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03/07/2018
1
RICS CPD Series:
Appropriate Contract Selection
June 2018
Content
► The “Black Book” Guidance Notes
► What are the “Black Book” Guidance Notes?
► Who are the “Black Book” Guidance Notes for?
► The importance of the “Black Book” Guidance Notes
► The importance of choosing the procurement route first
► The Guidance Note on Appropriate Contract Selection
► General Principles (Level 1 – Knowing)
► Practical Application (Level 2 – Doing)
► Practical Considerations (Level 3 – Doing / Advising)
► Appendix
What are the “Black Book” Guidance Notes?
The “Black Book” Guidance Notes
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What are the “Black Book” Guidance Notes?
The “Black Book” Guidance Notes
► There is a suite of “Black Book” Guidance Notes available from the RICS:
► http://www.rics.org/uk/knowledge/professional-guidance/black-book
► http://www.rics.org/uk/shop/standards/blackbook/?id=&p=0
► For example: Cost Reporting, Extensions of Time, Tendering
Strategies, Defects and Rectifications, and Valuing Change
► When complete, there will be 35 Guidance Notes in the suite
► Cross-industry collaboration
► Developed in conjunction with practitioners, contractors, clients and
other professional bodies
► A lead author develops each Guidance Note in conjunction with the
RICS’ Black Book Working Group
Who are the “Black Book” Guidance Notes for?
The “Black Book” Guidance Notes
► “These standards are essential development tools for younger
professionals working through their APC and useful guides to best
practice for more experienced professionals” (RICS’ website)
► The Guidance Notes are for QSs, clients, contractors, those who need to
be informed
► The Guidance Notes will assist those going through the APC
► The structure of the Guidance Notes conforms with the APC:
► Level 1 – Knowing
► Level 2 – Doing
► Level 3 – Doing / Advising
The importance of the “Black Book” Guidance Notes
The “Black Book” Guidance Notes
“When an allegation of professional negligence is made against a surveyor,
a court or tribunal may take account of the contents of any relevant guidance
notes published by RICS in deciding whether or not the member had acted
with reasonable competence.”
“In the opinion of RICS, a member conforming to the practices
recommended in this note should have at least a partial defence to an
allegation of negligence if they have followed those practices.”
“However, where members do not comply with the practice recommended in
this note, they should do so only for a good reason. In the event of a legal
dispute, a court or tribunal may require them to explain why they decided not
to adopt the recommended practice. Also, if members have not followed this
guidance, and their actions are questioned in an RICS disciplinary case, they
will be asked to explain the actions they did take and this may be taken into
account by the Panel.”
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Appropriate Contract Selection
Why the need for a Guidance Note on Appropriate Contract Selection?
Appropriate Contract Selection
► Published in November 2014
► A frequent topic that professionals are called to advise on
► A regular topic for the APC Critical Analysis
► Enables candidates to analyse a real life problem and demonstrate
critical reasoning
► From a legal perspective – selecting an inappropriate form of contract or
using a contract inappropriately often ends in a dispute
► As does not having a contract at all!
► It should be read in conjunction with the Guidance Notes on “Tendering
Strategies” and “Developing a Construction Procurement Strategy and
Selecting an Appropriate Route”
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Choose the correct procurement route first
Appropriate Contract Selection
► Select the correct procurement route first
► Do not put the cart before the horse
► Read the RICS’ Guidance Note on this topic: “Developing a Construction
Procurement Strategy and Selecting and Appropriate Route” (GN
109/2013)
Do not select the construction
contract before choosing the
correct procurement route
Choose the correct procurement route first
Appropriate Contract Selection
► Consider the relationship between Performance, Cost and Time
► This will assist in determining the most appropriate procurement route
Content of the Guidance Note
Appropriate Contract Selection
Introduction
General Principles (Level 1 – Knowing)
Practical Application (Level 2 – Doing)
Practical Considerations (Level 3 – Doing / Advising)
Appendix – Contract Comparison
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Some words of warning
Appropriate Contract Selection
► The choice of construction contract will not, on its own, determine whether
a particular project is completed on time, to budget, with minimal defects
and safely
Chosen
Procurement
Route
Tendering
Strategy
Project
Success
Choice of, and
risk balance in,
the construction
contract
Skills of the
Contractor and
its supply chain
Good
Programming
and PlanningGoals, attitude and
approach of each party
What the Guidance Note does / does not cover
Appropriate Contract Selection
Does cover
► How Employers and their professional advisers should select a
construction contract to engage a contractor to carry out work on private
or public sector construction projects
► Focussed on the UK market – but the principles are broadly applicable in
other jurisdictions
Does not cover
► The needs of the consumer / domestic market
► Other contracts that an Employer may require on its construction project,
e.g. the appointment of the professional consultants (architect, cost
consultant, project manager etc)
Procurement Routes
General Principles (Level 1 – Knowing)
► A recap on the various procurement routes available for construction
projects in the UK, e.g.
► Traditional (Lump Sum or Remeasurement)
► Design & Build
► Engineering, Procurement and Construction (EPC)
► Construction Management
► Management Contracting
► Public Private Partnerships (PPP)
► Others, e.g. Cost Plus / Cost Reimbursable, Target Cost, Term
Contracts, Framework Contracts, Alliancing, Partnering
► Read the RICS’ Guidance Note on this topic: “Developing a Construction
Procurement Strategy and Selecting and Appropriate Route” (GN
109/2013)
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The use of standard form construction contracts
General Principles (Level 1 – Knowing)
► Standard form construction contracts
► Typically drafted by construction industry bodies or trade associations,
e.g. JCT, NEC, FIDIC, NFDC
► Intended to provide a set of standardised terms and conditions for
Employers and Contractors to contract upon
► Should save the parties time and money because they are not
negotiating bespoke contracts for each new project
► Can be used unamended, but frequently are not
► Certain standard form construction contracts have been developed for
use in certain sectors, e.g. civil engineering, process engineering
► Beware of different risk allocations – the standard form construction
contracts deal with particular risks in different ways
► You need to know the differences between the contracts, e.g. see the
Appendix to the Guidance Note
► Standard form construction contracts often have ready-made sub-
contracts already drafted
Publishing bodies and the different forms of construction contract
General Principles (Level 1 – Knowing)
► There are many different standard form construction contracts available
for use in the UK
► Contracts for use with the various procurement routes
► Contracts for use in certain sectors
► Published by construction industry bodies or trade associations
The Joint Contracts Tribunal (JCT)
General Principles (Level 1 – Knowing)
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General Principles (Level 1 – Knowing)
The Joint Contracts Tribunal (JCT)
General Principles (Level 1 – Knowing)
The Joint Contracts Tribunal (JCT)
The New Engineering Contracts (NEC)
General Principles (Level 1 – Knowing)
► Engineering and Construction Contract
► Engineering and Construction Subcontract
► Engineering and Construction Short Contract
► Engineering and Construction Short Subcontract
► Design, Build & Operate Contract (new for NEC4)
► Alliance Contract (new for NEC4)
► Professional Services Contract
► Professional Services Short Contract
► Term Service Contract/ Short Contract
► Supply Contract & Short Contract
► Supply Framework Contract
► NEC3 Adjudicator's Contract Dispute Resolution Service Contract
► Guidance Notes and Flow Charts
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Other publishers of standard form construction contracts
General Principles (Level 1 – Knowing)
Other publishers of standard form construction contracts
General Principles (Level 1 – Knowing)
Procurement, tendering and contract selection
Practical Application (Level 2 – Doing)
► Procurement – The overall process of obtaining goods and services from
external sources (e.g. a contractor)
► Contract selection flows from the choice of procurement route
► Examples of the construction contracts that can be used with the most
commonly adopted UK procurement routes are detailed in the
Guidance Note
► Tendering is the bidding process and the actual process of appointing a
contractor
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Other factors influencing the choice of construction contract
Practical Application (Level 2 – Doing)
► The type of works required and sector
► What type of works will take place? What sector is it?
► Certain sectors will be more familiar with certain types of construction
contract than others
► Imposing an unfamiliar form of construction contract may have
adverse consequences
► Examples of the sectors in the UK that use particular forms of contract
are detailed in the Guidance Note
► The size, value and complexity of the project
► The chosen construction contract should be appropriate to the size,
value and complexity of the project
► A number of contracts are available for low and medium value projects
► Inappropriate use of a contract may have adverse consequences
Other factors influencing the choice of construction contract
Practical Application (Level 2 – Doing)
► The Employer and their level of sophistication and familiarity with
construction
► Public / quasi-public sector Employers are more constrained regarding
the types of contract they are able to use
► NEC3 suite of contracts for construction projects (although JCT
Constructing Excellence and PPC2000 also endorsed)
► PPP projects have their own requirements (e.g. PF2, Priority Schools
contracts)
► Network Rail – their own suite of JCT and ICC contracts
► Highways Agency – NEC3 ECC
► Prisons – PPC2000
► Private sector Employers have more freedom of choice
► Is the Employer more familiar with certain types of contract than
others?
► The Employer’s level of sophistication, familiarity with construction and
administrative capabilities?
Other factors influencing the choice of construction contract
Practical Application (Level 2 – Doing)
► Balance of risk / risk allocation
► The choice of procurement route has a major bearing on the balance
of risk within a project and the chosen construction contract
► Certain procurements routes are inherently riskier for certain
parties, e.g. design & build is riskier for the Contractor, whereas
management contracting is riskier for the Employer
► Risk allocations will vary even between contracts that are designed
for use with the same procurement route, e.g. different levels of
responsibility for the design and construction of the works
► Various procurement routes also differ in other areas, e.g.
► The Employer’s level of involvement
► The separation of management from design and construction
► The speed from inception to completion
► Certainty of price
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Other factors influencing the choice of construction contract
Practical Application (Level 2 – Doing)
► Design Responsibility
► Which party will have primary responsibility for design?
► Will largely be driven by the chosen procurement route
► A Contractor’s Designed Portion?
► Some forms of contract work with a wide range of design
responsibilities (e.g. NEC3 ECC and the CIOB’s Contract for Use with
Complex Projects)
► Other forms of contract have been developed for use with specific
allocations of design responsibility (e.g. the JCT’s Standard Building
Contract and Design & Build Contract)
► Note – not all design & build or EPC contracts will place design
responsibility on the Contractor in the same way – be aware of this
Other factors influencing the choice of construction contract
Practical Application (Level 2 – Doing)
► Basis of the Contract Sum and Payment
► Will largely be driven by the chosen procurement route
► Fixed price lump-sum, re-measurement, target cost, prime cost plus
fee?
► Interim valuations, milestone or stage payments?
Essential elements required to create a binding contract
Practical Considerations (Level 3 – Doing /
Advising)
Offer
Acceptance
Certainty of
Terms
Consideration
Intention to
create legal
relations
Binding Contract
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The Contract Documents
Practical Considerations (Level 3 – Doing /
Advising)
► Once the contract is selected and all the terms are agreed, it needs to be
prepared for execution (signature)
► Professional consultants (e.g. the Architect / Contract Administrator,
Employer’s Representative or Quantity Surveyor) are very often
involved in this process
► Professional consultants need to be familiar with:
► How to fill in any project-specific parts of the contract (e.g. JCT Contract
Particulars or NEC Contract Data)
► Which other contracts documents are required in order to form the contract
Amending a standard form construction contract
Practical Considerations (Level 3 – Doing /
Advising)
► Standard form construction contracts are generally drafted in a balance
manner, allocating risk to the party best able to manage it
► Why amend a standard form construction contract?
► To alter the risk allocation in a contract
► To insert additional obligations
► To remove rights (generally the Contractor’s)
► To deal with project-specific requirements
► Beware the dangers of amending contracts
► Unexpected consequences
► Impact on Contractors’ prices
► Do both parties understand the amendments?
► Are the amendments proportionate?
► Have the amendments been properly made and incorporated into the
contract?
Duration of liability, executing the contract and governing law
Practical Considerations (Level 3 – Doing /
Advising)
► What is the required liability period – 6 or 12 years?
► The difference between simple agreements and deeds
► Make sure the contract is properly executed
► Who needs to sign the contract for the Employer and Contractor?
► Any there any signing formalities to comply with?
► Are there any manuscript amendments that need initialling?
► Which parts of the contract need to be signed / initialled?
► Consider the governing law of the contract
► Does the contract comply with the laws of the particular jurisdiction?
► Are any amendments required to reflect a particular jurisdiction?
► There are variances in the law between England, Wales, Scotland
and Northern Ireland
► What amendments are already available?
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The Appendix to the Guidance Note compares the following contracts:
Appendix – Contract Comparison
► JCT Standard Building Contract 2011
► NEC3 Engineering & Construction Contract (April 2013)
► PPC2000 (2013 edition)
► Infrastructure Conditions of Contract (Measurement Version, 2011)
This is a useful reference tool
Contact Details
Jamie Olsen
Associate
Pinsent Masons LLP
DDI: +44 20 7054 2589
Mob: +44 7780 227 642
Email: [email protected]