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SOCIETY OF CHARTERED SURVEYORS Southern Region ______________________________________

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Monday 24 October 2005 Rochestown Park Hotel, Cork

__________________________________ CPD PAPER The New Government Forms of Contract - a risky business?

Thos. Wren BCL FRICS FSCS MCI Arb.

Construction Contract Advisor, Disputes Resolution Consultant Mediator

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All views or opinions as contained in this paper, insofar as they touch or concern the quantity surveying profession, related disciplines and the construction industry in general, are personal to the author who does not purport to speak for, or represent, the Society of Chartered Surveyors, The Royal Institution of Chartered Surveyors, the Chartered Institute of Arbitrators or the organisations referred to in the credits. Reliance should not be placed on any material contained in this paper without further professional advice.

© Tom Wren Associates, Forge Hill House, Forge Hill, Kinsale Rd., Cork. Tel: 021 4975212 M: 086-8327594 Fax: 021 4975213 E-mail: [email protected]

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

CONTENTS 1 2 3 Introduction Legislative Framework: Draft 2005 Regulations and the EU Directive Some Provisions Involving Reapportionment of Risk to be Borne by the Contractor 3.1 3.2 Listed Specialists instead of Nominated Sub-Contractors The Risk Register; Contractors' Claims; Financial Compensation and Extensions of Time; Compensation Events; the Formulae Substantial Completion and Taking Over Part of the Works; Double Certification and Unclear Position vis-à-vis LADs Interim and Final Payment Value Engineering Amendment of Works Proposals 3 1 2

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3.3

12 13 16 16 17 17 17 18 19 19 20

3.4 3.5 3.6 4 5

Absence of a draft Form of Sub-Contract for use with the GCC Forms Potential Implications for the Quantity Surveying Profession and Others 5.1 5.2 5.3 5.4 Bills of Quantities Status of the ARM and the Correction of Errors in BOQs Potential for New Services by Quantity Surveyors Potential Danger for all Consultants Engaged by a Contractor

ACKNOWLEDGEMENTS AND CREDITS

6

Summary

Bowen Construction Ltd. for permission to reuse research material the author

produced this summer in reviewing the GCC forms. The CIF for permission to use material referred to in its newsletter, dated 21 st September 2005.

Pierse Contracting Ltd. for photocopying and secretarial facilities. AKC Chartered Quantity Surveyors for technical assistance in connection with

tonight's presentation.

New Government Construction Contracts

Thos. Wren

1

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

1

INTRODUCTION

In May 2005, the Department of Finance/Government Contract Committee (`GCC') released a number of draft documents to the Forum for the Construction Industry (`FCI') which reflects a decision by the Government in 2004 as to how it proposes to let future works of public construction. My understanding is the Government's decision was taken 1 without prior consultation with the construction industry and that, at present, there is not an agreed way forward between the GCC and the Construction Industry Federation (CIF)/private sector operators as to the implementation of the proposed new forms. I shall refer to the draft documents collectively as the GCC forms. The documents released by the GCC include the following: (i) new contract forms and procedures for the engagement of consultants; (ii) new construction main contract forms (`the GCC forms') with associated model bonds, warranties and sundry documents. (iii) amendments to the existing DGLA and IEI forms to remove the PVC provisions (I gather these forms are now to be made redundant). Most of the current controversy concerns the GCC forms which are a completely new breed of standard form. They are based on the concept of a fixed price lump sum and contain a radical reapportionment of risk between the parties. Who bears the time and/or cost implications of certain risk events are now to be in part determined by the application of formulae rather than by established Common Law principles. There are FOUR proposed new GCC forms of main contract. These are: 1. 2. 3. 4. Building Works Designed by the Employer. Building Works Designed by the Contractor. Civil Engineering Works Designed by the Employer. Civil Engineering Works Designed by the Contractor.

This paper concentrates on `Building Works Designed by the Employer'. It is the nearest of the four to the current GDLA form of agreement. All four GCC forms comprise: (a) The Recitals headed `Agreement'; (b) Schedule to the Recitals comprising four parts with numerous blanks to be filled-in in each instance including what is likely to be a very controversial `Risk Register' (Part 3 to the Schedule); (c) Standard Conditions; and, (d) The Dispute Resolution Procedure Annex.

1 st

CIF Newsletter, dated 21 September 2005

New Government Construction Contracts

Thos. Wren

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Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

All four forms have the same document structure. There are 14 clauses with broadly similar sub-clauses, most with identical wording. This is surprising having regard to the differences between horizontal and vertical construction although universality of form makes for administrative convenience. A copy of the current GCC forms can be obtained on the Society's or the CIF's websites (www.scs.ie and www.cif.ie) . A clause-by-clause review would not be possible tonight. If the GCC forms are implemented, the industry will have a substantial learning curve to go through. There will be surprises on the way if only because a significant proportion of Irish construction case law is likely to be of reduced utility. I have opted to select some themes as cut across various provisions. One could spend more than the entire period on any one theme.

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LEGISLATIVE FRAMEWORK: DRAFT 2005 REGULATIONS AND THE EU DIRECTIVE

In the near future public construction will have a new legislative framework in the form of the European Communities (Public Contracts) Regulations 2005. These Regulations are presently in draft form and have the aim of implementing EU Directive 2004/18/EC2 which is to replace, inter alia, the existing Works Directive 93/37/EEC3. When the new Regulations come into force, a substantial body of existing statutory instruments relating to public works contracts will be revoked4. The deadline for the Directive is 31st January 20065. As of late September 2005, the Regulations had not been passed into law. After a deadline passes, the EU doctrine of direct effect6 means that a directive becomes law which citizens may invoke against the Member State concerned and, whilst it would take years, the Member State could face EU-level penalties for non-compliance. It may be a coincidence that the GCC forms were released within the grace period for the implementation of the Directive. One view would be that the Minister does not want to promulgate the 2005 Regulations until such time as he has one or more 7 8 "framework agreements" in place with "economic operators" ; which terms are defined in Clause 3 (Definitions ­Article 1) of the draft Regulations. This might be a reason why the GCC appears to be in such a rush to complete a consultation process which entails a momentous change for the industry and which I would expect should realistically take at least a year. Another view is that that, other than cosmetic alterations, the Minister will railroad through the GCC forms no matter what views or reservations are expressed.

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OJ L 134 of 30th April 2004 OJ L199/54 of 9th July 1993 4 For the full list of Regulations to be revoked, see Regulation 102 to the draft 2005 Regulations. 5 Title II to the Directive at Article 80. The Directive is available at www.europa.eu.int 6 Craig & de Burca, EU Law, 3rd Edition, 2003, Oxford University Press at P. 178 et seq. 7 In this context "framework agreements" means the GCC forms. 8 "economic operators" is a reference to private or publicly subscribed construction organisations.

New Government Construction Contracts

Thos. Wren

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Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Other than possible political considerations, I see no link between the Minister's obligation to implement the draft 2005 Regulations and the as yet incomplete consultative process concerning the GCC forms. "Framework agreements" already exist in the form of the GDLA and IEI forms which forms are not prejudicial to the public purse provided designs are complete and documents are explicit at tender stage. 3 SOME PROVISIONS INVOLVING REAPPORTIONMENT OF RISK TO BE BORNE BY THE

CONTRACTOR

3.1 Listed Specialists instead of Nominated Sub-Contractors; the Contractor to Observe the Public Procurement Process; Related Cross Indemnities Refer Sub-Clauses 1.1, 3.5, 5.6, 5.7, 5.8, 5.9 and 5.10 Sub-Clauses 1.1, 5.6, 5.7, 5.8 and 5.9 state: [see screen] Under these provisions, an awarding authority can include a tender list of specialists from whom a contractor will be required to enter into a sub-contract with one. If the public procurement process is required, where the value of the sub-contract is likely to exceed the EU threshold under the Directive, currently Million, a contractor 6.3 will have to undertake the obligations which that process entails for no additional reimbursement and for no time extension. This includes the giving of a certificate to the Employer's Representative that the public procurement process was duly observed. A contractor may try to protect himself by seeking indicative prices from specialists prior to entering into the main contract but, understandably, specialists will have their own interests to protect. In other words, a contractor will be beholden to the public procurement process. Under EU law, the opening of the internal market to competition is of cardinal importance, subject to certain exceptions 9. Design services are not excepted although a 10 contracting authority may limit the number of candidates . Under the principle of equivalency, a contractor has a right to retain any sub-contractor or supplier of equal capability or specialisation as a `person' who may be a Listed Specialist. The inclusion of Sub-Clause 5.6 would appear to uphold the principle of equivalency. Other than a novated sub-contract where no choice exists, would there always be more than one sub-contractor on a list? Alternatively, would the Employer's Representative accept another sub-contractor not on the tender list of specialists?

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In the main being public policy, public security and public health; see Craig & de Burca, op cit., at 825 Directive 22004/18/EC; Recitals at Articles 26, 29 and 40.

New Government Construction Contracts

Thos. Wren

3

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Potential exists for these provisions to fall foul of TEU11 Articles 28 to 31 (measures having equivalent effect) and like provisions. If the GCC forms are implemented, any lists and their operation, or a refusal under Sub-Clause 5.6, or a novation, should be expressly covered in Sub-Clause 3.5 (Employer's Indemnity) which states: "The Employer shall indemnify the Contractor against any liability it incurs in the course of or as a result of Providing the Works, to the extent that it is: Caused by the negligence of the Employer, or For damage which is the unavoidable result of Providing the Works in accordance with the Works Requirements, not resulting from the Contractor's methods." This contrasts with Sub-Clause 5.8 which provides at the penultimate paragraph: "The Contractor shall indemnify the Employer against any liability or loss arising from the performance or non-performance by the Contractor of its obligations under this sub-clause." The last paragraph continues: "The Contractor shall not be entitled to an adjustment to the Contract Sum or extension of time and shall not be relieved of any obligations as a result of the matters referred to in this sub-clause." The relationship between the Employer's indemnity in Sub-Clause 3.5 to the Contractor's indemnity under Sub-Clause 5.8, is unclear. I would take the view SubClause 3.5 should take precedence if a contractor incurs a loss or a liability as a result of complying with Sub-Clause 5.8 where a competitive process provided by the Employer fell foul of EU law. But that view is not free from doubt. The public procurement process as provided in Sub-Clause 5.8 could include challenges such as occurred in the case of SIAC v Mayo County Council12. If a challenge were to be made, whether successful or not, having regard to the indemnity in Sub-Clause 5.8, a contractor would have to bear all costs incurred, including legal costs. If a sub-contractor were to be terminated for any reason, a contractor might have to go through the entire public procurement process again for no additional compensation or time. This is clear from Sub-Clause 5.10 which states:

11 12

The Consolidated Treaties of the European Union; Blackstone's EC Legislation, 2004/2005, 15 th Ed. SIAC v Mayo County Council, Supreme Court, 9th May 2002, approved in Clare Civil Engineering v Mayo County Council [2004] IEHC 135. Both are to be found on the Bailii web site.

New Government Construction Contracts

Thos. Wren

4

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

"The Contractor shall be liable for all the acts and omissions of Contractor's Personnel (including Specialists and any design they do) as if they were the acts and omissions of the Contractor, and shall not be relieved of its obligations under the Contract, and there shall be no adjustment to the Contract Sum or extension of time, because of the acts, omissions or defaults of any Contractor's Personnel." Note Sub-Clause 5.9 states: "The Contractor shall fully comply with its obligations under any contract with a Specialist and shall not terminate, or allow to be terminated or accept a repudiation of such a contract without the acceptance of the Employer's Representative. On such termination, the Contractor shall replace the Specialist with a replacement accepted by the Employer's Representative." How does a contractor prevent a sub-contractor from terminating or repudiating a sub-contract? This provision is not only unrealistic but it offends the no privity principle. Why should the Employer's Representative have a say in the process if, as the provision stands, a contractor expressly or impliedly has to bear the risk? If the Employer's Representative can refuse to accept repudiation, could this mean the Employer's Representative can instruct the Contractor to terminate a specialist sub-contract? Presumably, the obligation on a contractor to secure a replacement specialist could require him to go through the public procurement process again, for no additional compensation or time extension. In my opinion, these provisions are an unacceptable shifting of risk onto a contractor and are likely to be unworkable. These provisions could lead to either: (i) a spectacular collapse of a contractor with an attendant domino effect onto subcontractors as would require a replacement contractor and the likelihood of a greater burden on the public in terms of delay and cost, or (ii) a noticeable increase in tender prices to reflect the greater risk on contractors which Clause 5 entails, as would also impact on the public purse.

New Government Construction Contracts

Thos. Wren

5

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

3.2 The Risks Register; Contractors' Claims; Financial Compensation and Extensions of Time; Compensation Events; Compensation and Delay Formulae Refer the Schedule and Clauses 10 and 11 The objective of the GCC forms appears to be to reduce what a contractor could otherwise reasonably expect to receive by way of compensation, or additional time, or both, in the event that stated Employer's Risk events occur during a contract. The Schedule The GCC forms envisage that part of the Schedule will be completed by the Employer prior to the invitations to tender being released. Other parts will be completed by contractors. Compilation of the Schedule requires the exercise of options. Where options exist, the in-built default provisions mostly increase the risks which a contractor would have to bear. For example see Part 2 of the Schedule at Clause 3.8 (Existing Facilities) which states: "The Employer shall/shall not have the risk of loss of and damage to its existing facilities in accordance with sub-clause 3.8. (Delete as applicable. If none deleted, the Employer shall not have this risk and sub-clause 3.8 shall not apply.) Delay and Extensions of Time Refer to the definition of weather events in the Schedule at Part 2, Clause 10.6 as expands upon what is a weather event in the third bullet point to Sub-Clause 10.6: [see screen] This is a welcome development; it restrains arbitrariness on the part of the Employer's Representative. Note the first bullet point (cumulative rainfall) is incomplete. The second bullet point should become operative where rainfall in any one day exceeds 25mm. The effect on a contractor is not always a 1:1 relationship. It could take more than one day to clean up or for underfoot conditions to become manageable. The concluding two lines are of concern in that the number of 10-yearly occurrences should not be of relevance, particularly if `global warming' predictions come to pass. Refer to `Compensation Events' in the Schedule at Part 2 and Clause 11.1. [see screen] If the word `compensation' is written in one or more boxes by the Employer, in each instance, if an event arises, it becomes an Employer's risk item and attracts additional compensation (if the event occurs) to be worked out in accordance with Clause 11. If the word `Delay' is inserted, or a box is left blank, then if an incident arises it will be a delay event only.

New Government Construction Contracts

Thos. Wren

6

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Now turn to Sub-Clause 10.6 at the first bullet point at the words: "Each of the following are delay events: Compensation events listed in clause 11 (including those which the Schedule states are delay events and not compensation events)" Do the words in parenthesis above mean that if the word `Compensation' is written into the boxes in Clause 11.1 to Part 2 then those which are so identified are compensation events only and not delay events? It is reasonable that the events concerned should be both compensation events and delay events. In other words, the words in parenthesis above should be dispensed with. Refer to the Risk Register, Part 3 to the Schedule, at Columns A and B. This is to be read together with Sub-Clauses 10.6, 10.7, 10.8, 11.3 and 11.8 [see back of paper] If a delay event occurs, a contractor must serve notice under Sub-Clause 10.7. It would appear that he must also serve notice under Sub-Clause 11.3. Sub-Clauses 10.7 and 11.3 state: [see screen] The 20 working days requirement in Sub-Clause 10.7 is unreasonable if not unworkable. The cause or causes of the delay could be on-going. A suspension order could last more than 20 working days. How could a contractor in such a situation, or other continuing delay situation, give a revised programme "...and full details of the delay."? It should be sufficient that the Employer's Representative is placed on written notice that the Contractor considers a delay event has occurred. Other than a failure to serve notice altogether, it is objectionable in principle that the Employer could be discharged of all liability, especially in complex cases where the full extent of the loss of time and/or damages may not be known before overall substantial completion stage is attained. The powers given to the architect in the 1963 RIBA standard form of contract as enabled the time for performance to be extended "from time to time and at any time" was a pragmatic and sensible provision. Sub-Clause 11.3 attempts to foreclose the rights a contractor has under the Statute of Limitations to an unreasonable degree. Sub-Clause 10.8 (Omissions and Reduction of Time) states: [see screen] This suggestion runs contrary to all known case precedent in the relevant area. The final sentence "If there is no agreement there shall be no reduction." would appear to make nonsense of the entire sub-clause. What contractor would agree?

New Government Construction Contracts

Thos. Wren

7

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

The Impact of the Risk Register on the EOT Formula All items in the Register, with the exception of a weather event, are to be found in Clause 11.1. It is not clear why these risk events are to be subjected to special treatment. The effect of Columns A and B is to allow the Employer to limit the amount of an extension of time to which a contractor would otherwise be fairly entitled. For example, if 2 days were inserted under Column A, the contractor would get 2 days less than what he would be entitled to for any occurrence under the six listed risk events in the Risk Register. This does not apply to the other delay events as defined in Sub-Clause 10.6 nor does the EOT formula apply to those other delay events. The extension of time formula, in Sub-Clause 11.8 (calculated in terms of Site Working Days as defined in Sub-Clause 1.1) is:

X = Y ­ A ­ ((Y ­ A) x B)

Where:

{EOT Formula}

Y is the number of EOT days which the contractor could expect to receive in respect of any one delay risk event but for the redistribution of risk in the Risk Register. A is as Column A in the Risk Register, as inserted by the Employer prior to tender. B is the percentage as in Column B, as inserted by the Employer prior to tender. Take a worked example. Say a `weather event' occurred as resulted in a total loss of production of 5 days. To qualify for an EOT it would first have to survive the restrictive definition to Clause 10.6 as Part 2 to the Schedule. Say the Employer inserted `2 Days' in Column A and `50%' in Column B. Instead of the 5 days EOT the Contractor would only receive: 5 ­ 2 ­ ((5 ­ 2) x 0.5) = 1.5 Days EOT. Immediately prior to the EOT formula are the words: "The total number of Site Working Days time extension for a category of delay event shall be the value of X (not less than zero) solved as follows:" The words "not less than zero" are an ominous harbinger of what might transpire if the GCC forms are implemented as drafted. It is bad enough that a contractor has to suffer the effect of Column A as may contain figures which can only be either randomly selected or, alternatively, are selected with the aim of producing a negative result. The purpose of giving the Employer yet another bite of the apple in Column B is unclear.

New Government Construction Contracts

Thos. Wren

8

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

There is no reasonable reason why a part of what would otherwise be an extension of time entitlement should be re-distributed back to the contractor by an arbitrary decision of an employer in compiling the Risk Register. A contractor should at least get the additional time so as to avoid the imposition of LADs. Delay Costs The Schedule at Clause 11.7 to Part 4 provides: "The Contractor's tendered rate of delay costs is: ........ per Site Working Day excluding VAT (if blank read as zero)" This is, in effect, a reverse liquidated damages clause. As a concept it is not new. Since the sum to be inserted will not go to the bottom line of the tender, there is nothing to be lost by inserting a high figure and all to be lost if the Schedule is left blank. Sub-Clause 11.7 states: [see screen] If an EOT is granted for a Compensation Event as Sub-Clause 11.1, the basis for compensation will be whichever is the lesser of: (i) (ii) the daily rate inserted by the contractor in the Schedule; or, expenses unavoidably incurred.

The effect of this will be to put a contractor to the additional expense of having to present a quantum claim so as to satisfy the Employer's Representative that the daily rate in the Schedule is appropriate or that a higher level of compensation is in order. The absence of competition for the daily rate inserted in the Schedule makes the choice meaningless, other than for a contractor who would leave the daily rate blank (as would work a manifest injustice), or who would insert too low a daily level. This proposed provision only serves as a potential stumbling block for a hard pressed tenderer. As regards compensation in the event of competing delay events, refer to the second paragraph of Sub-Clause 11.7. This provides that, in the event of two or more competing delay events, any one of which is contractor-generated delay, a contractor shall receive no compensation for the period of concurrent delay. This is manifestly unfair. A more balanced approach is to be found in the Society of Construction Law's Delay and Disruption Protocol 13, at Para. 1.10, which states: "If the Contractor incurs additional costs that are caused both by Employer Delay and Contractor Delay, then the Contractor should only recover compensation if it is able to separate the additional costs caused by the Employer Delay from those caused by the Contractor Delay."

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The Society of Construction Law, Delayand Disruption Protocol, published October 2002.

New Government Construction Contracts

Thos. Wren

9

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

The third paragraph to Sub-Clause 11.7 is an oblique reference to delay straddling Christmas or the Builders' Fortnight. It is unclear if a contractor's expenses during these time periods would be separately assessed irrespective of the provisions as contained in the first paragraph i.e. if a contractor left the Schedule at Item 11.7 blank (note the words on line 5 of the third paragraph "...shall be taken into account..."). The Delay Compensation formula The delay compensation formula, in Sub-Clause 11.8 is:

X = Y ­ C ­ ((Y ­ C) x D)

Where:

{Delay Compensation Formula}

Y is the extra money which the contractor could expect to receive in respect of any one delay risk event but for the redistribution of risk in the Risk Register. C is as Column C in the Risk Register, a `deductible' as inserted by the Employer prior to tender. D is the percentage as in Column D, also inserted by the Employer prior to tender. As with the EOT formula, this formula only applies to those items in the Risk Register and not to the other compensation events. In practice, it could be the case that two compensation events will occur in the same time period. Say the rate in the Schedule was found to be the lower after an exercise under Sub-Clause 11.7 is performed. If there were two concurrent Employer risk events, one listed in the Risk Register the other not, is the delay compensation formula to apply or not? The position is not clear. Presumably, the amount for `Y' in the formula is to be determined with reference to Sub-Clause 11.7 at the first paragraph; that is, `Y' will be the lesser of (a) the actual unavoidable expenses incurred or, (b) the rate inserted in the Schedule at Part 4, Item 11.7 or, (c) nil if the Schedule at Part 4 is left blank. Note that `C' and `D' will have been inserted by the Employer prior to tender and could be at a level more than a contractor's actual costs or the daily rate inserted by the Contractor in the Schedule. Whether Compensation for Disruption or Other Than Delay Costs? The fourth and final paragraph to Sub-Clause 11.7 states (emphasis added): "Except as provided in this sub-clause and notwithstanding anything else in the Contract, losses or expenses arising from or in relation to delay or disruption shall not be taken into account in any assessment of an increase to the Contract Sum."

New Government Construction Contracts

Thos. Wren

10

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

The above quoted scant reference to disruption gives the appearance the draughtsman considers delay and disruption are one and the same, which they are not. Because of the words "Except as provided in this sub-clause and notwithstanding anything else in the Contract..." it is clear that any scope elsewhere in the Contract for disruption compensation, as in Sub-Clause 11.8 at the third formula, would have no effect. I would suggest that this is a mistake. The third formula in Sub-Clause 11.8, said to be for "other than for delay costs" is:

X = Y ­ E ­ ((Y ­ E) x F)

Where:

{Disruption Formula}

Y is the additional sum of money which the contractor could expect to receive in respect of any one disruption risk event but for the redistribution of risk in the Risk Register. E is as Column C in the Risk Register, a `deductible' as inserted by the Employer prior to tender. F is the percentage as in Column F, also inserted by the Employer prior to tender. It is not clear what this is for. If it is intended as a means of compensation for errors in quantities or descriptions in BOQs (in that an item in the BOQ could fall within the description "A factual error in information about the Site..." as in the last line to the Risk Register), at Sub-Clause 7.2, it would be a novel if not an inappropriate approach. If it is intended as limited compensation for disruption, the final paragraph to SubClause 11.7 presently excludes that possibility in any event. The other items in the Risk Register as compared with the rest of the identified `Compensation Events' would appear to have been arbitrarily selected and in respect of which the rationale of the draughtsman as to their selection would aid an understanding. As to the further percentage addition under column `F', the same comment as for Column `D' in the delay compensation formula applies. Likely Outcome of the Suggested Formulae The sole purpose of proposed formulae would appear to be to shift an unreasonable amount of risk onto a contractor of a type which is not possible to price other than by guesswork. The tendency would be for the formulae to reduce a contractor's entitlements for the compensation events concerned to nought despite his having incurred real loss. Contrariwise, if these risks are priced, public works will become more expensive.

New Government Construction Contracts

Thos. Wren

11

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

3.3 Substantial Completion and Taking-Over Part of the Works; DoubleCertification and Unclear Position vis-à-vis Relief from LADs Refer to Sub-Clauses 1.1, 10.9, 10.10 and 10.11 Sub-Clause 10.9 (Date for Substantial Completion) states: [see screen] Sub-Clause 10.10 (Taking Over of Part of the Works) states: [see screen] Sub-Clause 10.11 (Liquidated Damages) states: [see screen] Confusion as to the term `Taking Over'. Refer to third paragraph of Sub-Clause 10.9 at the words "The Employer shall take over the Works and each Section when the Employer's Representative certifies Substantial Completion...". On the words as quoted, taking over cannot occur before a certificate of Substantial Completion is issued. This is directly contrary to the definition of `Taking Over' in SubClause 1.1 which, at the second bullet point, expressly provides for `Taking Over' to occur before Substantial Completion. This sub-clause would also appear to be contrary to Sub-Clause 10.10 at the first paragraph which states: "The Employer may take over a part of the Works before Substantial Completion, provided that the Employer's Representative first issues a notice stating all of the following....." Difference between `Substantial Completion' and `Taking Over'? The best that can be said is that the two completion conditions are confused particularly when, under the definition of Taking Over, that condition includes 14 Substantial Completion . The provision for more than one certificate is confusing and unnecessary. Under the GDLA and the RIAI forms, `taking over' is not defined but would generally be understood to mean beneficial use and occupation by an employer where the architect has not issued, or has failed to issue, a certificate of practical completion for any reason. As the GCC forms stand, an employer could de facto take over the whole or a part of the Works but if the Employer's Representative failed or refused to issue a Substantial Completion or Taking Over certificate, the Contractor could still be liable for LADs and/or for damage to the works and/or the Defects Liability period would be unreasonably extended.

14

Refer to the first bullet point to the definition `Taking Over' in Sub-Clause 1.1. Note the impact this confusion could have on Sub-Clause 11.7 (Delay Cost) at the first paragraph.

New Government Construction Contracts

Thos. Wren

12

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Failure to recognise Taking Over The second paragraph to Sub-Clause 10.10 expressly provides that LADs shall reduce "...by the proportion of the Contract Sum represented by the value of the part of the Works taken over, as certified by the Employer's Representative." There is no such recognition in Sub-Clause 10.11, which refers only to substantial completion. Whether Discretion Exists in the Enforcement of LADs or not? Refer to the words in the first paragraph to Sub-Clause 10.11 "...the Contractor shall pay the Employer liquidated damages...". Absent is the presence of any discretion such as exists in Clause 29(a) of the GDLA form as includes the words "...and the Employer may deduct such damages...". The final paragraph to Sub-Clause 10.11 would reinforce the view that deduction of LADs is to be automatically applied, possibly by the Employer's Representative. Yet the final paragraph to Sub-Clause 11.10 (Employer's Claims) would suggest a measure of discretion: "The Employer may deduct from any amount due to the Contractor: Any amount determined by the Employer's Representative to be due, or likely to become due, from the Contractor to the Employer under the Contract and Any amount due from the Contractor to the Employer under any contract or otherwise." I would suggest that these provisions are in need of clarification. 3.4 Interim and Final Payment Refer Clause 12: [see screen] Times to Issue Interim Certificates Sub-Clause 12.1 provides for the issue of an interim payment certificate: (i) (ii) at the times as stated in the Schedule (if the amount payable is more than any minimum amount as may be stated in the Schedule); and, upon the issue of the Certificate of Substantial Completion for the Works or any Section.

Having regard to Sub-Clause 10.10 (Taking Over), it is surprising that there is no express provision to issue an interim certificate each and every time a taking over certificate is issued, or de facto take-over, so that LADs may be reduced as provided in the last paragraph to Sub-Clause 10.10. But, as stated above, the distinctions the draughtsman sought to make between `Substantial Completion' and `Taking Over' have been made more complex than appears to be necessary.

New Government Construction Contracts

Thos. Wren

13

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Supporting Evidence to be Provided with Payment Applications. On the third line after the 3 bullet points to the first paragraph to Sub-Clause 12.1, it would be prudent to insert the word "reasonable 15" before the words "supporting evidence" to restrain excessive demands by the Employer's Representative. Discretion afforded the Employer's Representative. The second bullet point to the second para. of Sub-Clause 12.1 provides that the Employer's Representative shall have discretion as to what he considers the value of any Works Item is. This is too wide for comfort. If values are stated in the Pricing Documents 16 as identified in the Schedule , s/he should only have the discretion to include or not to include depending on whether the Work Items are present and in proper condition or not. The Contractor's Bond for Off Site Materials Refer to Sub-Clause 12.1 at the last sub-sub-bullet point to the second sub-bullet point to the second bullet point at the words "(or if there is none, a form approved by the Employer's Representative)". This enables the Employer's Representative to demand a bond for any materials not on the Site to be included in an interim payment certificate17. Need for an Invoice Prior to Interim Payment. Refer to Sub-Clause 12.1 at the final paragraph. This is a new requirement. After the contractor receives an interim payment certificate, he is required to submit an invoice for the amount as certified. If a contractor is not satisfied with the amount certified, he would need to record the same in clear terms including a statement to the effect that the fact of his having to submit an invoice for the amount as certified shall not be interpreted to mean that he is satisfied with the amount for which he is required to invoice. Employer's Representative's certificate to include contra-charges or set-off. Penultimate paragraph to Sub-Clause 12.1. Note the use of the word "opinion" which includes "...any amount due from the Contractor to the Employer (including damages for delay), together with calculations and reasons for the opinion." Given that the Employer's Representative, under Sub-Clause 11.10, will have served notice of and "determined" the amount of any alleged Employer's claim against the Contractor, how can the Employer's Representative now express an `opinion' on the same matter? Any such deduction could, with respect to Sub-Clause 11.10, include a setoff for an anticipated loss of the Employer. This provision is liable to abuse and could seriously impede a contractor's cashflow.

15

In general, the GCC forms could use this word more frequently in describing the Employer's Representative's powers. 16 Refer the Schedule at Part 2, Clause 1.1; `Pricing Documents' as includes a BOQ (if any). 17 Refer to Model Form 6: Form of Bond Works Items as released with the GCC forms.

New Government Construction Contracts

Thos. Wren

14

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Period for Contractor to Submit Final Statement; No liability on the Employer for Items Missed by Contractor in Final Statement. The first paragraph to Sub-Clause 12.3 requires the Contractor to submit the final statement within 10 working days after Substantial Completion. It is an unrealistic and unworkable provision. Note the Employer's Representative has no duty to ensure that all items are included in the final statement. Unresolved Compensation Events. Refer final sentence to the first paragraph of Sub-Clause 12.3 which states: "The Employer shall have no liability to the Contractor under or in relation to the Contract for any matter not detailed in the final statement, except under the indemnities in the Contract, or compensation events occurring after Substantial Completion of the Works was certified." This is too restrictive and could operate to prevent matters going to arbitration or would otherwise make life impossible for the Contractor's legal advisors in the event of an unresolved dispute continuing more than 10 working days after substantial completion. Finality of Employer's Representative's Penultimate Payment Certificate The second paragraph to Sub-Clause 12.3 places an obligation on the Employer's Representative to certify the amount "...finally due from the Employer to the Contractor...". How can this be so when it is only a penultimate certificate? The next paragraph, as pertains to the final payment certificate, contains the same provision. Neither this sub-clause nor Sub-Clause 12.4 contains an express provision for either party to challenge the Employer's Representative's final certificate18. Final Payment Certificate not `Final'. Refer to Sub-Clause 12.4 which provision purports to rob the final payment certificate of its finality in terms of relieving the Contractor of any obligations or as evidence of the value of the work, or that the work has been executed satisfactorily. This compares with Clause 35(g) of the current DGLA form. What purpose, therefore, does the final certificate serve? From another aspect, if `final' does not mean what it says, then it can only mean that both parties should be able to rely on the relevant period in the Statute of Limitations to, inter alia, serve notice of arbitration.

18

This provision can be contrasted with the GDLA standard form and the noted decision in P. Elliot & Sons v Minister for Education [1987] ILRM 710; see Lyden, Irish Building and Engineering Case Law, at Case E.5.

New Government Construction Contracts

Thos. Wren

15

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

3.5 Value Engineering Refer Clause 6 Sub-Clause 6.7 (Value Engineering) states: [see screen] The draughtsman has left no room for the Employer to receive a `value-add', which does not always mean value in the financial sense. Why would any contractor propose to accelerate the Works without additional compensation? Why should he only get half of the saving in cost? I would suggest this provision is too restrictive. Refer to the final paragraph to Sub-Clause 6.7 for the treatment of extensions of time in respect of `value engineering'. This provides that, if an extension of time is given in connection with a value engineering proposal, it can only be granted on a conditional basis; namely, if the due date is not achieved by the extended date, the extension of time will have no effect. Worse still, any subsequent interim time extensions (say, if the Contractor was delayed in the implementation of the proposal by an Employer's Risk item) shall have no effect. This is a most unusual proposal and contrary to all Common law understanding of time extensions in connection with building contracts. Why should a contractor be penalised by having a subsequent valid interim extension of time taken away from him? Either an interim extension of time is granted or it is not. The law and practice is that, once granted, an EOT cannot be taken away or reduced (subject only to what an arbitrator might subsequently award) on the grounds that the contractor has legitimate expectation to rely on the time awarded. The doctrine of 19 promissory estoppel is also relevant. The best that can be said for Sub-Clause 6.7 is that the Employer's Representative has no power to instruct the Contractor to take action under it. If a sense of balance cannot be restored to what could be a provision of benefit to both parties in certain situations, I would suggest that it can be quietly forgotten. 3.6 Amendment of Works Proposals Sub-Clause 6.5 (Amendment of Works Proposals) states: [see screen] If any works proposals of the Contractor are impossible or illegal, it is reasonable that the Contractor should be obliged to submit an alternative at his time and cost. But if the Works Requirements of the Employer, or a part thereof, are impossible or illegal it is unreasonable in the extreme to make the Contractor responsible to resolve the matter, particularly on this form where the responsibility for design rests with the Employer. It would appear that, as this provision stands, the Contractor assumes this risk.

19

Refer McDermott, Contract Law, Butterworths, 2001, at [2.93] et seq.

New Government Construction Contracts

Thos. Wren

16

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

4

ABSENCE OF A DRAFT FORM OF SUB-CONTRACT FOR USE WITH THE GCC FORMS

Refer Model Form 11: `Terms of Contract for Listed Specialists A glaring omission is the absence of a proposed form of sub-contract for use with the draft GCC forms. The existing printed conditions of sub-contract for use with the GDLA main contract form are not suitable for use with the GCC forms. Model Form 11, as released by the GCC, is merely a list of some of the draft main contract provisions as could be included in a sub-contract. This approach is not sufficient. Without a draft new sub-contract form, as should be circulated before the GCC forms are agreed and implemented in whatever final form they are to take, the industry will inevitably pull and drag in different directions. It is not appropriate to say that a subcontract form can be left until later. If a sub-contract form to suit the GCC forms is not produced before the latter are implemented, some main contractors will have the resources to draft a form of subcontract which meets as best it may the GCC forms; others will not. Even for those that do, some sub-contractors will understandably be reluctant to agree to bespoke conditions or to appear to volunteer as guinea pigs on an untried form. 5

POTENTIAL IMPLICATIONS FOR THE QUANTITY SURVEYING PROFESSION AND OTHER PROFESSIONALS

5.1 Bills of Quantities (BOQs) Sub-Clause 1.1 (Definitions). "Bill of Quantities means the part of the Pricing Document identified as the Bill of Quantities, if there is one." The words "...if there is one." opens the door to awarding authorities dispensing with BOQs in favour of other approaches. One approach would be to have all-inclusive line items cross-linked to a programme similar to the NRA's most recent round of roads contracts based on the 1999 FIDIC `Plant Design and Build' form. The position as regards NRA projects is that BOQs have become a thing of the past. I am not suggesting that this will be the case, but the temptation for some local authorities to dispense with BOQs is bound to emerge based on the NRA experience. This is nothing new for some local authorities. Some local authorities already put public housing works out to tender based on drawings and a specification with no BOQs. This could presage a shift in client base from local authorities to contractors, or a mix of the two as could result in conflict of interest difficulties.

New Government Construction Contracts

Thos. Wren

17

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

5.2 Status of the Agreed Rules of Measurement (ARM) and the Correction of Errors in BOQs Unlike the GDLA, no express reference is made to the ARM in the GCC forms. Sub-Clause 7.2 deals with Errors in Quantities or Descriptions in Bill of Quantities. The first two paragraphs to this Sub-Clause state: "This sub-clause shall apply only if it is stated in the Schedule that there may be an adjustment in relation to errors in quantities or descriptions in the Bill of Quantities under this sub-clause." "If the Bill of Quantities incorrectly (taking into account any method of measurement, including any amendments, referred to in the Pricing Document) describes the Works in comparison with how they are described in the Works Requirements in the Contract:...." The sole concern here is the impact on the standing of the ARM due to the proposed means for the treatment of errors in BOQs. The effect of this provision is that, unless the ARM is expressly stated in the Schedule, the ARM shall not apply. This is as a consequence of the `one size fits all' approach in the GCC forms. As regards the two building works forms, I see no reason why the ARM should not be expressly referred to as a default provision because, if BOQs are to be a part of a contract, it is clear that some measurement rules will have to apply. Otherwise the tendency will be for abridged or novel rules, as is already a creeping tendency. If the ARM is to be a relevant contract document, errors in the BOQs are to be treated in accordance with Sub-Clause 11.1 (Compensation Event) as effectively makes the ARM redundant. As the draft stands, Sub-Clause 11.1 fails to list errors in quantities or descriptions in BOQs as a Compensation Event. When this drafting oversight is corrected, then any SubClause 7.2 error is to be dealt with by the formula approach discussed earlier. One effect of not correcting errors and omissions in BOQs as they are currently treated under the GDLA form is that there will be a tendency for BOQs to become less accurate, particularly if the Schedule provides for a large `Deductibles'. Part 2 of the Schedule at Clause 7.2 states: "If Sub-Clause 7.320 applies, the net amount of any increases and decreases to the Contract Sum under that sub-clause shall exclude the first ___________ (if none stated, zero)."

20

This is a drafting error; it should state Sub-Clause 7.2.

New Government Construction Contracts

Thos. Wren

18

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

This provision lacks accuracy although is not objectionable in principle. The effect would be that a quantity surveying practice would have no liability 21 to the person who commissioned the BOQ in the event a quantitive or descriptive error was less than the threshold (provided the threshold was not zero). 5.3 Potential for New Services by Quantity Surveyors The GCC forms propose to abolish the nominated sub-contractor system. Instead, an employer will include a prospective list of specialists in the invitation to tender. The contractor, post-award, will then have to invite tenders for each specialist works package from the list. This was discussed earlier; Sub-Clause 5.8 (Listed Specialists) and SubClause 5.9 (Specialists' Contracts). Many contracting organisations may not be prepared to train and retain expert personnel to oversee the public procurement process or to issue a certificate as is contemplated in Sub-Clause 5.8. Quantity surveying practices will have new opportunities to offer these services to contractors, possibly in association with solicitors, provided they have the necessary level of PI insurance cover to support the issuing of such certificates. 5.4 Potential Loss of Status for Quantity Surveyors Unlike in the GDLA, there is no reference to `the Quantity Surveyor' in the GCC forms. When the GDLA was first implemented, the separate recognition of the Quantity Surveyor was a welcome development. Our profession needs to be visible. We should strive to keep our visibility and our independence in the construction process to the maximum possible extent. The GCC forms are a retrograde step for our profession in my opinion, particularly when juxtaposed with the dubious status of BOQs and the ARM. In particular, whilst `the Quantity Surveyor' is on the `team of consultants', s/he is not technically a member of the `design team'. Some may say this is semantics. But the fact is quantity surveyors do not design or carry PI for design services, unless in a multidiscipline practice. Separate identification places a commonsense cushion of comfort between the QS function and the designers' functions. 5.5 Potential Danger for All Consultants Engaged by a Contractor Sub-Clause 1.1 defines the Site thus (emphasis added): "Site means any of the following; Places where the Works are to be executed and the Works items delivered

21

Volenti non fit injuria (there is no damage without injury). Refer McMahon & Binchy, Law of Torts, 3rd Edition, Butterworths, 2000, at [20.61] et seq.

New Government Construction Contracts

Thos. Wren

19

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Places provided by the Employer for the provision of the Works Places where the Contractor is to operate or maintain Employer's facilities or provide other services Anywhere else the Works Requirements state is part of the Site." This definition is unacceptably wide. The third bullet point has the effect of bringing the Contractor's head office and/or the offices of any consultants and, possibly, the office of the Contractor's solicitors within the definition. In the event of a determination under Clause 13, the third bullet point could result in an employer attempting to seize the contractor's head office or to "...promptly remove any Things from the Site...". 6

SUMMARY

Pickavance states "There is nothing intrinsically bad in assuming risk. The challenge is in identifying the risk retained and recognising the fact that a risk which is transferred 22 under some circumstances may be retained under others. " He continues: "...the following principles of risk apportionment are generally assumed to be efficient and fair in the industry at the moment: (a) Risks should be allocated to the party best able to control them. (b) Risk should not be allocated to a party who is unable to sustain the consequences if the risk materialises. (c) Risk allocation should encourage risk management by the party best able to manage the risk. (d) The party that does not assume primary responsibility for risk should nevertheless be motivated to manage the consequence of the risk if it materialises.23" In summary, as regards the GCC forms, I would suggest that: 1. 2. 3. 4. 5. Risk distribution is not balanced relative to what a contractor can absorb. The drafts have too many errors, inconsistencies and anomalies. The absence of a draft new form of sub-contract is a major detraction. The days of BOQs and/or the ARM could be numbered on building works. A far longer time period is advisable before the GCC forms are implemented.

What is at issue is a sea change for the industry in the public sector. A wider issue is that the approach taken in the GCC forms could spread to the private sector if developers perceive that the RIAI standard forms are too lenient by way of risk apportionment. On account of the reasons I have outlined24, I could not at present commend the GCC forms for use by the industry.

22 23

Pickavance, Delay and Disruption in Construction Contracts, LLP, 1997, at p.15 Pickavance, op. cit., at p.18. The quotation has been abridged to exclude examples.

New Government Construction Contracts

Thos. Wren

20

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

OTHER ITEMS (WHICH TIME DID NOT PERMIT TO BE READ) Convoluted or Unclear Definitions Refer Sub-Clause 1.1 Time only permits brief mention of some definitions as could be simplified. `Contractor's Things', Employer's Things' and `Things' Refer `Contractor's Things'. The word `Things' seems to have perplexed the draughtsman who has also defined `Employer's Things' and `Things'. Two of the definitions cross-refer to each other. The word `needs' in the definition of `Contractor's Things' is dangerous in that it would be open for the Employer's Representative to say the Contractor needed a `Thing'. It would be safer to replace the word "needs" with "considers necessary or chooses to use", or similar. The definition of `Employer's Things' includes "...things...which, under the Contract, the Employer is to provide to the Contractor for the provision of the Works." Yet in the definition of `Contractor's Things', the Contractor is apparently prevented from using `Employer's Things' and, with reference to the definition of `Things', the Contractor always has to give back `Employer's Things' to the Employer. What if, as part of a contract, the Employer was to give free of issue `Employer's Things' to the Contractor for incorporation into the Works? Moreover, having regard to the definition of `Defect', why should the Employer be excused if `Employer's Things' so given to the Contractor are defective and which could be the cause of loss or damage to the Contractor and/or third parties and/or extend the Defects Period? My belief is that the whole treatment of `things' needs to be reconsidered. `Employer's Representative'; `Person' and `Individual' According to the definition of `person' in Sub-Clause 1.2, the Employer's Representative would appear to exclude an individual i.e. a human person. But the use of the word `include' after `person' as defined in Sub-Clause 1.2 makes it unclear whether the draughtsman intended the word `person' to include a human person. `Documents' and `Contractor's Documents' These definitions also appear to have taxed the draughtsman. Article 5 to the Recitals defines the Contract documents which includes "The Works Requirements in the Schedule". What, therefore, is meant by the words "...other Works Requirements..."in

24

Many more exist, especially in relation to insurance obligations.

New Government Construction Contracts

Thos. Wren

21

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

the definition of `Documents'? Are letters or notes of meetings written by the Contractor during the currency of a contract within the definition of `Contractor's Documents' given that they are `records' although they might not be "...other documents of a technical nature..." i.e. a letter might only be contractual in nature? `Law', `Legal Requirement' and `Consent' `Law' must be read with Sub-Clauses 2.1 and 2.2. There is no `subsequent legislation' clause and I do not see anything as would give comfort in Model Form 1 (Form of Tender). Subsequent legislation is not in the Risk Schedule or Sub-Clause 11.1. Sub-Clause 2.2 should, I would have thought, made it explicit that subsequent legislation after the Designated Date25 will give a contractor an entitlement to additional compensation if, on the balance, a contract becomes more onerous to perform because of it. It is not difficult to foresee an Employer's Representative contending that subsequent legislation is deemed included in Clause 1.14 (Contractor to Satisfy Himself). In addition, complying with a new law could become a "...requirements of any person having authority in relation to the Provision of the Works under any Law" within the definition of `Legal Requirement' as below. `Legal Requirement'. In my opinion this definition is too wide. First, a Consent, as defined, could be subject to challenge yet remain in force. For example, a fire certificate or a licence or a permit could be subject to judicial review proceedings. What then? Is the Contractor to proceed or can he reasonably expect that the Employer's Representative will be legally obliged to suspend the Works or the affected part pursuant to Sub-Clause 10.5? Second, the fourth bullet point to `Legal Requirement' ("the requirements of any person having authority in relation to the Provision of the Works under any Law") could have considerable implications. `Any person' in the context as used includes the Employer's Representative. Even if such a person is wrong or negligent in giving an opinion or interpretation of the specification, it then becomes a Legal Requirement and if the contractor does not comply, he will be in breach of contract. So how does a contractor contest a faulty or negligent or biased decision or opinion of the Employer's Representative? One must look to the confused wording to Sub-Clause 14.1. `Access' to Replace `Possession' Refer Sub-Clause 8.1, 8.3 and 8.4 Sub-Clause 8.1 is a significant departure from Clause 28(a) of the GDLA form, which latter provides for possession, as one would expect in order to be able to prosecute the Works. In the GDLA form, if the Employer fails to give the Contractor possession

25

Which definition does not appear to have been put to substantive use.

New Government Construction Contracts

Thos. Wren

22

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

within 10 days after acceptance of the Contractor's tender, the Contractor is entitled to compensation for any dislocation suffered and to an extension of time. `Possession' is to be replaced by the ubiquitous word `Access'. I would consider it desirable to have the word `possession' reinstated. It is clear that `access' is sometimes to be on a phased basis. The three bullet points for `access' will give difficulties because access is only required to be given to the Contractor on the latest of 3 alternative dates: (i) the Starting Date (which definition has potential for confusion). (ii) the date stated in the Works Requirements (if any). (iii) "the date stated in the Contractor's programme most recently accepted by the Employer's Representative." Why not the earliest date? The last of these, as quoted, could be particularly problematic. A contractor may wish to change his programme or may be obliged to do so having regard to Sub-Clause 10.3 If a date for the commencement of a section was brought forward in time on a revised programme, it could be open to the Employer to say that he relied upon the Contractor's previous programme as might prevent the Contractor from making the optimum use of the time allowed to him to perform the Works including the Contractor's entitlement to use float as he sees fit. Sub-Clause 11.1 (Compensation Event), the fifth bullet point states: "failure of the Employer to give access to a part of the Site in accordance with the Contract." What if the Employer failed to give `access' to any part of the Site? The three options as noted above will only serve to muddy the waters as to the Contractor's entitlement to proper compensation at a level as reflects the loss as would arise due to late possession, whether in whole or in part. The first paragraph to Sub-Clause 8.3, states that the Contractor is to be responsible for the security and safety of the entirety of the Site "...from the Starting Date until Taking Over of the Works or the relevant section or part...". This is an unreasonable requirement having regard to the fact that the Contractor is not in possession; it is likely to have insurance implications. With reference to Sub-Clause 8.4, how can a contractor be responsible for cocoordinating the activities of other contractors of the Employer with whom the Contractor is not in contract? This provision is a watered-down version of Clause 20 of the GDLA form. Unlike the DGLA form, Sub-Clause 11.1 does not identify delay and disruption suffered as a result of the presence of other contractors of the Employer on the Site as a compensation event. This stance may have been taken on account of the proposal, discussed above, that the Contractor will not have possession of the Site but `access' only. I would suggest it is unreasonable not to provide for compensation or for an extension of time on this account.

New Government Construction Contracts

Thos. Wren

23

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Treatment of Defects: Discovery of, Liability for, Set-off and Final Certification Refer Sub-Clauses 9.3, 10.12, 10.13, 11.1, 11.10 and 12.4 Contractor to Search for Defects or Suspected (possibly Phantom) Defects As the first paragraph to Sub-Clause 9.3 stands, the Employer's Representative could demand that the Contractor go out and search for defects without there being any reasonable grounds to suspect the existence of a defect, latent or apparent. This could tieup considerable resources with attendant delay and additional expense26. Provision to leave a Defect remain in the Works. Refer to the sixth paragraph to Sub-Clause 9.3. This allows a defect to remain in the Works with the Employer's agreement but with a reduction in the Contract Sum, which reduction is to be determined by the Employer's Representative and which, in his opinion, "...is the resulting decrease in the value of the Works to the Employer." This will give rise to disputes where an unreasonable stance is taken on an alleged defect which is no more than a subjective opinion on a matter as goes to aesthetics as distinct from a material defect. Note the definition of `Defect' in Sub-Clause 1.1. An example would be paint work on, say, an external plastered wall where minor variances in the plaster give rise to `shadows'. The plaster and the paint are perfectly sound and the Employer has received full value but the Employer's Representative is unhappy (and, possibly, will never be happy). Absent is a saving provision to allow for minor imperfections so as to restore a sense of balance. Defects Period Refer to Sub-Clause 10.12 at the first paragraph and the words "...any Defects....". This is too wide in scope in that it fails to make any allowance for fair wear and tear or damage caused by the Employer or the occupants, or vandalism, or like matters as could occur between take-over and substantial completion, or during the Defects period per se. No Right to Demand Correction of a Defect Compromised under Sub-Clause 9.3 If the Employer allows a Defect to remain in return for a consideration as provided in Sub-Clause 9.3 at the penultimate paragraph, it would be an unacceptable situation if, at a later date, the Employer were to demand that the said Defect be made good without additional compensation. Sub-Clause 10.12 at the second paragraph appears to ignore the 27 doctrine of estoppel .

26

The apparent relief afforded to a contractor against phantom defects in sub-bullet point 2 to the first bullet point to Sub-Clause 11.1 (Compensation Event) may not provide adequate compensation. 27 In this case promissory estoppel; refer McDermott, op. cit., at [2.93] et seq.

New Government Construction Contracts

Thos. Wren

24

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Time to Make Good Defects The fourth paragraph to Sub-Clause 9.3 allows a contractor to comply with an instruction to make good defects "...within the reasonable times (if any) the Employer's Representative instructs." But in the third paragraph to Sub-Clause 10.12 the draughtsman now wants this period to be 14 days from the date of the instruction. Why introduce a time limit at this point? Defects Made Good by Others. Refer the third paragraph to Sub-Clause 10.12. If the Employer's Representative employs others to remedy defects, the words in parenthesis state that such others would not be Employer's Personnel. Clearly, with reference to the defined terms in Sub-Clause 1.1, they could not be Contractor's Personnel as they would not be under the Contractor's control. The term `Employer's Personnel' includes "anyone else the Employer's Representative notifies the Contractor is Employer's Personnel". Who else could such persons be? This needs to be reconsidered; it has health & safety, insurance and employment law implications. Defects Certificate: Absence of Certification in Stages. Refer to Sub-Clause 10.13. If the Works are completed in stages and are certified substantially complete in stages, then the Contractor is entitled to a Defects Certificate for each stage. As this provision stands, this is not the case with the result that it is contrary to the definition of `Defects Period' in Sub-Clause 1.1 which states (emphasis added): "Defects Period for the Works or a Section means the period starting when Substantial Completion of the Works or Section is certified under the Contract and continuing for the period stated in the Schedule, as extended in accordance with the Contract." Sub-Clause 11.10 (Employer's Claims) is the provision where a financial adjustment to a contract for alleged unresolved defects would be sought or enforced by an employer. In the first paragraph, the word "consider" on the first line suggests or infers the absence of the need to first prove that, on the balance of probabilities, the Employer suffered a loss due to an act or default or omission of the Contractor, or that the Contractor was in breach of contract. Note also that the Employer, or the Employer's Representative (who is charged elsewhere in the Contract to weigh the balance as between the parties in deciding matters or in issuing decisions or opinions or certificates), is only obliged to serve notice "...as soon as is practicable..." rather than within a specified time limit as is imposed upon the Contractor.

New Government Construction Contracts

Thos. Wren

25

Society of Chartered Surveyors, Southern Region

Cork, 24 th October 2005

Employer's Representative to Determine the Employer's Claims. Refer to the second para. to Sub-Clause 11.10. In instances where the notice and accompanying particulars were served by the Employer's Representative under the first paragraph to this Sub-Clause, how possibly could the same Employer's Representative also "determine" the matter at issue? This offends the nemo iudex doctrine28. Deduction of Sums in Anticipation. Refer the first bullet point to the third paragraph to Sub-Clause 11.10. To give to the Employer's Representative the right to deduct from sums due to the Contractor any amount "...likely to become due..." is anticipatory and unacceptable. It could result in monies being withheld for any reason as could include work which the Contractor is about to do, but has not yet done, and which in the Employer's Representative's subjective opinion might not be done correctly. Alternatively, it could include the withholding of monies for non-existent or phantom defects discussed earlier. Termination Refer Clause 13 In the time available, this clause is too complex to review. I will limit my comments to Sub-Clause 13.5 (Termination at Employer's Election) which states: The provision is silent as to the damages which should follow wrongful termination. Ordinarily, this would not give cause for concern because the common law applies. What is unacceptable in this instance is the effect of the final paragraph to Sub-Clause 11.2 ("The Contractor's sole remedies for a compensation event shall be those expressly stated in the Contract."). Wrongful termination by the Employer is not stated to be a Compensation Event. Termination can have considerable consequences for a contractor's standing in the industry. Its treatment in Sub-Clause 13.5 is almost flippant. Sub-Clause 13.6 appears to exclude wrongful termination from the ambit of Clause 11 at the third bullet point ("all other amounts to which the Contractor is entitled under the Contract."). There should be an express right to damages under or upon a contract as would include loss of profit and loss or injury to reputation. In addition, is it right that the Employer's Representative should be called upon to assess the level of damages (the `termination sum') as would arise following wrongful termination?

28

No man may be a judge of his own case; Hogan & Morgan, Administrative Law in Ireland, 3rd Ed., Thompson Roundhall, 1998, at p.511.

New Government Construction Contracts

Thos. Wren

26

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