General Principles of Contract Management - Driver · PDF fileGeneral Principles of Contract Management. Training to DEME ... • Driver Trett established in 2012 when Trett Consulting

General Principles of Contract ManagementTraining to DEME (2016)

Ernst Jan de Jong – Sr [email protected]

mailto:[email protected]

http://www.drivertrett.com/

What we do

Provides multi-disciplinary consultancy services:

Commercial and

contract management

Planning,

programming and

scheduling

Dispute resolution

support services

The Group’s Expert Witness support service provider.

World-class quantum,

delay, and technical

experts for litigation

Internationally

experienced

adjudicators,

arbitrators, and

mediators

Provides customer focusedproject controls solutionsthroughout a project lifecycle.

Commercial

management, quantity

surveying, and planning

services

Long term support and

commitment for the

duration of projects

• Driver Group is a global construction consultancy, providing

construction and engineering focused services since 1978

• Stock exchange listed plc. – AIM (2005)

• Driver Trett established in 2012 when Trett Consulting became

part of the Driver Group.

• Market leader in expert witness, planning, commercial and

disputes.

• Over 500 global staff. > £40m turnover.

• Network of offices across Europe, Africa,

Americas, Asia Pacific, and the Middle East.

• Global reach with projects undertaken

worldwide.

GROUP OVERVIEW

DRIVER GLOBAL PRESENCE

General principles of contract management

Workshop Objectives

On days 1 and 2, to:

Increase your awareness and understanding of contract management.

Demonstrate how you can improve the DEME Group’s contractual and commercial position in both the pre-contract and post-contract phases of projects.

On day 3, to:

Introduce the main FIDIC standard forms of contract.

Explain the philosophy of the main FIDIC standard forms of contract and what their use means.

5

Some questions to start with…

7

Q: What is a Contract?

A: Simply speaking, it is an agreement.

Q: What is the objective of a contract?

A: To define the relationship and how the

parties act – the ‘rules of the game’.

Q: What is common to every project?

A: Contracts, whether with a client, a

supplier or a subcontractor.

Presenter

Presentation Notes

8

Q: What is contract management and

what does it cover?

A: Management of:Risks & opportunities

Change

Entitlement

Claims

The Client or Subcontractor

It should include the avoidance of Disputes

Is this not project management?

Presenter

Presentation Notes

9

Q: When should the management of

contracts begin?

A: At the conception of a contract.

Q: When should the management of

contracts end?

A: At the finalisation of all matters.

Presenter

Presentation Notes

Contracts involve a process – from ‘conception to grave’

Understanding the clients’ needs and the risks involved

Making an offer, or tender

Forming a legal agreement

Understanding the parties’ obligations under the agreement

Monitoring the parties’ actions against these obligations

Identifying any variance

Invoking the terms of the contract according to the circumstances

Issuing and / or receiving requests for payment and additional time

Agreeing financial and other matters

10

11

From time to time, you may have experienced a bad

contract. What do we mean by the term ‘bad

contract’?

Discrepancies / anomalies

Unclear wording

Too much risk

Technical difficulties

Price too low

Schedule too tight

etc11

Presenter

Presentation Notes

1212

Q: Is it true (or fair) to say that a bad

contract is the fault of those involved

at the tender stage?

A: No. Why?

Q: Is it true (or fair) to say that an

unprofitable project is the fault of those

involved at the implementation stage?

A: No. Why?

Presenter

Presentation Notes

Q: Who is involved in managing a contract?

A: Everyone within the business...

13

I suggest that this could be the key

challenge with respect to contract

management

Revised Q: Who should be involved in

managing a contract?

Presenter

Presentation Notes

As managing contracts must be ‘from conception to grave’;

course agenda follows this.

Days 1 and 2 Tendering Procurement and sub-contracting Construction contracts and letters of intent Setting up the project Planning & progress Financial issues Management of change Dispute resolution

Day 3 FIDIC introduction Overview of differences between different standard forms Specific requirements of FIDIC contracts

14

The tender stageWhat is its main purpose?

Photograph credits to FreeDigitalPhoto.net & Grant Cochrane

The priority is for a tenderer to understand what will beexpected of him.

This involves:

Studying all parts of the RFQ or tender documents. Verify all documents have been received

Verify the correct documents have been received

Recognising the responsibilities to be placed on the parties.

Risk and opportunity management. Identification

Quantification

Evaluation

16

Presenter

Presentation Notes

The client will have considered risk allocation.

Remember:

Risk should be allocated to the party best able to manage it.

Standard Forms of Contract (such as one of the FIDIC or

BIMCO forms) generally allocate risk reasonably and fairly.

What type of risks should be considered?

17

Presenter

Presentation Notes

Some Contracting Risks

1. Clear scope of work

2. Provision of bonds, guarantees

3. Security for payment

4. Physical conditions and access

5. Practicality of schedule dates

6. Use of specialist suppliers/ sub contractors/ third parties

7. Extension of time provisions

8. Safety provisions

More Contracting Risks

1. Clarity of the contract wording and provisions (no

discrepancies)

2. Wording and provisions that can be easily understand

by all concerned

3. Document submittals at, or just after commencement

4. Conditions precedent clauses

5. Notice requirements

6. Requirement for record keeping

7. Change process

8. Claims process

Manner in which contract was secured

The consultants and their roles

The level of definition of the works

Feasibility

The procurement status

Financial circumstances

Political aspects

Legal / contractual

New concept

20

Contracting risks are often indicated by:

Apart from risk allocation, why else should major revisions

to Standard Forms of Contract be considered carefully by

tendering contractors?

21

The revisions may prevent the contract from working in certain circumstances.

In other words, links from one clause to another may be broken.

Presenter

Presentation Notes

22

To understand the customer’s needs

To see whether the proposed contract describes the same

thing

To influence the customer’s way of thinking

To influence the provisions of the contract (terms and

conditions)

To influence the allocation of risk

To agree the duration for undertaking the works

To agree the price for undertaking the works

To agree security of payment

etc

What opportunities exist at tender stage?

Management of the tender stage also requires:

Clarifying the responsibilities and / or risks. Document control essential – single point communication?

Register of questions and answers – summarises status

Records of any verbal discussions and meetings – how?

Establishing a commercial strategy for the project.

23

Presenter

Presentation Notes

24

Exercise 1 –tender phase

Procurement and sub contracting

Risk should be allocated to the party best able to manage it.

In sub-contract relationships, risk that is passed on should be stepped down.

Sometimes risk is retained at main contractor level.

Risk sharing and allocation

Presenter

Presentation Notes

Examples of typical risks

Clear scope of work (including design) and interface

Provision of bonds and guarantees

Practicality of programme dates within overall duration

Extension of time provisions

Notice and reporting provisions

Safety provisions

If we are main contractor, what do we want to happen with these risks in our subcontracts?

If we are a subcontractor, what do we want to happen with the contents of the main contract?

Presenter

Presentation Notes

These need to be catered for within supplier & subcontract agreements as well as main contracts.

Which terms and conditions are to be used for a subcontract?

The ‘main’ contract conditions?

Revised ‘main’ contract conditions? If so, how to revise?

The DEME standard terms?

Revised DEME standard terms? If so, how to revise?

The phrase ‘back to back with the main contract’? If so, what

does it mean?

28

Back to back

A commonly used phrase that can lead to practical problems

How can ‘applying the provisions of a main contract to a

subcontract’ work in practice?

Is Contract Price the same as Subcontract Price?

Are all the main contract conditions applicable?

Involvement of the client (i.e. approvals)?

Values of bonds?

Insurance coverage?

It’s not a shortcut for proper drafting of sub-contracts

Can create a strong potential for disputes29

30

Examples of subcontract wording…

Article 3.1 says that ‘Subcontractor shall be deemed to have full knowledge of the provisions of the Main Contract...Contractor shall (if requested) make available a copy of the Main Contract.

Article 3.2 says ‘Subcontractor shall carry out and complete Subcontract Works so that no act or omission of the Subcontractor shall result in any breach of the Main Contract by the Contractor.

Article 3.3 says ‘to the extent that such obligations and liabilities relate to the Subcontract Works, the Subcontractor shall perform the obligations and assume the liabilities of the Contractor under the Main Contract.’

Article 3.4 says ‘Subcontractor shall indemnify the Contractor against any claim, arising from any breach or non observance of such obligations or non compliance therewith.’

Presenter

Presentation Notes

31

An example of main contract wording…

Article 15 (c) says that ‘Contractor must make all the terms and

conditions of Contract (as far as the same are applicable ) terms and

conditions of Subcontract and must not permit any alteration of the

Subcontract without the prior written consent of Company and must

enter into a Subcontract with the Subcontractor accordingly.’

Presenter

Presentation Notes

Which terms and conditions are to be used for the subcontract ?

The ‘main’ contract conditions ?

Revised ‘main’ contract conditions? If so, how to revise ?

The DEME standard terms ?

Revised DEME standard terms ? If so, how to revise ?

All can work but in all cases, the parts of the main contract relevant to the subcontract need identifying (and possibly revising), and then be incorporated into the subcontract.

32

33

Contracts

Photograph credits to FreeDigitalPhoto.net & Boians Cho Joo Young

34

A contract is an agreement, which

should be based upon the mutual

understanding that was built up in

the tender stage.

Presenter

Presentation Notes

‘Contractual agreement’

But, to be a legal contract, there must be:

Capacity (i.e. authority)

Offer, acceptance and consideration

What is what?

What is a counter offer?

35

Presenter

Presentation Notes

36

You receive a Purchase Order from a customer that does not

refer to a DEME quotation or terms.

The Purchase Order includes certain terms and has on the

back of the document, the customer’s general terms and

conditions.

The first general term and condition says that “acceptance of

this order constitutes unconditional acceptance of these conditions”.

What is the Purchase Order?

What should you do?

Offer and Acceptance with POs

Presenter

Presentation Notes

‘Contractual agreement’

But, to be a legal contract, there must be:

Capacity (i.e. authority)

Offer, acceptance and consideration

What is what?

What is a counter offer?

A requirement (i.e. the scope of work)

A willingness to undertake the requirement

Terms of contract for the requirement

37

Presenter

Presentation Notes

Contract terms comprise:

Express terms

Implied terms – generally from Statute or Civil Code

to allocate responsibilities and risksto set out who does what and whento provide for:

1. time and money

2. changes in scope i.e. variations

3. changes in duration i.e. EoT

39

Construction Contracts

Contract Considerations

40

Type of industry:

Dredging

Energy

Building

Industrial

Infrastructure

Type of payment:

Lump sum

Target price

Unit rates / re-measurement

Reimbursable

Type of arrangement:

Employer & contractor

Contractor & subcontractor

Turnkey

Design & build

Contracts vary in contents but they should however:

Allocate functions / responsibilities

Define remuneration (payment)

Allocate risk between the parties

Including defining limitations on liability

Identify the applicable law and language

Provide for changes in scope

Provide for changes in duration

42

What is the consequence of a

party failing to comply with the

contract?

Failure to comply is a breach of contract

Follow contractual procedures if an express term

If an implied term, potential claim for damages

Stated damages for delay

Stated damages for late completion allow definition of risk, if it is the only remedy for delay.

If none stated, damages still apply.

Note; Liquidated damages (LDs) has a particular meaning under English Law.

45

What if works are to start

prior to a contract being in place?

Who’s problem is it?

Who should resolve it?

What can you do / ensure happens?

It is the customer’s problem.

It may however, be in your interest to start.

Resolution needs to be undertaken together.

But you must ensure the basis upon which work is

started should be defined in writing

One available option is....

Letters of Intent

Advantages:

When customers / employers are faced with time constraints in negotiating full contract documentation

To enable the start of the procurement process where there are long lead in times, the start of engineering or mobilisation

Alternative to delaying contract commencement

Offers protection to the contractor

Letters of Intent

Difficulties:

Sometimes unclear as to the extent of the parties’ commitment (i.e. entire project, initial works)

Are they binding? Often, one party’s intention towards another and no agreement.

Sometimes the description of work to be performed or material to be procured is inadequate

Letters of Intent

Required inclusions for agreement:

A full description of the work to be done and a direction to start work

The time period or end date that the work must be done by

The payment to be made – maybe a maximum

The terms and conditions governing the work

50

Consider the following

(exercise 2)

Part 1

Example Letter of Intent sent by main contractor to sub-contractor

“As you know from our meeting this morning, we have just received a letter of intent

from [X] for the [Y] project, which includes your [equipment].

In our turn, we are pleased to confirm that it is our intention to enter into a sub

contract with [you] for your [equipment], this will be generally be on the basis of the

Sub Contract document that we discussed this morning (ref…)

We also agreed that we would incorporate your final comments on the draft Sub

Contract and that you would provide details of the Advance Payment Bond, on-

demand Performance Bond and insurance that you can offer.

The main contract commencement date is…

Please acknowledge receipt.”

Consider what this letter is saying and what your response would be

Part 2

Second example Letter of Intent sent by main contractor to sub-contractor

“This is to place a letter of intent (LOI) for [W] works to [X] ... by [Y] … strictly in

accordance with the following terms and conditions and to give an authorisation to

proceed immediately with the engineering, procurement and manufacturing in

accordance with this requisition.”

Sections then cover matters including:

Scope and Price

Payments Terms

Delivery Terms and Date

Contract Documents

Etc.

Consider what this letter is saying and what your response would be

Setting up a project

Internal issues to be addressed

Organisational At project level Inter company conflict Role of Project Manager

Project definition Specified time, cost, quality Risk management Available resources

What happens at DEME?

54

Have a process for transferring knowledge internally;

from tender to implementation personnel?

If so, what is discussed? Who is involved?

Do you?

Does this process repeat when more implementation

personnel join the project?

Does it repeat again prior to the offshore phase?

Review your contract to identify obligations and the need for

project-specific systems?

If so, what for?

Notices Deliverables Discrepancies Securities and guarantees; insurance requirements Planning Payments Correspondence and reporting

Do you?

Have a kick off meeting with the client?

If so, what do you cover:

Confirmation and clarification of scope or uncertainties Agreement of formats / procedures for reporting and coordination Communication routes / details

How useful is a kick off meeting with the client when considering commercial strategy for a project?

Do you?

Planning and Progress

The Planning process

The planning process involves deciding

What to do

How to do it

When to do it

What resources to use

Planning and Programming

A programme is a project management tool used to monitor and control the project

It is not just a ‘picture’

60

61

Presenter

Presentation Notes

Ingehuurd om wat over planning te zeggen Ik heb ervaring als planner op grote en kleine projecten De laatste jaren als claims consultant anders naar planningen gaan kijken. Start met de basis principes van planning. Belangrijk is leesbaarheid en herkenbaarheid. Omschrijving van de activiteiten moet duidelijk zijn, ook als hij niet in een voorgekozen view staat. De barchart/balkenschema is een uitkomst een plaatje. Hieronder zit een netwerk.

Consider

Should the contractor submit a programme (schedule) early in the implementation stage?

On what basis should this programme (schedule) be put together?

Should the submitted programme (schedule) be the ‘real’ one?

How should the programme (schedule) show sub-contracted works?

Should the programme (schedule) be agreed?

62

The programme (schedule) should:

Reflect contract requirements (the baseline)

Show contract milestones

Show intended sequence of works

Incorporate any resource constraints

Show the critical path

63

The Critical Path - Why it is important?

Determines the earliest completion date for the project.

Determines the earliest and latest completion dates for

individual activities.

Calculates float.

Identifies which activities are important to the completion of

the project.

Identifies areas of risk.

Identifies areas where action should be taken to reduce the

project duration or recover from delays.

Critical path

The Critical Path - Shortest route between work and the pub

1

2

3

4

ActivityNo 1 2 3 4 5 6 7 8 9 10 11 12Time (days)

New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8

Critical path analysis

Link Activity

Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Critical Link

Critical Activity

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Critical Link

Critical Activity

Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Order concrete

Design

Order bricks

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Order concrete

Design

Order bricks

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Order concrete

Design

Order bricks

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Order concrete

Design

Order bricks

1

2

3

4


New Wall

13 14 15 16 17 18 19 20 21 22 23

5

6

7

8


Excavate the trench

Pour the foundation

Raise the brickwork

Place the coping

Complete

Order concrete

Design

Order bricks

Total Float

72

Exercise 3 –planning

73

Make a programme (schedule) for:

When you are alone

When you have a friend helping

When you have two friends helping

Activity No Description Duration010 Apply hand brake 0020 Find spare wheel 2 min030 Check that there is air in the spare wheel 1 min

(if 020 & 030 are unsuccessful the whole sequence is obsolete)

040 Find something to chock wheels 2 min(safety should be planned into a project)

050 Chock car wheels 1 min060 Find car jack & wheel brace 2 min070 Loosen wheel nuts 6 min080 Position jack 3 min090 Raise car 4 min100 Remove wheel nuts 1 min 110 Remove wheel 1 min120 Install spare wheel 1 min130 Replace wheel nuts 1 min140 Tighten wheel nuts 2 min150 Lower car 1 min160 Final tighten wheel nuts 2 min170 Remove jack 1 min180 Stow jack, wheel brace & punctured wheel 2 min190 Remove chocks 1 min200 Wipe hands 1 min210 Complete 0

Presenter

Presentation Notes

Nee we wachten niet op de wegen wacht

74

When you are alone

Barchart for Wheel Change - Alone (35 minutes)Activity Activity Description Duration Hour 1

No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

10 Apply hand brake 0

20 Find and remove spare w heel 2

30 Check air in spare tyre 1

40 Find something to 'chock' w heels 2

50 Chock car w heels 1

60 Find and remove jack & brace 2

70 Loosen w heel nuts 6

80 Position jack 3

90 Raise car 4

100 Remove w heel nuts 1

110 Remove w heel 1

120 Install spare w heel 1

130 Replace w heel nuts 1

140 Tighten w heel nuts 2

150 Low er car 1

160 Final tighten w heel nuts 2

170 Remove jack 1

180 Stow jack, brace & punctured w heel 2

190 Remove chocks 1

200 Wipe hands 1

210 Wheel change complete 0

Legend :

Project : Wheel Change Current Plan

Date : 1 Jan 2015

Prepared by : Superplan

75

When you are with a friend

Barchart of Wheel Change - With a Friend (26 minutes)Activity Activity Description Duration Hour 1

No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40








80 Position jack 3

90 Raise car 4


110 Remove w heel 1




150 Low er car 1


170 Remove jack 1


190 Remove chocks 1

200 Wipe hands 1


Legend :

Project : Wheel Change Driver Passenger

Date : 1 Jan 2015

Prepared by : Superplan

76

When you are with two friends

Barchart for Wheel Change - With 2 Friends (24 minutes)Activity Activity Description Duration Hour 1

No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40








80 Position jack 3

90 Raise car 4


110 Remove w heel 1




150 Low er car 1


170 Remove jack 1


190 Remove chocks 1

200 Wipe hands 1


Legend :


Date : 1 Jan 2015

Prepared by : Superplan 2nd Passenger

Presenter

Presentation Notes

Opvoeren van resources niet altijd ff handig 30 man in een ruimte elek, tegelen, schilderen en isoleren.

77

Resource planning and critical pathBarchart for Wheel Change - With 2 Friends (24 minutes)

Activity Activity Description Duration Hour 1

No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26








80 Position jack 3

90 Raise car 4


110 Remove w heel 1




150 Low er car 1


170 Remove jack 1


190 Remove chocks 1

200 Wipe hands 1


Legend :


Date : 1 Jan 2015

Prepared by : Superplan 2nd Passenger Critical path

Driver

Passenger

2nd Passenger

Presenter

Presentation Notes

Bezettings resultaat Sorry nog niet vertaald in het nederlands

78

Cha

ngin

g w

heel

40 2 50 1

10 0 20 2 30 1 80

60 1 70 1 90 3 100 4

110 1 120 1 130 1 140 1 150 2

170 2 190 1

160 1 180 1 200 1 220 1 230 0

210 1

zoek blokken

blokkeer de wielen

zoek krik en

verwijder wieldop

los de wielbouten

Trek handrem

zoek het reserve

controleer druk in

krik de auto

verwijder wiel

verwijder wiel

plaats reserve

maak handen

wiel is verwisseld

trek wielbouten

plaats wieldop

laat auto zakken

Plaats de krik

verwijder blokken/st

verwijder krik

berg krik, de sleutel

plaats wiel bouten

zet bouten vast

Presenter

Presentation Notes

Dit is hoe je had moeten beginnen.

Progress reporting

Involves:

Measuring actual progress

Updating your plan or schedule for this actual progress

Forecasting the impact in the future

Making a report

This has to be done in context of the contract with your client.

For this, you will require details from your subcontractors but who

should report in the context of their contract with you.79

The need for progress records & monitoring

Accurate assessment of status of project Accurate & agreed records in case of dispute Record and keep results

How deal with changes?

Plot and compare results Analyse trends - predict the future Compare different trends

Contractor may not want to declare the actual status of project Contractor may not want accurate & robust records – confuse

the issue

Contractors Progress Records & Monitoring

Consider…

The items the contractor should include in its progress reports.

Should the contractor prepare different progress reports for

internal circulation to that submitted to the customer?

If so, what would be the differences?

81

Other required records

These include, for example:

Correspondence

As-built, it’s easier to do as the project advances

Daily reports including weather and numbers of resources

The reasons for decisions to move resources

Effects of changes

Consider how and where they are kept.

Remember, for subcontract and main contract activities.82

Financial issues

Common valuation options

On a lump sum basis

On a lump sum basis with schedule of rates

On a lump sum basis with bill of quantities

On a re-measurable basis with bill of quantities

Cost plus

What do each mean?84

For lump sum contracts

Only changed for adjustments allowed the contract (i.e. instructed variations and claims)

No change resulting from a contractor revising its design

85

For re-measurement contracts

Changed for adjustments allowed the contract (i.e. re-measurement, instructed variations and claims)

Is there a difference between re-measurement and variations?

Needs a method of measurement What does re-measurable on a ‘net’ basis mean?

86

87

Interim payments

Common interim payments options

Based on actual value of work undertaken

Based on a pre-agreed schedule

Based on achieving milestones

88

Issues to be addressed

How calculate value of work undertaken?

Front loading of schedule Effect of poor progress

Variations – how much and when? Completed/part completed Agreed/disputed

Definition of each milestone – is it clear or controllable? Achievement of milestone means what?

89

Timing of Payments

Are these milestones clear? Controllable by the contractor?

10% of purchase price at order confirmation

10% of purchase price at order of main materials

10% of purchase price at mobilisation onsite

20% of purchase price at completion of section 1

20% of purchase price at completion of section 2

20% of purchase price at completion of all works onsite

10% of purchase price at issue of ‘as builts’

90

Issues to be addressed

Remember, the client’s primary obligation is to pay the contractor for the work undertaken.

Late payments – recourse?

Adherence to contract procedures is essential Agreed format in the contract, or one to be agreed? Issue a request for payment or an invoice? Agreed procedure, or one to be agreed? Timing of request and / or invoice

91

No contract goes completely

to plan

Indicators of potential problems-at tender

Manner in which contract was secured

The consultants and their roles

The level of definition of the works

Feasibility

The procurement status

Financial circumstances

Political aspects

Legal / contractual

93

Early days of project execution

Drawings, information and ‘Holds’

Approvals

Relationships

Consultants’ performance

Access to works

Local authority / government bodies

Payment

The manner in which early problems are dealt with

Performance of nominated sub-contractors

94

The project under way

95

Major design changes Policy changes by client Many variations Lots of day work Long information

outstanding list Inability to procure long

lead items Payment problems Valuation problems Interim payments not

detailed

Widening gap between application and certification

Programme slippage Problems with

sub-contractors Labour disputes Poor drawings Arguments about

consultants’ responsibilities

Acceleration Tone of letters Relationships

The Management of Change / Variations

Example areas of ‘change’

97

Additional or omitted work

Varied or modified work Substituted work Standard of work Physical or geological or

marine conditions Time of year work

carried out Location work is carried

out

New or revised drawings being issued

Holds being placed on drawings

Identity of owner representative/ consultants/ subcontractors/ vendors

Identity of contractors personnel

Late access to site Late issue of material

So can affect scope and/ or schedule and/ or conditions

Presenter

Presentation Notes

Talk about a few and give examples, employer & contractor & subcontractor changes

The customer can ‘change’

The scope of work

The location of the work / equipment within

The timing and extent of access to site

The amount of information available to the Contractor

The period for drawing review / approval

The period for responding to requests for information

The extent of interference

The amounts and timing of payment

The supervisory staff or personnel

The type of equipment or materials it provides 98

The contractor can ‘change’ its:

Method of working

Sequence of working

Coordination of the work processes

Timing of undertaking the works

Quality or standard of the permanent works

Submission of required records and notices

Workers, staff or supervision personnel

Provision of access / facilities / materials to Subcontractors

Design

Use of Subcontractors99

The subcontractor can ‘change’ its:

Method of working

Sequence of working

Timing of undertaking the works

Quality or standard of the permanent works

Submission of required records and notices

Workers, staff or supervision personnel

Manning levels

Price of work

Location of off site works

Design 100

In Construction / Engineering projects, ‘change’ means what?

Something different from the contractual agreement.

It can affect scope and/ or schedule and/ or conditions

And can be initiated by:

subcontractor’s

and/ or

contractor’s

and/ or

customer’s.101

102

Management of change

Involves awareness that change will occur, recognition of the change itself and

the subsequent actions - 5 steps


1. Read the contract to understand the baseline2. Identify a change has occurred3. Follow the appropriate contractual process4. Maintain records5. Assess the time and money effects

103

Contracts contain obligations and responsibilities

What if the obligations within the contract are unclear?

Is there a contract clause for dealing with anomalies?

Does it matter whether such a clause exists?

104

“The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be …:

[a] The Contract Agreement (if any)[b] The Letter of Acceptance[c] The Letter of Tender[d] The Particular Conditions[e] These General Conditions[f] The Employer’s Requirements[g] The Schedules, and[h] The Contractor’s Proposal and any other documents

forming part of the Contract

If an ambiguity or discrepancy is found … the Engineer shall issue any necessary clarification or instruction.”

As an example…

105

Contracts contain obligations and responsibilities

What if the obligations within the contract are unclear?

Is there a contract clause for dealing with anomalies?

Does it matter whether such a clause exists?

Contracts also foresee / allow certain types of changes

What types?

106

The various types of foreseeable changes can include:

1) Failure of the client to give the contractor right of access to site.

2) Failure of the client to provide the contractor with free-issue materials.

3) The existence of unforeseeable physical conditions.

4) Suspension of part or all of the works.

5) Instructed variations.

6) The contractor proposes value engineering.

7) The whole or part use of Provisional Sums.

8) Force Majeure.

As an example…

107

Allowable and foreseeable changes - issues

What constitutes each type of change?

Has the correct procedure been followed?

Who has the authority to initiate each type of change?

Are there any limitations or restrictions?

108

In the case of instructed variations, further relevant details are often contained elsewhere and can include:

1) The definition of a variation (i.e. what can it comprise).

2) The communications rules (i.e. for the instruction).

3) The language for these communications.

4) Who has the authority to issue instructions that are a variation.

5) Who has the authority to receive instructions that are a variation.

6) Whether instructions need to be complied with; or if not, in what

situations.

7) Variation valuation rules.

As an example…

109



110

Early identification is essential

Be aware that changes will occur

Appreciate that the correct contractual process may not always

be followed

Refer back to the baseline as a reference point

Constantly monitor events, occurrences and communications to

identify the cause or effect of change

Drawings – new ones, revisions and holds

Progress updates

Cost reports

111



112

Contractual processes- issues

What type of change has occurred?

What is the correct procedure to be followed in this case?

Written notification is often required.

113

Notices Notices must often be submitted to the client when a contractor

is aware (or sometime worded as ‘should have been aware’) of

an event or circumstance that gives rise to entitlement to a

possible claim for time and / or money.

The notices are sometimes subject to restrictions on timing and

can also be condition precedent to payment of additional money

and / or award of more time.

Notices must state the event and be clear it’s notice of a

potential claim

Notices are for the benefit of the recipient.

Notices cannot be refused.

114

Compliance with instructions Properly given instructions must sometimes be complied

with without agreement of the time and money effect.

There may be circumstances however, in which this is not

the case. For example:

If the materials and / or equipment cannot be procured.

If it impacts on any overall guarantees that are part of the

contractors obligations.

115



116

Record Keeping

Why?

What type?

Should they be agreed?

How should they be maintained for future use?

117



118

119

The effects of change

Time / schedule Cost

Direct Indirect

Value

Valuation of change

What type of change has occurred?

Any procedural requirements for the valuation?

Time frames for submission

Time frames for response

What is the correct method for valuation to be followed?

Money – value, cost or cost and profit?

Time – prospective or respective?

Consider direct and indirect effects.

120

And a ‘claim’?

Simply, a request for reimbursement, from one party to another, of

the money and / or time consequences flowing from an event that

the contractor was not required to anticipate.

Valuation rules will normally again apply – money mainly cost or

cost and profit; time either prospective or respective.121

Under many contracts a ‘variation’ is:

Simply, an instructed change to the baseline scope of work.

Valuation should include time impact as well as money impact.

Valuation rules will normally apply – money is value or cost plus

profit; time either prospective or respective.

Money impact

Good Quantity Surveying Practice

Use contract unit rates for valuing work of similar character undertaken

under similar conditions

Use contract unit rates as a basis for valuing work of a dissimilar

character or undertaken under dissimilar conditions

Do not use contract unit rates for quite different work. Consider cost

plus reasonable profit.

123

Time impact –Extension of Time claims

Extension of Time

An Extension of Time does not mean an entitlement to

additional money

An Extension of Time relieves contractor liability to pay

damages for delay

An Extension of Time establishes a new completion date

An Extension of Time allows the client to impose damages for

any delay after the new completion date

125

Extension of Time - considerations

Contract provisions define the basis of entitlement

Delay to be on the critical path

‘Ownership’ of float

Effect of concurrency

Choice of delay analysis technique

126

Delay analysis techniques

Time extensions after completion of project (retrospective): Collapsed As-built As-planned –v- As-built Windows Analysis

Retrospective or Actual Based Analysis

128

ACTIVITY A

ACTIVITY B

ACTIVITY C

1 2 3 4 5 6 7 8 9 10 11Activity

Why Delay?

OriginalCompletion



Time extensions during currency of project (prospective) Impacted As-Planned Time Impact Analysis

Prospective or Model Based Analysis

130

ACTIVITY A

ACTIVITY B

ACTIVITY C

1 2 3 4 5 6 7 8 9 10 11Activity

Event

Estimate of Delay

OriginalCompletion



Time extensions during currency of project (prospective) Impacted As-Planned Time Impact Analysis

Activity AActivity BActivity CActivity DActivity ECompletion

• The as-planned programme

Impacted as-planned method


• Impact (add) the delaying event


Delaying event


• Reschedule the programme


Delaying event

Impacted completion date

(extension of time)

Advantages Quick Simple to carry out and understand Transparent As-built programme not required Can demonstrate acceleration and mitigation

Disadvantages Theoretical conclusions Requires a reasonable and robust as-planned programme Ignores actual progress Can hide concurrent delay



• The as-planned programme

As-planned v as-built method


• Plot the as-built programme



• Identify the employer delay events



• Assess delaying effect of events


(extension of time)(contractor culpable)

Advantages Simple to understand Transparent Does not require a networked programme Relies upon actual progress

Disadvantages Subjective assessment of critical delays Depends also on opinion Requires as-built programme

As-planned –v- as-built method

Which technique should be used?

Consider: Contract conditions Records available Time available Applicable law Value of dispute Most practical and common sense approach in circumstances

Delay analysis methods

X

or X or X


From SCL Delay and Disruption Protocol, paragraph 4.13

As-planned programme

without network

Networkedas-planned programme

Updatedas-planned networked programme

As-built records

As-planned v as-built

Impacted as-planned

Collapsed as-built

Time impact analysis

X and X

X

and X

X or X and X

Factual material

Type of analysis

An ‘X’ indicates the factual material that is required for a particular analysis

in some cases there are alternatives, as indicated in the table:

Presenter

Presentation Notes

The quality of any analysis of a delay is dependent upon the records kept during the project. This is an extract from the Protocol along with a table that illustrates the more information that is available (the top row) the more choice there is in methods of analysis.

143

Case StudyThe Delayed Project

Task

Taking the position of the sub-contractor, contractor or client, your team has to prepare a presentation (max 5 minutes).

This presentation is then to be explained to the other party, the presentation should include:

Current status of the project and anticipated future programme.

The factual background to the delay and the over-run on man-hours.

The contractual situation.

Your team will be required to present its case based upon an analysis of the technical, factual and contractual aspects. 144

145

Recovering time and / or money impact following

a change

Recovery of entitlement

Requires timely notice

Require a well drafted document, showing:

Contractual entitlement

Narrative / story

Cause and effect

Apportionment

Quantum of time or money

Requires recognition of strengths and weaknesses

6 Steps for making an Extension of Time Claim

1. The contract

2. The records

3. The facts

4. The planning analysis

5. The Scott Schedule

6. The Statement of Claim

147

6 Steps for making an Extension of Time ClaimStep 4 – The planning analysis

148

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 STEEL FRAME

2 WALLS & ROOF

3 SWITCH GEAR

4 ACCESS GANTRY

200T CRANE

Sub-Contractor A

Main Contractor

Sub-Contractor B

Main Contractor

Main Contractor

Approved Programme

PlannedCompletion

Delay 3Inherent Design Fault

Discovered

plus1 week’s float

6 Steps for making an Extension of Time ClaimStep 5 – The Scott Schedule

149

Event No

Description Brief Facts Clause Notice Ref Relevant Docs

Activity Affected

Period of Delay

1 Design Fault to Access Gallery

The connection detail for the upper part of the gantry was identified as being underspecified on 10.10.01. The engineer was immediately notified. A revised drawing was issued on 22.10.01 and the works proceeded on 24.10.01.

26.4(ii) Letter 10.10.01

MOM 31.10.01Drg 201 rev A dated 27.10.01Progress report 30.11.01

Act 4.AG 2 wks

6 Steps for making an Extension of Time Claim

Step 6 – The Statement of Claim

In accordance with clause x, the contractor claims a 2 week extension of time arising from Event 1, notified on 10.10.01, all as particularised in the Scott Schedule and planning analysis.

150

ENTITLEMENT/OBLIGATION

CAUSE

GIVES RISE TO ENTITLEMENT/BREACH

EFFECT

[THE BURDEN OF PROOF]

Dispute resolution

Dispute avoidance

1. A clear, comprehensible contract

The enquiry Scope Conditions Risks

The negotiated agreement

Shared understanding

153

Presenter

Presentation Notes

Dispute avoidance – the basics

Have a commercial strategy

Work procedures

Agree records

Encourage, submit and respond to notices

Publish in compliance with the contract

154

Presenter

Presentation Notes

Dispute resolution - generally

155

Non-binding

Negotiation us Mediation us with help Conciliation us with more help Mini trial us with even more help Expert determination them Adjudication them

Binding Arbitration them Litigation them

156

Ernst Jan de JongRegional Managing Director

[email protected]

Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici


General Principles of Contract ManagementTraining to DEME (2016)

Ernst Jan de Jong – Senior [email protected]


http://www.drivertrett.com/

As managing contracts must be ‘from conception to grave’;

course agenda follows this.

Days 1 and 2 Tendering Procurement and sub-contracting Construction contracts and letters of intent Setting up the project Planning & progress Financial issues Management of change Dispute resolution

Day 3 FIDIC introduction Overview of differences between different standard forms Specific requirements of FIDIC contracts

2

3

Introduction to FIDIC

FIDICFédération Internationale des Ingénieurs-Conseils

Federation of national associations of consulting engineers Based in Geneva Founded in 1913 with original founding members from France,

Belgium and Switzerland UK joined 1949, USA joined 1958 Seen as international from 1970s and members from about 70

counties

FIDIC aims

High ethical standards

High professional standards

Development of engineering profession in developing countries

FIDIC documents

Standard Forms of Contracts – since 1957

Guides to Standard Forms of Contracts

Tendering procedures

Model Agreements

7

Standard Forms of Contract

General principles of FIDIC Standard Forms of Contract - 1

Often known by their colour i.e. red, yellow, silver, blue.

Historically based on Anglo Saxon type contracts. So, more reliance on documentation.

Drafted for general use on an international basis. So,applicable law and ruling language needs to be stated.

Modifications may be required in some jurisdictions. These should be included as revisions.

General principles of FIDIC Standard Forms of Contract - 2

FIDIC standard forms are generally accepted to be well-written and capable of being understood by users.

They recognise there will be problems and potential for conflict and dispute on projects but set out processes to resolve them including:

Placing a significant administrative burden on the parties and;

Requiring the parties to deal with issues at the time.

10

The Current FIDIC Standard Forms of Contract

Current FIDIC Main Standard Forms of Contract

Green (1999)Blue (2006) Red (1999) Pink (2010)

Yellow (1999) Silver (1999) Gold (2008)

http://fidic.org/books/construction-contract-mdb-harmonised-ed-version-1-may-2005-harmonised-red-book


http://fidic.org/books/dbo-contract-1st-ed-2008-gold-book



Green book:Short Form

Blue book:Dredgers Contract

Red book:Construction Contract

Pink book:MDBConstruction Contract




Yellow book:Plant and Design-Build Contract

Silver book.EPC/Turnkey Contract

Gold book:DBO Contract



For dredging and reclamation works: the Blue book

When do you use which standard form?

Straightforward project ? < € 500K or < 6 months

Employer Design ?

ContractordesignAll types of project withhigh unforeseen risks

Little employer involvement,no major unforeseen risks

nono

yes

Which contract for which situation ?

yes

yes

Ongoingoperation ? no

yes

no

yes

Presenter

Presentation Notes

Use explanatory notes



16

Overview of Current FIDIC Standard Forms of Contract

17

The Blue book

Generally – Blue Book

FIDIC produces the General Conditions (15 clauses) and does not anticipate separate Particular Conditions to be used (however notes for guidance are included).

Appendix used to contain project-specific information.

Rules for Adjudication, Adjudicator’s Agreement and Forms of Securities are included.

Agreement records offer and acceptance and signifies a contract has been entered into.

Tenders issued with Specification and Drawings

Clause 1 - General Provisions

Clauses 2 to 4 - The Employer, the Engineer and the Contractor

Clause 5 - Design by Contractor

Clause 6 - Defined Risks

Clauses 7 and 8 – Time for Completion and Taking Over

Clause 9 - Remedying Defects

Clauses 10 and 11 – Variations, Claims, Contract Price and Payments

Clause 12 - Default

Clauses 13 and 14 – Risk, Responsibility and Insurance

Clause 15 – Resolution of Disputes

Blue Book General Conditions


Clause 1 includes:

Definitions (sub-clause 1.1).

Priority of documents provisions (sub-clause 1.3).

Applicable law and ruling language stated in Appendix (sub-clauses 1.4 and 1.5).

Communications shall be in writing, transmitted using methods and issued to addresses stated in Appendix (sub-clause 1.5).


Employer has a limited role after contract is signed (clause 2).

Engineer appointed as representative of Employer acting after contract is signed (clause 3).

Engineer can delegate specific duties and authority to assistants (sub-clause 3.1).

Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.2).

Contractor appoints Contractor’s Representative who is the only person authorised to receive instructions (sub-clause 4.2).


Responsibility of design (and fitness for purpose) with the Contractor for those parts specified in the Appendix (clause 5).

Responsibility for Defined Risks with Employer (sub-clause 6.1).

Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clause 7.1).

Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clause 8.2).

Period for remedying defects stated in the Appendix (sub-clause 9.1).

No period for remedying defects for dredging works defined in the Appendix (sub-clause 9.2).


Only the Engineer (or delegated assistants) can vary the Works (sub-clause 10.1).

Variations is a defined term.

Early warning notices shall be issued by either Party as soon as they are aware of any delay or disruption to the Works or any possible claim for additional money (sub-clause 10.3).

The claim procedure is to be followed when a Defined Risk occurs and Contractor incurs Cost or suffers delay (sub-clauses 10.4, 10.5).

Valuation / payment to be as specified in the Appendix (sub-clause 11.1).

The Engineer certifies the monthly interim payments to be paid to the Contractor (sub-clause 11.4).

DAB appointed to resolve disputes on an ad-hoc basis(clause 15)

24

The Red book

Generally – Red Book

FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included).

Appendix to Tender used to contain project-specific information.

Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included.

Letter of Acceptance signifies a contract has been entered into.

Tenders issued with Specification, Schedules (includes Bill of Quantities) and Drawings


Clauses 2 to 4 – The Employer, the Engineer and the Contractor

Clause 5 – Nominated Subcontractors

Clauses 6 and 7 - Staff, labour, plant, materials and workmanship

Clause 8– Commencement, delays and suspension

Clauses 9 and 10 – Tests on Completion and Employer’s Taking Over

Clause 11 - Defects Liability

Clause 12 – Measurement and Evaluation

Clause 13 – Variations and Adjustments

Clause 14 – Contract Price and Payment

Clauses 15 and 16 – Termination and suspension

Clauses 17 to 19 – Risk, Insurance and Force Majeure

Clause 20 – Claims, Disputes and Arbitration

Red Book General Conditions

26

Presenter

Presentation Notes

Refer to P Harvey notes here to add some details


Clause 1 includes:


Communications shall be in writing, transmitted using specific methods and to the addresses stated in Appendix to Tender. Allowable electronic systems of transmission also stated in Appendix to Tender (clause 1.3).

Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4).


Contract Agreement to be put into place after contract entered into if Letter of Acceptance used (sub-clause 1.6).Otherwise, signifies contract entered into.



Engineer appointed as representative of Employer acting after contract is signed (sub-clause 3.1).





Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2).

Provision for Tests on Completion (clause 9).

Employer issues Taking Over Certificate to signify works are ready for taking over and not necessary complete (sub-clauses 10.1 and 10.2).

Period for undertaking outstanding work and remedying defects stated in the Appendix to Tender (sub-clause 11.1).

Performance Certificate issued at the end of Defects Notification period and confirms Employer acceptance of the Works (sub-clause 11.9)


Works to be valued on a re-measurable basis (clause 12).



The Engineer certifies the monthly interim payments to be paid to the Contractor (clause 14).

Notice shall be issued by Contractor whenever it considers it to be entitled to more time and / or money and within 28 days of being aware (or should have been aware). Failure to comply means a loss of rights to claim (sub-clause 20.1).

Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1).

DAB appointed to resolve disputes (sub-clause 20.2).

31

The Yellow book

Generally – Yellow Book





Tenderers issued with Employer’s Requirements


Clauses 2 to 4 – The Employer, the Engineer and the Contractor

Clause 5 – Design





Clause 12 – Tests after Completion






Yellow Book General Conditions

33

Presenter

Presentation Notes


Generally – Yellow Book (as Red Book)

Clause 1 includes:






Generally – Yellow Book (as Red Book)


Engineer appointed as representative of Employer acting after contract is signed (sub-clause 3.1).




Generally – Yellow Book

Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1).

Intended purpose must be specified in the Employer’s Requirements as defined in sub-clause 1.1.1.5.

Treatment of errors in the Employer’s Requirements provided for by the ‘experienced contractor test’ (sub-clause 5.1).

Resolution could be as a Variation or a claim.

Procedure for the Engineer to review and / or approve submitted documents (sub-clause 5.2).

Generally – Yellow Book (mainly as Red Book)


Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12).


Period for undertaking outstanding work and remedying defects stated in the Appendix to Tender (sub-clause 11.1).


Generally – Yellow Book (mainly as Red Book)



Works to be valued on a lump sum basis (clause 14).

The Engineer certifies the monthly interim payments to be paid to the Contractor (clause 14).


Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1).


39

The Silver book

Generally – Silver Book (as Yellow Book)





Tenderers issued with Employer’s Requirements


Clauses 2 to 4 – The Employer, the Employer’s Administration and the Contractor

Clause 5 – Design





Clause 12 – Tests after Completion






Silver Book General Conditions

41

Presenter

Presentation Notes



Clause 1 includes:






Generally – Silver Book (different to Yellow Book)


Employer’s Representative may be appointed to act on Employer’s behalf after contract is signed (sub-clause 3.1).[Prime duties restricted to monitoring progress, quality and testing]

Employer or Employer’s Representative can delegate specific duties and authority to assistants (sub-clause 3.2).

Contractor shall comply with instructions in respect of the Works given by the Employer or Employer’s Representative (sub-clause 3.4).


Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1).

Intended purpose must be specified in the Employer’s Requirements as defined in sub-clause 1.1.1.5.

Contractor generally responsible for the accuracy of the Employer’s Requirements (sub-clause 5.1).

Procedure for the Employer to review submitted documents (sub-clause 5.2).




Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12).


Period for undertaking outstanding wok and remedying defects stated in the Appendix to Tender (sub-clause 11.1).



Only the Employer (or delegated assistants) can vary the Works (sub-clause 13.1).


Works to be valued on a lump sum basis (clause 14).

The Employer assesses the monthly interim payments to be paid to the Contractor (clause 14).


Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1).[Responsibility for nearly all risk with the Contractor]


47

Confirm your understanding

Employer design

Contractor design

Re-measurable

Lump Sum

Low High

Q for each book:

1. Who has design responsibility?

2. What is the basis of valuation?

3. Who supervises the Works?

4. Where do you find the project specific data?

5. Arrange in the order of risk to Contractor (low to

high).

Exercise

Engineer

Employer’s Representative

Appendix

Appendix to Tender

Particular Conditions

Risk to Contractor

Employer designContractor

design

Re-measurable Lump Sum

Answer – 1 - 4

Engineer Engineer Employer’s Representative

Design responsibility project specific

Engineer

Valuation project specific

Appendix

Particular Conditions

project specific

Appendix to Tender

Particular Conditions anticipated

Appendix to Tender

Appendix to Tender



Contractor design

Lump Sum

Low High

Q: But, where should the Blue Book be placed?

Answer - 5

A: It depends on the specific project

Burden of risk on Contractor

51

Some particular concepts of FIDIC standard forms

52

Formation of a contract

FIDIC Blue Book Form of Agreement

Printed form to avoid letters of intent.

Step 1: Employer part completes for tender documents:

53



Step 2: Contractor completes offer as part of tender:

54



Step 3: Employer completes acceptance to effect a Contract:

55


56

So, Employer signing the Acceptance part of the Agreement and the Contractor receiving a copy signifies the contract coming into full force

Any changes from negotiations should be noted and initialled


Presenter

Presentation Notes

FIDIC Yellow Book Letter of Tender

Contains statements including:

“We accordingly offer to design, execute and complete the Works and remedy any defects therein, in conformity with this Tender [name] for the lump sum of [amount of money]”

“We agree to abide by this Tender until [date] and it shall remain binding upon us and may be accepted at any time before that date.”

“If this offer is accepted, we will provide the specified Performance Security, commence the Works [name] and complete the Works [name] within the Time for Completion. We guarantee that the Works will then conform with the Schedule of Guarantees.”

“Unless and until a formal Agreement is prepared and executed, this Letter of Tender, together with your written acceptance thereof, shall constitute a binding contract between us.”

57


Employer Letter of Acceptance signifies the contract coming into full force

Refer definition at sub-clause 1.1.1.3 – includes annexed memoranda

Contract Agreement either follows, or used instead of a Letter of Acceptance

58


Presenter

Presentation Notes

59

Design

Specification & Drawings

According to Sub-clause 1.1.2, Specification includes the Employers requirements in respect of design to be carried out by the Contractor

According to Sub-clause 1.1.3, Drawings are the Employers drawings of the Works

Design

Note: satisfying the Employer’s Requirements shown by successful Tests on Completion

Employer’s Requirements

According to Sub-clause 1.1.1.5, ERs must specify (cannot imply) for each part of the works

The purpose

The scope

The design

Other technical criteria

Design

Yellow book - Sub-clause 5.1 provides for a period for the Contractor to identify

errors in the Employer's Requirements

If any found within period, corrected and treated as Variation if it is deemed that “an experienced contractor exercising due care” would not have found it pre-tender submission.

Under Sub-clause 1.9, if any found outside of period, becomes a claim if it is deemed that an experienced contractor would not have found it pre-tender submission.

Responsibility for errors in the Employer’s documents

Blue book -

Sub-clause 5.2 states that Employer shall be responsible for Specification and Drawings

Design

The obligation for fitness for purpose is more onerous that designing with “due skill and care”

i.e. Suitability of end product versus design process

Plus, responsibility for fitness for purpose cannot be passed to anyone else or insured

Fitness for purpose

Blue book sub-clause 5.2 provides an obligation that the Contractor’s design under the contract (if any)“shall be fit for the intended purpose to be inferred from the Contract”

Yellow book sub-clause 4.1 provides an obligation that the Works be “fit for the purposes for which the Works are intended as defined in the Contract”

Design

Yellow book sub-clause 4.1 also provides an obligation to provide all Works “necessary for stability or for completion, or safe and proper operation of the Works”

Fitness for purpose continued

Remember: satisfying Fitness for Purpose is shown by successful Tests on Completion

Design

Yellow book

Clauses 5.2 deals with submission of documents

Yellow book provides for submission for “review and/or for approval”

Contractor design submittals

Blue book

Clauses 5.1 deals with submission of design

Blue book provides for submission for “comment or rejection”

Note the detailed procedure.

What’s the difference between the Engineer's obligations?

66

Role of the Engineer

The Engineer Clause 3.1 states (blue book)

“The Engineer and any assistants shall exercise their duties and authority

in a fair manner and in accordance with the Contract.”

Clause 3.1 states (yellow book)

“…Except as otherwise stated in these conditions:

Whenever carrying out duties or exercising authority, specified in or

implied by the Contract, the Engineer shall be deemed to act for the

Employer. …”

The Engineer Clause 3.5 gives the exception …

“Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.”

68

Presenter

Presentation Notes

69

Communication

CommunicationClause 1.5 states (blue book)Communications for any matter shall be• In writing• In the language stated in the Appendix• Sent by one of the methods stated in the Appendix

Clause 1.3 states (yellow book)Communications for any matter shall be• In writing• Delivered by hand, mail, courier or one of the electronic means of

transmission stated in the Appendix to Tender

Clause 1.4 states (yellow book)The language for communications shall be that stated in the Appendix to Tender

71

Confirm your understanding

Assuming a longer duration FIDIC project, list with clause references:

The documents that the Contractor should expect to submitwithin a period of say 28 days of Contract Award

The ‘things’ that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award

72

Exercise

Exercise - answers

The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award:

Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance.

Sub-Clause 4.2 [Performance Security] states that the Contractor shall provide to the Employer Performance Security.

Sub-Clause 4.3 [Contractor’s Representative] provides for the Contractor to appoint a Representative who will have the authority to act for the Contractor (including issuing and receiving communications).

A detailed time programme (and separate report) under sub-clause 8.3 [Programme].

If Sub-Clause 14.4 [Schedule of Payments] applies and the Contract does not contain a schedule of payments, the Contractor shall submit to the Engineer within 42 days of the Commencement Date, non-binding estimates of the expected payments during each quarterly period.

If Sub-Clause 14.2 [Advance Payment] applies, the Contractor shall provide to the Employer an advance payment guarantee.

Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer.

Exercise - answers

The ‘things’ that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award:

• Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance.

• Sub-Clause 2.1 [Right of Access to Site] says that the Employer shall give the Contractor right of access to, and possession of parts of the Site as stated in the Appendix to Tender.

• Sub-Clause 3.2 [Delegation by the Engineer] allows the Engineer to assign duties and / or delegate authority to Assistants; this would include authority to communicate with the Contractor on certain matters.

• Not less than 7 days notice of the Commencement Date (sub-clause 8.1).

• If Sub-Clause 14.2 [Advance Payment] applies, the Employer shall pay the advance payment in accordance with Sub-Clause 14.7 [Payment].

• Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer.

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Subcontracting

FIDIC requires a Contractor to obtain consent to sub-contract works

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Blue book Clause 4.3“Contractor shall not subcontract the whole of the Works. Contractor shall not subcontract any part of the Works without the consent of the Engineer.”

Yellow book Clause 4.4“Contractor shall not subcontract the whole of the Works.… shall be responsible for the acts and defaults of any Subcontractors… as if they were the acts and defaults of Contractor.… shall not be required to obtain consent for suppliers of Materials, or a subcontract … named in the Contract.The prior consent of the Engineer shall be obtained to other proposed Subcontractors.… shall give the Engineer not less than 28 days notice of the intended date of commencement of each Subcontractor’s work…”

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Time Issues

Blue Book - Programmes

Clause 7.1 Contractor shall start on Commencement Date.

Shall proceed expeditiously and without delay.

Shall complete within the Time for Completion.

Clause 7.2 The Contractor shall submit a programme to the

Engineer as stated in the Appendix.

There is no requirement for agreement of the programme.

Is the programme contractual?

Clause 8 – programmes

Clause 8.1 – notice of Commencement Date

Clause 8.2 – Time for Completion

Clause 8.3 – Programme to be provided within 28 days of Notice to

Commence – detailed

Clause 8.3 – Engineer has 21 days to reject

Clause 8.3 – Contractor to proceed in accordance with it

Clause 8.3 – revised programmes to be submitted in various situations

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Blue book– progress reports

No provisions

What would you do?

Clause 4.21 – progress reports

Clause 8.1 – notice of Commencement Date

To be submitted monthly until completion of all work

Comprehensive - shall include:

a) Charts & descriptions of progress for each stage

b) Photographs

c) Manufacture report

d) Contractor’s personnel & equipment

e) QA documents, test results etc

f) Notices of claims

g) Safety statistics

h) Comparisons planned versus actual progress, risks and mitigation measures

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Clause 8.6 – rate of progress

“If, at any time:

a) Actual progress is too slow to complete within the Time for Completion, and / or

b) Progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3…

other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time]…

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Clause 8.6 – rate of progress continued

…then the Engineer may instruct the Contractor to submit…a revised programme…

Unless the Engineer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and / or in the numbers of Contractor’s Personnel or Goods, at the risk and cost of the Contractor…

If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 8.7 below.”

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Valuation & Payments

Valuation Blue Book

Options – see Appendix:

Payment on a lump sum basis

Payment on a lump sum basis with schedule of rates

Payment on a lump sum basis with bill of quantities

Payment on a re-measurable basis with bill of quantities

Cost plus

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Payment on a re-measurable basis (but option for lump sum)

Payment on a lump sum basis (but option for re-measurable)

Payment on a lump sum basis

Valuation 1999 editions

Blue Book Contract Price and Payments

Clauses 11.1 and 11.2 refer

Works valued as stated in the Appendix

Any advance payment is subject to a guarantee and is progressively reduced as works proceeds


Interim payments subject to issue of Performance Security and evidence of insurance

Contractor submits monthly Statement

Engineer certifies amount within 28 days of receipt of Statement and Employer pays in same timeframe.

Payments subject to retention 87

Blue Book Payments

Clauses 11.5 and 11.6 refer Payment of retention for dredging and other works

Clause 11.7 refers Final payment requires final account submission

Clause 11.9 Entitlement to financing charges for late payments

Clause 12.2 Default by Employer for failure to pay; or for Engineer failure to certify

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Yellow Book Contract Price and Payments


Contract Price is lump sum (option for remeasurement)

Any quantities are estimated but may not be measurable (see particular conditions)

Any advance payment is subject to a guarantee and is progressively reduced as works proceeds

First interim payment also subject to issue of Performance Security

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Yellow Book Payment Procedure

Clause 14.3 Contractor submits Statement at end of stated period – 6 copies in approved form and including supporting details (including progress report)

Clause 14.4 - Schedule of payments may apply. Payments may be adjusted for actual progress.

Clause 14.5 - Payment for plant and materials may apply – certain conditions attached

Clause 14.6 – Engineer issues Interim Payment Certificate within 28 days of receipt of Statement

Certificate does not indicate acceptance or approval

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Clause 14.7 – Employer pays within 56 days of receipt of Statement (different for advance payment)

Clause 14.8 - Contractor entitled to interest for late payments withoutgiving notice

Clause 16.1 – Engineer failure to certify or Employer failure to pay also gives rights for Contractor to slow down and / or suspend Works (notice needed)

Clause 14.9 – half retention release at issue of Taking Over certificate and passing Tests on Completion (plus success in the Tests after Completion if appropriate)

Clause 14.9 – remainder of retention release at expiry of Defects Notification Period unless still works to be done

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Clause 14.10 – Contractor issues Statement at Completion within 84 days of Taking Over certificate. Engineer certifies as Interim Payment Certificate

Clause 14.11 – Contractor submits draft final statement within 56 days of receipt of Performance Certificate (issued under Clause 11.9 and confirms Contractor has met all obligations and works accepted)

When agreed, Contractor issues Final Statement

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Clause 14.12 – At same time Contractor also issues discharge that amount is in full and final settlement

Clause 14.13 – Engineer issues Final Payment Certificate within 28 days of receipt of above

Clause 14.7 – Employer pays within further 56 days

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Variations

Variations

The Engineer under clause 10.1:

Has the power to instruct Variations to limits in Appendix.

Cannot instruct omissions from the Works if then done by others.

Has power to reach agreement on valuation.

May request quotation in advance (time and cost).

May instruct without agreement of consequences.

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Variations

The Contractor under clause 10.1 (and 10.5):

Must notify Engineer if instruction requires:

Mobilisation of extra major dredging equipment.

Early mobilisation of planned major dredging equipment.

Shall comply with instructions from the Engineer (see also clause 3.2)

unless the above occurs and no agreement on time and cost

consequences.

Shall submit a build up of time and cost consequences, if not agreed,

within 28 days of instruction .

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Valuation of variations

Clause 10.1 - to include time and cost consequences.

Clause 10.2 - financial valuation:

An agreed lump sum.

Rates in the Contract.

Using the rates in the Contract as a basis.

Appropriate agreed new rates or as considered appropriate by the

Engineer.

If instructed, at day work rates.

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VariationsClause 13

1. Can no longer be instructed after issue of the Taking Over Certificate

2. New procedure whereby Contractor may be requested to indicate effect on programme and value of works of a proposed change

3. Contractor has limited rights to object to a variation, but can be over ruled

4. Timely notice to claim additional payment is condition precedent to payment

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Variations

Clause 13.1 does not set out the types of changes that can be made i.e. authority for variations

A variation is defined (Clause 1) as “a change to the Employer’s Requirements”

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Procedure

Clause 3.3 states that the Contractor must comply with all instructions from the Engineer

Clause 13.1 does stipulate limited reasons for not doing so

Clause 13.3 also provides for a Contractor’s proposal to be requested prior to an variation being instructed

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Valuation of variations

Adjustments to the Contract Price are to be agreed or determined by the Engineer

Reasonable profit is to be included

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Claims

Clause 10.6 – Employer’s claims

Employer to submit particulars to the Contractor and Engineer

No criteria regarding timing of issue is given

Engineer to check the Employer’s submission, consult with Parties and if possible agree the amount.

Otherwise, Engineer shall determine

Can deduct monies due

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Clause 2.5 – Employer’s claims

Employer or Engineer to give notice and particulars to the Contractor

To be given as soon as possible after being aware of the event or circumstance that gives rise to claim

Engineer to agree / fairly determine (clause 3.5)

Can deduct monies due

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Employer’s claims

Clause 2.5 provides for and sets out procedure

Claims include:

Electricity, water & gas consumption – clause 4.19

Equipment & free issue materials – clause 4.20

Rejection / retesting – clause 7.5

Failure to do remedial work – clause 7.6

Revised methods cause additional costs – clause 8.6

Delay damages – clause 8.7

Failure to pass tests on completion – clause 9.4

Extension to Defects Notification Period – clause 11.3

Failure to insure – clauses 18.1 / 18.2

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Clause 10.3 – Early Warning

Either Contractor or Employer to notify other as soon as they

are aware of circumstance that gives rise to entitlement;

Parties to minimise effects;

Entitlement to additional payment / extension of time limited

to what due had Contractor given prompt notice and taken

reasonable steps.

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Contractor’s claims

Clause 10.4 - if Cost caused by the Defined Risks, entitlement to

recover, subject to any more specific provision.

Clause 10.4 - if necessary to change Works, dealt with as a

Variation.

Clause 10.5 - itemised make-up to be submitted within 28 days of

any event that gives rise to entitlement.

Clause 10.5 - Engineer to check, consult and agree time and cost

effects, or determine.

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Clause 6.1 – Defined Risks

Defined Risks include:

Use or occupation by the Employer except as specified.

Design by the Employer / Engineer.

Any unforeseeable operation of the forces of nature.

Any failure by the Employer or Engineer.

Any unforeseeable physical obstructions or conditions.

Adverse climatic conditions (refer to Appendix for baseline).

Delay or disruption caused by a Variation.

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Clause 20.1 – Contractor’s claims

Notice is mandatory and to be submitted within 28 days of being aware of an event or circumstance that gives rise to entitlement

Notice must be worded so the potential for a ‘claim’ is recognised

Notice is condition precedent to additional payment / extension of time

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Records shall be kept, Engineer permitted to view

Fully detailed claim to be submitted within 42 days of any event or circumstance that gives rise to entitlement including full supporting particulars

Further claims to be submitted on a monthly basis if on-going

Late submission of details may prejudice Contractor’s position

Final submission within 28 days of end of effects

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Engineer to respond with 42 days of submission

May request further particulars but must respond on principles of claim

Interim payments allowed for amounts substantiated


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Contractor’s claims

Clause 20.1 provides for and sets out procedure

Claims include:

Delayed drawings or instruction – clause 1.9

Late access or possession – clause 2.1

Setting out reference point errors – clause 4.7

Adverse unforeseeable conditions – clause 4.12

Extension of Time – clause 8.4

Interference with tests – clause 10.3

Variations – clause 13.3

Change in law – clause 13.7

Force Majeure – clause 19.4

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113

FIDIC Exercise –identifying the

changes

114

Ground condition claims

In both books, Contractor is responsible for interpreting the data and for inspecting Site and making enquiries to the extent “practicable, taking account of time and money”

Site data

Blue book sub-clause 2.3 Employer to provide “all data in Employer’s possession relevant to the execution of the Works…”

Yellow book sub-clause 4.10 Employer to provide “all relevant data in Employer’s possession…”

Blue Book

Clause 2.3 – Employer to make available all relevant site data.

Clause 2.3 – Contractor responsible for interpretation and inspecting Site.

Clause 6.1 – One of the Defined Risks is physical obstructions or conditions, which

were not reasonably foreseeable by an experienced Contractor, and;

The Contractor immediately notified to the Engineer

See also Clause 10.3 Early Warning

Comply with instructions

Submit claim in accordance with clause 10.5

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Yellow Book

Clause 4.10 – Employer to make available all relevant site data.

Clause 4.10 – Contractor responsible for interpretation.

Clause 4.10 – Contractor deemed “to the extent that it was possible”to have identified all risks etc.

Clause 4.11 – sufficiency of tender

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Yellow Book

Clause 4.12 – Unforeseeable (refer clause 1.1.6.8) physical conditions and obstructions.

Notice to be given if adverse conditions met that are considered to be Unforeseeable

Continue with Works and comply with instructions

Submit claim in accordance with clause 20.1


Money adjustment is Cost and Engineer to take account of morefavourable conditions elsewhere

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Extension of Time claims

Clause 7.3 – Extension of Time

Entitlement if delay caused by the Defined Risks

Contractor to submit an application

Engineer to consider supporting details, consult and extend time as

appropriate.

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Clause 8.4 – Extension of Time

Clause 8.4 - Lists grounds for entitlement Yellow Book (a) to (e)

Clause 8.4 - Refers to clause 20.1 i.e. notice, submissions of details

Clause 8.4 – entitlement if completion for Taking Over is delayed

No provision for Engineer to unilaterally award Extension of Time

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Blue Book - Completion

Clause 8.1 – Notice of Completion

Clause 8.2 – Taking Over Certificate

Clause 8.3 - Taking Over Certificate for Part of the Works

Completion

Clause 8.1 – Notice of Commencement Date

Clause 8.2 – Time for Completion

Clause 9.1 – Contractor’s Obligations for Tests on Completion including provision of As builts and O & M manuals

Clause 10.1 - Taking Over Certificate for the Works and Sections

Clause 10.2 - Taking Over Certificate for Parts of the Works

Clause 12.1 – Contractor’s Obligations for Tests After Completion

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Clause 7.4 – late completion

Amount as agreed between the parties

Subject to reduction for partial completion

Whether Employer has suffered damage is not relevant

Comprises Contractor’s entire liability for delay

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Clause 8.7 – delay damages

Amount as agreed between the parties

Not subject to reduction for partial completion

Whether Employer has suffered damage is not relevant

Refers to sub-clause 2.5 (procedure)

Comprises Contractor’s entire liability for delay

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126

Defects Notification

Period

Period for Notifying Defects

Clause 9.1 – Completion of outstanding work and remedying defects

Period stated in Appendix

127

Defects Liability

Clause 11.1 – Completion of outstanding work and remedying defects

Period stated in Appendix

Clause 11.9 – Performance Certificate

128

Dispute resolution

Resolution of Disputes under Blue Book

If not agreed, Engineer to make a determination (cl. 10.5).

Any dispute can be referred to the procedure in cl. 15:

Adjudication by a Dispute Adjudication Board (DAB) in accordance with the Appendix

If any Party dissatisfied or decision not made when it should, Notice of Dissatisfaction issued within 28 days

Arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC)

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Resolution of Disputes under Yellow Book

If not agreed, Engineer to fairly determination (cl. 3.5).

Any dispute can be referred to the procedure in cl. 20:

Adjudication by a Dispute Adjudication Board (DAB) in accordance with the rules in the standard form

If any Party dissatisfied or decision not made when it should, Notice of Dissatisfaction issued within 28 days

Arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC)

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Yellow Book typical sequence of dispute events envisaged in clause 20

<28d >56d<28d<84d

Parties present submissions to DAB Amicable settlement

General principles of contract management

Workshop Objectives

On days 1 and 2, to:

Increase your awareness and understanding of contract management.

Demonstrate how you can improve the DEME Group’s contractual and commercial position in both the pre-contract and post-contract phases of projects.

On day 3, to:

Introduce the main FIDIC standard forms of contract.

Explain the philosophy of the main FIDIC standard forms of contract and what their use means.

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Ernst Jan de JongSenior Consultant

[email protected]

Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici
