CONTINUING PROFESSIONAL DEVELOPMENT



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DESIGN AND CONSTRUCT

By

Mike Rycroft and Roger Knowles

CONTENTS

Introduction

Why is Design and Construct Popular?

Advantages and Disadvantages

The Role of the Employer’s Agent

Flexibility

The Tendering Process

Two Stage Tendering

Lump Sum or Reimbursable Price?

The Structure of the Contract

Quality Control

Employer’s Requirements

Contractor’s Proposals

Contractor’s Risk

Contract Price Breakdown

Unforeseen Hazards

Pre and Post Tender Meetings

Site Management

Drawings Approval

Specification Changes

Changes in Employer’s Requirements

Design Changes by Contractor

Standard Contracts in Use

Introduction

It was reported in June 2005 as a result of market research, that the value of the UK design and build market is believed to have been increased year on year during the 5 year review period up to 2004. In the latter year, growth of 15% took the market to a peak of £18,397m, representing an increase of 51% compared with 2000. Whilst demand for design and build within the UK has increased throughout the review period, its annual development has been at a slower rate than that of the total construction industry, except for 2004. Nonetheless, the sector has increased in popularity due to the move towards a greater demand and emphasis on design in a variety of sectors ranging from housing to commercial and industrial sectors.

Why Is Design and Construct Popular?

This form of letting contracts has an attraction to employers by providing a single point of responsibility covering both design and construction. Many contractors have enthusiastically offered design and construct as it gives them the opportunity to manage the design process and control the flow of information from designer to contractor.

However, there have been adverse comments made about design and construct contracting with particular reference to quality, that corners have been cut, supervision has been inadequate and the lack of quality control has resulted in buildings with substantial defects.

During the 1990s design and build became increasingly popular and is now one of the leading procurement routes. Clients required certainty of cost and for their buildings to be completed on time; thus the ability to let contracts on a ‘lump sum’ basis, and where problem-solving design is at the contractor’s risk is very attractive.

It is often said the chances of a design and build contract winning an architectural award are not very high, and many consider it to be totally inappropriate for ‘landmark buildings’. The reason for this reservation is the fear that cost control within the contractor’s operation prevents expenditure on high class design. Nevertheless, there are not too many clients that want an award winning building. The majority of clients are seeking a functional building, preferably not an eyesore, which gives good value for money.

Advantages and Disadvantages

Advantages and disadvantage of contracts let on a design and construction basis, when compared with a traditional Employer designed project include the following:

Advantages

• The main advantage of design and build is that there is a single point of responsibility to which the Employer can refer throughout the construction process, and after work is complete, if there are any latent problems. This is in contrast to the traditional systems where the employer's point of contact may be the architect, but in the event of difficulties, responsibility may lie with any one or more of a range of organisations including the contractor, the architect, quantity surveyor, engineer and other consultants.

• Where a lump sum basis is used, the final cost is virtually guaranteed and there is a better than average chance of meeting a fixed completion date, provided that no changes are introduced by the Employer. It has been suggested that design and construct gives best value, and some go so far as to claim it is cheaper than traditional contracting. However, the promoters of design and construct in its formative years did not claim the arrangement to be cheaper, and there seems no reason to believe things have changed.

• The total procurement period is likely to be shorter than a similar project using traditional methods, because the contractor is in charge of the whole process, and design does not need to be so advanced before the project starts on site. This will usually result in an earlier completion date than would have occurred if a traditional Employer design contract had been used.

• Except when standard forms are used the contractor often undertakes that the finished building will be fit for its purpose.

• Under a design and build contract the design concept can be assumed to be buildable.

• There are likely to be fewer claims, because the factors which commonly trigger claims such as late issue of drawings and design changes are under the control and at the risk of the contractor.

Disadvantages

4 Some say the system is not flexible. If the employer makes any changes in his requirements it opens the door to claims for extensions of time and direct loss and/or expense, however this phenomenon is not restricted to design and construct.

The Contractor’s design decisions may, in an effort to reduce the capital cost, adversely affect the whole life cost.

The quality of design may be sacrificed as a means of reducing cost.

Employers' requirements must be prepared carefully so as to reflect his wishes accurately, while giving proper scope to the contractor. Contracts are unforgiving to the extent that badly assembled requirements may result in the Contractor's proposals and the finished project not meeting the Employer’s expectation.

The relationship between employer and the contractor's architect is not the close one of client and independent consultant. This is because the employer will not usually choose who will be the contractor’s architect (although he may), and because the architect will be under instructions from the contractor to design down to a price. The quality of design may therefore not be as good as a building produced in the traditional fashion

The employer may be involved in additional fees. The design fees which the employer would normally pay to his consultants will be included in the contractor's design and build price. The employer may need independent professional advice and if so, he will have to pay extra.

Few contractors employ a full in-house design team and when carrying out a design and construct contract they sub-let the design to architects and engineers as necessary.

The Role of the Employer's Agent or Representative

In most standard forms of contract, the Employer’s Agent or Representative is named in the contract.

Under the majority of design and construct contracts the employer will require the services of an agent to safeguard his interests in relation to the contract. For example, Article 3 of the JCT With Contractor’s Design form provides for the name of the Employer's Agent to be inserted. Clause 5.4 then refers to the contractor's obligations to keep available for the Employer's Agent copies of the Employer's Requirements, Contractor's Proposals, Contract Sum Analysis, drawings, specification, details, levels and setting out dimensions which the contractor prepares or used for the purpose of the works. Clause 11 requires the contractor to provide access at all reasonable times for the Employer's Agent or any person authorised by the employer or the Employer's Agent to the contractor's workshops or other places where work is being prepared, but gives the contractor a right of reasonable restriction to access if necessary to protect a proprietary right.

JCT Practice Note CD/1A stipulates that the contract treats the act of the Employer's Agent as those of the employer, and unless the employer specifically states in this requirements, the contractor can and must regard the Employer's Agent as the duly authorised agent of the employer for the performance of any of the actions of the employer allocated under the contract conditions. The employer can remove and appoint his agent at will, but must inform the contractor of his agent's identity.

Unlike an Architect under a JCT contract, or an Engineer operating under an ICE contract, there is no obligation upon the Employer’s Agent to make decisions as required by the contract in an impartial manner.

Flexibility

Design and build can be very flexible between two extremes:

• At one end of the spectrum the employer may approach a design and build contractor as soon as he is aware that he may need to build. The contractor, either by means of an in-house design team, or more commonly by sub-letting the work to an independent consultant architect, may take details of the brief and proceeds through the stages from inception to completion. This is a true ‘package deal’. It is usual in these circumstances to negotiate the contractor's price, because tendering among a number of contractors is not practicable.

• At the other extreme, the employer may engage a full team of consultants who act in the traditional way, taking the brief, preparing a feasibility report, outline proposals and detailed design, until after a tender is accepted. Thereafter, the contractor takes full responsibility for completing the detailed design as well as constructing the building. The intention is for the Employer to retain control of the design process but to transfer responsibility for design errors to the contract. Otherwise there is little to be gained by the employer in adopting this course, because if the design team has fully designed the project and taken it to tender stage, there is every reason for retaining the team to deal with inspections and queries during the construction period as under traditional contractual arrangements. The Employer, in any event, would need some kind of independent advice once the Contractor has been appointed.

Often the Employer will take a middle course with the design team taking the brief and preparing outline proposals for tendering purposes. The successful tenderer completes the design using his own team and the employer's team is retained to assist the employer with advice throughout the construction period.

Novation

An interesting variation is novation and ‘consultant switch’, used as an attempt to get the best of both worlds. Exactly the same method is used as in traditional design and construct, except that the employer's team is transferred to the contractor after outline proposal stage. Tendering takes place on the basis that the successful tenderer will take on board the employer's design team as his own. In the case of ‘consultant switch’ the designer’s engagement with the employer is terminated before transferring to the contractor, so the designer has two independent engagements, with liability to two parties for the relevant work carried out. Where the engagement is novated the contractor takes over the employer’s engagement with the designer by stepping into the employer’s place and creating a seamless liability for the designer.

Obviously once the team has been adopted by the contractor, the consultants can no longer give independent advice to the employer. With novation and switch the Employer must either accept that he will receive no independent advice after tender stage or, and more likely, he will have to engage another team as appropriate to provide that advice. There may be problems with this arrangement; for example, if the second designer disagrees with some aspect of the first designer’s design.

The Tendering Process

Whenever contractors are engaged in competitive tendering considerable costs are incurred, this is particular the case with design and construct contracts although there are considerable variations.

Contractors incur minimum costs where the employer engages consultants who prepare the Employers Requirements and provide the tendering contractors with a full design and specification, and the employer only goes out to 2 or 3 tenderers. At the other extreme is the case where the employer has provided minimal requirement details and thrown the project open for competition to anyone who wishes to bid. In some instances as many as 50 companies have entered these competitions with the number progressively reduced, but with those remaining companies expending more and more money on developing their designs. In some instances this has resulted in an eventual final shortlist of 3 companies each of whom has already expended tens or even hundreds of thousands of pounds being placed in the position of expending many more tens of thousands of pounds on a 33% chance.

The ultimate cost of tendering inevitably forms part of the price the employer has to pay, either in the overhead recovery by the contractor, or in the quality of work executed.

Where the Employer's Requirements and design have been developed to a substantial

degree, prior to seeking tenders, the eventual price will include a nominal overhead for tender preparation. If however, minimal design and specification requirements have been identified by the employer then to minimise tender costs the employer should consider a two-stage tender process.

Two Stage Tender

A reasonable approach is to appoint a contractor starting in stage 1 with an invitation to (say) 4 companies but whittling this down to 1 or 2 as a maximum for stage 2 without requiring the contractors to spend vast sums of money. Sometimes employers will pay a pre-determined sum to the unsuccessful shortlisted tenderers so ensuring the maximum commitment from each.

Companies chosen to tender should be selected carefully with special consideration being given to:

• Financial stability

• The quality of the design team whether in-house or outsourced

• Experience of contractor and design team in the type of work involved

• Reputation (what previous clients say)

• The firm’s approach to quality control in terms of workmanship, time and cost

• Resources and competence as Planning Supervisor/Principal Contractor

• Health and safety record

• Key personnel to be used on the project

• On partnering contracts the Contractor must be able to demonstrate competence in such mattes as collaborative working, supply chain management, benchmarking, processes and open book accounting procedures.

The amount of formality adopted in the tendering process depends largely on the type of client. A regular building client such as a property developer, may use a proscribed system like that described in National Joint Consultative Committee for Building (NJCC) Code of Procedure for Selective Tendering for Design and Build. If such a procedure is used it is essential that the employer follows the set rules strictly to avoid breach of a preliminary contract under which an aggrieved contractor could claim damages (the cost of tendering). It is not uncommon for the employer to approach two or more contractors himself before appointing any other consultants. In those cases the two stages may be informal with the main intention of finding a contractor with whom the brief will be developed and concluded in negotiation. The main difference between the two approaches is simply the degree to which the tendering process is pre-determined, the formal approach requiring more information to be available and thus more time before contractors are involved.

Pre-qualification: On design and construct projects, much depends on a good working relationship. It often assists for the employer to hold an interview meeting with each prospective tenderer to give it a chance to present itself. However, care should be taken to ensure the ‘presentation’ is not simply a smooth sales pitch. Personnel attending the meeting should ideally be the individuals who will later be the employer’s design/build team.

The purpose of the meeting, which is best held at the Contractor’s office, is to satisfy the employer as to:

• The contractor’s internal philosophy towards design/construct (eg. will the project be ‘design and construct, or mainly ‘construct’ with design as a necessary addition)

• The relationship between designer and contractor

• The acceptability of the type of construction proposed

• Timescales for initial design and tendering

• The structure of the contractor’s organisation

• Competence regarding CDM matters

Such meetings can take place at any stage of the tendering process, but the earlier the better.

Stage One:

The purpose of a two stage process is to reduce wasted tendering costs. The content of the first stage will depend on the extent to which it is necessary to identify the employer’s problem and to find a solution. Because of the cost of tendering, the outcome of stage one may be a concept design with an approximate order of cost. It is not unusual at this stage for the parties to be undecided about which contract terms to use, the main purpose of the stage being to find a suitable contractor or an acceptable preliminary design solution.

Stage Two:

This stage is the finalisation of the design, although there will not usually be a completely detailed design, and the firming-up of a price or pricing structure. As both parties are committing time and resources in developing the design/proposals they sometimes enter into a limited agreement at the start of this stage. The agreement will cover such matters as entitlement to recovery of costs if negotiations do no get past the second stage.

If second-stage negotiations fail, the employer is obliged to start again with another of the earlier tenderers.

Lump Sum or Reimbursable Price

The majority of design and construct projects are lump sum contracts adjustable for variations (eg. JCT With Contractor’s Design, ICE Design and Construct). However the means of calculating the price does not have to be synonymous with the allocation of design risk. There is no reason why the parties should not agree that the contractor under a design and construct arrangement is reimbursed his costs plus agreed allowance for design and overheads and profit. Indeed the concept of Guaranteed Maximum Price (ie cost-plus with a price ceiling) became popular in design build during the 1970’s when employers wanted to avoid design risk, but at the same time taking advantage of the contractor’s buying power.

If lead-in time is short, or if the employer is uncertain as to his needs, or if the employer wishes to remove temptation for the contractor to cut design corners, then he may decide to pay on a cost-plus basis. The imposition of a ceiling is a constant reminder of the size of the employer’s pocket. Changes to the original requirement will necessitate adjustment to the ceiling, but the ceiling remains a target. Under such arrangements the contractor will usually be entitled to a portion of the savings against the ceiling, but often takes the entire risk of costs exceeding the ceiling. An extension to this concept can be seen in the Government Regional Prime Contract which contains a ‘target’ and a maximum. The bonus paid to the contractor for achieving actual cost under target may be greater than the bonus over target, but any excess over maximum will be borne entirely by the contractor.

One disadvantage of the reimbursable approach is that it can increase the Employer’s costs in checking the account, since all the contractor’s costs have to be verified and the ‘ceiling’ has to be adjusted in a similar manner to a lump sum contract to take account of employer requested variations.

The Structure of the Contract

It is important to decide from the outset how the tender enquiry and the quotation will be treated. In normal circumstances if a tender is accepted a contract is formed based on that tender. The employer is then entitled to receive what was tendered to him; which might not be what he originally asked for.

Design and construct contracts that get around this problem include the ICE Design and Construct, JCT With Contractor’s Design and GC Works/1. They all incorporate standard terms which are acceptable by both parties usually comprising the following:

• Agreement

• Conditions

• Employer’s Requirements

• Contractor’s Proposals/Submissions

• Contract Price Breakdown/Pricing Document

• Appendix which indicates the variables such as completion date and liquidated damages.

Quality Control

Quality, is likely to be a matter of great concern to the employer; this is reflected in many contracts such as JCT With Contractor’s Design where Clause 8.1 requires the employer's consent (which is not to be unreasonably withheld) where substitutions are contemplated by the contractor.

Contractors need to be aware of their obligations in this regard. Notwithstanding their responsibility for design, they do not get carte blanche to substitute materials as they

see fit. Any failure to obtain consent may result in work having to be taken down and re-done.

On the employer's side, there is no obligation to check the nature and quality of work and materials to ensure compliance with the contract. Nonetheless the test of reasonableness which applies to withholding consent to changes of materials may be viewed in a different light where work has been completed that could have been corrected earlier at less cost. Where this occurs, the Contractor may be required to offer the Employer a credit for providing work of lesser quality than required by the contract.

Employer's Requirements

Getting the Strategy Right

Having decided to use a design and construct contract, the Employer must then consider how to communicate his needs to the contractors.

A design and construct contract lays responsibility for both producing a design solution and constructing that design with the contractor. However, the employer still needs to identify what he wants.

From the outset the employer or his consultant will either develop ideas with a contractor, or will set out the requirements to which the Contractor is to respond. Whichever course is taken the basic minimum requirements for a `design and construct' contract are:

1. design responsibility imposed on the contractor to ensure the project is constructed to adequate standards, fulfils its intended purpose, and the requirements of the employer

2. preparation of drawings and specification and other construction information and obtaining of necessary consents

3. selection of materials and standards of workmanship

4. provision for variations

5. provision for regular inspection on behalf of the employer

6. payment and price

7. contract periods and key dates

The most effective way to communicate what is wanted is by way of an identifiable document called the Employer’s Requirements.

What can be left to the Contractor?

It depends entirely on the type of job and the expertise of the contractor. In theory everything from deciding what the design solution may be to construction can be left to the contractor. However the prudent employer will be aware that under some contracts the employer’s role is merely to wait until the entire work is complete and ready to hand over. That can be too late if something is not in accordance with the requirements. It follows that a system of regular comment and inspection (not approval) is necessary, and provision should be built into the conditions.

Employer's Requirements (the problem to be solved)

This document is precisely what it says. The purpose is to provide sufficient "brief" to the contractor so that he can produce his proposals. It can be a very generalised description or it can be a detailed performance specification with outline drawings. Some Employers go a stage further and have the design completed sufficient for bills of Quantities to be prepared before switching the design risk to the Contractor. A proper performance specification will enable the employer to keep control, but it takes time to prepare. JCT Practice Note CD/1A gives advice on its content and is a useful guide whichever terms of contract are used.

No matter who prepares the Employer’s Requirements, the essence is that they must state what the employer wants the contractor to do.

Contractor’s Proposals

This is the Contractor's response to the Employer's Requirements. It is his solution to the employer’s problem.

Typically, the Contractor's Proposals will incorporate drawings to illustrate the proposals, details of equipment, structural information, service information and a comprehensive specification, together with a proposed programme. Sufficient detail should be provided to show how the Employer's Requirements will be met.

The wise Contractor will also include a section of assumptions and exclusions together with a requirement for a contract term setting out the effect on the price when assumptions or exclusions are not realised.

The Proposals are a statement to the Employer of what the contractor intends to provide, ie what the employer is getting for his money. Therefore it is imperative that the employer checks for inconsistencies and ambiguity.

Contractors often like to produce a loosely worded proposal in order to give themselves flexibility when providing a detailed design solution. Contractor’s proposals have been known to comprise one line only, namely:

“to provide workmanship and materials sufficient to meet the Employer’s requirements”

Contractor's Risk

On design and construct contracts the first risk the contractor must undertake is the cost of tendering. Even where the employer opts for a two or more stage tender process the cost to the tenderer of marketing the company is both time consuming and expensive. Once the contractor is in a tendering situation a design must be prepared or developed and the design then costed out before a tender can be submitted; the cost of this will however be minimised where the employer has produced detailed requirements.

A further problem for a contractor when submitting a tender is getting across to the employer the quality that will be achieved. The general view is that all tenderers will endeavour to design down to the absolute minimum, and therefore when submitting a quality bid the price may well appear uneconomical to an employer. The quality a contractor has achieved on previous design and construct contracts is the best sales tool available; a question mark should always be raised where examples of previous design and construct contracts are not available for inspection.

The greater the degree of design development carried out prior to producing the tender price the less risk the contractor carries, unfortunately this reduction in risk is accompanied by an increase in the cost of tendering due to the design development work. Nevertheless, the design will never be entirely detailed before work starts on site, so the price should always include an allowance for design development (fine- tuning in making the design work). This will be the contractor’s risk and included in the contractor’s price; it should not be confused with a contingency allowance for the employer to spend.

Contract Price Breakdown

Most design and construct contracts on a lump sum basis provide for a breakdown of the price. In the JCT With Contractor’s Design Form the breakdown is referred to as the Contract Sum Analysis (CSA).

The breakdown is not always a specification of what is to be done, although it may appear in that form. The main purpose of the breakdown is often to provide a basis for valuing variations (changes), valuing interim payments, valuing fluctuations; in short it is a type of schedule of rates. It is not usually a means of identifying a variation in principle, unless the contract requires the contractor to carry out the work described in the breakdown. The Pricing Document under the GC/Works/1 form does describe the work to be done and can be used for identifying variations, which can be contrasted with the JCT With Contractor’s Design where the pricing document is merely annexed to he Contractor’s Proposals and is not part of them.

If the contract price is a Guaranteed Maximum Price (GMP) then the breakdown fulfils a similar role in adjusting the price ceiling.

The form of the breakdown will vary from project to project and may be a very simple analysis by work sections (eg. foundations, walls, roof, electrical services) or it may be a fully detailed bill of quantities. It is for the parties to decide. However there is little point in having an analysis if it does not fulfil its function. Matters that can be expected to appear will include:

• Provisional sums – if a suitable machinery exists in the contract terms for adjusting such sums

• Allowance for design, either as a percentage of work value or as an hourly rate – this is for valuing variations and abortive design where allowed in the contract

• Allowance for development of design – this is a contractor’s contingency allowance for adding to variations where the value is agreed in advance

Unforeseen Hazards

The greatest risk to a tendering contractor on a design and construct project is the ‘unknown’. Nowhere is this more apparent than when considering refurbishment contracts or projects with unforeseen ground conditions.

On one major refurbishment project the employer's consultants and a selected contractor carried out a 12 months investigation of the project, examining the structure, beams, columns, foundations, load bearing etc and also the potential that could be achieved from the existing building. Only after this 12 month investigation was a tender price submitted and the employer then appointed the contractor and the design team who had carried out the investigation to see the project through to fruition. Employers rarely have the time for such luxury, so it will usually be necessary to identify the risks and allocate them. This can be done by means of Provisional Sums, or by the use of ‘conditional assumption statements’.

Ground conditions are obviously a major factor in the design of any project. Where the liability for a total project is placed on the contractor and no information on ground conditions has been provided by the employer, every tenderer will have to carry out a borehole survey. If a survey is not carried out then the tenderers will be gambling and contractors must ask themselves if this is a risk worth taking?

The sub-soil conditions of a site are obviously of vital importance to the design of a buildings foundations and substructure. There is however, often a dilemma as to just how many boreholes should be taken and how much site investigation is necessary.

Problems often arise where unforeseen adverse ground conditions occur which add to the contractor or his sub-contractor's costs. Who pays the bill?

The answer depends on the wording of the contract. If the contract is silent the general position is that the contractor takes the entire risk for the nature of the ground and for any obstructions. For example:

• The JCT With Contractor’s Design Form is silent so the contractor takes the risk. If the contractor wishes to avoid the risk, or if the employer considers the risk (which might not materialise) would inflate the price, the parties may choose to cover the risk with an employer’s provisional sum or a contractor’s assumption.

• The ICE Design and Construct form provides at clause 12 for the employer to take the risk for conditions and obstructions that an experienced contractor could not reasonably have foreseen. The reason for not transferring the risk is because, on many civil engineering projects, a great deal of the work will be below ground which makes pricing the risk extremely difficult.

Pre and Post Tender Meetings

During the development years of design and construct, contractors often dealt directly from the outset with the employer. The importance of face to face discussion at all levels was important – it created the working relationship and reliance that made design and construct popular. However when consultants started to be appointed before the contractor, and who then suggested design and construct, the direct relationship often suffered, particularly when the consultant tried to run the project in the traditional style.

Regular discussion is essential to ensure there are no ‘grey areas’ between the Employer's Requirements and the Contractor's Proposals. Both parties need to be satisfied that the requirements are fully understood and are catered for in the proposals; anything that is unspecific or in anyway vague, needs to be clarified if possible. Time spent discussing and agreeing what is required, or what will be provided, at the beginning of the contract will be time well spent. It will eliminate, or at worse reduce, to a minimum disputes during the currency of the contract, as most disputes are seeded in misunderstanding.

Equally as important as specification and time requirements is the need for both parties to satisfy themselves they can work with each other. Under a traditional contract the authority of the employer and his professional team is clearly identified and what they say generally goes. However this is not the case with design and construct, once the contractor is appointed he is in total control. The employer needs to satisfy himself that the appointed contractor and his contract team will provide what he requires. In the majority of cases it is people that cause disputes not contract conditions, therefore as with specification and timing it is also essential for both parties to be satisfied they can work with the other party's team.

Site Management

Most standard form contracts require that the contractor keeps upon the works a competent person-in-charge and any instructions given to him by the employer shall be deemed to have been issued to the contractor (eg JCT With Contractor’s Design clause 10).

Clearly there is a need for a competent person-in-charge, but it can be risky for the contractor to have instructions giving rise to variations passed direct to the site team, unless the project is large enough to have the contractor’s design leader/project manager on site. The wise contractor will insist on all instructions other than emergencies being given direct to a designated single point of contact who can then distribute the instruction as required. The chances of the site being the first to need the variation instruction are remote.

Drawings Approval

Some contracts introduce a requirement for the contractor to forward drawings, calculations etc for approval or comment. Unless the contract clearly states otherwise approvals or comments made by the employer do not relieve the contractor of any liability or obligations. Approval by an employer does not reduce the contractor's liability if the design proves to be defective.

If the employer engages a consultant architect or engineer to check or approve drawings the liability of the contractor is not affected. The position in English Law is that both contractor and consultant may be held jointly and severally liable. In other words the employer can extract the full amount of his loss or damage from either party. If the employer decides to sue both, then it is left to the court to allocate the loss or damage between the joint defendants.

Specification Changes

In traditional forms of contracting most changes in the specification tend to be variations for which the contractor is paid (or gives credit). In design and construct contracts the reason for the change is more relevant; if the reason is simply to make the detailed design effective, it is likely to be at the contractor’s expense.

Under most standard forms the employer has the right to vary the works (change his requirements) but some forms give the contractor the express right to object (eg. JCT With Contractor’s Design cl. 4.1.1). The employer can only give instructions to the extent that the contract states he can – no more. If variations are defined as changes to the Works, it would not include work of a totally different nature. In Blue Circle Industries v. Holland Dredging an instruction to build an island was not a variation on an estuary dredging contract – it would be a separate contract.

Changes in Employer's Requirements: The Employer should allow himself the fullest opportunity to set out the project as he requires it to be designed and constructed, in his original requirements. Changes are permitted under standard forms, but naturally there may be cost and time consequences. The Employer should be aware of these at the time of drafting his original requirements.

Design changes by contractor: In most design and construct contracts, there is no specific reference to design changes made by the contractor. However the contractor is often expressly prevented from substituting any materials, goods or workmanship referred to in the documents without the employers consent, the consent not to be unreasonably withheld.

It is important that the employer is empowered to give consent and exercises his discretion, for a contractor’s change would otherwise be a breach of contract by the contractor. If there were no consent clause, the contractor could be obliged to build to a design which, after the contract was entered into, was discovered to be defective. If the employer refused to allow a change, in circumstances where the contractor was attempting to correct his own previous defective design, then such refusal by the employer could be interpreted as preventing the contractor from performing his obligations (ie a breach by the employer).

Standard Contracts In Use

There are many different forms of contract available for design and construct projects, many of the dedicated forms follow a basic format of Employer's Requirements, Contractor's Proposals, an employer's representative, provisions for varying the contract, extension of time, payment to the contractor, insurance and resolution of disputes. Those in regular use include:-

JCT With Contractor's Design 1998 and 2005 Editions

First published in 1981 and is drafted for use on building projects.

GC/Works 1 - Single Stage Design and Build (1998)

The form published in July 1998 (Amended 2000) is drafted to be used for both building and civil engineering works and follows closely the provisions contained in GC/Works 1 with Quantities (1998) of Contract for Building & Civil Engineering – Major Works – General Conditions.

GC/Works/1 Two Stage Design and Build (1999)

Intended to support a two stage process, where in the first stage the design is not sufficiently advanced to enable a realistic lump sum bid. Instead of a lump sum the contractor submits a design fee together with a schedule of rates. The contractor selected at Stage One goes on to develop the design and the price during Stage Two.

ICE Conditions of Contract Design and Construct, 2nd edition 2001

First published in 1992, not surprisingly these conditions follow closely the ICE 6th Edition, but also follow the same basic design and build philosophy contained in JCT. The form is suitable for building, civil engineering or a combination of both.

NEC Published by the ICE 2nd and 3rd Editions

First published in 1991 as an alternative to ICE 6th Edition, and is not a dedicated design and construct form.

FIDIC – EPC/Turnkey Projects

For use where the contractor carries out all the Engineering, Procurement and Construction (EPC), providing a fully equipped facility, ready for operation at the turn of a key.

Government Prime Contracting (UK)

Prime contracting is a multi-project relationship being introduced by UK Government Departments to change the adversarial attitudes, fragmentation and inefficiency in the industry by means of a sustained client-driven initiative.

JCT Major Projects Form

This form was introduced in June 2003 for use by large organisations for major projects. It does not set out to be a design-build form but provides for the contractor to do as much or as little as the Employer wants (in short, it replicates what often happens in practice on other design and construct contracts).

TEST QUESTIONS AND ANSWERS

TEST QUESTIONS

Question 1

What are the basic minimum requirements for a design and construct contract?

Question 2

What purposes do the Employer’s Requirement and Contractor’s Proposals serve?

Question 3

What is the role of the Employer’s Agent?

Question 4

Give three advantages of contracts let on a design and construct basis when compared with the traditional employer designed project.

Question 5

Give three disadvantages of contracts let on a design and construct basis when compared with an employer designed project.

Question 6

Explain the purpose of two stage tendering and how it operates

Question 7

What are the usual basic elements which form the structure of a design and construct contract.

Question 8

Indicate the sort of criteria which should be taken into account when selecting the contractor for a design and construct project.

Question 9

Provide three examples of standard forms used on design and construct projects.

Question 10

How do design and construct contracts deal with unforeseen ground conditions?

MODEL ANSWERS

Question 1

The basic requirement for a design and construct contract imposes upon the Contractor an obligation to ensure that the project is properly designed and constructed to adequate standards, fulfils its intended purpose and the requirements of the employer. The contract will be made up of the following components:-

1. Preparation of drawings and specification and other construction information and obtaining of necessary consents

2. Selection of materials and standards of workmanship

3. Provision for variations

4. Provision for regular inspection on behalf of the employer

5. Payment and price

6. Contract periods and key dates

Question 2

The Employer’s Requirements provide a sufficient brief to the contractor so that he can produce his proposals. There is no hard and fast rule as to what should be included. JCT Practice Note CD/1A gives advice on its contents and can prove to be a useful guide. The Employer’s Requirements can be a generalised description of what is required or a performance specification with outline drawings. Some employers have the design completed before the contractor is appointed the purpose of the design and construct contract being to switch responsibility for design risk to the contractor.

The Contractor’s Proposals represent the contractor’s solution to meet the Employer’s Requirements. Typically the contractor‘s proposals will include drawings to illustrate the proposals, details of equipment, structural information, services information, a comprehensive specification together with a proposed programme and a price. Contractors often like to produce a loosely worded proposal in order to give themselves flexibility when providing a detailed design solution. Contractor’s Proposals have been known to comprise one line namely

“to provide workmanship and materials sufficient to meet the employer’s requirements”

Question 3

Under most standard forms of design and construct contract the Employer’s Agent is named in the contract. His role is to safeguard the interests of the employer in relation to the contract. Unless the contract or the Employers Requirements states to the contrary the Employer’s Agent will act as the employer’s duly appointed agent to carry out all the functions allocated to the employer under the terms of the contract.

Question 4

1. There is a single point of responsibility to which the employer can refer throughout the construction process and after work is completed. This can be compared with advantage to the traditional employer design project where responsibility is spread among many including contractor, architect, quantity surveyor and engineer.

2. The procurement period is usually shorter than on a traditional employer design project. This will normally result in an earlier date for completion of the work.

3. There are likely to be fewer claims than on an employer design scheme as factors such as late issue of the drawings and design changes which often are the basis of claims fall under the control and risk of the contractor.

Question 5

1. If the employer’s requirements are not carefully thought out and presented, the Contractor’s Proposals and in turn the complete project may not meet the employer’s expectations.

2. The quality of design may be sacrificed as a means of reducing costs

3. Employer’s changes can be costly in terms of extensions of time for completion and financial claims.

Question 6

The purpose of two stage tendering is to reduce wasted tendering costs. It is usual to include in the region of four contractors in stage 1. This is whittled down to one or sometimes two to progress into the second stage. Stage 1 is taken up with the development of a concept design and an approximate order of cost.

In stage 2 the design is finalised, although this will not usually be a completely detailed design and the price or pricing structure will be firmed up.

Question 7

The basic elements which form the structure of a design and construct contract comprise:

Agreement

Conditions

Employer’s Requirements

Contractor’s Submission

Contractor’ Price Breakdown/Pricing Document

Question 8

The following criteria should be taken into account when selecting a design and construct contractor:

1. Financial Stability

2. The quality of the design team whether in-house of outsourced

3. Experience of the contractor and design team in the type of work involved

4. Testimonials from previous clients

5. The contractor’s approach to quality control in terms of workmanship, time and cost

6. Resources and competence as Planning Supervisor and Principal Contractor

7. Health and safety record

8. Key personnel to be used on the project

9. On partnering projects the contractor must be able to demonstrate competence in such matters as:

Collaborative working

Supply chain management

Bench marking

Open book accounting

Question 9

The following standard forms of contract are used on design and construct projects:

1. JCT With Contractor’s Design 1998 and 2005 editions

2. GC Works / Single Stage Design and Build 1998 edition

3. ICE Conditions of Contract Design and Construct 2nd edition

Question 10

The manner in which unforeseen ground conditions area dealt with depends upon the wording in the contract. If there is little work below ground it is common practice for the contractor to take the risk and make due allowance in his price. Where a great deal of the work is below ground, unless extensive subsoil surveys have been carried out, it is unlikely that the contractor will be expected to make provision for unforeseen ground conditions in the price.

Where the contract such as JCT With Contractor’ Design form is used the contractor takes the risk of all ground conditions which are encountered including those which are not foreseeable. The contractor’ price should therefore include for taking the risk.

In the case of the ICE Design and Construct form the contractor is entitled to recover the costs incurred in dealing with ground conditions which could not reasonably have been foreseen by an experienced contractor. The reason for such as provision is that on civil engineering project there is often a substantial amount of work carried out below the ground.

The downside of allowing the contractor to exclude from the price the risk of unforeseen ground conditions is that it waters down the price certainty of the project which is one of the looked for advantages of design and construct contracts. It is not uncommon therefore to see contracts with a great deal of work to be carried out below ground, little or no subsoil information provided with the tender enquiry, passing the risk of all unforeseen ground conditions to the contractor.

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