it is to be taken into account in anyInterim Payment.

It is important to note that although under clause 12.1.1the Employer may, subject to the four rights of the Con-tractor to resist (referred to above), make wide-ranging

changes in the design, quality or quantity of the Works,there are restrictions under clause 12.L .2 concerning anydesired Changes in impositions previously entered in theRequirements in respect of:

.1 access to the site or use of any specific parts

.2 limitations of working space -.3 limitationsof working hours.4 the execution or completion of the work in any

specific order.

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The Contractor must confirm in writing tothe Employer within 7 days if theEmployer purports to issue an instructionotherwise than in writing

CD 77

Clause 4 endeavours under CD 77 and CD 79 to copewith the difficult questions of purported, unwritten, un-

noticeable, or unintended Changes. It does so by giving theContractor a right to question their validity and requiring

both parties to put unwritten matters into writing. It evenrecognises that despite such rules instructions may still begiven and carried out without them having been beforehand

put through the proper paper work. In such cases CD 79grants the Employer a discretionary right to confirm hisapproval retrospectively. He can do so at any time prior tothe Final Account and Statement becoming conclusive.

I f neither Contractor nor Employer confirm such an instruction in the mannerand time stipulated bul nevertheless theContractor complies with an instructionotherwise than in writing then the Employer may confirm the same in writing;CD 79 4.3.2.2

Failure to respond "forthwith" to an Employer's in-struction (which clears the four hurdles listed in the third

paragraph under this sub-heading) entitles the Employerto employ others to carry out the particular ignored in-struction. If the Contractor more seriously defaults inways described in clause 27 then the latter rights becomeoperable rather than those in clause 4.

Difficulties for the Employer may arise especiallytowards the end of a project, particularly one which forthe Contractor has turned out to be unprofitable. Themore Changes the Employer orders the less inclined theContractor will be to carry them out. The more work and

administration the more loss the Contractor may foreseeand the more vigorously therefore he will pursue underclause 12.5 an allowance for the "lateness" of Changeson grounds the conditions under which the work is to

be carried out have changed. He will under clause 12.5.3seek an allowance for his extended administrative coststhat go with the extra work and under clause 12.5.6 mayseek a fair valuation of design work, insurance premiumsand other costs not otherwise included for in the normalvaluation of the Changes ordered.

Clause 5 Custody and supply of documents

The Employer should consider carefully prior to makingthe Contract whether upon completion the Contractor'sdrawings, specifications and details used for the purposesof the Works will be sufficient for the Employer's futureneeds in connection with the maintenance, alterations or

repairs of the building concerned.If the Employer considers other drawings and technical

information should be produced detailing the Works 'asbuilt' then such requirements should be specifically referredto in the Employer's Requirements and/or Contractor'sProposals.

This clause 5 makes no mention of any 'master' plan orprogramme being supplied to the Employer even though heis expected under clause 25 to operate complex provisionsfor considering and in appropriate cases granting extensionsof time to the Contractor. Furthermore, under clause 26the Employer is required to make judgements on mattersof loss and expense emanating from disruption to the Con-

tractor's regular progress. A 'master' programme would atleast outline the intended regular progress.

Time, under clause 25, and money matters, under clause26, are not necessarily unified but they do frequently gotogether. It is difficult to see how an Employer is to duti-fully make his judgements without (from the commence-ment) having in his hand the Contractor's bona fide master

programme. The annotation following CD 8488 refersfurther to this problem.

Clause 6 Statutory obligations, notices, fees and charges

The importance of the Contractor's overriding obligation, inCD 103 to comply with, and give all notices required by,

any Statutory Requirements is irreducible and cannot beavoided. No matter what the Employer's Requirementsspecify, including his designs or Change orders, the Con-tractor is to-ascertain for himself, and ensure compliance

The Contractor must comply with, andgive all notices required by. any Statu-tory Requirements

with, the Building Regulation requirements, Construction

Regulation requirements, planning approvals, and anyother relevant statutory requirements.

Furthermore, the Contractor must do so without anyright to reimbursement of any unforeseen costs arisingunless a new or altered statutory regulation comes intoforce after the Date of Tender or unless certain planningrequirements are involved in which case see CD 131 136.

Clause 8 Materials goods and workmanship etc

The Contractor should preconsider hispromised standards,or the Employer's Requirements, of workmanship andchoices of materials or goods. They must be technicallysound, commercially sensible, attainable, and at all times

procurable, otherwise the Contractor must gain the Em-ployer's consent in writing before being allowed to makeany changes in standards of workmanship or choices ofmaterials or goods. The Contractor must also bear anycostlier procurement cost and workmanship costs resultingfrom such changes.

The words "so far as procurable" are not defined. Theygrant relief to the Contractor from endeavouring to obtainthe unobtainable. It is up to the Contractor to show theEmployer sound grounds for seeking the relief promised.If satisfactory evidence shows certain materials or goods areunobtainable the Employer may either sit back and awaitthe Contractor's suggested alternative or he may take the

initiative by ordering a Change. The first course of actionwould be risk-free whereas in the latter he must acceptthat a formal valuation of his order would follow with its

possible consequences of design changes and planning per-missions with the possibility of delays and disruptions tothe Contractor's regular progress.

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All workmanship materials and goodsmust so far as procurable be of thestandards: CD 138 8.1

- specifically described in the Employer'sRequirementsCD 139 8.1

-

described in tbe Contractor's Proposals CD

140 8.1

- described in the specifications referred toin clause 5.3CD 141 8.1

4.3.2


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If the Employer promptly and reasonably refuses hisconsent to any suggested substitution by the Contractor thequestion of lost time will not arise under clause 25. TheContractor, with requests for consent to make a substitu-tion, may however give each time a notice under clause2S.4.10.1 and/or .2. Any delay by the Employer in givinghis consent to a suggested substitution would give rise to

a further notice this time under clause 25.4.6, followedperhaps by a written application under clause 26.2.7 statingthe Contractor was likely to incur loss and/or expense dueto Ms regular progress being affected materially by thedelay in receiving "consent".

The Employer may therefore be on a tight-rope. On theone hand he has a clear right to a reasonable time to judgewhether a preferred substitution is acceptable. On the otherhand he is not obliged to accept or "consent" to an un-reasonable substitution. If he promptly and reasonablyrefuses his consent to a first suggested substitution theclock must then be set to start again, granting the Employera new reasonable time in which to judge the second sug-gested substitution and so forth, Obviously the Contractor

may persist in putting forth the cheapest substitute he canfind until he gains the Employer's consent. However, pro-vided the Employer reacts promptly to each and everysubstitution preferred the time lost by the Contractor ineventually gaining the Employer's consent will not qualifyfor an extension to the completion date under the provi-sions of clause 25 since the clause's words exclude timetaken up by reasons within the Contractor's control.

This same principle would deny the Contractor's claimfor incurred loss under clause 26.2.7 since the "due time"referred to there would be judged not from the first sug-gested substitution but from the moment when the firstreasonably acceptable substitution was preferred.

Arbitration is under Article 5.2.1 operable immediatelyon questions concerning the refusal of "consent" by theEmployer.

Clause 8 also grants the Employer discretionary rights

The Employer may issuere quiring the Contractor toCD 147

nstructions

8.3

to instruct the Contractor to open up work done and/orto carry out tests upon that, or upon other work or anymaterials or goods awaiting incorporation into the Worksor in situ in the Works. This right cannot be interpretedas an obligation upon the Employer to detect any of theContractor's faults, errors or omissions. However, if theEmployer does order work etc to be opened up or tested

and the findings show the workmanship, materials andgoods to be faultless then the Employer will be requiredto pay the Contractor his "cost" of opening up and/ortesting, together with the "cost" of making good.

Difficult questions arise if faults are found which are notas extensive as the degree of or extent of opening up calledfor; or if the extent or nature of tests subsequently proved.The mere fact that fault was found will of course justify theopening up but whether it can justify allof the opening upor testing demanded is difficult to judge. The line between

proper precautionary examinations and the unnecessarybaring of construction may be blurred in certain cases butthe benefit of removing doubt must be granted to theEmployer whenever reasonable doubt exists.

Clause 10 Person-in-charge

The person-in-charge, as the authorised representative ofthe Contractor, is obliged to receive any instructions of theEmployer. When any instruction has been delivered to the"person" it is deemed to have been given to the Contractor.This applies only in the case of an "instruction". A notice,such as one under clause 23.2 formally informing the Con-tractor of a failure to complete in time, would have to bedelivered to the Contractor, not his "person". Similarly, anotice under clause 27 specifying serious defaults or givingnotice of determination would, to be valid, have to be

served upon the Contractor himself, not his "person".Clause 4 deals with the Employer's empowered notices,

the way in which they are to be issued, the Contractor'srights to make reasonable objection, and so forth. The

person-in-charge must clearly understand his special posi-

tion and know he is the official receiver of "instructions'",not notices.

The Contractor may delegate to his "person" additionaland wider authority (subject to Head Office supervisionand control) than simply to receive instructions. The"person" may be authorised to make agreements on thevalues of Changes (under clause 12.4) and to agree with the

Employer the Final Account and Statement under clause30.5. However, if the person is not authorised to makeagreements but nevertheless does so they may become

binding upon the Contractor if it appearedto the Employerthe person had authority to make such agreements.

If the Employer or his agent gives instructions in theform of sketches or drawings they may well constitute aninstruction "in writing" if they clearly show in an instruc-tive manner whatever the Employer wishes the Contractorto do.

The Employer's power to instruct does not extend todictating the Contractor's speed, methods or sequence ofworking, unless the Contractor's ways and means do notcorrespond with matters laid 'down in the documentsreferred to in CD 1, or if the Contractor is not constantlyusing his best endeavours to prevent delay (see clause25.3.4.1) in which case the Employer would be entitled torequire everything reasonably possible to enable the Worksto proceed, under CD 438.

Clause 11 Access for Employer's Agent etc to the Works

The right for the Agent and others to see the Works inprogress, and for the Agent (under clause 5.4) to see thedocuments, and enter workshops etc where work is being

prepared does not reduce in any way the Contractor's

obligation to comply with all the requirements and stan-dards of the Contract.

The nomination of an Agent or any replacement wouldmake that person an official receiver of any application,notice, request or statement of the Contractor. It wouldalso make the person an official giver of consents, instruc-tions and notices, unless the Employer specifically cutdown the person's authority by a written notice to theContractor. In the absence of any such written notice theContractor would be entitled to (and must) assume the

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open up lor inspection any workcovered upCD KB 8,3

- arrange for any lest of any executedwork or of any materials or goods(whether or not already incorporated Inthe Works!CD U9 8.3

carry out any test of any executed workor of any materials or goods (whetheror not already incorporated in the Works)CD 150 8.3


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Agent has full authority as granted to him under Article 3,to act for the Employer and to bind him.

However, the Contractor should realise where the Agentis an architect or quantity surveyor that in their position asAgent they are entitled to openly display their partiality.This may lead the Contractor to wonder just how he is to

profitably settle clause 12 valuations!

Clause 12 Changes in the Employer's Requirements andprovisional sums

12.2

There are restrictions upon and limits to Changes the Em-ployer may order. Firstly, the Employer is not allowed toeffect a Change which is, or makes necessary, an unreason-able alteration or modification in the design of the Works.For example, an order to a Contractor, who specialises in

standardised reinforced concrete buildings, changing thestructural frame and cladding to steel may be reasonablyrefused. Arbitration is in any case available, to start imme-diately, to decide whether such a refusal should stand.

Secondly, reasonable objections may be raised by theContractor if instructions are issued to change any obliga-tion or restriction previously imposed by the Employer (inthe Requirements) in regard to access or use of parts ofthe site, limitations on space and hours, or changes in the

previously specified order of working or completion.

Thirdly, the Employer may not by Change order funda-mentally alter the character of the Contract to somethingquite different from that which the Contractor had bar-gained over in the first place.

However, the clause is quite open on the question ofwhen the right to order Changes comes to an end. It is notclear whether the Employer is entitled to issue instructionsfor extra work or to omit work after the Contractor has

passed the Date of Completion or any extension to it.There are no restrictions on late orders; in any case theContract would become unworkable ifnecessary orders hadto cease once a particular date had passed.

The Employer may issue all manner and any number ofempowered Change orders up to the Contractor achievingPractical Completion, even if the Contractor has overrunhis time. The extra time that may be needed to executethe work, causing the completion date as it then stands to

become unattainable, may be granted under clause 25.4.5.1(CD 414) but any similar time spent merely awaiting anyChange instruction should be separately awarded underclause 25.4.6 (CD 419) provided the Contractor has appliedin writing for the instruction in question.

Whether or not such extensions of time may rightly beawarded or indeed need be accepted once the Contractoris in breach by overrunning time is a debatable matter. Agreat deal may depend upon whether the Contractor had,in accordance with CD 399, used "constantly his bestendeavours" to prevent delay during the progress of theWorks. If, for example, there is clear evidence of earlierdilatoriness causing summer work to run into winter-timean extension for exceptionally adverse weather arising inthe overrun period may be prejudiced. On the other hand,an earlier lack of best endeavours may later give the Em-

ployer the right to set a later Date under clause 25 due toRelevant Events arising later than they might otherwisehave done if only the Contractor had earlier done his dutyunder the Contract (CD 399) to prevent delays.

Certain Contractors may refuse proferred extensions ongrounds the instructions issued in the overrun period haveset time at large and the liquidated damages clause has

become inoperable. Resolving such contentions may requireexpert legal advice. There may have been both necessaryand unnecessary Changes ordered. There may have beeninstructions Issued at the same or different times as Changeorders. Provisional sum instructions issued may have beenones which could not have been given earlier and some

provisional sum instructions may involve much more oreven less work than first envisaged when the sum was set.

If no agreement can be reached concerning extensions oftime and the deduction or payment of liquidated damagesthen the Employer should set about proving the lossactually suffered, due to any alleged late completion, ratherthan rely upon getting predetermined clause 24 liquidateddamages from the date alleged by the Employer to be theoperative completion date through to Practical Completion.

Further difficulties may be encountered where latenesshas been caused by an interwoven set of circumstances in-volving faults or dilatoriness by the Employer, dilatorinesson the Contractor's part, and factors outside either party'scontrol. In such involved circumstances the validity ofdeductions made by the Employer for damages due todelay is difficult to judge, particularly if any of the reasonsfor delay does not fall clearly under any of the clause 25Relevant Events.

When a Change is ordered the Contract Sum Analysiswill be referred to in order to reckon up the Change's value.Valuing Changes is (as stated in the commentary to clause4) rarely swiftly achieved. Clause 3 combined with clause12.6 (CD 199) anticipates both delay and difficulty. They

permit partial payments and provide (in 12.5) a set of rulesfor making detailed valuations, provided the Contract SumAnalysis is comprehensive enough.

However, the simplified alternative clause 12.4 way isopen to the parties rather than the slavish rules of clause12.5.

Whichever way is chosen, as soon as any part of theamount involved has been "ascertained" then that sum,when established as a certainty, shall be paid under clause30.2A.1.2 or30.2E.l.l,less Retention.

The greatest difficulty may arise under statement CD198, where an allowance must be included for the additiono

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