Contracts Management
BSc Hons Construction Management
Assessment Title: Options within a Contract
Module: ADB624/AE1
Student Name: Bradley Stockwell
Student ID: Q12879037
Tutor: Denise White
Date of submission: December 11th 2020
Word Count: 2193
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Contents
1.0.
2.0.
3.0.
4.0.
5.0.
6.0.
7.0.
Introduction……………………………………………………………………………………………………………..3
Supplementary Provisions……………………………………………………………………………………..4-5
Completion Dates……………………………………………………………………………………………………..6
Article 8 will not apply…………..…………………………………………………………………………….…7-8
A Performance Bond is required……………………………………………………………………………….9
Insurance of works option C………………………………………………………………………………10-11
References……………………………………………………………………………………………………………...12
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1.0.
Introduction
Fern Developments are looking to expand their portfolio with a proposed multi-millionpound project that includes residential, retail and commercial use and has approached the
company Bedford Construction Ltd to tender for the works at Fawley Manor. The project
is split into three sections:
• Section 1: New Build Residential Town Houses and Apartments
• Section 2: Mixed use Retail Units and Entertainment complex
• Section 3: Commercial Units
The duration of the works is 3 years and given the type of project it has been proposed that
a 2016 JCT Standard Building Contract with Quantities is to be used. As this is the first time
Bedford Construction Ltd are undertaking a project of this scale, you have been asked as
the Quantity Surveyor on the tender bid team to clarify contract proposals that have been
provided by Fern Developments with the tender documentation.
The below inclusions have been made within the Contract Particulars received from the
client, you are to prepare a report for the Pre-Construction Manager to enhance their
understanding of these requirements. Your report must include an explanation of the below
terms and commercial recommendations as to the validity of the proposals given the nature
of the project and whether Bedford Construction Ltd should accept or decline the proposed
terms
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2.0.
Supplementary Provisions
What are Supplementary Provisions?
The supplemental provisions are stated in the contract particulars of the (SBC/Q, 2016) under the
eighth recital. Provisions 1-6 are the default option in the contract and are to apply unless stated
otherwise within the particulars. Provisions 7 and 8 apply only when in contract with a Local or
Public Authority and Provision 9 default option is non-inclusion unless stated otherwise. (Figure 1.
Table of supplemental provisions)
Provision
Definition
Advantages
Disadvantages
Provision 1:
Collaborative
Working
Encourages parties to work with each other
and with other project team members in a
co-operative and collaborative manner, in
good faith and in a spirit of trust and respect.
To that end, each shall support collaborative
behaviour and address behaviour which is
not collaborative
- Encourages
collaboration and cooperation (Information
passed around better).
- Encourages trust and
respect.
- Bad behaviours to be
addressed (Less conflict)
-Acting on trust and
faith alone might not
be feasible and could
lead to complications
Provision 2:
Health and
Safety
Parties will endeavour to establish and
maintain a culture and working environment
in which health and safety is of paramount
concern to everybody involved with the
project.
-Overall reduced costs
and risks.
-Lower absence and
turnover.
-Fewer accidents and
threat of legal action.
Improved reputation.
- It can be costly to
implement.
- It takes time to train
and implement and
comes about with a lot
of red tape.
Provision 3:
Cost Savings
and Value
Improvements
The contractor is encouraged to propose
changes to designs and specs for the works
and programme that could benefit the
employer, a share of the financial benefit to
be paid to the contractor
The contractor is encouraged to suggest
economically viable amendments to the
works.
-Financial gain for the
contractor and employer
successful.
-Better reputation on
value
-Can produce a more
environmentally friendly
and sustainable project.
-Encourages innovation.
-Takes time to come
up with innovative
ideas
-Ideas may not be
realistic
-Extra environmental
considerations can
take up time.
-Some considerations
may be over ambitious
The employer should monitor and assess the
performance of the contractor, referencing
any performance indicators stated in the
contract documents
-Can be used to evaluate
success
-Monitoring can
encourage contractors to
complete work on time.
-Encourages good
communication
-Negate future disputes
-less delays from disputes
- Disputes can arise if
monitoring is too nitpicky
-Initial indicators not
as relevant later on
-Employer could over
scrutinise which could
affect relations and
cost time
-Public are more trusting
and accepting of local
developments
-Makes sure payment for
undisputed invoice is on
time
-Disclosing info may
affect commercial or
other interests
-Time pressure for
payments
-Reasonable objection to
-Objecting and finding
the specialist may be
beneficial to the project if
they are not suitable
a new specialist may
take time
Provision 4:
Sustainable
Development &
Environmental
Considerations
Provision 5:
Performance
Indicators and
Monitoring
Provision 6:
Notification and
Negotiation of
Disputes
Provision 7:
Transparency
Provision 8: The
Public Contracts
Regulation 2015
Provisions 9:
Named
Specialist
All parties shall notify the other of any
matter that is likely to lead to a dispute.
Senior executives shall meet ASAP to resolve
matters through negotiation.
Applies only to Local or Public Authority.
Contract contents are not confidential under
the Freedom of Information Act 2000 (‘FOIA’)
Applies only to Local or Public Authority.
Doesn’t apply to contracts with NHS or Local
Authority maintained schools or academies.
Regulation 113 relates to payment of
undisputed invoices within 30 days. Payment
must be within 30 days.
Work other than CDP works carried out by a
Named Person in the Contract Documents.
Details the procedure to follow if the
Contractor is unable to enter a contract with
named person or has reason to terminate.
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Should they apply?
Provision 1: Collaborative Working: The provision should apply to contract as it is within the best
interests of all parties. It encourages good behaviours between parties which will lead to more
communication, efficiency and less conflict for an all-around smoother process.
Provision 2: Health and Safety: Provision 2 should apply to Bedford Construction Ltd’s contract, as it
is essential that all health and safety protocol is followed for the wellbeing of the workforce and to
reduce risks on site. It is in every parties’ interest to apply the provision to be protected legally,
financially and to protect the moral reputation.
Provision 3: Cost Savings and Value Improvements: Provision 3 should apply to the project as
encourages the contractor to work more efficiently and innovatively without any significant extra
risk, if methods are implemented successfully it can lead to financial gain for both parties and
improved reputation for the contractor. The provision will likely apply more if the contract is a
design and build as the contractor will have more input.
Provision 4: Sustainable Development and Environmental Considerations: Provision 4 should apply
to the project as it encourages the contractor to produce a more environmentally friendly and
sustainable project and encourages innovation without any significant increase to risk, although
some methods may cost some more time and money, the long term benefits to a sustainable project
usually outweighs the short term costs.
Provision 5: Performance Indicators and Monitoring: Provision 5 should also apply to the project as
monitoring encourages the contractor to achieve the designed performance indicators provided
monitoring is not too invasive or ‘nit-picky’ and can be used to evaluate the success of the project,
furthermore, leaving the work unchecked could lead to unseen faults and delays.
Provision 6: Notification and Negotiation of Disputes: Provision 6 will also apply to the project as it
encourages good communication between both parties and will help prevent future disputes that
could potentially slow the projects progress down, provided that notification is of disputes that are
generally significant and relevant.
Provision 7: Transparency: This provision will not apply as it only applies to a local or public
authority.
Provision 8: The Public Contracts Regulation 2015: This provision will not apply as it only applies to
a local or public authority.
Provision 9: Named Specialist: This provision is recommended to apply in the contract as it enables
the employer to identify specialists for identified parts of the works by appropriate entry in the
contract particulars. It provides the opportunity for the employer the choose a subcontractor with a
specific expertise whilst the main contractor takes responsibility, having this specialist may ensure
work is completed to a high standard and provides reassurance to the contractor. If the contractor
has a reasonable objection to the specialist, e.g. they are not suitable for the project they may find a
new specialist, ensuring the right person is chosen. Provided it does not take up excess time
objecting to specialists and a suitable specialist is chosen, this provision is beneficial for both parties.
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3.0.
Completion Dates
What are Completion Dates?
The completion date of the project is the date of the completion of works, this project will have
multiple completion dates, also known as sectional completion, in this project the dates for
completion of sections will be provided as stated in the contract particulars clause 1.1. The sixth
recital “the division of the Works into Sections is shown in the Contract Bills and/or the Contract
Drawings or in such other documents as are identified in the Contract Particulars” (SBC/Q, 2016)
shall not be deleted.
Year 1: Section 1 - New Build Residential Town Houses and Apartments
Year 2: Section 2 - Mixed use Retail Units and Entertainment complex
Year 3: Section 3 - Commercial Units
Consequences of multiple completion dates
(What is the difference between 'sectional completion' and 'partial completion'?, 2015) Tells us that
the risk of loss or damage to the completed section transfers from the contract to the employer with
consequent changes to the insurance regime and the employer is obliged to pay half of the retention
sum for that section to the contractor.
Section 7 clause 7.2. (SBC/Q, 2016) highlights that
“the employer may at any time after practical completion of the Works or of the relevant Section
grant or assign to any such transferee or lessee the right to bring proceedings in the name of the
Employer (whether by arbitration or litigation, whichever applies under this Contract) to enforce any
of the terms of this Contract made for the benefit of the Employer”
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4.0.
Article 8 will not apply
What is Article 8?
Article 8 refers to the use of Arbitration as a method of dispute resolution withing the JCT contract.
As discussed by (Arbitration, 2020) arbitration is a non-court method of resolving disputes, an
arbitrator or a panel of arbitrators is selected by the involved parties to make a binding decision on
the dispute. Arbitration can be either ad hoc or administered.
Why will it not apply and what will?
“the Contract Particulars must state that Article 8 and clauses 9.3 to 9.8 apply and the words “do not
apply” must be deleted. If the Parties wish any dispute or difference to be determined by the courts
of another jurisdiction the appropriate amendment should be made to Article 9 (see also clause 1.12
and Schedule 5 Parts 1 and 2).” (SBC/Q, 2016)
As the company will be following the default options from the contract and alternatives are not
selected, Article 9, litigation will apply to the project.
What is Article 9?
Article 9 refers to the use of litigation as a method of dispute resolution and is the default option in
the JCT contract.
Litigation is the process of taking legal action and is the traditional form of dispute resolution as
discussed by (Construction Litigation, 2020). (Construction litigation process, 2020) Highlights that
litigation is conducted through the technology and construction court (TCC), a court specialising in
handing construction and technology. Civil Procedure Rules (CPR), including its Practice Directions
and Pre-Action Protocols and the TCC Guide (for litigation in the TCC) will apply to this method of
dispute resolution.
Alternative methods of dispute resolution
Mediation: (Construction Mediation Guide and Protocol, 2019) discusses that mediation is a form of
alternative dispute resolution, it is a non-adversarial structured process using a Mediator as a
neutral third party who will attempt to facilitate negotiation of an agreed settlement. Mediators can
be provided from organisations such as the Centre for Effective Dispute Resolution and the ADR
Group. Mediators can also be approached directly.
Adjudication: Adjudication is another alternative method introduced by the Housing Grants,
Construction and Regeneration Act 1996, (Adjudication in Construction Contracts: The Complete
Guide, 2019)highlights section 108 of the Construction Act 1996 gives the right to any party to a
construction contract to submit disputes to an independent adjudicator, this allows parties to give
notice of adjudication at any time, a appointment and referral to the adjudicator will be provided
within 7 days, whereby 28 days form the referral the adjudicator will make a decision.
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(Figure 2. Advantages and disadvantages of dispute resolution methods)
Advantages
Disadvantages
Arbitration
-Can be tailored to suit parties’ needs
-Arbitrators can be chosen based on
their expertise
-Confidential
-It can be faster and cheaper than
court methods
-Limited grounds of appeal
-Awards are binding and enforceable
through the courts
Litigation
Public record, offering a clear
platform and clear outcome, this can
limit reputational damage through
speculation.
-Court mandated and hard to ignore
and not cooperate
-Precedent value of previous similar
cases
-Appeals are possible if a bad decision
is made
-You will always if eventually get a
result
-In-formal process.
-It can be initiated at any time agreed
between the parties.
-It better allows commercial
relationships to be maintained during
and after the dispute.
-Parties can reach agreement using a
flexible approach to outcomes.
-The costs are much lower
-Generally, the fasted method
-The parties can select the expert
-The expert can act as an investigator.
-Rarely lengthy arguments or legal
submissions.
-No cross examination or formal
evidence.
-Less expensive.
-Decision is fast and binding unless
arbitration or litigation is approached
-Can’t access the courts to have a
judge or jury decide once arbitration
has concluded
-Limited avenues for appeal, which
means that poor decisions cannot be
easily overturned.
-Usually thought to be speedier,
however, with multiple arbitrators on
the panel, juggling their schedules for
hearing dates can lead to delays.
-Court appointed judge, parties have
limited input
-Appeals are possible which could
lengthen proceedings
-Extensive use of attorneys,
increasing cost
-Long process of scheduling
-Public, the companies involved may
suffer consequence to reputation if
it’s a messy case
Mediation
Adjudication
-If the parties can’t agree, there isn’t
an outcome and the mediation has
failed.
-The mediator has no power to order
the parties to act or to refrain from
doing anything.
-The process is non-binding.
-The expert powers are limited.
Restrictive timetable can result in
injustices.
-Demanding timetable may favour
well-resourced parties.
-Decision can be overturned by
arbitration or litigation
Conclusion of Arbitration and Litigation
When considering whether to choose arbitration and litigation there are various factors that must be
considered, a key consideration of the process, outcome and enforceability must be taken as well as
practicality. Often arbitration is thought to be the better dispute resolution method as generally it
may be more appropriate for technical disputes requiring specialised/experienced arbitrators and if
the of the agreement justifies the arbitration costs. However, litigation has a definite and formal
procedure and a superior court can be appealed to for a better decision, if the company is entering a
standard agreement litigation is ideal. Concluding, Article 8: Arbitration is recommended due to it
being more appropriate for technical disputes which usually occur on such projects, however Article
9: Litigation is chosen as the company will be using the standard JCT contract format.
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5.0.
A Performance Bond is required
What is a Performance Bond?
Bonds are a means of protection against the non-performance of the contractor. A performance
bond is an optional addition to the contract to ensure a contractor’s failure to perform satisfactorily.
The bond is usually set at 10% of the contract sum and the fee for the bond is typically 1-3%,
(Understanding Performance Bonds, 2020) discusses this.
Section 7 clause 7.3.1. (SBC/Q, 2016) highlights that the Contractor shall on the execution of this
Contract provide to the Employer “a performance bond or guarantee of the Contractor’s due
performance of the Contract from a bank or other surety approved by the Employer in an amount
equal to the percentage of the Contract Sum and for the period stated in the Contract Particulars”
Merits of performance bonds
(Mendonca, 2019) and (Key Benefits of Performance Bonds, 2020) discuss many of the merits of
performance bonds, the key merits are:
-
-
Acts as a surety to ensure the satisfactory completion of the project, thus offering peace of
mind.
Having such bonds and guarantees when bidding for contracts is essential, as without them
you may be excluded from the tendering process with other companies having more
guarantees.
It is a viable alternative to bank bonds and letters of credit which often needs working
capital put aside for the duration of the contract.
Improved contractor liquidity
Less pressure on bank borrowing
The owner will not need to incur additional costs that may come with loans.
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6.0.
Insurance of works option C
There are three different insurance options for Joint Contracts Tribunal Insurance a summary from
(McCabe, 2020):
Option A: This is where the Contractor takes out and maintains joint names all risks insurance of the
works.
Option B: This is where the Employer takes out and maintains the joint names all risks insurance of
the works.
Option C: This is the only option referring to renovations and involving existing structures. This is
where the Employer takes our and maintains a joint name all risks insurance of the works and the
policy also insures the existing structure and contents against ‘specified perils’.
Recommendation
Insurance options A and B are suited more towards new builds, with option B giving the employer
more control, however option C is the only option if there are any existing structures in place. Often
the default option is A for new builds, however it is not always in the best interests of the employer,
if the employer wants more control, procuring the insurance by choosing option B would be
recommended. However, as the project is being conducted at Fawley Manor, where an existing
structure exists it is highly recommended that Bedford Construction Ltd choose option C as it is the
only option that covers existing structures If any damage is to occur during the works.
Insurance of Works option C
The insurance of works option C has been stated. Under schedule 3 of (SBC/Q, 2016) C.1, C.2 and C.3
insurance option C details that:
C.1. Existing Structures and contents – Joint Names Policy for Specified Perils
“The Employer shall unless otherwise stated by the Contract Particulars for clause 6.7 and this
Schedule effect and for the period specified in clause 6.7.2 maintain a Joint Names Policy in respect
of the Existing Structures together with the contents of them owned by him or for which he is
responsible, for the full cost of reinstatement, repair or replacement of loss or damage due to any of
the Specified Perils”
C.2. The Works – Joint Names Policy for All Risks
“The Employer shall effect and for the period specified in clause 6.7.2 maintain a Joint Names Policy
for All Risks Insurance with cover no less than that specified in clause 6.8 for the full reinstatement
value of the Works or (where applicable) Sections (plus the percentage, if any, stated in the Contract
Particulars to cover professional fees)”
C.3. Loss or damage
“If during the carrying out of the Works there is any loss of or damage of any kind to any executed
work, Site Materials and/or to any Existing Structures or their contents the provisions of clauses 6.13
and 6.14 shall as relevant apply.
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Insurance provisions and clauses
There are five main types of insurance required by JCT 2016 (Are You Up To Speed On The New
Insurance Provisions?, 2018) highlights this:
Employers’ liability insurance: This protects against Employers' liability for injury of employees
arising in connection with their employment (clauses 6.1 – 6.4 SBC/Q, 2016).
Insurance against non-negligent withdrawal of support: this covers potential structural damage to
neighbouring property caused by the withdrawal of support (clause 6.5 SBC/Q, 2016).
Insurance of the works and of existing structures: This covers physical damage to the works, site
materials and existing structures (clauses 6.7 - 6.11 and Schedule 3 SBC/Q, 2016)
Public liability insurance: This covers liability arising from death or personal injury to, or damage to
property belonging to, third parties (clauses 6.1 - 6.4 SBC/Q, 2016).
Professional indemnity insurance: This insures against liability from professional negligence.
Architects, engineers and other professional consultants that have a design responsibility to the
Employer are often required to maintain such insurance (clauses 6.15 and 6.16 SBC/Q, 2016).
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7.0.
References
2016. SBC/Q 2016. 4th ed. London: Sweet & Maxwell.
Buildsafe. 2020. Key Benefits Of Performance Bonds. [online] Available at:
<https://buildsafe.co.uk/2020/04/01/key-benefits-of-performance-bonds/> [Accessed 9 December
2020].
Clarkewillmott.com. 2019. Construction Mediation Guide And Protocol. [online] Available at:
<https://www.clarkewillmott.com/wp-content/uploads/2018/01/CESW-Mediation-GuideProtocol.pdf> [Accessed 7 December 2020].
Gateley. 2015. What Is The Difference Between 'Sectional Completion' And 'Partial Completion'?.
[online] Available at: <https://gateleyplc.com/insight/guides/what-is-the-difference-betweensectional-completion-and-partialcompletion/#:~:text=The%20effect%20of%20sectional%20completion,to%20pay%20half%20of%20t
he> [Accessed 4 December 2020].
Helix Law. 2019. Adjudication In Construction Contracts: The Complete Guide. [online] Available at:
<https://helix-law.co.uk/construction-law/adjudication/> [Accessed 8 December 2019].
Mendonca, R., 2019. Key Benefits Of Performance Bonds - LBB London. [online] LBB London.
Available at: <https://lbb.london/key-benefits-of-performance-bonds/> [Accessed 9 December
2020].
Michael Gerard Solicitors. 2020. Construction Litigation. [online] Available at: <https://www.mglaw.co.uk/what-we-do/construction-dispute-avoidanceresolution/litigation/#:~:text=Litigation%20is%20the%20process%20of,County%20Court%20and%20
High%20Court> [Accessed 6 December 2020].
Myerson Solicitors. 2018. Are You Up To Speed On The New Insurance Provisions?. [online] Available
at: <https://www.myerson.co.uk/news-insights-and-events/jct-2016-are-you-up-to-speed-on-thenew-insurance-provisions> [Accessed 10 December 2020].
Uk.practicallaw.thomsonreuters.com. 2020. Arbitration. [online] Available at:
<https://uk.practicallaw.thomsonreuters.com/4-1076426?transitionType=Default&contextData=(sc.Default)&firstPage=true> [Accessed 5 December
2020].
Womblebonddickinson.com. 2020. Construction Litigation Process. [online] Available at:
<https://www.womblebonddickinson.com/uk/insights/timelines/construction-litigation-process>
[Accessed 6 December 2020].
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