contractual handbook for steelwork contractors and other specialist contractors.pdf

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CONTRACTUALHANDBOOKforSteelworkContractorsandOtherSpecialistContractorsEditedbyRogerButton,Partner,EvershedsWiththankstoLindyPattersonPartner,MacRobertsForChapter23BCSAEVERSHEDSBusinessLawyersinEuropeTheBritishConstructionalEvershedsSteelworkAssociationLtd. THEBRITISHCONSTRUCTIONALSTEELWORKASSOCIATIONLTDBCSABCSAisthenationalorganisationfortheConstructionalSteelworkIndustry;itsMembercompaniesundertakethedesign,anderectionofsteelworkforallformsofconstructioninbuildingandcivilengineering.AssociateMembersarethoseprincipalcompaniesinvolvedinthepurchase,designorsupplyofcomponents,materials,servicesetc.,relatedtotheindustry.TheprincipalobjectivesoftheAssociationaretopromotetheuseofstructuralsteel-work;toassistspecifiersandclients;toensurethecapabilitiesandactivitiesoftheindustryarewidelyunderstoodandtoprovidememberswithprofessionalservicesintechnical,commercial,contractualandqualityassurancematters.TheAssociation’saimistoinfluencethetradingenvironmentinwhichmembercompanieshavetooperate,inordertoimprovetheirprofitability.Acurrentlistofmembersandalistofcurrentpublicationsandfurthermembershipdetailscanbeobtainedfrom:TheBritishConstructionalSteelworkAssociationLtd.Apartfromanyfairdealingforthepurposesofresearchorprivatestudyorcriticismorreview,aspermittedundertheCopyrightDesignandPatentsAct1988,thispublicationmaynotbereproduced,storedortransmittedinanyformbyanymeanswithoutthepriorpermissionofthepublishersorinthecaseofreprographicreproductiononlyinaccordancewiththetermsofthelicencesissuedbytheUKCopyrightLicensingAgency,orinaccordancewiththetermsoflicencesissuedbytheappropriateReproductionRightsOrganisationoutsidetheUK.Enquiriesconcerningreproductionoutsidethetermsstatedhereshouldbesenttothepublishers,TheBritishConstructionalSteelworkAssociationLtd.Attheaddressgivenbelow.Althoughcarehasbeentakentoensure,tothebestofourknowledge,thatalldataandinformationcontainedhereinareaccuratetotheextentthattheyrelatetoeithermattersoffactoracceptedpracticeormattersofopinionatthetimeofpublication.TheBritishConstructionalSteelworkAssociationLimited,theauthorsandthereviewersassumenoresponsibilityforanyerrorsinormisinterpretationsofsuchdataand/orinformationofanylossordamagearisingfromorrelatedtotheiruse.TheBritishConstructionalSteelworkAssociationLtd.,4,WhitehallCourt,Westminster,LondonSWlA2ESTelephone:+44(0)2078398566Fax:+44(0)2079791634E-mail:postroom@steelconstruction.orgWebsite:www.steelconstruction.orgPublicationNumber32/01ThirdEditionMay2001ISBN0-85073-035-XBritishLibraryCataloguing-in-PublicationDataAcataloguerecordforthisbookisavailablefromtheBritishLibrary.©TheBritishConstructionalSteelworkAssociationLtd.PrintedbyTheChameleonPressLimited CONTENTSForeword........................................................................................................................OverleafChapter1................................................................................................FormationofContractsChapter2.....................................................................................................ClassesofContractChapter3.......................................................................................StandardFormsofContractChapter4...................................................................................................TenderingProceduresChapter5...........................................................................................OnerousContractClausesChapter6.....................................................................................................................CertificatesChapter7...................................................................................................PaymentandSet-OffChapter8..................................................................................................................FluctuationsChapter9.......................................................................................................................VariationsChapter10...........................................................................ExtensionsofTimeandCompletionChapter11............................................................................................................CostsofDelayChapter12............................................................................................................................ClaimsChapter13.......................................................................................................DefectsofLiabilityChapter14.......................................................................................................DesignofLiabilityChapter15............................................................................SupplyofGoodsandMisrepresentationChapter16.........................................................................................................LimitationPeriodsChapter17.......................................................................................................................InsuranceChapter18..................................................................................................BondsandGuaranteesChapter19................................................................................DisputesandLegalProceedingsChapter20....................................................................................InsolvencyofMainContractorChapter21....JCTStandardFormofContractwithContractwithContractorsDesign1998EditionChapter22.........................................................................................ScottishFormsofContractChapter23...................................................................................................................NominationChapter24.........................................................................................................CompetitionLawChapter25....................................................................................................................CheckListAppendixA................................................................................AmendmentstoStandardForms FOREWORDtothethirdeditionTheBCSAContractualHandbookhasbeencomprehensivelyre-workedtoreflectthetorrentofchangesthathaveaffectedconstructionovertheyearssincethesecondeditionwasproduced.Asmighthavebeenanticipated,therehavebeenconsiderabledevelopmentsincaselawsincethelasteditionwhichhaveaffectedthepositionofsteelworkandotherspecialistcontractors.MoresurprisinghasbeentheimpactofstatutenotablytheHousingGrantsConstructionandRegenerationAct1996whichcontainsoneofthefewpiecesoflegislationspecificallydesignedfortheconstructionindustry.TheCommercialDebts(Interest)Act1998,theContracts(RightsofThirdParties)Act1999,theCompetitionAct1998andtheHumanRightsAct1998willnodoubtallmaketheirmarkintime.ThanksareduetoRogerButtonandRayWhiteofEvershedswhoproducedthisedition,andtoLindyPattersonofMacRobertsforcontributingChapter23,ScottishFormsofContract.Thelawisuptodateasat1January2001,althoughlaterchangeshavebeenincorporatedwherepossible.M.RichofMiddleTemple,BarristerMScFCIArbBCSA CHAPTER1FORMATIONOFCONTRACTSAcontractisanagreementbetweentwopartieswhichislegallyenforceable.ElementsofaBindingContractTherearefiveessentialelementswhichmustexisttoformabindingcontract.1.IntentAllpartiesmustintendtocreatealegallybindingobligationbetweenthem.2.CapacityAllofthepartiestoacontractshouldbecapableofenteringintoalegallyenforceablerelationship.Incorporatedbodies,partnershipsandindividuals(providedtheyarenotinfantsorinsane)allhavecapacitytoenterintoacontract.Ifoneormorepartieslackthecapacitytoenterintoacontract,itmaynotbeenforceable.3.AgreementAgreementisthefundamentalcharacteristicofacontract.Inordertodecidewhetheranagreementexists,theCourtswillconsidertherelationshipbetweenthepartiesobjectivelyandlook,amongstotherthings,toseeiftherehasbeenanofferbyonepartyandanunconditionalacceptanceofthatofferbytheother.4.ReasonableCertaintyofTermsThetermsofthecontractmustbereasonablycertain.Itisnotnecessarytohaveresolvedeverydetail,buttheremustbegeneralagreement,andthepartiesmustintendtocreateabindingagreementdespiteanydetailswhichremaintobeagreed.Forexample,onacontractletona“WithApproximateQuantities”basisthepreciseamountofworkrequiredwillnotbeknown,butthisdoesnotpreventabindingcontractfrombeingformed.5.ConsiderationWiththeexceptionofcontractsexecutedasdeeds(dealtwithinmoredetaillaterinthisChapter),theremustbe“consideration”.Considerationiswhatonepartyagreestodo(ornottodo)tosecuresomethingfromtheotherparty.ItwasdefinedbytheHouseofLordsinthecaseofDunlopvSelfridge(1915)as,“anactorforbearanceofoneparty,orthepromisethereof,thepriceforwhichthepromiseoftheotherisbought...”Inconstructioncontractstheconsiderationisnormallythepromiseofthecontractor(orsubcontractor)toprovideworkandmaterials,andthepromiseoftheEmployer(ormaincontractor)topayasumofmoneyinreturn.ConsiderationisnotessentialincontractsgovernedbyScotslawChapter11 FormationofContractsThereisnogenerallegalrequirementforacontracttobewrittenexceptforcontractsofguaranteeandcertaintransactionsregardingland.Althoughanoralagreementcanbelegallybinding,writtenevidenceofthetermsofacontractisoftremendouspracticalsignificance,becauseitcanbeverydifficulttoprovethetermsofanoralagreementifadisputearises.OfferandAcceptanceInvitationtoTreatInvitationstotenderforworkmaybeprecededbyanenquirytoascertainwhethercontractorsarepreparedtotenderorbyaformalpre-qualificationprocess.Oftenthesepreliminaryprocedurestakeplacemanymonthsbeforetheactualinvitationtotenderisissued.Usuallyresponsetosuchenquiriesorparticipationinpre-qualificationprocesseswouldnotimposeanylegallybindingcommitmentonaSteelworkContractortoenterintoacontract.Suchenquiriesandprocesseswouldnormallyberegardedas“invitationstotreat’,whichmeanstheyaresimplyaninvitationtoenterintonegotiation.Provisionofcataloguesandpricelistsarealsoinvitationstotreat,anddonotnormallybindthesupplierortherecipienttoenterintoacontractortobuyorsellproductsataparticularprice.Therehave,however,beenexceptionalcaseswhereanactualinvitationtotenderamountstoanofferbecausethepartyissuingtheinvitationbindsitselftoaccepting,forexample,thelowesttender(HarvelaInvestmentsLtdv.RoyalTrustCoofCanada(CI)Ltd(1986)).Insuchcircumstances,byenteringatenderacontractormaybeacceptingthe“offer”andacontractcouldresult.OfferTenders,estimatesandquotationsareallcapableofbeingoffers.Pricinginformationgiventomaincontractorsandclientsforbudgetpurposesmayalsobeanofferiftheinformationissufficientlydetailedtoformthebasisofabindingcontractifaccepted.Thisisbecausethelawwilllookatthecontentofanydocumenttodetermineitsnature,andalthoughthetitlegiventoit,e.g.“budgetprice”or“pricinginformation”willberelevant,itwillnotbedecisive.IfaSteelworkContractorwishestogiveabudgetpricebutdoesnotwishtobeboundbyit,itwouldbesensibletoincludeastatementinthedocumentsuchas:“Thisinformationisgivenforbudgetpurposesonly.Itdoesnotconstituteanoffertocarryouttheworkorprovidethematerialsdescribed,andwewillnotbeboundbyit.Atenderpricewillbeprovidedonrequest.”Anoffercanbemadetoaspecificpersonorcompany,oritcanbemade“atlarge”.Inthefirstcasetheoffercanonlybeacceptedbythepersontowhomitisaddressed,butanoffer“atlarge”maybeacceptedbyanyperson.Atenderforamaincontractwillusuallybeanoffermadetoaspecificpersonorcompanyandcanonlybeacceptedbythatpersonorcompany.Similarly,atenderforadomesticsub-contractwillusuallybemadetoaspecificmaincontractorandcanonlybeacceptedbythemaincontractor.However,whenacompanytenderstoaclientorhisprofessionaladviserforanominatedornamedsub-contract,theoffermaybe“atlarge”andifso,couldbetakenupbywhomevertheclientappointsasmaincontractor.ThisisimportantforSteelworkContractorsbecausetheyarean“early”tradeonmostprojectsandoftentheidentityofthemaincontractorwillnotbeknownwhentheysubmittheirtendersfornominatedornamedsub-contracts.UnlesstheSteelworkContractorqualifieshis2Chapter1 FormationofContractstendertotheeffectthathereservestherighttowithdrawit(ortorevisehisprice)ifamaincontractorunacceptabletohimisappointed,herunstheriskofhistender“atlarge”beingacceptedbywhomevertheclientappointsasmaincontractor.ThatmaybecontrarytotheinterestsoftheSteelworkContractorifthemaincontractorisnotcreditworthyorhasapoorpaymentrecord.QualifiedTendersInvitationstotenderfrequentlyattempttopreventthetendererfromattachinganyqualificationstohistender.Forexample,allofthestandardformsoftenderproducedbytheJointContractsTribunalstatethatthesub-contractor’stendermustbeinaccordancewiththeinformationsetoutintheinvitation.Theclientcandeterminetherequirementswhichtendersforworkmustmeetandhecandismissanytenderswhicharequalifiedandthereforenotinaccordancewithhisrequirements.Ontheotherhand,theinvitationtotenderdocumentsmayhaveomittedsomeimportantinformation,orlackclarityormayinsistupononerousconditions.Insuchcases,thetenderermustmakethecommercialdecisionastowhethertoqualifyhistender.WhentenderingtotheclientorhisprofessionaladviseronaJCTstandardformoftender,theonlydifficultieswhichshouldarisefromtheinvitationtotenderareeitheralackofinformationoranambiguityorconflictinthedetailsgiven.Inthesecircumstancesthe.tenderershouldinformtheclient(orwhoeverissuedthedocuments),andrequestthattheinformationorclarificationrequiredbeprovidedandissuedtoalltenderers.Ifthereisariskofbeingunabletoobtainadequatesuppliesofsteeltomeetcontractcompletiondates,qualificationmaybeappropriate.However,tenderersshouldbearinmindthatqualificationmayresultintheirtenderbeingrejectedbytheclient.WithdrawalofTendersAtendermaygenerallybewithdrawnatanytimebeforeitisaccepted,notwithstandinganystatementorundertakingtoholdthetenderopenforacceptanceforacertainperiod.Evenwheresuchundertakingsaresignedbythetenderer,theyarenotusuallylegallyenforceableascontractsunderEnglishlaw.(Theymay,however,beenforceableunderScottishlaw).Onesituationinwhichtheywillbeenforceableiswherethetendererispaidforholdingthetenderopenforaspecifiedperiod(thisisknownasanoption).Theoptionmayinsomecasesbebackedupbyabidbondwhichtheclientcancallifthetenderiswithdrawnduringthespecifiedperiod.SteelworkContractorsshouldalsotakeintoaccountthecommercialimplicationsofwithdrawingatender.ThesemayincludethatSteelworkContractornotbeinginvitedtotenderforfurtherworkforthatclient.Theremayalsobeatechnicaldifficultywiththewithdrawaloftenders.UnderEnglishandScotslawanacceptanceissometimesbindingassoonasitisposted,whereastherevocationofanoffermustnormallybeactuallybroughttotheknowledgeoftheotherpartybeforeittakeseffect.Atendermaythereforehavebeenacceptedbeforethetendererisawareofthefact,andifthisisthecaseanysubsequentattempttowithdrawthetenderwillnotbesuccessful.Tenderswhichareheldopenforacceptanceforafixedperiodwillautomaticallylapseonexpiryofthatperiodandthereaftercannotbeacceptedwithouttheagreementofthetenderer.SomestandardformsoftendergivethetenderertheopportunitytostateaperiodafterwhichthetenderisChapter13 FormationofContractsautomaticallywithdrawn.Tenderersshouldfillinarealisticperiodafterwhichtheywouldprefertoreviewtheirpriceortheirabilitytocarryoutthecontract.AcceptanceAssumingtheothercriteriadiscussedabovehavebeenmet,acontractwillbeformedwhenonepartymakesanofferandtheotherpartyunconditionallyacceptsthatoffer.Sometimestheofferwillimposerestrictionsonthemannerinwhichitmaybeaccepted(e.g.onlyinwriting).Howeverintheabsenceofsuchrestrictions,anoffermayfrequentlybeacceptedorally,inwriting,bye-mailorotherelectronicmeans,ormayevenbeinferredfromtheconductofonepartye.g.bystartingwork.Asstatedabove,acceptancesentbypostcansometimesbebindingassoonasitisposted,evenifitisneverreceived.However,inpractice,iftheletterislostthesendermayhavedifficultyprovingthatitwaspostedunlessitwassentbyregisteredpostorrecordeddelivery.Acceptancebyallothermethodsofcommunication,suchasbytelephone,mustactuallybecommunicatedtotheotherpartybeforeittakeseffect.Todatetherehasbeennorulingonfaxesore-mail,althoughitseemslikelythattheywillbetreatedinthesamewayastelexes,andwillnotbebindinguntilreceived.Giventhenegotiations,offersandcounter-offerswhichoftenprecedetheawardofaconstructioncontract,itissometimesdifficulttoascertainpreciselywhatofferhasbeenaccepted.Thefollowinggeneralrulesshouldbeborneinmind:1.Ifnewtermsareintroducedinwhatpurportstobeanacceptance(e.g.anorder)thedocumentisactuallyacounter-offer,whichmustinitsturnbeacceptedbeforeabindingcontractisformed.2.Acknowledgementofreceiptofatenderorotherofferdoesnotnormally,initself,constituteanacceptanceofthatoffer.3.Silencecannotbeanacceptance.Thereforeifanofferismadeandthewordsadded,“wewillproceedontheabovebasisunlesswehearfromyoutothecontrarywithin[somany]weeks”andnoreplyisreceived,thatwouldnotinitselfconstituteacceptanceandthereforenobindingcontract.4.Theacceptancemaybestatedtobe“subjecttoaformalcontract”.Thepreciseeffectofthisphrasedependsonthestateofthenegotiationsbetweenthetwoparties.Wherefurthernegotiationsoveressentialtermsofthecontractarecontemplated,therewillbenobindingcontract.Ifalltheessentialtermshavebeenagreedandthepartiesintendtoincorporatethemintoaformaldocumentatalaterstage,theremaybeabindingcontract.However,thiswillnotbethecaseifthepartieshaveexpresslyorimpliedlyagreedthatnocontractshallcomeintoexistenceuntilaformalcontractisexecutedJ.Jarvis&SonsLimitedv.GalliardHomesLimited(1999).Counter-OffersAnacceptancewhichpurportstoqualifyanofferinanyrespectamounts,inlaw,toacounter-offer.Whenfacedwithacounter-offer,thepersonwhomadetheoriginaloffermaydecidetoacceptit,inwhichcaseabindingcontractisformedonthebasisofthecounteroffer,ortodeclineit.Thecounter-offermaybedeclinedeitherexpresslyorbymakingyetanotheroffer,includingre-submissionoftheoriginal.Likeanyoffer,intheabsenceofanyexpresstimelimit,acounter-offerwilllapseafterthepassageoftime.4Chapter1 FormationofContractsContractnegotiationsarefrequentlyaseriesofcounter-offers,butinconstructioncontractstherearedangersarisingfromthetendencytobeginworkbeforethecontractnegotiationsarecomplete.Whilethisisanentirelypragmaticapproach,itisimportanttoensurethatbeginningworkisnotdeemedtobeacceptancebyconductoftermsandconditionswithwhichtheSteelworkContractorisunhappy.Atypicalsequenceofeventsrunsasfollows:1.ASteelworkContractorisinvitedtotenderforworkonthebasisofanunamendedstandardformofsub-contract(invitationtotreat).2.TheSteelworkContractorsubmitshistenderonthebasisofthestandardform.(Offer).3.ThemaincontractorplacesanorderwiththeSteelworkContractoronthebasisofhisowntermsandconditionswhichappearonthereverseofthatorder.(Counter-offer).4.TheSteelworkContractoracknowledgesreceiptoftheorderandbeginswork.(AcceptanceofCounter-Offer).5.SeveraldaysafterstartingworktheSteelworkContractorattemptstonegotiatetermsofcontractwiththemaincontractor(theSteelworkContractormaywellbeboundbythetermsoftheCounter-Offer).Intheaboveexample,theSteelworkContractorcouldhavestartedworkwithouttyinghimselftothemaincontractor’stermsalthoughthisdoesnotmeanthattheSteelworkContractorisworkingunderhisownterms.Itiscrucialthatunacceptabletermsaredisputedbeforeanyworkiscarriedout,andtheSteelworkContractorshouldalsomakeclearthatanyoff-siteoron-siteworkdoesnotconstituteanacceptanceofthemaincontractor’sterms.Maincontractor’sordersfrequentlyhaveanapparentlyinnocuoustear-offacknowledgementslipattachedatthebottom.Carefulconsiderationshouldbegivenbeforesuchtear-offslipsaresignedandreturned,astheyalmostinvariablyincludeastatementthatbysigningandreturningtheslipthesub-contractorisdeemedtohaveacceptedallofthetermscontainedintheorder.Thiswouldprobablyresultinthecontractbeingconcludedonthemaincontractor’sownterms.IfSteelworkContractorswishtoacknowledgereceiptofanorder,theyshouldwriteasimpleletterof0acknowledgementontheirownstationery,makingitclearthatthetermscontainedintheorderarenotaccepted.BattleofFormsThenegotiationsleadinguptoacontractareoftenaseriesofoffersandcounter-offers.Thisissometimesreferredtoasthe“battleofforms”todescribeeachside’sstandardtermsandconditionsbeingsentbackwardsandforwards.TheleadingcaseonthebattleofformsistheCourtofAppealdecisioninButlerMachineToolCo.vEx-Cell-OCorporation(1979).Thesellers(Butler)offeredtoselltoEx-Cell-Oamachinetoolontheirstandardtermswhichincludedavariationofpriceclause.Ex-Cell-Oorderedthemachinetoolontheirowntermsandconditionswhichdidnotcontainavariationofpriceclause.Thebuyer’sconditionscontainedatear-off“Acknowledgement”slipwhichcontainedthewords,“Weacceptyourorderonthetermsandconditionsthereon”.Thesellerscompletedandreturnedtheslip,accompaniedbyaletterstatingthattheyacceptedtheorderonthebasisoftheiroriginaloffer.However,theCourtofAppealheldthatbysigningandreturningthetear-offslip,thesellerhadacceptedthebuyer’sterms,notwithstandingtheaccompanyingletter.Chapter15 FormationofContractsAmorerecentcaseonthebattleofformsisSautervGoodman(1986)whichconcernedacontractforboilerreplacementatWindsorCastle.ThekeyquestionwaswhetheraretentionoftitleclauseinSauter’sowntermsandconditionshadbecomepartofthecontract.SauterhadquotedtoGoodmanonthebasisoftheirowntermsandconditionswhichincludedaretentionoftitleclause.Goodmanhadacceptedthequotationon‘termsandconditionsinaccordancewiththemaincontract”whichwasGC/Works/1Edition2.GC/Works/1providesthateverysubcontractmustincludeatermthat,“allthingsforincorporationbelongingtothesubcontractorwhicharebroughtontositeinconnectionwiththesub-contractshallvestinthecontractor,”inotherwordstheexactoppositeofaretentionoftitleclause.TheCourtheldthatSauterhadacceptedGoodman’sterms(whichamountedtoacounter-offer)bydeliveringthegoods,andthereforetherewasnoretentionoftitleclauseinthecontract.Onthebattleofforms,thefollowingkeyprinciplesshouldbeborneinmindbySteelworkContractors:1.AnacknowledgementslipshouldnotbecompletedandreturnedunlesstheSteelworkContractoragreesthattheconditionstowhichitrefersareacceptableintheirentirety.2.Rejectionofthetermsofanoffershouldbewritteninunequivocaltermsandshouldbeincapableofbeingmisconstrued.3.IfSteelworkContractorswishtoproceedwiththeworkwhilecontinuingnegotiations,theymustmakeitveryclearpriortocommencingworkthatbysodoingtheyarenotacceptingtheemployer’sormaincontractor’stermsandconditions.LettersofintentLettersofintentareaminefieldfortheunsuspectingsub-contractor.SteelworkContractorsareparticularlyvulnerableastheyareanearlytradeandarethereforefrequentlyrequestedtocarryoutpreparatoryworkandfabricationoff-sitebeforeaformalorderorcontractisissued.1.DefinitionInlaw,aletterofintentissimplyastatementofthewriter’sintentions.Itdoesnotconstituteanoffer,counter-offeroracceptance,andthereforedoesnotcreateabindingcontract.LettersofintentaresometimesusedasadevicebytheEmployer(orarchitectorconsultingengineeractingonhisbehalf)wherebytheSteelworkContractoriseffectivelyinstructedtocarryoutpreliminaryworkpendingtheselectionofamaincontractorandtheexecutionofasub-contract.Insuchcasesalthoughadocumentmaybeheaded“letterofintent”,considerationofitscontentmayrevealthatitisactuallyanacceptanceorcounter-offerwhichrequeststherecipienttocarryoutallorpartoftheworkreferredtointheletter.Iftheso-called“letterofintent’makesitclearthatalltheessentialtermsofthecontracthavebeenagreed,commencementofworkfollowingreceiptofsuchalettermayleadtoacontractcomingintobeing.Intheeventofadisputeastowhetherornotacontracthadactuallybeenconcluded,theCourtwouldtakeintoaccounttheheadingofthedocumentbutitwouldnotbedecisiveindeterminingitsnature.TheCourtwouldlookatthecontentofthedocument,and,ifitwasinsubstanceanacceptanceorcounter-offer,theywouldconstrueitassuch.2.TermsofLetterofIntentWhenaSteelworkContractorreceivesaletterofintent,hisfirstthoughtshouldbe:“IfIactonthisandthejobissubsequentlycancelled(orgiventosomeoneelse)willIgetpaidfortheworkI’vedone?”6Chapter1 Formationof`ContractsProvidedtheletterclearlyinstructstheSteelworkContractortoundertakethework,andtheSteelworkContractordoesnotgobeyondthatinstruction,theanswertothatquestionislikelytobeyes:theSteelworkContractorwillbeentitledtobepaidfortheworkhehascarriedout.Astopaymentforworkdoneinrelianceuponaletterofintent,intheabsenceofanyprovisionsintheletteraboutpayment,theCourtwouldimplyanentitlementtopaymentofareasonablesum(sometimesreferredtoas‘quantummeruit)forthework.ASteelworkContractor‘spositionwouldbestrengthenediftheletterincludedanexpressundertakingtopayareasonablepricefortheworkexecuted.Ifthelettersimplyreferstocoveringthecostsincurred,SteelworkContractorsshouldbeawarethatwhile“areasonableprice”willincludeoverheadsandprofit,“costs”maynot.Thephrase“lossandexpense”hasbeenequatedbythecourtswithdamages,andwouldthereforebepreferableto“costs”asitwouldincludeoverheadsandprofit.ObviouslythebestpositionforaSteelworkContractorastopaymentunderaletterofintentwouldbeonewherethepriceortheratesforhisworkareclearlysetoutorreferencedintheletter.ItisvitalthattheSteelworkContractordoesnotcarryoutmoreworkthanisauthorisedbytheletterofintent.Ideally,thelettershouldidentifyindetailwhattheSteelworkContractorisrequiredtodo.ForaSteelworkContractorthiswillnormallycomprise:(a)orderingthematerial(b)designingtheconnections(c)preparingdetaileddrawings(d)planningthecontractbothonsite,andattheSteelworkContractor’sworks(e)fabricatingthematerial.IftheSteelworkContractorisrequiredtocarryoutworkbeyondthatspecificallyauthorised,heshouldobtainafurtherwritteninstruction(includinganundertakingtopay)fromthepartywhoissuedtheletterofintent.3.ObligationsRegardingTimeWiththepopularityof“fast-track”constructionthequestionofhowquicklyworkmustbecarriedoutisbecomingincreasinglyimportant.Ifnocontractiseveragreed,itseemsthatthereisnoobligationtoadheretoaparticularprogramme.ThisisillustratedbythecaseofBritishSteelCorporationvClevelandBridge&EngineeringCoLtd(1981).ClevelandBridgehadbeenengagedassub-contractorstofabricateanunusualsteellattice-workframeforabankinSaudiArabia.ClevelandBridgeapproachedBritishSteelwithaviewtoemployingthemtocastnodesfortheframe,butthenegotiationsbothregardingthespecificationandthetermsofthecontractwerelongandcomplex.InFebruary1979ClevelandBridgesentBritishSteelaletterofintentwhichstatedanintentiontoplaceanorderatthepricequotedbyBritishSteel,butonClevelandBridge’sownterms,whichplacedunlimitedliabilityonthesellersforthecostsofanydelay.BritishSteelmadeitcleartheywouldnotacceptthoseterms.butneverthelessconstructedandsuppliedthenodes.ThefinalnodewasnotdelivereduntilApril1980owingtoanationalsteelstrike.BritishSteelsuedforthevalueofthenodesandClevelandBridgecounterclaimedfordamagesforlatedelivery.TheCourtheldthattherewasnocontractbecausethepartieshadnotagreedonimportantaspectssuchasprogresspaymentsandliabilityforlatedelivery.BritishSteelcouldnotbeliablefordamagesforlatedelivery.However,theywereentitledtobepaidareasonablepricefortheworkbecauseithadbeendoneatClevelandBridge’srequestandacceptedbythem.Chapter17 FormationofContractsItisnotalways,ofcourse,thecasethataSteelworkContractorwhocarriedoutworkinanticipationofenteringintoacontractwillbeabletoclaimareasonablesumforthatworkifthecontractisnot,ultimately,enteredinto.InRegalianplcv.LDDC(1995)theCourtrejectedthecontractor’sargument,holdingthatthecostswhichitnowsoughttorecoverwerethecostsofputtingitselfinthepositiontoobtainandperformthecontract.However,thisdoesnotmeanthatwhenworkingonaletterofintent,SteelworkContractorscanaffordtoignorethemaincontractor’soremployer’srequirementsregardingprogramme,becauseanytermssubsequentlyagreedmayapplyretrospectivelytotheworkexecutedonthebasisoftheletterofintent.Forexample,inthecaseofTrollope&CollsLtdvTheAtomicPowerConstructionCompanyLimited(1963)sub-contractorshadtenderedforapowerstationcontract.InJune1959,thesub-contractorswereaskedtostartworkonthebasisoftheletterofintentwhichreadasfollows:“Wehavetoinformyouthatitisourintentiontoenterintoacontractwithyoufor(theworks).Assoonasmattersoutstandingbetweenusaresettledwewillenterintoacontractagreementwithyou,andinthemeantimepleaseacceptthisletterasaninstructiontoproceedwiththeworknecessarytopermityoutomeettheagreedprogramme”.ThepartiesagreedthetermsofthecontractinApril1960,butthecontractwasneversigned.Thesub-contractorssubsequentlyarguedthatnocontracthadbeenformedandthereforetheywereentitledtoreasonablepaymentratherthanthepricestheyhadquoted.TheyalsoarguedthatthetermsofthecontracteventuallyagreedappliedonlytoworkexecutedafterApril1960,anddidnotcovertheworkexecutedonthebasisoftheletterofintent.TheCourtheldthatacontractcameintoexistenceinApril1960,andthetermsofthatcontractappliedretrospectively.4.AuthoritytoWriteLetterofIntentItisimportantthataSteelworkContractorcheckstheletterofintentiswrittenbysomeonewithappropriateauthoritytoact.AletterfromtheEmployerorfromthemaincontractorshouldbeacceptable.Where,however,aletterisreceivedfromanotherparty,suchasaconsultant,aSteelworkContractorshouldcheckwiththeEmployerormaincontractorthattheyhavethenecessaryauthority.IfaSteelworkContractorisinanydoubtabouttheauthorityofthepersonwhohassignedtheletter,heshouldaskforawrittenconfirmationfromtheemployerorthemaincontractorbeforestartinganywork.PaymentforPreparatoryWorkwhereNoLetterofIntentisIssuedFollowingthedecisionoftheCourtinMarstonConstructionvKigass(1989),itmaybepossibletorecoverthecostofpreparatoryworkevenwherenoletterofintenthasbeenissued.MarstontenderedforadesignandbuildcontracttoprovideareplacementforKigass’factory,whichhadburntdown.Theinsurersdidnotpayenoughtocoverthecostofrebuildingsothecontractwasneverplaced,butMarstonclaimedasubstantialsumforthepreparatoryworktheyhadcarriedoutoverandabovethepreparationofthetenderitself.Kigasshadnotwrittenaletterofintent,norhadtheygivenanassurance(requestedbyMarston)thatthepreparatorycostswouldbemet.Ontheotherhand,Marstonwerenotgivenanyindicationthatthepreparatoryworkwouldbeattheirrisk.TheCourtheldthatMarstonwereentitledtobepaidareasonablesumforthepreparatoryworks,becausetheyhadbeendoneattheimpliedrequestofKigass,andKigasshadobtainedarealisablebenefit,intheformofsomedesignworkasaresult.8Chapter1 FormationofContractsNotwithstandingthisdecision,itisobviouslypreferableforSteelworkContractortoobtainclearundertakingsregardingpaymentbeforeexecutinganypreparatoryworkasdescribedin“LettersofIntent”above.IncorporationofTermsbyReferenceFrequently,neithertheinvitationtotendernorthetenderitselfspellsoutalltheconditionswhichwillapplytoanyresultingcontract.Theywillsimplyrefertoconditionswrittenelsewheresuchas“DOM/1”.Theconditionsreferredtowillbeincorporatedintotheasiftheywerewrittenoutinfull.TheCourtshaveheldsuchincorporationbyreferencevalidevenwherethereferencewasincompleteandpartiallyincorrecte.g.referringtothe“greenform”as“theappropriateformfornominatedsubcontractors(RIBA1965Edition)”.Wherethereisanindicationthatsomestep,suchassignatureofdocuments,istobetaken,inordertoincorporateconditions,theCourtswilltakethisintoaccountindecidingwhethertheconditionshavebeenincorporatedespeciallyiftheconditionscontainonerousprovisions.InJonathanWren&Co&anrvMicrodecplc(CaseNumber1999TCC8),theTechnologyandConstructionCourtconsideredthecaseofasoftwaresupplierwhosequotestatedthatitwassubjecttotheirstandardconditions.Althoughthequotewassignedandreturnedonbehalfonthebuyer,thesupplier’sstandardconditionswerenotgiventothebuyer.Inaddition,theconditionsthemselvesstatedthattheywouldonlybecomebindingwhensignedbytheparties.Theywereneversigned.TheCourtheldthatthesupplier’sstandardconditionswerenotincorporatedintothecontract.Tenderdocumentsfrequentlyincludeageneralstatementthatthesub-contractorshallobserveandcomplywithallthetermsofthemaincontractasifthesameweresetoutinthesub-contract.Whethersuchattemptstoincorporatethemaincontractstermswillbesuccessfuldependsonthecircumstancesoftheindividualcase.InDunlop&RankenvHendallSteelStructures(1975)itwasheldthattheincorporationofthetermsofthemaincontractbyloosegeneralwordswouldnotnormallybindthesub-contractortospecifictermsinthemaincontract.Conversely,inthecaseofSautervGoodmandescribedabove,theCourtheldthatrelevantmaincontracttermscouldapplybetweenthemaincontractorandsub-contractor(withthenecessarychanges)sothatforcontractoronereadsubcontractor,andforAuthority,contractor.SteelworkContractorsshouldcarefullyconsiderwhetheritisappropriatetoincorporateallofthemaincontracttermsintoasub-contract,whichtheymaybeabouttoenterinto.Forexample,ifthemaincontractorprovidesforthemaincontractortoprovideinsurancecoveringallofthemaincontractworks,itmaynotbeappropriatetoimposethesameobligationonasub-contractorwhowillberesponsibleforonlypartoftheworks.TheSteelworkContractorwillinanyeventnormallyexpectthemaincontractortoprovidetemporaryworksuchasaccessroadsandhardstandingsandwouldthereforenotwishtoaccepttheobligationtoprovidethese.SimpleandSpecialtyContractsAcontract‘underhand’isonewhichissimplysignedbytheparties.Itissometimesreferredtoasa“simple”contract.Acontractwhichisexecutedunderseal(i.e.wherethecompanysealsofthepartiesisaffixedtothecontract)orasadeedisknownasa“specialty”contract.UntilJuly1990,thecommonmethodofexecutingaspecialtycontractwastoimpressasealonthedocument.Aspartofapackageofmeasuresdesignedtolightentheadministrativeburdenonsmallercompanies,theCompaniesAct1989abolishedtherequirementforcompanyseals,andintroducedarrangementswherebyadocumentChapter19 FormationofContractsstatedtobeexecutedasadeed,andsignedbytwodirectorsoradirectorandthecompanysecretary,hadthesameeffectasifithadbeenexecutedunderthecompanyseal.Themaindifferencesbetweencontractsexecutedunderhandandthoseundersealorexecutedasadeedare:•contractsunderhandhavealimitationperiodofsixyearsfromthedateofthebreachofcontractwhereasthoseundersealorexecutedasadeedhavealimitationperiodoftwelveyears.•contractsundersealorexecutedasadeeddonotrequire“consideration”(see“ElementsofaBindingContract”above).InterpretationofContractIndecidingthemeaningofwordsusedinthecontract,theCourtswillfollowtheirnaturalandordinarymeaning.Thefactthatonepartymaynothaveappreciatedorintendedthemeaningofanyparticularwordsorunderstoodtheirimplicationsdoesnotnormallyaffecttheposition.However,itisimportanttonotethattheCourtswheninterpretingcontracts,willtakeaccountofthefactualbackgroundtothecontracti.e.informationavailabletoallpartiesatthetimethecontractwasmade.Thismaywellhelpinsituationswherethereisambiguity.Further,whereconsiderationofthefactualbackgroundmakesitclearthatthewordsusedcannothavereflectedtheintentionofallparties,theCourtwillconstruethecontractsoastogiveeffecttothatintention.ThisoccurredinanothercontextinMannaiInvestmentCo.Limitedv.EagleStarLifeInsuranceCo.Limited(1997)andinInvestorsCompensationSchemev.WestBromichBuildingSociety(1997).RightsofThirdPartiesunderaContractThetraditionalpositionofEnglishlawhasbeenthatThirdParties(personsnotpartiestoacontract)arenotentitledtoenforceanyrightsunderthatcontract.ThisisknownasthedoctrineofPrivityofContract.Thedoctrinehasbeensubjecttoanumberoflimitedstatutoryexemptions.ThepositionhasnowbeenconsiderablychangedbytheContracts(RightsofThirdParties)Act1999.Whenacontracteither:a.expresslyprovidesthattheThirdPartymayenforcearightunderthecontract,orb.‘purportstoconferabenefiton’aThirdPartytheThirdPartymayenforceprovisionsofthecontractasthoughhewereapartytothecontract.AThirdPartymaybeanindividualpersonorcompanyoramemberofadefinedclass.NoconsiderationfromtheThirdPartyisrequired.Thereisconsiderableuncertaintyastotheeffectofthewordsquotedin(b)above.Itispossiblethatincertaincircumstancestheycouldbeinterpretedasallowing,forexample,theEmployer,toenforcedirecttheprovisionsofasub-contractagainstthesub-contractor.Forthatreason,almostallofthestandardformsarebeingamendedtomakeitclearthatthecontractdoesnotintendtoconferabenefitonanyThirdParty.TheActcameintoforceon11October1999andappliesautomaticallytoallcontractsenteredintoonorafter11May2000.ThepartiesmayoptintotheActbeforethatdate.TheActdoesnotapplytoScotland.10Chapter1 FormationofContractsSummaryInterpretationofContracts:TheCourtswillnormallyadoptthenaturalandordinarymeaningofwordsused.Wherethereisambiguity,thenthatmayberesolvedbyreferencetothefactualbackground.TheCourtsmaydisregardtheliteralmeaningofwordswhereitisclearfromthefactualbackgroundthatsuchaninterpretationwouldnotreflecttheintentionofallparties.ThirdParties:Untilrecently,aThirdPartycouldnotinmostcasesenforcerightsunderacontract.Thishasnowchangedinrespectofcontractsconcludedonorafter11May2000.AThirdPartywillbeabletoenforceprovisionsunderacontractwherethecontractexpresslysoprovidesorthecontractpurportstoconferabenefitontheThirdParty.Elementsofabindingcontract:Therearefiveelementsofabindingcontract:intent,capacity,agreement,reasonablecertaintyoftermsandconsideration.Considerationisnotnecessaryincontractsexecutedunderseal.Thereisnolegalrequirementforwriting,butinpracticeitisimportantforreasonsofproof.InvitationtoTreat:ismerelyanoffertoreceiveoffers.Invitationstotender,cataloguesandpricelistsarenormallyinvitationstotreat.Offer:adocumentmaybeanofferevenifdescribedasabudgetpriceifitissufficientlydetailedtoformthebasisofabindingcontract.Offersatlargemaybeacceptedbyanyone,andthereforewhentenderingtotheEmployerforanominatedsub-contractSteelworkContractorsmaywishtoreservetherighttowithdrawifanunacceptablemaincontractorisappointed.Thedecisiontoqualifyatenderisacommercialonewhichmayresultintherejectionofthetender.OffersmaybewithdrawnatanytimebeforeacceptanceunderEnglishlawunlessthetendererhasbeenpaidtoholdtheofferopen.Acceptance:anacceptancemustnormallybeunconditional:ifitintroducesnewtermsitisprobablyacounter-offer.Acceptancecanbeinferredfromconduct(e.g.startingwork).Itmustbecommunicatedtotheotherparty,unlessmadebypostinwhichcaseitoftentakeseffectwhenposted.Ifasub-contractordoesnotacceptallthetermsinamaincontractor’sorder,hemustcommunicatethatfactbeforestartingwork.Acknowledgement-of-orderslipsprovidedbythemaincontractornormallyreferbacktothetermsoftheorderandshouldnotbesignedunlessthesub-contractorwishestoacceptallthetermscontainedintheorder.LetterofIntent:shouldincludeanexpressundertakingtopaythecontractorforpreparatoryworkifnocontractresults,andshouldspecificallyauthorisetheworkrequired.Thesub-contractorshouldnotgobeyondthetermsoftheletterofintent,andshouldensureitiswrittenbysomeonewithappropriateauthority.Incorporationbyreference:termsincorporatedbyreferencearebinding,evenifthereferenceisincompleteorpartiallyincorrect.Chapter111 CHAPTER2CLASSESOFCONTRACTConstructioncontractsfallintoanumberofclassesortypes,andthe“class”ofcontractdetermineswhethercertaindocumentsformpartofthecontractand,toanextentthebasisofpaymenttothecontractor.ThemostwidelyusedstandardformsarediscussedinmoredetailinChapter3;thisChapteroutlinesthemaindistinguishingcharacteristicsofthemainclassesofconstructioncontract.1.LumpSum,WithoutQuantitiesThistypeofcontractincorporatesanagreementtocarryoutandcompleteawholeproject,e.g.abridge,foralumpsum,inreturnforastatedcashsum.Suchacontractisnormallybasedondrawingsandspecificationswhichtakentogetherdefinetheworkcoveredbytheprice.Quantitiesarenotpartofthedescriptionoftheworkandanyratesincorporatedinthecontractareforvariationpurposesonly.Ina“pure”lumpsumcontract,thecontractpriceistobechangedonlywheretheEmployer’splansarevaried(e.g.byadesignchange),andthecontractorwillnotbeentitledtoextrapaymentifcarryingouttheworkforwhichhetenderedturnsouttobemoredifficultandcostlythanheoriginallyenvisaged.Noworkdoneorcostincurredwhichisindispensablynecessarytocarryingouttheworksmaybevaluedasanextra.Thistypeofcontractisnotthereforesuitableforajobwheretheextentoftheworknecessaryisuncertain.JCT98WithoutQuantitiesisanexampleofthisclassofcontract.2.LumpSum,withQuantitiesInthistypeofcontract,thebillsofquantitiesareintendedtobetheexactmeasureoftheworktobecarriedout.Ifthereareerrorsinthebills,orifthecontractorfindsanydiscrepancybetweenthebillsandanyothercontractdocument,anycorrectionsaretreatedasvariationsandarevaluedaccordingly.Theratesinthebillswillalsobeused,whereappropriate,forthepurposeofvaluinganyvariationswhichmaybeorderedunderthecontract.Theessentialfeaturewhichdistinguishesalumpsumcontractwithquantitiesfromthatwithoutquantitiesisthatthequantitiesinthebillformpartofthedescriptionoftheworkstobedone,andthusthelumpsumtenderedfortheworkisonlyinrespectofthequantitiessetoutinthebill:thecontractorisentitledtoextrapaymentforanyworkdonebeyondthat.Anyprovisionalsumincludedwithinthebillsismeasuredandvaluedwhentheworkinrespectofwhichtheprovisionalsumwasincludediscarriedout,unlessitrelatestoworkwhichistobecarriedoutbyanominatedsub-contractor,inwhichcasetheworkwillbevaluedundertherelevantsub-contractterms.JCT98WithQuantitiesisanexampleofthisclassofcontract,althoughifthebillshavebeenpreparedinaccordancewithSMM7,theymayincludeapproximatequantitiesinanotherwisefirmbill.Whenthecontractorexecutesworkforwhichanapproximatequantitywasincludedinthebills,theratefortheapproximatequantitydeterminesthevaluationofthework,providedtheapproximatequantitywasareasonablyaccurateforecastofthequantityofworkrequired.Somecommentatorsfeelthattheinclusionofapproximatequantitiesundermines,tosomeextent,thelumpsumcharacterofthisformofcontract.Chapter21 ClassespfContract3.RemeasurementAremeasurementor“measureandvalue”contractisonewherethecontractpriceisrecalculatedonfinalmeasurementusingtheratessetoutinthetender.Theremaybeabillofapproximatequantitiesagainstwhichthecontractortenders.Thefinalquantitiesareremeasuredwhentheworkiscompletedandthecontractorispaidattherateshetenderedforthosemeasuredquantities.Thecontractor’stendertotalissimplyanestimatebasedontheproposedvolumeofworktobecarriedout,andhasnopurposeotherthanasabasisforselection.Onre-measurementcontractsvariationsarenormallyconcernedwithdesignorqualitychangesratherthanquantitychanges.thJCT98WithApproximateQuantitiesandtheICE7Editionarere-measurementcontracts.UnderJCT98WithApproximateQuantities,iftheapproximatebillsarenotareasonablyaccurateforecastoftheworkrequired,theworkisvaluedatthetenderedratesandpricesplus“afairallowance”forthedifferenceinquantity.Worknotcoveredbythebillsissubjecttoa“fairvaluation”,orifappropriate,maybemeasuredondaywork.4.PrimeCostUnderaprimecostcontractthecontractorisentitledtobepaidtheactualcostheincursincarryingouttheworkplusafixedfeeforhisoverheadsandprofit.Architect’sInstructionswillnotnormallyleadtoanyvariationinthefee,althoughadditionalworkwillbepaidforaspartoftheprimecost.Thistypeofcontractisnormallyusedwhereanearlystartisrequired.e.g.afterfiredamage.TheJCTManagementContract1998isanexampleofaPrimeCostContract.5.DesignandBuildTheclassesofcontractdescribedabovearebasedonthetraditionaldivisionofresponsibilitiesbetweenthedesignerandcontractor:theyassumethataprofessionalpractitioner(architectand/orengineer)appointedbytheEmployerwillberesponsiblefordesign,andthecontractorwillberesponsibleformaterialsandworkmanship.Inrecentyearstherehasbeenapronouncedmovebyclientsawayfromtraditionalcontractingtowards,amongstotherthings,designandbuildcontracts,wherebythecontractorprovidesatotaldesignandconstructionpackage.Thetwomajorcharacteristicsofdesignandbuildcontractsarethattheyprovideforthecontractor’sresponsibilityfordesignandtheEmployermayonlyvarythedesignoftheworkswiththecontractor’sconsent.TheJCTpublishesbothastandardform“WithContractor’sDesign”WCD98andaContractor’sDesignedPortionSupplementtoJCT98forusewheretheContractistodesignonlypartoftheworks.WCD98isdiscussedinmoredetailinChapter21.6.ManagementContractingTherearemanyvariantsofmanagementcontractingbutinitsmostpopularformtheEmployerappointsaprofessionalteam,normallyledbyanarchitectandamanagementcontractor.Themanagementcontractormanagesandco-ordinatestheprojectbutdoesnotcarryoutanyoftheworkonsite:thisisdonebyworksortradecontractors,eachofwhomhasaseparatecontractwiththemanagementcontractor.Thismethodofcontractingisnormallyofverylowriskforthemanagementcontractor,asheisrelievedoftheconsequencesofdefaultbytheWorksContractors,2Chapter2 ClassesofContractprovidedhehasenforcedtheprovisionsoftheworkscontractsagainstthem.ItisthereforetheEmployerwhotakestheriskofWorksContractors’insolvencyorfailuretopayclaims.Managementcontractingisgenerallyacknowledgedtobesuitableonlyforlargeandcomplexprojects,andisparticularlyappropriatewhereanearlystartandfastcompletionarerequired.TheJCTpublishaStandardFormofManagementContract-MC98.CommentsonMC98aremadethroughoutthisHandbook.7.ConstructionManagementAnotherapproachtoconstructionprojectsisconstructionmanagement.UnderthissystemeachoftheseparatetradeshasadirectcontractwiththeEmployerandispaidbyhim.Theworkonsiteismanagedandco-ordinatedbya“projectmanageror“constructionmanager”.8.Partnering‘Partnering’hasnopreciselegalmeaning.Therearevarioustypesofpartneringbutsomecommonfeaturesofpartneringarrangementsinclude:•Anintentionfortheparties-employers,contractorsandsub-contractors-toworktogetherco-operatively,ingoodfaithforthebenefitoftheprojectasawhole.Thisintentionissometimessupportedbyacommitmenttoa‘missionstatement’,arrangementsforearlyreportingofproblemsanda‘team’approachtoproblem-solving.•Someformofrisk/rewardsharing.Thismay,forinstance,involvethepartiesagreeingtotakeresponsibilityforaportionofcostoverrunsiftheprojectfinisheslateoroverbudgetortobepaidabonusiftheprojectfinishesearlyorunderbudget.SteelworkContractorsmayderivebenefitsfromparticipatinginpartneringarrangementsbuttherisksinvolvedinsucharrangementsshouldalsobeconsidered.Inparticulartheyshouldconsider:•Theextenttowhichtheirexposuretotakingashareofcostoverrunsisundertheircontrolorunderthecontrolofotherparties.•Theextenttowhichtheirentitlementtobonusisundertheircontrolorunderthecontrolofotherparties.•Whethertherolesofandresourcestobeprovidedbyeachofthepartiesisclearlystatedor,ifnot,thattherearefairmechanismsforagreeingthese.Sometimesthehigh-levelpartneringidealsarecontainedinanon-legallybindingdocumentsuchasacharterleavingthelegallybindingprovisionstobedealtwithincontracts.Insomecircumstances,however,eventhoughapartneringchartermaynotbelegallybinding,acourtmaystilltakeitsprovisionsintoaccountatitdidinthecaseofBirseConstructionLtdvStDavidLtd(1999).TheAssociationofConsultantArchitectshaverecentlypublisheda‘StandardFormofContractforProjectPartnering’PPC2000.PPC2000aimstoaddressthekeyrecommendationsofSirMichaelLathaminhisreport“ConstructingtheTeam”.PPC2000describesitselfasa“single,fullyintegratedprojectpartneringcontract,designedtounderpinateam-basedapproachandtopromoteclarityandconfidenceamongpartneringteammembers,”Chapter23 ClassespfContract9.PrimeContractingPrimecontractingaimstoreplacethetraditionalconfrontationalrelationshipswithprocesseswhichconcentrateondeliveringbettervalue.PrimeContractingoftenfeatures:•LongtermrelationshipsbetweenthePrimeContractorandsuppliers-notjustforoneproject.•Collaborativeworking.•Focusonthrough-lifecostsofaprojectratherthansolelyoncapitalcost.•Acontinuousimprovementregime.•AcceptancebythePrimeContractorofresponsibilityforalmostaspectsoftheprojectfrominception.4Chapter2 CHAPTER3STANDARDFORMSOFCONTRACTTherearevarious“standard”or“model”formsofcontractpublishedforuseinconnectionwithconstructionprojects.InthisHandbookwewillconcentrateontheformsmostlikelytobeencounteredbySteelworkContractors,namely,thosepublishedbytheJointContractsTribunal(‘JCT’)andbytheInstitutionofCivilEngineers(‘ICE’)andtheassociatedsub-contractformspublishedbytheConstructionConfederationandbytheCivilEngineeringContractorsAssociation.TheICEhavealsopublishedthe“EngineeringandConstructionContract”-abriefcommentonthisformisincludedattheendofthisChapter.TheJCTFormsofMainContractandAssociatedSub-ContractsTheJCTpublishesawidevarietyofformsofcontract.Manyoftheseformswereuntilrecentlysubjecttonumerousandlengthyamendmentswhichmadethemcumbersometoworkwith.Fortunately,in1998mostoftherelevantamendmentswereincorporatedintoneweditionsoftheJCTformswiththeexceptionoftheTerrorismCoverprovisionswhicharestillseparate.InthisHandbook,wewillconcentrateonthe1998editionsoftheJCTforms.Forthosereaderswhowishtoknowmoreaboutthepreviouseditionsandthevariousamendments,pleaseseeAppendixA.TheformsmostlikelytoberelevanttoSteelworkContractorsare:StandardFormofBuildingContract-JCT98JCT98isthemainJCTdocumentforusewheretheEmployerhasengagedprofessionalconsultantstodesigntheworks,andrequiresacontractortocarryoutthoseworksbysupplyingthenecessaryworkmanshipandmaterials.Thereisnoupperlimitonthesizeofprojectforwhichtheformcanbeused,butitwouldbesomewhatcomplexforreasonablysimplecontractsofrelativelylowvalueandshortduration.SixversionsofJCT98havebeenpublished:•PrivateWithQuantities•PrivateWithoutQuantities•PrivateWithApproximateQuantities•LocalAuthoritiesWithQuantities•LocalAuthoritiesWithoutQuantities•LocalAuthoritiesWithApproximateQuantitiesNominatedSub-ContractsforusewithJCT98VariousdocumentsareissuedbytheJCTrelatingtonominatedsub-contractors.Thesearereferredtoinclause35.4ofJCT98andareasfollows:•NSC/TTheStandardFormofNominatedSub-ContractTender.Itcomprises3parts:•Part1:TheEmployer’sInvitationtoTendertoaSub-Contractor•Part2:TenderbyaSub-ContractorChapter31 StandardFormsofContract•Part3:ParticularConditions(tobeagreedbyaContractorandSub-Contractornominatedunderclause35.6ofJCT98)•NSC/ATheStandardFormofArticlesofNominatedSub-ContractAgreementbetweenaContractorandaNominatedSub-Contractor•NSC/CTheStandardConditionsofNominatedSub-Contract•NSC/WTheStandardFormofEmployer/NominatedSub-ContractorAgreement•NSC/NTheStandardFormofNominationInstructionforaSub-ContractorDomesticSub-ContractsforusewithJCT98Inadditiontonominatedsub-contractors,JCT98alsoprovidesfortheappointmentof“domestic”(i.e.non-nominated)sub-contractors.Domesticsub-contractorsareselectedbythemaincontractortocarryoutworkwhichhasbeenpricedbythemaincontractor.JCT98doesnotspecifyanymandatoryformofdomesticsub-contract.Mostlargemaincontractorshavetheirownformsofdomesticsub-contract,butthereisastandardform,“DOM/1”,whichispublishedbytheConstructionConfederation.DOM/1ispublishedintwoparts:theArticlesofAgreementandtheSub-ContractConditions.IntermediateFormIFC98–MainContractThisformisintendedforuseonprojectswhereJCT98isconsideredtobetooheavy-weight.NotesonthebackofIFC98statethatitissuitableforusewhere:1.theworksareofsimplecontent(i.e.involvingthenormallyrecognisedtradesandskillsoftheindustry);2.thereisnospecialistcomplexwork:3.theworkisadequatelyspecifiedandbilledpre-tenderThemainprovisionsofIFC98andthewaysinwhichitallocatesriskaregenerallysimilartoJCT98.However,thecontractismuchshorterthanJCT98,andsomeoftheproceduralaspectsofthatdocumenthavebeenomitted.ThemaindifferencesbetweenJCT98andIFC98are:1.JCT98providesforthenominationofsub-contractors,whereasIFC98providesonlyfornaming,whichisanupgradedformofdomesticsub-contractingwherebythearchitectselectsthesub-contractor,butonceappointedheistreatedasadomesticsub-contractor.2.IFC98doesnotallowforconventionalfluctuations.Contractsareleteitheronafixedpriceorformulabasis.ThereisanembargoonoralinstructionsunderIFC98.2Chapter3 StandardFormsofContractSub-contractsforusewithIFC98Clause3ofIFC98permitstheappointmentoftwotypesofsubcontractor:namedanddomestic.NamedSub-ContractsforusewithIFC98Whereanamedsub-contractoristobeappointed,theEmployer(orthearchitect/engineeronhisbehalf)selectsthetenderlist,invitestenders,selectsthesub-contractorandinstructsthemaincontractortoenterintoasub-contractwiththatsub-contractor.Theuseofbothastandardformoftender(NAM/T)andastandardsub-contract(NAM/SC)ismandatory.Tothisextent,namingisverysimilartonomination.However,namedsub-contractworkwillbepricedbythemaincontractor,andwillnotbethesubjectofaprimecostsum.Oncethesub-contractorhasbeenselected,heistreatedlikeanyotherdomesticsubcontractor,albeithehastheprotectionofastandardandmandatorysub-contractform.Thenamedsubcontractordoesnotreceivecopiesofarchitect’scertificatesofpayment,anditisthemaincontractorwhoissuesinstructionstohimandawardsextensionsoftime.Forthesereasons,namingunderIFC98shouldberegardedasupgradeddomesticsub-contractingratherthandown-gradednomination.Inadditiontothestandardtender,NAM/T,andthestandardsub-contract,NAM/SC,thereisanEmployer/Subcontractoragreement,ESA/1,whichdealswithdesigncarriedoutbynamedsubcontractors.DomesticSub-ContractsforusewithIFC98Astandardformofdomesticsub-contractforusewiththeIntermediateFormcalledIN/SChasbeenproduced.Thisdocumentiscompletelyoptional:themaincontractorisfreetousehisowntermsandconditionsifthesub-contractoragrees.IN/SCisproducedintwoparts:therecitalsandarticlesofagreement.Whichincorporatebyreferencetheseparatelyissuedconditionsofcontract.Inviewofthenamedsub-contractor’sessentiallydomesticstatusoncehehasbeenappointed,thetermsofIN/SCareverysimilartothetermsofNAM/SC.JCT“WithContractor’sDesign”MainContract–WCD98TheJCT“WithContractor’sDesign”Form–WCD98–isforusewherethecontractorisdesigningtheworks.Thisformhasbecomeincreasinglyimportant,partlybecauseofthetrendtowardsdesignandbuildcontractsandalsobecausetheformisusedbysomemajorprivatesectoremployerswherethecontractorisrequiredtohaveonlyapartialdesigninput.WCD98requirestheEmployertostatehisrequirements,whichmaybelittlemorethanadescriptionoftheaccommodationrequired,oranythinguptoafullschemedesignpreparedfortheEmployerbyhisownconsultantsorotherprofessionaladvisers.•Inresponse,thecontractorsubmitshisproposalsforthedesignoftheworks,alumpsumpriceandacontractsumanalysiswhichwillbethebasisofvaluingchanges(variations)intheEmployer’srequirements.AmoredetailedcommentaryonWCD98isgiveninChapter21-JCTStandardFormWithContractor’sDesign.Chapter33 StandardFormsofContractSub-contractsforusewithWCD98TheJCTitselfhasnotpublishedanystandardformsofsub-contractforusewithWCD98,andasallsub-contractorsunderWCD98aredomestic,nostandardsub-contractisstipulated.However,theConstructionConfederationhaveissuedastandardform,DOM/2.DOM/2comprisesArticlesofagreement,andasetofconditions.JCTManagementContract1998-MC98–MainFormMC98comprisesArticlesofAgreementandConditions.MC98isdeliberatelylowriskfortheManagementContractor.Essentially,theManagementContractormanagestheconstructionprocesswhiletheworkonsiteisactuallycarriedoutbyWorksContractors.TheJCTadvisesthatsuitableconditionsforuseoftheManagementContractwouldbewhere:(i)theEmployerwishesthedesigntobecarriedoutbyanindependentarchitectanddesignteam(ii)thereisaneedforearlycompletion(iii)theprojectisfairlylarge(iv)theprojectrequirementsarecomplex(v)theEmployerwhilerequiringearlycompletionwantsthemaximumpossiblecompetitioninrespectofthepriceforthebuildingworks.UnderMC98,thedesignoftheprojectistobecarriedoutbyaProfessionalTeamcomprisinganarchitectorcontractadministrator,quantitysurveyorandanyotherprofessionaladvisersasarenecessary,forexample,consultingorstructuralengineers.WorksContractorsmayalsocarryoutsomedesignwork,whichiscateredforbothbytheseparateWorksContractor/EmployeragreementandaprovisionintheWorksContractwhichmakestheWorksContractorliabletotheManagementContractorforthefailuretoexercisereasonableskillandcareinanydesignhecarriesout.TheManagementformisnotalumpsumcontract.ThequantitysurveyorpreparesaContractCostPlanwhichisanindicationofthepricetheEmployerwillpayforhisproject(exclusiveoftheManagementContractor’sfee).TheManagementContractorisentitledtobepaidtheactualcostofbuildingtheproject(i.e.theprimecost).Inadditiontotheprimecost,theemployeralsopaystheManagementContractor’sfeeforhismanagementservices,whichcanbeeitheralumpsumormaybecalculatedasapercentageofthecontractcostplantotal.Theprojectperiodisdividedintotwophases:apre-constructionperiodandaconstructionperiod.Duringthepre-constructionperiodtheManagementContractorwillprepareadetailedconstructionprogramme,assistinappointingWorksContractorsandadviseonthepracticalaspectsofdesign.Beforetheendofthepre-constructionperiodtheManagementContractorandtheProfessionalTeammusthaveagreedupontheContractCostPlan,andthecontentoftheallimportant“thirdschedule”ofMC98whichisalistoftheservicestobeprovidedbytheManagementContractor.WhentheArchitectdecidesthatitispracticabletocommenceconstructionoftheproject,theEmployermustdecidewhetherhewishestheManagementContractortoproceed.Inotherwords,thereisa“breakclause”betweenthepre-constructionandconstructionperiods,whichgivestheEmployeranopportunitytodecidewhetherhewishesthesameManagementContractortocontinueintotheconstructionphase.Ifhedoesnot,thentheManagementContractorispaidaseparatepre-constructionperiodmanagementfeewhichisidentifiedinhistender.4Chapter3 StandardFormsofContractDuringtheconstructionperiodtheManagementContractorhaspossessionofthesite.Heisnotcontractuallyresponsiblefortheprimecostoftheprojectifitexceedsthecontractcostplantotal,butheiscontractuallyresponsibleforsecuringthecompletionoftheprojectonorbeforethedateofcompletion.Hismainobligationduringtheconstructionperiodistosetout,manage,organise,superviseandsecurethecarryingoutandcompletionoftheprojectthroughtheWorksContractors.TheprovisionsofMC98intermsofriskaresomewhatcomplex.TheManagementContractorisfullyliabletotheEmployerforbreachofobligationsregardingtime,workmanshipandmaterialsbytheWorksContractors.HemustenforcethetermsoftheWorksContracts,ifnecessarytotheextentoftakinganydisputestoadjudication,litigationorarbitration.However,theManagementContractorisentitledtobepaidbytheEmployerthecostsofsuchlitigationorarbitration,providedithasbeenundertakenafterconsultationwiththeEmployerandthearchitect.AnyshortfallwhichcannotberecoveredfromtheWorksContractor(forreasonsofinsolvencyorotherwise)isbornebytheEmployerandnottheManagementContractor.Similarly,theEmployermayrecoverliquidateddamagesfromtheManagementContractoronlytotheextentthattheManagementContractorrecoversthemfromtheWorksContractors.Theonlyexceptiontothese“reliefprovisions”iswheretheManagementContractorhasincurredcostsduetohisownnegligenceincarryingouthisdutieswhicharelistedinthethirdschedule.WorksContractsforusewithMC98MC98describesthecontractorswhocarryouttheworkasWorksContractors,notsub-contractors.TheWorksContractdocumentationcomprises:•WorksContract/1whichisastandardformoftender•WorksContract/2whichcontainstheconditionsofcontract•WorksContract/3whichisan(optional)agreementbetweentheEmployerandtheWorksContractorICEConditions7thEditionTheICEConditionsofContractsarewidelyusedforcivilengineeringprojects.thThe7editionoftheICEConditionswaspublishedinSeptember1999.thICE7isare-measurementcontract.Wheretherearesignificantchangesinquantities,thecontractratesmaybealtered.Sub-ContractsforusewithICE7ththTheICE7prohibitssub-contractingofthewholeoftheworkswithoutthepriorconsentoftheEmployer.Sub-contractingofpartoftheworksispermittedbuttheextentoftheworkstobesub-contractedandthenameandaddressofthesub-contractormustbenotifiedtotheEngineerpriortothesub-contractor’sentryontothesiteor,wherethesub-contractoriscarryingoutdesign,onappointment.TheICE7thprovidesfortheappointmentofnominatedsub-contractors,butdoesnotmaketheuseofastandardformofsub-contractmandatory.Chapter35 StandardFormsofContractAFormofSub-Contract(1998edition)hasbeenpublishedbytheCivilEngineeringContractorsthAssociationforusewiththeICE6butasat1January2000noversionhasyetbeenpublishedforusethwiththeICE7.TheEngineeringandConstructionContract-2ndeditionThecontractcomprisesasetof“coreclauses”whicharetobeusedineverycasewherethecontractisused.Thecoreclausesmustbesupplementedbyoneofsixpossiblesetsofprovisionsaimedmainlyatpaymentwhichare:•OptionAPricedcontractwithactivityschedule•OptionBPricedcontractwithbillofquantities•OptionCTargetcontractwithactivityschedule•OptionDTargetcontractwithbillofquantities•OptionECostreimbursablecontract•OptionFManagementcontractAlthoughAtoFarecalled“MainOptions”,atleastoneofthemmustbechosen.Inadditiontotheabove,thepartiesmaychoseotherSecondaryOptionstoformpartofthecontract.ItnotnecessarytoadoptanyoftheseSecondaryOptionsand,exceptwhereotherwisestated,theymaybeusedinanycombination.Theseotheroptionalprovisionsare:•OptionGPerformanceBond•OptionHParentcompanyguarantee•OptionJAdvancedpaymenttotheContractor•OptionKMultiplecurrencies(nottobeusedwithOptionsC,D,EandF)•OptionLSectionalCompletion•OptionMLimitationontheContractor’sliabilityforhisdesigntoreasonableskillandcare•OptionNPriceadjustmentforinflation(nottobeusedwithOptionsEandF)•OptionPRetention(nottobeusedwithOptionF)•OptionQBonusforearlyCompletion•OptionRDelaydamages•OptionSLowperformancedamages•OptionTChangesinthelaw•OptionUTheConstruction(DesignandManagement)Regulations1994(tobeusedforcontractsintheUK)•OptionVTrustFund•OptionZAdditionalconditionsofcontract6Chapter3 StandardFormsofContractSomeofthekeyfeatureoftheEngineeringandConstructionContractare:•ThewordingoftheEngineeringandConstructionContractismuchsimplerthanthatfoundintheotherstandardformsespeciallytheJCTformswithnoneoftheextensivecrossreferencingofprovisionswhichisafeatureoftheJCTforms.•TheContractincludesa‘missionstatement’thatthepartieswillact“inaspiritofmutualtrustandco-operation”.•Itprovidesforbothpartiestogivetotheotherearlywarningofanymatterwhichcouldincreasethetotalofthepricesordelaycompletionorimpairtheperformanceoftheworksinuse.•TheContractor’sliabilityfordefectsintheworksduetohisdesignthatarenotlistedinthedefectscertificatearelimitedtotheamountstatedinthecontractdata(inadditiontoanystateddamagesfordelayorlowperformance).IfOptionMisincorporatedintothecontract,theContractorwillnotbeliablefordefectsintheWorkscausedbyhisdesignprovidedhecanprovethatheused‘reasonableskillandcare’toensurethathisdesigncompliedwiththeWorksInformation.•Badweatherforthepurposesofassessingcompensationisdefinedasbeingavaluewhich,bycomparisonwithweatherdata,isshowntooccuronaveragelessfrequentlythanoncein10years.Chapter37 CHAPTER4TENDERINGPROCEDURESAsexplainedinChapter1,atenderisaformofofferandwillformthebasisofabindingcontractifitisunconditionallyaccepted.ThisChapterdealswithgeneraltenderingmatters,particularlythe“CodeofPracticefortheSelectionofSubcontractors”.TheCodewaspublishedaspartofaseriesofCodesandGuidanceDocumentsbytheConstructionIndustryBoardinApril1997.ThisChapteralsodescribesthetenderingproceduresunderthestandardformsofsubcontract,andcommentsuponthestandardtenderdocuments.QualificationstotendersandwithdrawaloftendersaredealtwithinChapterl-FormationofContracts.TheCIBCodeofPracticefortheSelectionofSubcontractorsTheCodestatesthatitis“aimedatimprovingthequality,effectivenessandefficiencyoftheconstructionindustry.”TherefollowsasummaryofthekeyprovisionsoftheCode-thenumbersinsquarebracketsaretoparagraphnumbersoftheCode.•QUALIFICATION•Maincontractorstofollowaformalandsystematicqualificationprocessasapreliminarytocompilingtenderlists(iftheyneithermaintainnorhaveaccesstoanapprovedlist).[2.4]•Criteriaforqualificationtoinclude[2.3]:•workquality•pastperformance•overallcompetence•healthandsafetyrecord•financialstability•insurancecover•sizeandresources•technicalandorganisationalability•abilitytoinnovate•Maincontractorstoregularlyreviewtheirlistandnotifyanyadditionsorremovals.[2.5]•ItshouldbenotedthatwhilsttheCodeisstatedtoapplytosub-contracts/sub-sub-contractsofmorethan£10,000(excludingVAT),thereisnoreasonwhytheprinciplesshouldnotbeapplicabletocontractsofanysize.•SELECTIONFORASPECIFICPROJECT•Maincontractorstodrawuppreliminarylist(e.g.fromanapprovedlistofqualifiedsubcontractors).[2.6]•Tenderersonpreliminarylisttobeaskediftheyarewillingtotender.[2.8]•TendererstobeassuredthatCodewillbeapplied.[2.8]•Potentialtendererstobegivensufficientinformationtoenablethemtodecideiftheyarewillingtotender.[2.9]Chapter41 TenderingProcedures•Anybriefingsessionsmusthavestandardagendatoensureconsistenttreatment.•Pointstonote:•Theinformationtopotentialtenderersshouldinclude:•jobandlocation•nature,scopeandapproximatevalueofthesub-contractworksincludingreferencetotheextentofanydesignworkrequired•thelikelydatesanddurationofboththetenderingprocessandthesub-contractworks•thenumberoftenderersbeinginvitedtosubmitaformaltender•whetherthemaincontractorisalreadybeingappointedorisalsotendering•themaincontracttenderdate•theapproximatevalueandperiodofthemaincontract,ifknown•whether,andhow,anycostsoftendering,maybeshared•whetherthetenderwillbebasedonbillsofquantitiesorotherpricingdocumentsoronspecificationanddrawings•theselectionprocedureandselectioncriteria•themainandsub-contractconditions•thenamesoftheclientandtherelevantconsultants•COMPILINGTENDERLISTS•Maincontractorstoproducedrafttenderlistsandseekconfirmationfrompotentialtenderersofwillingnesstotender.[2.13]•Potentialtendererstonotifyunwillingnesstotenderbeforeissueoffulltenderenquirydocuments.[2.13]•Maximumnumberofinvitationstotendernottoexceed6inrespectofconstruct/installonly.Fordesignonly,maximumis4.Fordesignandconstructmaximumis3.[2.15]•Ifminimumnumberoftendersisreceivedcontractorshouldnotseekmore.Designonly=3.Constructonly=4.Designandconstruct=2.[2.15]•Potentialtendererstoreconfirmwillingnesstotenderiftenderdocumentsnotreceivedwithin3monthsofinitialconfirmationofwillingnesstotender.[2.18]•Maincontractorstoidentifyandnotifyreservetenderers-maximumof2reservestobeinvitedtotenderiforiginaltenderersdropoutbutmusthavesufficienttimeinwhichtotender.[2.16/2/17]•Pointtonote:Innocaseshouldthemaximumnumberoftenderersexceedsix.•TENDERENQUIRYDOCUMENTS•Tendererstobeinformedifinformationisapproximate.[3.1]•Levelofdetailrequiredintendersubmissiontobeclearlystatedanditshouldbeindicatedifpricedschedulesarerequiredaswellasalumpsumprice.[3.1]•Pointstonote:•AnnexItotheCodeliststheminimuminformationtobeincludedintenderdocumentationassessmentcriteria(shouldhaveregardtovalueformoneyratherthanlowestprice);contractconditionsandamendmentstostandardforms;paymentterms(cashretentionsorretentionbonds,advancepaymentformaterials,securityofpaymentandprotectionagainstnon-payment);approximatedatesforcommencementandcompletionofsub-contractworksprogramme.2Chapter4 TenderingProcedures•TENDERINGTIME•10weeksfordesignandconstruct;6weeksforconstructonlyand3weeksfordesignonly.[3.5]•Pointstonote:•Thetimefortenderingshouldtakeaccountofbankholidays•Theaboveperiodsaresuitableformostprojectsbutextratimecouldberequiredincertaincircumstances,e.g.whereproductsormaterialshavetobeobtainedfromdistantorunfamiliarsuppliers.•TENDERINVITATIONS•Tenderinvitationstobeissuedonthesamedateforalltenderersandshouldstatewhetheralternativetendersareacceptableinconjunctionwith(butnotinsteadof)complianttenders.[3.7]•Tendererstoacknowledgereceiptofdocumentsandconfirmwillingnesstosupplycomplianttender.[3.7]•Thetenderinvitationshouldalsostatewhethertenderersaretobeinterviewedand,ifso,forwhatpurposeandatwhatstage.Interviewsmustnotinvolvesecondroundbidding.[3.8]•Notlaterthan7daysbeforethedateforsubmissionoftenders,tenderersshouldsubmitinwritinganyclarificationwhichtheymayrequire.[3.9]•Themaincontractorshouldinformalltenderersinwritingofitsresponsetorequestsforclarification.[3.9]•Ifthetenderdocumentationisconsequentlyamended,alltenderersmustbeinformed.[3.9]•Pointtonote:TheCodestatesthatitsprovisionsaredesignedtoencouragecomplianttenders.•TENDERSUBMISSIONANDOPENING•Undernocircumstancesshouldtenderpricesbedisclosedtothirdpartiesbythemaincontractorbeforetheawardofthesub-contract.Useof‘coverprices’isabreachofconfidentiality.[3.12]•Tenderstobesubmittedinsealedpackagesandclearlylabelledastendersfortheworks;identificationoftenderers’namesisnotpermitted.[3.13]•Tenderstobekeptinasecureplaceandonlyopenedonthedateandtimestatedforreceiptoftenders.•Whenopened,formsoftendershouldbesignedandpricesshouldbelistedagainstthenamesofthetenderers.Thepersonopeningthetendersshouldsignthelist.[3.13]•Billsofquantitiesshouldonlybecompletediftheywereinthetenderdocumentationanditisalsorequiredthattheybepartofthetendersubmission.[3.14]•Pointtonote:Itissuggestedthoseinvitingtendersself-certifytotheirtenderersthattheserequirementshavebeenmet.•LATETENDERS•Tendersreceivedafterthedateandtimespecifiedforreturnoftenderswillnotbeaccepted.[3.15]Chapter43 TenderingProcedures•TENDERASSESSMENT•Tenderingenquirydocumentstoprovidetenderassessmentcriteria.[4.1]•Weightingfactorstobedecidedinadvance,usedconsistentlyandarecordkeptofscoresawardedduringtheassessment.[4.1]•Toensureparityoftendering,non-complianttenderstoberejected.[4.3]•Unsolicitedtendersareunacceptable.[4.5]•Anymathematicalerrorstobenotifiedtothetendererwhoshouldbeaskedwhetherhestandsbyhistenderprice.[4.6]•Thenextpreferredtendererscanonlybeapproachedifthepreferredtendererwithdrawsorpost-tendernegotiationsbreakdown.[4.9]•Ingeneral,tenderpricescanonlybechangedinexceptionalcircumstancese.g.wheretheprogrammeorscopeoftheworksinrespectofspecification,quantities,programmehavechangedorwheremoreinformationhasbecomeavailable.[4.11]•Whereapreferredsub-contractor’stenderisusedinamain(orprincipalsub-contract)tendersubmission,thesub-contractorshouldbenotified.[4.12]•Theidentityofthesub-contractorwhosepricehasbeenincorporatedinthemaincontracttendershouldbenotifiedtotheclientunlesstheclienthasindicatedthatthisisnotnecessary.[4.12]•Pointtonote:Theprovisionsaboutunsolicitedtenders,changingoftenderpricesandidentityofsub-contractoraredesignedtocombat‘dutchauctioning’.•TENDERACCEPTANCE•Whereamaincontractorhassubmittedasub-contracttenderpriceaspartofthemaincontracttenderwhichisaccepted,heshouldalsoacceptthatsub-contracttenderprice.[5.l]•Formalnotificationshouldbesenttothepreferredtendererfollowingacceptanceofthemaincontracttender.[5.2]•Onceamaincontractorhasacceptedthesub-contracttenderprice,acknowledgementbythepreferredtendererisrequired.[5.3]•Alistofcomplianttenderpricesandtenderersshouldbemadeavailabletotenderersonrequestafterasub-contracttenderhasbeenaccepted(namesoftenderersshouldnotbematchedtoprices).[5.4]•Unsuccessfultenderersshouldbeinformedandarrangementsmadewiththemtodestroyorreturntheirdocuments.[5.5]•Maincontractorstoprepareformalrecordsofselectionofpreferredtenderers.[5.6]•Suitesofcontractsandunamendedstandardforms(compatiblewithothercontractsinthesuite)fromrecognisedbodiestobeused.•Theidentityofthesub-contractorwhosepricehasbeenincorporatedinthemaincontracttendershouldbenotifiedtotheclientunlesstheclienthasindicatedthatthisisnotnecessary.[4.12]4Chapter4 TenderingProcedures•Pointstonote:•Theprocedureswillbedifferentaccordingtowhetheramaincontractorinincorporatingsub-contracttendersaspartofhistenderorisinvitingsub-contracttenderspost-maincontracttender.•Itisnotclearwhatismeantby‘recognisedbodies’butmaincontractors’ownformsmustnotbeused.TENDERINGUNDERSTANDARDFORMSOFCONTRACTNominatedSub-ContractorsunderJCT98Nominationisasystemoftenderingwherebytheemployerthroughhisprofessionaladvisors,selectsasub-contractorwhomhenominatestothemaincontractorasanominatedsub-contractor.TheargumentsinfavourofnominationaresetoutindetailinChapter23-Nomination.Clause35ofJCT98containsdetailedprovisionsregardingthenominationofsub-contractors.Thenominationprocedureworksasfollows:1.Thearchitectcompletestheinvitationtotenderinpart1ofNSC/T,andtherelevantsectionoftheemployer/nominatedsub-contractoragreementNSC/W,andsendsthemtothecompetingtenderersforthenominatedsub-contractwork.2.Thetendererscompletepart2ofNSC/T,andtherelevantsectionsofNSC/W.Theyreturnthesedocumentstothearchitect,whoselectsthesub-contractor,andtheemployersignsthesuccessfulsub-contractor’stendertosignifyhisapprovalofthearchitect’schoice.3.Thearchitectthenimmediatelynominatesthesub-contractoronthestandardformofnominationinstruction,NSC/N.4.Onreceiptofthenominationinstruction,themaincontractormustagreethe“ParticularConditions”setoutinPart3ofNSC/Twiththenominatedsub-contractor.Theseincludethesub-contractperiodandprogramme,insurancedetailsandtheidentityoftheadjudicatorandtrusteestakeholder.5.Whenallofthe“ParticularConditions”havebeenagreed.thecontractorandsub-contractorsignpart3ofNSC/TandexecutethearticlesofagreementinNSC/A.Atstage2.theemployersignsNSC/W,soatthatearlystagethereisabindingcontractbetweentheemployerandthenominatedsub-contractor.Thisallowsthearchitecttoinstructthesub-contractortoproceedwithdesignwork,purchasinggoodsandmaterialsandfabricatingcomponentsbeforeacontractisconcludedbetweenthemaincontractorandthenominatedsub-contractor.NSC/Walsoprovidesforpaymentbytheemployerforsuchwork,andthiswillbemandatoryifforanyreasonthenominationprocessbreaksdownandnonominatedsubcontractisconcluded.Problemsoftenariseatstage4,whenthemaincontractortriestoagreethe“ParticularConditions”withthenominatedsub-contractor.Clause35.8ofJCT98allows10workingdaysfromthemaincontractor’sreceiptofNSC/Nforanagreementtobereached.Ifthisprovesimpossible,themaincontractormustgiveawrittennoticetothearchitectstatingeitherthedatebywhichheexpectstoreachagreementor,iflackoftrustisnottheproblem,theothermatterswhicharepreventingagreement.Ifthemaincontractorsimplyneedsmoretime,thearchitectmayextendthetimeforreachinganagreementwiththenominatedsub-contractor,butthiswillnotentitlethemaincontractortoanchapter45 TenderingProceduresextensionoftimeorlossandexpenseiftheprolongednegotiationswiththenominatedsub-contractorresultinadelayinthecompletionofthemaincontractworks.Ifothermattersarepreventingagreement,thearchitectmustdecidewhether,inhisopinion,theyjustifyafailuretoagree.Ifhefeelstheydonot,hecaninstructthecontractortoreachagreementwiththenominatedsub-contractorandexecuteNSC/A.Failuretocomplywiththisinstructionwouldpresumablyentitletheemployertoimplementtheusualsanctionforfailuretocomplywitharchitect’sinstructions,namelyemployingandpayingotherstocarryoutthenecessaryworkandrecoveringthecostofdoingsofromthemaincontractor.Itisdifficulttoseehowthiswouldworkinpracticeinrelationtothistypeofinstruction,althoughitmayentitletheemployertoemploythenominatedsubcontractorashisowndirectcontractor.Wherethearchitectisoftheviewthattherearegenuinereasonsforthefailuretoagreehemustissuefurtherinstructionsunderclause35.9.2ofJCT98eithertofacilitateagreement(forexamplebyamendingthemaincontractperiod),ortoomittheworkaltogetherortonominateanothersub-contractor.Instructionsunderclause35.9.2willentitlethemaincontractorbothtoanextensionoftimeandlossandexpense.NamedSub-ContractorsUnderIFC98IFC98doesnotprovidefornominationofsub-contractors,butdoesallowthearchitecttonameasub-contractortocarryoutanidentifiedsectionoftheworks.Althoughnamedsub-contractorshavetheprotectionofastandardandmandatoryformofsub-contractNAM/SC,oncetheyareappointedtheirstatusonthesiteisverysimilartothatofadomesticsub-contractor.Namedsub-contractorsmaybenamedeitherinthemaincontractdocuments(andthereforewillbeappointedbeforethemaincontractor)orinanarchitect’sinstructionastotheexpenditureofaprovisionalsum.Ineithercase,tendersmustbesoughtfromthepotentialsub-contractorsonthestandardformoftenderandagreementNAM/T.TenderandAgreementNAM/Tfallsintothreesections:SectionI-InvitationtoTender-thewholeofthisSectionistobecompletedbythearchitect.InSection1,hegivesparticularsoftheMainandSub-ContractWorks,togetherwithindicationsofthesub-contractprogrammeandbasisoffluctuationsetc.Thearchitectalsoindicateswhetherthesub-contractoristobenamedinthecontractor’sinvitationtotenderorinaninstructiontoexpendaprovisionalsum.SectionII-TenderbySub-Contractor-thewholeofthisSectionistobecompletedbythetenderingsub-contractor.ThetendererquotesaVATexclusivesub-contractsumtogetherwithpercentageadditionstotheprimecostofdaywork.Inaddition,hespecifiestheattendancesherequires,givesprogrammeinformationanddetailsoffluctuationsarrangementstotheextentthattheyhavenotalreadybeenspecifiedbytheArchitectinSectionI.SectionIII-ArticlesofAgreement-ifthesub-contractor’stenderisaccepted,heandthecontractorcompleteSectionIll.ThisSectionconsistsoftheSub-ContractArticlesofAgreementandincorporatesbyreferencethemandatorysub-contractconditions(Sub-ContractConditionsNAM/SC).UponcompletionandexecutionofSectionIIIasubcontractisformedwithoutanyneedtoexecutetheSub-ContractConditionsNAM/SC.6Chapter4 TenderingProceduresWorksContractorsundertheManagementContract–MC98WorksContractorsunderMC98mustbeselectedbyagreementbetweentheManagementContractorandtheArchitect.Byclause8.2ofMC98,thestandardWorksContractdocumentationmustbeusedunlesstheEmployer(ortheArchitectonhisbehalf)andtheManagementContractoragreeotherwise.Itmaybeadvantageoustousethestandarddocuments,astheyhavebeendraftedspecificallyforusewithMC98andthereforetheirtermsarecomplementary.However,mostmanagementcontractorshavetheirown‘homemade’workscontractswhichtheywillbeanxioustopersuadetheEmployertoallowthemtouse.Experiencetodatehasshownthatthestandardworkscontractdocumentsareinfrequentlyused,andwheretheyare,theyareheavilyamended.Aswithanyothernon-standardform,itwillbeamatterforthecommercialjudgementoftheSteelworkContractorwhatactionhetakeswhenfacedwithamendmentsornon-standardformsofworkscontract.IfthestandardWorksContractdocumentationisused,tenderswillbesoughtusingWorksContract/1.TheManagementContractorcompletesSection1,whichistheinvitationtotender.ThissetsoutalloftheinformationwhichtheWorksContractorrequirestopreparehistender.ItdescribestheprojectandtheworkstobeundertakenbytheWorksContractor,identifiestheotherpartiesinvolvedintheprojectandreproducesrelevantpartsoftheManagementContractAppendix.Section1alsostatesthatthestandardWorksContractconditions(whicharecontainedinWorksContract/2)willapplyunamended,unlesstheEmployerhasamendedtheManagementContract,ortheArchitecthasinstructedtheManagementContractortoamendtheWorksContractConditions.Anysuchamendmentsareidentifiedonaseparatesheetandattachedtotheinvitationtotender.Steelworkfabricatorswillneedtotakecarefulnoteofanychangeswhichareproposedatthetenderstage.Attendancescanbeaparticularproblemonmanagementcontracts.MC98dealswithattendancesasfollows:clause1.5.4.oftheManagementContractrequirestheManagementContractortoprovidesuchsitefacilitiesandservicesasarelistedintheFifthScheduletoMC98.ThatlistwillhavebeencompiledbyagreementbetweentheManagementContractorandtheEmployer(ortheArchitect)beforetheconstructionperiodcommences.Thereisnominimumrequirementforitemsofgeneralattendance,butthereisamodelchecklistfortheFifthScheduleintheJCT’sGuidanceNote.Section1ofWorksContract/1setsoutalistoftheattendanceitemswhicharetobeprovidedfreeofchargetotheWorksContractorbytheManagementContractor.Alistofcommonsitefacilitiesandservicesisprintedinthedocument,whichincludes:(i)Canteens,sanitaryaccommodationandfirstaidaccommodation.(ii)hoardings,entrancesandexitsforthesite,togetherwithsitesecurityarrangements.(iii)accessroads,ramps,walkways,etc.withinthesite.(iv)facilitiesforhandlingandstorageofmaterials.(v)hoistsandscaffoldingforthegeneraluseofWorksContractors.(vi)sitedrainage,electricityandwatersuppliesforgeneralusebyWorksContractors.(vii)generalfire-fightingequipmentandservices.(viii)smallmulti-servicelabourforcetocarryoutgeneralsitecleaningduties.(ix)theclearanceofallsiterubbishprovidingthatWorksContractorscollecttodesignatedpoints.However,theManagementContractormaydeleteitemsfromthisprintedlistand/oraddothers,sotheWorksContractormustnotmakeanyassumptions:hemustcheckthislisttoseeifanychangeshavebeenmade.Chapter47 TenderingProceduresInhistender,Section2ofWorksContract/l,theWorksContractorcanrequiretheManagementContractortoprovideotherattendances.However,ifhedoesso,thenunderClause3.11.2ofWorksContract/2,theWorksContractormustpayanagreedpricefortheseadditionalattendances,orifnoagreementisreachedafairandreasonableprice.Therefore,itemsofspecialattendancewillnotbeprovidedfreeofchargetotheWorksContractor,asmayhavebeenthecaseifhewereasub-contractorrequiringspecialattendancesfromamaincontractor.Section2ofWorksContract/1alsosetsoutimportantmatterssuchasthetenderprice,dayworkpercentagesandtheWorksContractor’sproposalsfortheperiodherequirestoexecutethework,bothoffsiteandonsite.ThereareseveralareaswherediscrepanciesmayoccurbetweenSections1and2ofWorksContract/1,particularlywithregardtomatterssuchasprogrammeandattendances.AllthreesectionsoftheTenderdocumentareprefacedbyawarningthatitisessentialthatbeforetheManagementContractorandtheWorksContractorexecutetheArticlesofAgreement,theyhavesatisfiedthemselvesthatsuchdiscrepancieshavebeenremoved.AnyagreedalterationstoSections1and2asoriginallycompletedmustbeinitialledbytheManagementContractorandtheWorksContractor.Whenthishasbeendone,Section3isexecutedbytheparties,eitherunderhandorasadeed.TheJCThavealsoproducedastandardformofEmployer/WorksContractorAgreement,WorksContract/3,whichisoptional.TheWorksContractorwillbeinformedintheinvitationtotender(Section1ofWorksContract/1)whetherthiswillberequired.ICE–7thEdition–NominatedSub-ContractorsthClause58oftheICE7EditionpermitstheEngineertonominatesub-contractorstothemaincontractor.ThepublishersoftheICEconditionsdonotproducestandardtenderorcontractdocumentsforusebynominatedsub-contractors,buttheCivilEngineeringContractorsAssociationthhavepublishedaformofsub-contract(July1998edition)forusewiththeICE6Conditionsalthoughthasat1January2000noversionhasyetbeenpublishedforusewiththeICE7.thClause59oftheICE7specifiesminimumprovisionsforthenominatedsubcontract,whichareessentiallydesignedtoensurethatthenominatedsub-contractorundertakessimilarliabilityinrespectofthenominatedsub-contractworkastheContractorhastotheEmployerunderthemaincontract.8Chapter4 CHAPTER5ONEROUSCONTRACTCLAUSESOnerousClausesDefinedTheOxfordEnglishDictionarydefinesonerousasmeaning“burdensome,causingorrequiringtrouble”.Inthebuildingindustry,theterm“onerouscontractclauses”isnormallyusedtodescribeunusualclauseswhichalterthebalanceofriskandgiveonepartyasignificantadvantageovertheother.Sub-contractorsareparticularlyvulnerabletoonerousclauses,asinmanysituationstheuseofstandardformsofsub-contractisnotprescribed,whichleavesthepartiestonegotiatetheirownterms.Maincontractors,beinglarge,sophisticatedandcontractuallyinformedorganisations,tendtobeverygoodatthisandholdingthemoney,andmosthavetheirownstandardtermsofsub-contractwhichtheywillimposeuponsub-contractorsiftheycan.Inaddition,maincontractorsmayattempttoincorporateintotheirsub-contractsthemaincontractprovisions,includingpotentiallyonerousamendmentstothemaincontractconditions.ThisChapterlooksbrieflyatthebenefitsofstandardforms,identifieswhereonerousclausesaretobefound,givessomecommonexamples,andendswithsomeadviceoncombatingthembothduringpre-contractnegotiationsandaftertheyhavebecometermsofthecontract.TheBenefitsofStandardFormsTheneedfornegotiatedstandardconditionsofcontractwasrecognisedaslongagoas1909.whenbuildersandarchitectsformedtheoriginsofwhatisnowtheJointContractsTribunal.Inthemovetowardsfairandequitableconditions,standardisationdevelopeduntiltheprecursorofthecurrentJCTStandardFormappearedin1939.DuringtheprocessofrevivinganailingbuildingindustryafterWorldWarII,theneedforstandardisationinbothmainandsub-contractformswasemphasised,particularlyintheBanwellReportandthefollow-up“ActiononBanwell”.Standardisationensuresthatthoseusingformsarefamiliarwiththecontentsandeffectoftheprovisions.Theriskareasareknownandidentifiable-confidenceresults,andthiscreatesbettercontractualrelationships.Theuseofstandardformsalsosavesconsiderabletimeandeffort,particularlyduringbrieftenderperiods.Ifacontractororsub-contractoristenderingonthebasisofastandardform,heknowspreciselyhowtherisksandliabilitieswillbeallocated,anddoesnotneedtospendprecioustimeanalysingtheconditions.Standardformsofcontractandsub-contractfallintotwocategories.ThereareformssuchasthoseissuedbyJCTwhichhavebeennegotiatedatnationallevelbyrepresentativesoftheusersoftheforms.Thereareotherstandardformsarenotnegotiated,butaredraftedbyasinglebody.Examplesofthistypeofdocumentinclude:•GC/Works/1,draftedbyPACEforuseongovernmentcontracts,•formsproducedbytheBritishPropertyFederation(BPF)•formsproducedbytheAssociationofConsultantArchitects(ACA)Chapter51 OnerousContractClauses•MF1publishedbytheJointIMechE/IEECommitteeonModelFormsofGeneralConditions•theEngineeringandConstructionContractpublishedfortheInstitutionofCivilEngineersThesedocumentstendtofavourthebodywhichpublishesthem,andsometimesincorporateanumberofclauseswhichareoneroustocontractorsandsub-contractors.However,eventheseformspossessoneofthemainadvantagesofstandardisationinthattheirtermsarefamiliar.SourcesofOnerousClausesTherearetwo“breedinggrounds”foronerousconditionsofsub-contract:amendmentstothestandardformsofcontract,andcompletely“home-made”or“bespoke”contractsdraftedbymaincontractorsorclients.Onerousconditionsmayalsobefoundinsuppliers’termsandconditionsofsale:theseareconsideredinChapter15-SupplyofGoodsandMisrepresentation.Perhapsthegreatestenemyofthesub-contractoristhewordprocessor.Amendmentstowordprocessedcontractsarealmostimpossibletotracewithoutreadingeverywordofthedocument:theredlinethroughthepaymentperiodiseasilyidentifiable,thewordprocessedchangeof17daysto28isnot.ExamplesofOnerousClausesTheprevalenceofnon-standardformsandamendmentstostandarddocumentsmakesitimpossibletosetoutanexhaustivecheck-listofonerousclauses.However,thecommercialingenuitywhichinspiressuchclausesfollowsafairlypredictablepattern,sothefollowingexamplesshouldhighlightthemainareasaffected.PaymentTherearetwoamendmentscommonlymadetothepaymentclausesinthestandardforms.Thefirstissimplytolengthenthepaymentperiod.Forexample,underthenominatedsub-contractNSC/C,paymentisduetothesub-contractorwithin17daysofthedateofanyinterimcertificateissuedbytheArchitect.Itisasimplematterforthistobeamendedtodelaypaymentforalongerperiod,suchas28days.Thismeansthatthesub-contractormayhavetoworkonsiteforalmosttwomonthsbeforehereceivesanypaymentatall,whichwouldclearlyhaveanadverseeffectonhiscashflow.SteelworkContractorsmaybeespeciallyexposedtotheriskofdelayedpaymentastheywillusuallyhavetoexpendmoneybeforetheygoonsiteandtheircontractmaynotprovideforpaymentforoff-sitematerials.Thesecondcommonamendmentrelatestocashdiscount(oftenincorrectlydescribedbymaincontractorsas“MainContractor’sdiscount”).Theamendmentprovidesthatthemaincontractorisalwaysentitledtoadiscountevenifhedoesnotpaythesub-contractorontime.ThisremovesasignificantincentivefortheMainContractortopaywithinthespecifiedperiod.However,asexplainedinmoredetailinChapter7-PaymentandSet-Off,theLatePaymentofCommercialDebts(Interest)Act1998nowmakesitanimpliedterminmostcontractsinvolvingthesupplyorgoodsorservicesthatstatutoryinterestispayableifpaymentsarenotmadebytheagreedpaymentdate.Inaddition,wheresection112oftheHousingGrants,ConstructionandRegenerationAct1996applies,apartywhohasnotbeenpaidinfullbythefinaldateforpaymentandtowhomnoeffectivenoticeofintentiontowithholdpaymenthasbeengiven,isentitledtosuspendperformanceaftergivingnotice.2Chapter5 OnerousContractClausesMoreover,thestandardformsalsoprovideforinterestonlatepayment.Pay-When-PaidClausesUntilrecentlyvirtuallyallmaincontractors’own“home-made”formsofsub-contractandtheiramendmentstostandardformsofsub-contractincluded“pay-when-paid”provisionsunderwhichthesub-contractordidnotbecomeentitledtoanymoneyuntilthemaincontractorhadreceivedpaymentfortheworkinquestionfromtheemployer.Apartfromdelayingpayment,themaindisadvantageforthesub-contractorofsuchclausesisthatiftheemployerwithholdsmoneyfromthemaincontractor,eitherbecausehehasadisputewithhimaboutworkunrelatedtothesub-contract,orsimplybecausehedoesnothavethemoneytomakethepayment,thesub-contractorsuffers.Thesub-contractorcannotevenforcethemaincontractortopursuepaymentfromadefaultingemployer,whichthemaincontractormaybereluctanttodoifthereisariskofjeopardisinganotherwiseprofitablebusinessrelationship.Thepositionofsub-contractorsinrelationtopay-when-paidprovisionshasbeenmuchimprovedbytheHousingGrants,ConstructionandRegenerationAct1996which,asexplainedinmoredetailinChapter7-PaymentandSet-Off,renders“ineffective”pay-when-paidprovisionsinmostcases.Theonlyexception(i.e.whereapay-when-payclausewouldstillbeeffective)iswherethereasonforthenonpaymentisbecauseoftheinsolvencyoftheultimatepayer(usuallytheemployer).Thisshouldbeexplicitlystatedinthecontract.Careshouldbetakentodeleteclause32ofDOM/1sinceacorrectionwasissuedtothateffectinJuly1998.Set-OffSteelworkContractorsshouldcarefullyconsideranyset-offprovisionsintheircontractwiththemaincontractororwiththeemployer.Theset-offclausesinthestandardformsaredescribedinmoredetailinChapter7-PaymentandSet-Off.InsuranceMaincontractorsmayattempttoreducetheirinsurancepremiumsbymakingthesub-contractorresponsiblefordamagetothesub-contractworkscausedbythesub-contractor’sownnegligence.Underastandardformthesub-contractorisoftenprotectedbythemaincontractor’spolicyifthedamageiscausedbyoneofthe“SpecifiedPerils”whichincludefire,explosionandwaterdamage,eveniftheSpecifiedPeriliscausedbythesub-contractor’snegligencesothatafailuretogivethenoticewillmeanthattheSteelworkContractorhaslosttherighttomakeaclaim.Asthesub-contractor’sinsurancepolicieswillnormallybewordedtocaterforthepositionunderthestandardforms,itisvitalthatsuchmattersarepickedupatthetenderstage,orthesub-contractorcoulddiscoverheisresponsibleformajorfiredamage,butisuninsured.AttendancesTheprovisionofappropriateattendancesbythemaincontractorissomethingwhichmustneverbeassumed.Evenunderthestandardformsofsub-contractitisvitalthatthesub-contractorhasidentifiedattenderstageotheritemsofattendance,notprovidedforbysub-contractconditions,andagreedwiththemaincontractorwhowillberesponsibleforprovidingthem.ThestandardformsoftenderforChapter53 OnerousContractClausesnominatedandnamedsub-contractorstendtomakeclearprovisionforattendances.Foradomesticsub-contractorundertheDOM/1Sub-ContractConditionsclause27explainswhichattendanceswillbeprovidedbythemaincontractorandmakesprovisionforotherattendancestobedealtwithbyagreement.SteelworkContractorsshouldbewareofamendmentstothestandardforms,ortheuseofnon-standardforms,thatmaketheprovisionofnormalattendanceitems,suchasstoragespaceandwelfarefacilities,theresponsibilityoftheSteelworkContractor.ManagementcontractsparticularlymayrequiretheSteelworkContractortoprovidehisownattendancesasthemanagementcontractorhimselfwillhavenolabouronthesite.ObligationsRegardingTimeAphrasefrequentlyfoundinnon-standardsub-contractsis“timeshallbeoftheessence”.Thatmeansthatobligationsregardingtimearefundamentaltermsofthesub-contract,andiftheyarebreachedbythesub-contractorthemaincontractorhastherightnotonlytoclaimdamagesbutalsototreatthesub-contractasbeingatanend.Thisistechnicallyknownasa“repudiation”ofthesub-contract,and(subjecttoexclusionclauses)alsoallowsthemaincontractortorecovertheadditionalcostsofemployinganothersub-contractortocompletetheworks.InviewoftheuncertainnatureofthebuildingprocessandinparticulartheSteelworkContractor‘sdependenceonsteelsupplies,theseareveryonerousclauses,especiallyastheyareoftencombinedwithinadequateprovisionsforextensionsoftime.Sub-contractorsshouldalsobewareofgeneralobligationsrequiringthemtocomplywiththemaincontractor’sprogrammeandallofhisdirectionsregardingorderofthework.etc.Suchclausesmeanthatthesub-contractorwillbeatthebeckandcallofthemaincontractor,andwillthereforefinditalmostimpossibletoframeclaimsfordelayanddisruption.Sub-contractorsshouldthereforechecktoseethatthesub-contractcontainsprovisionswhichentitlethesub-contractortorecoveradditionalexpenditureand/ortobegrantedextensionsoftimeresultingfromchangestothemaincontractorsprogrammeandunforeseendirections.Itisbecomingincreasinglycommonfornoticeofdelaytobemadeaconditionprecedenttoentitlementtoclaimfordelayanddisruption.‘Non-Arbitrable’ClausesAnon-arbitrableclauseisonewhichmakesthedecisionoftheArchitect,EngineerorMainContractor“finalandbinding”or“finalandconclusive”.Thisisanattempttoensurethatthedecisionofthatpartyisnotopentochallengeinadjudication,arbitrationorinthecourts.TheeffectmaywellbethattheSteelworkContractorwillhavenoremedyintheeventofincorrectcertification.Forthatreason,clausessuchastheseshouldbeavoided.DesignAgreements/WarrantiesManyofthemostonerousclausesaretobefoundnotinthesub-contractitself,butinthedirectwarrantiesrequiredfromsub-contractorsbyemployers(and,increasingly,futuretenants.purchasersandfundingbodies).4Chapter5 OnerousContractClausesThereasonsfortheprevalenceofsuchwarranties,andafulldiscussionoftheirterms,aresetoutinChapter14-DesignLiability.Theyfrequentlyrequireimpossiblyhighstandardsforthesub-contractworksuchas:...thesub-contractworkswillsatisfyappropriatestatutoryandotherofficialrecognisedrequirementsandanyperformancespecificationorrequirementinsofarasthesameareincludedinorreferredtointhetenderofthesub-contractoraspartofthedescriptionofthesub-contractworksorhaveformedthebasisofthetenderandwillbeofgoodquality,andwhereappropriate,electrically,mechanicallyandstructurallysound,freefromfaultordefectandfitandsuitablefortheirintendedpurposewhetherornotthesameisdescribedinsuchperformancespecificationorrequirement.Thiswordingrequiresthesub-contractworkstobeperfectineveryparticular.Itdoesnotrefertoanyfaultonthepartofthesub-contractor,nortotheextenttowhichtheworksweredesignedbythesub-contractor.Totakeanextremeexample,ifasteelframehadbeenentirelydesignedbytheconsultingengineerandthedesignprovedtobedefective,thesub-contractorcouldbesuedbytheemployerundertheabovewarrantyforthetotalamountofhisloss,anditwouldthenbeuptothesub-contractortoattempttorecoverthemoneyfromtheconsultant.Otherclausesmayrequirethesub-contractortochecktheconsultant’sdesign,includingallcalculations-animpossibletaskifthesub-contractorisnotprovidedwiththeappropriatedocuments,quiteapartfrombeingtime-consumingandexpensive.SteelworkContractorsshouldalsotakeparticularnoteofanyrequirementstotakeoutandmaintaininsurance.Productliabilityinsurancecoverslegalliability,includingnegligentdesign,arisingoutofproductsandrequiresactualphysicalinjuryordamagetothirdpartiesortheirpropertybeforeitistriggered.SomeSteelworkContractorsbelievethatunlesstheyundertakedesignandbuild,theyonlyrequireproductsliabilityinsuranceandnotprofessionalindemnityinsurance,butthisisaveryhigh-riskstrategy.SteelworkContractorsalmostinvariablydoundertakesomedesign-forinstance,ofconnections.Ifdesignisnegligentandiscondemnedwithoutanyphysicaldamageorinjurytakingplace,thentheSteelworkContractorwillnotbecoveredunlessprofessionalindemnityinsuranceisinplace.Undertakingstomaintaininsuranceforaperiodofyearsafterpracticalcompletionshouldalsobetreatedwithgreatcaution.AtsomepointwithintherequiredperioditmaybecomeimpossibleorprohibitivelyexpensivefortheSteelworkContractortomaintaintheinsurance.SteelworkContractorsmaywanttoensurethattheircontractincludesaprovisototheeffectthattheywillonlybeobligedtomaintaininsuranceforaslongasitsremainsavailableatreasonablecommercialrates.CombattingOnerousClausesThefirststepincombattingonerousclausesistoidentifythem.Itistemptingtoignorethe“smallprint”,particularlyduringashorttenderperiod,butitcouldbeasfataltotheprofitmarginonthatjobasmissingoutapageofthespecification.Thecontractconditionsshouldbecarefullychecked.particularlyiftheyarecontainedinacompletelynon-standardform.Bewaretooof“look-alikes”,documentsprintedonthesamecolourpaperandinthesametypeasstandardforms,butwhichareactuallyentirely“bespoke”forms.Clausewordingscanbecheckedagainsttheequivalentconditioninthestandardforms.Remembertolookforclausesthatarenotthere,aswellascheckingtheonesthatare.Havingidentifiedtheonerousclauses,donotletthemslipintothecontractbymistake.LookagainattherulesonformationofacontractsetoutinChapter1-FormationofContracts,andbeawareChapter55 OnerousContractClausesthatstartingwork(includingdesignandoff-sitefabrication)maybeconstruedasacceptanceofthemaincontractor’stermsandconditionsbyconductunlessthesetermshavebeenexpresslyandclearlyrejectedpreferablyinwritingbeforehand.Whennegotiatingwiththemaincontractororemployerregardingnon-standardclauses,thefollowingpointsmaybeofsomeassistance:1.Ingeneral,thenegotiatedstandardformsallocateriskstothosewhoarebestabletoquantifyandcontrolthem.Arbitrarychangestothisbalanceofriskcanhaveseriousconsequences.Onthefaceofitaone-sidedcontractmayseemattractivetoittheemployerormaincontractor,butinpracticetherearemanydrawbacks.Forexample,whentheindustryisbuoyantmanyresponsiblecontractorswillsimplyrefusetotenderorwillqualifytheirtenderssoheavilythatcomparisonbecomesextremelydifficult.2.Evenifcontractorstenderwithoutqualification,theymayhaveattachedapricetotheamendments.Inthatcase,itislikelythattheywillbemakingaguessattheirliability,particularlyinareaswheretheycannotcontroltherisktheyarebeingaskedtoaccept.Thiswillartificiallyinflatethecostofthebuilding,particularlyiftheriskmorecorrectlyrestselsewhere(forexamplewithamemberoftheprofessionalteamforwhoseservicestheemployerisalsopaying).3.Ifthecontractorhaschosennottopricetheriskandthecontractgoesbadly,hemaybepushedintoinsolvencybycontractualclaims.Thisisnotintheinterestsofanyone,leastofalltheclient.TheremaybetimeswhenSteelworkContractorsneedtotakeacommercialdecisiononwhethertoacceptoneroustermsandconditionsofcontract.Inthesecircumstances,ifthemaincontractororemployerattemptstoenforceaparticularlyonerousterm,therearesomeargumentsthatmaybeofassistancenamely:1.LackofNoticeoftheOnerousClauseInthecaseofInterfotoPictureLibraryLtdvStilettoVisualProgrammesLtd(1987),theCourtofAppealheldthatinordertorelyonanonerousorunusualconditionprintedonadeliverynote,thepartyseekingtorelyonithadtoshowthatithadbeenfairlybroughttotheattentionoftheotherparty.Thiscaseshouldnot,howeverbeunderstoodassettingoutageneralruleapplyingtoallprintedconditions,andithasbeendistinguished,forexampleinNuttingvBaldwin(1995).Inaddition,itshouldbeemphasisedthatifaparticularclauseiscommonpracticeinthetrade,andthesub-contractorisawarethataparticularmaincontractorregularlyincludessuchaclauseinhiscontracthemaybefoundtohavehadtheparticularconditionsufficientlybroughttohisattention.2.UnfairContractTermsAct1977BySection3oftheUnfairContractTermsAct1977,whereacontractismadeononeparty’swrittenstandardterms,thatpartycannotrelyonthosetermstoexcludehisliabilityforbreachofcontractunlessitisreasonabletodoso,norcanherenderaperformancesubstantiallydifferentfromthatreasonablyexpectedofhimorrefusetocarryoutthecontractatallunlessitisreasonabletodoso.AmoredetailedexplanationofhowtodeterminewhatisreasonableissetoutinChapter15-SupplyofGoodsandMisrepresentation.Thissectioncanbeusedtocurbtheworstexcessesinmaincontractor’sowntermsandconditions.3.ContraProferentemThisisausefulruleoflawforvictimsofone-sidedclauses.Itprovidesthatanyambiguitywillbeconstruedagainstthepartwhoproposedtheinclusionoftheclause.6Chapter5 OnerousContractClausesItisrelativelyeasyforamaincontractororemployertogothroughthestandardformsdeletingeverythingwhichhebelievesisdetrimentaltohim.Itismuchmoredifficulthowevertoamendastandardformproperly.Manyoftheclausesareinterrelated,andifconsequentialamendmentsarenotmade,ambiguitiesariseorprovisionsarerenderedmeaningless.Inviewofthecontraproferentemrule,ifacontractisnotclearlyamended,theambiguitywillbeconstruedagainstthepersonseekingtoamend,andtheattemptedchangecouldhaveexactlytheoppositeeffecttothatintended.SummaryOnerouscontractclausesarefrequentlyimposeduponsub-contractorsintheformof“bespoke”documentsoramendmentstostandardforms.Standardisationhasconsiderablebenefits:itensuresthatusersoftheformsarefamiliarwiththeallocationofrisk,andallowseasilycomparabletenderstobeobtained.NotallstandardformsarenegotiateddocumentslikeJCT.Someareunilaterallypublished,e.g.GC/Works/1andtheBPFforms,andarethereforemorelikelytocontainonerousconditions.In“home-made”contractswatchforwordprocessedchangesandlook-alikeforms.Convertingacashdiscountforpromptpaymentintoamaincontractor’sdiscounttowhichheisentitledregardlessofpaymentontimeremovesthemainincentivetopromptpayment.Pay-when-paidclausesmeanthesub-contractorhasnorighttopaymentuntiltheemployerpaysthemaincontractor,whichisaneventoverwhichthesub-contractorhasnocontrol.However,theHousingGrants,ConstructionandRegenerationAct1996nowrendersineffectivepay-when-payclausesinmostconstructioncontractsexceptwherenon-paymentistheresultofathirdperson’s(usuallytheemployer)insolvency.Broadset-offclausesareablankchequetothemaincontractor.Particularlyonerousclausesallowthemaincontractortoset-offlossonothersub-contractsandtoset-offfuturelosses.Attendancesmustbecheckedwithgreatcare,particularlyonmanagementcontracts.Contractswhere“timeisoftheessence”meanthatanydelayisafundamentalbreach,whichwillallowthemaincontractortotreatthesub-contractasbeingatanend.Warrantiesanddesignagreementscontainsomeofthemostonerousclausesofall,oftenamountingtoguaranteesofperfectwork.Theycanalsoimpartresponsibilityfordesigncarriedoutbyothers.Thewaytocombatonerousclausesis:(i)recognisethem-checkthesmallprint.(ii)don’tacceptthembydefaulte.g.bystartingwork.(iii)bepreparedtonegotiatewiththemaincontractor/employer.(iv)iftheyareapartofthecontracttheymaybedisplacedifthesub-contractorwasnotawareofthem,oriftheyfailtosatisfytherequirementofreasonablenessundertheUnfairContractTermsActoriftheyareambiguousandcanbeconstruedagainstthedrafter.(v)checktoseethatthewarrantyagreementcontainswordingwhichprovidesthatthesub-contractorisundernogreaterliabilityunderthewarrantythantheyaretothemaincontractorunderthesub-contract.Chapter57 CHAPTER6CERTIFICATESDefinitionAllofthestandardformsofcontractcontainprovisionsrequiringtheArchitectorEngineertoexpresshisopinionormakeadecisiononcertainmattersbymeansofcertification.Suchcertificatesarefrequentlyaconditionprecedenttosomefurtheraction,suchasthemakingofaninterimpaymentorthedeductionofliquidateddamagesfordelay.Theterm“certificate”isusedtodescribesuchdecisionsoropinionswheretheyarerequiredtobeinwriting.FormandContentofCertificatesThepreciseformofthecertificateisrarelyspecifiedinthecontract,otherthanageneralrequirementthatitshouldbeinwriting.Eventhismaybeonlyimpliede.g.“theArchitectshallissueacertificate”.Certificatesmaysimplytaketheformofaletterfromthecertifier,althoughbodiessuchastheRIBAissueprintedformsforpaymentcertificatesetc.whicharewidelyused.Steelworkfabricatorsshouldnotethataletterfromtheappropriatecertifierisequallyvalidunlesstheuseofaprintedformisrequiredbythecontract(whichwouldbemostunusual,andisnotthecaseintheJCTstandardforms).Thecontractwillhoweverspecifycertaindetailswhichthecertificatemustcontain,namely:1.Thepersontowhomthecertificatemustbeaddressede.g.“theArchitectshallsocertifyinwritingtotheContractor”.th2.Thecontentofthecertificatee.g.ICE7Editionclause61(1)“aDefectsCorrectionCertificatestatingthedateonwhichtheContractorshallhavecompletedhisobligationstoconstructandcompletetheWorkstotheEngineer’ssatisfaction.”3.Sometimesthetimeatwhichthecertificatemustbeissuedisstatede.g.within28daysofaspecifiedevent.Tobevalid,acertificatemustcomplywithallsuchrequirementsinthecontract.WhoMayIssue?Thestandardformsofcontractallspecifythepersonorpersonswhomayissuecertificates.IntheJCTforms.thecertifierisinvariablytheArchitectnamedinthecontract.UnderunamendedJCTstandardforms,certificatesissuedbyothermembersoftheprofessionalteam,suchastheQuantitySurveyororConsultingEngineerhavenoeffect,andwillnot“trigger”therelevantconsequencessuchasarighttointerimpayment.IfanindividualotherthantheArchitectorContractAdministratorpurportstoissueacertificate,theArchitectshouldalsoberequestedtoissueacertificate,andifhewishestodelegatethepowerforthefuture,appropriateamendmentsmustbemadetothecontract.UndertheICEConditions,onlytheEngineerhimselfmayissuecertificates:thepowersoftheEngineer’sRepresentativeunderclause2(3)arestrictlylimitedinthatrespect.Chapter61 CertificatesWhatConstitutesIssueofaCertificate?TheCourtsconsideredwhatconstitutes“issue”ofacertificate,inthecaseofLondonBoroughofCamdenvMcInerney(1986).Itwasheldthatsimplysigningtherelevantcertificateisnotsufficient:itmustactuallybesenttotherecipientorotherwisecommunicatedtohim.NegligentIssueofCertificatesAcertifierwillbeliableforthelossessufferedbyhisemployerifhenegligentlyissuesacertificate,followingthedecisioninthecaseofSutcliffevThackrah(1974).Inthatcase,anArchitectissuedinterimcertificatesforcertainwork,andtheEmployermadepaymentsinaccordancewiththem.Subsequently,theEmployerdiscoveredthattheworkcertifiedwasdefective,butasthecontractorhadbecomeinsolventtheEmployercouldnotrecoverthecostsofrectifyingthedefectiveworkfromhim,andsuedtheArchitect.TheHouseofLordsheldthattheArchitectwasliablebecausehewasawarethattheworkwasdefectivewhenthecertificateswereprepared.ThiscasedoesnotmeanthateveryArchitectwhocertifiesanincorrectsumwillbeliableasanerrorofjudgementwillnotnecessarilyconstitutenegligence.IftheArchitecthasusedallreasonableskillandcarehewillbeexonerated.Ifnot,hewillbeguiltyofnegligence.IthasbeensuggestedthatacertifierwillbeliabletothecontractoraswellastheEmployerifhefailstoexercisereasonableskillandcareinissuingcertificates.InSallissvCahill(1987)itwasheldthattheArchitectinJCTcontractsmustactfairlyasbetweentheEmployerandthecontractorwhenissuingcertificates,andawardingextensionsoftime.However,inasubsequentcase,PacificAssociatesvBaxter(1988),theCourtofAppealdisapprovedofSallissvCahill,andheldthatanEngineerundertheFIDICformowednodutyofcaretothecontractorwhenissuingcertificates.SallissvCahillcanthereforenolongerbereliedupontofoundanactionbyacontractororasub-contractoragainstacertifier;theymustrelyonchallengingthecertificateinadjudication,arbitrationorlitigationagainsttheotherpartytothecontract.ContractualEffectofCertificatesOnceacertificatehasbeenissued,itisgenerallybindinguponbothpartiesandcannotbeamendedorwithdrawn.However,asdiscussedinmoredetailinChapter19-DisputesandLegalProceedings,certificatesmayberevisedbyadjudicators,arbitratorsorthecourtsunlessthecontractprovidesthatthecertificateisfinalandconclusive.So,forexample,inOxfordUniversityFixedAssetsLtdvArchitectsDesignPartnerships&Others(1999)theTechnologyandConstructionCourtconsideredtheeffectofthefinalcertificateunderJCT80.TheCourtheldthatthecertificateactedasan“evidentialbar”toaclaimagainstthecontractortocontributetodamagesresultingfromallegedlydefectiveworks.TheCourtfollowedtheearliercaseofCrownEstateCommissionersvJohnMowlem&CoLtd(1994)inwhichtheCourtofAppealheldthataFinalCertificateunderJCT80wasconclusiveevidencenotmerelythat,wherethequalityofmaterialsorthestandardofworkmanshipweretobetothereasonablesatisfactionoftheArchitect,thatthesameweretohissatisfactionbutalsothatitcoveredallmaterialsandworkmanshipwhereapprovalofsuchmatterswasinherentlysomethingfortheopinionoftheArchitect.ThisinpracticemeantthataFinalCertificatewasabartoanyclaimbyanEmployerinrespectofdefectiveworksaftertheFinalCertificatehadbecomeoperative.TheeffectofthedecisionwasreversedbyAmendment15issuedin1995butthisdecisionisstillvalidinrespectofthoseJCTContractswhicharenotsubjecttothisAmendment.Theeffectofthisdecisiondoesnotinany2Chapter6 CertificateseventextendtothedesignobligationoftheContractorundertheJCT(WithContractor’sDesign)Form-seeLondonBoroughofBarkingandDagenhamvTerrapinConstructionLimited(2000).TypesofCertificateInterimCertificatesInterimcertificatesarethemeansbywhichcontractorsobtainprogresspaymentsduringthecourseofthecontract.TheircontentisdescribedmoredetailinChapter7-PaymentandSet-Off.Interimcertificatesarenormallyissuedmonthly,althoughonverylargecontractsashorterperiodmaybespecified.TheeffectofaninterimcertificateistocreateabindingobligationontheEmployertopaytheamountcertifiedwithintheperiodprescribedbythecontract(inJCT98,14daysfromthedateofissue).IftheEmployerdefaults,thecontractorisentitledtosueforthesumcertified.However,evenifthecertificatecontainspatenterrorswhichmeanthatthesumcertifiedistoolow,theEmployerneedonlypaythecertifiedsum,evenifheknowsoftheerrors.Theerrorshouldthenbecorrectedinthenextcertificate,oriftheArchitectrefusessuchacorrection,themattercanbereferredtoadjudicationorarbitration.TheexceptiontothisruleiswheretheEmployerhimselfhasprevailedupontheArchitecttounder-certify,orhasotherwisepreventedhimfromproperlycarryingouthisduties,inwhichcasetheEmployerwouldbeinbreachofcontractandthereforeliabletothecontractor.Intheabsenceofanexpresscontractualtermtothecontrary,interimcertificatesarenotconclusiveevidencethattheEmployerorhisArchitectorEngineeraresatisfiedwiththework.Theyaretherefore,ineffect,provisionalvaluationswhicharesubjecttoreviewinlaterinterimcertificatesandinthefinalcertificate.PracticalCompletionCertificatesunderJCTContractsPracticalcompletionisanextremelyimportanttermintheJCTcontractsbecauseitmarksthedateatwhich:–thedefectsliabilityperiodbegins;–liabilityofthecontractorforliquidateddamagesceases;–thefirsthalfoftheretentionfundisreleased,–thecontractor’sliabilitytoinsuretheworksunderclause22Aceases;–thesub-contractor’sprotectionunderthemaincontractallriskspolicyends;–arbitrationonanyissuemaybecommenced.Despitetheenormoussignificanceofthedate.theterm“practicalcompletion”isnotdefinedinthecontract.Underclause17.1ofJCT98theArchitectmustissueacertificateforthwithwhen,inhisopinion,practicalcompletionhasbeenachieved.Itisgenerallyagreedthatthearchitectcannotinsistontotalcompletion,otherwisetheword“practical”wouldnothavebeenadded.Beyondthis,thereisconsiderablescopefordispute.ItisverydifficultforacontractortoforcetheArchitecttoissueacertificateofpracticalcompletion,andtheremayChapter63 CertificateswellbecompellingpracticalreasonswhytheEmployerfeelsheshouldnot:forexampleiftheEmployerknowshecouldnotletorsellthebuilding.orifheisnotyetreadytomoveintoithimself.Ifthisisthecase,itistothecontractor’sdisadvantageforthecertificatetobewithheld,andtotheEmployer’sadvantagethatitis.Thisputsthecontractorinaveryweakposition.Thereisnodecisivecaselawonthedefinitionofpracticalcompletion.TheviewwhichcommandsmostsupportisthatexpressedinH.W.NevillvWmPress&SonLtd(1981)whenitwasheldthattheArchitecthadadiscretiontocertifypracticalcompletionwheretherewereveryminorworksstilltobecarriedout,buttherewerenopatent(i.e.obvious)defectsintheworkthecontractorhaddone.Inviewofthelengthofthe“snagginglist”ontheaveragecontractitwillbeappreciatedthatthiscasewillnothelpthecontractortoforcetheArchitecttocertifypracticalcompletion.Itisimportanttonotethatasthelawcurrentlystands,theEmployermayactuallybeinoccupationofthebuilding,andyetcanstillbeentitledtoclaimliquidateddamagesforlatecompletionbecausenocertificateofpracticalcompletionhasbeenissued.ThisisbecausetheworksmaybecapableofoccupationbutneverthelesswouldnotpassthestrictdefinitionofpracticalcompletiondescribedinNevillvPress.ThissituationismanifestlyunjustandshouldservetodetercontractorsfrompermittingEmployerstooccupybuildingsuntilthepracticalcompletioncertificateisissued.Underclause18.1.1ofJCT98,PracticalCompletionofanypartoftheworksforwhichtheEmployertakespossessionisdeemedtohaveoccurred.PracticalCompletionunderNSC/CUnderclause35.16ofJCT98,theArchitectisobligedtoissueaseparatecertificateofpracticalcompletiontoeachnominatedsub-contractorwhentherelevantnominatedsub-contractworksarepracticallycomplete,whichhasthesameeffectinrelationtothoseworksasacertificateissuedunderthemaincontracthasinrelationtothemaincontractworks.Notwithstandingthedifficultiesofdefiningpracticalcompletion,thisisthereforeamajoradvantageofnominationforSteelworkContractorsastheirworkisalwayscompletemanymonthsorevenyearsbeforetheremainderoftheproject.PracticalCompletionunderDOM/1TheArchitecthasnoinvolvementwithdomesticsub-contractworks,andthereforedifferentruleshavebeenevolvedtodeterminewhenpracticalcompletionoccurs.Underclause14ofDOW/1,thesub-contractormustnotifythecontractorofthedatewhenhethinksthesub-contractworksarepracticallycomplete.Ifthecontractordoesnotdisagreewiththiswithin14daysofreceivingthenotice,practicalcompletiontakesplaceonthedatenotifiedbythesub-contractor.Thisisaparticularlyusefulprovisionforearlytradessuchasstructuralsteelworkasitallowsthesub-contractortoinstigatetheprocessofdeterminingpracticalcompletion,andifthecontractordoesnotrespondquickly,thesub-contractor’sviewwillprevail.If,however,thecontractordoesdisagreewiththesub-contractor’snotificationwithin14daysofreceipt,theymayeitheragreethedateofpracticalcompletion,oriftheycannot,eitheroneofthemcancommenceadjudicationproceedingsoropenareferencetoarbitrationtodecidethematter.Ifnoagreementisreachedandadjudicationorarbitrationisnotcommenced,practicalcompletionisdeemedtooccuratthesametimeaspracticalcompletionofthemaincontractworks.Asthiswillbeverymuchlaterthanthedateofcompletionofstructuralsteelwork,everyeffortshouldbemadetoagreeasensibledatewiththemaincontractor,orinseriouscasesthesub-contractorshouldconsideradjudicationorarbitration(seeChapter19-DisputesandLegalProceedings).4Chapter6 CertificatesPracticalCompletionUnderNAM/SCandIN/SCTherulesregardingpracticalcompletioninthesub-contractsforusewiththeIntermediateFormfollowDOM/1.PracticalCompletionUnderWorksContract/2UnderWorksContract/2,separatecertificatesofpracticalcompletionforeachworkscontractareissuedbytheManagementContractorwiththeconsentoftheArchitect.SuchcertificatesareissuedwhenintheopinionoftheArchitecttheworkscontractispracticallycomplete,sotheprovisionsareverysimilartothenominatedsub-contractarrangements.thCertificateofSubstantialCompletion:ICE7EditionthUndertheICE7thereisprovisioninClause48foraCertificateofSubstantialCompletionofWorks.Thecontractorisentitledtogivenoticeinwritingwhenheconsidersthatthewholeoftheworkshavebeensubstantiallycompleted;andsuchnoticeisdeemedtobearequestfortheEngineertoissueaCertificateofCompletion.TheEngineeristhenrequiredwithin21dayseithertoissuethecertificate,statingthedateonwhich,inhisopinion.Theworksweresubstantiallycompletedinaccordancewiththecontract;orgiveinstructionstothecontractorforworkwhich,inhisopinion,isrequiredtobedonebeforetheissueofthecertificate.ThecontractualeffectsoftheissueofaCertificateofSubstantialCompletionaresimilartothoseintheJCTforms.Theyare:1.tofixthecommencementoftheDefectsCorrectionPeriod2.toallowpaymentofhalfoftheretentionmonies,wherethecertificateisforthewholeoftheworks3.todeterminetheEmployer’sentitlementtoliquidateddamagesfordelay4.toterminatethecontractor’sobligationtoinsuretheworksunderclause21saveinrespectofanyoutstandingworkordamagearisingoutofacauseoccurringpriortotheissuingofthecertificate.Theprocedureoutlinedaboveisalsotobefollowedinrespectof(i)anysectionforwhichaseparatetimeforcompletionisprovidedintheAppendixtotheFormofTender,and(ii)anysubstantialpartoftheworkswhichhasbeenbothcompletedtotheEngineer’ssatisfactionandoccupiedorusedbytheEmployer.Inaddition,theEngineerhasadiscretiontoissueaCertificateofSubstantialCompletioninregardtoanypartoftheworkswhichhasbeensubstantiallycompletedwhethertheEmployerhastakenupoccupationornot.TheissueofaCertificateofpart-completionproportionatelyreducesthecontractor’sliabilitytoliquidateddamagesandobligationstoinsure.CompletionunderCECASub-ContractTheprovisionsoftheCECAsub-contractaresomewhatvaguecomparedtothepreciseclausesoftheJCTforms.Underclause13(1)thesub-contractorisrequiredtocompletethesub-contractworksbeforecompletionofthemaincontractworks.Thereisnoindicationastohowthedecisionthattheworksarecompleteistobereached,norastowhoseopinionwillbedecisive.Inpractice,theviewsofthemaincontractorarelikelytoprevail.Chapter65 CertificatesFinalCertificatesFinalcertificatesarenormallyrequiredtobeissuedwithinaspecifiedperiodoftheexpiryofthedefectsliabilityormaintenanceperiod.Itmarkstheendofthecontractor’sobligationsunderthecontract,althoughhewillcontinuetobeliableforanydefectsintheworkordamagecausedbysuchdefectsfortherelevantlimitationperiod(forfurtherdetailsseeChapter16-LimitationPeriods).FinalCertificateunderJCT98ThesequenceofeventsleadinguptoissueoftheFinalCertificateisasfollows:1.Within6monthsofpracticalcompletionoftheWorksthecontractorprovidestheArchitectwithallthedocumentsnecessaryforcalculatingthefinalcontractsum.2.Within3monthsofreceiptofthosedocuments,theArchitectmustgivethecontractorastatementofhisfinalaccountfigureandtheadjustmentonwhichitwasproduced.3.TheArchitectmustissuetheFinalCertificatenotlaterthan2monthsafterthelastofthefollowing:(i)theendoftheDefectsLiabilityPeriod(ii)thedateofissueoftheCertificateofCompletionofMakingGoodDefects(iii)thedateofthestatementofthefinalaccountThebalanceofthecontractsumdueundertheFinalCertificatebecomesadebtduetothecontractorwhen28dayshaveexpiredfromthedateofitsissue.UnderJCT98,theFinalCertificateisconclusiveevidenceofcertainmatters,namely:(i)wherethequalityofmaterialsorstandardofworkmanshiparetobetothereasonablesatisfactionoftheArchitect,thattheyaretohissatisfaction-seeCrownEstateCommissionersv.JohnMowlem(1994).Notethatthiswillnotrelievethecontractorofresponsibilityforworkandmaterialswhicharerequiredtocomplywiththeobjectivetermsofaspecificationordrawingsetc.;(ii)thattheadjustmentoftheContractSumisinaccordancewiththecontractsaveforaccidentalorarithmeticalerrors(iii)thatallextensionsoftimeduehavebeenawarded;(iv)thatalllossandexpenseduetothecontractorhavebeenpaid.TheFinalCertificatetakessuchconclusiveeffectontheexpiryof28daysfromitsissue.ThereforeifeitherthecontractorortheEmployerwishestochallengeanyofthematterslistedin(i)to(v)abovehewillneedtoreferthedisputetoadjudicationorissueawritornoticeofarbitrationveryquickly.Noseparatefinalcertificatesareissuedtonominatedsub-contractors,althoughtheArchitecthasanobligationtoinformallnominatedsub-contractorsoftheissueoftheFinalCertificateunderthemaincontract.Note:ThetimingoffinalcertificatesunderotherJCTformsisdealtwithinChapter7-PaymentandSet-Off.ICE7thEditionthUnderICE7,thefinalcertificaterelatesonlytopayment:clause60(4)providesthatwithinthreemonthsafterthedateoftheDefectsCorrectionCertificate,thecontractorshallsubmitastatementoffinalaccount:andwithinafurtherthreemonths,theEngineershallissueafinalcertificatestating6Chapter6 Certificatestheamountfinallydueunderthecontractandthebalanceoutstanding,whichbalanceshallbepaidwithin28days.TheEngineer’ssatisfactionwiththeworksisdealtwithbytheissueoftheDefectsCorrectionCertificate,followingtheexpiryoftheDefectsCorrectionPeriod.Itshouldbenoted,however,thattheDefectsCorrectionCertificateisnotconclusiveevidenceastotheperformanceofthecontract,anddisputesonthismaybecomethesubjectofadjudicationorarbitration.CECASub-ContractSeparatefinalcertificateforsub-contractorsarenotissuedundertheCECAform.Finalpaymenttosub-contractorsiscommenteduponinChapter7-PaymentandSet-off.CertificatesofDelayJCT98:MainContractor’sDelayUnderclause24ofJCT98itisaconditionprecedenttotheEmployer’srighttodeductliquidateddamagesfrompaymentsduetothecontractorthattheArchitecthasissuedaCertificatethattheContractorhasfailedtocompletetheWorksbytheCompletionDate.NSC/C:Sub-Contractor’sDelayCertificatesofdelayareparticularlysignificanttonominatedsub-contractorsunderNSC/C.UnlessanduntiltheArchitecthascertifiedunderclause35.15ofJCT98thatthesub-contractorhasfailedtocompleteontime,themaincontractorisnotentitledtoclaimlossandexpenseinrespectofthatdelay.Inaddition,themaincontractormaynotsetoffmoneyfrompaymentsotherwiseduetothesub-contractorinrespectoflossandexpenseduetothesub-contractor’sdelayuntilaclause35.15certificatehasbeenissued.CertificatesofNonPaymentthBothJCT98andtheICE7includemechanismswherebytheEmployermaypaynominatedsub-contractorsdirect.PartofthemechanisminvolvestheissuebytheArchitectorEngineerofacertificateofnon-payment.ThedirectpaymentprovisionsarediscussedindetailinChapter7–PaymentandSet-OffChapter67 CHAPTER7PAYMENTANDSET-OFFCashflowhasbeendescribedas“thelife-bloodoftheconstructionindustry”–withoutitsurvivalisimpossible.SteelworkContractorsareparticularlyvulnerableiftheydonotreceiveregularpaymentsbecausetheircontractperiodsarerelativelyshortandtheyareforcedtoexpendaconsiderableproportionoftheirtotalcontractvalueongoodsandmaterialsandoff-siteworkatthebeginningofthecontract.Understandingthepaymentprovisionsinthestandardformsisthereforevital.ThisChapterdescribesthepaymentclausesinthemajorstandardformsandsetsouttherangeofremediesfornon-payment.SincethelasteditionofthisHandbooktwoActswhichaffectthewaypaymentandset-offisdealtwithintheconstructionindustryhavecomeintoforce.Theseare:TheHousingGrants,ConstructionandRegenerationAct1996ThisActappliestoallcontractsinwritingenteredintoafter1May1998forthecarryingoutof‘constructionoperations.’Constructionoperationsarewidelydefinedandwillcovermostworkstraditionallyconsideredtobeconstruction(andanumberwhichwouldnot).OfparticularimportancetoSteelworkContractors,Parliamenthasexpresslyexcludederectionordemolitionofsteelworkforthepurposesofsupportingorprovidingaccesstoplantandmachineryonasitewheretheprimaryactivityisnuclearprocessing,powergenerationorwateroreffluenttreatment.InPalmersLtdvABBPowerConstructionLtd(1999)itwasheldthatasub-contractforscaffoldinginconnectionwithworksinvolvingtheassemblyanderectionofaheatrecoverysystematEssoFawleyCogenerationProjectfellwithintheAct.InNottinghamCommunityHousingAssociationLtdvPowerminsterLtd(2000)theTechnologyandConstructionCourtheldthatacontractforthecarryingoutofannualservicesongasappliancesandprovisionofbreakdownandrepairserviceswasalsocaughtbytheAct.Alsoofimportance,theActexpresslyexcludes“supplyonly”contracts,althoughtheyareusuallyletonexactlythesametermsasotherconstructioncontracts.UnlessaSteelworkContractor’scontractexpresslyincludestheprotectionsprovidedbytheAct-andstandardformsprobablywill-itmaybeworthwhilemakingsurethatany“supplyonly”arrangementismadeunderacontractofsale.TheActissupportedbytheSchemeforConstructionContractswhichsetsoutcertaindefaultprovisionswhichwillbeimpliedintoconstructioncontractsintheeventoffailuretocomplywiththeact.TheActprovidesinrelationtopaymentprovisionsinconstructioncontracts:•Apartyisentitledtoinstalment,stagepaymentsoranyotherperiodicpaymentsunlessthecontractspecifiesorthepartiesagreethatitisestimatedthattheworkswilllastforlessthan45days.•Thepartiesarefreetoagreetheamountofthepaymentsandtheintervalsorcircumstancesinwhichtheybecomedue.Intheabsenceofagreement,thepaymentprovisionsintheSchemeforConstructionContractswillapply(seebelow).Chapter71 PaymentandSet-off•Everycontractmustprovideanadequatemechanismfordeterminingwhatpaymentsaredueandwhenandprovideafinaldateforpaymentofsumsdue.Thepartiesarefreetoagreehowlongtheperiodistobebetweenthedatewhenpaymentbecomesdueandthefinaldateforpayment.IfnotthentherelevantprovisionsoftheSchemeforConstructionContractswillapply.•Everycontractmustprovidefornoticetobegivenbythepayernotlaterthan5daysafterthepaymentduedatespecifyingtheamountofpaymenttobemadeandthebasisonwhichtheamountwascalculated.IfnotthentherelevantprovisionsoftheSchemeforConstructionContractswillapply.•Paymentmaynotbewithheldafterthefinaldateforpaymentunlessnoticeofintentiontowithholdpaymenthasbeengiven.Thenoticemustspecifytheamounttobewithheldandthereasonorreasonsforwithholdingpayment.Thenoticemustbegivennotlaterthantheagreedperiodbeforethefinaldateforpayment.Ifthepartiesdonotreachagreementontheperiod,theperiodspecifiedintheSchemeforConstructionContractswillapply-whichis7daysbeforethefinaldateforpayment.•Whereasumduehasnotbeenpaidbythefinaldateforpaymentandnoeffectivewithholdingnoticehasbeengiven,thepartytowhompaymentisduehastheright(inadditiontoanyotherrightshemayhave)tosuspendperformanceofthecontractprovidedthathefirstgivestheotherpartyatleast7daysnoticeofhisintentiontosuspendstatingthereasonorreasonsforsuspension.Thisrighttosuspendceaseswhenpaymentinfulloftheamountdueismade.TheActineffectgrantsthereceivingpartyanextensionoftimefortheperiodofthesuspension.Itdoesnothowevermakeanyprovisionfortherecoveryoflossandexpenseincurredasaresultofsuspension-thispointshouldbeexpresslycoveredinthecontractasitisinJCT98.•Pay-when-paidprovisions(seeChapter5-OnerousContractClauses)areineffectiveunlesslinkedtotheinsolvencyofa‘thirdpartypayer(usuallytheEmployer).Thereshouldbespecificwordinginthecontracttocoverthis.Whereaprovisionincludedwithinaconstructioncontractis,asaresult,ineffectivethen,intheabsenceofagreementbetweentheparties,therelevantprovisionsoftheSchemeforConstructionContractsapply.TheSchemeforConstructionContracts-PaymentProvisionsThepaymentprovisionsoftheSchemearecontainedinPartIIoftheScheme.PartIIwillapplytoaconstructioncontractifthecontractdoesnot:•provideforinterimpayments(unlesstheworksareforlessthan45days)•containan‘adequatemechanism’forascertainingwhatpaymentsbecomedueandwhen•haveprovisionfora‘finaldateforpayment’inrespectofanysumdue•prescribeaperiodbeforethe‘finaldateforpayment’inwhichaneffectivenoticeofwithholdingmoniesshouldbegiven•excludepay-when-pay(exceptincaseofinsolvencyofthirdpartypayer)UnliketheadjudicationprovisionsoftheScheme,thepaymentprovisionsoftheSchemedonotautomaticallyapplyintheirentirety-theymerelyfillinanygapsinthecontract.If,however,thepaymentprovisionsinthecontractdonotcomplywiththeActatallorwherethereisapay-when-paidprovisionwhichisineffectiveundertheActandthereisnoprovisioninthecontracttooperateinthatevent,thentheentirepaymentprovisionsoftheSchemewillapply.2Chapter7 PaymentandSet-offIfthepartiestoacontractcannotagreeonwhethertheSchemeappliestotheircontract,themattercanbereferredfordecisionbyanadjudicator.ThepriceforworktobedoneunderacontractisdefinedintheSchemeasthe‘contractprice’.UndertheSchemethisincludes:•thevalueofworkconformingtothecontract(notincludinggoodsandmaterials),and•thevalueofgoodsandmaterialsmanufacturedonsiteorbroughtontothesite,and•anyotheramounts/sumsspecifiedinthecontractasbeingpayable(e.g.lossand/orexpense).Whereinstalmentsaretobemade,eachinstalmentwillincludethetotalamountoftheaboveitemsminussumsalreadydue/paid:inthecaseofamountsotherthanforworkandmaterials,thecontractmusthavestipulatedforpaymentatsometimepriortotheendoftheperiodcoveredbytheinstalmentinquestionifsuchamountsaretobeincluded.TheSchemeappearstorefertootherpaymentsinrespectofwhichthereisnotimeforpaymentstatedinthecontractand,therefore,willnotformpartofaninstalmentorperiodicpayment.Suchpaymentsbecomedueontheexpiryof7daysfollowingcompletionoftheworktowhichthepaymentrelatesor(whicheveristhelater)themakingofaclaimbythepayee.‘Value’isascertainedbyapplyingthecontractratesor,iftherearenosuchrates,thevalueisthecostoftheworkandanyoverheadsandprofitincludedinthecontractprice.TheSchemedoesnotallowforthedeductionofretentions.WithregardtotimingofpaymentsundertheScheme,theSchememakesadistinctionbetween‘relevantconstructioncontracts’andotherconstructioncontracts-thelatterbeingwherethecontractstatesorthepartieshaveestimatedthatthedurationoftheworksislessthan45days.Inthecaseoftheformer,thepayeeisentitledtobepaidthe‘contractprice’ininstalments.Instalmentpaymentsunder‘relevantconstructioncontracts’aretobemadeinrespectofa‘relevantperiod’.Intheabsenceofanyperiodstatedinthecontract,the‘relevantperiod’is28days.Paymentisdueontheexpiryof7daysfromtheendofthe‘relevantperiod’oronthemakingofaclaimforpayment-whicheveristhelater.Thefinalpaymentunder‘relevantconstructioncontracts’(thedifference,ifany,betweenthecontractpriceandthetotaloftheinstalmentspayments)isdueontheexpiryof30daysaftercompletionoftheworkor(whicheverislater)onthemakingofaclaimforpayment.Bycontrast,paymentofthecontractpriceunderallotherconstructioncontracts-wherethereisnoentitlementtointerimpayments-isdueontheexpiryof30daysfollowingcompletionoftheworkof(whicheverislater)onthemakingofaclaimforpayment.Anyotherpaymentunderanycontractbecomesdueontheexpiryof7daysfollowingcompletionoftheworktowhichthepaymentrelatesor(whicheverislater)ontheissueofanapplicationfromthepayee.Thelastor‘finaldate’foranypaymentunderanycontractis17daysfromtheduedate.Instalmentpaymentsarecalculatedfromcommencementofthecontract-thismaybeearlierthancommencementofworkonsite.Astoinformationaboutpaymententitlement,theSchemerequiresthatwithin5daysofeachduedateforpayment,thepayermustnotifythepayeeoftheamount(ifany)tobepaidandtowhatthepaymentrelatesandthebasisuponwhichtheamountwascalculated.Thenoticeofintentiontowithholdpaymentmustbegivennolaterthan7daysbeforethefinaldateforpaymentasstatedinthecontractor,ifnoneisstated,7daysbeforetheexpiryofthe17daysfromtheduedate.AlthoughneithertheActnortheSchemeprovidesasanctionforfailuretoissuea5daynotice,thepayermayfindhimselfindifficultiesintheeventofadisputewhenhehasnotissuedthenotice.Chapter73 PaymentandSet-offTheLatePaymentofCommercialDebts(Interest)Act1998ThisActappliestocontractsforthesupplyofgoodsorservicesconcludedonorafter1November1998andwillthereforeapplytoalmostallcontractsorsub-contractswhichaSteelworkContractormayenterinto.AtpresenttheActappliesonlytocontractswhichinvolvea‘smallbusiness’suppliercontractingwitheitheraUKpublicauthority,a‘largebusiness’purchaseror(inrelationtocontractsconcludedafter1November2000)another‘smallbusiness’.Asmallbusinessisonewhichemploys50orfewerfull-timeemployees.Alargebusinessisanyotherbusiness.TheActisbeingphasedinandwillapplytoallbusinesscontractsbyNovember2002.WheretheActappliesitimpliesintosuchcontractsarighttostatutoryinterestonlatepayments.Atthetimeofwritingtherateis8%aboveofficialdealingrateoftheBankofEngland.Anyprovisioninacontractattemptingtoexcludetherighttostatutoryinterestwillbevoidunlessthecontractprovidessomeother“substantial”remedyforlatepayment.Injudgingwhetherthealternativetostatutoryinterestisasubstantialremedy,regardistobehadtoalloftherelevantcircumstancesbutthealternativemustbesufficienttocompensatethepayeeforlatepaymentortodeterlatepayment.Inaddition,anyexclusionorvariationoftherighttostatutoryinterestmustbefairorreasonableagaintakingintoaccountallrelevantcircumstancesincluding:•thebenefitsofcommercialcertainty•thestrengthofthebargainingpositionoftheparties•whetherthetermwasimposedbyonepartytothedetrimentoftheother(whetherbytheuseofstandardtermsorotherwise)•whetherthesupplierreceivedaninducementtoagreetothetermConstructionIndustrySchemeTheConstructionIndustrySchemestartedon1August1999andaffectsalmostallcontractorsandsub-contractorsintheconstructionindustry.Anewregistrationcardwasintroducedwhichmostsub-contractorsneedtoshowtothemaincontractorinordertogetpaid.Themaincontractorwillthenmakeadeductionfromthesub-contractor’spaymentonaccountoftaxandNationalInsurancecontributions.Constructionsub-contractorswithintheCISneedtoobtaineitheraregistrationcard(CIS4)orataxcertificate(CIS5orCIS6)fromtheInlandRevenue.Theonlyexceptionstothisare:•whereallofthesub-contractor’sworkisfor(andthesub-contractorisdirectlypaidby)peoplewhoarenotcontractors(e.g.privatehouseholders)•thesub-contractorsemployerisdeductingtaxunderPAYEforallofthesub-contractor’swork.PaymentProvisionsunderStandardFormsInterestonlatepaymentunderJCTandICEformsTheJCTformsprovideforsimpleinterestonlatepaymentat5%abovetheBankofEnglandbaserate.4Chapter7 PaymentandSet-offthTheICE7andCECAformsprovideforcompoundinterestat2%abovethebaserateofthebankreferredtointheAppendix.InterimPaymentunderJCTformsAlloftheJCTcontractsconsideredinthisChapterprovideforinterimpayment.Clause30ofJCT98requiresthearchitecttoissueinterimcertificatesattheintervalsstatedintheAppendix,whichisusuallymonthly.Theworkisvaluedbythequantitysurveyor,butitisthearchitectwhoissuesthecertificates.Thesumswhichshouldbeincludedintheinterimcertificatearelistedinclause30.2,andareasfollows:1.Thetotalvalueofworkproperlyexecutedincludingvariations,plusformulafluctuationsifapplicable;2.Goodsandmaterialsonsiteprovidedtheyarenotprematurelydeliveredandareadequatelyprotectedagainstweatherandotherrisks;3.Atthediscretionofthearchitect,goodsandmaterialsoffsite(seebelow);4.Sumsinrespectof1–3aboveduetonominatedsub-contractorsplusthemaincontractor’sprofit.Alloftheabovearesubjecttoretention.Certainothersumsmayalsobeincludedinthecertificatefromwhichnoretentionwillbededucted.Theseare:5.Statutoryfeesandcharges;openingupandtestingcosts,ifappropriate,royalties;premiumsforsubsidenceinsuranceifrequired;6.Lossandexpenseduetodelayanddisruption,andthecostofreinstatementworkiftheWorkshavebeendamagedbytheSpecifiedPerils;7.Amountsduetonominatedsub-contractorsundertheearlyfinalpaymentprovisions;8.Taxorconventionalfluctuationsifapplicable;9.Sumsinrespectof5–8aboveduetonominatedsub-contractors(butnotethemaincontractorisnotentitledtoaddprofittotheseitems).Thevaluationinaccordancewithclause30.2shouldtakeintoaccountallworkexecuted,materialsdelivered,chargesincurredetc.uptothedate7daysbeforethedatetheinterimcertificateisissued.PaymentandSet-offInterimvaluationsarealwayscarriedoutonacumulativebasis:thequantitysurveyorwillvaluethewholeoftheworkexecuteduptothevaluationdateandthensumspreviouslycertifiedwillbededucted.Underclause30.1.1.1,thefinaldateforpaymenttothemaincontractoris14daysfromthedateofissueoftheinterimcertificate.Under-Certification:Contractor’sRemediesThequestionoftheemployer’sobligationswherethearchitecthasissuedacertificatewhichstatesasummuchlowerthanshouldhavebeencertifiedwasconsideredit,LubenhamFidelitiesvSouthChapter75 PaymentandSet-offPembrokeshireDistrictCouncil(1986).Inthatcase,theCourtofAppealsummarisedthepositioninrelationtounder-certificationasfollows:-(a)thearchitect’scertificateisaconditionprecedenttothecontractor’srighttopaymenti.e.thecontractorhasnoentitlementunlessanduntilacertificateisissued;(b)evenifthecertificatecontainsobviouserrors,theemployerneedonlypaywhatisstatedasdue;(c)theerrorshouldthenbeadjustedinthenextcertificate.orifthearchitectwillnotdoso,thecontractormaycommencearbitrationproceedings;(d)theemployerhimselfwillbeliablefortheunder-certificationonlyifheprevaileduponthearchitecttounder-certifyorifhehinderedthearchitectincarryingouthiscertificationduties.Ifanominatedsub-contractorhassufferedduetoanunder-certification,hecanalsoarbitrateagainsttheemployer,usingthename-borrowingprocedureinclause4.20ofNSC/C.NominatedSub-ContractNSC/COneofthemajorbenefitsofbeinganominatedsub-contractoristhatpaymentislinkedtoarchitect’scertificatesissuedunderthemaincontract.Whenthearchitectissuesaninterimcertificateunderthemaincontract,clause35.13ofJCT98obligeshimtodirectthemaincontractorastohowmuchoftheamountcertifiedisduetoeachnominatedsub-contractor,andtoinformthenominatedsub-contractoroftheamountduetohim.Thisnarrowsthescopefordisputesastothevalueofthenominatedsub-contractor’swork,whichfrequentlyoccurondomesticsub-contracts.Asthenominatedsub-contractorwillknowpreciselyhowmuchisduetohimeachmonth.hisenergiescanbeconcentratedonextractingthatsumfromthemaincontractor.Thenominatedsub-contractorisentitledtobepaidwithin17daysofthedateofissueofeachinterimcertificatewhichwillnormallybeissuedmonthly.Theamountduetothesub-contractorwillbethesumcertifiedinhisfavourbythearchitect.Thiswillconsistof:1.Thetotalvalueofworkproperlyexecutedincludingvariations,plusformulafluctuations,ifapplicable;2.Goodsandmaterialsonsiteprovidedtheyarenotprematurelydeliveredandareadequatelyprotectedagainstweatherandotherrisks;3.Atthediscretionofthearchitect,goodsandmaterialsoffsite(seebelow).Theabovewillbesubjecttothedeductionofretention,normallyat3or5%.Certainothersumsmayalsobeincludedinthecertificate,whicharefreefromretention.Theseare:4.Statutoryfeesandcharges;5.Lossandexpenseduetodelayanddisruption;6.Taxorconventionalfluctuations,ifapplicable.Items4–6aretreatedascostswhichthesub-contractorisentitledtorecoverinfull,thereforenoretentionisdeductedfromthem.Interimvaluationsarecarriedoutonacumulativebasis.andthereforethe“grossvaluation”describedabovewillbesubjecttocertaindeductions.Theseare:(i)Theappropriateretentionpercentage(deductedfromitems1-3aboveonly):6Chapter7 PaymentandSet-off(ii)SumspreviouslycertifiedRetentionSinceJuly2000,BCSAmembershavenotaccepteddeductionofcashretentionsonanysteelworkcontracts.TheBCSA’spolicyinrelationtoretentionsissetoutinitspaper“AProgressiveEndtoRetentions”datedJuly2000.Neverthelessforanumberofyears,ithasbeennormalpracticeinconstructionprojectsforapercentagetobewithheldfrompaymentsotherwiseduetothecontractorsorsub-contractorsduringthecourseoftheprojecttobuilduparetentionfund.InJCT98andNSC/C,theretentionpercentagewillbe5%unlessalowerrateisagreedandinsertedinthemaincontractappendix.Halfoftheretentionfundisreleasedontheissueofthecertificateofpracticalcompletion.Anominatedsub-contractorisentitledtohalfoftheretentionretainedinrespectofhisworkswhenhisworkiscertifiedaspracticallycomplete:hedoesnothavetowaituntilpracticalcompletionofthemaincontractworks.ThesecondhalfoftheretentionfundisreleasedontheexpirationoftheDefectsLiabilityPeriodunderthemaincontract,oraftertheissueoftheCertificateofCompletionofMakingGoodDefects,whicheverislater.Thismaybemanymonths,orevenyearsaftertheSteelworkContractor’sdefectsliabilityperiodhasexpired,andthereforecancreatecashflowproblemsonlargerandlongercontracts.However,therearearrangementsforearlyfinalpaymenttonominatedsub-contractorsinJCT98whichallowforreleaseofthesecondhalfoftheretentionfundwithintwelvemonthsofpracticalcompletionofthenominatedsub-contractworks.Retentionmoneyinrespectofthemaincontractworksandnominatedsub-contractworkshastruststatus.Thismeansthatifeithertheemployerormaincontractorbecomesinsolventwhileholdingretentionmoneyinrespectofnominatedsub-contractwork,thenominatedsub-contractorisentitledtorecovertheretentionmoneyinfull,directfromtheemployerifnecessary.ItwasconfirmedinthecaseofRe:ArthurSanders(1981)thatwhereamaincontractorhadgoneintoliquidation,theemployerwasentitledtopayretentionmoneydirecttoanominatedsub-contractor,becauseitstruststatusmeantthatitwasnotsubjecttothenormalrulesondistributionofassetswhichapplyonaninsolvency(whichprohibitdirectpayment).Underclause30.5.3ofJCT98,nominatedsub-contractorsmayalsorequesttheemployertopayretentionmoneyintoaseparatebankaccount:thisreinforcestheprotectionoftruststatuswhichmaybelostiftheretentionmoneyhasbecome“mixed”withtheotherassetsofaninsolventemployer.Asamatterofgoodpractice,SteelworkContractorsshouldtakeadvantageofthisextraprotectionwheretheyarenominatedsub-contractors,asitwillensurethattherearenoargumentsregardingtheidentificationoftheirretentionmoneyiftheemployershouldbecomeinsolvent.Off-SiteGoodsandMaterialsThisisacrucialissueforSteelworkContractors,asunlikemostothertrades,asubstantialproportionofthecostofanycontractisincurredbeforethesub-contractorstartsworkonsite.7.JCT98clause30.3setsouttherequirementswhichmustbemetforthevalueofoff-sitematerialstobeincludedinaninterimcertificate.Theseareaimedatensuringthattheemployerwillacquireagoodtitletothegoodsandmaterialsforwhichheispaying.Chapter77 PaymentandSet-offDomesticSub-ContractDOM/1ThepaymenttermsinDOM/1arefrequentlymisunderstoodorignoredbybothmaincontractorsandtheirdomesticsub-contractors.Therearetwoparticularmisconceptions:first,thatthesub-contractor’srightstopaymentareinsomewaydependentoncertificationunderthemaincontract:secondly,thatDOM/1isapay-when-paidcontract.Bothoftheseareincorrect.Clause21ofDOM/1establishesasystemforpayingthesub-contractorwhichoperatesquiteindependentlyofwhatoccursunderthemaincontract.Clause21providesthatthefirstpaymentisduetothesub-contractornotlaterthanonemonthafterthedatehecommencesworkonsite,or,ifsoagreed,offsite.Subsequentinterimpaymentsaredueatmonthlyintervalsthereafter.Paymentsmustbemadewithin17daysoftheduedate.Thedomesticsub-contractorisnotcontractuallyrequiredtomakeapplicationsforpayment,andifhedoesnotdoso,thatshouldnotpreventtimelypaymentinaccordancewiththerulesexplainedabove.However,inpracticemostSteelworkContractorsapplyfortheirmonthlypaymentsasamatterofcourse,andthisisasoundcommercialapproach.If,however,themaincontractorclaimshecannotpayasub-contractor“becauseyourapplicationwaslate”,thesub-contractorshouldpointoutthathisrighttobepaidisnotdependentonhismakinganapplication,andthatifhedoesnotdoso,itisuptothemaincontractortovaluethesub-contractor’sworkhimself.Oneofthereasonsspecialistsub-contractorsapplyfortheirmonthlypaymentsisthatmostmaincontractorswouldhavesomedifficultyinvaluingtheirworks,andtheyarefarmorelikelytomakeareasonablepaymentiftheyhavereceivedaclearapplicationtogetherwithsupportingdocumentationifappropriate.Underclause21.4.4ifthesubcontractordoesapplyforpayment,hemustprovide“anydetailsreasonablynecessary”tosubstantiatehisapplication.Normalpracticeshouldnot,however,beconfusedwithcontractualrequirements,andDOM/1isabsolutelyclearthatanapplicationisnotaprerequisiteforpayment.Theamountduetothedomesticsub-contractoriscalculatedonsimilarprinciplestothoseinJCT98andNSC/Cwhichdescribewhatshouldbeincludedinarchitect’scertificates.Thesub-contractorisentitledtobepaidforthefollowing:-1.Thetotalvalueofworkproperlyexecuted.includingvariations,plusformulafluctuationsifapplicable;2.Goodsandmaterialsonsiteprovidedtheyarenotprematurelydeliveredandareadequatelyprotectedagainstweatherandotherrisks:3.Ifthearchitecthasexercisedhisdiscretionunderthemaincontract.goodsandmaterialsoff-site,providedthesub-contractorhasfulfilledalltherelevantcriteriainclause30.3ofthemaincontract(whichareexplainedaboveunder“PaymentforOffSiteGoodsandMaterials;Alloftheabovearesubjecttothedeductionofretention.normallyat3%or5%.Certainothersumsmayalsobepaidwhicharenotsubjecttoretention.namely:4.Statutoryfeesandcharges;5.Lossandexpenseduetodelayanddisruption.,6.Taxorconventionalfluctuationsifapplicable.InNSC/CandJCT98itisclearwhoisobligedtovaluetheworks:thequantitysurveyor,whowillpassthatvaluationtothearchitectwhoissuestheinterimcertificate.UnderDOM/1,thereisnoprovisionrequiringanyonetovaluethesub-contractworks.Theywill,ofcourse,bevaluedbythequantitysurveyorwhenheisvaluingthemaincontractworks,butthefigureincludedinrespectofthesub-contractworkswillnotbeseparatelyidentified,andinanyeventthevaluationwillbeatthe8Chapter7 PaymentandSet-offmaincontractor’sratesfortheworkandmaythusbearlittlerelationtowhatthesub-contractorisentitledtobepaid.Inpractice,themaincontractornormallyvaluesthework,basedonanapplicationfromthesub-contractorandonwhathethinksheislikelytobepaid(orhasbeenpaid)underthemaincontract.Thismeansthatdomesticsub-contractworkisoftenunder-valued,particularlyifitincludescontentiousitemssuchasvariations.Thesub-contractor’sonlyremedymaybeadjudicationorarbitrationwhichisoftentheonlywaytoestablishhowmuchtherulessetoutin1-6abovewillactuallyproduceasasumduetothesub-contractorwhenappliedimpartially.Remediesforunder-valuationareconsideredfurtherattheendofthisChapterundertheheadingof“RemediesforNon-Payment”.RetentionmoneyTheretentionpercentagewillbe5%unlessadifferentpercentageisinsertedintheAppendixtoDOM/1.AnoteinDOM/1statesthatthepercentageretainedshouldnotexceedthatretainedunderthemaincontract,butthisisadvisory,notmandatory.Halfoftheretentionfundwillbereleasedonpracticalcompletionofthedomesticsubcontractworks.Theremainingportionoftheretentionfundwillbepaidontheexpirationofthedefectsliabilityperiodunderthemaincontract,oraftertheissueoftheCertificateofCompletionofMakingGoodDefects,whicheverislater.Asthiswillbeaconsiderabletimeafterthestructuralsteelworkcontractor’sdefectsliabilityperiodhasexpired,theremaybecashflowimplicationsonlargecontracts.Unfortunately,therearenoearlyfinalpaymentarrangementsinDOM/1.Thisdelayshouldbetakenintoaccountwhentendering.RetentionmoneydoesnothavetruststatusunderDOM/1.Thismeansthatifeithertheemployerormaincontractorbecomesinsolventwhileholdingthedomesticsubcontractor’sretentionmoney,thedomesticsub-contractorwillbeanordinaryunsecuredcreditor,andwillreceivethesamepercentagepayoutsasanyotherunsecuredcreditor,oftenonlyafewpenceinthepound.IntermediateFormIFC98TherulesforinterimpaymentsunderIFC98areverysimilartothoseinJCT98.Underclause4.2thearchitectissuesinterimcertificatesatmonthlyintervals(unlessadifferentintervalisstatedintheAppendix).Thesumcertifiedmustbepaidwithin14daysofthedateofthecertificate.Thecertificatewillreflectinterimvaluationsmadebythequantitysurveyoratadatenotmorethansevendaysbeforethedateofthecertificate.ThecompositionofinterimpaymentsunderIFC98isthesameasJCT98exceptforthefollowing:-(i)PercentageWithheldThecontractorisentitledtobepaidonly95%ofthevalueofworkproperlyexecutedgoodsandmaterialsonsiteand,ifappropriate,goodsandmaterialsoffsite.The5%withheldwillbereleasedtothecontractoronthesamebasisasretentionmoneyisreleasedunderJCT98.Althoughitisnotdesignatedas“retentionmoney”underIFC98,itfulfilsexactlythesamefunctionandissubjecttosimilarrules.Asfarasthemaincontractorisconcernedthepercentagewithheldhastruststatusunlesstheemployerisalocalauthority.Chapter79 PaymentandSet-off(ii)PaymentforOff-SiteGoodsandMaterialsClause4.2.1(c)providesthatthecontractormaybepaidthevalueofoff-sitegoodsandmaterials.NamedSub-ContractNAM/SCTheprovisionsforinterimpaymentinNAM/SCfollowthoseinDOM/1.The“percentagewithheld”,theequivalentofretention,willalwaysbe5%beforepracticalcompletionand2.5%thereafter.AsinDOM/1,thepercentagewithheldunderNAM/Tdoesnothavetruststatus.DomesticSub-ContractIN/SCTheprovisionsforinterimpaymentinIN/SCalsofollowthoseinDOM/1.ManagementContract1998.ThecompositionofpaymentsduetotheManagementContractordiffersfromthatinotherJCTstandardforms.Therearetworeasonsforthis:first,theManagementContractisaprimecostcontract:secondly,therearetwodistinctperiodsduringwhichpaymentsaremade-thePre-ConstructionPeriodandtheConstructionPeriod.DuringthePre-ConstructionPeriod,thearchitectmustissuecertificatesattheperiodsspecifiedintheAppendix.ThesecertificateswillconsistofinstalmentsofthePre-ConstructionPeriodManagementFee,whichisseparatelyquotedandwillalsoappearintheAppendix.DuringtheConstructionPeriodthearchitectwillissuecertificatesatmonthlyintervals.Thesumswhichshouldbeincludedinthosecertificatesareasfollows:-(i)AmountsdueunderthevariousWorksContracts,lessanyretention;(ii)Amountsforsitestaffgeneralfacilities,sitefacilities,servicesandmaterialsprovidedbytheManagementContractorwhichwillbecalculatedinaccordancewiththeSecondScheduledefinitionofprimecostlessretention;(iii)ThePre-ConstructionPeriodManagementFee(althoughthiswillhavealreadybeenpaid-itisincludedherebecauseallvaluationsareonacumulativebasis);(iv)AninstalmentoftheConstructionPeriodManagementFee,adjustedwhereappropriate(theFeewillbeadjustediftheprimecostoftheprojectismorethan5%moreorlessthanthecontractcostplan);(v)AnyotherexpenditureincurredbytheManagementContractor.Fromthetotalofthosesumsthefollowingarededucted:-(i)AnypaymentsorcreditswhichtheManagementContractorhasreceivedformaterials;(ii)AnyotherpaymentsorcreditswhichtheManagementContractorhasreceivedtowhichtheemployerisentitled(e.g.liquidateddamagesfromWorksContractors);(iii)Amountspreviouslycertified.PaymentsshouldbemadetotheManagementContractorwithin14daysoftheissueofeachinterimcertificate.TheretentionpercentageundertheManagementContractwillalwaysbe3%:thisistoreflectthehighvalueofprojectsforwhichthecontractisdesigned.10Chapter7 PaymentandSet-offWorksContract/2ThepaymentarrangementsforWorksContractorsaresimilartothosefornominatedsubcontractors.InhisinterimcertificatesissuedundertheManagementContract,thearchitectmustdirecttheManagementContractorastotheamountcertifiedinrespectofeachWorksContractor,(iftheWorksContractorhasexecutedthestandardEmployer/WorksContractorAgreementWorksContract/3,theWorksContractorcanalsoinsistuponbeinginformeddirectlybythearchitectoftheamountscertifiedinhisfavour).AlthoughtheWorksContractorisnotcontractuallyobligedtoapplyforpayment,hemaydosoifhewishes,andtheManagementContractormustpassthatapplicationontothearchitect.ThecompositionofpaymentsduetoWorksContractorsisthesameasthecompositionofpaymentsduetonominatedsub-contractorsunderNSC/C.PaymentsmustbemadetoWorksContractorswithin17daysofthedateofissueofinterimcertificatesundertheManagementContract.AsundertheManagementContract,retentionwillalwaysbeat3%priortopracticalcompletion,andat1.5%thereafter.RetentionmoneyinrespectofthevariousWorksContractshastruststatusinthehandsofboththeManagementContractorandemployer,andthereforeitisprotectedifeitherofthemshouldbecomeinsolvent.TheWorksContractorhastheoptiontorequirehisretentiontobeheldinaseparatebankaccountunlesstheemployerisalocalauthority.ICE7thEditionUndertheICEconditionsunliketheJCTforms,itistheContractorwhotriggersthepaymentmechanism.Underclause60(1),theContractormustsubmitastatementtotheEngineerattheendofeachcalendarmonthwhichshows:(i)theestimatedvalueoftheworksexecuteduptotheendofthatmonth;(ii)alistofanyunfixedgoodsormaterialsdeliveredtositeandtheirvalue;(iii)alistofoff-sitegoodsandmaterials(providedcertainconditionshavebeensatisfied-seebelow)andtheirvalue;(iv)anyotheramountstowhichtheContractorconsidershimselfentitled(e.g.variations.fluctuationsetc.).TheContractormustalsolistseparatelytheamountspayableinrespectofeachnominatedsub-contractor.TheformoftheContractor’sstatementmaybeprescribedinthespecification,andifsothatformmustbeused.Ifaformisnotincludedinthespecification,theContractorshouldensurethatareasonablelevelofdetailisgiven,andinparticularthatthevalueofpermanentwork(item(i)above)iscalculatedbyreferencetodetailedquantitiesandrates.Within28daysofthedeliverytotheEngineeroftheContractor’smonthlystatementtheEngineermustcertifyandtheEmployerpaytheamountdue.Theamountcertifiedshouldcomprise:(a)theamountwhichintheEngineer’sopinionisdueinrespectof(i)and(iv)above(permanentworksandotheramounts)lessretention:(b)suchamountastheengineerconsidersproperinrespectof(ii)and(iii)above(on-siteandoff-sitegoodsandmaterials)subjecttoalimitofthepercentageofthevaluestatedintheAppendixtotheFormofTender.Noretentionisdeductedfromthesepayments,buttheEngineerhasawidediscretioninrespectofunfixedgoodsandmaterials.Chapter711 PaymentandSet-offAmountscertifiedfornominatedsub-contractorsaretobeshownseparatelyonthecertificate.AminimumvaluebelowwhichtheEngineerneednotissueacertificatewillbespecifiedintheAppendixtotheFormofTenderbutinsomecircumstancestheEngineermaychoosetoissueacertificatebelowthislimit,forexample,toclearasmallbalanceoncompletionoftheworks.RetentionMoneythTheICE7providesforaretentioncalculatedattheratesetoutintheAppendixtotheFormofTender.Halfoftheretentionfundwillbereleasedtothecontractorwithin14daysoftheissueofaCertificateofSubstantialCompletionandtheremainderwithin14daysoftheexpirationoftheDefectsCorrectionPeriodapplicabletotheworks,savethatifdefectsremainoutstandingortestsarerequired,theemployermaywithholdthecostofthatremedialworkortesting.SteelworkContractorsshouldnotethatalthoughretentionfundsunderICEaregenerallysmallerthanthoseundertheJCTforms,theICEdoesnotgiveretentionmoneytruststatus.Accordingly,thecontractorandsub-contractorswillbeunprotectedintheeventoftheinsolvencyoftheemployer.PaymentforOff-SiteGoodsandMaterialsTheEngineerhasadiscretiontoincludethevalueofoff-sitegoodsandmaterialsininterimcertificatesprovidedcertainconditionsaresatisfied.Theseconditionsare:(i)thegoodsandmaterialsmusthavebeenlistedintheAppendixtotheFormofTender;(ii)thegoodsandmaterialsaresubstantiallyreadyforincorporationintotheworks(thisrulesoutpaymentfor“black”steel);(i)theContractorcanprovethathehasorwillacquireagoodtitletothegoods.TheactionrequiredoftheContractor(orhissupplier)inthisrespectislistedinclause54(2).Itcomprises:(a)providingdocumentaryevidencethatpropertyinthegoodsandmaterialshasvestedintheContractor:(b)suitablymarkingorotherwiseidentifyingthegoodstoshowtheyaretheEmployer’spropertyandthattheyaredestinedforthesite,(c)settingasideandstoringthemtothesatisfactionoftheEngineer.(d)sendingtheEngineeraschedulelistingandgivingthevalueofthegoodsandmaterials,andinvitinghimtoinspectthem.TherequirementsarethereforenotdissimilartothoseinJCT98.SteelworkContractorsshouldbeawarethateveniftheyfollowthisdetailedandtime-consumingproceduretotheletter,itremainsamatterforthediscretionoftheEngineerwhetherthevalueofoff-sitegoodsandmaterialsiscertified:thesearethepre-conditionswhichmustbesatisfiedbeforehecanevenconsiderdoingsobutfulfilmentofthemdoesnotmeanthathemustincludetheminacertificate.IftheEngineerdoesexercisehisdiscretionnoretentionisdeductedfromthepayment;therelevantpercentagewillbedeductedwhenthegoodsandmaterialsareincorporatedintotheworks.CECASub-ContractThepaymentprocedureissetoutinclause15,whichrequiresthesub-contractortosubmitawrittenthstatementofthevalueofhiswork,similartothatrequiredofthemaincontractorundertheICE7.Thestatementmustbesubmittedtothemaincontractoratleast7daysbeforeheisrequiredto12Chapter7 PaymentandSet-offsubmithisstatementunderthemaincontract:thisdateisinsertedintheFirstScheduletotheSub-Contractandisreferredtoasthe“SpecifiedDate”.Thestatementwillincludethevalueofon-sitegoodsandmaterialsand,ifallowableunderthemaincontractthevalueofoff-sitegoodsandmaterialsaswellasthevalueofworkproperlyexecuted.Paymentforoff-sitegoodsandmaterialswillnotbecontemplatedunlesstheyarelistedintheAppendixtotheFormofTenderforthemaincontract.Accordingly,iftheSteelworkContractoristoheemployedasasub-contractorunderthisformofsub-contractheshouldendeavourtoensurethatprefabricatedsteelworkitemsareincludedinthatAppendix,bymeansofdirectarrangementwiththeEngineerifnecessary.Themaincontractorisboundtoincorporatestatementsfromthesub-contractorinhisapplicationsforpaymentunderthemaincontract.Paymentbecomesduetothesub-contractorwithin35daysofthe“SpecifiedDate”,andwillcomprisethevalueofworkandmaterialsincludedinthesub-contractor’sstatementcalculatedinaccordancewiththeratesandpricesspecifiedinthesub-contractorbyreferencetothepriceifitisalumpsumcontract.Previouspaymentsandretentionmoneywillbededucted.Clause15(3)permitsthemaincontractortowithholdordeferpaymentwhere:•theamountclaimeddoesnotexceedtheminimumamountstatedintheThirdSchedule•theamountclaimedisinsufficienttojustifytheissueofaninterimcertificateunderthemaincontract•theamountclaimedisnotcertifiedinfullbytheEngineer(providingthereasonfornon-certificationisnotduetoactordefaultofthecontractor)•theEngineerhascertifiedtheEmployerisinsolvent•adisputeexistsbetweenthesub-contractorandthecontractorand/orthecontractorandtheemployerinrelationtotheamountclaimedSteelworkContractorsshouldtakeintoaccounttheriskofdelayedorwithheldpaymentwhentenderingforsub-contractsbasedontheCECAform.RetentionMoneyRetentionmoneywillbedeductedfrominterimpaymentsduetothesub-contractorattheratespecifiedintheThirdScheduletotheCECAform.Releaseofretentionmoneyislinkedtoitsreleaseunderthemaincontract:thefirsthalfwillbedue.within35daysoftheEngineer’scertificatewhichincludesretentionunderthemaincontract.Thefinaldateforpaymentofthefirsthalfoftheretentionis7dayslater.Theremainderoftheretentionisduewithin28daysoftheissueoftheDefectsCorrectionCertificateunderthemaincontract.Thefinaldateforpaymentis7dayslater.LiketheICEmainform,retentionmoneydoesnothavetruststatusthereforethesubcontractorwillbeunprotectedifeithertheemployerormaincontractorgoesintoliquidationwhileholdingretentioninrespectofthesub-contractworks.Set-OffOneofthegreatestcommercialadvantagesanemployeroramaincontractorhasistheabilitytodeductmoneyfrompaymentsduetohiscontractorsorsub-contractors.Ifhehasaclaimagainstacontractororsub-contractorduringtheprogressoftheworks,hewillbenegotiatingfromapositionofstrengthbecausehehasthemoney;thecontractororsub-contractorhasthemuchmoredifficulttaskoftryingtogetitback.Chapter713 PaymentandSet-offAsstatedatthebeginningofthisChapter,theHousingGrants,ConstructionandRegenerationAct1996providesthatpaymentmaynotbewithheldafterthefinaldateforpaymentunlesspropernoticeofintentiontowithholdpaymenthasbeengiven.JCTmainandsub-contractformsJCT98,NSC/C,DOM/1allprovideforthepayertogivenoticetothepayeenotlessthan5daysbeforethefinaldateforpaymentofamountsdueifthepayerintendstowithholdpaymentspecifyingtheamounttobewithheldandthereasonorreasonsfordoingso.thICE7Clause60(10)providesfortheEmployertonotifytheContractornotlessthan1daybeforethefinaldateforpaymentspecifyingtheamounttobewithheldandthereasonorreasonsfordoingso.CECASub-ContractClause15(9)providesfornoticeofanywithholdingofpaymenttobegivennotlessthan1daybeforethefinaldateforpayment.WorksContract/2LiketheJCTforms,thisprovidesfornoticeofwithholdingtobegivennotlessthan5daysbeforethefinaldateforpayment.FinalPaymentFinalpaymentisanimportantissueforSteelworkContractorsbecausetheyareinvolvedattheveryearlystagesofthebuildingprocess.Unfortunately,onlyonecontract,thenominatedsub-contractNSC/C,providesforearlyfinalpaymenttosub-contractors.InallothercasestheSteelworkContractorwillhavetowaitformonths,orsometimesyears,beforehereceivespaymentofhisfinalaccount.Theadverseeffectoncashflowofthesearrangementscanbelessened,tosomeextentbyobtainingthemaximumsumsininterimpaymentsandleavingaslittleaspossibletobeagreedatthefinalaccountstage.Agreeinglumpsumpricesforvariations,compromisingonlossandexpenseclaimsandkeepingretentionmoneyatthelowestpossiblelevel(i.e.3ratherthan5%)willallhelptoensurethatonlyasmallretentionpercentageremainsoutstandingfromthetimethesub-contractorcompleteshisworkuntilthemaincontractfinalaccountissettled.Thetimetableforagreeingandpayingfinalaccountsundereachofthedifferentformsofcontractisdescribedbelow.JCT98Clause30.6ofJCT98providesthatwithinsixmonthsofpracticalcompletionofthemaincontractworks,themaincontractormustsendtotheArchitectallthedocumentsrelevanttothepreparationofthefinalaccount.TheQuantitySurveyorthenhasthreemonthsfromreceiptofthatinformationtoascertainanylossandexpenseandtoprepareastatementofallthenecessaryadjustmentstothecontractsum.TheArchitectisrequiredtoissueafinalinterimcertificatewhichincludesthefinaladjustmentofallNominatedSub-Contractsums.Thiscertificatewillbeissuedatleast28daysbeforethefinalcertificateisissued.Inpractice,itwillprobablybeissuedamonthbeforethefinalcertificate,althoughtheclauserequiresIttobeissued“sosoonasispracticable”.14Chapter7 PaymentandSet-offThefinalcertificateitselfisissuedwithintwomonthsof:(a)theendoftheDefectsLiabilityPeriod;or(b)thedateofissueoftheCertificateofCompletionofMakingGoodDefects:or(c)thefinalstatementofadjustmentspreparedbytheQuantitySurveyor,whicheveristhelater.Thefinaldateforpaymenttothecontractoroftheamountshowninthefinalcertificateis28daysfromthedateofissueoftheFinalCertificate.TheFinalCertificateisconclusiveevidencethat:(i)wherethequalityofworkmanshipormaterialsistobetothereasonablesatisfactionoftheArchitect,theyaretohisreasonablesatisfaction(thisdoesnotmeanthemaincontractorisreleasedfromliabilityforallpatent(i.e.obvious)defectsasmanypeoplesuppose).SeeChapter6under‘ContractualEffectofCertificates’andunder‘FinalCertificateunderJCT98’;(ii)thattheContractSumhasbeencorrectlyadjustedsaveforaccidentalorarithmeticalerrors;(iii)thatallextensionsoftimehavebeenawarded;(iv)thatalllossandexpensehasbeenawarded.NominatedSub-ContractNSC/CUnderclause4.23or4.24ofNSC/C(asapplicable),withinsixmonthsofpracticalcompletionofthesub-contractworks,thesub-contractormustsendtothemaincontractorthedocumentsnecessaryforcomputinghisfinalpayment:thiswillnormallybeaformalapplicationbackedupbyanyrelevantinvoices,dayworksheets,copiesofArchitect’sinstructionsetc.WithinthreemonthsoftheContractorreceivingthesedocuments,theArchitectorQuantitySurveyormustprepareastatementshowingthefinalsumwhichthesub-contractorisentitledtobepaid.Thus,withinninemonthsofpracticalcompletiontheSteelworkContractorshouldknowtheamountofhisfinalaccount.Unfortunately,therewilloftenbesomeconsiderabledelaybeforeitisactuallypaidtohim.Ifhecannotobtainearlyfinalpaymentunderclause4.16.2,thecertificatecontaininghisfinalpaymentneednotbeissueduntil28daysbeforetheissueofthefinalcertificateforthemaincontractworks,whichwillbeatleastsixmonthsafterthemaincontractworksarecomplete.Clause30.7ofthemaincontractobligestheArchitecttoissueacertificatewhichincludesthefinallyadjustedsumsduetoallnominatedsub-contractors“sosoonasispracticable”,butdoesnotspecifythatearlynominatedtradesshouldbetreatedseparately.TheearlyfinalpaymentprovisionsarethereforeveryimportantforSteelworkContractors.Thenominatedsub-contractorwillonlybeentitledtoearlyfinalpaymentwherehehasenteredintotheEmployer/NominatedSub-ContractoragreementNSC/W.Ifthatrequirementissatisfied,theArchitectmustcertifyfinalpaymentforthesub-contractorwithintwelvemonthsofpracticalcompletionofhisworksprovided:(i)thesub-contractorhasremediedalldefectsinhiswork:and(ii)thesub-contractorhasprovidedthemaincontractorwithalltheinformationnecessaryforthecomputationofthefinalaccount.Ifhesowishes,theArchitectispermittedtocertifyearlyfinalpaymenttothenominatedsub-contractorbeforethetwelvemonthperiodfrompracticalcompletionhasexpired.Fortheeffectofthefinalcertificate,seethecommentsunderJCT98.Chapter715 PaymentandSet-offDomesticSub-ContractDOM/1Underclause21ofDOM/1notlaterthanfourmonthsafterpracticalcompletionofthesub-contractworks,thesub-contractormustprovidethemaincontractorwithalltheinformationherequirestocalculatethefinalpayment.Thefinalpaymentbecomesduetothesub-contractor7daysaftertheArchitectissuesthefinalcertificateunderthemaincontractandmustbemadewithinthenext28days.Beforethefinalpaymentbecomesdue,themaincontractormustnotifythedomesticsub-contractoroftheamountofthefinalpaymentwhichwillbemadetohim.IntermediateFormIFC98ThefinalpaymentarrangementsinIFC98areidenticaltothoseinJCT98savethatthereisofcoursenomentionofnominatedsub-contractors.Asnamedsub-contractorsaretreatedasdomesticsub-contractorsunderIFC98,theyarenotspecificallyreferredtointhemainform.NamedSub-ContractNAM/SCThefinalpaymentprovisionsinNAM/SCareexactlythesameasthoseinDOM/1.DomesticSub-ContractIN/SCThefinalpaymentprovisionsinIN/SCareinidenticaltermstothoseinDOM/1.WorksContract/2TherulesgoverningfinalpaymentofWorksContractorsinWorksContract/2arethesameasthoseinNSC/C,savethatthereisnoprovisionforearlyfinalpaymentofWorksContractors.thICE7EditionthUnderclause60(4)oftheICE7themaincontractormustsubmitastatementofhisfinalaccountandsupportingdocumentstotheEngineerwithinthreemonthsofthedateoftheDefectsCorrectionCertificate.thTheDefectsCorrectionCertificateundertheICE7doesnothaveanyfinalandconclusiveeffectunlikeitsequivalentintheJCTforms.CECASub-ContractClause15(6)oftheCECAformdealswithfinalpayment.TheContractormustmakefinalpaymenttothesub-contractoreither:•withinthreemonthsoftheendofthemaintenanceperiod;or•within14daysofthemaincontractorrecoveringfullpaymentforthesub-contractworksunderthemaincontractwhicheveristhesooner.Thesub-contractormustsubmita“validstatement”ofhisfinalaccountinaformandcontainingsuchdetailsasthemaincontractormayreasonablyrequire,atleastonemonthbeforethefinalpaymentismade.Accordingly,itwouldbeadvisableforthesub-contractortoapplyforhisfinalpaymentassoonaspossibleafterhehascompletedhiswork.16Chapter7 PaymentandSet-offRemediesforSet-offandotherNon-PaymentsAsstatedatthebeginningofthisChapter,theHousingGrants,ConstructionandRegenerationAct1996providesthatwhereasumduehasnotbeenpaidbythefinaldateforpaymentandnoeffectivewithholdingnoticehasbeengiven,thepartytowhompaymentisduehastheright(inadditiontoanyotherrightshemayhave)tosuspendperformanceofthecontractprovidedthathefirstgivestheotherpartyatleast7daysnoticeofhisintentiontosuspendstatingthereasonorreasonsforsuspension.Inadditiontheconditionsofcontractmayprovideanexpressrighttointerestforlatepayment,forinstanceclause21.3.4ofDOM/1.Also,theLatePaymentofCommercialDebts(Interest)Act1998impliesarighttostatutoryinterestonlatepayments.Otherremediesavailableunderthestandardformsare:1.DirectPaymentthJCT98andICE7providefordirectpaymenttonominatedsub-contractors.UnderJCT98,nominatedsub-contractorsarecontractuallyentitledtodirectpaymentfromtheEmployerprovidedtwoconditionsaresatisfied:(i)theyareemployedasnominatedsub-contractorsonthebasisofthestandardformofnominatedsub-contractNSC/C;and(ii)theyhaveenteredIntothestandardEmployer/NominatedSub-ContractoragreementNSC/W.Ifcondition(ii)isnotsatisfied,i.e.thereisnoNSC/W,thedirectpaymentmachinerystillapplies,butitwillonlybeoperatedattheArchitect’sdiscretionandthereforethesubcontractorcannotinsistondirectpayment.Thedirectpaymentprocedure,whichissetoutinclauses35.13ofJCT98issummarisedbelow:(a)beforetheissueofeachinterimcertificate,themaincontractormustprovidetheArchitectwithreasonableproofthathehaspaidthenominatedsub-contractorthesumsduetohimunderthelastcertificate(orthatheisnotobligedtodosobecause,forexample,hehasset-offmoneyinaccordancewiththeset-offrulesinNSC/C);(b)ifhecannotprovidethatreasonableproof,theArchitectissuesacertificatetothateffect,andcopiesthatcertificatetothenominatedsub-contractor;(c)theEmployerthendeductsthatunpaidsumfromthenextpaymentduetothemaincontractorandpaysitdirecttothenominatedsub-contractor.TheEmployerisnotboundtopaytothenominatedsub-contractormorethanhecandeductfromthemaincontractor,sotheEmployershouldneverbeoutofpocketduetoadirectpayment.Ifdirectpaymentsareduetoanumberofnominatedsub-contractorsandtheamountcertifiedinfavourofthemaincontractorisnotenoughtomeetallthedirectpaymentsinfull,theEmployercaneitherpaythesub-contractorsprorataorsplitthepaymentonanyotherbasiswhichheconsiderstobefairandreasonable.Becauseofthewayinwhichtheprocedureoperates,directpaymentisalwaysonecertificatebehind,soitisnotanidealbasisuponwhichtoworkforanylengthoftime.Itis,however,agooddealbetterthanmostoftheotherremediesconsideredhere,andisthereforeaveryrealbenefitofthecurrentsystemofnomination.Oneveryimportantlimitationondirectpaymentisthatthesub-contractor’srightsceaseautomaticallyifthemaincontractorgoesintoliquidation.Althoughthismayseemillogical.beingtheverytimewhendirectpaymentwouldmostbenefitasub-contractor,theJCTwereforcedtointroducethisruleChapter717 PaymentandSet-offbycourtdecisioninthecaseofBritishEagle-InternationalAirlinesvCompagnieNationaleAirFrance(1975).InthatcaseitwasheldthatanyarrangementwhichdirectspaymentfromaninsolventcompanystraightintothehandsofanunsecuredcreditorisvoidasbeingcontrarytotheCompanieslegislationandpublicpolicy.Thisisbecauseallpaymentsduetotheinsolventcompanymustbedistributedinaccordancewiththerulesforpaymentofsecuredandunsecuredcreditors.Sub-contractorsshouldnotethat,technically,thedirectpaymentprovisionswillstilloperatewhereanadministrativereceiveroradministratorhasbeenappointedtothemaincontractor,althoughinpracticeitmaybedifficulttopersuadetheEmployertomakeadirectpaymentinthesecircumstances.thUnderClause59(7)ofICE7theEmployerhasthediscretionaryrighttomakedirectpaymentstonominatedsub-contractors.TheEngineermaydemandfromthemaincontractorreasonableproofthathehasdischargedhisliabilitytopayamountsincludedinpreviouscertificatesfornominatedsub-contractors.Ifthemaincontractorcannotdoso,andcannotshowreasonablecauseforhisfailuretopay,theEmployermaymakeadirectpayment.2.DeterminationAllofthestandardformsofsub-contractexceptNSC/CandtheCECAformhaveexpressprovisionsallowingsub-contractorstodeterminetheirownemploymentduetonon-payment.However,determinationisonlypermittedwherethereisnootherremedyinthesubcontractwhichwouldadequatelyrecompensethesub-contractor,andassuspensionisnormallyavailable,therighttodeterminefornon-paymentisveryrarelyused.3.DisputeResolutionProceedingsLateornon-paymentmaytriggerthedisputeresolutionprovisionsspecifiedinthecontractorimpliedbystatute.SeeChapter19-DisputesandLegalProceedings.18Chapter7 CHAPTER8FLUCTUATIONSIntroductionAfteraSteelworkContractorhastenderedforacontract,thereisalikelihoodthatthecostofcarryingouttheworkwillincreaseduetorisesinmaterialpricesandlabourcosts.Theremayalsobechangesintheratesandtypesoftaxeshehastopay.Therearetwopossiblewaysofdealingwiththis:eithertheSteelworkContractorcanestimatewhatthosechangeswillbeandmakeanallowanceinhispriceforthem(afixedpricecontract);orthecontractcanprovideamechanismforthemeasurementandrecoveryofthechanges(afluctuatingpricecontract).Clauseswhichdealwithsuchpricechangesarevariouslyknownascontractpriceadjustmentclauses(CPAclauses),variationofpriceclauses(VOPclauses),or,morecommonly,fluctuationsclauses.TheSteelworkContractorshouldbetoldwhenheisinvitedtotenderwhetherthecontractwillbefixedpriceor,ifitistobefluctuating,thebasisuponwhichfluctuationswillberecoverable,asthiswillobviouslybecrucialtotheestimatingprocess.Therearefourtypesoffluctuationsclauses:1.formulafluctuations2.conventionalorfullfluctuations3.taxfluctuations4.civilengineeringfluctuationsEachofthefirstthreeisconsideredbelowinrelationtoJCTcontracts.ThereisalsoabriefsectionattheendofthisChapteronfluctuationsundertheICEforms.ChoiceofFluctuationsprovisionsAllofthestandardJCTcontractsandtheirrelatedsub-contractsprovideforthethreepossiblemethodsofcalculatingfluctuationsdescribedabovewiththeexceptionoftheIntermediateFormIFC98anditsrelatedsub-contracts,whichdonotprovidefortherecoveryofconventionalorfullfluctuations.Theapplicableclausewillbeindicatedeitherinthecontractappendix,orwherethereisastandardformoftender,inthetenderdocument.Ifnoselectionismadeorifneitherfullnorformulafluctuationsarestatedtobeapplicable,theChoiceofFluctuationsprovisionsclauseintheJCTformsprovidesthattheTaxFluctuationsclausewillapply.However,thisissometimesdeletedandthecontractismadetotallyfixedprice,withthecontractortakingthefullriskofanycostincreases,includingthoseduetoachangeintherateortypeoftaxes.1.FormulaFluctuationsFormulaetomeasurefluctuationswerefirstdevelopedinthemid-1970’sinresponsetoadecisionbytheGovernmentinDecember1973toabandonitspolicyofrequiringcontractsofuptotwoyearsdurationtobeonafixedpricebasis.TwoschemesweredevelopedbyaSteeringGroupoftheEconomicDevelopmentCouncilusingaChapter81 FluctuationsformulaforgeneralbuildingcontractsbasedonWorkCategoriesandanumberofspecialistformulaeforcertaintrades.includingstructuralsteelwork.AseparateSteeringGroupdevelopedformulaeforuseoncivilengineeringcontracts,(thisisoftenreferredtoasthe“BaxterFormula”).Formulafluctuationspaymentsarelinkedtomovementsinvariousindices.Thoseindicesarebasedonnationalaveragesofthecostoflabourandthecostofmaterials.Forthisreason,formulafluctuationspaymentswillnotnecessarilyreflecttheactualincreasesincurredbyanyparticularcontractor.However,thedisparitybetweenactualcostfluctuationsandformularecoveryshouldnotbegreat,andmanycontractorsfeelthattheadministrativeconvenienceoftheformulaoutweighsanyminorunder-recovery.Inparticular,contractorsdonothavetoexpendtimeandcoststoproveincreasesincostasthecontractvaluewillautomaticallybeadjustedagainstIndexmovements.TheoperationoftheformulawillbegovernedbytheversionoftheJCTFormulaRulesapplicabletotheparticularcontract.TheJCThasproducedasetofFormulaRulesforeachofitsmaincontracts.(a)ApplicationoftheFormulatoStructuralSteelworkTheJCTSub-Contract/WorksContractFormulaRulesprovidetwopossiblemethodsofcalculatingfluctuationsinthevalueofstructuralsteelwork:(i)byusingthespecialistformulaforstructuralsteelworksetoutinPartIIIoftheRules:or(ii)byusingtheWorkCategoryorWorkGroupMethod,whichcontainsaWorkCategoryforSteelworknumbered2/27.TheWorkCategoryorWorkGroupMethodisnotnormallyappropriateforusebySteelworkContractors.WorkCategory2/27usesacompositeindexthematerialselementofwhichisderivedfromthesamematerialsindexastheSpecialistSteelworkFormula,butthelabourelementisbasedonthewageratesforlabouremployedinthegeneralbuildingindustry.TheadviceinthisChapteristhereforeconfinedtotheoperationoftheSpecialistSteelworkFormula.(b)WorkNotSubjecttoFormulaAdjustment-Rule4Certainworkisexcludedfromformulaadjustments:(i)workvaluedasdaywork;(ii)importedgoods(actualfluctuationsinthecostofimportedgoodswillberecoverableundertheformulafluctuationsclauseprovidedtherelevantgoodshavebeenlistedinthesub-contracttenderformorthesub-contractappendix,asapplicable);(iii)anyworkvaluedatfairratesandprices.currentwhentheworkiscarriedoute.g.,avariationwhichisnotofsimilarcharactertoworkincludedinthesub-contractdocuments;(iv)directlossandexpense;(v)anyotheramountpaidtotheSteelworkContractorwhichisbasedoncostsactuallyincurredbyhim.DescriptionoftheStructuralSteelworkIndices(c)CostofLabourTheindexwhichisappliedinrespectofbothfabricationanderectionunderallthesteelworkformulae2Chapter8 Fluctuationsisdesignated“CostofLabourinFabricationandErectionofSteelwork”.ItisbasedonaverageearningsinthemechanicalengineeringIndustrydrawnfromTable127(MechanicalEngineering)oftheDepartmentofEmploymentGazette,italsotakesintoaccount:Employer’sLiabilityInsurance;NationalInsurance;annualholidaysandpublicholidays;SickPay;andEITBLevy.Theaverageearnings’indexisthenrelatedtoaverageweeklyhoursworkedasshownbyTable121(Engineering,shipbuilding,electricalandmetalgoods)oftheDepartmentofEmploymentGazette.TheIndexiscalculatedonafour-monthmovingaverageinordertomitigateseasonalfluctuations.Usingthemovingaveragemeansthatthe“troughs”inthemovementsofTable127inthesummeratthetimeofworksshut-downs,andinthewinteratChristmas,areeliminated.Infact,although“smoothed”bythisaverage,theCostofLabourindexhasconsistentlygoneup,whichisthenaturalconsequenceofthefactthatsome5000firmssupplythebasicdatatotheDepartmentofEmploymentfortheproductionofTable127;andthattheagreementswhichtheyarereachingwiththeirworkforcesarespreadthroughoutthewholeyear.ThusalthoughaSteelworkContractormayhaveoneWageAgreementwithhisworkforceinanyoneyear,whichmeansthathislabourcostsjumpupdramaticallyinonemonthoftheyear,hisrecoverywillbespreadoverthatyearthroughthecontractswhichhehassubjecttoformulaadjustment.TheIndexvaluesarepublishedinmonthlyBulletins.TheBulletinforanyparticularmonthnormallyhastheLabourIndexforthepreviousmonthonaprovisionalbasis.Itispublishedonaprovisionalbasisforthreemonthsbeforegoingfirm,andnoprovisionalIndex,oncepublished,ischangeduntilitbecomesfirm.(Seebelowunder“IndexNumbers”).(d)CostofMaterialsTheMaterialsIndexusedwithalltheformulaeispreparedbytheDepartmentofTradeandIndustryunderCodeNo.3112.920.TheIndexisdeemedtocoveralltypesofsteelsinceseparateconsiderationforsteelsofdifferentqualitiesisneitherdesirablenorpracticable.TheIndexis,however,designedtoreflecttheextraschargedbyCorusinrespectofdifferentsectionsrolledandsizescut.AllowanceisalsomadeforCorus’sInlandFreightcharges.Noallowanceismadeforhollowsections.TheonlypricesusedintheMaterialsIndexareCorus’sprices-noallowanceismadeforthepriceofimportedsteelnorthatobtainedfromstockholders.Inordertoclarifymisunderstandingswhichexistedconcerningthetreatmentofrebatesinthemake-upoftheMaterialsIndex,itisagreedbyBCSAandPSAthattheIndexdoes,andwillcontinueto,takeintoaccountanyrebatewhichmaybeofferedfromtimetotimeandisfreelyavailabletoallpurchasers,i.e.,theIndexis,andwillcontinuetobebasedonthenettvalueofthepublishedpricelessrebates.TheMaterialsIndexincorporatesthepricelevelcurrentinthemonthtowhichtheIndexNo.referscalculatedonaweightedbasistorepresenttheaveragepricelevelforthemonth.WhereCorusmakesselectiveordifferentincreases,e.g.theyputupthepricesofonlysomeoftheitemsincludedintheIndex,themovementoftheIndexvalueasawholewillbe“damped”bytheweightingsoftheitemsnotsubjecttotheincrease.Thus,forexample,ifCorusincreasePlatepricesby10%,sincethePlateweightingis47.5%theIndexValuewillmoveupwardsbyonly4.75%.TheeffectofthisisthatdifferentialpriceincreasesbyCorusresultinover-recoveryoncontractsusingmaterialswhicharenotincreasedand,conversely,under-recoveryoncontractsusingincreasedmaterials.Theoveralleffectoveraperiodoftimeshouldnotbegreat.butparticularcontractsmayeitherover-recoverorunder-recover.Chapter83 Fluctuations(e)Non-AdjustableElementOnlocalauthoritycontracts,anon-adjustableelementwillapplytoformulafluctuations.Thisisadeductionfromthefluctuationspaymentsattheratespecifiedisthestandardformoftenderorthesub-contractappendix,asapplicable.Theratemustnotexceed10%andnodeductionshouldbemadewheretheEmployerisnotalocalauthority.(f)NegativeFluctuationsThroughoutthisChapter,referenceismadetothevariousmethodsofcalculatingfluctuationsinthecontextofrecoveringincreasesincost.However,occasionally,costswilldropratherthatrise,andinthesecircumstanceswhicheverofthefluctuationsclausesappliestothecontractwilloperatetoreducetheamountthecontractororsub-contractorisentitledtobepaid.2.ConventionalorFullFluctuations-JCT98clause39Thisisthebasisoffluctuationunderwhichthecontractorshouldrecoverasumveryclosetotheactualvariationsinhiscosts.However,theprocedureiscumbersometooperateandthereforeitisinfrequentlyused.TheJCTcontractsdealseparatelywithlabourandmaterialcostsinthisrespect;theseareconsideredinturnbelow.(a)LabourThreecategoriesoflabourarecoveredbytheclause:(i)workpeopleworkingonsite.e.g.steelworkerectors;(ii)workpeopledirectlyemployedbythecontractorworkingoffsite,totheextentthattheyareworkingonmaterialsorgoodsfortheworks,e.g.,SteelworkContractors;(iii)sitestaff,suchascontractmanagers,providedthattheyareemployedonsiteforatleasttwowholeworkingdaysperweek.Thefluctuationsrecoverableinrespectof(i)and(ii)above(i.e.workpeopleonandoffsite)willbethenetamountofanyincreasesin:–wages–otheremoluments–expenses,includingholidaycreditsduetoanalterationintherules,decisionsoragreementsoftheNationalJointCouncilfortheBuildingIndustryorotherrelevantwagefixingbody,providedthealterationispromulgatedaftertheBaseDateidentifiedintheContract.Consequentialincreasesinthecostofemployers’liabilityandthirdpartyinsuranceandtaxes,contributionsandleviespaidbythecontractorinhiscapacityasanemployerwillbeaddedtothefluctuationspayments.Recoveryofactualvariationsinlabourcostsisrestrictedbytherulethatonlyincreasesduetoachangeintherelevantnationalagreementwillbepayable.Mostemployerstreattheratespromulgatedbytherelevantwagefixingbodyasaminimum,andactuallypaytheirlabouratahigherrate.4Chapter8 FluctuationsHowever,forfluctuationspurposes,theyaretreatedasbeingpaidattherelevantnationallyagreedrate.Thus,forexample,ifaSteelworkContractorpayshislabourattherateof£10perhour,andthenationallyagreedrateis£5perhourwhichisincreasedto£6perhour(i.e.by20%),thefluctuationsrecoverablewillbecalculatedonthebasisofanextra£1perhour,notonthebasisofanadditional20%oftherateactuallypaid,whichwouldbe£2perhour.FurtheriftheSteelworkContractorisforcedbylocalconditionstoincreasetherateshepaystohisworkpeople,suchanincreasewillnotberecoverableunderthefluctuationsclausebecauseitisnotduetoachangeintherules,decisionsoragreementsofanationalwage-fixingbody.TheJCTfluctuationsclausescontainspecificprovisionstodealwithchangesinfarespaidtoworkpeople.Theyprovidetwopossiblemethodsofcalculation:(i)thecontractorproducesalistofthebasictransportchargesheincursinrespectoflabourbothonandoffsite(excludingsitestaff),andifthosechargesriseaftertheBaseDateheispaidthenetamountoftheincrease;or(ii)thefareswhichthecontractorisrequiredtoreimbursetohisonandoffsitelabour(againexcludingsitestaff)bytherelevantnationalagreementarethebenchmark,andifthereiseitheranychangeinthenationalagreementrelatingtothereimbursementoffaresoriftheactualfaresrise,theContractorwillbepaidthenetamountoftheincrease.Inadditiontothecostfluctuationsdescribedabove,thecontractorwillalsobeentitledtoanyincreaseinlabourcostsduetoachangeintherateortypeoftax,contributionorlevyinaccordancewithexactlythesamerulesasthosedescribedinconnectionwithclause38ofJCT98.(b)StaffAswithtaxfluctuations,specialarrangementsapplytotherecoveryoffluctuationsinlabourcostsrelatingtositestaff.Actualincreasesincostarenotpaid.butanotionalamountforsitestaffisaddedtothefluctuationspayableinrespectofacraftsmanpaidatthehighestrateundertherelevantnationalagreement.Itislikelytobearlittlerelationtotheactualcostfluctuationsinemployingsitestaff,butitwillgosomewaytowardsrecompensingthecontractor-indeedonoccasionhemayevenbepaidmorethattheactualchanges,whicharecompletelyignoredforthepurposesofthisclause.Thepaymentforsitestaffisproportionatetotheamountoftimespentonsitebythestaffsoifacontractsmanagerspendsthreewholeworkingdaysaweekonsite,fluctuationswillbepaidinrespectofhimatthreefifthsoftheweeklyamountpaidforacraftsmanatthehighestrate.Partsofdaysarenottakenintoaccountwhencalculatinghowmanydaysstaffspendonsite,normaypartsofdaysbeaggregated.Thusifacontractsmanagerspendsfivemorningsaweekonsite,nofluctuationswillbepayableinrespectofhim.(c)MaterialsFluctuationsinmaterialscostsareassessedbyreferencetoalistofmarketpricespreparedbythecontractor.Inthemaincontract,thislistwillbesetoutinthecontractbills,oriftherearenobillsofquantities,inthespecification.Insub-contractswherethereisastandardformoftender,suchasNSC/Tthelistwillbesetoutthere.Indomesticsub-contracts,thelistisattachedtothesub-contractappendix.ThecontractorisentitledtorecoverincreasesinthemarketpriceaftertheBaseDateuptothedateheactuallypurchasesthematerials.Changesinthecostofelectricity(andotherfuelsifspecificallysostatedinthecontractdocuments)willalsoberecoverable,providingtheelectricityorotherfuelsChapter85 Fluctuationsareconsumedonsitefortheexecutionoftheworks.Contractorsshouldremembertoincludethemarketpriceofelectricityand,whereappropriate,otherfuels,inthelistmentionedabove.Changesinmarketpricesduetochangesindutyortax(exceptVAT)arealsopayableunderthisclause.(d)OtherRulesrelatingtoConventionalFluctuationsTherulesrelatingtodomesticsub-contractsnoticerequirements,freezing,worktowhichfluctuationsdonotapplyandthepercentageadditionsetoutbelowinrelationtotaxfluctuationsapplyequallywherefullfluctuationsarerecoverable.Thenoticerequirementsareparticularlyonerousastheremaybemanychangesinthemarketpricesofmaterialsandgoodsonacomplexcontractandthisisoneofthereasonswhytheclausesareseldomused.(e)FullFluctuationsNotApplicabletoIFC98IFC98doesnotprovideforfullorconventionalfluctuations.Theclauseswerefelttobeinappropriatetoacontractintendedforlessthanayear’sdurationandIFC98thereforeonlyprovidesfortaxorformulafluctuations.3.TaxFluctuationsJCT98clause37UndertheJCTstandardforms,taxfluctuationsaredefinedasachangeintherateortypeofcontribution,levy,ortaxaftertheBaseDate(whichisadatestatedinthecontractappendix).Twochangesareexpresslyexcludedfromthedefinitionofcontribution,levyandtax:VATandCITBlevy.Anycostincreasesarisingoutofchangesinsuchchargeswillthereforebebornebythecontractororsub-contractorwhohasincurredthem.Itisimportanttoappreciatethatthevariationinpricemustbeduetoachangeintherateortypeoftax.Forexample,iftheamountofanemployer’snationalinsurancecontributionsweretobeincreasedbylegislation,thatwouldbeachangeintherateoftax,levy,orcontributionandwouldthereforeberecoverableasataxfluctuation.If,however,wageswereincreasedduetoanagreementwiththerelevantunion,oneconsequenceofthatwouldbethattheemployer’snationalinsurancecontributionwouldincrease,butthiswouldnotbecausedbyachangeintherateortypeoftaxandwouldthereforenotberecoverableasataxfluctuation.ThetaxfluctuationsclausesintheJCTformsdealseparatelywithlabourandmaterialscosts:theseareconsideredinturnbelow.(a)LabourTaxfluctuationsarerecoverableoncostsrelatedto:(i)workpeopleworkingonsite,e.g.steelworkerectors;(ii)workpeopledirectlyemployedbythecontractorworkingoffsite,totheextenttheyareworkingonmaterialsorgoodsfortheworks,e.g.SteelworkContractors;(iii)sitestaff,suchascontractmanagers,providedtheyareemployedonsiteforatleasttwowholeworkingdaysperweek.(b)StaffSpecialarrangementsapplytotherecoveryoftaxfluctuationsinlabourcostsrelatingtositestaff.Theactualtaxfluctuationsrelatingtositestaffarenotpaid,butanotionalamountforsitestaffis6Chapter8 Fluctuationsaddedtothefluctuationspaidinrespectofworkpeople.Thenotionalamountisthesumwhichwouldhavebeenrecoverableforacraftsmanpaidatthehighestrateundertherelevantnationalagreementitmaybearlittlerelationtothesumthecontractororsub-contractoractuallyhastopayinrespectofhissitestaffbutitisatleastsomerecompense.Theadditionalpaymentwillbeproportionatetotheamountoftimespentonsitebythestaff,soifacontractsmanagerspendsthreewholeworkingdaysaweekonsite,fluctuationswillbepaidinrespectofhimatthreefifthsoftheweeklyamountpaidforacraftsmanatthehighestrate.Partsofdaysarenottakenintoaccountwhencalculatinghowmanyworkingdaysstaffspendonsite,normaypartsofdaysbeaggregated.Thusifacontractsmanagerspendsfivemorningsaweekonsite,nofluctuationswouldbepayableinrelationtohim.(c)MaterialsAswithfluctuationsinlabourcosts,onlyvariationsinpriceduetoachangeintherateortypeoftaxwillberecoverable.ChangesintherateofVATareexpresslyexcludedfromthestandardJCTclauses,butchangesinallothertaxesanddutiespayableontheimport,purchase,sale,appropriation,processingoruseofmaterialsandgoodsarecovered.Taxfluctuationsinthecostofelectricityarealsopayable,andtheemployerhastheoptionofallowingfluctuationsonothertypesoffuelaswell.Thematerials,goods,electricityandfuelsonwhichfluctuationsaretoberecoveredmustbelistedinthecontractdocuments.Inthemaincontract,thelistwillbesetoutinthecontractbillsor,iftherearenobillsofquantities,inthespecification.Insub-contractswherethereisastandardformoftender,suchasNSC/TorNAM/T,thelistwillbesetoutthere.Indomesticsub-contracts,thesub-contractorcompilesthelist,whichisthenattachedtothesub-contractappendix.Materialsandgoodsmustbeincludedinthelistiffluctuationsaretoberecoveredinrespectofthem,soitisinthesub-contractor’sownintereststocompileandcheckthelistwithgreatcare.Whereonlytaxfluctuationsarerecoverable,thereisnoneedforthelisttoincludeprices.(d)DomesticSub-ContractorsIftaxfluctuationsareapplicabletothemaincontract,thecontractorshouldincorporatethesameprovisionsinalldomesticsub-contracts.Thisisoftennotdone,particularlywhereanon-standardformofdomesticsub-contractisused,andsub-contractorsshouldbearinmindthatifthemaincontractordoesnotpaythemtaxfluctuationswheretheyarerecoverableunderthemaincontract,heisinbreachofhiscontractwiththeemployer.(e)NoticeThecontractormustgivewrittennoticetotheArchitectofanyeventgivingrisetoapaymentorrecoveryunderthefluctuationsclauses.Thenoticemustbegivenwithinareasonabletimeoftheoccurrenceofthatevent.Failuretogivetheappropriatenoticemeansthatfluctuationswillnotbepaid:thecontractexpresslystatesthatthenoticeisaconditionprecedenttotherecoveryoffluctuations.ThiswasconfirmedbytheCourtsinthecaseofJohnLaingvCountyandDistrictProperties(1982).Chapter87 Fluctuationse)“Freezing”ofFluctuationsThecontractororsub-contractormaynotrecovertaxfluctuationswherethechangeintherateortypeoftaxoccursduringaperiodofculpabledelay.Thisissometimesdescribedasthe"freezing"offluctuations,andisbasedontheprinciplethatifthecontractororsub-contractorisnotentitledtoanextensionoftimeforadelay,heshouldbearallthecostsofthatdelay.TheJCTclausesprovidethatthis“freezing”shalloperateonlywheretheclausewhichsetsouttheentitlementtoextensionsoftime,isunamendedandwheretheArchitect,ormaincontractorasappropriate,hasrespondedtoallofthecontractor’sorsub-contractor’sapplicationsforanextensionsoftime.(f)WorktowhichfluctuationswillnotapplyCertainworkisexcludedfromtheoperationofthefluctuationsprovisions,inparticularworkpaidforonadayworkbasis.(g)PercentageAdditionTheamountspaidtothecontractorundertherulessetoutabovewillnotcompensatehimforthefullcostofchangesintax,becausetheydonotincludethefullcostsofsupervisorystaffandallownothingforplantcostsandheadofficeoverheads.Thereisthereforeafacilityintheappendixtothemaincontractforapercentagetobeaddedtofluctuationspaymentstotakeaccountofsuchcosts.Asimilarfacilityisincludedintheappendixtothedomesticsub-contractsandinthetenderdocumentsforthenominatedandnamedsub-contracts.Thepercentagewillbestipulatedbytheemployer,andisusuallyatafairlylowlevelsuchasfiveortenpercent.Someemployersmaydeletethefacilityaltogether,orspecifythatthepercentageisnil.4.DETRFormulaeTheDepartmentoftheEnvironment,TransportandtheRegionspublishestheMonthlyBulletinofIndices,PriceAdjustmentFormulaeforConstructionContracts.Thiscontains:SectionA:NotesforGuidance-ApplicabletoallseriesSectionB:Series3-BuildingandSpecialistEngineeringFormulaeIndices&1990SeriesCivilEngineeringFormulaIndices&1990SeriesStructuralSteelworkFormulaIndicesSectionC:Series3-BuildingandSpecialistEngineeringFormulaeIndices&1970SeriesCivilEngineeringFormulaeIndicesDETRalsopublishaUser’sGuideforusewiththe1990SeriesofIndices.ThesePriceAdjustmentFormulaearethesuccessorstoindicesfirstdrawnupbyNEDO(NationalEconomicDevelopmentOffice).ThecompilationandmaintenanceoftheindicesisnowtheresponsibilityoftheConstructionSponsorshipDirectorateoftheDETR,initscapacityasTechnicalSecretariattotheWorkingGrouponBuildingandCivilEngineeringIndices.8Chapter8 CHAPTER9VARIATIONSArchitectsandengineershavewidepowerstoordervariationsunderallofthestandardformsofcontract.Asthedesignprocessisrarelycompletedwhenworkstartsonsite,thesepowersarefrequentlyexercised.Thevaluationofvariationsisoneofthemostcontentiousareasofbuildingcontracts,andthereforeitisparticularlyimportantforSteelworkContractorstohaveaclearunderstandingofthecontractualframework.Itisworthrememberingthatthereisnogenerallyimpliedpowerfortheworktobevaried,andsotheArchitect,EngineerorMainContractormustfollowpreciselytheprocedureforinstructingvariationswhichislaiddowninthecontract.DefinitionofaVariationAlloftheJCTformsdefinetheterm“variation”inasimilarway.Theyprovidefortwotypesofvariation:achangeintheworkitself,andachangeinobligationsorrestrictionsrelatingtothewayinwhichworkisexecuted.Forexample.clause13.1.ofJCT98definesthefirsttypeofvariationsasthealterationormodificationofthedesign,qualityorquantityoftheWorks(requiredbytheContractDocuments)including:–theaddition.omissionorsubstitutionofanywork;–thealterationofthekindorstandardoranyofthematerialsorgoodstobeusedintheWorks;–theremovalfromthesiteofanyworkexecutedormaterialsorgoods…(otherthandefectivework,materialsorgoods).Clause13.1.2,definesthesecondtypeofvariationastheimpositionof,orchangesintheoriginallyimposedobligationsorrestrictionsinregardto:–accesstothesiteoruseofanypartsofit–limitationsofworkingspace–limitationsofworkinghours–theexecutionorcompletionoftheworkinanyspecificorder.thTheICE7doesnotexpresslydefinetheterm“variation”.butclause51(1)permitstheEngineertoorder“anyvariation…(which)mayincludeadditionsomissionssubstitutionsalterationschangesinqualityformcharacterkindpositiondimensionlevelorlineandchangesinanyspecifiedsequencemethodortimingofconstructionrequiredbytheContractandmaybeorderedduringtheDefectsCorrectionPeriod.”Despitethebroadtermsusedinbothsetsofformstodescribevariations,disputesfrequentlyoccurastowhetheraparticularinstructionamountstoavariation.TheArchitect,Engineerormaincontractorwillmaintainthattheinstructioninvolvesnomorethanwasoriginallyrequiredunderthecontract,whilethecontractororsubcontractorwillarguethatitentitleshimtoextramoney.Suchdisputescanbeminimisedbyensuringthatthedescriptionoftheworkinthecontractdocumentsisasclearaspossible-sub-contractorscancontributetothisbycheckingthedocumentsattenderstageandaskingforclarificationofanyambiguitiesorconflicts.Chapter91 VariationsAcommonmisconceptionisthatallArchitect’sorEngineer’sinstructionsamounttovariations.Thisisnotcorrect:iftheinstructionsimplyre-iteratesanoriginalcontractualobligation,orifitdoesnotfallwithinthedefinitionofavariationforsomeotherreason,thecontractororsub-contractorwillnotbeentitledtorecoverthecostsofcomplyingwithitonthebasisthatitisavariation(althoughinthelattercasehemaybeabletorecoverthecostsundersomeotherclauseinthecontract).PowertoInstructVariationsTherearetworulestorememberhere:(i)gettheinstructionfromtherightperson;and(ii)getitinwriting.ThisisparticularlyimportantforSteelworkContractorsbecause,inpractice,theirworkisoftencontrolledandsupervisedbyastructuralengineer.However,suchengineershavenostatusorpowertoissueinstructionsandordervariationsunderastandardJCTcontract.EvenifthestructuralengineerisexpresslygivenauthoritybytheArchitecttoordervariations(acomparativelyrareevent),thiswillonlymeanheisentitledtodosounderthemaincontractandnominatedsub-contracts.IfSteelworkContractorsareinanydoubtabouttheauthorityofapersonwhoissuesinstructionstothem,theyshouldseekwrittenconfirmationfromthepartywithwhomtheyhavecontractedtoconfirm(ordeny)suchauthority.FailuretodosomayresultinSteelworkContractorsnotbeingpaidforworkorderedbyunauthorisedpersons.JCT98Underclause13.2ofJCT98theArchitect,andonlytheArchitect,mayissueinstructionsrequiringavariation.Thoseinstructionswillnormallybeinwriting,andifsothecontractormustbegintocomplywiththemimmediately.IftheinstructionisgivenorallythenitdoesnottakeeffectuntilitisconfirmedinwritingbyeithertheArchitectorthemaincontractor.IftheArchitectconfirmshisoralinstructioninwritingwithin7days,ittakeseffectonthedateoftheArchitect’swrittenconfirmation.Thecontractalsoprovidesforthecontractortoconfirmtheoralinstructioninwritingwithin7daysofreceivingit:theArchitectthenhasafurther7daysfromreceiptofthecontractor’sconfirmationtodissentifhesowishes.Ifhedoesnotdoso,theinstructiontakeseffectontheexpiryofthe7-dayperiodallowedfortheArchitect’sdissent.Ifneitherpartyconfirmsanoralinstructioninwriting,butthecontractorneverthelesscarriesoutthework,theArchitecthastheoptionofissuingaretrospectivewrittenconfirmationatanytimebeforetheissueoftheFinalCertificate.Thereisonlyonesetofcircumstancesinwhichthecontractorhasanexpressrighttorefusetocomplywithaproperlyissuedinstruction.Thecriteriawhichmustbesatisfiedarefoundinclause4.1.1:–theinstructionmustrequireavariation:and–thatvariationmustbeoftheobligationsorrestrictionsonthewayinwhichtheworkistobecarriedout(seethedefinitioninclause13.1.2);and–thecontractormusthavemadeareasonablewrittenobjectiontocomplyingwiththeinstruction.Thecontractorhasnoexpressrighttorefusetocomplywithinstructionsregardingsuchmattersascarryingoutextraorlesswork,evenifthesizeofthecontractisdramaticallyincreasedordecreased2Chapter9 Variationsbythatinstruction.Mostcommentatorsarguethatitisnotpossibleforthewholescopeofthecontracttobechanged,so,totakeanobviousexample,aSteelworkContractorcouldnotbeforcedtoerectatimberframe.However,suchmajorchangesarerare,andthereforethecontractorunderJCT98willfinditverydifficulttoargueheisnotboundtocarryoutvariedworkunlessitfallswithinclause4.1.1,describedabove.NominatedSub-ContractNSC/COnlytheArchitectmayinstructvariationstonominatedsub-contractwork.Themaincontractormayissueany“reasonabledirection”regardingthesub-contractworks,butheisnotentitledtovarythembecause“variation”isdefinedinclause1.4ofNSC/Cas“anyofthefollowingchangeswhicharerequiredbyaninstructionoftheArchitect.......”Architect’sinstructionswhichaffectthenominatedsub-contractworkarepassedtothesub-contractorbythemaincontractor,whoisexpresslyrequiredtopassthemon“forthwith”byclause3.3.1ofNSC/C.IftheArchitect’sinstructionormaincontractor’sdirectionisgivenorally,thesubcontractorisnotobligedtocomplywithituntilitasconfirmedinwritingbythemaincontractororthesub-contractorwithin7daysofitsissue.Ifthesub-contractorhasconfirmedit,themaincontractorhasafurtherperiodof7dayswithinwhichtodissent,afterwhichthesub-contractor’sconfirmationtakeseffectasavalidinstructionandthesub-contractormustthenbegintocomply.Itisverytemptingtoignorethisprocedureandtobegincomplyingwithoralinstructionsimmediately,butthisisatemptationwhichshouldberesisted.Thesub-contractormaymisinterprettheoralinstructionortheArchitectormaincontractormaychangehismind-ifeitherofthesethingshappensitwillbevirtuallyimpossibleforthesub-contractortoobtainpayment.Becausetheinstructiondoesnottakeeffectuntilitisconfirmedinwriting,thesub-contractorcannotbeheldresponsibleforanydelayduetohisfailuretocomplywithanoralinstruction,andtherulesinclause3.3.3tothateffectshouldbepointedouttoanyArchitectormaincontractorwhosuggestsotherwise.Ifneitherpartyconfirmsanoralinstructioninwritingbutthesub-contractorneverthelesscomplieswithit,themaincontractorhastheoptionofissuingaretrospectivewrittenconfirmationupuntilthefinalpaymentismadetothesub-contractor.However,asthisisentirelyatthediscretionoftheArchitectormaincontractor,itwouldbeaconsiderablerisktorelyuponthisasajustificationforcomplyingwithoralinstructions.Oncetheinstructionhasbeenproperlyissued,thesub-contractormustbegintocomplywithit“forthwith”i.e.immediately.Ifhefailstodoso,themaincontractormayissueawrittennoticerequiringhimtocomply,andifhefailstocomplytheArchitectmaypermitthemaincontractortoemployotherstocarryoutthedirectionorinstruction.Thecostsofdoingsowillberecoverablefromthesub-contractor.Nominatedsub-contractorshaveanexpressrighttorefusetocomplywithaproperlyissuedinstructionprovidingthefollowingrequirementsaresatisfied:–theinstructionrequiresavariation;and–thatvariationrelatestotheobligationsorrestrictionsonthewayinwhichtheworkistobecarriedout;and–thesub-contractorhasmadeareasonablewrittenobjectiontocomplying.Notethatthesub-contractorcannotobjecttovariationsinthedesign,qualityorquantityofworkregardlessofhowradicaltheymaybe,althoughifthevariationwassufficienttochangethewholecharacterofthecontracttheremaybeanimpliedrighttoobject.Chapter93 VariationsDomesticSub-ContractDOM/1UnderDOM/1itisthemaincontractor,andonlythemaincontractor,whohasthepowertovarythedomesticsub-contract,works.Clause4.2.1permitshimtoissueanyreasonabledirectiontothesub-contractor,includingdirectionsrequiringvariations.Architect’sinstructionswhichaffectthesub-contractworksaredeemedtobedirectionsofthecontractorprovidedtheyareissuedtothesub-contractorbythemaincontractor.Manydomesticsub-contractorsassumethatanyinstructionissuedbytheArchitectoranyothermemberoftheprofessionalteammustbecompliedwithandwillautomaticallyentitlethemtopayment.Thisisnotcorrect.OnlyArchitect’sinstructionspassedonbythemaincontractororthecontractor’sowndirectionsarevalidlyissuedunderthecontract.Thissituationgivesrisetoparticularproblemsforspecialisttradessuchasstructuralsteel.whoseworkwillfrequentlybedesignedandsupervisedbyastructuralengineer.Thatengineerhasnostatusunderthecontracttoissueinstructionsortoordervariations,sotheSteelworkContractormust,astactfullyaspossible,ensurethateverythingispassedthroughthemaincontractor.Ifhefailstodosothereisaseriousriskthathewillnotbepaid.Thebasicruleisthatthemaincontractormustgivehisdirectionsinwriting.Oraldirectionshavenoimmediateeffect,sothesub-contractorisnotobligedtobegincomplyingwiththemuntiltheyareconfirmedinwriting,eitherbythemaincontractororthedomesticsub-contractorhimself.Thismustbedonewithinsevendaysoftheissueoftheoraldirection.Ifitisthesub-contractorwhohasconfirmedthedirection,themaincontractorhassevendaysfromreceiptofthatconfirmationtodissentfromit.Ifhedoesnotdoso,thedirectiontakeseffectandthereforethesub-contractormustbegintocomplywithit.Itisverycommonfordomesticsub-contractorstoignorethisprocedureandtobegincomplyingwithoraldirectionsassoonastheyareissued,butthisisadangeroushabit.Thesub-contractorwillonlybeentitledtopaymentifthemaincontractordoesissuethewrittenconfirmationordoesnotdissentfromthesub-contractor’sconfirmation-ifnot,thesub-contractorwillnotbeentitledtopaymentfortheworkhecarriedoutpursuanttotheoraldirection.Sub-contractorsshouldrememberthattheycannotbeheldresponsibleforanydelaycausedbytheirfailuretocomplywithoraldirectionsbecausetheydonottakeeffectunderthecontractuntiltheyareconfirmedinwriting,andtherulesinclause4.4tothateffectshouldbepointedouttoanymaincontractorwhosuggestsotherwise.Ifneitherpartyconfirmsanoraldirectioninwriting,butthedomesticsub-contractorneverthelesscomplieswithit,themaincontractorhastheoptionofissuingaretrospectivewrittenconfirmationatanytimeuptothefinalpayment.However,heisnotboundtodoso,sosub-contractorscomplywithunconfirmedoraldirectionsattheirownperil.OnceadirectionhasbeenproperlyissuedunderDOM/1,thesub-contractormustbegintocomplywithit“forthwith”,i.e.immediately.Ifhedoesnot,themaincontractormayissueawrittennoticerequiringhiscompliance,andifhecontinuestofailtodoso,thecontractorcanemployotherstocomplywiththatdirection.Thecostsofdoingsowillbebornebythedomesticsub-contractor.Domesticsub-contractorsunderDOM/1haveexactlythesamerightstoobjecttomaincontractor’sdirectionsasnominatedsub-contractorshavetoobjecttoArchitect’sinstructions.4Chapter9 VariationsIntermediateFormIFC98TherulesinIFC98regardingvariationsandinstructionsarebroadlysimilartothoseinJCT98,saveforoneveryimportantcharacteristic:thereisnoprovisionfororalinstructionsinIFC98.Allinstructionsmustbeissuedinwriting.Iftheyarenot,theyhavenoeffectunderthecontract.Thisisalaudableprinciple,butitisfrequentlyignoredbyArchitects,whichputsthecontractorinadifficultposition.Ashedoesnothavetheoptionofconfirmingtheinstructioninwritinghimself,hehasastraightchoice:complywiththeoralinstructionandrisknotbeingpaid,orinsistonwrittenconfirmationfromtheArchitectandriskantagonisinghim.Thefirstalternativeisthemorepopular,butthesecondismoresensibleandshouldleadtonomoredifficultiesthaninsistingoncompliancewithanyotherclauseinthecontract.Contractorsshouldnotethatanyformofwritingissufficientforaninstructiontohavecontractualeffect-itdoesnotneedtobeonthestandardRIBAInstructionform-instructionsinletters,onscrapsofpaper,evenonthebackofacigarettepacketaresufficientprovidedthetermsareclearanditissignedbytheArchitect.NamedSub-ContractNAM/SCTherulesregardinginstructionsandvariationsinNAM/SCarethesameasthoseinDOM/1.savethatthereisnoprovisionfororalinstructions.(Fortheeffectofthis,seethecommentsaboveonIFC98).Asanamedsub-contractorunderNAM/SCisessentiallydomesticoncehehasbeenappointed,onlythemaincontractormayissuevalidvariationsordirectionsrelatingtothenamedsub-contractwork.DomesticSub-ContractIN/SCTherulesregardinginstructionsandvariationsinIN/SCareexactlythesameasthoseinNAM/SC.ManagementContract1998UnderClause3.3theArchitectmustissuetotheManagementContractorsuchinstructionsasarereasonablynecessarytoenabletheManagementContractortofulfilhiscontractualobligations.TheArchitectmayalsoissuevariationstotheproject,whicharecalled“ProjectChanges”.IftheArchitectissuesanoralinstruction,itisvalidonlyifheconfirmsitinwritingwithin7days.ThereisnofacilityfortheManagementContractortoconfirmoralinstructions.TheArchitecthasnoexpresspowersintheeventoftheManagementContractorfailingtocomplywithinstructions,althoughthereisageneralrightinclause7.2.1.2todeterminetheManagementContractor’semploymentifhe“failstoproceedregularlyanddiligentlywiththecarryingoutofhisobligations...“.ThisisaconsiderablymoredrasticremedythantherighttoemployotherstocomplywiththeparticularinstructionwhichisincludedinotherJCTstandardforms.WorksContract/2WorksContract/2providesfortwotypesofinstructionstobegiventotheWorksContractor:-(i)instructions,whichareArchitect’sinstructionsissuedundertheManagementContractandpassedontotheWorksContractorbytheManagementContractor;Chapter95 Variations(ii)directions,whicharetheManagementContractor’sownreasonablerequirements.Eitheraninstructionoradirectionwillamounttoavariationifitfallswithintheappropriatedefinition(seebeginningofthisChapter),thereforetheManagementContractorclearlyhasthepowertovarytheWorksContractworks.Thegeneralruleisthatbothinstructionsanddirectionsmustbeissuedinwriting.EithertheManagementContractorortheWorksContractormayconfirmoralinstructionsinwritingwithin7days,butiftheyarenotsoconfirmedtheyhavenoeffect.ThereisnocontractualmechanismfortheManagementContractortodissentfromtheWorksContractor’swrittenconfirmation,althoughifhedoesdisagreehecansimplyissueafurtherwritteninstructiontoclarifytheposition.IftheWorksContractorfailstocomplywithaproperlyissuedinstructionordirectiontheManagementContractormayissueawrittennoticerequiringhimtodoso.Ifhestilldoesnotrespond,theManagementContractormayemploysomeoneelsetocarryouttheinstructionandrecoverthecostofdoingsofromtheWorksContractor.WorksContractorshaveslightlywiderpowerstoobjecttoinstructionsthanothersubcontractorsbecausetheirworksmayincludedesign.Underclause3.4ofWorksContract/2theWorksContractorneedonlycomplywithinstructionsinvolvingalterationstoworkdesignedbyhimifheconsents.Theconsentshouldbegiveninwriting,andmustnotbeunreasonablywithheldordelayed.IftheWorksContractorwithholdshisconsentthemattermustbereferredtotheArchitectforhisdecision.TheWorksContractoralsohastherighttomakeareasonableobjectiontovariationsintheconditionsunderwhichtheworkistobeexecuted:thisrightisthesameasthatinNSC/C.ICE7thEditionTheICE7thgivestheEngineerverywidepowerstoissueinstructions-thecontractorhasageneralobligationtoexecutetheworksstrictlyinaccordancewithallEngineer’sdirectionsandinstructions,regardlessofwhetheranymatterinrespectofwhichtheEngineerhasissuedaninstructionismentionedinthecontract.Clause51dealswithvariations.ItprovidesthattheEngineershallorderavariationthatinhisopinionisnecessaryforthecompletionoftheWorksandmayorderavariationthatheconsidersdesirableforthecompletionand/orimprovedfunctioningoftheworks.VariationsshouldonlybemadeintheworksbyorderoftheEngineer-thecontractormaynotmakechangesonhisowninitiative.TheEngineermayexpresslyauthorisetheEngineer’sRepresentative(whomaybearesidentengineeronsite,anassistantoraclerkofworks)toordervariations,butsuchadelegationofhispowers(whichispermittedbyclause2(3))mustbeprecededbywrittennoticetothecontractor.Thegeneralruleisthatvariationsshouldbeorderedinwriting.However,iftheyaregivenorallythecontractormustneverthelessbegintocomplywiththeoralorderimmediately.TheEngineerisrequiredtoconfirmoralordersinwritingassoonasispossibleinthecircumstances.IfthecontractorconfirmstheorderinwritingthatwillbeeffectiveunlesstheEngineercontradictsthitinwriting“forthwith”i.e.,almostimmediately.ThecontractorunderICE7thereforehas,atleastintheory,abetterchanceofhisownwrittenconfirmationbeingvalidthanthecontractorundertheJCTforms,wheretheArchitecthas7daystodissent.thNotethatthecontractorhasnoexpressrightofobjectiontoanyvariationsorderedunderICE7nomatterhowdramatictheireffect.Ifthevariationalteredthewholescopeofthecontractitispossible6Chapter9 Variationsthatthecontractorwouldhavetherighttorefusetocomplywithit,butchangesinscopeofsuchmagnitudeareunusualanddifficulttoprove.CECASub-Contract(‘BlueForm’)TheCECAformclearlydistinguishesbetweenthepowertoordervariationsandthepowertoissueotherinstructions.Generally,thesub-contractormustcomplywithallinstructionsordecisionsoftheEngineerorhisrepresentativeunderthemaincontractwhicharenotifiedandconfirmedinwritingtohimbythemaincontractor.Eveniftheinstructionistechnicallyinvalidunderthemaincontract,forexamplebecausetheEngineer’sRepresentativewasnotauthorisedtoissueit,thesub-contractormustcomplywithitifrequiredtodosobythemaincontractor.Hewill,however,beentitledtorecoverthecostsofcomplyingwithsuchinvalidinstructions.Inaddition,themaincontractorhasthesamewidepowersastheEngineerhasunderthemaincontracttogiveinstructionsandmakedecisions.Clause8oftheCECAformgoesontoprovidespecificallyfortheorderingofvariations.Therearethreebasesuponwhichavariationcanbeordered:(i)bytheEngineerunderthemaincontractandconfirmedinwritingtothesub-contractorbythemaincontractor:(ii)agreedbytheEmployerandmaincontractorunderthemaincontractandconfirmedinwritingtothesub-contractorbythemaincontractor;(iii)orderedinwritingbythemaincontractor.TheCECAformiscommendableinmakingitabsolutelyclearthatthesub-contractormustnotactonvariationsordereddirectlybytheEmployerorEngineer,butmustwaitforwrittenconfirmationfromthemaincontractor.Notethatthereisnoprovisionforvariationstobeorderedorally:theremustbeawritteninstructionfromthemaincontractor.AswiththeICEmainform,thereisnoexpressrightforthesub-contractortoobjecttovariations,althoughthismaybeimpliedifthevariationaltersthescopeoftheworks.ValuationofVariationsInallJCTstandardformsvariationsarevaluedonthesamebasis.Thebasicrulesarethereforesetoutfirst,followedbybriefsectionsoneachofthestandardformsdealingwithanydeparturesfromthebasicrulesandmatterssuchaswhocarriesoutthevaluation.AstheICE7thandtheCECAformhavedifferentbasicrulestheyarecommenteduponseparately,attheendofthissection.BasicRulesofValuingVariationsinJCTContractsTherearefourtypesofworkwhichfalltobevaluedinaccordancewiththerulesforvaluingvariations.(i)additionalorsubstitutedworkwhichcanbemeasuredSuchworkwillbevaluedattheratesandpricessetoutinthecontractbills(orotherappropriatecontractdocumentiftherearenoBillsofQuantities)provided–itisworkofasimilarcharactertothatinthebills;andChapter97 Variations–Itisexecutedundersimilarconditions;and–itdoesnotsignificantlychangethequantity.Manyquantitysurveyorsandmaincontractorsautomaticallyvaluevariedworkattheratesinthebillsorothercontractdocuments,butitwillbeseenfromtheabovethatthoserateswillonlybeapplicableincertaincircumstances.Ifthevariedworkisofasimilarcharactertoworkinthebillsbutisnotexecutedundersimilarconditionsorthereisasignificantchangeinquantity,thebillrateswillstillbethebasisforvaluingthework,buta“fair”allowanceshouldbemadeforthedifferenceinconditionsorquantity.Ifthevariedworkisnotofasimilarcharactertoworksetoutinthebills,itshouldbevaluedatfairratesandprices.Thisprovisioncreatesproblemsbecausethevaluer’sperceptionofafairraterarelycoincideswiththesub-contractor’s.Theonlypracticalsolutionisnegotiation,andifalargedisparityremains,adjudication,arbitrationorlitigationasappropriate.(ii)workforwhichanapproximatequantityisincludedinthecontractbillsIftheapproximatequantityincludedinthecontractbillsisareasonablyaccurateforecastoftheworkactuallyrequired,therateinthebillsforthatworkwilldetermineitsprice.Ifitisnotareasonablyaccurateforecastthecontractorwillbeentitledtoafairallowanceoverthebillratetoallowforthedifferenceinquantity.Theobviousareawheredisputesmayarisehereiswhatconstitutesareasonablyaccurateforecast.Fewquantitysurveyorswillbereadytoadmittheirforecastwasinaccurateunlessitissowildlydifferentastobeunarguable.(iii)additionalorsubstitutedworkwhichcannotbemeasuredWhereworkcannotproperlybevaluedbymeasurement,thecontractororsubcontractorwillbeentitledtobepaidonthebasisofdaywork.Thispermitstherecoveryoftheprimecostoflabour,materialsandplantwhichareusedtoexecutethevariedwork,plusapercentageadditionwhichwillbequotedattenderstage.SteelworkContractorsarepaidfordayworkonthebasisofthestandarddefinitionofprimecostagreedbetweentheRICSandtheCC.Thedefinitionofprimecostisfairlyrestrictive(theclaimablehoursareworkingtimeonly-thecostofnon-workingtimebeingincludedinthepercentageaddition),andthereforeSteelworkContractorsshouldensurethatthepercentageadditionwhichtheyquoteissufficienttocoveralloftheirotherlabourandmaterialcosts,aswellasoverheadsandprofit.(iv)omissionsOmittedworkisvaluedattheratessetoutforthatworkinthecontractbillsorotherpricedcontractdocument.Thecontractororsub-contractorwillalsobeentitledtoadditionalcostsforextrapreliminaries,unless-thevariationisvaluedonthebasisofdaywork;or-theinstructionbeingvaluedisanInstructiontoexpendaprovisionalsumfordefinedwork,becauseSMM7requiresthecontractortohaveincludedinhistendersumforanysuchpreliminarycosts.8Chapter9 VariationsThebasicvaluationrulesprovidetwoothergroundsonwhichcontractorsandsubcontractorscanclaimextramoneyasaresultofvariations.Theseare:(i)ifthevariationchangestheconditionsunderwhichanyother,unvaried,workisexecuted,thatunvariedworkshouldbevaluedundertherulesforvaluingvariations;(ii)ifthevariationdoesnotrelatetoadditional,substitutedoromittedwork,e.g.becauseitisavariationintheconditionsunderwhichworkisexecutedratherthanachangeintheworkItself,ortotheextentitisnotreasonabletovalueavariationinaccordancewiththerulessetoutabove,afairvaluationshouldbemade.Bothoftheseprovisionsgiveawidescopeformakingclaimsformatterssuchasuneconomicalworking,butsuchcostsarehardtoquantifyandprove,andSteelworkContractorsshouldnotexpecttorecoverlargesumsunlesstheircaseisexceptionallystrong.Ifvariationscausedelay,contractorsandsub-contractorswillbeentitledtoanylossandexpensearisingoutofthatdelay,butthisisnotvaluedasPartofthecostofthevariation.TherecoveryofsuchsumsisconsideredinChapter11-CostsofDelay.AlthoughalloftheJCTstandardformsprovideforvariedworktobevaluedandpaidforonamonthlybasisinthesamewayasotherwork,thefullvalueisoftennotpaiduntilthefinalaccountstage.Disputestendtoariseonwhatisoftendescribedasthe“claim”elementofvariations,forexamplethedisruptiveeffectofvariationsonunvariedworkandthecostsofvariationsintheconditionsunderwhichworkisexecuted,suchaschangesinworkinghoursorlimitationsonworkingspace.Theonlyfoolproofwaytoavoidsuchdisputesistoagreeapriceforthevariationbeforetheworkiscarriedout.Thishasitsdangers,forifthecontractorunder-estimatesthetruecosthewilllosemoney,butatleasthiscash-flowwillbeimprovedandtheendlesswranglingovervaluationsatthefinalaccountstagewillbeavoided.TheIntermediateFormIFC98anditssub-contractandDOM/lexpresslyprovideforpre-agreementofalumpsum,butthereisnoreasonwhyitshouldnotbedoneoncontractsunderotherstandardformsprovidedbothpartiesagree.JCT98UnderJCT98theQuantitySurveyorisrequiredtovaluevariationsinaccordancewiththevaluationrulesinclause13.5.ThevalueofthevariedworkwillbeincludedintherelevantinterimcertificateissuedbytheArchitect.JCT98alsoprovidesforthepre-agreementofallofthetimeandcostconsequencesofavariationwheretheemployerandcontractoragreetodoso.Theprocedure,whichissetoutinclause13A,providesthatwherethearchitecthasrequestedaquotationforcomparingwithavariationinstructionandthecontractorhasagreedtoprovideone,ifthepartiescanreachanagreementonthebasisofthequotedsumandextensionoftime,thatwilltaketheplaceoftheconventionalvaluationofthecostandtimeconsequencesofthevariation.Whenhereceivesaninstructionstatingthearchitectrequiresaclause13Aquotationthecontractorhas7daystodisagreewiththeapplicationofthosearrangements-thisisanabsoluterightsothecontractorisnotunderacontractualobligationtoactreasonablyortojustifyhisdecision,althoughitwouldobviouslybecommerciallysensibleforhimtodoso.Thevariationinstructionmustprovidethecontractorwithsufficientinformationtoenablehimtoprovideaquotation-ifnot,thecontractormayrequestfurtherdetailswithin7daysofreceivingthatinstruction.Chapter99 VariationsThecontractorisrequiredtoincludeaconsiderableamountofdetailinhisclause13.Aquotation.Itmustseparatelysetout:–thetotaladjustmenttothecontractsumthecontractorrequiresforcomplyingwiththeinstruction(includingitseffectontheexecutionofotherworkandadditionalprelims);–theextensionoftimerequiredbythecontractorforcomplyingwiththeinstruction;–theamounttobepaidinlieuoftheascertainmentoflossandexpense;–thecostofpreparingthequotation(whichmustbecalculatedonafairandreasonablebasis).Ifspecificallyrequiredtodosobytheinstruction,thecontractormustalsostatetheadditionalresourceshewillrequiretocarryoutthevariedworkandthemethodhewillbeusingtodoso.ThequotationmustbesubmittedtotheQuantitySurveyorwithin21daysofreceiptoftheinstruction(orwithin21daysofreceivingtheadditionalinformationrequestedbythecontractor)andmustremainopenforacceptancefor7daysfromitsreceipt.Atthispointitislikelythattherewillbesomenegotiationbetweenthecontractorandtheprofessionalteam.Iftheycanreachanagreement,theemployer(nottheArchitectorQSactingonhisbehalf)mustnotifythecontractorinwriting,andtoavoidanymisunderstandingastotheprecisedetailsoftheagreementtheArchitectmustthenissuewhatclause13Adescribesasa‘confirmedacceptance’settingoutthedetailsofthecostandtimeconsequenceswhichhavebeenagreed.Asthequotationisopenforacceptanceforonly7daysthecontractenvisagesthatthenegotiationswillbeconcludedrelativelyquickly,butformajorvariationsthismaynotbefeasible.Itwill,ofcourse,beopentothepartiestoagreeanextensionofthatperiod,andthisiscontemplatedbyclause13Aitself,whichprovidesthatthetimeperiodsmaybereducedorincreasedbyagreementbetweentheemployerandcontractor.Ifthereisaconsiderabledelaywhiletheemployerdecideswhethertoacceptthequotation,thecontractormayneedtoretaintherighttoreviseit,andsoshouldthinkcarefullybeforeagreeingtoextendtheperiodforwhichitisopenforacceptance.Whilethenegotiationsaretakingplace,thecontractorisnotobligedtocarryoutthevariedwork,althoughhemustdosooncehereceivestheconfirmedacceptance.Ifnoagreementcanbereached,thearchitectmayeitherinstructthatthevariationistobevaluedinthenormalwayorthatitisnottobecarriedoutatall.Ineitherevent,thecontractorisentitledtobepaidthecostofpreparingtheclause13Aquotation,providedthequotationitselfwasafairandreasonableone(i.e.notoutrageouslyhigh).Iftheclause13Aquotationisnotaccepted,thearchitectmaynotusetheinformationcontainedwithinitforanypurposewhatsoever,sohewillbeunabletouseanyratesorpricesitcontainsiftheworkgoesaheadbutisvaluedinthenormalway.Thisrecognisesthefactthatthequotationwillhavebeenpreparedonacommercialbasisandislikelytoincludeanelementofpricingofrisk.Clause13Aalsoexpresslyprovidesforthefurthervariationofworkforwhichaclause13Aquotationhasbeenaccepted,andstatesthatsuchfurthervariationsshouldbevaluedonafairandreasonablebasishavingregardtothecontentoftheclause13Aquotation.AlthoughtherearesometechnicaldifficultieswithClause13A,particularlyinrelationtofurtherrevisionstothecompletiondateonceaclause13Aquotationhasbeenaccepted,thearrangementsprovidedbythisclauseshouldbewelcomedbybothcontractorsandemployers.Theyshouldsavemoney,astheprocessofattritionwhichsooftentakesplacewhenmajorvariationsarevaluedaftertheeventwillbeavoided.Althoughemployersmayfindthesumsquotedarealittlehigherthantheyanticipate,(particularlyinrelationtothelossandexpenseelementofthequotation,wherethe10Chapter9 Variationscontractorispricingriskasmuchasanythingelse)thecertaintythattheagreedsumisalltheywillhavetopaywilloftenmakethatworthwhile.Contractorshadbeenconcernedthatthequotationprovisionsmayencouragesomeemployerstotreatthemasafreeestimatingserviceforworkwhichtheyhadnorealintentionofevercarryingout,butthearrangementsforthecontractortobereimbursedthecostsofpreparingaclause13Aquotationshouldminimisethatrisk.NominatedSub-ContractNSC/CAsthevalueofnominatedsub-contractworkisseparatelysetoutinArchitect’scertificatesissuedunderthemaincontract,theQuantitySurveyorvaluesvariationsinnominatedsubcontractwork.Hewillapplytherulesinclause4.4-4.9ifitisalumpsumcontractandthoseinclause4.10-4.13ifitisaremeasurementcontract:theactualrulesforvaluingvariationsinthoseclausesarevirtuallyidentical.ThevalueofthevariedworkwillbeincludedintherelevantinterimcertificateissuedbytheArchitect.Theoptionofpre-agreeingthecostandtimeconsequencesofvariationsinJCT98hasbeensteppeddownintoNSC/C.Likethemaincontractor,thenominatedsub-contractorhasanabsoluterighttorefusetoprovideaquotationforcomplyingwithavariationinstruction.Ifhedoesso,andtheemployerandcontractorneverthelesswishtheworktogoaheadonthebasisofapre-agreedsum,thenominatedsub-contractorretainshisrighttobepaidonthebasisofavaluation,buttheemployerandcontractorcanagreethattheremainderofworkissubjecttothepre-agreedsum.Thearrangementsforthepreparationandsubmissionofaquotationbythenominatedsub-contractorareverysimilartothosedescribedabovewhichapplytothemaincontract,savethatthetimescaleforpreparationofthequotationisslightlyshorter(17daysratherthanthe21allowedatmaincontractlevel)toallowthecontractortoincludethenominatedsub-contractor’squotationinthedetailswhichhesubmitstotheQS.Thenominatedsub-contractor’squotationmustalsoremainopenforacceptancefor14daysratherthanthe7requiredunderthemaincontract.DomesticSub-ContractDOM/1DOM/1doesnotexpresslyprovidewhoisresponsibleforvaluingvariationsindomesticsub-contractwork.Itsimplyrequiresthesub-contractorbepaidthevalueascertainedinaccordancewiththebasicrulessetoutabove.Inpractice,thedomesticsub-contractorwillapplyforwhatheconsiderstobethepropervalueofthevariationandthemaincontractorwillpayhimwhatheconsiderstobethepropervalue.Ifthereisasignificantdisparitybetweenthetwofiguresandnoagreementcanbereached,thesub-contractor’sonlyremedywillbeadjudicationorarbitration.TherearetwosetsofvaluationrulesinDOM/1:clause16appliestolumpsumcontractsandclause17appliestoremeasurementcontracts.IntermediateFormIFC98ThevaluationrulesinIFC98arebroadlyinaccordancewiththe“basicvaluationrules-setoutabove,althoughtheyareinadifferentformat.Thereareonlytwosignificantdifferences:(i)valuationonthebasisofdayworkisnotconfinedtoworkwhichcannotbemeasured:IFC98providesfordayworktobeusedwhereveritistheappropriatebasisofafairvaluation;andChapter911 Variations(ii)clause3.7ofIFC98expresslyprovidesforthevalueofvariationstobeagreedbetweenthecontractorandEmployerbeforethecontractorcarriesoutthework.Onlyifsuchanagreementcannotbereachedwillthevaluationrulesapply.Asmentionedabove,thepre-agreementofapriceforavariationcanimprovecash-flowandreducedisputesatthefinalaccountstage,althoughthereisariskthatthecontractorwillunder-estimatethevalueofthevariedwork.TheQuantitySurveyorisresponsibleforvaluingvariationsunderclause3.7ofIFC98.ThevalueofvariedworkwillthenbeincludedintherelevantinterimcertificateissuedbytheArchitect.NamedSub-ContractNAM/SCThevaluationrulesinNAM/SCfollowthesameformatasthoseinIFC98.Thereisthereforeslightlymorescopeforvaluationonthedayworkbasis,andafacilityforpre-agreementofthevalueofvariationswiththemaincontractor.AsinDOM/1,thereisnoexpressprovisionforanyonetovaluethevariedwork.Inpracticeitisnormallydonebythemaincontractoronthebasisofanapplicationbythesubcontractor.Ifthesub-contractordisagreeswiththevaluation,hisremedywouldbeadjudicationand/orarbitration.DomesticSub-ContractIN/SCTherulesinIN/SCgoverningthevaluationofvariationsareexactlythesameasthoseinNAM/SC.ManagementContract1998BecausetheManagementContractisaprimecostcontracttheManagementContractorispaidthefullcostheincursincarryingouthiscontractualobligations,includingcomplyingwithinstructionsandcarryingoutvariations.TherearethereforenoseparateprovisionsintheManagementContractforvaluingvariations.WorksContract/2WorksContract/2providesforpaymentstobemadetoWorksContractorsunderArchitect’scertificates:thereforevaluationofvariationswillbecarriedoutbythequantitysurveyor.Hewillapplytherulesinclause4.4-4.10ifitisalumpsumworkscontract,andthoseinclause4.11-4.16ifitisaremeasurementcontract:bothcontainvirtuallyidenticalrulesforvaluingvariations,whichareverysimilartothoseinNSC/Candthereforetothebasicrulessetoutabove.Workscontractsmayincludeascheduleofratesforvariationsorascheduleofdayworkprices,whichwillhavebeencompiledbytheWorksContractorduringthetenderstage,andifso,thoserateswillbeusedtovaluethevariations,ratherthanthebasicrulesdescribedabove.ICE7thEditionClause52oftheICE7thsetsouttherulesforvaluingvariationsunderthiscontractwhicharesimilarbutnotidenticaltotheJCTrules.TheEngineerisresponsibleforvaluingvariations.Thebasicrulesare:-–workofasimilarcharactertoandexecutedundersimilarconditionstoworkIntheBillsofQuantitiesisvaluedatbillrates;12Chapter9 Variations–iftheworkisnotofasimilarcharacterorexecutedundersimilarconditionsthebillratesaretobeusedasabasisforvaluationsofarasisreasonable;–failingthatafairvaluationismade.ThecontractmakesitclearthatalthoughagreementbetweenthecontractorandtheEngineerastothevalueofvariationsistheaim,ifthisisnotachievabletheEngineerisentitledtovaluetheworkinaccordancewiththeaboveprinciples.Clause52(2)permitstheEngineertofixa“reasonableandproper”rateforworkif:(i)thenatureoramountofthevariationinrelationtotherestoftheworkissuchthattheEngineerorcontractorisoftheopinionthatthebillratesareinapplicableorunreasonable;and(ii)whicheverpartyisofthatviewhasgivennoticetotheotherbeforethevariedworkiscommencedorsosoonthereafterasmaybereasonable.Thisintroducesawelcomeelementofflexibilityintothevaluingofunusualor“difficult”variations,butitsefficacydependsontheEngineerfixingareasonablerate.InHenryBootConstructionLtdv.AlstromCombinedCyclesLtd(2000)theCourtofAppealheldthat,wherethenatureofthevariedworkwassuchthatitcouldproperlybevaluedatbillrates,thoserateshadtobeappliedeveniftheywereunreasonablyhighorlow.InWeldonPlantLimitedv.TheCommissionforNewTowns(2000)theTechnologyandConstructionCourtstatedthat,wherea‘fair’valuationisused,thatshouldnormallyincludeelementsofprofitandthecontributionwhichthevariedworkwouldmaketowardsthefixedandrunningoverheadsoftheContractor’sbusiness.TheICE7thprovidesforworktobepaidforonthedayworkbasisonlywheretheEngineerhassoorderedinwriting.Thebasisofpaymentwillbeeithertheratesgivenbythecontractorinhistender,orfailingthat,intheCECA“SchedulesofDayworkscarriedoutIncidentaltoContractWork”.CECASub-ContractTherulesforvaluingvariationscontainedIntheCECAformarelessdetailedthanthoseinothercontracts,andaredraftedinsuchawaythatSteelworkContractorsmayfinditevenharderthanusualtoclaimanythingotherthanbillrates.Clause9providesthatvariationsaretobevaluedbyreferencetoratesspecifiedinthesubcontractforlikeoranalogous(i.e.similar)work.Afairandreasonablevaluationmaybemadeiftherearenosuch’ratesoriftheyare“notapplicable”-noguidanceisgivenastothecircumstancesinwhichthebillrateswillbeinapplicable,butthesub-contractorwillpresumablyclaimafairvaluationiftheworkisexecutedunderdifferentconditionsoriftherearesignificantchangesinquantity.Clause9(2)providesthatanyvaluationoftheworkunderthemaincontractshallbetakenintoaccountwhendeterminingafairand,reasonablevaluation.Whereanauthorisedvariationofthesub-contractworks,whichalsoconstitutesanauthorisedvariationunderthemaincontract,ismeasuredbytheEngineer,thenprovidedthattheratesandpricesinthesub-contractpermitvariationstobevaluedbyreferencetomeasurement,thecontractormustpermitthesub-contractortoattendanymeasurementmadeonbehalfoftheEngineer.Measurementmadeunderthemaincontractalsoconstitutesthemeasurementofthevariationofthepurposesofthesub-contract.SavewherethecontraryisexpresslystatedinanyBillsofQuantitiesformingpartofthesub-contract,noquantitystatedthereindefinesorlimitstheextentofanyworktobedonebythesub-contractorintheexecutionandcompletionofthesub-contractworks,butanydifferencebetweenthequantitybilledandtheactualquantityexecutedisascertainedbymeasurementandvaluedasifitwereanauthorisedvariation.Chapter913 VariationsVariationswillbevaluedonthedayworkbasisonlywheresoorderedinwritingbythemaincontractor.Suchvariationsarepaidforinaccordancewiththeratesinthesub-contractor’stenderorasotherwiseagreed.Iftherearenoratesinthetenderorotheragreement,thesub-contractorwillbepaidinaccordancewiththeCECASchedulesofDayworkcarriedoutIncidentaltoContractWork.Variationswillbevaluedbythemaincontractorinaccordancewiththeaboverules,andonthebasisofanyapplicationbythesub-contractor.Ifthesub-contractordisagreeswiththevaluationandcannotnegotiateasuitableincreaseinit,hisremedywillbeadjudicationorarbitration.14Chapter9 CHAPTER10EXTENSIONSOFTIMEANDCOMPLETIONTimeNotoftheEssenceNoneofthestandardformsofcontractexpresslyprovidesfortimetobeoftheessenceofthecontract.Giventhenatureofconstructionworkandthecircumstancesunderwhichitiscarriedoutthisisarealisticapproach.Thestandardformsofcontractacknowledgethepossibilityofdelay,andprovideforitbytheinclusionofextensionoftimeclauses(fordelayswherethecontractorisnotculpable),andliquidateddamagesprovisions(fordelaysforwhichheisresponsible).Inanon-standardcontractwheretimeisoftheessence,theremaybelimitedrightstoextensionsoftime,andanydelayincompletionbythecontractorentitlestheemployertotreatthecontractasbeingatanend,withthecontractorbeingliableforalltheconsequentcosts.“FastTrack”techniques,manydrawnfromtheAmericanbuildingindustry,havemadeasignificantimpactontheUKindustryinrecentyears.Butevenonfasttrackcontracts,itisrarelyaprovisionofthecontractthattimeisoftheessence.Rapidcompletionisachievedbyothermeans:moreflexiblesystemsofcontractingsuchasmanagementcontractingandconstructionmanagement;even“carrotandstick”clauseswherethecontractorispaidabonusforeachweekordayhefinishesaheadofthescheduleddate,butmustpayliquidateddamagesforeachdayorweekheexceedsit.Withincreasingemphasisontheneedforfasterbuilding,contractclausesregardingcommencement,completionandextensionsoftimeareofvitalimportancetoSteelworkContractors.EstablishingtheContractPeriodItisessentialtoestablishthecontractperiodatthepre-contractnegotiationstage.Itisverytemptingtoleavethis“tobeagreed”whentherearesomanyotherpressingmatterstoconsider,buttodosoopensthedoortodisputesandclaimsduringthecontract.Therearetworeasonsforthis:(i)Ifnoperiodisagreed,thelawwillimplyatermthattheworkmustbecompletedwithinareasonabletime.Ifthepartiescannotagreeonwhatis“reasonable”theonlywayofestablishingitmaybethroughadjudication,arbitrationorbygoingtocourt.AsaresultitwillbeverydifficultfortheSteelworkContractortodemonstratethathehasbeendelayed,andisthereforeentitledtoanextensionoftimeand(moreimportantly)thecostsofthedelay.(ii)Intheabsenceofanagreementastothecontractperiod,themaincontractorislikelytoactasthoughthesub-contractorisboundbythemaincontractor’sprogramme,andset-offcostsfromthesub-contractorifhedoesnotconformtotheprogrammeddates.Althoughthismaybecontractuallyincorrect,itwillcreatetremendouspracticalproblemsforthesub-contractor.AllofthestandardformsoftenderissuedbytheJCT(seeChapter4-TenderingProcedures)invitethetenderingsub-contractorstospecifytheperiodofnoticetheyrequiretocommenceworkonsite,theperiodoftimetheyrequireforoff-siteworksandtheperiodrequiredforworkonsite.Itisuptothetenderingsub-contractorstospecifyrealisticperiodsoftime,whichwillthenbenegotiatedwiththemaincontractoriftheirtenderissuccessful.Althoughthisnegotiationmaybeadifficulttask,itispreferabletoestablishentitlementtoasensiblecontractperiodattheoutsetratherthantodealwithspuriousdelayclaimsandset-offsonceworkhasstarted.Chapter101 ExtensionsofTimeandCompletionInviewofthenatureofstructuralsteelwork,particularattentionneedstobepaidtothenoticetocommenceworkonsiteandtheperiodforoffsiteworks,asmaincontractorsfrequentlyexpectsub-contractorsonsiteatveryshortnotice,andoverlookthetimerequiredfordesign,fabricationetc.ProgrammeThereisoftenconsiderableconfusionoverthestatusofprogrammes-particularlythemaincontractor’sprogramme,whichthecontractorhimselftendstotreatasifitwerewrittenintabletsofstone(nomatterhowmanytimeshehasrevisedit!).Thekeypointtobearinmindisthataprogrammemaynothaveanylegalvalidityunlessitisformallyincorporatedintothecontractbetweenthemaincontractorandthesub-contractor.Infact,manyprogrammesaresimplymanagementtoolsusedbythemaincontractortomeasureandco-ordinateprogressonthecontract,anddonotformpartofthecontractualobligationsoftheparties.Sometenderdocuments,suchasNSC/TandWorksContract/1,providefortheagreementofaprogrammebetweenthemaincontractorandsub-contractor,andwherethisisdonethedatesintheprogrammeforthecompletionofvariousoperationswillhavecontractualforce.However,unlessaprogrammeisformallyagreedinthismanner,itwillnotbeabreachofcontractifthecontractorfailstomeeteachdateintheprogramme.Thisisduetothe“precedence”clauseinalloftheJCTcontracts,whichbasicallyprovidesthatnothinginthecontractbills,specificationorotherancillarydocumentsoverridestheconditionsofcontractthemselves,whichclearlyprovideforextensionsoftimeanddamagesonlywherethereisadelaytotheoverallcompletiondate.ThiswasconfirmedinthecaseofGleesonvHillingdon(1970),whereaprogrammeiscontractuallybinding,failuretocomplywithitwillresultinliabilityforliquidateddamagesonlyiftheoverallcompletiondateisexceeded.Ifthisisnotthecase,themaincontractorwillbeentitledtoanyactualcostsflowingfromthebreach.whichwillusuallybedisruptionclaimsfromothersubcontractors.Underthestandardforms,thesub-contractormustcarryoutandcompletetheworksinaccordancewiththeagreeddetails,and“reasonablyinaccordancewiththeprogressoftheMainContractWorks”.Themaincontractor’sprogramme,evenifitdoesnothavecontractualforce,maybeusedasevidencetoshowthatasub-contractorhasnotcompliedwiththisrequirement.Thesub-contractorcannotthereforeexpectcompletecontinuityofworking.However,ifheissignificantlydisrupted,hewillbeentitledtoclaimlossandexpenseresultingfromthatdisruption(seeChapter12-Claims).Non-standardformsmaydealwiththesituationsomewhatdifferently.Forexample,theymayprovidethatthesub-contractorwillcomplywithalltherequirementsofthemaincontractorregardingprogressoftheworks.Suchaclausewasincludedinanon-standardsub-contractinthecaseofMartinGrantvSirLindsayParkinson(1984).Inthatcase,subcontractorsagreedto“proceedwithanyportion...oftheworkatsuchtime...asthecontractorshouldrequirehavingregardtotherequirementsofthecontractorinreferencetotheprogressorconditionsofthemainworks”.Inconsideringaclaimforlossandexpenseduetodisruption,thecourtheldthatundersuchaclausethesub-contractorscouldberequiredtoexecutetheirworkinaway,andatatime,whichmightnotnecessarilybeconvenientforthem.Therewasnoimpliedtermthattheywereentitledtoreasonablecontinuityofworking.SteelworkContractorsshouldthereforelookoutforsweepingstatementsinnon-standardformsregardingproceedingwiththeworkstosuitthemaincontractor.2Chapter10 ExtensionsofTimeandCompletionTimeatLarge“Timeatlarge”isaphrasefrequentlyusedwhendiscussingdelayandextensionsoftime.Whentimeisatlarge,thecontractor’sobligationwillbetocompletewithinareasonabletime:andtherewillbenodefinitedateonwhichtheEmployercanrelyforcompletion.Iftimehasbecomeatlarge,theEmployerwillnotbeentitledtoliquidateddamages,althoughifhecanprovethecontractorhastakenlongerthanareasonabletimehewillbeentitledtorecoveranyactuallosshehassufferedasaresult.Timewillbecomeatlargeinthefollowingsituations:-(i)wheretheemployer’sdefaulthascausedadelay,butthereisnoprovisionforitIntheextensionoftimeclauses;(ii)wherethemachineryforgrantinganextensionoftimebreaksdowne.g.thearchitectfailstograntextensionswithinthetimescalelaiddownbyJCT98.Itwillbenotedfrom(i)abovethattheextensionsoftimeclausesarenotinsertedinstandardformsentirelyforthebenefitofthecontractor,theyalsopreservetheemployer’srightstoclaimliquidateddamagesbypreventingtimefrombecomingatlarge.ProcedureforAwardingExtensionsofTimeJCTContractsNoticeRequirementsAlloftheJCTmaincontractsandtheirrelatedsub-contractsrequirethemainorsubcontractoraffectedbyadelaytogivetheappropriatenoticeofthedelay.UnderClause25.2ofJCT98,assoonasitbecomesreasonablyapparentthattheprogressoftheworksisbeingorislikelytobedelayed,thecontractormust“forthwith”givewrittennoticeofthedelaytothearchitect,includingthecauseifhecanidentifyit.Assoonaspracticablehemustgivedetailsoftheeffectsofthedelayandanestimateofhowlongitislikelytolast.Nominatedanddomesticsub-contractorsareunderasimilardutytogivesuchinformationtothemaincontractor.Theinformationmustalsobekeptuptodate,soiffurtherconsequencesofadelaybecomeapparent,furthernoticesmustbeissued.SteelworkContractorsshouldnotethattheyarecontractuallyobligedtogivesuchnotices,anddoingsoatthepropertimewillcertainlyimprovetheirchancesofbeingawardedadequateextensionsoftime.However,ifforanyreasonsuchnoticesarenotgiven,contractorscanrelyonthecaseofLondonBoroughofMertonvStanleyHughLeach(1985),whichitwasheldthatfailuretogivethenoticeswillnotbefataltoaclaimforextensionoftimeundertheJCTforms,astherequirementfornoticewasnotexpressedasaconditionprecedent.DecisionofArchitect:JCT98UnderJCT98,theArchitectisunderadutytoawardanextensionoftimeifinhisopinionanyofthe“relevantevents”definedinthecontractcausedthedelay,andcompletionoftheworksislikelytobedelayed.Ingrantingtheextensionoftime,hemustidentifytherelevanteventhehastakenintoaccount.TheArchitectisobligedtorespondtothenotice,particularsandestimatesfromthecontractorwithin12Chapter103 ExtensionsofTimeandCompletionweeksofreceipt(orbythecompletiondate,ifearlier)provideditisreasonablypracticableforhimtodoso.Hemustnotifynegativedecisionsaswellaspositiveawardsofanextensionoftimewithinthespecifiedperiod.Within12weeksofpracticalcompletiontheArchitectmustreviewallextensionsoftimegranted,andmayrevisehisearlierdecisionsifhesowishes.DecisionoftheContractor:NSC/CUnderClause2.3ofthenominatedsub-contractNSC1C,themaincontractormayformallygrantextensionsoftime,buthemaynotdosowithouttheconsentoftheArchitectandthereforeinpractice,itistheArchitectwhomakesthedecision.Thetimeperiodsforreachingadecisionareexactlythesameasthemainform,i.e.12weeksfromreceivingthenotice,particularsandestimate,orthecompletiondate,ifearlier.Thereviewprovisionsalsoapply.DecisionoftheContractor:DomesticFormDOM/1Underthestandardformofdomesticsub-contractDOM/1,itisthemaincontractorwhomakesthedecisionsregardingextensionsoftime.Hehasaperiodof16weekswithinwhichtoreachadecisionfromreceivingthenotice,particularsandestimatesfromthesub-contractor.Healsomustreviewtheextensionsoftimepreviouslygrantedwithin16weeksofpracticalcompletion.DecisionoftheArchitect:IFC98TheArchitectawardssuchextensionoftimeasheconsidersfairandreasonabletothemaincontractorunderClause2.3ofIFC98,providedthedelayiscausedbyoneofthe“events”listedinClause2.4.Thereisnofixedtimeperiodwithinwhichtheextensionmustbeawarded,buttheArchitectmustact“sosoonasheisabletoestimatethelengthofdelay”.TheArchitectmayreviewextensionsoftimepreviouslygranted,orgrantadditionalextensions,anytimeupto12weeksafterthedateofpracticalcompletion,butheisnotobligedtoundertakeareviewasheisunderJCT98.DecisionoftheContractor:NAM/SCUnderClause12.2ofNAM/SC,itisthemaincontractorwhomakesthedecisiontograntextensionsoftimetonamedsub-contractors.Thisisconsistentwiththeiressentiallydomesticstatusonceappointed.AsunderIFC98,thereisnofixedperiodwithinwhichthemaincontractormustmakeadecision:hemustsimplyact“sosoonasheisabletoestimatethelengthofdelay”.Thecontractoralsohasthepowertoreviewhisdecisions,buthemaynotreduceanyextensionoftimepreviouslyawarded(Clause12.4).DecisionoftheContractor:DomesticFormIN/SCTheprocedureforgrantinganextensionoftimetodomesticsub-contractorsunderIN/SCispreciselythesameasfornamedsub-contractorsunderNAM/SC.DecisionoftheArchitect:ManagementContract1998TheArchitectawardsextensionsoftimetotheManagementContractorifheisdelayedbyanyofthe“ProjectExtensionItems”identifiedinClause2.13oftheManagementContract.Again,thereisnofixedperiodwithinwhichhemustact,only“assoonasheisabletoassessthelengthofthedelay”.It4Chapter10 ExtensionsofTimeandCompletionisalsoclearthattheArchitectmustnotifytheManagementContractorofnegativedecisionsnottoawardhimanextensionoftime,aswellaspositivedecisions.DecisionoftheManagementContractor:WorksContract/2ItistheManagementContractorwhodecidesuponandawardsextensionsoftimetoWorksContractorsunderClause2.3ofWorksContract/2.However,hemustfirstnotifytheArchitectofhisdecision(positiveornegative).TheArchitectmay“dissent”fromtheManagementContractor’sdecision,butthisdoesnotpreventtheextensionoftimefrombeingawarded,orindeedaffectitinanywaysofarastheWorksContractorisconcerned.Thatisthetheory,however,itwillbeabraveManagementContractorwhoawardsanextensionoftimeafterdissenthasbeenexpressedbytheArchitectasitmayaffecthisownentitlementtoobtaina“ProjectExtension”undertheManagementContract.ItisthereforefairtosaythattheArchitectwillbeinfluentialindecidingonextensionsoftimeundertheworkscontracts.CE7thEdition-ProcedureforObtaininganExtensionofTimeClause44requirestheContractortoapplyforanextensionoftimegiving“fullanddetailedparticulars”.Hemustmakesuchanapplicationwithin28daysafterthecauseofthedelayhasarisen,orsosoonthereafterasisreasonableinallthecircumstances.ThislastphrasemakesthenoticerequirementslessstringentthanthoseintheJCTcontracts.TheEngineermustinformtheContractorofbothpositiveandnegativedecisions,butnotimeperiodisspecifiedwithinwhichhemustnotifytheContractorofhisdecision.Within14daysofthecompletiondatetheEngineermustconsiderallthecircumstancesknowntohim,and,whetherornottheContractorhasappliedforextensionsoftime,grantanextensionifitisappropriate.ShouldtheEngineerdecidethattheContractorisnotentitledtoanextensionoftime,hemustsonotifyboththeEmployerandtheContractor.ThereisthenafurtherprovisionforfinaldeterminationandcertificationofextensionsoftimetotheContractorwithin14daysoftheissueoftheCertificateofSubstantialCompletionoftheWorks(theequivalentofacertificateofpracticalcompletionundertheJCTforms).AtthisstagetheEngineermaynotreduceanyextensionspreviouslyawarded.NotwithstandingtheEngineer’sobligationtoacton“circumstancesknowntohim”,itisobviouslyadvisablefortheContractortodrawtotheEngineer’sattentionanyfactsrelevanttohisclaimforextensionsoftime.CECASub-Contract-ProcedureforObtaininganExtensionofTimeUnderClause6(2)oftheCECAform,itisaconditionprecedenttothesub-contractor’srighttoanextensionoftimethathegiveswrittennoticetotheContractorofanydelayingfactorwithin14daysofthedelayfirstoccurring.Asthenoticerequirementisexpressedasaconditionprecedent,ifthesub-contractordoesnotcomplywithitpreciselyhewilllosehisrighttoanextensionoftime,howeverseverethedelaymaybeandregardlessofitscause.Itisthereforeofparamountimportancethatonsub-contractsundertheCECAformallofthestaffinvolvedinthecontractareawareofthestringentnoticerequirements,andhaveclearinstructionstogivetheappropriatenoticeassoonasanydelayoccurs.TheCECAformimposesnotimelimitswithinwhichtheContractormustgrantanextension:thereisnoreferencetoaperiodofweeksorassoonasheisabletoestimatethelengthofthedelayasundertheJCTforms.Therearenoexpressprovisionsallowingthereviewofextensionspreviouslygranted.Chapter105 ExtensionsofTimeandCompletionGroundsforExtensionsofTime-JCTFormsJCT98Clause25.4ofJCT98definesinsomedetailthecausesofdelay(‘RelevantEvents’)whichwillentitletheContractortoanextensionoftime.TheRelevantEventsincludethefollowing:-1.ForceMajeureSometimesdefinedas‘ActofGod’,forcemajeureencompassesman-madeeventssuchasgeneralstrikesandwar.Literallytranslated,itmeans“superiorstrength”,andcancoverasurprisinglywiderangeofunforeseeableevents.Forexample,inthecaseofMatsouskisvPriestman(1915)itwasheldthatdelayduetoanunforeseenbreakdownofmachineryconstitutedforcemajeure.Thisisaparticularlyusefulcasefortradessuchasstructuralsteelworkwherefabricationiscarriedoutoff-site,asanyunexpectedbreakdownofmachineryattheworkswhichcausesadelayshouldentitletheSteelworkContractortoanextensionoftime.2.ExceptionallyAdverseWeatherTheweathermustbeadversetotheparticulartradeclaimingtheextension.Itmustalsobe“exceptional”.Ameasureofbadweather,particularlyduringthewintermonths,istobeexpected,andtheSteelworkContractorisexpectedtohavetakenthisintoaccountwhennegotiatinghiscontractperiod.Anextensionoftimewillbeawardedonlyiftheweatherisworsethannormalinthatlocationforthattimeofyear.Ifnecessary,thecontractorshouldbepreparedtoprovethattheweatherexceededtheaverageforthetimeofyear,byusingmeteorologicalrecords.3.SpecifiedPerilsTheSpecifiedPerilsaretheperilsinrespectofwhichthesub-contractorhasthebenefitofthematerialdamageinsurancetakenoutbythemaincontractororemployer.Theyaredefinedasfollows:firelightningexplosionstormtempestfloodwaterdamageaircraftriotandcivilcommotion.Ifadelayiscausedbyanyoftheabove,thecontractorisentitledtoanextensionoftime.SomedifficultiescanariseiftheSpecifiedPeril,e.g.afirehasbeencausedbythesubcontractor’snegligence,asitisaprovisotothesub-contractor’sentitlementtoanextensionoftimethatheuseshisbestendeavourstopreventthedelay.Ifhenegligentlycausedthedelayingfactor,thisisdifficulttoreconcile.However,itisusuallysuccessfullyarguedthatthethrustoftheinsuranceclausesistorelievethesub-contractorofallconsequencesofthespecifiedperils,includingresponsibilityfordelay.4.StrikesThestrikemustaffectatradeemployedontheworksoratradeinvolvedinthepreparation,manufactureortransportationofgoodsormaterialsrequiredfortheworks.However,ifaminers’6Chapter10 ExtensionsofTimeandCompletionstrikecausespowercutsandthereforedelay,thiswouldfallwithinforcemajeureratherthanthestrikesclause.Thecontractorisentitledtoanextensionoftimeevenifitishisownlabourwhichisstriking,unlessitisalocaldisputecausedbyhisownaction,suchasintroducinganotherunion’slabourontothesite(inwhichcasethecontractorwillfallfoulofthe“bestendeavours”requirement).Itisnotnecessaryforanofficialstriketobecalled,astheclauseencompassesalocalcombinationofworkmen.However,ifthereisadisputewhichfallsshortofastrike,butdisruptsprogressduetounionmeetingsetc.thecontractorwillhavesomedifficultyinobtaininganextensionunderthisground.5.Architect’sInstructionsIfthecontractorisdelayedbycomplyingwitharchitect’sInstructions,includinginstructionsrequiringavariation,hewinbeentitledtoanextensionoftime.Ifavariationisthesubjectofanacceptedquotationunderclause13AofJCT98,theextensionoftimetowhichthecontractorwillbeentitledisthatagreedaspartoftheclause13Aquotation,regardlessoftheextentofanyactualdelaycausedbythatvariation.6.OpeningUpandTestingIfthearchitectinstructsopeningupand/ortestingwhichisnotprovidedforinthecontractdocuments,andtheworktestedisinaccordancewiththecontract,thecontractorwillreceiveanextensionoftimeforthedelaycausedbythetestingandanyconsequentialmakinggood.7.LateinstructionsThecontractorwillbeentitledtoanextensionoftimeifheisdelayedbylackofinformationorinstructionsfromthearchitect.Thisissubjecttothecontractorhavingspecificallyappliedinwritingfortheinformationorinstructiononadatenot“unreasonablydistantfromnorunreasonablycloseto”thedatethatheneededtheinformation.TheprecisemeaningoftherequirementforatimelywrittenapplicationwasdiscussedinthecaseofLondonBoroughofMertonvStanleyHughLeach(1985)wherethecourtdecidedthatacontractor’sprogrammewhichindicatedthedateswheninformationwouldberequireddidmeettherequirementsoftheextensionsoftimeclause.However,tobeabsolutelycertainofcomplyingwiththeclause,contractorsshouldbackupanyprogrammeshowinginformationrequirementswithreminderstwoorthreeweeksbeforetheinformationisrequired.Theprogrammewillalsoneedtoberevisedtotakeaccountofdelay,duetoothercauses,oriftherearesubstantialvariations.8.DelaybyNominatedSub-ContractorsThemaincontractorobtainsanextensionifheisdelayedbyanominatedsub-contractorornominatedsupplier,providedhehastakenallpracticablestepstoavoidorreducethedelay.Thisincludesculpabledelaysbynominatedsub-contractors.Thisclauseisgenerallyacknowledgedasoneofthemajordisincentivestonominationforclients,andisfrequentlydeleted.Forfurtherdiscussion,seeChapter23onNomination.Chapter107 ExtensionsofTimeandCompletion9.Employer’sWorksIftheemployerishavingotherworkcarriedoutbypersonsemployeddirectlybyhimself(formerlyreferredtoas“artisansandtradesmen”),andtheydelaythecontractor,hewillbeentitledtoanextensionoftime.10.Employer’sSupplyofMaterialIftheemployerisprovidinggoodsandmaterialsforuseontheworks,eitherfreeissueorforaprice,andhedelaysinsupplyingthosegoodsandmaterials,thecontractorwillbeawardedanextension.11.FailuretoObtainLabourorMaterialsTheseprovisionsarefrequentlydeleted.Theinabilitytoobtainanextensionfordelayduetofailuretoobtainmaterialsisextremelyseriousforatradesuchasstructuralsteelwork,whichisdependentonacommoditysuppliedbyacompanywithavirtualmonopoly.Iftheclauseisdeleted,theSteelworkContractorcouldattempttoobtainanextensiononthegroundsofforcemajeure,buthischancesofsuccesswouldbelimited.Ifasteelshortageiscausedbyastrike,anextensionshouldbeawardedunderthestrikesclause.Iftheclausesdoremaininthecontract,theSteelworkContractormustbeabletoprovethattheinabilitytoobtainthematerialswasforreasonsbeyondhiscontrolwhichwereunforeseeableatthedateoftender.Therefore,iftheSteelworkContractorisawareofanimpendingsteelshortage,hemusttakethisintoaccountwhentenderingandnegotiatingcontractperiods.Inabilitytoobtainappropriatelabourforthejobmayalsobeaprobleminbuoyanttimes,andthisshouldalsobetakenintoaccountwhentendering.12.AccessTheemployerisobligedtoprovideaccesstothesiteforthecontractoroveranylandwhichisintheemployer’spossessionandcontrol,inaccordancewiththearrangementsdescribedinthecontractdocuments.Ifhefailstodoso,thecontractorwillbeentitledtoanextensionoftime.13.StatutoryUndertakersIfthecontractorisdelayedbyalocalauthorityorstatutoryundertaker,hewillobtainanextensionoftime.BritishGasetc.remainstatutoryundertakersdespiteprivatisationbecausetheyarecarryingoutworkinpursuanceoftheirstatutoryobligations.14.DefermentofPossessionThereisanoptionalrightinclause23.1.2ofJCT98allowingtheemployertodefergivingpossessionofthesitetothecontractorforuptosixweeks.Iftheoptionappliesandtheemployerdefersgivingpossession,thecontractorwillbeentitledtoanextensionfortheperiodofthedeferment.15.UKGovernmentexercisingstatutorypowersIftheUKGovernmentexercisesstatutorypowersafterthedateoftenderinamannerwhichrestrictstheavailabilityoflabourormaterialswhichareessentialtothepropercarryingoutoftheworks,thecontractorisentitledtoanextensionoftimeforanydelay.8Chapter10 ExtensionsofTimeandCompletionNSC/CTheextensionsoftimeclausesinthenominatedsub-contractNSC/Cfollowpreciselythe‘RelevantEvents’listedinJCT98,withthefollowingexceptions:Architect’sInstructionsIfcompliancewithanarchitect’sinstructionbythemaincontractor,orothersubcontractorscausesdelaytothesub-contractor,hewillobtainanextension.Healso,ofcourse,obtainsanextensionifthedelayiscausedbyaninstructionissuedtohim.DelaybyNominatedSub-ContractorsThenominatedsub-contractorobtainsanextensionoftimeifheisdelayedbyothernominatedsub-contractors,butnotifhehascausedthedelayhimself.SuspensionIfthenominatedsub-contractorvalidlyexerciseshisrighttosuspendworkduetonon-payment,heobtainsanextensionoftimeforanydelay.Inadditiontothe‘RelevantEvents’,thenominatedsub-contractorwillbeentitledtoanextensionifheisdelayedbyanact,omissionordefaultofthemaincontractororanyofhisdomesticsub-contractors.Asthearchitect’sopinionisdecisiveasfarasawardingextensionsoftimetonominatedsub-contractorsisconcerned,extensionsonthisgroundarenotasdifficulttoobtainasmightotherwisebethecase.DOM/1Domesticsub-contractorsunderDOM/1areentitledtoextensionsoftimeonexactlythesamegroundsasnominatedsub-contractors,althoughitisthemaincontractorwhotakesthedecisionastowhatextensionsshouldbegranted-seeabove.IntermediateFormIFC98TheeventsentitlingamaincontractortoanextensionoftimeunderIFC98areverysimilartothe‘RelevantEvents’inJCT98.However,therearesomesignificantdifferences,i.e.(i)Anadditionaleventisincluded,namelydelaycausedbythedeterminationofanamedsub-contractor’semploymentprovideditisnotduetothemaincontractorsdefault.(ii)Themaincontractorhasnootherrightstoanextensionoftimefordelaybynamedsub-contractors.(iii)TherighttoanextensionfortheexerciseofastatutorypowerbytheUKGovernmentisomitted.Thiswouldprobablybecoveredbyforcemajeure.(iv)Theclausesentitlingthemaincontractortoanextensionforinabilitytoobtainlabourandmaterialsareoptional.NamedSub-Contractors–NAM/SCAnamedsub-contractorhasalloftherightstoextensionsoftimeunderclause12ofNMSCenjoyedbythemaincontractorunderIFC98.Inaddition,ifthenamedsubcontractorvalidlysuspendsworkfornon-paymenthewillobtainanextensionfortheresultantdelay.HewillalsoobtainanextensionChapter109 ExtensionsofTimeandCompletionoftimeforanyactordefaultofthemaincontractorandhisothernamedordomesticsub-contractors.Asthearchitecthasnoinvolvementinawardingextensionsoftimetonamedsub-contractors,thismaypresentconsiderablepracticalproblemsforthesub-contractor,butthecontractisquiteclearastohisentitlement.DomesticSub-Contractors-IN/SCDomesticsub-contractorsundertheIFC98haveexactlythesamerightstoanextensionoftimeasnamedsub-contractorsunderNAM/SC.JCTManagementContract1998TheManagementContractorisentitledtoanextensionoftimeifthecompletionoftheprojectisdelayedbya‘ProjectExtensionItem”.TherearetwotypesofProjectExtensionItem:(i)anycausewhichimpedestheManagementContractoriscarryingouthisobligationsincluding:(a)adefaultbytheEmployer(b)lateinstructionsfromtheprofessionalteam(c)defermentofpossession(NotethattherearegivenintheManagementContractasexamples,theyarenotanexhaustivelist);(ii)RelevantEventsundertheworkscontractsexceptculpabledelaybyotherWorksContractors.CulpabledelaysbyWorksContractorsdonotentitletheManagementContractortoextensions.butunderthereliefprovisionstheemployermayonlydeductliquidateddamagesfromtheManagementContractortotheextentthattheManagementContractorhasbeenabletorecoverthemfromthedefaultingWorksContractors.WorksContractors-WorksContract/2Thereareonlythreeareaswherethe“RelevantEvents”differfromthoseunderthenominatedsub-contractNSJC.Theyare:1.StrikesUnderclause2.10.4ofWorksContract/2,strikesetc,mustaffectatradeemployedontheworks.Itwillnotbesufficientiftheysimplyaffectanotherpartoftheproject.(Incontrastthenominatedsub-contractsrefertoastrikeaffectinganypartofthemaincontractworks).2.InabilitytoObtainLabourorMaterialsThisisrestrictedtotheWorksContractor’sowninabilitytoobtainlabourormaterials,whereasthenominatedsub-contractsrefertothemaincontractor’sinabilitytoobtainlabourandmaterialsaswellasthenominatedsub-contractor’sinability.Thisshouldnotbeasignificantlimitation,astheManagementContractorwillnotbeworkingonthesite.3.SuspensionbyWorksContractorsThereisnoexpressRelevantEventintheWorksContractcoveringadelaycausedbytheWorksContractorhavingwithdrawnhislabourfromsiteduetonon-paymentbytheManagementContractor.However,thisistreatedasanact,omissionordefaultoftheManagementContractorunderclause2.3.1.1(asnon-paymenthascausedthesuspension).10Chapter10 ExtensionofTimeandCompletionFortheavoidanceofdoubtsuchanon-paymentisexpresslydeemedtobeadefaultbyclause2.3.2ofWorksContract/2.ICEConditions-7thEditionThelistofgroundsforextensionoftimeintheICE7thisnotasexhaustiveasthatinJCT98.Condition44oftheICEFormpermitsanextensionoftimeinthefollowingcircumstances:(i)variationsorderedunderclause51(1).(ii)increasedquantitiesreferredtoinclause51(4).(iii)anyothercauseofdelay“referredtointheseconditions”.Suchcausesinclude:lateissueofdrawingsorinstructionsunderclause7(4);adversephysicalconditionsandartificialobstructionsunderclause12;Engineer’sinstructionsanddirectionsunderclause13(3);suspensionofworkunderclause40(1),andlatepossessionofthesiteunderclause42(3).(iv)exceptionaladverseweatherconditions-thiswordingmeanstheclausewillbesubjecttosimilarrestrictionsasapplytotheJCTrelevanteventregardingweather.(v)“otherspecialcircumstancesofanykindwhatsoever”.This“catch-all”islikelytoincludeforcemajeure,fireandotherspecialperilsandanydelaysbytheemployer.ThemaincontractorundertheICEformisnotentitledtoanextensionoftimefordelaybynominatedsub-contractors.CECAForm:NominatedandDomesticSub-ContractorsClause6(2)oftheCECAformsprovidesthatsub-contractorswillbeentitledtoanextensionoftimeonthefollowingbases:(i)ifthedelayiscausedbyanyofthecircumstancesentitlingthemaincontractortoanextensionoftimeunderthemaincontract.(ii)delaycausedbyvariationsnotwithin(i)above.(iii)breachofthesub-contractbythemaincontractor.Extensionsoftimeunder(i)mustnotexceedtherelevantextensionoftimegrantedtothemaincontractor.BestEndeavoursAlloftheJCTFormsofmainandsub-contractprovidethatthemainorsub-contractorconcernedmustconstantlyusehisbestendeavourstopreventdelay“howsoevercaused”.Thiswillmeanthatanyextensionoftimeawardedwilltakeintoaccountanynegligenceorotherdeliberateactionofthesub-contractor(althoughthisisarguableinrelationtotheSpecifiedPerils-seeChapter17).Ithasbeenhotlydebatedwhetherusingbestendeavourstopreventdelayextendstospendingmoney,i.e.workingovertimeetc.Inanefforttopreventorreduceanydelay,itissuggestedthatthecontractorisnotobligedtogoasfarasincurringcostsinanefforttopreventdelay,asthiswouldamounttoadutytoaccelerate,whichallthecommentatorsagreeisaconceptforeigntotheJCTstandardforms(withtheexceptionoftheJCTManagementContract).Chapter1011 ExtensionofTimeandCompletionHowever,inthecaseofIBMvRockwareGlass(1976),itwasheldthatbestendeavoursmeant“takingallthosereasonablestepswhichaprudentanddeterminedmanactinginhisowninterests...wouldhavetaken”.Thisdefinitionwouldappeartoenvisagespendingmoney.IfthiscaseisraisedinanyargumentagainstaSteelworkContractor,hecouldmakethefollowingpoints:(i)thecasewasrelevanttoplanningandlandlaw,notbuildingcontracts;itdoesnotthereforecreateaprecedentforbuildingcontracts;(ii)itisaruleofconstructionofallcontractsthatwordsandphrasesaretakenincontext,andthecontextinwhichthewordswereinterpretedinthiscasewasentirelydifferentfromabuildingcontract;(iii)itisgenerallyacknowledgedthatthereisnoimpliedrighttoinstructaccelerationinatraditionalbuildingcontract;tointerpretthebeatendeavoursrequirementassuggestedinthiscasewouldruncontrarytothatbasicprinciple.Insummary,the‘bestendeavours’requirementinabuildingcontractprobablydoesnotextendtoincurringcosts,butcontractorsshouldbepreparedforargumentstothecontrary.SectionalCompletionWherethereisprovisionforphasedcompletion,theHouseofLordshasruledinthecaseofTrollope&CollsvNorthWestRegionalHospitalBoard(1973)thatanextensionoftimegrantedunderonephaseisconfinedtothatphaseanddoesnothavetheeffectofextendingcompletiontimeforsubsequentphases.Amaincontractor’sprogrammewilloftenshowdatesforcompletionofcertainoperationsorphasesofthework.Unlesspropercontractualprovisionsforsectionalcompletionareincorporated,failuretomeettheseintermediatedateswillnotamounttoadelaybythecontractororsub-contractorunlesstheoverallcompletiondateisdelayed,althoughtheymaygiverisetoclaimsfordisruption(asopposedtodelay)providedthesub-contractorwascontractuallyboundtocomplywiththeprogramme.InthecaseofGleesonyHillingdon(1970),themaincontractor,Gleeson,wasawardedahousingcontractontheJCT63form.TheBillofQuantitiesprovidedforthecontracttobecompletedinsections,butonlythefinalcompletiondatewasinsertedinthecontractappendix.Thecontractwasdelayed,andtheEmployerdemandeddamagesfordelayontheindividualsectionsofthework.AsthedatesforsectionalcompletionwerecontainedonlyintheBills,theCourtheldthatonlyadelayintheoverallcompletiondateentitledtheEmployertodamages,becausethecontractclearlyprovidedinclause12(1)fortheconditionstooverrideanyconflictingprovisionsintheothercontractdocuments.CompletionbeforetheCompletionDateTheJCTstandardformsallprovidethatthecontractormustcompletetheworks“onorbeforethecompletiondate”,soitisquiteclearthatthecontractorisentitledtofinishtheworkearlierthanthedateshowninthecontractifhesochooses.Frequently,maincontractorsdoprogrammetheworktofinishbeforetherequiredcompletiondate,andinthecaseofGlenlionvGuiness(1987),thequestionarosewhethertheemployerwasobligedtoperformthecontractbysupplyinginformationetc.inaccordancewithacontractor’sprogrammewhichprovidedforcompletionconsiderablyearlierthanthecontractuallyrequireddate.TheCourtheldthattherewasnosuchobligationontheemployer,andthereforethecontractorwasnotentitledtoanextensionoftimeandlossandexpensewhereinformationwassuppliedatsuchatimethatthe12Chapter10 ExtensionsofTimeandCompletionworkswerecompletebythecompletiondateinthecontractbutnotbythecontractor’sown,earlier,programmeddate.ThiscasemeansthatSteelworkContractorsmayfinishtheworkearlierthanthecompletiondateinthecontract,buttheycannotforcetheemployertoprovidethemwiththeinformationtopermitthatearlycompletion.AccelerationthClause46(3)ofICE7providesforaccelerationbytheContractorifsorequestedbytheEmployerortheEngineer.IftheContractoragreestoaccelerate,anyspecialtermsandconditionsofpaymentaretobeagreedbetweentheContractorandtheEmployerbeforeanyaccelerationiscommenced.MostoftheJCTstandardformsdonotprovideforacceleration.Ifanemployerormaincontractorwishestoacceleratetheworks,thisshouldbethesubjectofaseparateagreementproperlysupportedbyconsideration(i.e.apromisetopay).Ifaskedtoaccelerate,SteelworkContractorsshouldnegotiatethetermsofsuchanagreementwithcare,bearinginmindthataccelerationwillnotalwaysbephysicallypossiblebeyondacertainpoint,nomatterhowmuchovertimeisworked.Ideally,theagreementshouldprovideforpaymentoftheaccelerationcostseveniftheaccelerateddateisnotreached,providedthesub-contractorhasusedhisbestendeavoursandisnototherwiseindefaultasthesub-contractorwillhaveproperlyincurredthoseaccelerationcosts.TheJCTManagementContract1998andtheWorksContractaretheonlyJCTformswhichprovideforacceleration.Thisisanacknowledgementoftherequirementsinmanagementcontractingforflexibilityandearlycompletion.Theprovisionsareextremelydetailed,andeffectivelyleavetheWorksContractortodecidehowmuchaccelerationcanbeachieved,andhowmuchheshouldbepaidforit.TheprocedurelaiddowninClause3.4oftheWorksContractregardingaccelerationisasfollows:(1)TheemployercausesthearchitecttoissueapreliminaryinstructionunderClause3.6.3oftheManagementContractrequiringaccelerationorthealterationofthesequenceortimingofwork.(2)TheManagementContractorissuesthatPreliminaryInstructiontoallWorksContractors,whowillbeaffectedandasksthemiftheyhaveanyreasonableobjectionstocomplyingwithsuchaninstruction.Suchobjectionsmustbemadewithin7daysofreceiptoftheinstruction,orwithinsuchalongerperiodasmaybereasonable.(3)IftheWorksContractorsdoobject,thoseobjectionsarepassedbytheManagementContractortothearchitect,togetherwiththeManagementContractor’scomments,ifany.(AcopyofsuchcommentsmustbegiventotheobjectingWorksContractors).(4)IftheWorksContractorsmakeareasonableobjection,thearchitectmaywithdrawthePreliminaryInstructionormayvaryitsoastoremovethereasonableobjection.TheWorksContractorsthenconfirminwritingthattheirobjectioniswithdrawn.Note:Itisthearchitectwhodecideswhetheranobjectionisreasonable.Iftheobjectionisnotwithdrawn,orthearchitectdoesnotconsidertheWorksContractors’objectiontobereasonable,orhehasvariedtheInstructionasdescribedabove,theonusshiftstotheWorksContractors,whomustgivetheirproposalsassoonasreasonablypracticable.(5)TheseproposalsareastothelumpsumwhicheachWorksContractorreasonablyrequirestocomplywithanyInstructionissuedundertheManagementContractor,ifitisnotreasonablyChapter1013 ExtensionofTimeandCompletionpracticabletostatesuchalumpsum,thatthecostofthecompliancewillhavetobeascertainedunderthelossandexpenseprovisions.TheWorksContractormustalsostatethereductionintheperiodforcompletionoftheWorks,oftheextenttowhichextensionsoftimewhichwouldotherwisebegrantedcouldbecancelledorreduced.AwiseWorksContractorwillquotealumpsum,asthiswillavoidargumentsregardingquantificationoflossandexpense.(6)ThearchitectmaythenissueaninstructionunderClause3.6.6oftheManagementContractwhichconfirmstheproposalsoftheWorksContractorsinthesametermsasthoseproposals.ThearchitectcannotinstructmeasureswhichtheWorksContractorhasnotvoluntarilyproposed,orvarytheproposalsinanyway,e.g.bytreatingaproposalof£Xforoneweekasaweeklyrate,andaskingfor3weeksaccelerationatthatrate.(7)ThatinstructionisissuedbytheManagementContractortotherelevantWorksContractors,whomustcomplywithit.Theywillthenbepaidtheamounttheyhavequoted,andthenewcompletiondatewillapplytothecontract.14Chapter10 CHAPTER11COSTSOFDELAYDelaysfallintothreecategories:(i)thoseduetoanactordefaultoftheSteelworkContractororthoseforwhomheisresponsible(e.g.hissub-sub-contractorsandsuppliers)-thesedelaysmayrenderhimliabletopaydamages;(ii)thoseduetoanactordefaultofthemaincontractororemployerorthoseforwhomtheyareresponsible(e.g.othersub-contractorsortheArchitect)-thesedelayswillentitletheSteelworkContractortorecoverlossandexpense;(iii)thosewhicharebeyondthecontroloftheparties,suchasbadweatherorstrikesthesewillentitletheSteelworkContractortoanextensionoftimebuthewillnotbeabletorecoverhiscosts.ExtensionsoftimewerediscussedinChapter10-ExtensionsofTimeandCompletion.ThisChapterwillconcentrateonthefirsttwocategoriesofdelay,anddescribehowthedamagespayabletotheemployerormaincontractorarecalculated,andtheprocedurewhichtheSteelworkContractormustfollowtorecoverhislossandexpense.DelaysCausedByTheSteelworkContractorTherearetwoissueshere:firstly,howmuchthemaincontractororemployerwillbeentitledtoclaimintheeventofaculpabledelaybytheSteelworkContractor;secondly,theprocedurewhichhemustfollowtorecoverthosecosts.QuantificationofDamagesTheJCTstandardformsrequirethesub-contractortopaytothemaincontractor“anylossordamagesufferedbythecontractor”duetothesub-contractor’sact,omissionordefaultortheact,omissionordefaultofhisservants,agentsorsub-sub-contractors.Suchlossordamagewillincludenotonlythemaincontractor’sowncosts,suchasextendedpreliminariesandcostsofuneconomicalworking,butalsoanydamageswhichhehashadtopaytotheemployerbecauseofthedelay.LiquidatedDamagesThecostspaidbythemaincontractortotheemployerwillnormallybeliquidateddamages.Liquidateddamages(sometimesreferredtoasliquidatedandascertaineddamagesorLAD)arethesumagreedbythepartiestothemaincontractwhichispayableasdamagesifthecontractisbroken.Theemployernormallyimposesadailyorweeklyrateofliquidateddamagesuponthemaincontractorifhedelayscompletionofthebuildingincircumstanceswhereheisnotentitledtoanextensionoftime.Itisvitaltoappreciatethatliquidateddamagesconstitutetheamount,nomoreandnoless,thattheemployermayrecoverintheeventofadelay.Heisnotrequiredtoprovethathehassufferedanydamage,simplythatthemaincontractorisindelayandisnotentitledtoanextensionoftime.However,ifhisactuallossexceedstheamountoftheliquidateddamages,hemaynotrecoverthebalance.Chapter111 CostsofDelayForexample,theemployermaybeapropertydeveloperinvolvedinaspeculativecontractwherethecontractordelayscompletion.Thedevelopermaynotsufferanyactuallossbecauseevenifthebuildinghadbeencompletedontimehewouldnotnecessarilyhavebeenabletofindtenants.Nevertheless,thepropertydeveloperisentitledtothesumofliquidateddamagesincludedinthecontract.Conversely,ifrentsintheareahavedoubledsincehedecidedonhisliquidateddamages,andhisactuallossisthereforeconsiderablygreaterthanthesumincludedinthecontracthewillneverthelessbelimitedtorecoveringtheamountofliquidateddamagesspecifiedinthecontractinrespectofthedelay.Thesumagreedasliquidateddamagesmustbeagenuinepre-estimateofthelosswhichwillbecausedtotheemployerifthedelayoccurs.Ifitisnotagenuinepre-estimateitwillbeapenaltyclause,andwouldnotbeenforcedbythecourts.Thedistinctionbetweenpenaltyclausesandliquidateddamagesisthereforeanimportantone,andwasconsideredbytheHouseofLordsinDunlopPneumaticTyreCoLtdvNewGarageandMotorCoLtd(1915).TheHouseofLordsstatedthattheagreedsumwouldbeapenaltyifitwas‘extravagantandunconscionable’comparedwiththegreatestlossthatcouldpossiblyfollowfromthebreach.Therefore,iftheemployerisbuildingawarehousetoletinalowrentarea,andhecalculateshisliquidateddamagesinaccordancewiththehighestLondonrents,thesumwillprobablybeapenaltyclause,andnotagenuineliquidateddamagesclause.However,veryfewliquidateddamagesprovisionsinbuildingcontractsarepenalties.Sub-contractorsareoftenconfusedbythefactthat,althoughthereisnoliquidateddamagesprovisionwhichappliesbetweenthetwopartiestothesub-contract(i.e.thesubcontractorandmaincontractor)theymuststillpay“liquidateddamages”.ThisisbecauseofthegenerallegalrulesgoverningthequantificationofdamagesforbreachofcontractwhichwerelaiddowninthecaseofHadleyvBaxendale(1854).Inthatcase,itwasheldthattwotypesofdamagearerecoverableuponabreachofcontract:firstly,thenormaldamagewhichoccursIntheusualcourseofthings:secondly,damagewhicharisesbecauseofspecialorexceptionalcircumstancesprovidedtheotherpartyknewofthespecialcircumstancesatthetimeheenteredintothecontract.Applyingtheserulestoabuildingcontract,thelossandexpensewhichamaincontractorsufferswhereasub-contractorhasactedinbreachofacontractanddelayedhimwillbethemaincontractor’sowncosts,suchasextendedpreliminaries,uneconomicworkingetc.Inaddition,thesub-contractorwillnormallyhavebeenawarethattherewasaliquidateddamagesclauseinthemaincontractwhenhewastenderingforhissub-contract.Certainly,thestandardformsoftenderincludedetailsfromthemaincontractappendixwhichwillshowtherateofliquidateddamages.Atthetimeheenteredintothesubcontractthesub-contractorwouldthereforehavebeenawarethatifhedelayedthemaincontractorincircumstanceswherethemaincontractorwouldnotbeentitledtoanextensionoftime,themaincontractorwouldbeforcedtopayliquidateddamagestotheemployer.Asthesub-contractorwillnormallyhaveknowledgeofthespecialcircumstancesasrequiredbythesecondruleinHadleyvBaxendale,themaincontractorcanrecoverfromhimtheliquidateddamageshehaspaidtotheemployer.Wherethesub-contractorisnominatedunderJCT98,ifhedelaysthemaincontractor,themaincontractorisentitledtoanextensionoftimeunderclause25.4.7ofJCT98andthereforewillnothavetopayliquidateddamagestotheemployer.Thisdoesnotmeanthatthesub-contractorwillbe“offthehook”,becausehewillbedirectlyliabletotheemployerunderthestandardformofwarranty,NSC/W.2Chapter11 CostsofDelayThereissomedebateastotheamountoflosstheemployercanrecoverinthesecircumstances.Technicallythelossbeingclaimedisunliquidated,becausethereisnoreferenceinthewarrantytotheamountofmoneywhichthenominatedsub-contractormustpayifheisindelay.Somecommentatorsarguethatwhattheemployerhaslostduetothenominatedsubcontractor’sdelayistherighttoclaimliquidateddamagesfromthemaincontractor,thereforetheamountofthoseliquidateddamagesisrecoverablefromthenominatedsubcontract.Otherssaythattheemployermustprovetheactuallosshehassufferedduetothenominatedsub-contractor’sdelay,andthatwillbeallheisentitledtorecover.Thisisprobablythesounderapproachfromalegalpointofview,butinpracticemostemployersclaimtheamountoftheliquidateddamages,andunlessthedifferencebetweenthetwosumsisconsiderable,itwillrarelybeworthamajorbattle.Oneoftheproblemswiththis‘passingon’ofthemaincontractliquidateddamagesisthatthelevelofdamagesagreedunderthemaincontractmaybeoutofallproportiontothevalueofthestructuralsteelsub-contractworks.Fromastrictlycontractualanglethisisirrelevant,becauseanydelayinthecontract,evenonarelativelysmallsub-contract,cancausedelaystoothertradesandthereforetotheprogressofthewholecontract.Iftheclienthasdeterminedtheliquidateddamagesbygenuinelypre-estimatinghisloss,thenitisofnorelevancethatthedelaymaybecausedbyasmallsub-contractingcompanywhoiscarryingoutonlyalimitedamountofwork.However,someemployersandmaincontractorsappreciatethatifthemaincontractliquidateddamagesaresetatahighfigure,theonlywaytoobtainsensible,competitivequotationsfromsub-contractorsistolimittheamountofliquidateddamagespayablebysub-contractors.Thismaybeachievedbyreducingtherate,oftenbyreferencetoapercentageofthesub-contractsum,orbyputtingaceilingonthetotalamountofliquidateddamageswhichmaybeclaimedfromasub-contractor.ObviouslyifsuchlimitationscanbenegotiatedtheywillbeofveryrealbenefittotheSteelworkContractor.WheretheSteelworkContractorisnominated,thenegotiationswillbeconducteddirectlywiththeemployer.Inallothercircumstancesitwouldbethemaincontractorwhowouldbeclaimingtheliquidateddamages,butitmaystillbepossibletonegotiatealimitationwiththeemployer(particularlyifhehasselectedtheSteelworkContractor),althoughthiswouldrequireanamendmenttoboththemainandsubcontracts.MainContractor’sCostsTherulesrelatingtothequantificationofthemaincontractor’sowncostsarethesameasthoseforquantifyingthesub-contractor’slossandexpense,seeChapter12-Claims.ProcedureforClaimingCostsThepreciseprocedureforclaimingdamagesforculpabledelaybythesub-contractorvariesaccordingtothestandardformwhichapplies.NominatedSub-ContractNSC/CUnderclause2.8ofNSC/C,themaincontractornotifiestheArchitectifthesub-contractorhasfailedtocompletethesub-contractworksontime,takingintoaccountanyextensionswhichhavebeengranted.IftheArchitectagreesthatthenominatedsub-contractorisinculpabledelay,heissuesacertificateofdelayagainsthimunderclause35.15ofJCT98.TheArchitectmustissuethiscertificatewithintwomonthsofreceivingthenotificationfromthemaincontractor.Whenthatcertificatehasbeenissued,themaincontractorbecomesentitledtoanylossordamagewhichhehassufferedduetothesub-contractor’sdelay.ThiswillnotincludeliquidateddamagesChapter113 CostsofDelaypaidtotheEmployer,becauseasexplainedabove,themaincontractorwillbeentitledtoanextensionoftimefordelaysbynominatedsub-contractorsunderclause25.4.7ofthemaincontract,thereforetheemployerwillbeunabletoclaimliquidateddamagesfromhiminrespectofthedelay.ThesewillberecoveredbytheEmployerdirectlyunderclause3.3.2ofthewarrantyNSC/W.OncethecertificateofdelayhasbeenissuedbytheArchitect,themaincontractorwillbeabletosetoffhisdelaycostsagainstmoniescertifiedinfavourofthenominatedsubcontractor.NotethattheArchitectisnotentitledtocertifythatthenominatedsub-contractorisindelayuntiltheoriginaldateforcompletionhaspassed,evenifitisclearwellbeforethatdatethatthesub-contractworksareindelay.Thewordingofboththemainandsubcontractsmakesthisquiteclear.DomesticSub-Contract:DOM/1InDOM/1itisthemaincontractorwhodecideswhenthesub-contractorisindelay.Hedoesnotissueaformal“certificate”tothateffect,butheisrequiredtonotifythesubcontractorInwriting.Thiscannotbedoneuntiltheoriginaldateforcompletion(asextendedbyanyextensionsalreadygranted)haspassed.Oncethewrittennotificationhasbeenissued,themaincontractormayclaimordeductthelossandexpensewhichhesuffersduetothedelay.Hemayonlydeductthesesumsfrompaymentsotherwiseduetothedomesticsub-contractorifhefollowstheset-offprocedureinDOM/1byquantifyinghisclaimandgivingtheappropriatenotice.ThesumswhichthemaincontractorcanclaimunderDOM/1willincludeanyliquidateddamageswhichhehaspaidtotheEmployer.NamedSub-Contract:NAM/SCTherulesrelatingtotherecoveryofthecostsofdelayfromnamedsub-contractorsundertheIntermediateFormarepreciselythesameasthoseinDOM1.DomesticSub-Contract:IN/SCTherulesgoverningtherecoveryofthecostsofdelayfromdomesticsub-contractorsunderIN/SCarethesameasthoseinDOM/1.WorksContract/2Underclause2.11ofWorksContract/2,theManagementContractornotifiestheWorksContractorifhefailstocompletehisworkwithinthecontractperiodorwithinanyextendedtime.Aswithothercontracts,thatnoticemaynotbeissueduntilthoseperiodshaveexpired,i.e.theWorksContractormustbeintheperiodofculpabledelay.WorksContract/2differsfromotherformsinthattheManagementContractormaynotissuethenoticeofdelayuntilhehasreachedadecisiononalloftheWorksContractor’soutstandingapplicationsforextensionsoftime.Ifastructuralsteelworkcontractorisawarethatanoticeofdelayistobeissuedagainsthimwhichhefeelstobeunjusthecandelayitbyapplyingforanextensionoftime,asthatapplicationwillhavetobeconsideredbeforethenoticecanbeissued.Whenthenoticeofdelayhasbeenissued,theManagementContractormayclaimordeductanydirectlossandexpenseduetothedelay.ThiswillincludeliquidateddamagespayableundertheManagementContract.IftheManagementContractorcannotrecovertheseliquidateddamagesfrom4Chapter11 CostsofDelaythesub-contractor(whichhemustpursuethroughlegalproceedingsifnecessary)hewillnotbeliabletotheEmployerbecauseofthereliefprovisions.However,thisdoesnotaffecttheWorksContractor’sobligationsinrespectofliquidateddamages.CECASub-ContractTheCECAformdoesnotcontainexpressprovisionslikethoseintheJCTrelatedsubcontractsrequiringthemaincontractortoissueanoticeofdelay.Anyculpabledelaybythesub-contractorwillthereforesimplybeabreachofcontractentitlingthemaincontractortorecoverdamagescalculatedinaccordancewiththerulesinHadleyvBaxendaleexplainedabove.Clause3(4)doesprovidethatanylossandexpenseincurredbythemaincontractor,duetothesub-contractor’sdelayinconnectionwiththeMainWorksiswithinthecontemplationofthepartiesasbeingprobableresultsofanysuchbreachbytheSub-Contractor”.ThisfollowsthewordingofthesecondruleinHadleyvBaxendaleandmakesitquiteclearthatallofthemaincontractor’slosses,includingliquidateddamagespayableunderthemaincontract,willberecoverable.AswiththeJCTcontract,thedelaydoesnottechnicallyoccuruntiltheoriginalcompletiondate(plusanyextensions)haspassed,andsothecostswillnotberecoverableuntilthattime.TheCECAformpreservesthemaincontractor’scommonlawset-offrights,sohewillnotneedtofollowanyparticularprocedure(providedhecomplieswiththeprovisionsoftheHousingGrants,ConstructionandRegenerationAct1996)todeductthecostsoftheculpabledelayfrommoniesotherwiseduetothesub-contractor,saveforwaitinguntiltheperiodofculpabledelayhascommenced.DelaysCausedByTheMainContractororEmployerJCTContracts:RelevantMattersThe“matters”entitlingthemaincontractororsub-contractortoclaimlossandexpensearisingoutofdelayareverysimilarinalloftheJCTformsandtheirrelatedsub-contracts.Theyareasfollows:-(i)LateInstructionsIfthecontractororsub-contractorisdelayedduetonothavingreceivednotonlyinstructionsbutalsodrawings,detailsorlevelshewillbeentitledtorecoverthecostsofthatdelay,providedhespecificallyappliedinwritingfortheinstructionetc.Thatapplicationmusthavebeenmadeatthepropertime,i.e.nottoodistantfromnortooclosetothedateheneededtheinstructionordrawing.InthecaseofLondonBoroughofMertonvStanleyHughLeach(1985)itwasheldthatacontractor’sprogrammeforthewholecontractperiodshowingwhenherequiredcertaininformationwassufficienttofulfilthisrequirement,eventhoughitwasissuedatthebeginningofthecontract.However,suchaprogrammewouldrequirerevisiontotakeaccountofanysignificantvariationsordelays.ToavoiddisputesSteelworkContractorsshouldalsoissueareminderatthepropertime,eveniftheyhaveproducedsuchaprogrammeatthebeginningofthecontract.(ii)OpeningUporTestingThecostsofadelayduetoopeninguportestingofworkorgoodsandmaterialswillberecoverableonlywheretheworketc.testedisprovednottobedefective.Evenifthetestrevealsnodefects,underJCT98andIFC98(andtheirrelatedsub-contracts)therewillbenoentitlementtolossandexpenseiftheopeninguportestingwasinstructedfollowingtheChapter115 CostsofDelaydiscoveryofadefectinsimilarwork.(Thecontractororsub-contractorwillbeentitledtoanextensionoftimeinthesecircumstances-seeChapter10onExtensionsofTime)Thecircumstancesinwhichthecostsofadelayduetoopeninguportestingarerecoverablearethereforeextremelylimited.(iii)DiscrepanciesinorDivergencesbetweenDocumentsIfthecontractororasub-contractorfindsadiscrepancyorconflictbetweendocumentspreparedbyoronbehalfoftheemployer,suchasaconflictbetweenthedrawingsandbillsofquantities,thearchitectmustissueaninstructiontoresolvetheproblem.Ifthiscausesadelay,thecontractororsub-contractormayrecoverthelossandexpensearisingoutofthatdelay.(iv)EmployeesWorkorSupplyofMaterialsTheemployermaychoosetoreservecertainworkonthebuildingtohimself,orhemaydecidetoemploysomeoneotherthanthemaincontractortocarryoutspecifictasks.Thisisbecomingincreasinglyfrequentasemployerssplitcontractsbetweentheshellandcoreofthebuildingandthefittingoutprocess.Fittingoutcontractorsareoftenemployedunderquiteseparatecontractswiththeemployerandthereforefallintothiscategory.Ifsuchworkcausesadelaytothemaincontractororhissub-contractors,theywillbeentitledtorecoverlossandexpense.Asstructuralsteelworkissuchanearlytrade,SteelworkContractorswillrarelybeaffectedbyfittingoutworks,buttheymaybedelayedbydemolitionorpilingcontractorswhoinsomecaseswillhavebeenemployeddirectlybytheclient.Iftheemployerhaschosentosupplygoodsormaterialstothecontractororsubcontractorsandhedelaysindoingso,thiswillalsoentitletheaffectedpartytoclaimlossandexpense.(v)Architect’sInstructiontoPostponeTheJCTmaincontractspermittheArchitecttoissueaninstructionpostponinganyworktobeexecutedunderthecontract.Ifhedoesso,thecostsoftheresultingdelayarerecoverablebythemaincontractorandallofhissub-contractors.(vi)LackofAccessDelayscausedbylackofaccesswillgiverisetoarighttorecoverlossandexpense.However,accessisdefinedinaverylimitedmanner:itislackofaccesstothesite(oranypartofit)overlandorbuildingswhichadjointhesiteandwhichareinthepossessionorcontroloftheemployer.Theemployermaywellnotcontrolanyofthelandaroundthesiteatall,inwhichcasethisclausewouldhavenoapplication.Ifhedoesownorcontroladjacentlandorbuildings,hewillbeliableprovidedtheaccesswasstatedinthecontractdocumentsoragreedbetweentheArchitectandthemaincontractor,andthecontractorhasgivenanynoticerequiredtotheArchitect.(vii)VariationsDelaysduetovariationsorinstructionsastotheexpenditureofprovisionalsumsalsocarrylossandexpense.Ifthevariationiscoveredbyacontractor’squotationwhichhasbeenacceptedundertheprovisionsofclause13AofJCT98,theamountoflossandexpenseagreedaspartofthatquotationwillbepaidratherthananysumascertainedunderclause26.6Chapter11 CostsofDelay(viii)DefermentofPossessionIftheemployerexerciseshisrighttodefergivingpossessionofthesite,themaincontractorandallsub-contractorsareentitledtorecoverlossandexpensearisingoutofthedelay.(ix)DisruptionofRegularProgressbytheMainContractorAlthoughitisnotstrictlyspeaking,a“relevantmatter”,alloftheJCTrelatedsub-contractsallowsub-contractorstorecoverlossandexpensecausedbyanyactomissionordefaultofthemaincontractorwhichmateriallyaffectstheregularprogressofthesub-contractworks.Thedifficultywiththeseclausesisproof;unlessthemaincontractorhasanexpresscontractualobligationtomakeareasavailabletothesub-contractoratspecifictimes,itcanbeaveryuphilltasktoprovethatanydisruptionisduetothemaincontractor’sdefault,particularlyasthedecidedcasesonthepointe.g.MartinGrantvSirLindsayParkinsonindicatethatsub-contractorshavenoimpliedrighttocompletecontinuityofworking.ThereforeifSteelworkContractorsrequireuninterrupted,unimpededaccessforaspecificperiod,theyshouldstatethisintheirtendersandtrytoensurethatitbecomesatermoftheircontractwiththemaincontractor.(x)SuspensionduetoNon-PaymentThisrighttorecoverlossandexpenseappliesonlytosub-contracts,notmaincontracts,asitisconsequentuponthesub-contractor’srighttosuspendworkifheisnotpaidinaccordancewiththesub-contract.Suchasuspensionobviouslycausesadelaytothesubcontractworks,andthesub-contractorisentitledtoanextensionoftimeandlossandexpenseduetothatdelay.JCTContracts:NoticeRequirementsAlloftheJCTmaincontractsandtheirrelatedsub-contractsrequirethemainorsubcontractortoapplyinwritingforlossandexpense.Theapplicationshouldbemadeassoonasitbecomesapparentthatoneoftheeventslistedat(i)to(x)abovewillmateriallyaffecttheprogressoftheirworks.Thiswillbeveryearlyoninmostcases,forexampleassoonasavariationinvolvingextraworkisissued,itislikelythatsomedelay,andthereforesomelossandexpense,willbeincurred.Sub-contractorsareoftenreluctanttomentionlossandexpenseatsuchatime(orevenatall)forfearofseemingtoo“claimsconscious”.Thisisusuallyamistake.Asimple,factualstatementthatlossandexpensemaybeincurredisnotanaggressive,over-contractualmove,itissimplycomplyingwiththecontractualrequirements.Ifaclaimsbattleshoulddevelopthesub-contractor’spositionwillbeseverelyweakenedifhehasnotgiventhenoticesatthepropertime,andthemaincontractorwillbethefirsttocriticisehimfornotdoingso.Althoughthegivingofnoticesisnotaconditionprecedenttotherighttorecoverlossandexpense,itwilloftenbenecessarytogopartofthewaytowardsadjudication,arbitrationorlegalproceedingstorecovermoneyifthenoticeshavenotbeengiven,ifonlybecauseno-onewillhavebudgetedforit.Initialapplicationsshouldofcourseberevisedandupdatedasthefullextentofthelossandexpensebecomesapparent.Althoughafull-blownclaimsdocumentisnotrequiredbytheJCTcontractsinanycircumstances,itwillsometimesbenecessarytoprepareaverydetailedapplication(forfurtherinformationonthisseeChapter12onClaims).Chapter117 CostsofDelayJCTContracts:WhoAwardsLossandExpenseJCT98:DecisionoftheArchitectIntheJCT98maincontracttheArchitectincludestheamountofanydirectlossandexpenseincurredbythemaincontractorinInterimcertificates.Clause26.1providesthathemay“ascertain”i.e.decideupontheamountoflossandexpensehimself,orhemayinstructtheQuantitySurveyortodoso.Inpractice,theQuantitySurveyornormallyconductsanynegotiationswiththecontractor.NSC/C:DecisionoftheArchitectorContractorUnderNSC/Cthenominatedsub-contractorappliesinwritingtothemaincontractorforhislossandexpense.Normally,themaincontractorpassesthatapplicationontotheArchitect,whoascertains(orinstructstheQuantitySurveyortoascertain)theamountoflossandexpenseincurredandincludesthatsumintherelevantinterimcertificate.Oneexceptiontothisruleiswherethedelayordisruptiontothenominatedsub-contractworksisduetothemaincontractor’sdefault(whichincludesthedefaultofanyothersubcontractor).LossandexpensecausedbysuchdelayordisruptionisnotcertifiedbytheArchitect:itmustbeagreedbetweenthemaincontractorandthenominatedsubcontractor.Itisnotacertifiedsum,butissimplyrecoverablefromthemaincontractorasadebt(i.e.asumlegallyowedtothesub-contractor).Theagreementoftheamountofsuchlossandexpenseisrarelyaneasyprocess,aseachsidehasadiametricallyopposedcommercialinterestinthenegotiations.Iftheamountissubstantialhowever,itisworthmakingaproperlydocumentedclaimandpursuingit,uptothepointofadjudicationorarbitrationifnecessary.DOM/1:DecisionoftheContractorThedomesticsub-contractorunderDOM/1appliestothemaincontractorforhislossandexpense.Theamountisthenagreedbetweenthemandisaddedtothesub-contractsum.Ifthemaincontractorhasasimilarclaimagainsttheemployer,e.g.inrespectofadelayduetolateinformation,theagreementoflossandexpenseshouldnotbetoopainfulaprocess-althoughitmaywellbealengthyone.Ifhoweverthelossandexpensearisesoutofthemaincontractor’sowndefault,therewilloftenbeconsiderabledifficultiesduetothemaincontractor’svestedinterests,butawell-foundedclaimforasubstantialsumwillalwaysbeworthpursuing.IntermediateFormIFC98:DecisionoftheArchitectTherulesforascertainmentoflossandexpenseunderIFC98areexactlythesameastherulesinJCT98.NAM/SC:DecisionoftheContractorTheprocedureforrecoveringlossandexpenseunderNAM/SCisexactlythesameasunderDOM/1.IN/SC:DecisionoftheContractorTheprocedureforrecoveringlossandexpenseunderIN/SCisexactlythesameasunderDOM/1ManagementContract:PartofPrimeCostTherearenolossandexpenseprovisionsassuchintheManagementContract1998,becauseitisaprimecostcontractandthereforetheManagementContractorwillrecoverhisactualcosts,providedtheyarenotincurredduetohisownnegligence.8Chapter11 CostsofDelayInanyeventbecausetheManagementContractorwinnotbecarryingoutanyworkonsite,themajorityofthelossandexpensecausedbyanydelaywillbesufferedbytheWorksContractors.WorksContract:DecisionoftheArchitectandManagementContractorTheprocedureforascertaininglossandexpenseduetoWorksContractorsisverysimilartothatinNSC/C.TheWorksContractormakesawrittenapplicationtotheManagementContractor,whopassesIttotheArchitectwithanycomments.TheArchitectascertains,orinstructstheQuantitySurveyortoascertain,theamountoflossandexpense,whichisthencertifiedinfavouroftheWorksContractor.ThedifferencebetweenWorksContract/2andNSC/CisthattheascertainmentiscarriedoutincollaborationwiththeManagementContractor,whereasthemaincontractorunderJCT98doesnotparticipateatall.ICE7thEditionNoticeRequirements:Clause53(1)thClause53(1)oftheICE7imposesageneralrequirementuponthecontractortogivenoticewheneverheintendstoclaimadditionalpaymentunderanyclause:thereforeclause53(1)appliestoclaimsforcostsarisingoutofdelay.Thenoticemustbeinwriting,andmustbesubmittedtotheEngineerassoonasmaybereasonableandinanyeventwithin28daysafterthehappeningoftheeventsgivingrisetotheclaim.Thecontractoralsohasanobligationtokeepsuchcontemporaryrecordsasmaybereasonablynecessarytosupporthisclaim,soproperdocumentationwillbevital.Onreceiptofthecontractor’snotice,theEngineermayrequirespecificrecordstobekept,andthecontractorwillbeobligedtocomply.Aftergivingtheinitialnotice,thecontractor,“assoonasisreasonableinallthecircumstances”mustsubmitaninterimaccountofhisclaim,givingdetailsoftheamountclaimedandthegroundsuponwhichitisbased.ThataccountmustthenbeupdatedattheintervalsrequiredbytheEngineer.Failuretocomplywiththerequirementsofclause52(4)willhaveseriousconsequencesforthecontractor,becausealthoughthenoticeandinterimaccountsarenotaconditionprecedenttopayment,clause52(4)expresslystatesthatiftheEngineerispreventedorprejudicedininvestigatingtheclaim.bytheirabsence,tothatextentthecontractorwillnotbeentitledtopayment.AmountsagreedbytheEngineershouldbepaidinthenextinterimpayment.Clause53(6)makesitclearthatthecontractorshouldbepaidforanypartofaclaimwhichhecansubstantiate,eventhoughhemaybeunabletosubstantiatethewholeclaim.Failuretosettlethewholeclaimshouldnotthereforedelaypaymentofthosepartsofitwhichhavebeenagreed.GroundsforRecoveringCostsUnliketheJCTforms,thegroundsforrecoveringcostsduetodelayarescatteredthroughoutthecontract.Theyareasfollows:-Clause7(4)DelayinissuingnecessaryinstructionsordrawingsbytheEngineer.Thecontractorwillrecoverhisreasonableextracostsincurredasaresultofsuchdelay.Chapter119 CostsofDelayClause12Adversephysicalconditionsandartificialobstructionswhichcouldnotreasonablyhavebeenforeseenbyanexperiencedcontractor.Whereaclaimisallowedunderthissub-clause,itshouldbenotedthatthecontractoristobepaidnotonlythereasonablecostofcarryingoutanyadditionalworkbutalsoareasonablepercentageadditioninrespectofprofit.Clause13(3)Thisimportantsub-clausecoversthosesituationswheretheEngineerissuesinstructionordirectionswhichdelaythecontractor,ordisrupthisconstructionarrangementssoastocausehimtoincurincreasedcostsbeyondthose“reasonablytohavebeenforeseenbyanexperiencedcontractoratthetimeoftendering”.TheEngineeristotakesuchdelayintoaccountwhendeterminingextensionsoftime,andthecontractoristobepaidsuchextracostasisreasonable.Clause14(8)Thissub-clauserequirestheEngineertotakeintoaccountanydelayindeterminingextensionsoftime,andentitlesthecontractortoreimbursementofextracosts,wheretheEngineer’sconsenttotheproposedmethodsofconstructionisunreasonablydelayed:orwheretherequirementsoftheEngineeroranylimitationsimposedbyanyofthedesigncriteriasuppliedbytheEngineercouldnotreasonablyhavebeenforeseenbyanexperiencedcontractoratthetimeoftendering.Clause31(2)Thecontractorisentitledtoextracostsarisingfromtheprovisionoffacilitiesforothercontractorswhichcouldnotreasonablyhavebeenforeseenatthetimeoftender.Clause40(1)ThecontractorisalsoentitledtotheextracostsarisingwheretheEngineersuspendstheprogressoftheworkexceptwhere,interalia,thereasonisweatherconditionsordefaultonthepartofthecontractor.Clause42(3)ThisclausecoversthesituationwheretheEmployerfailstogivepossessionofthesiteinaccordancewiththecontract,andentitlesthecontractortoextracosts.CECASub-ContractTherearenoseparateexpressprovisionsdealingwithlossandexpenseintheCECAform,Clause10(1)obligesthesub-contractortogivenoticesinsufficienttimetoenablethemaincontractortocomplywithhisobligationsunderthemaincontract,sothetimetableunderclause53(1)oftheICEformwillbeequallyimportanttothesub-contractor.Providedsuchnoticesaregiven,thecontractormusttakeallreasonablestepstosecureforthesub-contractorthebenefitsofthemaincontractwhichareapplicabletothesubcontractworks.Thesub-contractormayalsohaveaclaimforbreachofcontractagainstthemaincontractorifhedelayshimbyhisowndefault,althoughanyunforeseenor“neutral”eventsareatthesub-contractor’srisk.10Chapter11 CHAPTER12CLAIMSThisChapterdescribesdifferenttypesofclaim,setsoutsomebasicrulesforpresentingandquantifyingclaimsandsuggeststechniqueswhichcanbeusedinnegotiations.Giventhecomplexityanddiversityofclaimstogetherwithdevelopmentsincaseandstatutelawandrevisionstoformsofcontract,thisChaptermust,ofnecessity,representonlybroadoverviewofthesubjectasatthedateofthisHandbookandSteelworkContractorsshould,ofcourse,seekappropriatelegaladviceinrelationtoanyclaimswithwhichtheymaybeinvolved.ThreeotherChaptersinthisHandbookdealwithsubjectscloselylinkedtoclaim:Chapter9onVariations,Chapter10onExtensionsofTimeandCompletion,andChapter11ofCostsofDelay.TypesofClaimClaimsfallintotwobasiccategories:(a)thoseforwhichspecificprovisionismadebythecontract,e.g.,lossandexpenseduetodelay;and(b)claimsforbreachofcontracte.g.,breachoftheimpliedtermthattheemployerwillnothinderthemaincontractorincarryingouthiswork.Thesearesometimesdescribedas“commonlaw”or“extra-contractual"claims.ClaimProvidedforbytheContractThemostcommonclaimsaremadeunderexpresstermsofthecontract,forexample,claimforextracostsduetovariationsorforlossandexpenseduetodelayanddisruption.Manyariseoutofadefaultbytheotherparty,e.g.lateissueofdrawings,butothers,notablyclaimsduetovariations,donot.Allofthestandardformsincludeaprocedurewhichmustbefollowedifaclaimismadeunderanexpresstermofthecontract.Somestandardforms,suchastheGovernmentContract,GC/Works/1(SingleStageDesign&Build(1998)GeneralConditions,Condition46(3))providethatcompliancewiththatprocedureisaconditionprecedenttothecontractor’srighttomakeaclaim.Inotherwordsiftheprocedureisnotfollowed,thecontractorloseshisrights.TheJCTandICEformsarenotsostringentintheirrequirements,althoughfromapracticalpointofviewtheprocedureisimportant,becausefailuretofollowitgivestheotherpartyapowerfulweaponinnegotiations.NoticeRequirementsandProceduresJCTContractsAsexplainedinChapter11-CostsofDelay,alloftheJCTsub-contractslaydownsimilarproceduralrequirementsregardingclaims.Themostdetailedaretobefoundintheclausesentitlingthesub-contractortoclaimlossandexpenseduetodisruptionoftheregularprogresstotheworks.Theyprovidethatthesub-contractormustmakewrittenapplicationtothemaincontractorassoonasitbecomes(orshouldhavebecome)apparenttohimthathisregularprogresshasbeenorislikelytobedisrupted.Chapter121 ClaimsThiswillrarelybeattheendofthecontract,whichiswhenmostclaimsaresubmittedinpractice.Assoonasasub-contractorbecomesawareofaneventwhichmaydelayhim,heshouldgivewrittennoticetothemaincontractorthathemayincurlossandexpense.Manysub-contractorsdonotdothisbecausetheydonotwanttogetareputationforbeing“difficult”orclaimsconscious,butthisisextremelyshort-sighted.MaincontractorsdonothesitatetomakeclaimsagainstEmployerswhentheyareentitledtodoso,andtheyaremorelikelytorespectasub-contractorwhounderstandsandfollowsthecontractualprocedures.Thetoneofthenoticeorapplicationisalsoimportant.Allegationsofblameshouldbeavoidedunlessthesituationisveryclear;ingeneralthesub-contractorshouldsimplyrecordthefactsasneutrallyaspossible.Rememberthatclaimsfromsub-contractorsareoftenanimportantpartofthemaincontractor’sclaimagainsttheEmployer,andifthisisthecaseheislikelytowelcomeearlynotificationsandapplications.Anotherimportantpointisthatthefirstnoticeorapplicationdoesnothavetobeasrefinedordetailedasthefinalversionoftheclaim.Thecontractsenvisagethataninitialgeneralapplicationwillbemade,whichwilllaterbeamplifiedandsubstantiatedasthefulleffectsofthedisruptionbecomeapparent.Themaincontractorisentitledtorequestfurtherdetailsfromthesub-contractortosubstantiatetheclaim,butthesub-contractorshouldsupplytheinformationonhisowninitiativeassoonasitbecomesavailable.Forfurthercommentsonthistopic,seethesectionheaded“PresentationofClaims”below.ICEContractsthTheICE7containsspecificrequirementsregardingthenotificationofclaims,inclause53(1).Ifthecontractorintendstoclaimadditionalpaymentpursuanttoanyclauseinthecontract(otherthanclaimsforthedirectcostsofvariations)hemustgivewrittennoticetotheEngineerassoonasthmaybereasonableaftertheeventsgivingrisetotheclaim.TheICE7thereforeplaceaslightlydifferentemphasistotheJCTformsastheystresstheeventgivingrisetotheclaimratherthantheincurringofthecosts.Havinggivenwrittennoticeoftheevents,thecontractormustthenkeepsuchcontemporaryrecordsasarenecessarytosupporthisclaim,togetherwithanyrecordsheisspecificallyrequestedtokeepbytheEngineer.ThecontractormustalsosubmitinterimaccountstotheEngineeratreasonableintervalsgiving“fullanddetailedparticulars”oftheamountclaimed.TheICE7thexpresslyprovideforthecontractor’sfailuretocomplywiththisprocedurebystatingthattheclaimwillbepaidonlytotheextentthattheEngineerhasnotbeenpreventedfromorsubstantiallyprejudicedbythefailurefrominvestigatingtheclaim.AsimilartermisprobablyimpliedintotheJCTcontracts,particularlyinrelationtoinformationspecificallyrequestedbytheArchitect,QuantitySurveyorormaincontractorwhichhasnotbeensupplied.UndertheCECAformofsub-contract,thesub-contractorisrequiredtogivethemaincontractorsuchnoticesandinformationaswillenablethemaincontractortocomplywithhisobligationsunderthemaincontract,sotheaboveprovisionsareeffectivelysteppeddownintothesub-contract.Thepenaltiesforfailingtocomplywiththisobligationaresevere,forifthemaincontractorispreventedfromrecoveringanysumsfromtheEmployerunderthemaincontractbysuchafailure,thesewillbedeductedfrompaymentsotherwiseduetothesub-contractor.Thusifthesub-contractorfailstocomplywiththenoticeprovisionsinthemaincontracthemaynotonlylosehisownrightstomakeaclaimbutmayalsofindhehastopaythemaincontractor’slossandexpenseaswell.Theonlymitigationavailabletohimisaprovisototheeffectthathewillnotbesoliableifhedidnotknow(andshouldnothaveknown)ofthecontractor’sneedforthenoticeorinformation-althoughignorance2Chapter12 Claimsofthetermsofthecontractwillbenoexcuse,onlyignoranceoffactswhichtriggeredtherequirementforanoticeorclaim.CommonLawClaimsAsexplainedabove,acommonlawclaimisageneralclaimforbreachofcontractratherthanaclaimunderanexpresscontractualprovision.Oneofthemostimportantdifferencesbetweenacommonlawclaimandacontractualoneisthatatcommonlawnoparticularnoticeorotherproceduralrequirementswillapply.Thiscanbeveryconvenientifthecontractororsub-contractorhasfailedtocomplywiththeprocedure,butstillwishestomakeaclaim-providedtheeventgivingrisetotheclaimisabreachofcontract(andnotapermittedactsuchasavariation),hecanclaimdamagesforbreachofcontractratherthanlossandexpenseunderaspecificclause.Thedamagesrecoverableatcommonlawforabreachofcontractwillbeevaluatedonthesameprinciplesas“directlossandexpense”whichisrecoverableundertheJCTforms;thiswasconfirmedinthedecisioninF.G.MintervWelshHealthTechnicalServicesOrganisation(1980).TherulesforquantifyingcommonlawdamagesweresetdowninthecaseofHadleyvBaxendale(1854)andfallintotwocategories:(i)damageswhicharisenaturallyfromthebreachofcontracti.e.,accordingtotheusualcourseofthings(e.g.relatedpreliminariesarisingoutofadelay);(ii)damagesarisingoutofspecialcircumstanceswhichwereknowntobothpartiesatthetimetheymadethecontract(e.g.lossofprofitonanotherjoblostduetodelay).Otherlikelytypesofloss(sometimesreferredtoas“headsofdamage”)areconsideredinthenextsection.QuantificationofClaimsQuantifyingaclaimisnotanexerciseincreatingfiction.Proofisvital,particularlyintheformofcontemporaneousrecordssuchasletters,minutesofsitemeetings,sitediariesandphotographs.Estimatesshouldbeavoidedinfavourofaccuratefiguresandprecisecalculations.Typicalheadsofclaimaresetoutbelow.Extended/AdditionalPreliminariesAllclaimsshouldreflectthecostsactuallyincurredbythecontractororsub-contractor.ItisthereforenotappropriatetoclaimaprorataofthepreliminariessectionoftheBillsofQuantitiesregardlessofwhatisinthatsectionandthenatureoftheclaim.Manypreliminaryitemswillbeone-offitemsofcostsuchasplantmobilisation,installationofelectricityandwateretc.Otherswillbetime-relatedandiftheclaimisfordelaycostsitwillbeappropriatetoclaimtheadditionalexpense,ofthosetime-relateditems.Similarly,someitemsmayberelatedtothequantityofworkundertaken,soifavariationincreasesthequantityofworkrequiredanadjustmentofsuchitemswillberecoverable.Thebasicruleisthereforetoidentifywhatisincludedinthepreliminariesandclaimtheincreasedcostsonlyofthoseitemsrelevanttotheeventgivingrisetotheclaim.Chapter123 ClaimsAdditionalManagementandSupervisionVariationsanddelaycreatelogisticalproblems,whichmeansextrasupervisionandmanagementisrequired.Suchcostsarerecoverable,buttheymustbeproved.Theyshouldnotbeclaimedbothasaseparateitemandaspartofanotherheadoftheclaim,suchaspreliminariesorheadofficemanagement.Theneedtoproveadditionalmanagementcostsmeansthatpersonaldiaries,appointmentrecordsetc.willbeveryimportant,andifitisclearthataclaimwillbemadeonaparticularcontractallmanagersshouldensurethattherearerecordsshowinghowmuchtimehasbeenspent.Supervisorycostsareofteneasiertoproveastherewillnormallybetimesheets,dayworksheetsandentriesinthesitediarytodemonstratetheadditionaltimespentonsitebysupervisors.PlantItemsandEquipmentIfanadditionalitemofplantisrequiredtocarryoutavariation,thefullcostofobtainingandusingthatitemofplantshouldberecoverable.InclaimsfordelaythehireratefortheadditionalperiodmaybeallowedwheretheContractorhasincurredadditionalhirecharges.WheretheContractorownstheplant,hecannotclaimonthebasisofanotionalhirerateovertheperiodofdelay-AlfredMcAlpineHomesNorthLimitedvPropertyandLandContractorsLimited(1995).Inthatevent,theclaimshouldbecalculatedonthebasisofdepreciation,interest,maintenanceandwages.IftheplantbelongstotheSteelworkContractorandhecanprovethatitwouldbeearninghimprofitonanothercontractifitwerenotforthedelay,thelossofprofitmayalsobeallowed.IncreasedCostsIftheclaimrelatestodelaycosts,increasedcostsoflabourandmaterialsshouldberecoverable.However,ifthecontractisfixedpriceandnolimitonthefixedpriceperiodhasbeenagreedattenderstage,SteelworkContractorswillfinditdifficulttopersuadeaquantitysurveyortopayforfluctuations.Increasedcostsisoneareawheretheoreticalcalculationscanbehelpful,astheNEDOformulaisgenerallyregardedasauthoritative,andwillprovideagoodbasisfornegotiations.DisruptionofRegularProgressThisfeaturesinalmosteveryclaim,andalthoughitmayberelativelyeasytoprovethatsomedisruptionhasoccurreditmaybemuchhardertodemonstratethatitislegallyrecoverableandhowmuchithasactuallycost.Firstofallthecontractorneedstoprovehowhewouldhaveproceededifthedisruptionhadnotoccurred,e.g.byusingaprogrammeormethodstatement.Hethenneedstoshowthathisprogresswasdisruptedbythemaincontractor(orothersub-contractorsforwhomthemaincontractorwasresponsible).Thedegreeofdisruptionisimportant:allsubcontractorsareobligedtoproceedgenerallyinaccordancewiththemaincontractworks,anditwasconfirmedinthecaseofMartinGrantvSirLindsayParkinson(1984)thatsubcontractorsarenotautomaticallyentitledtoaflowofworkwhichenablesthemtocarryouttheirobligationsinthemosteconomicalmannerpossible.However,ifitcanbedemonstratedthatthemaincontractorhadbeenproperlyrequestedtosupplyinformationorhadagreedtomakeanareaofthesiteavailablebuthadfailedtodoso,thecostsofanyconsequentdisruptionwouldberecoverable.4Chapter12 ClaimsLossofProductivityItisgenerallyacceptedthatdisruptionandexcessiveovertimeworkingbothleadtoalossofproductivity,buttheactualcostsareextremelydifficulttoprove.Themostreliablewayistocomparenormaloutputperhourwithoutputperhourduringtheaffectedperiod,butsuchstatisticswillnotalwaysbereadilyavailable.Thisitemisoftensimplyestimated,butintheabsenceofspecificproofitwouldbeunwisetopitchthatestimateattoohighafigure.OverheadsandProfitTherearetwotypesofoverheads:thoserelatedtoaparticularcontractandfixedoverheads.e.g.headofficecosts.Iftheeventgivingrisetotheclaimincreasesanoverheadspecifictothecontractitwillbearelativelyeasymattertoprove(andmayhavebeenidentifiedinthepreliminariesandthereforebeclaimedunderthathead).Fixedoverheadspresentgreaterproblems.Headofficecostsetc.willbepayableregardlessofdelayorvariationsonaparticularcontract-andthereforeitisoftenarguedtheyshouldformnopartofaclaim.However,ifthiswerecorrecttheallowanceforoverheadsincludedinthetenderwouldbestretchedtocoveraperiodlonger(oranamountofworkgreater)thanthatoriginallyintended.Profitshouldalsoberecoverableaspartofthelossandexpenseordamages,ifthebudgetedallowanceisdiminishedbythedelay.Thereforeifthecontractorcanprovethatbecauseoftheeventgivingrisetotheclaimhehaslosttheopportunitytodeployhisresourcesonothercontractsearningprofitandrecoveringfixedoverheads,theyshouldbothformpartofhisclaim.Thecalculationofoverheadsisanothervexedquestion.Themethodsusedtodothisvaryfromasimpledeviceofprovidinganauditor’scertificatetoprovethenormalleveloffixedoverheadsthroughtocomplicatedmathematicalformulae.Themostwidelyusedformulaisknownas“theHudsonformula”whichis:HeadOffice/ProfitPercentagexContractSumxPeriod100ContractPeriodofDelayThisformulawasapprovedbyanOfficialRefereein1988inthecaseofJ.F.FinneganvSheffieldCityCouncil,butitisregardedwithsuspicionbymanyquantitysurveyors.andiscertainlycapableofproducingsomeludicrouslyhighfiguresforoverheadsandprofit.Analternativeformulaisthe“Emdenformula”whichissimilarexcepttheHeadOfficeorprofitpercentageisderivedfromthefinancialrecordsoftheclaimantcompanyandthusrelatestotheclaimant’sbusinessaswholeratherthansimplytothecontractinquestion.TheEmdenformulais:hxcxpd100cpwhere:•h=theheadofficepercentage,normallyarrivedatbydividingthetotalcostsoftheorganisationasawholebythetotalturnover•c=thecontractsum•cp=thecontractperiod•pd=theperiodofdelay,tobecalculatedinthesameunitsascpChapter125 ClaimsItisimportanttonotethattheuseofanyformulawillonlybejustifiediftheassumptionsonwhichitisbasedcanbesupportedbyevidence-AlfredMcAlpineHomesNorthLtdvPropertyandLandContractorsLtd(1995).Ingeneral,anoverheadpercentagebasedondetailedcostsandanauditor’scertificateislikelytobemoreacceptable.Inordertorecoverlossofprofit,theSteelworkContractorshouldalsobepreparedtodemonstratethatanydelaypreventedhimfromtakingonprofitablenewwork.InterestandFinancingChargesTherighttobepaidinterestinlatepaymentwilldependontheprovisionsofthecontractorupontheLatePaymentofCommercialDebts(Interest)Act1998(seeChapter7).Financingchargeswillhoweverberecoverablebycontractorsandsub-contractorsaspartoftheirclaimsforlossandexpenseordamages.Financingchargeshavebeendefinedasthecosttothecontractoroffinancingthedelayand/ordisruption,eitherbypayinginterestonabankoverdraftorbylosinginterestonmoneywhichwouldhaveotherwisebeeninvested.ThisprinciplewasfirstacceptedbythecourtsinthecaseofF.G.MinterLtdvWelshHealthTechnicalServicesOrganisation(1980)althoughthisdecisionisnoteasytoreconcilewithlaterdecisionsinPresidentofIndiavLaPintadaCia,NavigacionSA(1985)andBPChemicalsLtdvKingdomEngineering(Fife)Ltd(1994).Theperiodduringwhichthefinancingchargeswillberecoverablerunsfromthedatetheyareincurreduptothedatethelossandexpenseisproperlyascertainedunderthecontract.ItisimportantthattheSteelworkContractormakesregularapplicationsforreimbursementoffinancingcharges,otherwisehemaylosehisrightstoclaimthem,particularlyundertheJCTforms.PresentationofClaimsHavingquantifiedtheclaim,itisworthspendingalittleextratimeandeffortonpresentation.Aclaimwhichiswellstructuredandeasytounderstandhasmuchbetterprospectsofsuccessthanascruffy,disorganisedandill-expressedone.Structureisvital.Thedocumentshouldbedividedintosections,whichwillnormallybe:(i)IntroductionThisshouldidentifythepartiestothecontract,theconditions,theactualandprogrammedcommencementandcompletiondates,andgiveabriefsummaryofwhatisbeingclaimed,forexample,tenweeksextensionoftimeand£100,000.Bearinmindthatthepersonevaluatingyourclaimmaynothavebeeninvolvedintherunningofthecontract,sothisinformationcannotbetakenasread.(ii)BasisofClaimSetoutwhetheryourclaimisfordamagesforbreachofcontractatcommonlaw(ifso,identifytheexpressorimpliedtermsallegedtobebroken)orforlossandexpensepursuanttoaparticularclauseofthecontract.6Chapter12 Claims(iii)DetailsofEventsonwhichtheClaimisBasedSetouttheeventswhichgiverisetoyourclaim,listingtherelevantdelays,variationsetc.Youshouldalsorefertothenotificationsoftheseeventswhichyouissuedduringtheprogressoftheworks.(iv)EvaluationoftheClaimThiswillbethequantificationofyourdamagesorlossandexpensewhichhasbeenexplainedabove.(v)AppendixThisshouldcontainthekeydocumentswhichsupportyourclaimwhichyouhavereferredtointhepreviousfoursections.Thegoldenrulehereistobeselective;donotsimplyincludeallofthecorrespondence,butbepreparedtosupplyfurthersubstantiationifitisrequested.Thisstructurewillbeappropriatehoweverbriefordetailedtheclaim,althoughobviouslythelengthofthesectionswillvary.Clarityisalsoimportant.Identifythefactsonwhichyourclaimisbasedandsetthemoutinacomprehensibleway.Minorthingssuchastypingerrorsandpoorlayoutscanbeveryfrustratingtoareader,andshouldbeavoidedifpossible.NegotiationofClaimNegotiatingclaimscanbealongdrawnoutandfrustratingbusiness.Thebettertheclaimhasbeenpreparedthecasterthetaskwillbe,buteventhebestprepared,mostjustifiedclaimsarelikelytobereducedinnegotiations,andmanycontractorsallowforthisbyincludinganegotiatingmarginintheirclaim.Thefirstphaseofthenegotiationwillusuallybebyletter.SteelworkContractorsshouldrespondtorequestsforfurtherinformationasfullyandpromptlyaspossible,eveniftherequestsseemtobenomorethananexcusefornotdealingwiththeclaim.Ifyoucontinuetosupplytheinformation,therewilleventuallybenoexcusesofthattypeleft.Iftherecipientoftheclaimwillnotrespondatall,keepupthepressure.Considerinvolvingprofessionaladviserssuchaslawyersorclaimsconsultantswhowillbeabletoadviseonthecommencementoflegalproceedingsifnecessary.Oftentheinterventionofprofessionaladvisersprovokesaresponseofthesamesort,ifnotalwaysafavourableone.Oncethepartieshavesetouttheirrespectiveviewsinwriting,progressisnormallybestachievedthroughmeetings.Ifpossible,ensurethatthoseattendinghavetheauthoritytosettleandagreetheclaimaswellasdiscussit:thiscansaveaconsiderableamountoftime.Concessionswillalwayshavetobemade,buttheyshouldcomefrombothsides.IftheSteelworkContractoristootimid,theclaimwillbesteadilyerodeduntilthereisvirtuallynothingleft.Rememberthatlegalproceedings(adjudication,litigationorarbitration)canbeavaluabletoolinnegotiations,butprofessionaladviceisimperativeinsuchcases.Finally,ifanagreementisreachedatameeting,ensurethatItsprecisetermsarerecordedatthemeetingandsignedbythosepresent.Memoriescanbebothshortandinaccurateinsuchcircumstances.Chapter127 ClaimsConsiderationshouldalsobegiventotheinvolvementofanindependentmediatoralthoughthiswillnormallyrequiretheconsentofbothsides.Theobjectofthemediationwillbetoachieveanagreementandneitherpartyisnormallyboundinadvancetoaccepttheoutcomeofthemediation.AlistofaccreditedmediatorscanbeobtainedfromtheCentreforDisputeResolution(CEDR),93GreshamStreet,LondonEC2V7NA.8Chapter12 CHAPTER13DEFECTSLIABILITYThisChapterdescribestheprovisionsofthestandardformswhichdealwithdefectsliability,andsummarisesbrieflythegenerallegalrulesregardingdefectiveworkandmaterials.LiabilityfordefectivedesignisconsideredseparatelyinChapter14.Itisacommonmisconceptionthatliabilityfordefectsceasesattheendoftherelevantdefectsliabilityperiodspecifiedinthecontract.Thisisnotthecase:acontractororsubcontractorremainslegallyresponsiblefordefectsinhisworkuntiltheexpiryoftherelevantlimitationperiod,whichwillbesixyearsafterpracticalcompletionifthecontractwassigned,ortwelveyearsifitwasexecutedundersealorasadeed.Iftheinjuredpartyissuingfornegligenceratherthanforbreachofcontractitmaybeevenlonger-uptofifteenyearsfromthedateofthenegligentact.(Forafullexplanationoflimitationperiods,seeChapter16).Therearethereforefourdistinctstagesinthelifeofabuildingatwhichdefectsmayarise:(i)duringtheconstructionofthebuilding(ii)duringthedefectsliabilityperiod(iii)aftertheexpiryofthedefectsliabilityperiodbutbeforetheendoftherelevantlimitationperiod(iv)afterthelimitationperiodhasexpired.Responsibilitywillvarydependingupontheperiodduringwhichthedefectoccurs,andthereforethisChapterconsiderseachoftheabovefourstagesseparately.AbriefsectionattheendofthisChapterdiscussestheamountofdamagespayablefordefectiveworkDefinitionofaDefectWorkormaterialswillbedefectiveiftheydonotcomplywiththeexpressandimpliedtermsofthecontract.Thevariousstandardformsdifferslightlyinthisrespect.Forexample,theJCTformsrequirecompliancewiththecontractdocuments(whichwillnormallylaydownobjectivestandards),andallowtheArchitecttospecifythatcertainworkmanshipand/ormaterialsaretobetohisreasonablesatisfaction.Thissubjectivestandardisnormallyconfinedtomattersaffectingtheaestheticaspectsofthebuilding.Incontrast,theICEformrequiresthecontractortoconstructthewholeworkstothesatisfactionoftheEngineer.Notethattheydonotmerelyhavetobetohisreasonablesatisfaction.However,thecontractorisrelievedofhisobligationsregardingworksandmaterialsinsofarashecannotfulfilthemduetolegalorphysicalimpossibility.(i)DefectsArisingDuringConstructionFrequently,defectswillariseduringtheprogressoftheworks,andallthestandardformsgivetheArchitectorEngineercertainpowersinthatevent.Thequestionofwhethersuchdefectsconstituteabreachofcontractwhichwillgiverisetoarighttorecoverdamages(beyondtheexpressremediesgivenbythecontract)wasconsideredinHosier&DickinsonvRaye(1972).Inthatcase,theviewwasexpressedthatsuchdefectswerea“temporarydisconformity”,whichdidnotconstituteabreachifputrightpromptlyonreceiptofaninstruction.Chapter131 DefectsLiabilityHowever,thisviewwasobiterdicta(i.e.notcentraltothedecisioninthatcase)anddoesnotthereforecreateaprecedent.Indeed,itisaviewwithwhichmanycommentatorsdisagree,onthegroundsthatcorrectingadefectatalatestageintheworkmaygiverisetoconsiderabledifficulties,andthatinabuildingcontract,onceworkandmaterialsarefixed,theyarethepropertyoftheEmployer.Itisthereforemoreprudenttotreatadefectasabreachofcontract,whichwillgiverisetoarightfortheEmployertoclaimdamages.JCT98IfthecontractorunderJCT98executesworkorsuppliesmaterialswhicharenotinaccordancewiththecontract,theArchitecthasarangeofpowersunderClause8.4.Thesepowersinclude:•issuinginstructionsrequiringtheremovalfromsiteofnon-compliantwork,materialsorgoods•allowingnon-compliantwork,materialsorgoodstoremainfollowingconsultationwiththecontractorandagreementoftheEmployerandanappropriatedeductiontobemadefromtheContractSum•toissueavariationfollowingconsultationwiththecontractor•toorderopeningupforinspectionortestNominatedSub-ContractNSC/CTheArchitect’spowersarepasseddownintothenominatedsub-contractbyclause3.4.NSC/Calsobindsthecontractortoconsultwiththenominatedsub-contractorifitisappropriate,andthereforethenominatedsub-contractorcanenforcetheconsultationprocessifnecessary.Thedraftingofthesteppeddownclausesregardingopeningupandtestingissomewhatcomplex.WheretheArchitectinstructsfurtheropeningupandtestingfollowingthediscoveryofadefectunderthemaincontract,ifthatdefectisinnominatedsub-contractworktheinstructionwillbepassedonbythemaincontractortothenominatedsub-contractorwhomustcomplywithit.(Notethatthemaincontractormaynotissuesuchaninstructiononhisowninitiative).Theconsequencesoftheinstruction,andthecriteriatowhichtheArchitectmusthaveregardinissuingit,areexactlythesameasunderthemaincontract.However,NSC/Calsodealswiththeeffectonnominatedsub-contractworkofotherworkbeingopenedupforinspectionortestedinclause3.8.Forexample,ifservicesinaceilingvoidarerequiredtobetestedunderclause8.4.4ofJCT98theceilingcontractormayneedtotakedownhisworktoallowtheservicescontractorstocarryoutthetesting,andwhenthetestingiscomplete,theceilingcontractorwillneedtoreplacethatpartofhiswork.Whereaninstructionissuedunderclause8.4.4ofJCT98necessarilyresultsinthenominatedsub-contractor’sworkbeingtakendown,re-executed,refixedorresupplied,themaincontractorisempoweredtoissuedirectionstothesub-contractortotakedownetc.Thesub-contractorwillbepaidbythemaincontractorforsuchwork,onthebasisofafairvaluation.Thepaymentmustbemadebythecontractorwithin14daysoftheendofthemonthwhenthetakingdownetc.wascarriedout.Thesub-contractorwillalsobeentitledtoanextensionoftimeandlossandexpense.Whenthenominatedsub-contractor’sworkhasreachedpracticalcompletion,themaincontractormaynolongerissuedirectionsrequiringhimtocarryoutsuchtakingdownetc.Althoughitisopentothemaincontractorandthesub-contractortoreachanagreementthiswouldbetotallyoutsidethetermsofthecontract.Ifsuchaseparateagreementcannotbereached,thentheArchitectmustnominateafurthersub-contractortocarryoutthetakingdownetc.work.2Chapter13 DefectsLiabilityInNSC/C,thenominatedsub-contractorwhohasexecutedthedefectiveworkundertakestoindemnifytheMainContractorforanycostshemayincurinpayingothersub-contractorstheircostsinrespectoftakingdownetc.work.TheArchitect’spowerstoallowdefectiveworkandmaterialstoremainandtoissue“free”variationsreasonablynecessaryasaconsequenceofdoingsoorasaconsequenceoforderingtheremovalofdefectiveworkarealsosteppeddownintoNSC/C.DomesticSub-Contract–DOM/1TheDOM/1clausesdifferfundamentallyfromthoseinthenominatedsubcontractinthatDOM/1givesthemaincontractorhisownpowerstoinstructopeningupandtestingetc:heisnotrestrictedtopassingonInstructionsfromtheArchitect.Thearrangementsaresetoutinclause4.3ofDOM/l.Clause4.3.2givesthemaincontractorarangeofpowerswherethesub-contractorhasexecuteddefectiveworkorsupplieddefectivegoodsandmaterials(describedinthecontractas“non-complyingwork”).Firstly,themaincontractormayrequiretheremovalorrectificationofanynon-complyingwork.Ifhedoessoonhisowninitiative(i.e.heisnotsimplypassingonanArchitect’sInstruction)hemusthaveregardtotheCodeofPractice“A”whichisappendedtoDOM/1.ThepurposeoftheCodeistoassistthemaincontractorindecidingwhethertorequireremovalorrectification,andrequireshimtoconsidermatterssuchastherelativecostsofremovalandrectification,theamountoftimeinvolvedandthesignificanceoftheproblem.TheCodealsostressesthedesirabilityofagreeingwiththesub-contractorhowthenon-complyingworkshouldbedealtwith,anditwillnormallybeinthedomesticsubcontractor’sinteresttomakesensibleproposalsfordealingwiththedefectiveworkormaterials.Themaincontractormayalso,afterconsultationwiththesub-contractor,varythesubcontractworkstotheextentwhichisreasonablynecessaryasaconsequenceoftheinstructiontoremoveorrectifydefectivework.SuchvariationsareeffectivelyfreetothemaincontractorandtheEmployer,asthesub-contractorwillnotbepaidthecostsofcarryingoutthevariedwork,norwillheobtainanextensionoftimeorlossandexpense.Onceagain,themaincontractorisnotrestrictedtopassingonArchitect’sinstructionsunderthemainform;hemayordervariationsonhisowninitiativeifhefeelsitappropriate.Itshouldbenoted,however,thatvariationswillonlybe“free”iftheyarereasonablynecessaryasaconsequenceofremovalorrectification;ifthemaincontractordoesnotfulfilthiscriterionhewillhavetopayforsuchvariationsintheusualway.Afurtherpoweravailabletothemaincontractoristherighttoorderopeningupandtesting.Ifnodefectshavealreadybeendiscovered,thatopeningupandtestingisinstructedunderclause4.3.1.andifitrevealsnodefectsthesub-contractorwillbepaidthelullcostsoftheopeninguportestingandanynecessarymakinggood;hewillalsogetanextensionoftimeandlossandexpense.Ifdefectsarerevealedtheopeninguportestingwillbeatthesub-contractor’sexpenseandhewillnotobtainanextensionoftimeorlossandexpense.Ifdefectshavealreadybeendiscovered,differentrulesapplytotheorderingofopeninguportesting,whicharesetoutinclause4.3.2.3ofDOM/1.Themaincontractormayordersuchopeninguportestingasisreasonableinthecircumstancestoestablishtohisreasonablesatisfactionthelikelihoodorextentofanyfurthersimilardefects.Asmentionedabove,themaincontractorisnotrestrictedtopassingoninstructionsfromtheArchitect;hemayrequiresuchopeninguportestingonhisowninitiative.Chapter133 DefectsLiabilityThedomesticsub-contractor’smainprotectionisthatthemaincontractormusthaveregardtoCodeofPractice“B”whichisverysimilartotheCodeofPracticeincorporatedintoJCT98.savethattwoadditionalmattersmustbetakenintoaccount:(ii)thenatureandextentofanyopeninguportestinginstructedbytheArchitectunderthemainformwhichaffectsthedomesticsub-contractworks;(iii)anydecisionoftheArchitectunderthemainformnottoinstructopeninguportestingwhichaffectsthedomesticsub-contractworks.ThiswillmakeitextremelydifficultforthemaincontractortodifferfromtheArchitect,inparticularhewillneedexcellentreasonstoorderopeninguportestingadditionaltothatrequiredbytheArchitect.Providedtheopeninguportestingisproperlyorderedunderclause4.3.2.3.thesub-contractorwillnotrecoverthecostsoftheopeninguportestingnoranyconsequentmakinggood,regardlessofwhetherornotdefectswererevealed.However,providednodefectswererevealedthesub-contractorwouldbeentitledtoanextensionoftime;butnottolossandexpense.Thereisoneveryimportantrestrictiononthemaincontractor’sownpowerstoorderopeninguportestingandtorequiretheremovalorrectificationofdefectiveworkthecontractormaynotissuesuchdirectionsonhisowninitiativerelatingtoworkwhichisamatterfortheopinionoftheArchitect.Further,themaincontractordoesnothavehisownpowerstoallowdefectiveworktoremainortoinstruct"free"variationswhicharereasonablynecessaryasaconsequenceofdoingso;decisionsonsuchmattersmustbetakenbytheArchitect.Thesub-contractorwillbeawareofwhetheraninstructionoriginateswiththeArchitectormaincontractorbecauseclause4.3.2expresslyrequiresthemaincontractortoinformthesub-contractorifhisdirectionispassingonaninstructionoftheArchitect.IntermediateFormIFC98TheArchitect’spowersunderIFC98regardingdefectiveworkaresomewhatlimitedcomparedtohispowersunderJCT98.Obviously,hehasthepowertoinstructthatdefectivework,goodsandmaterialsareremoved(clause3.14)andconsequentlythecontractorwouldbeboundtoinstallworkormaterialswhichcompliedwiththecontract.Hemayalsoorderopeningupandtestingofanyexecutedworkunderclause3.12.Unlesssuchopeningupandtestingisprovidedforinthecontractdocuments,thecontractorwillbeentitledtopaymentforit,andanextensionoftimeandlossexpenseduetoanydelayprovidedtheworktestedisinaccordancewiththecontract.Ifnot,theopeningupandtestingisentirelyattheContractor’scost.Whereadefecthasalreadybeendiscovered,differentprovisionsapplyregardingopeningupandtesting.Underclause3.13.1,assoonasadefectisdiscovered,thecontractormustgiveawrittenstatementtotheArchitectoftheactionheproposestotake(atnocosttotheEmployer)toestablishthattherearenosimilardefects.Ifthecontractorfailstoprovidesuchastatementwithinsevendaysofthediscoveryofthedefect,oriftheArchitectisnotsatisfiedwiththecontractor’sproposals,hemayinstructthecontractortocarryoutsuchopeningupandtestingastheArchitectdeemsnecessarytoestablishthereisnofurthersimilarfailure.Hemayalsoissuesuchinstructionsifhecannotwaitforthecontractor’sproposalsbecauseofsafetyconsiderationsorstatutoryobligations.IfthefurtheropeningupandtestinginstructedbytheArchitectrevealsnofurtherdefects,hewillgetanextensionoftimeforanydelaycaused,butnolossandexpense.IfthecontractorobjectstotheamountofopeningupandtestingorderedbytheArchitect,hemaymakeawrittenobjectionwithintendaysofreceivingtheinstruction.However,thisdoesnotaffecthisobligationtocomplywiththeinstruction,andiftheArchitectchoosestoneitherwithdrawor4Chapter13 DefectsLiabilitymodifyitonreceiptoftheContractor’sobjection.TheContractor’sonlyremedyisimmediateadjudicationorarbitration.Furthermore,thereisnocodeofpracticetowhichtheArchitectmusthaveregardinIFC93asthereisinJCT98.Generally,theIFC98provisionsonopeningupandtestingdonotofferquiteasmuchprotectionagainstacapriciousArchitectastheJCT98clauses.However,theclausesinJCT98regardingallowingdefectiveworktoremainandinstructing“free”variationsdonotappearinIFC98.Theomissionofsuchclauseswillfrequentlybetothecontractor’sadvantage.NamedSub-Contract-NAM/SCTheIntermediateFormprovisionsaresteppeddownbyclause5ofthenamedsub-contractNAM/SC.Thereareonlytwosignificantdeparturesfromthemainformclauses:firstlythetimeperiodsareslightlyshorter(thesub-contractormustgivehisproposalswithin5daysofthediscoveryofthedefectsandmustobjectwithin7daysofreceivinganinstructionregardingfurtheropeningupandtesting);secondlytheContractorhashisownpowerstoinstructfurtheropeningupandtestingunderclause5.6.HeisnotconfinedsimplytopassingoninstructionsoftheArchitect.ThesomewhatcomplexprovisionsinNSC/Cregardingtheeffectofopeningupandtestingonothersub-contractworkhavenotbeenincludedinNAM/SC,butthelackofsuchprovisionsdoesnotappeartohavecausedanyproblemsinpractice.DomesticSub-Contract–IN/SCThecontractor’spowersregardingdefectivework,openingupandtestingetc.areexactlythesameunderIN/SCastheyareunderNAM/SC.ManagementContract1998Underclause3.10oftheJCTManagementContracttheArchitectmayissueInstructionsrequiringtheManagementContractortosecurethecarryingout(byWorksContractors)ofopeningupandtesting.SuchopeningupandtestingwillbeatnocosttotheEmployeronlyifitrevealsdefectsIntheworktested.TherearesimilarprovisionstothosementionedaboveintheManagementContractclause3.11regardingopeningupandtestingfollowingthediscoveryofadefect,allowingdefectiveworktoremainorinstructing"free"variations.TheManagementContractorisalsoexpresslyrequiredtocomplywithanyinstructionoftheArchitectrequiringhimtosecuretheremovalormakinggoodofdefectiveworkatnocosttotheEmployer.WorksContracts-WorkContract/2TheWorksContractconditionsfollowtheprovisionoftheManagementContractregardingdefects.TheManagementContractormaybothpassoninstructionsoftheArchitectregardingdefectsandopeningupandtesting,andissuehisownreasonabledirections.thICE7EditionthICE7containsextensiveprovisionsregardingtheuncoveringandtestingofworkandmaterials.Clause36(l)givestheEngineerageneralpowertoinstructthatworkand/ormaterialsaresubjectedtosuchtestsashedirects.Hemayinstructtheteststobecarriedoutattheplaceofmanufacture,onthesiteoratanyotherplacespecifiedinthecontractsuchasalaboratory.Chapter135 DefectsLiabilityThecontractormustprovidealltheresourcesnormallyrequiredforthetests.Thecontractormustbearthecostsofthetestsiftheyareprovidedforinor“clearlyintendedby”thecontractandinrespectofcertaintests(testsunderload;testsregardingtheappropriatenessofdesignforItsintendedpurpose)theremustbesufficientdetailinthespecificationorlullsofquantitiestoenabletheContractortohaveallowedforthetestsinhistender.Inregardtoallothertests(i.e.thosenotreferredtoorintendedbythecontractorwheresufficientdetailhasnotbeengivenwherethatrequirementapplies)theEmployerbearsthecostofthetestprovideditrevealsnodefects.thTherearenoexpressprovisionsinICE7regardingtestingfollowingthediscoveryofadefect,buttestingofworkwhenadefecthasbeenrectifiedwillnormallybeatthecontractor’scost,underageneralprovisionrequiringhimtotestallrectifiedworkinthespecificationofbillofquantities.Thecontractorisalsorequiredtosupplysamplesofmaterialstobeincorporatedintotheworksfortesting.ThiswillbeattheEmployer’scostunlesstheirsupplyisprovidedforor“clearlyintendedby”thecontract.TheEngineermayinstructthecontractorthatinfutureworkormaterialsistoequaltheresultsofatestorasamplewhicharebelowwhatisspecifiedinthecontract.Inthesecircumstances,thecontractorshouldprotecthimselfbyconfirmingtheinstructionasavariation,otherwisehemaysubsequentlybeforcedtoupgradetheworkormaterialstothestandardspecifiedinthecontract.UnliketheJCTforms,theICE7thdealseparatelywithtestinganduncoveringwork.Clause36dealswithtesting,whilstclause38dealswithuncovering.Clause38(1)imposesastrictdutyontheContractornottocoverupworkwithouttheconsentoftheEngineer,whomustbegivenfullopportunitytoexaminethework.ThecontractormustgivetheEngineernoticewhentheworkisreadyforexamination.IftheEngineerdelaysunreasonablytheinspectionofthework(ornotifiesthecontractorthatinspectionisnotnecessary)thecontractorshouldnotcoverupthework,buthewillbeentitledtoanextensionoftimeforanydelaycaused.Oncetheworkhasbeencoveredup,iftheEngineerthendecideshewishesittobeuncoveredoropeningstobemade,hemayissueinstructionstothateffectunderclause38(2).Providedthecontractorhascompliedwithhisobligationsunderclause38(l)regardinginspectionbeforecoveringup,hewillbepaidthecostsoftheuncoveringandmakinggoodiftheworkandmaterialsuncoveredarefreefromdefects.Clause39oftheICEConditionsempowerstheEngineertoinstructtheremovalandreexecutionof’anydefectivework.CECASub-ContractClause2oftheCECAformimposesageneralobligationonthesub-contractortoexecutetheworkstothereasonablesatisfactionofthecontractorandEngineer.Theliabilitiesofthesub-contractorthereforeappeartobeslightlylessthanthoseofthemaincontractor,whomustprovideworktotheEngineer’ssatisfaction(thereisnorequirementthathemustbereasonable)unlessitislegallyorphysicallyimpossibleforhimtodoso.However,clause3(2)oftheCECAformrequiresthesub-contractortocomplywiththeprovisionofthemaincontract“exceptwheretheprovisionsofthesub-contractotherwiserequire.Itwouldthereforebeopentoamaincontractortoarguethatthesub-contractorwasboundtocomplywiththeslightlyhigherstandardinthemaincontract.AstheCECAcontractiscomparativelybrief,therearenoexpressprovisionsdealingwiththetestinganduncoveringofsub-contractwork.However,byclause7thesub-contractormustcomplywithdecisionsandinstructionsoftheEngineerconfirmedinwritingtohimbythecontractor,andthe6Chapter13 DefectsLiabilitymaincontractorhashisownpowerstoissuesuchinstructionsastheEngineerhastherighttoissueunderthemaincontract.Inthissimplemanner,themainformprovisionsareeffectivelysteppeddownintothesub-contract.(ii)DefectsArisingDuringtheDefectsLiabilityPeriodAllofthestandardformsconsideredinthisHandbookprovideforadefectsliabilityperiod.Duringthisperiod,thecontractormustrectifyalldefectswhichappearandarenotifiedtohimbytheArchitectorEngineer.Thishaspracticaladvantagesforbothsides:itgivestheEmployerreassurancethatproblemswhichappearduringtheearlylifeofthebuildingwillberesolved,anditallowsthecontractortorectifytheworkhimself,whichwillalmostcertainlybecheaperthanhavingtopayforsomeoneelsetodothework.TheJCTformsallhaveverysimilarprovisionsonthedefectsliabilityperiod,andtheyarethereforenotdiscussedseparatelybelow,butarecommenteduponcollectively.JCTMainFormsThedefectsliabilityperiodbeginsonthedateofpracticalcompletion,andrunsfortheperiodspecifiedinthemaincontractappendix.Asadefaultthisis6monthsbutiscommonlyextendedto12months.Duringthattime,thecontractorisboundtorectifyathisowncostalldefectswhichappearandwhichareduetomaterialsorworkmanshipnotbeinginaccordancewiththecontract,orduetofrostoccurringbeforepracticalcompletion.Iffaultsappearduetoothercauses,thecontractorwillnotbeobligedtorectifythem,althoughhemayreachaseparateagreementtodosowiththeEmployer,onthebasisthathewillbepaidforthework.TheArchitectmayissueinstructionsrequiringthecontractortomakegooddefectsatanytimeduringthedefectsliabilityperiod,andthecontractorisobligedtocomplywiththoseinstructions,athisowncost,withinareasonabletimeofreceivingthem.TheArchitectmustalsoissueascheduleofdefects(knowncolloquiallyasasnagginglist)notlaterthan14daysaftertheexpiryofthedefectsliabilityperiod.Althoughhemayissuethescheduleatanytimebeforethat,heisunlikelytodoso,becauseoncetheschedulehasbeenissued,theArchitectmaynotissuefurtherinstructionsrequiringthecontractortoremedydefects.TheContractorwouldremainliableforthecostsoftheremedialworks,buthewouldnotbeobligedtocarrythemouthimself.TheArchitectalsohastheoptionduringthedefectsliabilityperiodofinstructingthatcertaindefectsarenottobemadegoodbythecontractor,andmakinganappropriatedeductionfromthecontractsuminrespectofthosedefects.JCT-RelatedSub-ContractsTheJCT-relatedsub-contractscontainsimilarprovisionsregardingdefectsliabilityperiodstothoseinthemainforms.Forspecialistwork,thedefectsliabilityperiodislikelytobetwelvemonthsratherthansix,particularlyinrelationtoengineeringservicestoensurethatthespecialistworkcanfunctionproperlyduringallseasonsofthisyear.Aspracticalcompletionofnominatedanddomesticsub-contractworksmayoccursubstantiallyinadvanceofpracticalcompletionofthemaincontractworks,itisquitepossiblethatthedefectsliabilityperiodforthesub-contractworkswillexpirebeforetheexpiryofthemaincontractperiod.Withearlytradessuchasstructuralsteelwork,thiswill,frequentlybethecase.TheJCTsub-contractsdealChapter137 DefectsLiabilitywiththisbyprovidingforthesub-contractortoacceptasimilarliabilitytothemaincontractorashehasunderthemaincontractinrespectofdefectsinthesub-contractworks.Thus,thesub-contractor’sliabilitytoremedydefectsinhisworkwillnotenduntilthemaincontractdefectsliabilityperiodhasexpired.ICE7thEditionTheperiodduringwhichthecontractormustremedydefectsiscalledthe“DefectsCorrectionPeriodth“intheICE7.Itbeginstorunonthedateofcompletion,andcontinuesfortheperiodspecifiedintheAppendixtotheformoftender,normally12months.thThecontractor’sobligationsunderICE7aresimilartothosewhichariseundertheJCTforms:hemustremedydefectiveworkissoinstructedbytheEngineerathisowncostwhereitisnecessaryasaresultofhisbreachofcontract.AttheendoftheDefectsCorrectionPeriod,thecontractormustdelivertheworksuptotheEmployer“intheconditionrequiredbytheContract(fairwearandtearexcepted)“.Thismeansthatifpatentdefects(i.e.obviousones)wereoverlookedbytheEngineerwhencompletionwascertified,theContractormaystillberequiredtoremedythemduringthemaintenanceperiod.Ifthecauseofthedefectisunknown,clause50allowstheEngineertoinstructthecontractortocarryoutthenecessarysearches,testsandtrialstodetermineitscause.Ifthedefectisduetothecontractor’sbreachofcontract,hemustpaythecostsofsuchsearchesetc,otherwisetheyarebornebytheEmployer.CECASub-ContractUnderclause13(2)oftheCECAformthesub-contractorisrequiredtomaintaintheworksandmakegooddefectsonthesamebasisasthemaincontractorunderthemainform.Thus,therewillbenoseparatemaintenanceperiodforthesub-contractworks;itwillbethesameasthemaincontractperiod,evenifthesub-contractworksarecompletesignificantlyearlierthanthemainworks.Theonlyspecialprovisionforsub-contractworksisaclauseprovidingthatifthesubcontractormakesgooddefectscausedbythemaincontractor,thesub-contractorwillbeentitledtorecoverthecostsoftheremedialworkfromthecontractor,althoughthemaincontractorwillofcoursebeunabletorecoverthemfromtheEmployer.(iii)DefectsArisingaftertheExpiryoftheDefectsLiabilityPeriodOntheexpiryofthedefectsliabilityormaintenanceperiod,thecontractorcannolongerberequiredtoremedydefectshimself.However,ifthedefectisduetohisbreachofcontract(i.e.hesuppliedfaultygoodsorbadworkmanship)hewillremainliableforthecostoftherectificationworkuntiltheexpiryoftherelevantlimitationperiod.Thiswillbesixyearsifthecontractissigned,ortwelveyearsifitisexecutedundersealorasadeed.(FormoredetailonlimitationperiodsseeChapter16-LimitationPeriods.)Thequestionisoftenraisedastowhetheracontractorwhohasexecuteddefectiveworkmayinsistonputtingitrighthimselfoncethedefectsliabilityperiodhasexpired.Theinjuredpartyisunderadutytomitigatehisloss,(i.e.notmakeitworsethanitneedstobe).Asitwillfrequentlybecheaperforthecontractortoremedyhisownwork-bothbecauseheisawareofallthedetailsoftheworkandhewillnotexpecttomakeaprofitontheworkasanothercontractorwould-theinjuredpartyshouldnormallygivethecontractoranopportunitytoremedytheworkhimself,unlessitwassobadlyexecutedinitiallythatitisreasonablenottowantthecontractortodoanymorework.8Chapter13 DefectsLiabilityTheeffectofthefinalcertificateonliabilityfordefectsandrelatedcontractualprovisionsarediscussedbelowinrelationtothestandardforms.JCTMainFormsAsstatedabove,theArchitectisboundtoissueafinalscheduleofdefectstothecontractorwithin14daysoftheexpiryofthedefectsliabilityperiod.Oncethecontractorhasrectifiedtheseandanypreviouslynotifieddefects,theArchitectmustissueaCertificateofCompletionofMakingGoodDefects,whichisoneofthepre-conditionstoaFinalCertificatebeingissued.Inrelationtodefectsliability,themaineffectoftheFinalCertificateisthatwherematerialsorworkmanshipwererequiredtobetotheArchitect’sreasonablesatisfaction,heissosatisfied.However,theFinalCertificatedoesnotrelievethecontractorofanyotherliabilityfordefects,eveniftheywereperfectlyobviouswhentheFinalCertificatewasissued.JCTSub-ContractsSub-contractors’liabilityundertheJCTformsisthesameasthemaincontractor’s,althoughbothnominatedsub-contractorsandWorksContractorsmaybeentitledtoreceiveearlyfinalpaymenttwelvemonthsafterpracticalcompletion(formoredetailsonthissubject,seeChapter7-PaymentandSet-off).However,theymustindemnifythecontractorinrespectofanylatentdefectsintheirworksifsuchapaymentismade,soearlyfinalpaymentdoesnotrelievethemoftheirliabilityfordefects.ICE7thEditionUnderclause61(l)oftheICEConditions,theEngineerissuesaDefectsCorrectionCertificatewhentheDefectsCorrectionPeriodhasexpiredandthecontractorhascompletedanyoutstandingremedialwork.Thiscertificatestatesthedateonwhichthecontractorhascompletedhisgeneralobligationtoconstruct,completeandmaintaintheworktotheEngineer’ssatisfaction.However,itdoesnotrelieveeithertheEmployerorthecontractorfromanyoftheirobligationsunderthecontract.CECASub-ContractThesub-contractor’sliabilityundertheCECAsub-contractwillbepreciselythesameasthemaincontractorsduetothegeneralprovisionsintheCECAformpassingdownequivalentliabilitytothatwhicharisesunderthemaincontract(iv)LiabilityforDefectsAftertheExpiryoftheLimitationPeriodOncetherelevantlimitationperiodhasexpired,thegeneralruleisthatcontractorsandsub-contractorsareundernofurtherliabilityinrelationtodefects.Therearetwoexceptionstothisrule.Firstly,ifthereisfraudordeliberateconcealmentofthedefect.Secondly,andmoreimportantly,theexistenceofanindemnityclauseinthesub-contractmayextendtheperiodforwhichthesub-contractorisliable.Normally,thelimitationperiodforactionsforbreachofcontractbeginstorunatthedateofpracticalcompletion.However,inCounty&DistrictPropertiesvJenner(1974)itwasheldthatanindemnityclausesuchasthatinthestandardformsofsub-contractdidnotgiverisetoacauseofactionuntilitsconsequenceswereascertained.Thus,itwasnotuntilaclaimwasmadeagainstthemaincontractorinrespectofnegligencebythesub-contractorthattheindemnityclauseoperated,andtimebegantorunontheindemnityclause.Sub-contractorsarenotthereforecompletelyfreeofliabilityuntiltherelevantmaincontractlimitationperiodshaveexpired,andnofurtherclaimscanbebroughtagainstthemaincontractor.Chapter139 DefectsLiabilityDamagesforDefectiveWorkInrespectofdefectsarisingafterpracticalcompletion,sofarthisChapterhasconsideredonlyresponsibilityfortheremedyingofdefectivework.Ofcourse,thecostofremedialworkmaybegreatlyexceededbythecostsarisingasaconsequenceofthedefect;damagetothecontentsofthebuildingorotherpartsofit,andinseriouscaseslossofuseofthebuildingwhichmayentaillossofrentorlossofprofit.Whereadefectconstitutesabreachofcontract(i.e.isduetobadmaterialsorworkmanship),thepersonwhoexecutedthedefectiveworkwillbeliablefordamages.Damagesforbreachofcontractaimtoputtheinjuredpartyinthesamepositionhewouldhaveenjoyedhadthecontractbeenproperlyperformed.ThetypeofdamageswhichcanberecoveredweredescribedintheleadingcaseofHadleyvBaxendale(1854)as:(i)allthelosswhicharisesnaturally,i.e.intheusualcourseofthings,fromthebreachofcontractand(ii)iftherearespecialcircumstanceswhichincreasethatloss,damagesinrespectofitwillberecoverableonlyifthespecialcircumstancesweremadeknowntotheContractororsub-contractorbeforethecontractwasmade.ThesecondruleinHadleyvBaxendalemightapplywhereabuildingwastobeletforaparticularlyhighrent,onlyiftheContractororsub-contractorwasorshouldhavebeenawareofthisatthedateheenteredintothecontractwillhebeliableforlossofrentatthatveryhighrate.InBritishSugarplcvNEIPowerPlantProjects(1997)theCourtconsideredwhatwasmeantby‘consequentialloss’inthecontextofaclauselimitingtheseller’sliabilityforsuchloss.Thecourtheldthatthismeant,inthecontextofthecontractinwhichitwasused,losswhichdidnotdirectlyandnaturallyresultfrombreachofcontract.Whenconsideringordraftingexclusionprovisionsincontracts,SteelworkContractorsshouldconsiderbeingspecificabouttypesoflossthatareincludedorexcludedratherthanrelyingongeneraltermssuchas“indirect”or“consequential”.Notethatthereisnorestrictiononthetypeoflosswhichcanberecovered-unlikedamagesfornegligence,damagesforbreachofcontractcanincludepurelyfinanciallossessuchaslossofprofit.Thusthetotalcostarisingfromdefectiveworkcanbeveryhighindeed,particularlyifitinvolvesthelossofuseofthebuilding.10Chapter13 CHAPTER14DESIGNLIABILITYIntroductionTheinvolvementofspecialistsub-contractorsindesignandtheirlegalliabilityforitisanissuewhichhascausedgreatcontroversyinrecentyears.Therehasbeenanumberofdevelopmentsinthelawwhichhavefocussedattentiononrecoveringdamagesfordefectivedesignand/orinstallationfromsub-contractors,andthishasledtoemployers,funders,purchasers,andfuturetenantsofbuildingsrequiringsub-contractorstosignnonstandardwarrantyagreementswhichsignificantlyincreasetheirlegalliability.ThisChaptersetsouthowSteelworkContractorsbecomelegallyliablefordesign,andexplainstheimpactofbothstandardandnon-standardwarranties.DesignDefinedThereisnohardandfastdefinitionofdesignwithintheconstructionprocess,butitusuallyreferstothepreparationofplans,drawingsandspecifications.Inthecontextofspecialistwork,“design”isnormallyextendedtoincludenotonlythedimension,shapeandlocationofanypartofthework,butalsothechoiceofparticularmaterialsorequipmentandthechoiceofparticularworkprocesses.Designthereforeencompassesanumberoftaskstraditionallycarriedoutbyspecialistcontractors,suchasthedesignofconnectionsbySteelworkContractorsandthepreparationofworkingdrawingsbymechanicalandelectricalcontractors.Thefactthatthedesignofspecialistworkisoftensplitbetweenthesub-contractorandprofessionaldesignergivesrisetomanyclaimsagainstspecialistsub-contractors,sometimesonthebasisofjointandseveralliability.Itisparticularlyimportanttodistinguishbetweendefectivedesignanddefectivegoods,materialsandworkmanship.Forexample,ifasteelframeisinherentlywithoutdefect,butcannotmaintaintherequiredload,itisdefectiveindesign.Such‘misspecification’istheresponsibilityofthedesigner.However,ifthegoodsareinherentlydefective,responsibilitywillliewiththecontractor-althoughhemayhaveacorrespondingrightofactionagainsthissupplier.LiabilityofArchitects/EngineersforDesignOntraditionalcontractssuchasJCT98,theconceptualaspectsofdesignarecarriedoutbyprofessionalconsultants:thearchitect,structuralengineerandservicesengineer.Theywillbeengagedbytheclient,oftenonstandardconditionsofengagementproducedbytheRIBAortheACE.Suchtermsrequiretheprofessionaldesignertoexercisethelevelofreasonableskillandcareexpectedofaprofessionaldesigner.Theydonotextendtoanyliabilityfor“fitness”forpurpose”andtheyexpresslyexoneratetheArchitectorEngineerfromliabilityfordesigncarriedoutbytheotherconsultantsappointedbytheemployeror,moreimportantly,byspecialistsub-contractorsorsuppliers.Ifdefectsariseinsuchdesign,theemployer’sremedyliesagainsttherelevantspecialistdesigner,beheaconsultantorsub-contractor.Chapter141 DesignLiabilityHowLegalLiabilityArisesLegalliabilityfordefectivedesignmayariseundertwobranchesofthelaw:contractandtort.Ifaperson,firmorcompanysufferslossduetoaSteelworkContractor’sdefectivedesignorworkmanship,hewillbeabletosuethecontractorforbreachofcontractifhehasacontractwithhim,(suchasawarranty),otherwisehewillbelefttoseekaremedyintortfornegligence.Thesamefactsmaygiverisetoarighttobringlegalactioninboth,thusgivingtheinjuredpartyachoiceastothebasisonwhichheproceeds.Astheamountofdamagesrecoverableforbreachofcontractisnormallysubstantiallygreaterthanthedamagesrecoveredfornegligence,theinjuredpartywillusuallychoosetosueunderthecontractratherthanfornegligence,provided,ofcourse,hehasacontractwiththepersonindefault.Thevariouspossibilitiesforanemployer(ratherthanapurchaserortenant),whohassufferedlossduetodefectivedesignbyaSteelworkContractorare:A.Contract(1)actionviathemaincontractor;(2)actionunderastandardformofwarranty;(3)actionunderanon-standardwarranty;(4)actionundertheContracts(RightsofThirdParties)Act1999(unlessrightsundertheActareexcluded).B.Tort(1)actionfornegligence;(2)actionfornegligentmisstatement.A.Contract(1)ActionViatheMainContractorTheemployerwillhavearightofactionviathemaincontractoronlyifthemaincontractorcanbeshowntoberesponsibleforthedesigninputofhissub-contractors.Incertaincircumstancesthiswillclearlynotbethecase:forexample,clause35.21ofJCT98expresslyexcludesallliabilityonthepartofthemaincontractorforanydesignworkprovidedbyanominatedsub-contractor.Similarly,clause3.3.7ofIFC98statesthatthemaincontractorisnotresponsibletotheemployerfordesigncarriedoutbynamedsubcontractors.Thegeneralprincipleisthatthemaincontractorisresponsiblefortheactsandomissionsofhissub-contractors,andthereforeintheabsenceofexpressexclusionssuchasthoseinrelationtonominatedandnamedsub-contractors,theemployermayhavetheoptionofsuingthemaincontractorfordefectivedesignexecutedbyhissub-contractors.ItisoftenarguedthatcontractssuchasJCT98andIFC98areessentiallycontractsforworkandmaterials,notforthesupplyofdesign,andthereforethatthemaincontractorisnotliableintheeventofdesigndefects.However,JCT98makesprovisioninclause42forwhatiscalled‘PerformanceSpecifiedWork’.2Chapter14 DesignLiabilityPerformancespecifiedworkisspecificallydeterminedareasofworkwheretheEmployerhassetoutperformancerequirements.Althoughthecontractitselfrigorouslyexcludesanymentionoftheword'design',inpractice,thisworkisdesignedbythecontractororhissub-contractorstomeettheperformancespecification.Clause42expresslyexcludesanyguaranteebytheContractorofthefitnessforpurposeoftheperformancespecifiedwork(42.17)andalsothisstatesthatsuchworkcannotbeprovidedbyanominatedsub-contractor(42.18).Employersentitlementstosuethemaincontractorinrespectofdefectivedesignbysub-contractorsmaybeassistedwherethemaincontractcontainsexpresstermsrelatingtodesign,suchasJCTWithContractorsDesignWCD98ortheManagementContract.Themaincontractormaythenhaveacorrespondingrightofactionagainstthedefaultingsub-contractor.Theadvantagetotheemployerofsuingthemaincontractoristhatifthesub-contractorhasinsufficientfundstopaythedamagesorisactuallyinsolvent,themaincontractorwillstillbeliabletopaytheemployer.(2)ActionUnderaStandardFormofWarrantyAsmaincontractorsunderJCT98andIFC98arenotresponsibletotheclientinrespectofdesigninputbynominatedornamedsub-contractors,theemployerclearlyneedsadirectremedyifsuchsub-contractorscarryoutdefectivedesignwork.TheContracts(RightsofThirdParties)Act1999maygivetheclientsuchremediesbutthepositionundertheActisuncertainand,inanyevent,theActmaybeexcludedbytherelevantsub-contracts.Accordingly,theclientmayneedtoestablishadirectcontractuallinkwiththesub-contractorsinorderthathecanpursuecontractualremediesagainstthemiftheydefault.Adirectcontractuallinkcanbecreatedbetweentheemployerandnominatedsubcontractorsbytheuseofthestandardemployer/nominatedsub-contractagreementNSC/W,theuseofwhichismandatoryunderclause35ofJCT98.AgreementESA/1isavailableforusebetweenemployersandsub-contractorsnamedunderIFC98,butisoptional.Thesestandardformsofwarrantyprovidethatthesub-contractorhasexercisedandwillexercisereasonableskillandcareindesigningorselectingmaterialsandgoodsinsofarashedoesdesignorselectsmaterialsandgoods.Similarly,thesub-contractorwarrantsthathewillexercisereasonableskillandcareinthesatisfactionofanyperformancespecificationinsofarasitisincludedorreferredtointhedescriptionofthesub-contractworks.Thestandardformsofwarrantyalsoallowthearchitecttoinstructthesub-contractortodesignandtoorderandfabricategoodsandmaterialsbeforethemaincontractisletandbeforeaformalnominationornaminginstructionisissued.If,foranyreason,thenominationornamingisnotproceededwith,thenthereisaprovisionforthesub-contractortobepaidexpensesreasonablyincurredincomplyingwithsuchinstructions.NSC/Walsobenefits,thesub-contractorinotherways,forexamplebymakingdirectpaymentandearlyfinalpaymentmandatoryincertaincircumstances.TheprovisionsregardingdesignbyWorksContractorsundertheJCTManagementContractaresomewhatdifferent,inthattheyprovidetworoutesfortheemployertosueaWorksContractorwhohasexecuteddefectivedesign.Asexplainedabove,theWorksContractorisliabletotheManagementContractorundertheexpresstermsofWorksContract/2,andthereisalsoanoptionalemployer/WorksContractoragreement,WorksContract/3.WorksContract/3issimilartoNSC/W,exceptthatitcontainsnoprovisionforpre-contractdesignorearlyorderingofmaterials.SteelworkContractors,asan“early”trade,shouldnotethatifearly(i.e.pre-contract)orderingofmaterialsisrequired,aChapter143 DesignLiabilityseparateagreementwillbeneededwhichincludestermsregardingpaymentintheeventthatnocontractiseventuallyconcluded.WorksContract/3alsohascertainadvantagesfortheWorksContractor;forexample,theemployermustensurethatthearchitectcomplieswithanyrequestbytheWorksContractortoinformhimoftheamountcertifiedinhisfavourinthecertificatesissuedundertheManagementContract.ItalsomakesearlyfinalpaymenttotheWorksContractormandatory,whichwillbemadenotlaterthantwelvemonthsafterpracticalcompletionoftherelevantWorksContract.Theemployer’schoiceofroutesagainsttheWorksContractorifheisindefaultoverdesignhasadvantagesfortheemployerbecausehecansuetheWorksContractordirectiftheManagementContractorisinsolvent,byusingWorksContract/3.Inaddition,iftheemployerisunsureastowhichWorksContractorisindefaultoverdesign,hecansuetheManagementContractorandlethimresolvetheproblemwithhisvariousWorksContractors.However,iftheWorksContractorisinsolventtheemployerbearsthelossbecausetheManagementContractorhasthebenefitofthereliefprovisions.AsfarastheWorksContractorisconcerned,itmakeslittledifferencewhoispursuinghimtoobtainaremedyforhisdefault.TheonlydifficultyhemayencounteristhatemployersmaybelessinclinedtouseWorksContract/3becausetheyhavearemedythroughtheManagementContractandWorksContract/2.ThiscouldbeunfortunateasWorksContract/3containssomedefiniteadvantagesforWorksContractorsasoutlinedabove.ResponsibilityforDesignundertheICE7thEditionThereisnostandardwarrantyavailableforusebydesigningsub-contractorswheretheformofthcontractistheICE7.However,tenderingsub-contractorsmayberequiredtoexecuteanon-standardwarrantytotheemployer(forthedangersofthispracticeseebelow).Alternativelytheemployermaygainprotectionunderclause58(3)oftheICEform,whichprovidesforthemaincontractortoberesponsibleforanydesignincludedinprovisionalsumsorprimecostitems,ifexpresslystated.Therequirementsregardingdesignmustalsobeincludedinthenominatedsub-contract,whichcreatesacontractualchaininrespectofthedesign.Theemployerhasredressagainstthemaincontractor,whointurnmayrecoverfromthenominatedsub-contractor.Inpractice,anynominatedsub-contractorundertakingdesignislikelytobeaskedforacollateralwarranty.(3)(a)ActionunderaNon-StandardWarranty-EmployersCaselawhasimposedsevererestrictionsontherecoveryofeconomiclossintheabsenceofacontract.Thelawonthisissuemaybesummarisedfairlysimply:–pureeconomiclosse.g.lossofrentorlossofprofitsisnotrecoverableintort;–thecostofremedialworktothedefectivebuildingisnotrecoverableintort;–onlydamagesforphysicalinjuryordamagetootherproperty(e.g.contentsofthebuildingorneighbouringproperty)isrecoverableinanactionfornegligence.Itisthereforehardlysurprisingthatemployersaredemandingthatallsub-contractors,nominated,namedanddomestic,enterintowarrantiestoensurethattheyhavedirectcontractualrightsintheeventofdefectivedesign(ordefectivegoodsandworkmanship).Asthereisnostandardwarrantyavailableforusebetweenemployersanddomesticsub-contractors,theemployer’sprofessionaladvisers(usuallysolicitorsorquantitysurveyors)willprepareanon-4Chapter14 DesignLiabilitystandarddocument.Sometimessuchwarrantiestogobeyondtheiroriginalpurposeofcreatingacontractuallink.Typicalonerousclausesinnon-standardwarrantiesinclude:–liabilityforallofthedesign(evenwherethemajorityofitwasactuallycarriedoutbytheemployer’sownconsultant).–absoluteundertakingsregardingtheinstallatione.g.thatitwillbe“freefromfaultordefect,“ofthehighestquality”,thatanymaterialselectedbythesub-contractorwillbe“thebestofitskind”.–thatthecontractworkswillbefitfortheirpurposeevenwherethatpurposeisunknown(intheabsenceofsuchanexpresstermdutiesregardingfitnessforpurposewouldbeimpliedonlywherethecontractorisundertakingthedesignofthewholeofhispartoftheworks).–anundertakingthatthecontractorwilltakeoutandmaintainprofessionalindemnityinsuranceforuptotwelveyearsafterpracticalcompletion(thisinsuranceshouldbecarriedbyallSteelworkContractors).Itwillbeappreciatedfromtheabovethatnon-standardwarrantieswillusuallyimposeadditionalrisksonsub-contractorswhosignthem.Oneofthemajordifficultiesforsub-contractorsisthatthereisnostandardformthattheycanofferasanalternative.(3)(b)ActionunderaNon-StandardWarranty-Purchasers,TenantsetcWheretheEmployerisapropertydeveloper,thereareanumberofotherpartieswhocouldsuffereconomiclossifthesub-contractorprovideddefectivedesign,namelyfuturetenantsorpurchasersofthebuilding,andpossiblythefunderofthedevelopment-whichwillnormallybeabankorinsurancecompany.Itisnowcommonforsuchpartiestorequirewarrantiesfromcontractorsandsub-contractorsengagedindesign(andforthatmatterfrommembersoftheprofessionalteam).Suchwarrantiesarelikelybeinsimilartermstothenon-standardwarrantyrequiredbytheemployerdescribedabove,withtheadditionofatermthatthesub-contractorhascompliedwithallofitsobligationsunderthesub-contract.Suchatermwillensurethatifthetenantetc.sufferseconomiclossduetodefectiveworkormaterialssuppliedbyasub-contractor(asopposedtodefectivedesign)thiswillberecoverableunderthewarranty.Ifthetenantsorpurchasersarenotidentifiablewhenthesub-contractorisappointed,hemayberequiredtoagree,thathewillenterintosuchwarrantieswhentheybecomeknown,orthewarrantytotheemployermaybefreelyassignabletosuchthirdparties,withoutthesub-contractor’sconsent.Allofthesedevicessignificantlyincreasetherangeofpeoplewhomaysuethesubcontractorandthetypeoflosswhichmayberecovered,andthereforeshouldnotbeacceptedunlessthereisaverygoodreasontodoso.Sub-contractorsholdingprofessionalindemnityinsuranceshouldcheckwiththeirinsurersbeforesigninganon-standardwarrantytoseewhat,ifany,impactsuchwarrantywillhaveontheirinsurancecover.B.TORT(1)ActionforNegligenceAsub-contractorwhoisdesigningmaybesuedbyanypersontowhomthesub-contractorowesadutyofcare,providedthatpersonsuffersarecoverabletypeoflossordamageasaresultofthesub-contractor’snegligence.Chapter145 DesignLiabilityThereisnorequirementthatthesub-contractorhasanycontractualrelationshipwiththatperson,andthereforethereisawiderangeofpotentialclaimants.Thesub-contractorcandischargehisdutybyexercisingreasonableskillandcare.Hisactualperformanceorconductwillbecomparedwiththatwhichmighthavebeenexpectedofareasonablycompetentsub-contractorworkingintherelevantfield.Claimsfornegligencehavebecomelessfrequentinrecentyearswherethereisanalternativerouteincontractbecauseofthecasesmentionedbelowwhichhaveseverelyrestrictedthetypeofdamagewhichisrecoverablefornegligence.Thosecaseshaveallbeenconcernedwiththeprincipleofwhethereconomicorpurelyfinanciallossisrecoverableinactionsfornegligence.Ifsomeoneisinjuredorkilledduetosomeoneelse’snegligence,damageswillalwaysberecoverable.Similarly,ifpropertyotherthanthenegligentlydesignedorconstructedbuildingisdamaged(e.g.itcollapsesontoanotherbuilding),thedamagetothatotherpropertyisrecoverable.If,however,thebuildingitselfisdefectiveordamaged,onlyeconomicloss(ofhavingtorepairthebuildingorthelossofitsuse)willbesuffered.Itisthiseconomiclosswhichthecourtshavebeenconsidering.In1982,theHouseofLordsdecidedaverysignificantcasecalledJuniorBooksvVeitchiinwhichanominatedsub-contractorwasheldtooweadutyofcaretotheemployer,thebreachofwhichgaverisetoarighttorecoverpurelyfinanciallosses(inthatcasethecostsofrepairingadefectivewarehousefloor,andstoringbookselsewherewhiletherepairwascarriedout).Subsequentcaseshavenotfollowedthatdecision,however,andhavedistinguisheditonitsownparticularfacts.ThedecisionoftheHouseofLordsintheleadingcaseofMurphyvBrentwoodhasconfirmedthatthepositionnowisthateconomiclossmayberecoveredonlyiftheinjuredpartyhasacontractwiththenegligentcontractor,notunderthegenerallawofnegligence.