Contractual Hand Book

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CONTRACTUAL HANDBOOKLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.for

Steelwork Contractorsand

Other Specialist Contractors

Edited by

Roger Button, Partner,Eversheds

With thanks to Lindy Patterson Partner, MacRoberts For Chapter 23

BCSAThe British Constructional Steelwork Association Ltd.

EVERSHEDSBusiness Lawyers in Europe

Eversheds

THE BRITISH CONSTRUCTIONAL STEELWORK ASSOCIATION LTDBCSA


BCSA is the national organisation for the Constructional Steelwork Industry; its Member companies undertake the design, and erection of steelwork for all forms of construction in building and civil engineering. Associate Members are those principal companies involved in the purchase, design or supply of components, materials, services etc., related to the industry. The principal objectives of the Association are to promote the use of structural steel-work; to assist specifiers and clients; to ensure the capabilities and activities of the industry are widely understood and to provide members with professional services in technical, commercial, contractual and quality assurance matters. The Associations aim is to influence the trading environment in which member companies have to operate, in order to improve their profitability. A current list of members and a list of current publications and further membership details can be obtained from: The British Constructional Steelwork Association Ltd. Apart from any fair dealing for the purposes of research or private study or criticism or review, as permitted under the Copyright Design and Patents Act 1988, this publication may not be reproduced, stored or transmitted in any form by any means without the prior permission of the publishers or in the case of reprographic reproduction only in accordance with the terms of the licences issued by the UK Copyright Licensing Agency, or in accordance with the terms of licences issued by the appropriate Reproduction Rights Organisation outside the UK. Enquiries concerning reproduction outside the terms stated here should be sent to the publishers, The British Constructional Steelwork Association Ltd. At the address given below. Although care has been taken to ensure, to the best of our knowledge, that all data and information contained herein are accurate to the extent that they relate to either matters of fact or accepted practice or matters of opinion at the time of publication. The British Constructional Steelwork Association Limited, the authors and the reviewers assume no responsibility for any errors in or misinterpretations of such data and/or information of any loss or damage arising from or related to their use. The British Constructional Steelwork Association Ltd., 4, Whitehall Court, Westminster, London SWlA 2ES Telephone: +44 (0) 20 7839 8566 Fax: +44 (0) 20 7979 1634 [email protected] E-mail: Website: www.steelconstruction.org

Publication Number 32/01 Third Edition May 2001 ISBN 0-85073-035-X British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. The British Constructional Steelwork Association Ltd. Printed by The Chameleon Press Limited

CONTENTSForeword ........................................................................................................................ Overleaf


Chapter 1 ................................................................................................ Formation of Contracts Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 ..................................................................................................... Classes of Contract ....................................................................................... Standard Forms of Contract ................................................................................................... Tendering Procedures ........................................................................................... Onerous Contract Clauses ..................................................................................................................... Certificates

Chapter 7 ................................................................................................... Payment and Set-Off Chapter 8 .................................................................................................................. Fluctuations Chapter 9 ....................................................................................................................... Variations Chapter 10 ........................................................................... Extensions of Time and Completion Chapter 11 ............................................................................................................ Costs of Delay Chapter 12 ............................................................................................................................Claims Chapter 13 ....................................................................................................... Defects of Liability Chapter 14 ....................................................................................................... Design of Liability Chapter 15 ............................................................................ Supply of Goods and Misrepresentation Chapter 16 .........................................................................................................Limitation Periods Chapter 17 ....................................................................................................................... Insurance Chapter 18 .................................................................................................. Bonds and Guarantees Chapter 19 ................................................................................ Disputes and Legal Proceedings Chapter 20 .................................................................................... Insolvency of Main Contractor Chapter 21 .... JCT Standard Form of Contract with Contract with Contractors Design 1998 Edition Chapter 22 ......................................................................................... Scottish Forms of Contract Chapter 23 ................................................................................................................... Nomination Chapter 24 ......................................................................................................... Competition Law Chapter 25 .................................................................................................................... Check List Appendix A ................................................................................ Amendments to Standard Forms

FOREWORD to the third editionLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.The BCSA Contractual Handbook has been comprehensively re-worked to reflect the torrent of changes that have affected construction over the years since the second edition was produced. As might have been anticipated, there have been considerable developments in case law since the last edition which have affected the position of steelwork and other specialist contractors. More surprising has been the impact of statute notably the Housing Grants Construction and Regeneration Act 1996 which contains one of the few pieces of legislation specifically designed for the construction industry. The Commercial Debts (Interest) Act 1998, the Contracts (Rights of Third Parties) Act 1999, the Competition Act 1998 and the Human Rights Act 1998 will no doubt all make their mark in time. Thanks are due to Roger Button and Ray White of Eversheds who produced this edition, and to Lindy Patterson of MacRoberts for contributing Chapter 23, Scottish Forms of Contract. The law is up to date as at 1 January 2001, although later changes have been incorporated where possible.

M. Rich of Middle Temple, Barrister MSc FCIArb BCSA

CHAPTER 1

FORMATION OF CONTRACTSLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.A contract is an agreement between two parties which is legally enforceable.

Elements of a Binding ContractThere are five essential elements which must exist to form a binding contract.

1. IntentAll parties must intend to create a legally binding obligation between them.

2. CapacityAll of the parties to a contract should be capable of entering into a legally enforceable relationship. Incorporated bodies, partnerships and individuals (provided they are not infants or insane) all have capacity to enter into a contract. If one or more parties lack the capacity to enter into a contract, it may not be enforceable.

3. AgreementAgreement is the fundamental characteristic of a contract. In order to decide whether an agreement exists, the Courts will consider the relationship between the parties objectively and look, amongst other things, to see if there has been an offer by one party and an unconditional acceptance of that offer by the other.

4. Reasonable Certainty of TermsThe terms of the contract must be reasonably certain. It is not necessary to have resolved every detail, but there must be general agreement, and the parties must intend to create a binding agreement despite any details which remain to be agreed. For example, on a contract let on a With Approximate Quantities basis the precise amount of work required will not be known, but this does not prevent a binding contract from being formed.

5. ConsiderationWith the exception of contracts executed as deeds (dealt with in more detail later in this Chapter), there must be consideration. Consideration is what one party agrees to do (or not to do) to secure something from the other party. It was defined by the House of Lords in the case of Dunlop v Selfridge (1915) as, an act or forbearance of one party, or the promise thereof, the price for which the promise of the other is bought... In construction contracts the consideration is normally the promise of the contractor (or subcontractor) to provide work and materials, and the promise of the Employer (or main contractor) to pay a sum of money in return. Consideration is not essential in contracts governed by Scots law

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Formation of ContractsThere is no general legal requirement for a contract to be written except for contracts of guarantee and certain transactions regarding land. Although an oral agreement can be legally binding, written evidence of the terms of a contract is of tremendous practical significance, because it can be very difficult to prove the terms of an oral agreement if a dispute arises.


Offer and AcceptanceInvitation to TreatInvitations to tender for work may be preceded by an enquiry to ascertain whether contractors are prepared to tender or by a formal pre-qualification process. Often these preliminary procedures take place many months before the actual invitation to tender is issued. Usually response to such enquiries or participation in pre-qualification processes would not impose any legally binding commitment on a Steelwork Contractor to enter into a contract. Such enquiries and processes would normally be regarded as invitations to treat, which means they are simply an invitation to enter into negotiation. Provision of catalogues and price lists are also invitations to treat, and do not normally bind the supplier or the recipient to enter into a contract or to buy or sell products at a particular price. There have, however, been exceptional cases where an actual invitation to tender amounts to an offer because the party issuing the invitation binds itself to accepting, for example, the lowest tender (Harvela Investments Ltd v. Royal Trust Co of Canada (CI) Ltd (1986)). In such circumstances, by entering a tender a contractor may be accepting the offer and a contract could result.

OfferTenders, estimates and quotations are all capable of being offers. Pricing information given to main contractors and clients for budget purposes may also be an offer if the information is sufficiently detailed to form the basis of a binding contract if accepted. This is because the law will look at the content of any document to determine its nature, and although the title given to it, e.g. budget price or pricing information will be relevant, it will not be decisive. If a Steelwork Contractor wishes to give a budget price but does not wish to be bound by it, it would be sensible to include a statement in the document such as: This information is given for budget purposes only. It does not constitute an offer to carry out the work or provide the materials described, and we will not be bound by it. A tender price will be provided on request. An offer can be made to a specific person or company, or it can be made at large. In the first case the offer can only be accepted by the person to whom it is addressed, but an offer at large may be accepted by any person. A tender for a main contract will usually be an offer made to a specific person or company and can only be accepted by that person or company. Similarly, a tender for a domestic sub-contract will usually be made to a specific main contractor and can only be accepted by the main contractor. However, when a company tenders to a client or his professional adviser for a nominated or named sub-contract, the offer may be at large and if so, could be taken up by whomever the client appoints as main contractor. This is important for Steelwork Contractors because they are an early trade on most projects and often the identity of the main contractor will not be known when they submit their tenders for nominated or named sub-contracts. Unless the Steelwork Contractor qualifies his

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Formation of Contractstender to the effect that he reserves the right to withdraw it (or to revise his price) if a main contractor unacceptable to him is appointed, he runs the risk of his tender at large being accepted by whomever the client appoints as main contractor. That may be contrary to the interests of the Steelwork Contractor if the main contractor is not credit worthy or has a poor payment record.


Qualified TendersInvitations to tender frequently attempt to prevent the tenderer from attaching any qualifications to his tender. For example, all of the standard forms of tender produced by the Joint Contracts Tribunal state that the sub-contractors tender must be in accordance with the information set out in the invitation. The client can determine the requirements which tenders for work must meet and he can dismiss any tenders which are qualified and therefore not in accordance with his requirements. On the other hand, the invitation to tender documents may have omitted some important information, or lack clarity or may insist upon onerous conditions. In such cases, the tenderer must make the commercial decision as to whether to qualify his tender. When tendering to the client or his professional adviser on a JCT standard form of tender, the only difficulties which should arise from the invitation to tender are either a lack of information or an ambiguity or conflict in the details given. In these circumstances the. tenderer should inform the client (or whoever issued the documents), and request that the information or clarification required be provided and issued to all tenderers. If there is a risk of being unable to obtain adequate supplies of steel to meet contract completion dates, qualification may be appropriate. However, tenderers should bear in mind that qualification may result in their tender being rejected by the client.

Withdrawal of TendersA tender may generally be withdrawn at any time before it is accepted, notwithstanding any statement or undertaking to hold the tender open for acceptance for a certain period. Even where such undertakings are signed by the tenderer, they are not usually legally enforceable as contracts under English law. (They may, however, be enforceable under Scottish law). One situation in which they will be enforceable is where the tenderer is paid for holding the tender open for a specified period (this is known as an option). The option may in some cases be backed up by a bid bond which the client can call if the tender is withdrawn during the specified period. Steelwork Contractors should also take into account the commercial implications of withdrawing a tender. These may include that Steelwork Contractor not being invited to tender for further work for that client. There may also be a technical difficulty with the withdrawal of tenders. Under English and Scots law an acceptance is sometimes binding as soon as it is posted, whereas the revocation of an offer must normally be actually brought to the knowledge of the other party before it takes effect. A tender may therefore have been accepted before the tenderer is aware of the fact, and if this is the case any subsequent attempt to withdraw the tender will not be successful. Tenders which are held open for acceptance for a fixed period will automatically lapse on expiry of that period and thereafter cannot be accepted without the agreement of the tenderer. Some standard forms of tender give the tenderer the opportunity to state a period after which the tender is

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Formation of Contractsautomatically withdrawn. Tenderers should fill in a realistic period after which they would prefer to review their price or their ability to carry out the contract.


AcceptanceAssuming the other criteria discussed above have been met, a contract will be formed when one party makes an offer and the other party unconditionally accepts that offer. Sometimes the offer will impose restrictions on the manner in which it may be accepted (e.g. only in writing). However in the absence of such restrictions, an offer may frequently be accepted orally, in writing, by e-mail or other electronic means, or may even be inferred from the conduct of one party e.g. by starting work. As stated above, acceptance sent by post can sometimes be binding as soon as it is posted, even if it is never received. However, in practice, if the letter is lost the sender may have difficulty proving that it was posted unless it was sent by registered post or recorded delivery. Acceptance by all other methods of communication, such as by telephone, must actually be communicated to the other party before it takes effect. To date there has been no ruling on faxes or email, although it seems likely that they will be treated in the same way as telexes, and will not be binding until received. Given the negotiations, offers and counter-offers which often precede the award of a construction contract, it is sometimes difficult to ascertain precisely what offer has been accepted. The following general rules should be borne in mind: 1. If new terms are introduced in what purports to be an acceptance (e.g. an order) the document is actually a counter-offer, which must in its turn be accepted before a binding contract is formed.

2. Acknowledgement of receipt of a tender or other offer does not normally, in itself, constitute an acceptance of that offer. 3. Silence cannot be an acceptance. Therefore if an offer is made and the words added, we will proceed on the above basis unless we hear from you to the contrary within [so many] weeks and no reply is received, that would not in itself constitute acceptance and therefore no binding contract. 4. The acceptance may be stated to be subject to a formal contract. The precise effect of this phrase depends on the state of the negotiations between the two parties. Where further negotiations over essential terms of the contract are contemplated, there will be no binding contract. If all the essential terms have been agreed and the parties intend to incorporate them into a formal document at a later stage, there may be a binding contract. However, this will not be the case if the parties have expressly or impliedly agreed that no contract shall come into existence until a formal contract is executed J. Jarvis & Sons Limited v. Galliard Homes Limited (1999).

Counter-OffersAn acceptance which purports to qualify an offer in any respect amounts, in law, to a counter-offer. When faced with a counter-offer, the person who made the original offer may decide to accept it, in which case a binding contract is formed on the basis of the counteroffer, or to decline it. The counter-offer may be declined either expressly or by making yet another offer, including re-submission of the original. Like any offer, in the absence of any express time limit, a counter-offer will lapse after the passage of time.

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Formation of ContractsContract negotiations are frequently a series of counter-offers, but in construction contracts there are dangers arising from the tendency to begin work before the contract negotiations are complete. While this is an entirely pragmatic approach, it is important to ensure that beginning work is not deemed to be acceptance by conduct of terms and conditions with which the Steelwork Contractor is unhappy. A typical sequence of events runs as follows: 1. A Steelwork Contractor is invited to tender for work on the basis of an unamended standard form of sub-contract (invitation to treat). 2. The Steelwork Contractor submits his tender on the basis of the standard form. (Offer). 3. The main contractor places an order with the Steelwork Contractor on the basis of his own terms and conditions which appear on the reverse of that order. (Counter-offer). 4. 5. The Steelwork Contractor acknowledges receipt of the order and begins work. (Acceptance of Counter-Offer). Several days after starting work the Steelwork Contractor attempts to negotiate terms of contract with the main contractor (the Steelwork Contractor may well be bound by the terms of the Counter-Offer).


In the above example, the Steelwork Contractor could have started work without tying himself to the main contractors terms although this does not mean that the Steelwork Contractor is working under his own terms. It is crucial that unacceptable terms are disputed before any work is carried out, and the Steelwork Contractor should also make clear that any off-site or on-site work does not constitute an acceptance of the main contractors terms. Main contractors orders frequently have an apparently innocuous tear-off acknowledgement slip attached at the bottom. Careful consideration should be given before such tear-off slips are signed and returned, as they almost invariably include a statement that by signing and returning the slip the sub-contractor is deemed to have accepted all of the terms contained in the order. This would probably result in the contract being concluded on the main contractors own terms. If Steelwork Contractors wish to acknowledge receipt of an order, they should write a simple letter of0acknowledgement on their own stationery, making it clear that the terms contained in the order are not accepted.

Battle of FormsThe negotiations leading up to a contract are often a series of offers and counter-offers. This is sometimes referred to as the battle of forms to describe each sides standard terms and conditions being sent backwards and forwards. The leading case on the battle of forms is the Court of Appeal decision in Butler Machine Tool Co. v Ex-Cell-O Corporation (1979). The sellers (Butler) offered to sell to Ex-Cell-O a machine tool on their standard terms which included a variation of price clause. Ex-Cell-O ordered the machine tool on their own terms and conditions which did not contain a variation of price clause. The buyers conditions contained a tear-off Acknowledgement slip which contained the words, We accept your order on the terms and conditions thereon. The sellers completed and returned the slip, accompanied by a letter stating that they accepted the order on the basis of their original offer. However, the Court of Appeal held that by signing and returning the tear-off slip, the seller had accepted the buyers terms, notwithstanding the accompanying letter.

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Formation of ContractsA more recent case on the battle of forms is Sauter v Goodman (1986) which concerned a contract for boiler replacement at Windsor Castle. The key question was whether a retention of title clause in Sauters own terms and conditions had become part of the contract.


Sauter had quoted to Goodman on the basis of their own terms and conditions which included a retention of title clause. Goodman had accepted the quotation on terms and conditions in accordance with the main contract which was GC/Works/1 Edition 2. GC/Works/1 provides that every subcontract must include a term that, all things for incorporation belonging to the subcontractor which are brought onto site in connection with the sub-contract shall vest in the contractor, in other words the exact opposite of a retention of title clause. The Court held that Sauter had accepted Goodmans terms (which amounted to a counter-offer) by delivering the goods, and therefore there was no retention of title clause in the contract. On the battle of forms, the following key principles should be borne in mind by Steelwork Contractors: 1. An acknowledgement slip should not be completed and returned unless the Steelwork Contractor agrees that the conditions to which it refers are acceptable in their entirety. 2. Rejection of the terms of an offer should be written in unequivocal terms and should be incapable of being misconstrued. 3. If Steelwork Contractors wish to proceed with the work while continuing negotiations, they must make it very clear prior to commencing work that by so doing they are not accepting the employers or main contractors terms and conditions.

Letters of intentLetters of intent are a minefield for the unsuspecting sub-contractor. Steelwork Contractors are particularly vulnerable as they are an early trade and are therefore frequently requested to carry out preparatory work and fabrication off-site before a formal order or contract is issued.

1. DefinitionIn law, a letter of intent is simply astatement of the writers intentions. It does not constitute an offer, counter-offer or acceptance, and therefore does not create a binding contract. Letters of intent are sometimes used as a device by the Employer (or architect or consulting engineer acting on his behalf) whereby the Steelwork Contractor is effectively instructed to carry out preliminary work pending the selection of a main contractor and the execution of a sub-contract. In such cases although a document may be headed letter of intent, consideration of its content may reveal that it is actually an acceptance or counter-offer which requests the recipient to carry out all or part of the work referred to in the letter. If the so-called letter of intent makes it clear that all the essential terms of the contract have been agreed, commencement of work following receipt of such a letter may lead to a contract coming into being. In the event of a dispute as to whether or not a contract had actually been concluded, the Court would take into account the heading of the document but it would not be decisive in determining its nature. The Court would look at the content of the document, and, if it was in substance an acceptance or counter-offer, they would construe it as such.

2. Terms of Letter of IntentWhen a Steelwork Contractor receives a letter of intent, his first thought should be: If I act on this and the job is subsequently cancelled (or given to someone else) will I get paid for the work Ive done?

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Formation of` Contracts Provided the letter clearly instructs the Steelwork Contractor to undertake the work, and the Steelwork Contractor does not go beyond that instruction, the answer to that question is likely to be yes: the Steelwork Contractor will be entitled to be paid for the work he has carried out.


As to payment for work done in reliance upon a letter of intent, in the absence of any provisions in the letter about payment, the Court would imply an entitlement to payment of a reasonable sum (sometimes referred to as quantum meruit) for the work. A Steelwork Contractors position would be strengthened if the letter included an express undertaking to pay a reasonable price for the work executed. If the letter simply refers to covering the costs incurred, Steelwork Contractors should be aware that while a reasonable price will include overheads and profit, costs may not. The phrase loss and expense has been equated by the courts with damages, and would therefore be preferable to costs as it would include overheads and profit. Obviously the best position for a Steelwork Contractor as to payment under a letter of intent would be one where the price or the rates for his work are clearly set out or referenced in the letter. It is vital that the Steelwork Contractor does not carry out more work than is authorised by the letter of intent. Ideally, the letter should identify in detail what the Steelwork Contractor is required to do. For a Steelwork Contractor this will normally comprise: (a) (b) (c) (d) (e) ordering the material designing the connections preparing detailed drawings planning the contract both on site, and at the Steelwork Contractors works fabricating the material.

If the Steelwork Contractor is required to carry out work beyond that specifically authorised, he should obtain a further written instruction (including an undertaking to pay) from the party who issued the letter of intent.

3. Obligations Regarding TimeWith the popularity of fast-track construction the question of how quickly work must be carried out is becoming increasingly important. If no contract is ever agreed, it seems that there is no obligation to adhere to a particular programme. This is illustrated by the case of British Steel Corporation v Cleveland Bridge & Engineering Co Ltd (1981). Cleveland Bridge had been engaged as sub-contractors to fabricate an unusual steel lattice-work frame for a bank in Saudi Arabia. Cleveland Bridge approached British Steel with a view to employing them to cast nodes for the frame, but the negotiations both regarding the specification and the terms of the contract were long and complex. In February 1979 Cleveland Bridge sent British Steel a letter of intent which stated an intention to place an order at the price quoted by British Steel, but on Cleveland Bridges own terms, which placed unlimited liability on the sellers for the costs of any delay. British Steel made it clear they would not accept those terms. but nevertheless constructed and supplied the nodes. The final node was not delivered until April 1980 owing to a national steel strike. British Steel sued for the value of the nodes and Cleveland Bridge counter claimed for damages for late delivery. The Court held that there was no contract because the parties had not agreed on important aspects such as progress payments and liability for late delivery. British Steel could not be liable for damages for late delivery. However, they were entitled to be paid a reasonable price for the work because it had been done at Cleveland Bridges request and accepted by them.

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Formation of ContractsIt is not always, of course, the case that a Steelwork Contractor who carried out work in anticipation of entering into a contract will be able to claim a reasonable sum for that work if the contract is not, ultimately, entered into. In Regalian plc v. LDDC (1995) the Court rejected the contractors argument, holding that the costs which it now sought to recover were the costs of putting itself in the position to obtain and perform the contract. However, this does not mean that when working on a letter of intent, Steelwork Contractors can afford to ignore the main contractors or employers requirements regarding programme, because any terms subsequently agreed may apply retrospectively to the work executed on the basis of the letter of intent. For example, in the case of Trollope & Colls Ltd v The Atomic Power Construction Company Limited (1963) sub-contractors had tendered for a power station contract. In June 1959, the sub-contractors were asked to start work on the basis of the letter of intent which read as follows: We have to inform you that it is our intention to enter into a contract with you for (the works). As soon as matters outstanding between us are settled we will enter into a contract agreement with you, and in the meantime please accept this letter as an instruction to proceed with the work necessary to permit you to meet the agreed programme. The parties agreed the terms of the contract in April 1960, but the contract was never signed. The sub-contractors subsequently argued that no contract had been formed and therefore they were entitled to reasonable payment rather than the prices they had quoted. They also argued that the terms of the contract eventually agreed applied only to work executed after April 1960, and did not cover the work executed on the basis of the letter of intent. The Court held that a contract came into existence in April 1960, and the terms of that contract applied retrospectively.


4. Authority to Write Letter of IntentIt is important that a Steelwork Contractor checks the letter of intent is written by someone with appropriate authority to act. A letter from the Employer or from the main contractor should be acceptable. Where, however, a letter is received from another party, such as a consultant, a Steelwork Contractor should check with the Employer or main contractor that they have the necessary authority. If a Steelwork Contractor is in any doubt about the authority of the person who has signed the letter, he should ask for a written confirmation from the employer or the main contractor before starting any work.

Payment for Preparatory Work where No Letter of Intent is IssuedFollowing the decision of the Court in Marston Construction v Kigass (1989), it may be possible to recover the cost of preparatory work even where no letter of intent has been issued. Marston tendered for a design and build contract to provide a replacement for Kigass factory, which had burnt down. The insurers did not pay enough to cover the cost of rebuilding so the contract was never placed, but Marston claimed a substantial sum for the preparatory work they had carried out over and above the preparation of the tender itself. Kigass had not written a letter of intent, nor had they given an assurance (requested by Marston) that the preparatory costs would be met. On the other hand, Marston were not given any indication that the preparatory work would be at their risk. The Court held that Marston were entitled to be paid a reasonable sum for the preparatory works, because they had been done at the implied request of Kigass, and Kigass had obtained a realisable benefit, in the form of some design work as a result.

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Formation of ContractsNotwithstanding this decision, it is obviously preferable for Steelwork Contractor to obtain clear undertakings regarding payment before executing any preparatory work as described in Letters of Intent above.


Incorporation of Terms by ReferenceFrequently, neither the invitation to tender nor the tender itself spells out all the conditions which will apply to any resulting contract. They will simply refer to conditions written elsewhere such as DOM/1. The conditions referred to will be incorporated into the as if they were written out in full. The Courts have held such incorporation by reference valid even where the reference was incomplete and partially incorrect e.g. referring to the green form as the appropriate form for nominated subcontractors (RIBA 1965 Edition). Where there is an indication that some step, such as signature of documents, is to be taken, in order to incorporate conditions, the Courts will take this into account in deciding whether the conditions have been incorporated especially if the conditions contain onerous provisions. In Jonathan Wren & Co & anr v Microdec plc (Case Number 1999 TCC 8), the Technology and Construction Court considered the case of a software supplier whose quote stated that it was subject to their standard conditions. Although the quote was signed and returned on behalf on the buyer, the suppliers standard conditions were not given to the buyer. In addition, the conditions themselves stated that they would only become binding when signed by the parties. They were never signed. The Court held that the suppliers standard conditions were not incorporated into the contract. Tender documents frequently include a general statement that the sub-contractor shall observe and comply with all the terms of the main contract as if the same were set out in the sub-contract. Whether such attempts to incorporate the main contracts terms will be successful depends on the circumstances of the individual case. In Dunlop & Ranken v Hendall Steel Structures (1975) it was held that the incorporation of the terms of the main contract by loose general words would not normally bind the sub-contractor to specific terms in the main contract. Conversely, in the case of Sauter v Goodman described above, the Court held that relevant main contract terms could apply between the main contractor and sub-contractor (with the necessary changes) so that for contractor one read subcontractor, and for Authority, contractor. Steelwork Contractors should carefully consider whether it is appropriate to incorporate all of the main contract terms into a sub-contract, which they may be about to enter into. For example, if the main contractor provides for the main contractor to provide insurance covering all of the main contract works, it may not be appropriate to impose the same obligation on a sub-contractor who will be responsible for only part of the works. The Steelwork Contractor will in any event normally expect the main contractor to provide temporary work such as access roads and hardstandings and would therefore not wish to accept the obligation to provide these.

Simple and Specialty ContractsA contract under hand is one which is simply signed by the parties. It is sometimes referred to as a simple contract. A contract which is executed under seal (i.e. where the company seals of the parties is affixed to the contract) or as a deed is known as a specialty contract. Until July 1990, the common method of executing a specialty contract was to impress a seal on the document. As part of a package of measures designed to lighten the administrative burden on smaller companies, the Companies Act 1989 abolished the requirement for company seals, and introduced arrangements whereby a document

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Formation of Contractsstated to be executed as a deed, and signed by two directors or a director and the company secretary, had the same effect as if it had been executed under the company seal. The main differences between contracts executed under hand and those under seal or executed as a deed are:


contracts under hand have a limitation period of six years from the date of the breach of contract whereas those under seal or executed as a deed have a limitation period of twelve years. contracts under seal or executed as a deed do not require consideration (see Elements of a Binding Contract above).

Interpretation of ContractIn deciding the meaning of words used in the contract, the Courts will follow their natural and ordinary meaning. The fact that one party may not have appreciated or intended the meaning of any particular words or understood their implications does not normally affect the position. However, it is important to note that the Courts when interpreting contracts, will take account of the factual background to the contract i.e. information available to all parties at the time the contract was made. This may well help in situations where there is ambiguity. Further, where consideration of the factual background makes it clear that the words used cannot have reflected the intention of all parties, the Court will construe the contract so as to give effect to that intention. This occurred in another context in Mannai Investment Co. Limited v. Eagle Star Life Insurance Co. Limited (1997) and in Investors Compensation Scheme v. West Bromich Building Society (1997).

Rights of Third Parties under a ContractThe traditional position of English law has been that Third Parties (persons not parties to a contract) are not entitled to enforce any rights under that contract. This is known as the doctrine of Privity of Contract. The doctrine has been subject to a number of limited statutory exemptions. The position has now been considerably changed by the Contracts (Rights of Third Parties) Act 1999. When a contract either: a. expressly provides that the Third Party may enforce a right under the contract, or b . purports to confer a benefit on a Third Party the Third Party may enforce provisions of the contract as though he were a party to the contract. A Third Party may be an individual person or company or a member of a defined class. No consideration from the Third Party is required. There is considerable uncertainty as to the effect of the words quoted in (b) above. It is possible that in certain circumstances they could be interpreted as allowing, for example, the Employer, to enforce direct the provisions of a sub-contract against the sub-contractor. For that reason, almost all of the standard forms are being amended to make it clear that the contract does not intend to confer a benefit on any Third Party. The Act came into force on 11 October 1999 and applies automatically to all contracts entered into on or after 11 May 2000. The parties may opt into the Act before that date. The Act does not apply to Scotland.

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Formation of Contracts

SummaryInterpretation of Contracts: The Courts will normally adopt the natural and ordinary meaning of words used. Where there is ambiguity, then that may be resolved by reference to the factual background. The Courts may disregard the literal meaning of words where it is clear from the factual background that such an interpretation would not reflect the intention of all parties. Third Parties: Until recently, a Third Party could not in most cases enforce rights under a contract. This has now changed in respect of contracts concluded on or after 11 May 2000. A Third Party will be able to enforce provisions under a contract where the contract expressly so provides or the contract purports to confer a benefit on the Third Party. Elements of a binding contract: There are five elements of a binding contract: intent, capacity, agreement, reasonable certainty of terms and consideration. Consideration is not necessary in contracts executed under seal. There is no legal requirement for writing, but in practice it is important for reasons of proof. Invitation to Treat: is merely an offer to receive offers. Invitations to tender, catalogues and price lists are normally invitations to treat. Offer: a document may be an offer even if described as a budget price if it is sufficiently detailed to form the basis of a binding contract. Offers at large may be accepted by anyone, and therefore when tendering to the Employer for a nominated sub-contract Steelwork Contractors may wish to reserve the right to withdraw if an unacceptable main contractor is appointed. The decision to qualify a tender is a commercial one which may result in the rejection of the tender. Offers may be withdrawn at any time before acceptance under English law unless the tenderer has been paid to hold the offer open. Acceptance: an acceptance must normally be unconditional: if it introduces new terms it is probably a counter-offer. Acceptance can be inferred from conduct (e.g. starting work). It must be communicated to the other party, unless made by post in which case it often takes effect when posted. If a sub-contractor does not accept all the terms in a main contractors order, he must communicate that fact before starting work. Acknowledgement-of-order slips provided by the main contractor normally refer back to the terms of the order and should not be signed unless the sub-contractor wishes to accept all the terms contained in the order. Letter of Intent: should include an express undertaking to pay the contractor for preparatory work if no contract results, and should specifically authorise the work required. The sub-contractor should not go beyond the terms of the letter of intent, and should ensure it is written by someone with appropriate authority. Incorporation by reference: terms incorporated by reference are binding, even if the reference is incomplete or partially incorrect.


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CHAPTER 2

CLASSES OF CONTRACTLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.Construction contracts fall into a number of classes or types, and the class of contract determines whether certain documents form part of the contract and, to an extent the basis of payment to the contractor. The most widely used standard forms are discussed in more detail in Chapter 3; this Chapter outlines the main distinguishing characteristics of the main classes of construction contract.

1. Lump Sum, Without QuantitiesThis type of contract incorporates an agreement to carry out and complete a whole project, e.g. a bridge, for a lump sum, in return for a stated cash sum. Such a contract is normally based on drawings and specifications which taken together define the work covered by the price. Quantities are not part of the description of the work and any rates incorporated in the contract are for variation purposes only. In a pure lump sum contract, the contract price is to be changed only where the Employers plans are varied (e.g. by a design change), and the contractor will not be entitled to extra payment if carrying out the work for which he tendered turns out to be more difficult and costly than he originally envisaged. No work done or cost incurred which is indispensably necessary to carrying out the works may be valued as an extra. This type of contract is not therefore suitable for a job where the extent of the work necessary is uncertain. JCT98 Without Quantities is an example of this class of contract.

2. Lump Sum, with QuantitiesIn this type of contract, the bills of quantities are intended to be the exact measure of the work to be carried out. If there are errors in the bills, or if the contractor finds any discrepancy between the bills and any other contract document, any corrections are treated as variations and are valued accordingly. The rates in the bills will also be used, where appropriate, for the purpose of valuing any variations which may be ordered under the contract. The essential feature which distinguishes a lump sum contract with quantities from that without quantities is that the quantities in the bill form part of the description of the works to be done, and thus the lump sum tendered for the work is only in respect of the quantities set out in the bill: the contractor is entitled to extra payment for any work done beyond that. Any provisional sum included within the bills is measured and valued when the work in respect of which the provisional sum was included is carried out, unless it relates to work which is to be carried out by a nominated sub-contractor, in which case the work will be valued under the relevant sub-contract terms. JCT98 With Quantities is an example of this class of contract, although if the bills have been prepared in accordance with SMM7, they may include approximate quantities in an otherwise firm bill. When the contractor executes work for which an approximate quantity was included in the bills, the rate for the approximate quantity determines the valuation of the work, provided the approximate quantity was a reasonably accurate forecast of the quantity of work required. Some commentators feel that the inclusion of approximate quantities undermines, to some extent, the lump sum character of this form of contract.

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Classes pf Contract

3. RemeasurementA remeasurement or measure and value contract is one where the contract price is recalculated on final measurement using the rates set out in the tender. There may be a bill of approximate quantities against which the contractor tenders. The final quantities are remeasured when the work is completed and the contractor is paid at the rates he tendered for those measured quantities. The contractors tender total is simply an estimate based on the proposed volume of work to be carried out, and has no purpose other than as a basis for selection. On re-measurement contracts variations are normally concerned with design or quality changes rather than quantity changes. JCT98 With Approximate Quantities and the ICE 7th Edition are re-measurement contracts. Under JCT98 With Approximate Quantities, if the approximate bills are not a reasonably accurate forecast of the work required, the work is valued at the tendered rates and prices plus a fair allowance for the difference in quantity. Work not covered by the bills is subject to a fair valuation, or if appropriate, may be measured on daywork.


4. Prime CostUnder a prime cost contract the contractor is entitled to be paid the actual cost he incurs in carrying out the work plus a fixed fee for his overheads and profit. Architects Instructions will not normally lead to any variation in the fee, although additional work will be paid for as part of the prime cost. This type of contract is normally used where an early start is required. e.g. after fire damage. The JCT Management Contract 1998 is an example of a Prime Cost Contract.

5. Design and BuildThe classes of contract described above are based on the traditional division of responsibilities between the designer and contractor: they assume that a professional practitioner (architect and/or engineer) appointed by the Employer will be responsible for design, and the contractor will be responsible for materials and workmanship. In recent years there has been a pronounced move by clients away from traditional contracting towards, amongst other things, design and build contracts, whereby the contractor provides a total design and construction package. The two major characteristics of design and build contracts are that they provide for the contractors responsibility for design and the Employer may only vary the design of the works with the contractors consent. The JCT publishes both a standard form With Contractors Design WCD98 and a Contractors Designed Portion Supplement to JCT98 for use where the Contract is to design only part of the works. WCD98 is discussed in more detail in Chapter 21.

6. Management ContractingThere are many variants of management contracting but in its most popular form the Employer appoints a professional team, normally led by an architect and a management contractor. The management contractor manages and co-ordinates the project but does not carry out any of the work on site: this is done by works or trade contractors, each of whom has a separate contract with the management contractor. This method of contracting is normally of very low risk for the management contractor, as he is relieved of the consequences of default by the Works Contractors,

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Classes of Contractprovided he has enforced the provisions of the works contracts against them. It is therefore the Employer who takes the risk of Works Contractors insolvency or failure to pay claims. Management contracting is generally acknowledged to be suitable only for large and complex projects, and is particularly appropriate where an early start and fast completion are required.


The JCT publish a Standard Form of Management Contract - MC98. Comments on MC98 are made throughout this Handbook.

7. Construction ManagementAnother approach to construction projects is construction management. Under this system each of the separate trades has a direct contract with the Employer and is paid by him. The work on site is managed and co-ordinated by a project manager or construction manager.

8. PartneringPartnering has no precise legal meaning. There are various types of partnering but some common features of partnering arrangements include: An intention for the parties - employers, contractors and sub-contractors - to work together cooperatively, in good faith for the benefit of the project as a whole. This intention is sometimes supported by a commitment to a mission statement, arrangements for early reporting of problems and a team approach to problem-solving. Some form of risk/reward sharing. This may, for instance, involve the parties agreeing to take responsibility for a portion of cost overruns if the project finishes late or over budget or to be paid a bonus if the project finishes early or under budget.

Steelwork Contractors may derive benefits from participating in partnering arrangements but the risks involved in such arrangements should also be considered. In particular they should consider: The extent to which their exposure to taking a share of cost overruns is under their control or under the control of other parties. The extent to which their entitlement to bonus is under their control or under the control of other parties. Whether the roles of and resources to be provided by each of the parties is clearly stated or, if not, that there are fair mechanisms for agreeing these.

Sometimes the high-level partnering ideals are contained in a non-legally binding document such as a charter leaving the legally binding provisions to be dealt with in contracts. In some circumstances, however, even though a partnering charter may not be legally binding, a court may still take its provisions into account at it did in the case of Birse Construction Ltd v St David Ltd (1999). The Association of Consultant Architects have recently published a Standard Form of Contract for Project Partnering PPC 2000. PPC 2000 aims to address the key recommendations of Sir Michael Latham in his report Constructing the Team. PPC 2000 describes itself as a single, fully integrated project partnering contract, designed to underpin a team-based approach and to promote clarity and confidence among partnering team members,

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Classes pf Contract

9. Prime ContractingPrime contracting aims to replace the traditional confrontational relationships with processes which concentrate on delivering better value. Prime Contracting often features:


Long term relationships between the Prime Contractor and suppliers - not just for one project. Collaborative working. Focus on through-life costs of a project rather than solely on capital cost. A continuous improvement regime. Acceptance by the Prime Contractor of responsibility for almost aspects of the project from inception.

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CHAPTER 3

STANDARD FORMS OF CONTRACTLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.There are various standard or model forms of contract published for use in connection with construction projects. In this Handbook we will concentrate on the forms most likely to be encountered by Steelwork Contractors, namely, those published by the Joint Contracts Tribunal (JCT) and by the Institution of Civil Engineers (ICE) and the associated sub-contract forms published by the Construction Confederation and by the Civil Engineering Contractors Association. The ICE have also published the Engineering and Construction Contract - a brief comment on this form is included at the end of this Chapter.

The JCT Forms of Main Contract and Associated Sub-ContractsThe JCT publishes a wide variety of forms of contract. Many of these forms were until recently subject to numerous and lengthy amendments which made them cumbersome to work with. Fortunately, in 1998 most of the relevant amendments were incorporated into new editions of the JCT forms with the exception of the Terrorism Cover provisions which are still separate. In this Handbook, we will concentrate on the 1998 editions of the JCT forms. For those readers who wish to know more about the previous editions and the various amendments, please see Appendix A. The forms most likely to be relevant to Steelwork Contractors are: Standard Form of Building Contract - JCT98 JCT98 is the main JCT document for use where the Employer has engaged professional consultants to design the works, and requires a contractor to carry out those works by supplying the necessary workmanship and materials. There is no upper limit on the size of project for which the form can be used, but it would be somewhat complex for reasonably simple contracts of relatively low value and short duration. Six versions of JCT98 have been published: Private With Quantities Private Without Quantities Private With Approximate Quantities Local Authorities With Quantities Local Authorities Without Quantities Local Authorities With Approximate Quantities

Nominated Sub-Contracts for use with JCT98Various documents are issued by the JCT relating to nominated sub-contractors. These are referred to in clause 35.4 of JCT98 and are as follows: NSC/T The Standard Form of Nominated Sub-Contract Tender. It comprises 3 parts: Part 1: The Employers Invitation to Tender to a Sub-Contractor Part 2: Tender by a Sub-Contractor

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Standard Forms of Contract Part 3: Particular Conditions (to be agreed by a Contractor and Sub-Contractor nominated under clause 35.6 of JCT98)


NSC/A The Standard Form of Articles of Nominated Sub-Contract Agreement between a Contractor and a Nominated Sub-Contractor NSC/C The Standard Conditions of Nominated Sub-Contract NSC/W The Standard Form of Employer/Nominated Sub-Contractor Agreement NSC/N The Standard Form of Nomination Instruction for a Sub-Contractor

Domestic Sub-Contracts for use with JCT98In addition to nominated sub-contractors, JCT 98 also provides for the appointment of domestic (i.e. non-nominated) sub-contractors. Domestic sub-contractors are selected by the main contractor to carry out work which has been priced by the main contractor. JCT98 does not specify any mandatory form of domestic sub-contract. Most large main contractors have their own forms of domestic sub-contract, but there is a standard form, DOM/ 1, which is published by the Construction Confederation. DOM/ 1 is published in two parts: the Articles of Agreement and the Sub-Contract Conditions.

Intermediate Form IFC98 Main ContractThis form is intended for use on projects where JCT98 is considered to be too heavy-weight. Notes on the back of IFC98 state that it is suitable for use where: 1. the works are of simple content (i.e. involving the normally recognised trades and skills of the industry); 2. there is no specialist complex work: 3. the work is adequately specified and billed pre-tender The main provisions of IFC98 and the ways in which it allocates risk are generally similar to JCT 98. However, the contract is much shorter than JCT 98, and some of the procedural aspects of that document have been omitted. The main differences between JCT98 and IFC98 are: 1. JCT98 provides for the nomination of sub-contractors, whereas IFC98 provides only for naming, which is an upgraded form of domestic sub-contracting whereby the architect selects the sub-contractor, but once appointed he is treated as a domestic sub-contractor. 2. IFC98 does not allow for conventional fluctuations. Contracts are let either on a fixed price or formula basis. There is an embargo on oral instructions under IFC98.

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Standard Forms of Contract

Sub-contracts for use with IFC98Clause 3 of IFC98 permits the appointment of two types of subcontractor: named and domestic.


Named Sub-Contracts for use with IFC98Where a named sub-contractor is to be appointed, the Employer (or the architect/engineer on his behalf) selects the tender list, invites tenders, selects the sub-contractor and instructs the main contractor to enter into a sub-contract with that sub-contractor. The use of both a standard form of tender (NAM/T) and a standard sub-contract (NAM/SC) is mandatory. To this extent, naming is very similar to nomination. However, named sub-contract work will be priced by the main contractor, and will not be the subject of a prime cost sum. Once the sub-contractor has been selected, he is treated like any other domestic subcontractor, albeit he has the protection of a standard and mandatory sub-contract form. The named subcontractor does not receive copies of architects certificates of payment, and it is the main contractor who issues instructions to him and awards extensions of time. For these reasons, naming under IFC98 should be regarded as upgraded domestic sub-contracting rather than down-graded nomination. In addition to the standard tender, NAM/T, and the standard sub-contract, NAM/SC, there is an Employer/Subcontractor agreement, ESA/ 1, which deals with design carried out by named subcontractors.

Domestic Sub-Contracts for use with IFC98A standard form of domestic sub-contract for use with the Intermediate Form called IN/SC has been produced. This document is completely optional: the main contractor is free to use his own terms and conditions if the sub-contractor agrees. IN/SC is produced in two parts: the recitals and articles of agreement. Which incorporate by reference the separately issued conditions of contract. In view of the named sub-contractors essentially domestic status once he has been appointed, the terms of IN/SC are very similar to the terms of NAM/SC.

JCT With Contractors Design Main Contract WCD98The JCT With Contractors Design Form WCD98 is for use where the contractor is designing the works. This form has become increasingly important, partly because of the trend towards design and build contracts and also because the form is used by some major private sector employers where the contractor is required to have only a partial design input. WCD98 requires the Employer to state his requirements, which may be little more than a description of the accommodation required, or anything up to a full scheme design prepared for the Employer by his own consultants or other professional advisers. In response, the contractor submits his proposals for the design of the works, a lump sum price and a contract sum analysis which will be the basis of valuing changes (variations) in the Employers requirements. A more detailed commentary on WCD98 is given in Chapter 21 - JCT Standard Form With Contractors Design.

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Standard Forms of Contract

Sub-contracts for use with WCD98The JCT itself has not published any standard forms of sub-contract for use with WCD98, and as all sub-contractors under WCD98 are domestic, no standard sub-contract is stipulated. However, the Construction Confederation have issued a standard form, DOM/2. DOM/2 comprises Articles of agreement, and a set of conditions. JCT Management Contract 1998- MC98 Main Form MC98 comprises Articles of Agreement and Conditions. MC98 is deliberately low risk for the Management Contractor. Essentially, the Management Contractor manages the construction process while the work on site is actually carried out by Works Contractors. The JCT advises that suitable conditions for use of the Management Contract would be where: (i) the Employer wishes the design to be carried out by an independent architect and design team (ii) there is a need for early completion (iii) the project is fairly large (iv) the project requirements are complex (v) the Employer while requiring early completion wants the maximum possible competition in respect of the price for the building works. Under MC98, the design of the project is to be carried out by a Professional Team comprising an architect or contract administrator, quantity surveyor and any other professional advisers as are necessary, for example, consulting or structural engineers. Works Contractors may also carry out some design work, which is catered for both by the separate Works Contractor/Employer agreement and a provision in the Works Contract which makes the Works Contractor liable to the Management Contractor for the failure to exercise reasonable skill and care in any design he carries out. The Management form is not a lump sum contract. The quantity surveyor prepares a Contract Cost Plan which is an indication of the price the Employer will pay for his project (exclusive of the Management Contractors fee). The Management Contractor is entitled to be paid the actual cost of building the project (i.e. the prime cost). In addition to the prime cost, the employer also pays the Management Contractors fee for his management services, which can be either a lump sum or may be calculated as a percentage of the contract cost plan total. The project period is divided into two phases: a pre-construction period and a construction period. During the pre-construction period the Management Contractor will prepare a detailed construction programme, assist in appointing Works Contractors and advise on the practical aspects of design. Before the end of the pre-construction period the Management Contractor and the Professional Team must have agreed upon the Contract Cost Plan, and the content of the all important third schedule of MC98 which is a list of the services to be provided by the Management Contractor. When the Architect decides that it is practicable to commence construction of the project, the Employer must decide whether he wishes the Management Contractor to proceed. In other words, there is a break clause between the pre-construction and construction periods, which gives the Employer an opportunity to decide whether he wishes the same Management Contractor to continue into the construction phase. If he does not, then the Management Contractor is paid a separate pre-construction period management fee which is identified in his tender.


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Standard Forms of ContractDuring the construction period the Management Contractor has possession of the site. He is not contractually responsible for the prime cost of the project if it exceeds the contract cost plan total, but he is contractually responsible for securing the completion of the project on or before the date of completion. His main obligation during the construction period is to set out, manage, organise, supervise and secure the carrying out and completion of the project through the Works Contractors. The provisions of MC98 in terms of risk are somewhat complex. The Management Contractor is fully liable to the Employer for breach of obligations regarding time, workmanship and materials by the Works Contractors. He must enforce the terms of the Works Contracts, if necessary to the extent of taking any disputes to adjudication, litigation or arbitration. However, the Management Contractor is entitled to be paid by the Employer the costs of such litigation or arbitration, provided it has been undertaken after consultation with the Employer and the architect. Any shortfall which cannot be recovered from the Works Contractor (for reasons of insolvency or otherwise) is borne by the Employer and not the Management Contractor. Similarly, the Employer may recover liquidated damages from the Management Contractor only to the extent that the Management Contractor recovers them from the Works Contractors. The only exception to these relief provisions is where the Management Contractor has incurred costs due to his own negligence in carrying out his duties which are listed in the third schedule.


Works Contracts for use with MC98MC98 describes the contractors who carry out the work as Works Contractors, not sub-contractors. The Works Contract documentation comprises: Works Contract/1 which is a standard form of tender Works Contract/2 which contains the conditions of contract Works Contract/3 which is an (optional) agreement between the Employer and the Works Contractor

ICE Conditions 7th EditionThe ICE Conditions of Contracts are widely used for civil engineering projects. The 7th edition of the ICE Conditions was published in September 1999. ICE 7th is a re-measurement contract. Where there are significant changes in quantities, the contract rates may be altered.

Sub-Contracts for use with ICE 7thThe ICE 7th prohibits sub-contracting of the whole of the works without the prior consent of the Employer. Sub-contracting of part of the works is permitted but the extent of the works to be subcontracted and the name and address of the sub-contractor must be notified to the Engineer prior to the sub-contractors entry onto the site or, where the sub-contractor is carrying out design, on appointment. The ICE 7th provides for the appointment of nominated sub-contractors, but does not make the use of a standard form of sub-contract mandatory.

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Standard Forms of ContractA Form of Sub-Contract (1998 edition) has been published by the Civil Engineering Contractors Association for use with the ICE 6th but as at 1 January 2000 no version has yet been published for use with the ICE 7th.


The Engineering and Construction Contract - 2nd editionThe contract comprises a set of core clauses which are to be used in every case where the contract is used. The core clauses must be supplemented by one of six possible sets of provisions aimed mainly at payment which are: Option A Option B Priced contract with activity schedule Priced contract with bill of quantities

Option C Target contract with activity schedule Option D Target contract with bill of quantities Option E Cost reimbursable contract Option F Management contract

Although A to F are called Main Options, at least one of them must be chosen. In addition to the above, the parties may chose other Secondary Options to form part of the contract. It not necessary to adopt any of these Secondary Options and, except where otherwise stated, they may be used in any combination. These other optional provisions are: Option G Performance Bond Option H Parent company guarantee Option J Advanced payment to the Contractor

Option K Multiple currencies (not to be used with Options C,D,E and F) Option L Sectional Completion Option M Limitation on the Contractors liability for his design to reasonable skill and care Option N Price adjustment for inflation (not to be used with Options E and F) Option P Retention (not to be used with Option F)

Option Q Bonus for early Completion Option R Delay damages Option S Low performance damages Option T Changes in the law Option U The Construction (Design and Management) Regulations 1994 (to be used for contracts in the UK) Option V Trust Fund Option Z Additional conditions of contract

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Standard Forms of ContractSome of the key feature of the Engineering and Construction Contract are: The wording of the Engineering and Construction Contract is much simpler than that found in the other standard forms especially the JCT forms with none of the extensive cross referencing of provisions which is a feature of the JCT forms. The Contract includes a mission statement that the parties will act in a spirit of mutual trust and co-operation. It provides for both parties to give to the other early warning of any matter which could increase the total of the prices or delay completion or impair the performance of the works in use. The Contractors liability for defects in the works due to his design that are not listed in the defects certificate are limited to the amount stated in the contract data (in addition to any stated damages for delay or low performance). If Option M is incorporated into the contract, the Contractor will not be liable for defects in the Works caused by his design provided he can prove that he used reasonable skill and care to ensure that his design complied with the Works Information. Bad weather for the purposes of assessing compensation is defined as being a value which, by comparison with weather data, is shown to occur on average less frequently than once in 10 years.


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CHAPTER 4

TENDERING PROCEDURESLicensed copy from CIS: edmundn, BAM Nuttall Limited, 29/06/2012, Uncontrolled Copy.As explained in Chapter 1, a tender is a form of offer and will form the basis of a binding contract if it is unconditionally accepted. This Chapter deals with general tendering matters, particularly the Code of Practice for the Selection of Subcontractors. The Code was published as part of a series of Codes and Guidance Documents by the Construction Industry Board in April 1997. This Chapter also describes the tendering procedures under the standard forms of subcontract, and comments upon the standard tender documents. Qualifications to tenders and withdrawal of tenders are dealt with in Chapter l-Formation of Contracts.

The CIB Code of Practice for the Selection of SubcontractorsThe Code states that it is aimed at improving the quality, effectiveness and efficiency of the construction industry. There follows a summary of the key provisions of the Code - the numbers in square brackets are to paragraph numbers of the Code.

QUALIFICATION Main contractors to follow a formal and systematic qualification process as a preliminary to compiling tender lists (if they neither maintain nor have access to an approved list). [2.4] Criteria for qualification to include [2.3]: work quality past performance overall competence health and safety record financial stability insurance cover size and resources technical and organisational ability ability to innovate Main contractors to regularly review their list and notify any additions or removals.[2.5] It should be noted that whilst the Code is stated to apply to sub-contracts/sub-subcontracts of more than 10,000 (excluding VAT), there is no reason why the principles should not be applicable to contracts of any size.

SELECTION FOR A SPECIFIC PROJECT Main contractors to draw up preliminary list (e.g. from an approved list of qualified subcontractors). [2.6] Tenderers on preliminary list to be asked if they are willing to tender. [2.8] Tenderers to be assured that Code will be applied. [2.8] Potential tenderers to be given sufficient information to enable them to decide if they are willing to tender. [2.9]

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Tendering Procedures Any briefing sessions must have standard agenda to ensure consistent treatment. Points to note: The information to potential tenderers should include: job and location nature, scope and approximate value of the sub-contract works including reference to the extent of any design work required the likely dates and duration of both the tendering process and the sub-contract works the number of tenderers being invited to submit a formal tender whether the main contractor is already being appointed or is also tendering the main contract tender date the approximate value and period of the main contract, if known whether, and how, any costs of tendering, may be shared whether the tender will be based on bills of quantities or other pricing documents or on specification and drawings the selection procedure and selection criteria the main and sub-contract conditions the names of the client and the relevant consultants


COMPILING TENDER LISTS Main contractors to produce draft tender lists and seek confirmation from potential tenderers of willingness to tender. [2.13] Potential tenderers to notify unwillingness to tender before issue of full tender enquiry documents. [2.13] Maximum number of invitations to tender not to exceed 6 in respect of construct/install only. For design only, maximum is 4. For design and construct maximum is 3. [2.15] If minimum number of tenders is received contractor should not seek more. Design only = 3. Construct only = 4. Design and construct = 2. [2.15] Potential tenderers to reconfirm willingness to tender if tender documents not received within 3 months of initial confirmation of willingness to tender. [2.18] Main contractors to identify and notify reserve tenderers - maximum of 2 reserves to be invited to tender if original tenderers drop out but must have sufficient time in which to tender. [2.16/2/17] Point to note: In no case should the maximum number of tenderers exceed six.

TENDER ENQUIRY DOCUMENTS Tenderers to be informed if information is approximate. [3.1] Level of detail required in tender submission to be clearly stated and it should be indicated if priced schedules are required as well as a lump sum price. [3.1] Points to note: Annex I to the Code lists the minimum information to be included in tender documentation assessment criteria (should have regard to value for money rather than lowest price); contract conditions and amendments to standard forms; payment terms (cash retentions or retention bonds, advance payment for materials, security of payment and protection against non-payment); approximate dates for commencement and completion of sub-contract works programme.

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Tendering Procedures TENDERING TIME 10 weeks for design and construct; 6 weeks for construct only and 3 weeks for design only. [3.5] Points to note: The time for tendering should take account of bank holidays The above periods are suitable for most projects but extra time could be required in certain circumstances, e.g. where products or materials have to be obtained from distant or unfamiliar suppliers.


TENDER INVITATIONS Tender invitations to be issued on the same date for all tenderers and should state whether alternative tenders are acceptable in conjunction with (but not instead of) compliant tenders. [3.7] Tenderers to acknowledge receipt of documents and confirm willingness to supply compliant tender.[3.7] The tender invitation should also state whether tenderers are to be interviewed and, if so, for what purpose and at what stage. Interviews must not involve second round bidding.[3.8] Not later than 7 days before the date for submission of tenders, tenderers should submit in writing any clarification which they may require.[3.9] The main contractor should inform all tenderers in writing of its response to requests for clarification.[3.9] If the tender documentation is consequently amended, all tenderers must be informed.[3.9] Point to note: The Code states that its provisions are designed to encourage compliant tenders.

TENDER SUBMISSION AND OPENING Under no circumstances should tender prices be disclosed to third parties by the main contractor before the award of the sub-contract. Use of cover prices is a breach of confidentiality.[3.12] Tenders to be submitted in sealed packages and clearly labelled as tenders for the works; identification of tenderers names is not permitted.[3.13] Tenders to be kept in a secure place and only opened on the date and time stated for receipt of tenders. When opened, forms of tender should be signed and prices should be listed against the names of the tenderers. The person opening the tenders should sign the list.[3.13] Bills of quantities should only be completed if they were in the tender documentation and it is also required that they be part of the tender submission.[3.14] Point to note: It is suggested those inviting tenders self-certify to their tenderers that these requirements have been met.

LATE TENDERS Tenders received after the date and time specified for return of tenders will not be accepted.[3.15]

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Tendering Procedures TENDER ASSESSMENT Tendering enquiry documents to provide tender assessment criteria.[4.1] Weighting factors to be decided in advance, used consistently and a record kept of scores awarded during the assessment.[4.1] To ensure parity of tendering, non-compliant tenders to be rejected.[4.3] Unsolicited tenders are unacceptable.[4.5] Any mathematical errors to be notified to the tenderer who should be asked whether he stands by his tender price.[4.6] The next preferred tenderers can only be approached if the preferred tenderer withdraws or post-tender negotiations break down.[4.9] In general, tender prices can only be changed in exceptional circumstances e.g. where the programme or scope of the works in respect of specification, quantities, programme have changed or where more information has become available.[4.11] Where a preferred sub-contractors tender is used in a main (or principal sub-contract) tender submission, the sub-contractor should be notified.[4.12] The identity of the sub-contractor whose price has been incorporated in the main contract tender should be notified to the client unless the client has indicated that this is not necessary.[4.12] Point to note: The provisions about unsolicited tenders, changing of tender prices and identity of sub-contractor are designed to combat dutch auctioning.


TENDER ACCEPTANCE Where a main contractor has submitted a sub-contract tender price as part of the main contract tender which is accepted, he should also accept that sub-contract tender price.[5.l] Formal notification should be sent to the preferred tenderer following acceptance of the main contract tender.[5.2] Once a main contractor has accepted the sub-contract tender price, acknowledgement by the preferred tenderer is required.[5.3] A list of compliant tender prices and tenderers should be made available to tenderers on request after a sub-contract tender has been accepted (names of tenderers should not be matched to prices).[5.4] Unsuccessful tenderers should be informed and arrangements made with them to destroy or return their documents.[5.5] Main contractors to prepare formal records of selection of preferred tenderers.[5.6] Suites of contracts and unamended standard forms (compatible with other contracts in the suite) from recognised bodies to be used. The identity of the sub-contractor whose price has been incorporated in the main contract tender should be notified to the client unless the client has indicated that this is not necessary.[4.12]

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Tendering Procedures Points to note: The procedures will be different according to whether a main contractor in incorporating sub-contract tenders as part of his tender or is inviting sub-contract tenders post-main contract tender. It is not clear what is meant by recognised bodies but main contractors own forms must not be used.


TENDERING UNDER STANDARD FORMS OF CONTRACTNominated Sub-Contractors under JCT98Nomination is a system of tendering whereby the employer through his professional advisors, selects a sub-contractor whom he nominates to the main contractor as a nominated sub-contractor. The arguments in favour of nomination are set out in detail in Chapter 23- Nomination. Clause 35 of JCT98 contains detailed provisions regarding the nomination of sub-contractors. The nomination procedure works as follows: 1. The architect completes the invitation to tender in part 1 of NSC/T, and the relevant section of the employer/nominated sub-contractor agreement NSC/W, and sends them to the competing tenderers for the nominated sub-contract work. 2. The tenderers complete part 2 of NSC/T, and the relevant sections of NSC/W. They return these documents to the architect, who selects the sub-contractor, and the employer signs the successful sub-contractors tender to signify his approval of the architects choice. 3. The architect then immediately nominates the sub-contractor on the standard form of nomination instruction, NSC/N. 4. On receipt of the nomination instruction, the main contractor must agree the Particular Conditions set out in Part 3 of NSC/T with the nominated sub-contractor. These include the sub-contract period and programme, insurance details and the identity of the adjudicator and trustee stakeholder. 5. When all of the Particular Conditions have been agreed. the contractor and sub-contractor sign part 3 of NSC/T and execute the articles of agreement in NSC/A. At stage 2. the employer signs NSC/W, so at that early stage there is a binding contract between the employer and the nominated sub-contractor. This allows the architect to instruct the sub-contractor to proceed with design work, purchasing goods and materials and fabricating components before a contract is concluded between the main contractor and the nominated sub-contractor. NSC/W also provides for payment by the employer for such work, and this will be mandatory if for any reason the nomination process breaks down and no nominated subcontract is concluded. Problems often arise at stage 4, when the main contractor tries to agree the Particular Conditions with the nominated sub-contractor. Clause 35.8 of JCT98 allows 10 working days from the main contractors receipt of NSC/N for an agreement to be reached. If this proves impossible, the main contractor must give a written notice to the architect stating either the date by which he expects to reach agreement or, if lack of trust is not the problem, the other matters which are preventing agreement. If the main contractor simply needs more time, the architect may extend the time for reaching an agreement with the nominated sub-contractor, but this will not entitle the main contractor to an

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Tendering Proceduresextension of time or loss and expense if the prolonged negotiations with the nominated sub-contractor result in a delay in the completion of the main contract works. If other matters are preventing agreement, the architect must decide whether, in his opinion, they justify a failure to agree. If he feels they do not, he can instruct the contractor to reach agreement with the nominated sub-contractor and execute NSC/A. Failure to comply with this instruction would presumably entitle the employer to implement the usual sanction for failure to comply with architects instructions, namely employing and paying others to carry out the necessary work and recovering the cost of doing so from the main contractor. It is difficult to see how this would work in practice in relation to this type of instruction, although it may entitle the employer to employ the nominated subcontractor as his own direct contractor. Where the architect is of the view that there are genuine reasons for the failure to agree he must issue further instructions under clause 35.9.2 of JCT98 either to facilitate agreement (for example by amending the main contract period), or to omit the work altogether or to nominate another sub-contractor