FACULTY OF ENGINEERING DEPARTMENT OF CONSTRUCTION MANAGEMENT & QUANTITY SURVEYING COURSE : B:Tech Quantity Surveying B: Tech Construction SUBJECT : Construction Law SUBJECT CODE : LAW400S MEMO TEST DATE : Monday 23 March 2015 DURATION : 14:00 - 15:30 (1½ hours) MARKS : 60 EXAMINER : D. Ramsay INTERNAL MODERATOR : L. Wentzel EXTERNAL MODERATOR : T. Boxall NUMBER OF PAGES : 3 INSTRUCTIONS TO CANDIDATES Answer All the questions Read the questions carefully and give thoughtful consideration and planning to your answers, so as to keep them brief and to the point. Marks will be deducted for long winded, unstructured and non-coherent answers Question 1 Page 1 of 6 The Government is arguably the construction Industry’s biggest employer. Explain giving reasons which procurement system is preferred by the “Public Sector”, and why this might be different from the procurement systems generally favoured in the “Private Sector”. (6) The Public Sector is responsible for infra- structural development of fixed assets in the country, such as schools, hospitals, prisons, etc. Governmental Departments and other Para-Statals have annual budget allocations for new capital projects and maintenance/renovation and restoration of existing fixed assets. This money is allocated annually from the treasury and is raised by way of taxation. Since the money comes from the tax payers of the country, the money needs to be used in a completely transparent manner. It would be unfair to favour only certain contractors and service providers whilst prejudicing others if not giving all a fair and equal opportunity to tender for the work. The Government thus favours the “Open market” tendering system. In the private sector the money required for any new development comes from either the owners/developers own equity or is borrowed or raised through issue of shares. Owners/developers have freedom of choice as to who they want to appoint. They would thus usually use the “Selective tendering/Invited tender” method to invite tenders from reputable construction companies with the necessary skills and resources to successful complete the development. The number of tenderers invited would be keep fairly small making for more competitive tendering as the chance of success is greatly enhance when there are only a small no. of tenderers. In certain instances owners/developers might opt to negotiate with one particular contractor having worked with the contractor before and who is fully informed of the expectations of the client and can generally be appointed in a shorter time period than having to go through the whole tendering and adjudication process. Question 2 Explain your understanding of the terms “Conditions of Tender” and “Qualifications” which might or might not be attached to a tender. What is the possible risk to a Tenderer who submits a covering letter with “Qualifications” and why? (4) Conditions of tender stipulate how and the manner in which the tender needs to be submitted. What needs to be complied with and stipulates the time within which the tender needs to be submitted and for how long the offer will be open for acceptance. By submitting a tende,r the tenderer effectively agrees to be bound by these terms and conditions and they form a subsidiary contract between the tenderer and the employer. Should the tenderer breach these conditions, the employer may well have legal recourse and could possibly claim damages should he suffer some financial loss as a consequence of the tenderer breaching the conditions of tender. When a tenderer submits his tender but has changed any of the terms and conditions, because he feels that to tender under the present conditions is too great a risk for his Page 2 of 6 company to assume, he needs to clearly intimate that his tender is submitted under changed conditions. These changes that a tenderer makes are called “qualifications”. Since qualifications can make the adjudication of tenders quite difficult, since one is no longer comparing like with like, it is often stipulated that should tenderers impose their own qualifications their tender may be disqualified or not considered. It would largely depend on whether the employer is prepared to accept the changed conditions or not. Question 3 Tender advertisements often state that tenderers will be required to pay a deposit on collection of tender documentation. These deposits may be either, refundable or nonrefundable on submission of a “Bona Fide” tender. 3.1 Explain the reason for the taking of deposits. (2) To cover the printing and other costs associated with printing and issuing of tender documents, should the tenderer decide that he no longer is interested and decides not to submit a tender 3.2 What is meant by a “Bona Fide” tender? (2) A genuine tender. Where the tenderer has honestly attempted to submit as keen a price as he is able. Where the tenderer submits a price which is not realistic, and has no intention of actually trying to win the tender, it is referred to as a cover price. 3.3 Is the Employer in any way obligated to accept the lowest or any tender? (4) No the employer is not obligated to accept the lowest or any tender received. The tender is simply an offer and until such time as an offer is accepted and communicated to the other party no contract will exist. Sometimes even the lowest tender received might be higher than the price anticipated by the employer and may well exceed his allowable/affordable budget. One could not then expect the employer to have to accept a tender when he cannot afford to proceed and would result in financial disaster and ruin for both parties Page 3 of 6 Question 4 Mr Geoffrey Parker, one time Managing Director of a construction company, wrote an article entitled “ Building: Low Bidders not always the best” A low bid doesn’t mean the company is the most capable Make a bid comparison to see where the differences lie between contractors Some lower-priced contractors may hire illegal or unqualified workers. A contractor company may be unable to comply with the associated legal or regulatory requirements. when this type of bidding backfires, everyone involved is affected by negative results such as poor building quality, poor service, multiple disputes, and a contractor who may not be able to pay their debts. Going with the most realistic bid can help ensure you receive a higher quality of work with a longer lifespan and avoids taking any risks that might be detrimental to the integrity of the project Explain, giving reasons and examples why you would or would not agree with this statement (6) Article attached Question 5 What is the purpose of a “Tender Report”? Make mention in your answer of at least 8 aspects that you feel would be relevant and should be contained in a tender report. (12) See pages from notes attached Question 6 Letters of intent are frequently encountered in the construction industry. How does a letter of intent differ from a Letter of acceptance? What might the reason be for the use of Letters of intent? (6) Letters of intent do not constitute an acceptance and therefore do not create a contract. The letter of intent is used to convey the employers intention to the tenderer that he is happy to proceed subject to the tenderer complying with certain conditions such as providing the priced bills of quantities (and which are found to be free of any errors or which can be Page 4 of 6 corrected relatively easily), supplying the necessary insurances and being able to raise the necessary security required from their bankers or other financial institution. The letter of intent gives the tenderer a certain level of confidence that he will be awarded the contract should he be able to comply with the requirements detailed in the letter of intent, and he need not continue to seek other potential new work. A letter of acceptance send in reply to the tenderers offer will create a legally binding contract between the parties Question 7 When signing a building contract, a number of documents need to be provided. Give a comprehensive list of the main documents that should be provided and explain in each case their purpose or reason for forming part of the “Contract documents” (10) See page from notes attached Question 8 Briefly explain your understanding of the term a “Builder’s Lien” and how this is created. Why might the employer require the contractor to waive his builder’s lien? Before waiving his lien how can the contractor protect himself from possible financial loss? (8) A Builder’s lien is a legal right the contractor acquires over the employers property automatically without him having to do anything, as a form of security against payment for the materials and work executed by the contractor on the employer’s property. The contractor can legally retain possession of the site and building and prevent the employer from taking possession until such time as the employer has paid the contractor everything that is due to him. A lien is one of the strongest forms of security against non- payment that a contractor can have. Sometimes where a project is to be financed by a bank or other financial institution, the bank will be reluctant to lend money unless they have a right to retain the property should the employer default in repaying the money lend to him. If the contractor does not waive his client the bank will have no right to the property and they will be unwilling to lend money as the risk is simply too great. Two parties cannot have a lien over the same property. In order for the bank to acquire the lien the contractor would be required to waive (give up his right to retain the property). Before doing this the contractor should ensure that another acceptable form of security is provided to him such as a Payment Guarantee issued to him from the employer’s bankers. Page 5 of 6 Total 60 marks Page 6 of 6
