Construction Journal: September-October 2019

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September/October 2019

12 The quality challenge A quality tracker trial has met with industry approval

20 Contracting globally Why foreign politics and regulation matter

26 Getting the message How to use communication skills for effective contracts

rics.org/journals

Construction

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Procure and contract Different project types mean different contract strategies


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Construction

Contents

Editor: Steph Fairbairn T: +44 (0)20 7334 3726 E: sfairbairn@rics.org Advisory group: Helen Brydson (Faithful+Gould), Gerard Clohessy (Arcadis), David Cohen (Amicus), Tim Fry (Currie & Brown), Christopher Green (J. Murphy & Sons Limited), Andrew McSmythurs (McSmythurs Consulting Ltd), Alan Muse (RICS), David Reynolds (Bloomsbury Project Management), Anil Sawhney (RICS), Justin Sullivan (Standards Transformation Project Implementation

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Briefing

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(RICS), Rachel Titley (Adair) All RICS journals are available on annual

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A nuanced understanding of local politics and regulation is required to negotiate a contract outside your own jurisdiction

Advisory Group chair), Steven Thompson

subscription. Enquiries should be directed to licensing manager Louise Weale E: lweale@rics.org Published by: The Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T: + 44 (0)24 7678 8555 W: rics.org ISSN 1752-8720 (print) ISSN 1759-3360 (online) Editorial & production manager: Toni Gill Sub-editor: Katie Pattullo Advertising: James Cannon T:+44 (0)20 7101 2777 E: jamesc@wearesunday.com Design & production: We Are Sunday Printer: Geoff Neal Group

Diverse construction Black History Month should serve as a reminder of our responsibility to promote diversity in our industry 8

Lasting transformation The public and private sectors must collaborate so the construction industry can achieve a sustainable future through digital transformation 12

The quality challenge A collaboration between RICS, RIBA and the CIOB has recently concluded and the three bodies have issued a challenge to the construction industry 15

While every effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors

Contracting globally

Prepare to pass Advice for APC candidates preparing to sit their final interview

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Careful consideration A group of quantity surveyors debate procurement and contract strategies 26

Getting the message Why a combination of hard and soft communication skills will determine an effective JCT Design and Build Contract 28

To amend or not to amend? Professionals from in and around the construction industry offer their views and advice on amending contracts

or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the

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opinions expressed in the journal, or by any

Form follows function

person acting or refraining to act as a result

RICS has published updated forms of consultant’s appointment

of the material included in the journal. All rights in the journal, including full copyright or publishing right, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v.3.0 for public sector

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The terms and conditions of standard form construction contracts have evolved to suit the needs of the industry

Contracts without clear terms or signatures from both parties have proven to be a real issue in construction disputes

Sign of the times

Contract clarity

information: nationalarchives.gov.uk/doc/ open-government-licence/version/3/

rics.org/journals 3


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Construction

Briefing Changes pending to RICS registration procedure for firms Regulatory changes due to come into force next April mean at least 25 per cent of a firm’s principals must be RICS members for it to register with the organisation. RICS estimates that there are currently about 100 registered firms that do not meet these new eligibility requirements, so the regulatory operations team will work with these companies to enable compliance or help them deregister. rics.org/firmregulation

RICS launches new levy index RICS have been working with the Ministry of Housing, Communities & Local Government to develop the RICS Community Infrastructure Levy (CIL) index: an annual index for updating the CIL charges published by local authorities in accordance with the Community Infrastructure Levy (Amendment) (England) (No.2) Regulations 2019. The use of the index, which will be published on the RICS website, will be required in the regulations.

Vote in the Governing Council elections Elections are coming up for the RICS Governing Council’s 15 geographic market seats, and it’s crucial you have your say. You can vote between 17 October and 21 November. rics.org/elections

MHCLG clarifies fire safety advice The Ministry of Housing, Communities & Local Government (MHCLG) has updated Approved Document B with a new definition of the term ‘filler’ in relation to cladding. It clarifies that filler material includes the core of metal composite panels, sandwich panels and window spandrel panels, but not gaskets, sealants or similar, and adds that such material should be of limited combustibility. MHCLG has also published an advice note on balconies in residential buildings following a fire at a property in Barking. After consulting its expert panel on fire safety, MHCLG decided ‘the removal and replacement of any combustible material used in balcony construction is the clearest way to prevent external fire spread from balconies and therefore to meet the intention of Building Regulation requirements, and this should occur as soon as practical.’ bit.ly/AppDocB2019 bit.ly/MHCLGbalcAN

RICS journals take sustainable step forward You may have noticed the new packaging for your journal, a change we have made as part of RICS’ commitment to sustainability. Manufactured from potato starch, the packaging will biodegrade naturally and can be disposed of in your food waste bin or compost heap.

Standards Forthcoming Client money handling professional statement Cost prediction professional statement Global Black Book update International Construction Measurement Standards, second edition New Rules of Measurement (NRM) suite update rics.org/standards All RICS and international standards are subject to a consultation, open to RICS members. rics.org/iconsult

rics.org/journals 5


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6 Journal September/October 2019


Construction

Comment

Responsibility

‘The benefits of a diverse workplace have been researched and proven. Why are we still not addressing the race issue?’ Bola Abisogun OBE DiverseCity Surveyors

Since 1987, October has been celebrated as Black History Month in the UK and is a chance to celebrate great black British achievers, such as architects Sir David Adjaye OBE and Femi Oresanya. Baroness McGregor-Smith stated in the 2017 UK government report Race in the workplace: The McGregor-Smith review (bit.ly/RaceinWP) that, ‘in the UK today, there is a structural, historical bias that favours certain individuals … organisations and individuals tend to hire in their own image, whether consciously or not’. This seems to be true in the construction industry – the report revealed that the majority of management positions in the construction sector are held by white people. These findings are also echoed in Building magazine’s April 2019 diversity survey, which noted that just four per cent of workers in the UK construction industry are from a black, Asian and minority ethnic (BAME) background. It also found that: ••58 per cent of black construction professionals do not feel secure in their jobs – compared with 41 per cent of white construction professionals

••76 per cent of black construction professionals felt their chance of finding a job was lower because of their ethnicity. The benefits of a diverse workplace have been researched, identified and proven. They include improved team performance, an easier hiring and retention process, greater creativity, a better understanding of customers and an improved brand. So, if this is the case, why are we still not addressing the race issue? One of the reasons, perhaps, is a lack of recognition. The fact that the racism experienced today isn’t always as overt as it has been in the past can mean it’s easier to ignore. That’s not to say that overt racism is not present in our society – it undoubtedly still occurs, and must be severely reprimanded when it does. Another reason could be that equality and diversity are now too often dismissed as political correctness, or just box-ticking exercises. Professionals can view hiring a diverse workforce as an obligation to fill a quota. There are also those who insist that all decisions should be merit-based and that employees are recruited based on

their achievements alone, disregarding race, gender or any of the other seven protected characteristics under the Equality Act 2010. In a perfect world, hiring on merit would be the ideal scenario but, unfortunately, not everyone has been given an equal platform to achieve this merit. Systemic racism is one of three types of racism identified by social psychologist Professor James M. Jones and refers to institutional systemic policies, practices and economic and political structures that disadvantage racial and ethnic groups. In her report, Baroness McGregor-Smith stated that BAME people are affected throughout their career. They are faced with a lack of role models, more likely to perceive the workplace as hostile, less likely to apply for and be offered promotions, and more likely to be judged harshly. It is a simple fact, and a human right, that everyone should be given the same opportunities, regardless of protected characteristics. It is also one of the five RICS ethical standards that chartered surveyors must adhere to: ‘Treat others with respect. Never discriminate against anyone for whatever reason. Always ensure that issues of race, gender, sexual orientation, age, size, religion, country of origin or disability have no place in the way you deal with other people or do business.’ The Building magazine survey found a severe lack of trust in leaders to identify the need for, and affect, greater diversity within their organisation. Change, however, is most effective when it occurs at all levels – top-down and bottom-up – and those with influence, in particular, need to be aware of their leverage to shape this change. Let Black History Month, and every other month, serve as a reminder of our responsibility. A more diverse construction industry will benefit us all. Bola Abisogun OBE FRICS is the founder and CEO of Urbanis, and the founder and chair of DiverseCity Surveyors, the first RICS BAME network offering support and training to BAME RICS-accredited surveyors bola.pqs@urbanis.co.uk Related competencies include: Leading projects, people and teams rics.org/journals 7


Construction

Infrastructure

Lasting transformation The public and private sectors must unite to ensure the UK construction and infrastructure sector is at the forefront of digital transformation

Alex Lubbock

The pace of technological change and innovation means we are generating more data than ever. Digital solutions, such as Netflix and Airbnb, mean we consume on demand, and we have come to expect a level of value through the services and experiences they offer. To achieve better outcomes and improved value for money for taxpayers, infrastructure delivery – which is so central to the UK’s economic growth and productivity – must capitalise on the opportunities presented by advances in technology and data. This means using digital technology to produce, use and exploit information through simulation and the rapid generation of insight for decision making. This, in turn, will enhance productivity and better manage risk. Construction and infrastructure is the most exciting industry to be in today. We need to commoditise its common components to enable the level of service demanded by consumers, and to allow supply to flourish. However, while digital and manufacturing technologies are the building blocks to accelerate change, it is our skills and culture that will determine whether the UK is at the forefront of this transformation. To this end, there are three key questions we need to address. ••How do we attract professionals with the right skills to make a technological revolution sustainable? 8 Journal September/October 2019

••What role will institutions play in the education agenda so that 21st-century technological capabilities are a prerequisite to receiving an industry qualification? ••How will industry collaborate at all organisational levels to enable the cultural shift required to adopt new ways of delivering these changes? It’s hard to ignore the challenges we are currently facing on some of the UK’s biggest infrastructure projects, with delays to Crossrail and increasing cost pressures on High Speed 2 both featuring heavily in the news. There’s also little doubt that the construction industry is in a febrile state, and the demise of Carillion early last year still casts a long shadow over the market’s ability to perform. Carrying out the basics of project delivery well is essential – but it isn’t enough. To improve future delivery we need to learn lessons from past projects, while maintaining a portfolio view of projects and enabling alignment and integration wherever it is feasible. Areas for improvement In his April 2019 Infrastructure and Projects Authority (IPA) blog (bit.ly/IPAadapting), IPA interim CEO, Matthew Vickerstaff, noted three areas where we need to improve and adapt our approach, both in the public and private sectors. ••Behaviours and culture: you can have the best-designed governance structure in the world, but it comes down to the behaviours

and culture of the people in the system; this is more important than process. ••Optimism bias: we need to pay closer attention to project management, even when things are going well. We place too much reliance and expectation on immature time, cost and benefit parameters in the early stages of projects. We need to improve by nailing down a clear and realistic scope, and estimation of time, cost and benefits, throughout the life of projects. Benchmarking for better performance must be both top-down and bottom-up. Ultimately, this means being realistic about optimism bias. ••Systems integration: we see that projects across all sectors, especially infrastructure, require more emphasis on managing increasing technical complexity. Complex systems integration failures present late in a project life cycle, but we need to establish the conditions for success right at the start of a project. Technology is becoming increasingly critical to addressing these areas – and to project delivery in general – yet, it isn’t being given the same level of attention and focus as the traditional construction and civil engineering processes. Digital transformation is a key enabler – and the most cost-effective way to gain stakeholder confidence – for a project or the performance of an asset. The ability to be hands off, but have eyes on our infrastructure at any stage of the life cycle is becoming a reality through technology.


The UK industry has already established a globally renowned project delivery system, but we need to continue developing it to make it fit for the future. To deliver the next generation of infrastructure projects well, and sustain our £600bn infrastructure investment for the longer term, it’s essential that digital solutions are planned into delivery today. Most importantly, we need to invest in the people with the right skills to manage these technological developments and attract them to the industry. The brand image of the sector needs to be far broader than a hard hat and hi-vis clothing if we are to capitalise on the excitement around new technology and business intelligence. Making progress There has already been significant success in catalysing the discussion around digital transformation. In 2011, the UK BIM mandate was set out in the Government Construction Strategy. The collaborative work between the government, the industry and academia regarding BIM means the UK

Crossrail Place, Canary Wharf. We must learn lessons from the delays to Crossrail and increasing cost pressures on High Speed 2 to improve future delivery through digital solutions

is in a global strategic leadership position in terms of digitising project delivery. Full adoption of the process is still not embedded across all projects, although we are now past a tipping point in delivery. We can, however, now boast a forward pipeline of BIM projects with a projected value of more than £160bn over the next decade. As we become more digital, new initiatives and opportunities emerge. In 2017, the National Infrastructure Commission’s Data for the public good report (bit.ly/NICdatapublic) laid out a recommendation for establishing an information management framework to underpin the creation of a national digital twin: an ecosystem of digital twins connected via securely shared data. As a result, HM Treasury, in conjunction with the Centre for Digital Built Britain, and advised by the IPA, established the Digital Framework Task Group. The group

includes regulated utilities, infrastructure, and private- and public-sector asset owners interested in higher performance of their networks. The group intends to achieve this goal through trusted, secure and resilient data sharing across networks and aims to support the industry digital transformation at large. In March this year the Transport Infrastructure Efficiency Taskforce released the report Transport infrastructure efficiency strategy: one year on (bit.ly/TIESoneyear) in conjunction with the IPA to outline their progress around benchmarking and modern methods of construction, including digital construction. Their drive for adopting automated design techniques is a key productivity enabler that can help to change the perceived focus from lowest capital cost to highest value. In most organisations, this digital transformation sits on the agenda at board level. rics.org/journals 9


Construction

Infrastructure

The board must therefore ask itself the following questions. ••How do we adapt to enhance our resilience to change? ••How do we create new opportunities? ••How do we mitigate risks and threats from disruptors and more agile organisations? ••How do we prioritise our digital investment choices and monetise our products and services as a result? The Digital Transformation Task Group, formed under the banner of Project 13 and the Infrastructure Client Group, have established a digital model being piloted by clients to understand their organisational maturity in digital transformation. The assessment explores front, middle and back office roles and their associated responsibilities, and creates a heat map showing an organisation’s capacity for change. If you can understand your digital maturity in this area, then this heat map will allow you to create a vision for transformation and plan your steps to achieving digital change. This can be more difficult for less agile organisations.

While digital and manufacturing technologies are the building blocks to accelerate change, it is our skills and culture that will determine whether the UK is at the forefront of transformation

Government commitment Through the Government Construction Strategy, IPA are aiming to increase the capability of the client. Earlier this year, government working groups on Building Information Modelling, Soft Landings and Modern Methods of Construction combined to form the Smarter Infrastructure Working Group. This brings together groups strongly advocating for change in construction through digital, manufacturing and whole-life performance. The government recognises the significant benefits digital transformation

and supporting organisations to adopt new technologies and in incentivising desirable behaviours in the marketplace. One of the benefits of adopting a manufacturing approach to construction will be to simplify – and standardise – digital and performance requirements. This will give organisations a clear vision of the skills they need to develop for the future. Although transformation is still in its infancy, the IPA recently published a call for evidence relating to a new digital approach to building known as Platform Design for Manufacture and Assembly (P-DfMA). P-DfMA is a manufacturing approach to construction, using sets of digitally designed and interoperable components that are configurable across a range of economic, social and housing infrastructure (bit.ly/P-DfMA). Reducing the variety, but not the opportunity, for customisation is also part of the digital transformation agenda. We believe this simplification will allow organisations in the sector to streamline how they respond to their customers and

can bring and is working proactively with the industry to realise them. The IPA-led Transforming Infrastructure Performance programme is important. It engages with data throughout the project life cycle – from benchmarking at project inception, to using new technologies to deliver smarter techniques for infrastructure. Through the Construction Sector Deal and the Government Construction Strategy, the government has also invested significantly in innovation in the industry, and made good progress in encouraging

deliver by learning from previous projects. This also involves being specific about the 60 to 80 per cent of requirements that are shared, and working on the value that can be generated on the 20 to 40 per cent that is location-specific. For example, in Plymouth, 60 to 80 per cent of a school will have the same needs as one in Newcastle. The 20 to 40 per cent will differ due to geography or local requirements. While the appetite for digital transformation grows, the level of investment remains difficult to address.

10 Journal September/October 2019

Perhaps organisations are too focused on the next project to address systemic issues. How can these organisations take a more portfolio- or system-level view of investment priorities? By introducing standardisation, we create the opportunity to optimise and transform delivery models. There is likely to be an impact on commercial models for project delivery as optimisation occurs and transformative technologies are more readily available. We will need the commercial models and investment to match the ambitions of clients and industry. The IPA will support the use of technology and modern methods of construction to deliver smarter infrastructure. We will also promote and facilitate the digital transformation through initiatives such as the Digital Framework Task Group and the Geospatial Commission, a committee formed to promote best use of geospatial data. To realise our vision for digital transformation we need to continue to work collaboratively with both the industry and academia towards a sustainable digital culture. Organisations can then take their own steps towards transforming infrastructure performance. Alex Lubbock is head of digital construction at the Infrastructure and Projects Authority alex.lubbock@ipa.gov.uk Related competencies include: Construction technology and environmental services, Leading projects, people and teams, Managing projects


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Construction

Quality assurance

The quality challenge The Building in Quality initiative, a partnership between RICS, RIBA and the CIOB, has recently concluded. What did it achieve?

Steven Thompson

Poor practices lead to poor outcomes: inappropriate procurement can lead to unreasonable risk allocation, and it is often the member of the supply chain least equipped to take on such a burden that ends up doing so. This, understandably, results in a poor-quality outcome, and dissatisfied clients and building occupiers. Considerable costs are also incurred due to the need for unnecessary repairs and renewals during the lifespan of the asset. In March 2018, the Royal Institute of British Architects (RIBA), the Chartered Institute of Building (CIOB) and RICS signed a joint memorandum of understanding to tackle these problems and establish a system for tracking quality in construction projects. The project, part of the Building in Quality initiative (bit.ly/BIQguide) was completed recently after around 18 months’ work. The initiative defined quality as: ••build quality: performance of the completed asset ••functionality: how useful the asset is in achieving its purpose ••impact: how well the asset adds social, economic, cultural and environmental value and improves human well-being (see Figure 1). Seeking to ‘manage the persistent headline issues highlighted by numerous reported construction and quality failures in housing developments, the Edinburgh schools inquiry and the Grenfell Tower fire’, the project introduced a straightforward system for documenting and tracking risks to quality through a construction project’s life. Using Dame Judith Hackitt’s idea of a golden thread of information that enables building owners to better manage buildings’ safety, and instead applying it to long-term quality, this system took the form of a quality tracker. 12 Journal September/October 2019

There are now three focuses: integrating processes with digital technology, developing the evidence base, and educating and wooing clients

The five reasons for using the tracker were cited as fragmented procurement; unpredictable quality outcomes; undifferentiated aspirations; hidden project risk; and compromised reputation. The five requirements were, therefore, a common definition; a better ability to predict future quality; methods of measurement; benchmarks; and risk control and handling uncertainty. The tracker’s risk reduction indicators were grouped into six risk categories: likelihood of development proceeding to construction; attitude to maintenance and longevity; attitude to cost certainty; attitude to programme certainty; likelihood of obtaining competitive tenders; and attitude to collaboration.


Figure 1. More overlap in the opportunity to consider the three aspects of quality should lead to better chances of achieving good-quality outcomes

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Earlier build quality – better chance of quality

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The tracker was designed for use throughout the eight RIBA work stages, and intended to be used on a monthly cycle, such as at site meetings, in conjunction with the RIBA Briefing Toolkit or a suitable alternative briefing process. The tracker criteria were filtered to indicate which was applicable to each project stage. The tool was piloted by clients and their advisers between October 2018 and April of this year, and the feedback provided was then analysed by the working group, which has summarised its findings in the Building in Quality Initiative: Summary Report and Next Steps (bit.ly/BiQsummary). On the whole, those who trialled the tracker were said to be ‘enthusiastically supportive’ of it, finding it reasonably clear and flexible. The tracker will therefore continue to be freely available for use (bit.ly/BIQqualitytracker). Feedback praised the fact that: ••risks are tracked to achieve target quality ••the head client is required to lead the tracker process by making professional appointments conditional on signing up to specified collaborative behaviours in a memorandum of understanding ••barriers to quality from the initial client to the end user are disclosed transparently ••adopting the tracker should specifically exclude the need to add extra contractual liability to any of the quality custodians. However, negative comments highlighted that there are too many different procurement routes, project sizes, client types, building typologies, construction methods and sectors for one size to fit all. The connection between the system and other processes involved in development was noted as a weakness, while process ‘fatigue’ and ‘bureaucracy’ were cited by some as roadblocks to adoption.

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RIBA work stages

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SOURCE: BUILDING IN QUALITY

The group therefore identified three focuses for development: ••Integrating processes with digital technology: smart digital technology could help to integrate the tracker with overlapping in-house quality assurance, project management software, and other systems, standards and procedures to automate the tracking process. The cloud will make the system more effective. ••Developing the evidence base for predictive metrics: while the three-part definition of quality was generally approved, it was noted that not all parts of the definition can be measured or predicted. Practical new predictive measures must therefore be established, perhaps through research. ••Educating and wooing clients: supply-side professionals advised that they do not have enough influence to ensure adoption, so the benefits of the system must be directly promoted to the client. The Building in Quality initiative as a whole was warmly received, and the partnership between RIBA, the CIOB and RICS was widely praised. Concluding the initiative, the three bodies have set a challenge for the industry: ‘to unify all quality initiatives under one collaborative governing framework [and] coordinate research, evidence and ideas for a common, integrated practical approach to improve quality in construction’. Best get started now. Steven Thompson is associate director of the built environment at RICS sthompson@rics.org Related competencies include: Construction technology and environmental services, Leading projects, people and teams, Managing projects rics.org/journals 13


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Construction

APC

Prepare to pass Preparation is key if APC candidates are to stand the best chance of passing their final interview

David Cohen

The RICS Assessment of Professional Competence (APC) final interview is the gateway to receiving chartered status. Prior to the interview, as a candidate you will already have completed the requisite training and gained the relevant experience for your particular pathway and route, so it is understandable that this final interview can feel a daunting experience. As long as you prepare well, however, you stand every chance of passing your APC and becoming a chartered member of RICS. Know your submission Your submission, along with the APC pathway guidance, is the only information the assessment panel refers to ahead of the interview, so it’s important to refresh your memory. You may well have written parts of your submission some time prior to completing the assessment documents on the Assessment Resource Centre. Review your submission before your final interview and consult the pathway guides so you can demonstrate the necessary competencies to the panel. Practise verbal answers A good way to test your ability to respond to questions is to arrange for someone to test you verbally with relevant questions. This should, preferably, be someone with the relevant technical knowledge or a chartered surveyor in your discipline, so you can discuss your responses. Record the question-and-answer session so you can hear how you respond to the questions and then see how you can be more efficient in your answers. You may not like listening to your recorded voice, but this can be a very helpful exercise to improve the delivery of your answers. The ultimate test on your preparation would be to hold at least one full mock interview with a panel. Ideally, this panel should have knowledge of the final interview process and, if possible, include an assessor. The mock interview should be based on your submitted documents to ensure that it’s reflective of the information you have provided to RICS. Questions should be related to your submission

document and they should be open to encourage reasoned responses. Closed questions are less helpful for demonstrating your thinking, as you have a 50 per cent chance of guessing correctly. If you feel the mock interview hasn’t gone well, don’t panic: learn from it and line up another one to address any issues from the first. Pass or referral RICS does not have a quota for passes or referrals. The aim of the assessment panel – who are fully trained for the role and monitored continually by RICS – is to certify you as a safe pair of hands to provide the services of the profession in the public interest. This is an holistic approach to assessment. The panel will check that the experience documented in your written submission is backed up by your oral answers during the interview and is in line with RICS pathway guidance. If your submission lacks sufficient project-specific evidence or your case study topic is inadequate, it is unlikely that you will meet the documented evidence requirements of the APC. These assessors are the gatekeepers to you qualifying as a chartered surveyor, and being able to establish your own regulated firm in the future. If you are not adequately prepared to demonstrate you are trustworthy and competent to the assessors, consider deferring your interview to a later date. Relax Easier said than done in an examination setting, but a smile and a relaxed attitude can go a long way. Try to think of the interview as a conversation all about you, but make sure you listen as well as talk. Lastly, remember the assessors are on your side; they want – and expect – you to pass. David Cohen FRICS is an APC chair, assessor and auditor, a founding director of APC Academy and Amicus Property Consultants, and a member of the Construction Journal editorial advisory group david.cohen@apc-academy.co.uk rics.org/journals 15


Construction

Contracts

16 Journal September/October 2019


Sign of the times The terms and conditions of standard form contracts have evolved in response to the industry’s changing procurement strategies

Roland Finch

One response that stands out from the most recent NBS National Construction Contracts and Law Survey is the small but persistent group of respondents – three per cent – who state that they either sign their contracts once work has completed, or never sign them at all. There are no statistics that conclusively show how many actual construction contracts are entered into each year in the UK, but the Ministry of Housing, Communities & Local Government data reveals that district level planning authorities approved around 360,000 planning application decisions in 2018. Although there is no simple one-to-one correlation between planning applications and building projects, an assumption is that around 10,800 projects – three per cent of these planning decisions – complete each year without a formal contract. The figure, however, is likely to be much higher as there will probably be several different contracts on any one project. In the past, most trades were carried out by directly employed labour, under the general building contractor model. Currently, the tendency is for most of the work to be by specialist subcontractors.

Most client organisations have procurement policies that mandate the use of formal contracting arrangements, and in the public sector it is an implicit requirement of the Public Contracts Regulations 2015

It is not unusual for a medium-sized job to have half a dozen subcontractors covering areas such as joinery, plumbing, heating and electrics. Larger projects may have many times that number as the complexity and need for specialists increases. Each subcontractor will have its own contractual arrangement. The project will also have consultant appointments for everything from design to environmental and health and safety services. Many of these roles may operate without signed contracts and, for those

people concerned, the risks are substantial – particularly in the event of a dispute. A contract is designed to provide both parties with a clear and shared agreement on what is expected from each party. The contract can include post-tender variations and dictate that all conversations, letters and emails be recorded, which can be invaluable in disagreements. The contract will determine the length of the statutory limitation period, that is the time limit each party has to bring a claim against the other party. For a simple rics.org/journals 17


Construction

Contracts

contract, the period will normally be six years; 12 years for contracts executed as a deed – which must be in writing. In the public sector, the use of formal contracting arrangements is an implicit requirement of the Public Contracts Regulations 2015, while most client organisations have procurement policies that mandate them. Therefore, by not having a signed contract, organisations may be breaking their own rules. So, why doesn’t everybody have a contract? The way that contract law works, using the principles of offer, acceptance and consideration, they probably do but just don’t have an official – and signed – record of what has been agreed. Unfortunately, this can become a major stumbling block in the event of a dispute. Early standard building contracts There was a time when either the client or the contractor might offer their own terms and conditions to the other party on a project-by-project basis. Clearly this was unproductive because, for one party at least, a new set of terms had to be read, digested, interpreted and assessed every time. To simplify this situation, a group of representative bodies got together and devised a common set of conditions. The first standard building contract was published in 1902, under the sanction of the Royal Institute of British Architects

(RIBA) and in agreement with the Institute of Builders, now the Chartered Institute of Building, and the National Federation of Building Trades Employers of Great Britain and Northern Ireland, which later became the Building Employers Confederation. For many years, there were only two types of standard form contract: ••the Standard Agreement and Schedule of Conditions of Building Contract evolved into a standard form contract published by the Joint Contracts Tribunal (JCT) following its formation in 1931 ••the Institution of Civil Engineers (ICE) released the Conditions of Contract for Works of Civil Engineering Construction in 1945. Both types of contracts were lump sum: the contractor agreed to complete an assignment in a fixed time for a fixed amount. Both contracts also involved a third-party administrator – either the architect or the engineer – whose job was overseeing the operation of the contract’s terms and procedures. JCT and ICE both introduced minor works versions of these contracts, and JCT introduced its Intermediate Form in 1984 in response to requests for a contract for projects between ‘standard’ and ‘minor works’ in size. Spreading the risk Over the years, contract bodies have adapted their contract suites in line

Over the years, contract bodies have adapted their contract suites in line with how the industry has evolved and its ways of working have changed – and to better apportion the risk borne by each relevant party

18 Journal September/October 2019

with how the industry has evolved and how its ways of working have changed – and to better apportion the risk borne by each relevant party. New methods of procurement – along with the desire to improve collaboration between the various members of a project team – has increased the demand for more specialist contracts. In response to this demand, JCT introduced a series of new forms along with supplements to the standard form contracts, to incorporate activities such as partial contractor design, where the contractor is responsible for the design of specific parts of the works, and sectional completion, which allows different start and completion dates for specific parts of the works. In 1981, it launched the Design and Build form, for when the contractor carries out both the design and construction work. JCT has also introduced the following contracts. ••Prime Cost Building Contract: the contractor is paid an allowance – or prime cost – for materials and labour, together with a flat rate fee which will cover overheads and profit. These contracts are often referred to as cost plus contracts and are usually used for projects that require an early start on site, and for alterations or emergency repair work. ••Measured Term Contract: for employers with a regular flow of maintenance, minor works and improvements projects that they would like to be carried out by a single contractor over a specified time period. ••Major Project Construction Contract: for large-scale projects involving experienced parties, where the employer has clear and well-established procedures, and the chosen contractor is well versed in following these procedures. ••Construction Management Contract: this contract is designed for projects where separate trade contracts are issued from the employer for a range of work, and a separate construction manager is appointed to oversee the completion of the works. ••Management Building Contract: for large, complex projects where a management contractor is appointed to manage the works, and they employ work package contractors.


••Constructing Excellence Contract: this contract is JCT’s contribution to better partnering, or collaboration. It has a strong legal framework, retaining a fair allocation of risk to both parties, meaning the burden of process and administration to both parties is avoided. ••Framework Agreement: for use where one or more contractors are retained on a set of core conditions as part of a long-term arrangement. It is often used to set out the terms for procurement not only with contractors, but with subcontractors and other suppliers in the supply chain. In addition, there are several accompanying subcontracts, short subcontracts and supply contracts. JCT also publishes a range of warranties, two contracts for home owner/occupiers and a pre-construction services agreement. Due to the different prevailing laws, some JCT contracts have been adapted for use in Scotland by the Scottish Building Contracts Committee (SBCC), and supplements are available to allow the main contracts to be used in Northern Ireland. In 2017, The Landscape Institute modified the JCT Minor Works Building Contract, creating the Landscape Works Contract 2017, the Landscape Works Contract with Contractor’s Design 2017, the Landscape

Maintenance Works Contract 2017, and the Homeowner Landscape Contracts. These are for use in the landscape industry, both in England and Scotland. Made to measure It is now possible to choose from a wide range of standard form contracts, specifically designed for almost any type of project. Some examples are listed below. In 1993, with the intention of improving collaboration and management, ICE launched its New Engineering Contract (NEC). The second edition was rebranded as the Engineering and Construction Contract (ECC) and included a set of subcontracts. The fourth edition was published in 2017 and has evolved into a contract suite (NEC4) with the addition of the following. ••Framework Contract: for the appointment of one or more suppliers to carry out construction work or provide design or advisory services as instructed over a set term. ••Term Service Contract: similar in application to the JCT Measured Term Contract, for the appointment of a supplier to manage and provide a service for a given period of time. ••Supply Contract: for the supply of high-risk or high-value goods.

Key factors when finalising a contract ••Understand how the contract has been drafted – this will affect its structure and where the contract is required to be signed. ••Correctly incorporate any schedule of amendments. ••Make sure the parties both agree the scope of the works under the contract, and that this scope is reflected consistently in both the terms of the contract and the technical documentation. ••Check that there are no gaps within the terms of the contract: there may be project-specific information, or cross-referencing to other contract documents which requires updating. ••Refer to all parties involved in the contract correctly. Best practice dictates that each party’s legal name and, if applicable, registered address and registered company number, should be included in the document. ••Ensure the contract is signed and dated properly: each party should sign the execution block relating to the core contract conditions. Emma Milham is a senior associate at Hill Dickinson LLP emma.milham@hilldickinson.com

••Design Build and Operate Contract: for the procurement of a more integrated, whole-life delivery solution. ••Alliance Contract: an evolution of the ethos of partnering to allow the client and all key members of the supply chain to be engaged under one contract. Although NEC is styled as an international contract, it also includes supplements for use in the UK. ICE’s flagship conditions have been taken over and rebranded as the Infrastructure Conditions of Contract (ICC), jointly sponsored by the Association for Consultancy and Engineering (ACE) and the Civil Engineering Contractors Association (CECA). Several other organisations have introduced their own standard form contracts. These organisations include the Association of Consulting Architects – publishers of the Project Partnering Contracts (PPC) suite of standard form partnering contracts: PPC2000, SPC2000 and TPC2005 – the Institution of Chemical Engineers, the Association of Consultancy and Engineering and the International Federation of Consulting Engineers (FIDIC). In 2014, after a gap of almost 90 years, RIBA published two brand new small works contracts. Clients and contractors often become familiar with their preferred form based on use, custom or occasionally the brand appeal of the publisher. For the most part, standard form contracts of all types are used without incident. Over the years, they have evolved, following wide consultation with stakeholders, so users can feel confident that, in any agreement, there are likely to be few unforeseen problems and all parties should feel fairly represented. Each party, however, needs to read the terms and conditions thoroughly – and, of course, remember to sign the contract. Roland Finch FRICS is a technical author at NBS, specialising in contract preliminaries roland.finch@thenbs.com Related competencies include: Conflict avoidance, management and dispute resolution procedures, Contract administration, Contract practice, Risk management rics.org/journals 19


Construction

International

Global contracts Working in the global construction market requires a nuanced understanding of politics and regulation to inform contract decisions Dr Nelson Ogunshakin

20 Journal September/October 2019


It’s a simple fact – some countries have money, others don’t. There is currently high demand for new infrastructure, both social and economic, around the world. But meeting this demand with the necessary funding is not the only critical factor here – any project funding must be spent wisely. Operating in an international environment, without understanding the rules of the game is flirting with disaster. Many construction firms have struggled internationally because they failed to take the time to understand the political climate and regulatory environment in which they were operating. These factors have an impact on market competition, and a project’s procurement and contract management processes.

IMAGE © NASA

Market intelligence It is important to understand the different cultural, market and political approaches that can affect contracting internationally. Before you enter a territory, scan the market, understand who the key players are, the ownership structures and the procurement processes. Market intelligence means asking some key questions. ••Is the market dominated by a few key companies, or is it fragmented? ••Who are the key players in the market? ••Are the players owned by the government, private sector or foreign investors? In the UK, much of this information is available from bodies such as the Department for International Trade. Political risk Governments set the rules of engagement and influence how the market operates, which can dictate projects procurement. If you work in a country where contracts are awarded by a government that does not respect the rule of law or does not believe in a fair allocation of risk or amicable dispute resolution, this can affect the success of the project. In most parts of the world, with the exception of China, two rules of law operate in the construction industry: common law, based on the English legal system of precedent, and the civil code. Operating in an environment where you don’t understand the culture, the industry structure, its ownership and

Construction professionals need to understand the different cultural, market and political approaches that can affect contracting internationally

how businesses operate, can put your organisation at significant risk. Even if you are already operating in the market, continue to examine how the market players and structure of the industry impact competition in the market. Contract considerations Working on construction contracts outside your own jurisdiction should include the following considerations. ••What procurement processes are in place and how well are they understood by investors, project funders, contractors, suppliers and clients? ••How easy is it to use a contract in the jurisdiction in which you are working? ••Bankability: whether the project is funded by the private sector, private equity, individuals, sovereign wealth or an international bank, make sure the project has bankable funds. ••The contract should build sustainability and integrity into the procurement process. ••Risk must be fairly allocated and the contract should also include protection for any unforeseen circumstances. ••Understanding the local law and its interpretation: it is important to specify what jurisdiction the contract is based on. The biggest risk when working internationally is entering a contract in one part of the world, yet the client or sponsor being based elsewhere. For example, if the investor is from Saudi Arabia, there could be a clause in the contract to say that Saudi Arabian system of law will govern the contract, even if the investment is being made in South Africa. If you sign a contract and there are subsequent problems, it is important to know the governing rules.

Contract management and diligence Diligence is essential at all stages of managing the contract. ••Stage one: ensure that the contract structure is correct. ••Stage two: apply contract management processes to monitor the engagement process. The communication process between yourselves, the client and supply chain should be well structured. ••Final stage: good preparation at stage two means that at the financial accounting and closing the contract stage you are well equipped to implement change management processes if necessary. If there is a situation affecting your entitlement – such as mediation, adjudication, or even litigation – make sure you follow the correct protocol. Some countries may not allow any phase of dispute resolution in the contract and any dispute will go straight to litigation, which can be expensive. Check the contract’s terms and conditions thoroughly to avoid potentially running the project at a loss. International construction contracts can be challenging in terms of selecting the right contract and understanding the levels of risk. As long as organisations carry out the necessary due diligence and understand the market they are operating in, however, working globally can be extremely rewarding, enjoyable and profitable. Dr Nelson Ogunshakin OBE is chief executive of FIDIC, the International Federation of Consulting Engineers fidic@fidic.org Related competencies include: Contract practice, Procurement and tendering, Project feasibility analysis rics.org/journals 21


Construction

Contracts and procurement

Careful consideration We gave a group of quantity surveyors several project scenarios and asked them to debate their procurement and contract strategy for each

Stuart Gray, Mark Lucas, Janey Milligan and Nduduzo (Dean) Tshabangu

There is rarely one definitive answer to choosing the right procurement strategy and contract. Site constraints, fixed budgets and risk allocation are just some of the considerations that affected how our respondents opted for their preferred contract strategy, based on the given scenarios. Scenario: A client has a fixed budget for their new build project and any unexpected overspend would be difficult. Detailed ground investigations have been carried out and the foundations fully designed to suit the conditions, which will hopefully remove any risk of encountering unforeseen ground issues. The client has decided to design the remainder of the scheme fully before seeking competitive tenders. At this stage, however, the client is uncertain about the final design for the office reception area, in particular the reception desk. ML: Assuming the overall nature and extent of work proposed is relatively simple and without complex installation, I would choose the JCT Intermediate Building Contract with contractor’s design (ICD). The intermediate contract is particularly appropriate as it relies on the procurement of sufficiently detailed tender information that adequately defines the quality and quantity 22 Journal September/October 2019

of work required. This provides tendering contractors with the opportunity to return a fixed price. The contract with contractor’s design accommodates the use of named specialists, and provides for design of a discrete part, or parts, of the works by the contractor – well-suited in relation to fitting out the office reception area. JM: As the client has a fixed budget I would recommend a traditional procurement route: competitive tendering with a lump sum, fixed-price contract and a detailed bill of quantities based on the specifications. Standard form contracts, such as those published by JCT or the Scottish Building Contracts Committee (SBCC), would be the most suitable in this scenario to keep legal costs to a minimum. The client should ensure that any bespoke requirements are reflected in the contract particulars, and in any associated amendments. The client should procure an experienced design team to prepare tender documentation, including a bill of quantities, from the clients specifications – although costly, it would avoid unexpected overspends on the project as it progresses. As the design of the office reception area has not been finalised, the client should include a provisional – and within budget – sum in the bill of quantities for the reception area.


The M62 motorway, where works are currently underway, requires a contraflow system to manage traffic. Limiting disruption to traffic flow is a key consideration for any roadworks

A project very much in its infancy provides a level of uncertainty that is a major influence on cost NT: A traditional procurement route is best suited to this scenario as the scope will be almost fully defined when the tendering process begins. The client, in this scenario, will then benefit from price certainty, competitive fairness and a transparent process. I would choose the JCT Standard Building Contract Without Quantities (SBC/XQ) including Contractor’s design portion (CDP) for the reception area. This form of contract allows the client to maintain control of the design by providing the selected contractor with drawings and work schedules to define the scope and quality

of work. The risk to the client budget is significantly reduced with this form of contract because the contractor takes on the cost risk. A contract sum is included in the contract, instead of a bill of quantities, eliminating arguments regarding quantity fluctuations. For this to work effectively, the quantity surveyor should obtain a breakdown of the contractor’s rates so any variations can be valued. RICS key considerations: ••The scheme is to be fully designed by the client. ••Keeping the scheme to budget is key. ••The value of the scheme is not mentioned in the scenario, so the most important issue is the complexity of the scheme. Scenario: A major new-build residential development is planned on a brownfield site with existing buildings still on site. Planning consent has been obtained for the demolition of these buildings. The client’s design team is working on the outline masterplan, with a view to seeking planning consent for the subsequent residential development. The developer would like the scheme, which is likely to be a phased release of houses to market, completed as soon as possible. rics.org/journals 23


Construction

Contracts and procurement

Financial risks proportionally shared between the client and the contractor mean the contractor is motivated to deliver the works in the most cost-efficient way

ML: In relation to design development and procurement of the works, this project is very much in its infancy, and this level of uncertainty is a major influence on cost. As a new-build residential scheme, it is understandable that the developer is seeking the earliest possible start on-site with completion of the works in phases, to allow for a phased release. Although time is highlighted as the key driver in the procurement process, the development site is described as a brownfield site. This is a risk, which in terms of expediency may be better placed with the contractor rather than the client. By allocating both the design and construction responsibilities of a project to an experienced contractor, the necessary control measures and procedures become streamlined. A JCT Design and Build Contract (DB), coupled with a two-stage tender process, would therefore be my choice for this scenario. The tender process allows the selected stage one contractor to work with the design team to explore buildability issues and value engineering opportunities. The design consultants can be novated by the contractor during the stage two tender process. JM: As planning permission has been obtained for the demolition of the existing buildings, but not yet for the subsequent proposed residential development, I would recommend separate contracts: one for the demolition works, and another for the subsequent planned construction works. This means the risk of not obtaining the planning permission for the residential development does not affect demolition of the existing building. This has the added benefit that an experienced demolition contractor is employed for the initial phase and a specialist residential contractor is employed for the subsequent construction works. I would recommend a lump sum contract, with the lump sum including everything required in the demolition works, including disposal of any contaminated materials. For the residential development construction works, a standard form building contract with a bill of quantities would be most appropriate. The contract should include limited to no contractor design, allowing the client’s design team to maintain control over the design. The contract would also need to provide an overall price 24 Journal September/October 2019

per house type to allow for early release. To allow for changes in market conditions, the contract should also provide for the works to be stopped and subsequently recommenced to prevent time and cost issues, and to allow flexibility. RICS key considerations: ••Planning consent has already been obtained for only one stage ••In the interest of speed, two separate contracts work best. This allows the demolition to start as soon as possible, so the site is cleared ahead of obtaining the main planning consent. ••Consider the risks of demolishing the buildings when planning consent for the residential development has not been approved. ••Since it is indicated that the release of houses to market is likely to be phased, sectional completions are advisable. Scenario: The client is introducing an additional lane to an existing motorway which is over 50km in length. They must ensure that the existing heavy traffic flow is successfully maintained during the project. NT: Time and quality are the key drivers for this project so that disruption to motorists is minimised. Therefore, a design and build procurement route is the most suitable approach. There are several constraints that could affect this project: land agreements, drainage connections, bridges, culverts, statutory diversion and other infrastructure that may require modifications or construction to accommodate the additional lane. I would choose the NEC4 Professional Services Contract (PSC) to carry out all pre-construction activities in the first stage of the development, and the NEC4 Engineering Construction Contract (ECC) Option C, a target cost contract with activity schedule to include construction, testing and commissioning of the works, followed by handover and close-out of the contract. Under the ECC Option C, the financial risks are proportionally shared between the client and the contractor. Therefore, the contractor is motivated to deliver the works in the most cost-efficient way. The design can be signed off in stages, allowing for the overlap of design and construction. Sectional completion dates can also be agreed, and delay damages included to protect the client’s programme. The use of NEC suites will promote collaboration through the early warning mechanism; improved opportunity and risk management; provision for building information modelling; and a streamlined process. This will depend on a robust cost control process through contract administration in line with the NEC early warning and compensation event process. The client will have visibility of potential risks before they materialise, mitigation measures applied in collaboration with the contractor and any potential additional costs will be known in advance. RICS key considerations: ••To ensure there is as little disruption to the current flow of traffic as possible. ••The wide range of potential constraints and considerations, such as other infrastructure requiring modification.


Scenario: A developer and asset management company has acquired a large portfolio of occupied commercial buildings across the UK. They have established that they need to put arrangements in place for the maintenance, repairs, renewals and minor projects across the portfolio, which they anticipate holding on to in the medium- to long-term. SG: I would utilise a National Framework Agreement for Small to Medium Works. As the work is throughout the UK and the portfolio is large, this agreement lends itself to appointing either one or two national contractors who can cover the UK and provide maintenance, repairs and small works. Alternatively, if the client is more hands on, a series of regional contractors could be appointed. The key will be ensuring that the contractors have sufficient internal resource, combined with a good supply chain of subcontractors to cover the volume of work, and adequarely deal with emergency call outs when necessary, which is critical to the continued functioning of commercial buildings. NT: Due to the large volume of works, the client will require a contract that provides flexibility and meets their value drivers: a proportionate amount of cost savings, an ability to administer the contract while rationalising administration and considerations of variable programme length. I think a contract relating to the facilities management sector would be most suitable and would choose the JCT Measured Term Contract (MTC) for this scenario. For this form of contract to work effectively and efficiently, the client will have the scope of works produced by their design team. The client’s quantity surveying team will then produce detailed pricing schedules in line with RICS New Rules of Measurement 3 – order of cost estimating and cost planning for building maintenance works. The pricing schedule forms part of the contract, providing the client with cost certainty. There is an opportunity to review the pricing schedule at various points during the contract term, as agreed by both parties. The contract also reduces the need for a dedicated contract for each element of work and instead administration is rationalised, which reduces professional fees and improves efficiency as it best suits a wide geographical use, as in this scenario. RICS key considerations: ••Is the scenario based in the public or private sector? If it is a public sector operation, there are specific rules that apply in terms of maintenance frameworks and the procurement process. ••The need for national coverage for the proposed works, which will be mostly reactive in nature, means there may be an advantage in contracting many regional contractors rather than relying on fewer national firms. Scenario: A university has been advised that the only viable solution to having new-build student accommodation built and open in time for the start of the next academic year is to use modular build. However, the proposed site is constrained by existing teaching buildings and research laboratories nearby. SG: Student accommodation is an income stream for the university and it is important it is delivered on time and on budget. If a

Modular buildings are often chosen for student accommodation as the speed of construction can mean quicker access to income

modular build has been considered, it is likely the size and scope of the accommodation is well defined. The client is aiming to transfer the delivery and logistical site risks to a contractor, so I would recommend a single-stage design and build procurement route and the use of a design and build contract. A competent contractor with a good modular build supplier should be able to both programme and deliver a project of this nature. Given the lead in periods associated with off-site manufacturing of modular accommodation, the university could place an order directly with a manufacturer ahead of appointing a main contractor. RICS key considerations: ••Focus first on the longest lead time item: the modular build units. The first stage would be to place an early client order with the modular build firm, which could then be managed by the design and build contractor, once they have been selected. Ordering the units ahead should decrease the overall programme period; and once management has been transferred to the contractor, they will also carry the on-site construction risk. Stuart Gray is managing director at Thomson Gray stuart.gray@thomsongray.com Mark Lucas is associate director at DGA (UK) mark.lucas@dga-group.com Janey Milligan is managing director at Construction Dispute Resolution jlm@cdr.uk.com Nduduzo (Dean) Tshabangu is managing quantity surveyor at Amey Consulting and Rail dean.tshabs@outlook.com Related competencies include: Contract practice, Procurement and tendering rics.org/journals 25


Construction

Communication

Getting the message Knowing why, when and how to communicate will avoid any legal wrangles and smooth the path to a working JCT Design and Build Contract

Oliver Sugden

Joint Contracts Tribunal (JCT) Design and Build (DB) Contracts use the contractor’s design expertise to develop the most efficient design possible against the client’s brief. In return, the client obtains a fixed price for the project. The client can either set out their requirements in a very prescriptive manner, down to the type of materials and how they are installed; or they can take a more relaxed, performance-based approach, and agree to include items that work within the specifics of the design. There are usually many design iterations, meaning that the design is rarely complete when the contract is signed. Therefore, effective communication is required throughout the lifespan of the project to ensure that both the contractor and the client achieve their desired outcomes. The contractor’s design input could be as simple as finalising internal mechanical and electrical layouts, or as complicated as generating detailed drawings from a feasibility layout. The client will then review the proposals, the quality of delivery, hold regular meetings, and make periodic payments based on the agreed template. Communication is usually through the employer’s agent, who is both a technical representative of the client and acts impartially on matters of contract administration. Physical versus electronic instruction The employer’s agent will either receive instruction from the client and subsequent responses from the contractor, or information requests from the contractor followed by responses from the client. The agent will have to ensure that this information is passed effectively between the relevant parties – at the right time, and to the right people. Historically, the written letter was the primary form of communication for any formal matter, and 26 Journal September/October 2019

phone calls would be filed in verbal communication records. Currently, however, communication is usually done by email, although some projects will use project management software that allow parties to share information. The actual clause governing communication, 1.7 in the DB Contract 2016, states that any ‘application, approval, consent, confirmation, counter-notice, decision, instruction, or other notification shall be in writing’. This is essentially anything that has a material effect on the contract. A further clause, 1.7.4, states that any notice citing this clause should be delivered in writing to the address listed in the contract, either by hand or by recorded delivery. For example, a payment notice must be sent in writing – if clause 1.7.4 is cited, then it must be issued to the specified address but if there is no reference to clause 1.7.4, the notice can be sent electronically. There are relatively few formal notice templates within a JCT DB Contract, but examples include: payment notice, final payment notice, pay less notice and notice of completion of making good. There are two main benefits to producing physical copies of a notice between client and contractor. ••A hard copy letter hand-delivered to the relevant organisation’s head office and marked for the attention of a director, company secretary, or senior member of staff, guarantees that the notice will not be lost in the day-to-day project correspondence. ••It offers a recognised method of escalation within the project but without involving other parties, such as solicitors. Attempts to rely on mainly verbal discussions will quickly run into trouble. Informal communication has its place, and phone calls and face-to-face meetings may be more effective for reviewing


drawings and specifications, and they also help build rapport between the relevant parties. At the end of each meeting or call, however, any decision that is likely to have a material effect on the original contract should be recorded and issued in writing. Hard versus soft skills In terms of communication style, a blend of hard and soft skills will be the most effective. The hard skill is knowing that a notice is necessary and what the message needs to say, while being clear on the range of options available to resolve the issue. The soft skill is knowing how to communicate potentially negative issues to the other party without harming the working relationship. Sometimes, notices are issued with the expectation that follow-up action may never actually be required. For instance, a contractor may notify the client that they have experienced a delay to the project, which they believe would entitle them to additional time or loss and expense, but indicating that the end goal is to bring the project back on track. If the contractor did not issue the notice in good time, they could be accused of not notifying the employer as soon as is reasonable. It is always better to communicate, both from a legal perspective and in order to maintain working relationships. Most people associate soft skills with face-to-face exchanges, but they can be used in any form of communication. For example, sending a notice of delay without any warning can be seen as provocative. A call beforehand to explain the reason for the notice and the circumstances that have led to it, can ensure the situation remains professional rather than personal. Claims and contract issues on projects worth millions of pounds can place enormous

pressure on those involved. Using soft skills encourages all parties to remain focused on resolution rather than escalation, although sometimes discord can be inevitable. Administering and managing a JCT DB Contract, or indeed any kind of construction contract, can be challenging when discussions and correspondence are at their peak, but observing some of these key principles can significantly reduce the friction associated with notices and general contract communication. Oliver Sugden MRICS is a managing surveyor at Sanctuary Housing Association oliver.sugden@sanctuary-housing.co.uk Related competencies include: Contract practice, Leading projects, people and teams, Managing projects

Design and build contracts: an ongoing exercise ••The contractor submits proposals against the formal contract brief for approval. ••The employer’s agent then checks these proposals, and monitors quality and progress on site, notifying the contractor if there are any issues. ••The contractor in turn is obliged to notify the employer’s agent if problems arise, such as delays, additional costs, non-compliance and, in extreme cases, insolvency.

rics.org/journals 27


Construction

Contracts

To amend or not to amend? A range of professionals working in and around the construction industry offer their views and advice on amending contracts Neil Gower, Robert Gerrard, Rebecca Palmer, Sarah Wilson, Adrienne Yarwood, Bola Abisogun, Helen Brydson and Steven Thompson

28 Journal September/October 2019


Although most standard forms of construction contracts were written as a collaborative exercise to ensure a text that provides a fair and equitable allocation of risk between the parties, amendments to these contracts are common. Quantity surveyors and project managers therefore need to understand why and how amendments are made to a contract. Contract bodies In the Industrial Strategy: Construction Sector Deal (bit.ly/CSDJuly) – a partnership between the government and industry to transform the sector – the government identified the use of unamended forms of contract on publicly-funded projects as a means to improve procurement practices. Standard form construction contracts benefit the construction industry by minimising the time and cost in negotiating contracts, but regularly amending these contracts can promote confusion and increase inefficiency. JCT contracts are intended to be read as a complete document, and amendments can produce unintended results. The balance of the apportionment of risk may be inadvertently changed, while drafting inconsistencies can lead to disputes, add to costs, and damage working relationships. JCT contracts already have a degree of flexibility built into them through optional provisions. These allow relevant parties to select the appropriate options for their project in the contract particulars. Project-specific amendments may be appropriate in some situations, but amendments should only be made when essential so the benefits provided by this industry standard are maintained. If an amendment is considered necessary, it should only be done with appropriate professional advice. Neil Gower is CEO at JCT stanform@jctltd.co.uk The risks associated with amending contracts are considerable. Ambiguities and inconsistencies can arise that are likely to affect time, cost and quality. Trying to unravel the meaning of some amendments can waste time and effort.

The client will generally determine any contract amendments: perhaps the project risk register reflects the decision to allocate risk in a different way to the allocation in the standard form of contract, or maybe the client has an internal process that is at odds with the contract. If a client requests an amendment, carry out a reality check to make sure it is necessary. Certain points can be written into the scope, if appropriate, particularly if the underlying contract is reasonably flexible, as NEC contracts are. However, if you do decide to make the amendment: ••ensure you have the right skills to do so ••document the issue that requires the amendment and include the reason that the contract doesn’t meet this requirement ••detail what you expect to achieve in the amendment, so the final drafting can be checked against your initial aims ••write in a similar style to the underlying contract ••flow chart your new clause to check the logic to ensure it does not conflict with other parts of the contract ••proofread the amended contract ••prepare guidance for the clause, if necessary ••have all of this expertly reviewed. Robert Gerrard is NEC consultant and secretary of NEC users’ group info@neccontract.com Lawyers The purpose of a contract is to accurately and clearly detail each of the party’s shared understanding of how the project risks

are to be allocated. Wherever the standard form of contract falls short of setting out the parties’ agreement accurately, an amendment is required. We need the dog to wag the tail rather than the tail wag the dog: the project should dictate what is included in the contract, not the other way round. The constraints of a standard form contract can sometimes impose unhelpful restrictions on a project. The benefits of amending standard form contracts include: ••tailor-made content dependent on the project’s circumstances ••appropriate risk allocation ••clear risk management ••business protection ••peace of mind. A well-conceived set of amendments can avoid disputes, promote collaboration and build trust between all parties. Wherever there is a requirement to amend a standard form of contract, I would encourage any quantity surveyors or project managers who do not have the relevant knowledge and experience to obtain specialist support. The keenest eye for detail is needed, as a seemingly minor oversight in one clause can have significant ramifications – either in the same contract or another. Engaging with a specialist solicitor can therefore add significant value and mitigate risk. However, if too many amendments are made, there’s a tipping point where the standard form of contract is of little benefit as a basis. Where that tipping point lies is a matter of individual judgement. At the very least, my advice is to keep the amendments

The keenest eye for detail is needed when amending a contract, as a seemingly minor oversight in one clause can have notable ramifications

rics.org/journals 29


Construction

Contracts

shorter in length than the underlying standard form of contract they amend! Rebecca Palmer is senior associate and head of construction at Prettys rpalmer@prettys.co.uk Contract amendments are recommended on any complex construction project. They are usually necessary to ensure that the obligations in wider property and finance documentation, such as agreements for sale, lease, or development funding, are suitably and accurately reflected. Contractors and developers should not assume that an industry-published contract will necessarily be the correct contract solution. Always consider the bespoke needs and risks in a new project. Read the contract thoroughly and if it doesn’t meet the parties’ contracting needs, then take time to agree on any amendments. Make sure these amendments are properly incorporated into the contract and are part of the binding terms and conditions. This usually requires an additional clause, or article, to be endorsed on the published contract ‘book’. This should be initialled by all parties involved, to show that the endorsement has been agreed. Ensure there is a ‘priorities’ or ‘order of precedence’ clause incorporated into a contract so that the amended clauses take precedence over the originally published terms and conditions.

If the parties are unclear on how to secure a legally binding contract, then advice should be sought. Advice may be needed on what type of amendments are permitted by statute – such as the Housing Grants, Construction and Regeneration Act 1996, or Unfair Contract Terms Act 1977 – or common law, and how to reflect this in drafting the amendment. In a commercial scenario where both parties have an equal bargaining position, the courts are likely to enforce the precise wording of the contract; not what one party says it meant once the dispute has arisen. So, it is important that amendments are drafted extremely carefully and that they are cross-referenced correctly to the original standard contract. Sarah Wilson is partner and head of construction at Shulmans LLP sawilson@shulmans.co.uk A lecturer Standard contracts are drafted to be fair to all parties. I recommend to students that best practice is not to amend them, unless it is absolutely necessary. There are risks associated with altering contracts. When you amend a contract, consider the potential ramifications elsewhere in the document. If you amend a clause, it may have an impact on another area of the contract. Far too often clauses are amended, or worse deleted, and

this then affects provisions elsewhere. Occasionally, clause conflict can make the contract unworkable. Inserting documents, policies and other standard amendments – without including an order of precedence – can also cause problems with, for example, conflicting clauses and priority of documents. Occasionally, a company will insert its terms and condition into the contract as a document. However, these terms and condition may not have been updated for a long time and some of the conditions could be contrary to current legislation or against the other party’s ethical standards. There are some situations when amendments are beneficial to both parties. For example, most companies have an accounts system that works to a certain timetable – there is no point agreeing to a 28-day payment cycle if you know this deadline is not achievable. As quantity surveyors or project managers, you shouldn’t practice outside your sphere of expertise and should always give a good standard of service. You need to ask yourself if you are doing this when amending a contract. Therefore, if there are major amendments, it is advisable to consult a legal professional. It is always advisable to insert these amendments into the standard form using track changes. This may seem laborious but its value is immeasurable: it ensures you don’t miss an amendment and it is clear to see all the amendments made in one place. Adrienne Yarwood FRICS is course leader, BSc (Hons) Quantity Surveying at the University of Central Lancashire ayarwood1@uclan.ac.uk

As quantity surveyors or project managers, you shouldn’t practice outside your sphere of expertise and should always give a good standard of service; you need to ask yourself if you are doing this when amending a contract

30 Journal September/October 2019

A quantity surveyor As a chartered quantity surveyor with extensive, practical experience on both contractor and client side, I don’t advocate for amendments to any standard form of contract, particularly where it seems the decision is unsubstantiated or ill-advised. Standard form contracts exist for a reason: that is to avoid adverse interactions between terms and conditions. However, I agree that a standard form of contract is unlikely to satisfy the needs of all clients and all projects. I would always


When considering client standard amendments as well as those that are bespoke to a project, I struggle to recall a project I’ve worked on where amendments to a contract weren’t required

advise project teams to think very carefully before making a decision to amend or add clauses – amendments should only be included as a last resort. There are various risks associated with amending contracts. For example, a client in the public sector, a local authority, may have amended the standard form of contract to remove any application of retention monies. Given the obvious benefit to the tier-one organisation, you would expect that a similar amendment be made to any sub-contracts at tier-two level, and so on. The consequences of attempting to break the chain, or not pass on the intended contractual benefit, could be devastating for the tier-one organisation when the client has categorically expressed the consequences of not doing so. The JCT Design and Build Contract has often been heavily amended by many public sector clients for new build housing scheme projects. Notably, the balance of risk between the parties tends to be a very subjective process, particularly where the product is predicated on a predetermined revenue stream: rental income. As an example, where terms have been amended and clients seek to protect their position, typical amendments could address a divergence or discrepancy between the employers’ requirements, contract drawings, contractors’ proposals and specifications. In the local authority example, it is advisable to amend in favour of the party best placed to manage the risk: the contractors’ proposals should prevail and take priority. In my opinion this is a fair and reasonable solution – with fairness

being the most important tenet of collaborative project delivery. Where amendments are made to any standard form of contract, you should know your limitations as a quantity surveyor or project manager and seek legal advice. At the very least, it is advisable to integrity test your contractual logic through an experienced third party, who is conversant and experienced in the amended standard form of contract. A suitable matrix of risk should then be established to clearly identify and apportion project risks, as intended. When amending, the chronology of interface with other terms – both implied and expressed – is vitally important. Bola Abisogun OBE FRICS is founder and executive director at Urbanis bola@urbanis.co.uk A project manager When considering client standard amendments as well as those that are bespoke to a project, I struggle to recall a project I’ve worked on where amendments to a contract weren’t required. When amendments are made, project managers are usually involved in the process, for example, to identify the rationale or communicate the requirements, even if they do not carry out the drafting themselves. The key to tackling amendments is to understand why an amendment is necessary in the first instance and ascertain whether it can be avoided through negotiation, or by dealing with the requirement under standard provisions. If amendments are

insisted upon, legal professionals are best placed to ensure they conform to the contract terms and include reference to any relevant case law. The project manager should understand the principle of any amendments made, and how they affect their administration of the contract and influence project delivery. Helen Brydson MRICS is an associate director in project management at Faithful+Gould and member of the Construction Journal editorial advisory group helen.brydson@fgould.com RICS: when is it necessary to amend? One could define necessary amendments as those relating to specific rules or conditions that apply to the client’s business or business processes. For example, the requirements in respect of contractor invoice submission or site rules for a specific client location, such as a factory. While the latter could be dealt with in the preliminaries, it is common to provide an enabling provision within the contract amendments to tie in these provisions to the contract. One of the most amended clauses relates to the payment period, with the justification that many corporate clients are unable to process payments to a given timescale due to restrictive finance systems and approval processes. Many would argue that amending the payment timescale is therefore a necessary change and it is better to pay on time within the extended period, rather than be late against the published, unamended period. It becomes difficult to draw a line between client amendments to the contract that are necessary and those that are simply desirable. Desirable amendments, which will often move the allocation of risk in favour of the client, should be made as infrequently as possible. When they are made, it is best practice to inform the client of all potential caveats. Steven Thompson is associate director of the built environment at RICS sthompson@rics.org Related competencies include: Contract practice, Risk management rics.org/journals 31


32 Journal September/October 2019


Construction

Consultant appointment

Form follows function The updated RICS forms of consultant’s appointment better accommodate surveying disciplines in the built environment

Steven Thompson

RICS has published a new edition of the forms of consultant’s appointment, which are intended to be used by clients when considering the appointment of surveyors in the built environment. The update reflects changes in legislation, forms of construction contract and case law. In addition, various specialist surveying disciplines have been added to reflect the recent growth in the range of services offered by surveyors. There are three separate forms of appointment. ••Standard Form of Consultant’s Appointment: intended for core surveying services – project manager, quantity surveyor, building surveyor, contract administrator and employer’s agent – for more complex medium or large project appointments. ••Short Form of Consultant’s Appointment: intended for core surveying services for less complex small project appointments. ••Short Form of Consultant’s Appointment for Designated Services: intended for specialist surveying services – dilapidations, technical due diligence, reinstatement cost assessment, lenders independent monitoring surveyor, corporate restructuring and recovery, principal designer, CDM compliance consultant and expert witness. Each of the forms contains content providing a balanced allocation of risk between the parties and sets out provisions that govern the appointment. The standard form contains the following. ••Set of standard clauses: covering the usual provisions, such as the obligations of the consultant, health and safety matters, duty of care, limitation of liability, payment, change management, assignment and dispute resolution. ••Schedule 1: defines the services that apply to the appointment. ••Schedule 2: sets out the details of the agreed fees and payments, including the basis on which they are calculated, periodic payments, the status of expenses and a schedule of hourly rates. ••Schedule 3: sets out details of the client brief. ••Attestation pages: provides multiple authentication and signatory options to suit the corporate status of the legal entity entering into the appointment. ••Appendix: details project-specific information inserted by way of a tick box system, with fail-safe default entries.

Each short form is made up of the following. ••Appointment particulars: detailing project-specific information. ••Attestation page: providing limited authentication and signatory options. ••Set of standard clauses: see definition in previous column. ••Schedule: defines the services that apply to the appointment. In each case, the form of consultant’s appointment is designed to be used in conjunction with the relevant schedule of services to form a complete appointment document. There are separate schedule of service documents available for all 13 core and specialist surveying services, which are listed in the previous column. All schedules contain a single set of services except for the building surveyor schedule, which contains several different services. Some of these services are classified within the standard and short forms – as normal building surveying services – and others are classified within the designated form – as specialist services. All schedules should be completed on a tick-box basis with the core clauses in each containing the ‘normal’ set of services expected for that discipline. There are, however, sets of optional supplementary or bespoke services that can be added if required. Three sets of explanatory notes documents have been published to correspond with the three forms of consultant’s appointments and these guide surveyors and their clients on how the appointment documents should be completed. The explanatory notes also provide a detailed commentary on, and the rationale behind, the individual clauses. The suite of documents is only intended for use in England and Wales. RICS intends to publish related documents relevant to Scotland and Northern Ireland. Steven Thompson is associate director of the built environment at RICS sthompson@rics.org Related competencies include: Contract practice Further information: The forms are available to download at rics.org/ConsultantAppointment rics.org/journals 33


Construction

Comment

Legal

‘The number of recent cases relating to a lack of a contract with clear terms signed by both parties is a real issue’ Shy Jackson Pinsent Masons

It is a well-established principle that a contract is formed at the point when the offer and acceptance take place. Identifying the offer and acceptance, however, is not easy when there are various exchanges, but no single document signed by both parties. In Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC 751 (TCC), a subcontractor claimed from its sub-subcontractor costs it had to pay in settling a delay claim with the main contractor. There was no signed contract in place and the issue was whether liability for delay damages was capped at ten per cent. This was affected by when and how the contract was agreed. The sub-subcontractor claimed that the subcontract had been formed when they began work on 10 November 2014, by way of email on 18 November 2014, or at an earlier meeting in September 2014. Three iterations of the contract were provided, but a contract had never been signed. The judge reviewed the exchanges between the parties and held that it might not be possible to identify the offer and acceptance and that the right approach was 34 Journal September/October 2019

to identify what terms were in fact agreed. Having reviewed the facts, he held that all terms were agreed – except the 10 per cent cap on delay damages. A similar situation arose in the case of Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [2018] EWCA Civ 2222, where various discussions took place and a letter of intent was used, but a contract was never executed by the parties. The issue was whether a cap on liability was in place to defend a claim by AMEC for £40m, alleging negligent design. The High Court of Justice decided there was a simple contract in place, which did not include a cap on liability. The Court of Appeal, however, came to the opposite conclusion and held that the early terms that included the cap on liability were incorporated. It stated that if parties are in a stage of negotiation and one party asks the other to begin work pending the parties entering into a formal contract, it cannot be inferred from the party acting on that request that they are assuming any responsibility for their performance. More recently, in Anchor 2020 Ltd v Midas Construction Ltd [2019] EWHC

435 (TCC), the contractor, Midas, tried to argue that a contract had not been signed and they were claiming costs on a quantum meruit basis, that is a reasonable sum for work done. After five letters of intent, the contractor provided a signed contract that the employer, Anchor, did not sign due to an additional document the contractor had added. The judge held that a contract was constituted without the additional document, commenting that it is too simplistic to see the conclusion of the contract as depending on offer and acceptance as if that entailed one single offer and one single acceptance. In Sitol Limited v Finegold & Anor [2018] EWHC 3969 (TCC), the defendants, Mr and Mrs Finegold, argued they were not a party to the contract. The defendants were named as employers but the contract was never signed by them, only by the contractor. The defendants argued that the company used to project manage the job was in fact the party that entered into the contract with the claimant. Looking at the facts, the judge rejected that argument, finding there was clearly a contract between the parties. The number of recent cases where it was necessary to decide how, and on what terms, contracts were formed show that a lack of a contract with clear terms signed by both parties is a real issue. The background to these cases suggests that all parties wanted to begin work and not delay the start date, despite the precise terms not being agreed. This could be seen as a pragmatic approach but, as these cases demonstrate, it can give rise to real uncertainty at a later date and could also mean that key contractual provisions, such as caps on liability, are not included. Shy Jackson is partner at Pinsent Masons shy.jackson@pinsentmasons.com Related competencies include: Contract practice



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