03/07/2018 - rics.org

03/07/2018

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RICS CPD Series:

Appropriate Contract Selection

June 2018

Content

► The “Black Book” Guidance Notes

► What are the “Black Book” Guidance Notes?

► Who are the “Black Book” Guidance Notes for?

► The importance of the “Black Book” Guidance Notes

► The importance of choosing the procurement route first

► The Guidance Note on Appropriate Contract Selection

► General Principles (Level 1 – Knowing)

► Practical Application (Level 2 – Doing)

► Practical Considerations (Level 3 – Doing / Advising)

► Appendix

What are the “Black Book” Guidance Notes?

The “Black Book” Guidance Notes

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What are the “Black Book” Guidance Notes?


► There is a suite of “Black Book” Guidance Notes available from the RICS:

► http://www.rics.org/uk/knowledge/professional-guidance/black-book

► http://www.rics.org/uk/shop/standards/blackbook/?id=&p=0

► For example: Cost Reporting, Extensions of Time, Tendering

Strategies, Defects and Rectifications, and Valuing Change

► When complete, there will be 35 Guidance Notes in the suite

► Cross-industry collaboration

► Developed in conjunction with practitioners, contractors, clients and

other professional bodies

► A lead author develops each Guidance Note in conjunction with the

RICS’ Black Book Working Group

Who are the “Black Book” Guidance Notes for?


► “These standards are essential development tools for younger

professionals working through their APC and useful guides to best

practice for more experienced professionals” (RICS’ website)

► The Guidance Notes are for QSs, clients, contractors, those who need to

be informed

► The Guidance Notes will assist those going through the APC

► The structure of the Guidance Notes conforms with the APC:

► Level 1 – Knowing

► Level 2 – Doing

► Level 3 – Doing / Advising

The importance of the “Black Book” Guidance Notes


“When an allegation of professional negligence is made against a surveyor,

a court or tribunal may take account of the contents of any relevant guidance

notes published by RICS in deciding whether or not the member had acted

with reasonable competence.”

“In the opinion of RICS, a member conforming to the practices

recommended in this note should have at least a partial defence to an

allegation of negligence if they have followed those practices.”

“However, where members do not comply with the practice recommended in

this note, they should do so only for a good reason. In the event of a legal

dispute, a court or tribunal may require them to explain why they decided not

to adopt the recommended practice. Also, if members have not followed this

guidance, and their actions are questioned in an RICS disciplinary case, they

will be asked to explain the actions they did take and this may be taken into

account by the Panel.”

http://www.rics.org/uk/knowledge/professional-guidance/black-book

http://www.rics.org/uk/shop/standards/blackbook/?id=&p=0

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Why the need for a Guidance Note on Appropriate Contract Selection?


► Published in November 2014

► A frequent topic that professionals are called to advise on

► A regular topic for the APC Critical Analysis

► Enables candidates to analyse a real life problem and demonstrate

critical reasoning

► From a legal perspective – selecting an inappropriate form of contract or

using a contract inappropriately often ends in a dispute

► As does not having a contract at all!

► It should be read in conjunction with the Guidance Notes on “Tendering

Strategies” and “Developing a Construction Procurement Strategy and

Selecting an Appropriate Route”

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Choose the correct procurement route first


► Select the correct procurement route first

► Do not put the cart before the horse

► Read the RICS’ Guidance Note on this topic: “Developing a Construction

Procurement Strategy and Selecting and Appropriate Route” (GN

109/2013)

Do not select the construction

contract before choosing the

correct procurement route

Choose the correct procurement route first


► Consider the relationship between Performance, Cost and Time

► This will assist in determining the most appropriate procurement route

Content of the Guidance Note


Introduction

General Principles (Level 1 – Knowing)

Practical Application (Level 2 – Doing)

Practical Considerations (Level 3 – Doing / Advising)

Appendix – Contract Comparison

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Some words of warning


► The choice of construction contract will not, on its own, determine whether

a particular project is completed on time, to budget, with minimal defects

and safely

Chosen

Procurement

Route

Tendering

Strategy

Project

Success

Choice of, and

risk balance in,

the construction

contract

Skills of the

Contractor and

its supply chain

Good

Programming

and PlanningGoals, attitude and

approach of each party

What the Guidance Note does / does not cover


Does cover

► How Employers and their professional advisers should select a

construction contract to engage a contractor to carry out work on private

or public sector construction projects

► Focussed on the UK market – but the principles are broadly applicable in

other jurisdictions

Does not cover

► The needs of the consumer / domestic market

► Other contracts that an Employer may require on its construction project,

e.g. the appointment of the professional consultants (architect, cost

consultant, project manager etc)

Procurement Routes


► A recap on the various procurement routes available for construction

projects in the UK, e.g.

► Traditional (Lump Sum or Remeasurement)

► Design & Build

► Engineering, Procurement and Construction (EPC)

► Construction Management

► Management Contracting

► Public Private Partnerships (PPP)

► Others, e.g. Cost Plus / Cost Reimbursable, Target Cost, Term

Contracts, Framework Contracts, Alliancing, Partnering

► Read the RICS’ Guidance Note on this topic: “Developing a Construction

Procurement Strategy and Selecting and Appropriate Route” (GN

109/2013)

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The use of standard form construction contracts


► Standard form construction contracts

► Typically drafted by construction industry bodies or trade associations,

e.g. JCT, NEC, FIDIC, NFDC

► Intended to provide a set of standardised terms and conditions for

Employers and Contractors to contract upon

► Should save the parties time and money because they are not

negotiating bespoke contracts for each new project

► Can be used unamended, but frequently are not

► Certain standard form construction contracts have been developed for

use in certain sectors, e.g. civil engineering, process engineering

► Beware of different risk allocations – the standard form construction

contracts deal with particular risks in different ways

► You need to know the differences between the contracts, e.g. see the

Appendix to the Guidance Note

► Standard form construction contracts often have ready-made sub-

contracts already drafted

Publishing bodies and the different forms of construction contract


► There are many different standard form construction contracts available

for use in the UK

► Contracts for use with the various procurement routes

► Contracts for use in certain sectors

► Published by construction industry bodies or trade associations

The Joint Contracts Tribunal (JCT)


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The New Engineering Contracts (NEC)


► Engineering and Construction Contract

► Engineering and Construction Subcontract

► Engineering and Construction Short Contract

► Engineering and Construction Short Subcontract

► Design, Build & Operate Contract (new for NEC4)

► Alliance Contract (new for NEC4)

► Professional Services Contract

► Professional Services Short Contract

► Term Service Contract/ Short Contract

► Supply Contract & Short Contract

► Supply Framework Contract

► NEC3 Adjudicator's Contract Dispute Resolution Service Contract

► Guidance Notes and Flow Charts

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Other publishers of standard form construction contracts


Other publishers of standard form construction contracts


Procurement, tendering and contract selection


► Procurement – The overall process of obtaining goods and services from

external sources (e.g. a contractor)

► Contract selection flows from the choice of procurement route

► Examples of the construction contracts that can be used with the most

commonly adopted UK procurement routes are detailed in the

Guidance Note

► Tendering is the bidding process and the actual process of appointing a

contractor

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Other factors influencing the choice of construction contract


► The type of works required and sector

► What type of works will take place? What sector is it?

► Certain sectors will be more familiar with certain types of construction

contract than others

► Imposing an unfamiliar form of construction contract may have

adverse consequences

► Examples of the sectors in the UK that use particular forms of contract

are detailed in the Guidance Note

► The size, value and complexity of the project

► The chosen construction contract should be appropriate to the size,

value and complexity of the project

► A number of contracts are available for low and medium value projects

► Inappropriate use of a contract may have adverse consequences



► The Employer and their level of sophistication and familiarity with

construction

► Public / quasi-public sector Employers are more constrained regarding

the types of contract they are able to use

► NEC3 suite of contracts for construction projects (although JCT

Constructing Excellence and PPC2000 also endorsed)

► PPP projects have their own requirements (e.g. PF2, Priority Schools

contracts)

► Network Rail – their own suite of JCT and ICC contracts

► Highways Agency – NEC3 ECC

► Prisons – PPC2000

► Private sector Employers have more freedom of choice

► Is the Employer more familiar with certain types of contract than

others?

► The Employer’s level of sophistication, familiarity with construction and

administrative capabilities?



► Balance of risk / risk allocation

► The choice of procurement route has a major bearing on the balance

of risk within a project and the chosen construction contract

► Certain procurements routes are inherently riskier for certain

parties, e.g. design & build is riskier for the Contractor, whereas

management contracting is riskier for the Employer

► Risk allocations will vary even between contracts that are designed

for use with the same procurement route, e.g. different levels of

responsibility for the design and construction of the works

► Various procurement routes also differ in other areas, e.g.

► The Employer’s level of involvement

► The separation of management from design and construction

► The speed from inception to completion

► Certainty of price

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► Design Responsibility

► Which party will have primary responsibility for design?

► Will largely be driven by the chosen procurement route

► A Contractor’s Designed Portion?

► Some forms of contract work with a wide range of design

responsibilities (e.g. NEC3 ECC and the CIOB’s Contract for Use with

Complex Projects)

► Other forms of contract have been developed for use with specific

allocations of design responsibility (e.g. the JCT’s Standard Building

Contract and Design & Build Contract)

► Note – not all design & build or EPC contracts will place design

responsibility on the Contractor in the same way – be aware of this



► Basis of the Contract Sum and Payment

► Will largely be driven by the chosen procurement route

► Fixed price lump-sum, re-measurement, target cost, prime cost plus

fee?

► Interim valuations, milestone or stage payments?

Essential elements required to create a binding contract

Practical Considerations (Level 3 – Doing /

Advising)

Offer

Acceptance

Certainty of

Terms

Consideration

Intention to

create legal

relations

Binding Contract

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The Contract Documents


Advising)

► Once the contract is selected and all the terms are agreed, it needs to be

prepared for execution (signature)

► Professional consultants (e.g. the Architect / Contract Administrator,

Employer’s Representative or Quantity Surveyor) are very often

involved in this process

► Professional consultants need to be familiar with:

► How to fill in any project-specific parts of the contract (e.g. JCT Contract

Particulars or NEC Contract Data)

► Which other contracts documents are required in order to form the contract

Amending a standard form construction contract


Advising)

► Standard form construction contracts are generally drafted in a balance

manner, allocating risk to the party best able to manage it

► Why amend a standard form construction contract?

► To alter the risk allocation in a contract

► To insert additional obligations

► To remove rights (generally the Contractor’s)

► To deal with project-specific requirements

► Beware the dangers of amending contracts

► Unexpected consequences

► Impact on Contractors’ prices

► Do both parties understand the amendments?

► Are the amendments proportionate?

► Have the amendments been properly made and incorporated into the

contract?

Duration of liability, executing the contract and governing law


Advising)

► What is the required liability period – 6 or 12 years?

► The difference between simple agreements and deeds

► Make sure the contract is properly executed

► Who needs to sign the contract for the Employer and Contractor?

► Any there any signing formalities to comply with?

► Are there any manuscript amendments that need initialling?

► Which parts of the contract need to be signed / initialled?

► Consider the governing law of the contract

► Does the contract comply with the laws of the particular jurisdiction?

► Are any amendments required to reflect a particular jurisdiction?

► There are variances in the law between England, Wales, Scotland

and Northern Ireland

► What amendments are already available?

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The Appendix to the Guidance Note compares the following contracts:

Appendix – Contract Comparison

► JCT Standard Building Contract 2011

► NEC3 Engineering & Construction Contract (April 2013)

► PPC2000 (2013 edition)

► Infrastructure Conditions of Contract (Measurement Version, 2011)

This is a useful reference tool

Contact Details

Jamie Olsen

Associate

Pinsent Masons LLP

DDI: +44 20 7054 2589

Mob: +44 7780 227 642

Email: [email protected]