Facilities development –
a practical introduction to
procurement & letters of intent
Andrea Gardner
Monday 25 March 2013
Workshop aims and objectives
• To discuss common issues and themes arising
on construction projects for sports and
welfare facilities
• To identify and explore problem areas and
risks
• To minimise delay, disruption and cost to your
project
Preliminary considerations and funding options
• Assess whether to extend / refurbish existing
buildings or construct new facilities
• Explore all potential funding options. These
may include:
• self funding (charitable donations, fund raising
initiatives and membership contributions)
• institutional funding (e.g. bank finance)
• Local Authority funding (potentially tapping into
S.106 obligations)
Preliminary considerations and funding options (cont)
• joint venture (potentially with another
organisation or club)
• grant funding (e.g. Sport England, Football
Foundation or National Lottery); and
• charity bank funding
Site acquisition
• Check that you own all parts of the site you
intend to build on
• Check that you own or have adequate rights
over land that you intend to use e.g. access
roads and utilities
• Carefully investigate title to check whether
there is anything in the title that could stop or
interfere with your building
The wider picture – third party consents
• You will need to balance the competing
interests of funders, tenants purchasers and
other end-users
• Funders are likely to have their own particular
security requirements including:
• collateral warranties
• charges over land / property; and
• personal guarantees or debentures
Appointing an architect
• An architect's role is integral to any successful
development and often extends beyond plans
and drawings
• Care should be taken to appoint the right
architect using proper terms and conditions
• Do not simply accept your architect’s terms!
Appointing an architect (cont)
• It is crucial that any professional
appointment includes the following:
• a clear description of the consultant's services and
how they will be paid
• clear standards of skill and care
• a requirement to maintain appropriate
professional indemnity insurance
• restrictions on the specification of inappropriate
or 'deleterious' materials
Appointing an architect (cont)
• a copyright licence enabling you to freely use the
architect's drawings, plans and specifications; and
• an obligation to give collateral warranties to
interested third parties (e.g. purchasers, tenants
and funders)
Deciding on a procurement strategy
• Traditional procurement vs. Design and Build
Traditional procurement advantages:
Time
Money
Greater certainty in the
construction period once
design is complete.
Greater certainty as traditional
contracts are generally 'let' on
fixed price terms.
Risk
Deciding on a procurement strategy (cont)
• Traditional procurement vs. Design and Build
Traditional procurement disadvantages:
Time
Money
Risk
Longer overall time frame.
Detailed design needs
completing before
construction can start.
Can cost more as
additional design fees
are paid to the team of
consultants.
Can place greater risk onto
the client as design and
construction responsibility is
divided between the design
team and the contractor.
Emphasises the importance
of having accurate technical
drawings and plans.
Deciding on a procurement strategy (cont)
• Design and Build advantages:
Time
Money
Risk
May be quicker because
the client need only
develop outline designs.
There is a potential VAT benefit to
Charities who procure using a
design and build route (VAT rates
can be reduced using Relevant
Charitable Purpose Relief) .
Can create a single
point of
responsibility for
design and
construction works.
Deciding on a procurement strategy (cont)
• Design and Build disadvantages:
Time
Money
Risk
Contractors may inflate their
price to take account of the
additional design risk.
Quality may suffer as the contractor's
profit rests on meeting the requirements
of the contract at the lowest possible cost.
Clients may feel that they lose control of
the design process once design consultants
are 'novated' to the contractor (see below).
Other consultants
• It’s not just about the architect!
• You may also need to appoint:
•
•
•
•
project manager / employer’s agent
CDM co-ordinator
structural and mechanical engineer; and
specialist consultants e.g. landscape architect,
acoustic consultants and geo-technical
consultants
Planning considerations
• You will need to apply for and obtain planning
permission
• You should take account of the judicial review
period before starting work on site
• Planning permission is often conditional. If so,
it is important that you discharge all planning
conditions
Appointing a contractor
• Once you have developed your design and
achieved planning you will need to appoint a
contractor
• In doing so you should consider:
• your internal procurement rules and constitution;
and
• European procurement law
Appointing a contractor (cont)
• You should be aware of wide ranging
procurement rules such as the Public Contract
Regulations 2006 (Regulations) (amended by
the Public Contracts (Amendment)
Regulations 2009)
• The Regulations impose additional
requirements on "Contracting Authorities"
looking to procure goods and services above
certain values
Appointing a contractor (cont)
• “Contracting Authorities” include:
•
•
•
•
Government bodies
Local Authorities
Police and Fire Authorities; and
A wide range of community bodies, interest
groups and associations who are funded,
supervised, controlled or appointed by a
"Contracting Authority”
Appointing a contractor (cont)
• Current financial thresholds (net of VAT and
subject to review / change on 1 January 2014)
Services
Works
Government bodies, Local Authorities, £113,057
Police and Fire Authorities
£4,348,350
Other 'Contracting Authorities'
£4,348,350
£173,934
Appointing a contractor (cont)
• What if the Regulations apply?
• If the Regulations apply it will affect the way
you can procure building works. You will have
to:
• advertise the contract in the Official Journal of the
European Union (an "OJEU" notice)
• follow one of a range of prescribed tender
procedures set out in the Regulations; and
• avoid awarding the contract until the expiry of a
'standstill period’
Appointing a contractor (cont)
• What if I don’t comply?
• The consequences of non-compliance are
harsh and could jeopardise your entire
project. Remedies include:
• an order to pay financial compensation to
unsuccessful contractors
• an order to re-start the tender process from
scratch; and
• the imposition of penalties and fines
Appointing a contractor (cont)
• Any formal legal challenge brings with it a
'moratorium' period. This means that you will
have to stop work until the challenge is
resolved
• This is a very complicated and rapidly
changing area of law and you should always
seek specialist legal advice
Choosing the right contractor
• Carry out financial checks into the standing
and reputation of your preferred contractors
• Request additional forms of security e.g.
parent company guarantees and bonds
• Ensure that your contractor maintains ‘all
risks’, public liability, employer's liability and
professional indemnity insurance
• Put a robust building contract in place as soon
as possible
Building contracts – key terms
• Choosing the right building contract can be
complicated but certain key terms should
always be included:
• a requirement to use appropriate levels of skill
and care in constructing and (if relevant)
designing the works
• obligations to comply with all relevant laws and
standards
• a clear completion date and procedures for
agreeing or 'certifying' completion
Building contracts – key terms (cont)
• provisions dealing with failure to meet the
completion date e.g. payment of liquidated
damages
• an obligation to return to site after completion to
rectify any defects
• clear payment obligations and insurance
requirements
• a requirement to provide collateral warranties to
third parties; and
• a dispute resolution clause (be aware of
adjudication!)
Letters of intent – the pitfalls
• Despite the importance of a full building
contract parties often enter into informal
arrangements or “Letters of intent” (LoI)
• LoI are often used to allow materials to be
ordered and works to commence before a full
building contract is in place
• BUT LoI should not be used unthinkingly or as
a substitute for a proper contract
Letters of intent – the pitfalls (cont)
• You should not be persuaded to use to an LoI
unless:
• the scope and price of the works are agreed or
there is a clear mechanism for agreement
• the main contract terms are (or are very close to
being) agreed
• where the programme, start and completion
dates are agreed; and
• there are good reasons for commencing work
before the contract is in place
LoI – drafting tips
• Things to include:
• a clear description of the works being carried out
and a financial limit on your liability
• a statement that you will not be obliged to enter
into a formal contract; and
• a clause confirming that the main contract will
retrospectively apply to all works under the LoI
LoI – drafting tips (cont)
• Things to avoid:
• using a LoI as a substitute for a main contract
• failing to enter into a main contract before the
expiry of the LoI; and
• exceeding the financial limits or duration of the
LoI
• Ampleforth Abbey Trust v Turner & Townsend
Project Management
Summary
• Development projects are complicated can
overwhelm inexperienced employers
• They require careful planning and monitoring
and do not just fall into place
• Problems and disputes do happen but they
can be avoided by seeking early professional
advice and guidance
Any Questions?
Workshop locations