bcsa contractual handbook

8/10/2019 BCSA Contractual Handbook

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CONTRACTUALHANDBOOK

BCSA

PUBLICATIONNo. 32/01


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CONTRACTUAL

HANDBOOK

for

Steelwork Contractors

an d

Other Specialist Contractors

Edited by

Roger Button, Partner,

Eversheds

With thanks to Lindy Patterson

P artner, MacRobertsFor Chapter 23

The British Constructional Eversheds

Steelwork Association Ltd.


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TH E BRITISH C ON STRUCT ION AL

STEELWO RK ASSOC IAT IO N LTD

BCSA is the national organisation for the Constructional Steelwork Industry; its Membercompanies undertake the design, and erection of steelwork for all forms of construction inbuilding and civil engineering. Associate Members are those principal companies involved inthe purchase, design or supply of components, materials, services etc., related to the industry.

The principal objectives of the Association are to promote the use of structural steel-work; toassist specifiers and clients; to ensure the capabilities and activities of the industry are widelyunderstood and to provide members with professional services in technical, commercial,contractual and quality assurance matters.

The Associations aim is to influence the trading environment in which member companieshave to operate, in order to improve their profitab ilit y.

A current list of members and a list of current publications and further membership detai ls canbe obtained from: The Brit ish Constructional Steelwork Association L td.

Apart from any fair dealing for the purposes of research or private study or crit icism or review,as permitted under the Copyright D esign and P atents Act 1988, th is publication may not bereproduced, stored or transmitted in any form by any means without the prior permission ofthe publishers or in t he case of reprographic reproduction only in accordance with the terms ofthe licences issued by the UK Copyright L icensing Agency, or in accordance with t he terms oflicences issued by the appropriate Reproduction Righ ts Organisation outside the UK .

Enquiries concerning reproduction outside the terms stat ed here should be sent to the publishers,The Bri tish Constructional Steelwork Association L td . At the address given below.

Although care has been taken to ensure, to the best of our knowledge, that all data and informationcontained herein are accurate to the extent t hat they relate to either matters of fact or acceptedpractice or matters of opinion at the time of publication. The British Constructional St eelworkAssociat ion L imited, the authors and the reviewers assume no responsibili ty for any errors inor misinterpretations of such dat a and/or information of any loss or damage arising from orrelated to their use.

The British Constructional Steelwork Association L td.,4, Whitehall Court , Westminster, L ondon SW1A 2ESTelephone: + 44 (0) 20 7839 8566 Fax: + 44 (0) 20 7979 1634E-mail: postroom@ steelconstruction.orgWebsite: www.steelconstruction.org

P ublicat ion Number 32/01Third Edi tion May 2001

ISB N 0-85073-035-X

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the Bri tish L ibrary. The British Constructional Steelwork Association L td.

Printed by The Chameleon Press Limited


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CONTENTS

Foreword .................................................................................................................................... Overleaf

Chapter 1 .......................................................................................................... Formation of Contracts

Chapter 2 .................................................................................................................. Classes of Contract

Chapter 3 .................................................................................................. Standard Forms of Cont ract

Chapter 4 ............................................................................................................. Tendering P rocedures

Chapter 5 ...................................................................................................... Onerous Contract Clauses

Chapter 6 ............................................................................................................................... Certificates

Chapter 7 .............................................................................................................. P ayment and Set-Off

Chapter 8 ............................................................................................................................. F luctuations

Chapter 9 ................................................................................................................................. Variat ions

Chapter 10 .................................................................................... Extensions of Time and Completion

Chapter 11 .......................................................................................................................... Costs of D elay

Chapter 12 ....................................................................................................................................... Claims

Chapter 13 ................................................................................................................. D efects of L iabilit y

Chapter 14 .................................................................................................................. D esign of L iability

Chapter 15 .............................................................................. Supply of G oods and Misrepresentation

Chapter 16 .................................................................................................................. L imitation Periods

Chapter 17 .................................................................................................................................. In surance

Chapter 18 ............................................................................................................ Bonds and Guarantees

Chapter 19 ........................................................................................... D isputes and L egal P roceedings

Chapter 20 .............................................................................................. In solvency of Main Contractor

Chapter 21 .... JCT Standard Form of Contract w ith Contract with Contractors D esign 1998 Edition

Chapter 22 .................................................................................................... Scottish Forms of Contract

Chapter 23 ............................................................................................................................. Nomination

Chapter 24 ................................................................................................................... Competition L aw

Chapter 25 .............................................................................................................................. Check L ist

Appendix A ........................................................................................ Amendments to Stan dard Forms


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FOREWORDto the third edition

The BCSA Contractual Handbook has been comprehensively re-worked to reflect the torrent of

changes that have affected construction over the years since the second edit ion was produced.

As migh t have been ant icipated, there have been considerable developments in case law sin ce the last

edition which have affected the position of steelwork and other specialist contractors. More surprising

has been th e impact of statute notably the H ousing Grant s Construction and Regeneration Act 1996

which contains one of the few pieces of legislation specifically designed for the construction industry.

The Commercial D ebts (Interest) Act 1998, the Contracts (Right s of Third P art ies) Act 1999, the

Competition Act 1998 and th e Human Right s Act 1998 will n o doubt all make their mark in time.

Thanks are due to Roger Button and Ray White of Eversheds who produced this edition, and to

L indy P atterson of MacRoberts for contributing Ch apter 23, Scottish F orms of Contract.

The law is up to date as at 1 January 2001, although later changes have been incorporated where

possible.

M. Rich of Middle Temple, Barrister MSc F CIArb

BCSA


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Formation of Contracts

Chapter 1 1

CHAPTER 1

FORMATION OF CONTRACTS

A contract is an agreement between t wo part ies which is legally enforceable.

Elements of a Binding Contract

There are five essential elements which must exist to form a b inding cont ract.

1. Intent

All parties must intend to create a legally bin ding obligation between th em.

2. Capacity

All of the parties to a contract should be capable of entering into a legally enforceable relationship.

In corporated bodies, partnerships and individ uals (provided they are not infants or insane) all have

capacity to enter into a contract. If one or more parties lack the capacity to enter into a contract, it

may not be enforceable.

3. Agreement

Agreement is the fundamental characteristic of a contract . In order to decide whether an agreement

exists, the Courts w ill consider the relationship between t he parties objectively and look, amongstother things, to see if there has been an offer by one party and an unconditional acceptance of that

offer by the other.

4. Reasonable Certainty of Terms

The terms of the contract must be reasonably certain. It is not necessary to have resolved every

detail, but there must be general agreement, and the parties must intend to create a bind ing agreement

despite any details which remain to be agreed. For example, on a cont ract let on a With Approximate

Quant ities basis the precise amount of work required will n ot be known, but this does not prevent

a binding contract from being formed.

5. Consideration

With the exception of contracts executed as deeds (dealt w ith in more detail later in this Chapter),

there must be consideration . Consideration is wh at one party agrees to do (or not to do) to secure

something from the other party. It was defined by the House of L ords in the case of Dunlop v

Selfridge (1915)as, an act or forbearance of one party, or the promise thereof, the price for which

the promise of the other is bought...

In construction contracts the consideration is normally the promise of the contractor (or subcontractor)

to provide work and m aterials, and the promise of the Employer (or main cont ractor) to pay a sum of

money in return.

Consideration i s not essential in contracts governed by Scots law


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There is no general legal requirement for a contract to be writ ten except for contracts of guarantee

and certain t ransactions regarding land . Although an oral agreement can be legally bind ing, written

evidence of the terms of a contract is of tremendous practical significance, because it can be very

difficult to prove the terms of an oral agreement if a dispute arises.

Offer and Acceptance

Invitation to Treat

Invitations to tender for work may be preceded by an enquiry to ascertain whether contractors are

prepared to t ender or by a formal pre-qualification process. Often these preliminary procedures take

place many months before the actual invitation to tender is issued. Usually response to such enquiries

or participation in pre-qualification processes would not impose any legally bindin g commitment on

a Steelwork Contractor to enter into a contract.

Such enquiries and processes would normally be regarded as invitations to treat, which means they

are simply an invitation to enter into negotiation. Provision of catalogues and price lists are also

invitations to treat, and do not normally bind the supplier or the recipient to enter into a contract or

to buy or sell products at a particular price.

There have, however, been exceptional cases where an actual invita tion to t ender amounts t o an offer

because the party issuing the invitation binds itself to accepting, for example, the lowest tender

(Harvela Investments Ltd v. Royal Trust Co of Canada (CI) Ltd (1986)). In such circumstances,

by entering a tender a contractor may be accepting the offer and a contract could result.

Offer

Tenders, estimates and q uotation s are all capable of being offers. Pr icing in formation given to main

contractors and clients for budget purposes may also be an offer if the information is sufficiently

detailed to form the basis of a binding contract if accepted. This is because the law will look at the

content ofany document to determine its nature, and although the title given to it, e.g. budget

price or pricing information will be relevant, it will not be decisive.

If a Steelwork Contractor wishes to give a budget price but does not w ish to be bound by it, it would

be sensible to include a statement in t he document such as:

This information i s given for budget purposes only. It does not constit ute an offer to carry outthe work or provide the materials described, and we will not be bound by it . A tender price will

be provided on request.

An offer can be made to a specific person or company, or it can be made at large . In the first case the

offer can only be accepted by the person to whom it is addressed, but an offer at large may be

accepted by any person. A tender for a main contract will usually be an offer made to a specific person

or company and can only be accepted by th at person or company. Similarly, a tender for a domestic

sub-contract will usually be made to a specific main contractor an d can only be accepted by the main

contractor.

H owever, when a company t enders to a client or his professional adviser for a n ominated or namedsub-contract , the offer may be at large and i f so, could be taken up by whomever the client appoints

as main contractor. This is important for St eelwork Cont ractors because they are an early trad e on

most projects and often the identity of the main contractor will not be known when they submit

their tenders for nominated or named sub-contracts. Unless the Steelwork Contractor qualifies his


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Chapter 1 3

tender to the effect t hat he reserves the right to withdraw it (or to revise his price) ifa main contractor

unacceptable to him is appointed, he runs the risk of his tender at large being accepted by w homever

the client appoints as main cont ractor. That may be contrary to the interests of the Steelwork

Contractor if the main contractor is not credit worthy or has a poor payment record.

Qualified Tenders

In vitat ions to tender frequently at tempt to prevent the tenderer from attaching any q ualifications to

his tender. For example, all of t he standard forms of tender produced by the Join t C ontract s Tribunal

state that the sub-contractors tender must be in accordance with the information set out in the

invitation.

The client can determine the requirements which tenders for work must meet and he can dismiss

any t enders which are qualif ied and th erefore not in accordance with his requirements. On t he other

hand, the invitation to tender documents may have omitted some important information, or lack

clarity or may insist upon onerous condit ions. In such cases, th e tenderer must make the commercial

decision as to whether to q ualify his tender.

When tendering to the client or his professional adviser on a JCT standard form of tender, the only

difficulties which should arise from the invitation to tender are either a lack of information or an

ambiguity or conflict in the details given. In these circumstances. the tenderer should inform the

client (or wh oever issued the documents), and request that the information or clarification required

be provided and issued t o all t enderers.

If there is a risk of being unable to obtain adequate supplies of steel to meet contract completion

dates, qualification may be appropriate.

H owever, tenderers should bear in mind that qualification may result in their tender being rejected

by the client.

Withdrawal of Tenders

A tender may generally be withdraw n at an y time before it is accepted, notwithstandin g any statement

or undertaking to hold the tender open for acceptance for a certain period. Even where such

undertakings are signed by the tenderer, th ey are not usually legally enforceable as contracts under

English law. (They may, however, be enforceable under Scottish law).

One situation in which they will be enforceable is where the tenderer is paid for holding th e tender

open for a specified period (this is known as an option). The option may in some cases be backed up

by a bid bond which the client can call if the tender is withdrawn d uring th e specified period.

Steelwork Contractors should also take into account the commercial implications of withdrawing a

tender. These may include that Steelwork Contractor not being invited to tender for further work

for that client.

There may also be a technical difficulty with t he withd rawal of tenders. Under English and Scots law

an acceptance is sometimes bind ing as soon as it is posted, whereas the revocation of an offer must

normally be actually brought to the knowledge of the other party before it t akes effect. A tender may

therefore have been accepted before the tenderer is aware of the fact, and if this is the case any

subsequent att empt to withdraw the tender will not be successful.

Tenders which are held open for acceptance for a fixed period will automatically lapse on expiry of

tha t period and t hereafter cannot be accepted without the agreement of th e tenderer. Some standard

forms of tender give the tenderer the opportunity to state a period after which the tender is


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4 Chapter 1

automat ically wi thd rawn . Tenderers should fill in a realistic period aft er which they would prefer to

review their price or their ability to carry out the contract.

AcceptanceAssuming the other criteria d iscussed above have been met, a cont ract w ill be formed when one party

makes an offer and the other party uncondit ionally accepts that offer.

Sometimes the offer wi ll impose restrict ions on the manner in which it may be accepted (e.g. only in

writ ing). H owever in t he absence of such restrict ions, an offer may frequently be accepted orally, in

writ ing, by e-mail or other electronic means, or may even be inferred from t he conduct of one party

e.g. by starting work.

As stated above, acceptance sent by post can sometimes be binding as soon as it is posted, even i f it is

never received. However, in practice, if the letter is lost the sender may have difficulty proving that

it was posted unless it was sent by registered post or recorded delivery.

Acceptance by all other methods of communication, such as by telephone, must actually be

communicated to th e other party before it takes effect. To date there has been no ruling on faxes or e-

mail, although it seems likely that they will be treated in the same way as telexes, and will not be

binding until received.

Given the negotiations, offers and counter-offers which often precede the award of a construction

contract , it is sometimes difficult to ascertain precisely what offer has been accepted. The following

general rules should be borne in mind:

1. If n ew terms are introduced in what purports to be an acceptance (e.g. an order) the document is

actually a counter-offer, which must in its turn be accepted before a binding contract is formed.

2. Acknowledgement of receipt of a t ender or other offer does not normally, in it self, constitute an

acceptance of that offer.

3. Silence cannot be an acceptance. Therefore if an offer is made and th e words added, w e will

proceed on the above basis unless we hear from you to t he contrary within [so many] weeks and

no reply is received, that would not in itself constitute acceptance and therefore no binding contract.

4. The acceptance may be stated to be subject to a formal contract . The precise effect of this

phrase depend s on the stat e of the negotia tion s between the two parti es. Where further

negotiations over essential terms of the contract are contemplated, there will be no bindingcontract . If all th e essential terms have been agreed and the parties intend to in corporate them

into a formal document at a later stage, there may be a bindin g contract. H owever, this will not

be the case if the parties have expressly or impliedly agreed that no contract shall come into

existence until a formal contract is executedJ. Jarvis & Sons Limited v. Galliard Homes Limited

(1999).

Counter-Offers

An acceptance which purports to q ualify an offer in any respect amounts, in law, to a counter-offer.

When faced wit h a counter-offer, th e person who made the original offer may d ecide to accept it, inwhich case a binding contract is formed on the basis of the counteroffer, or to decline it. The

counter-offer may be declined either expressly or by making yet another offer, including re-submission

of th e original. L ike any offer, in the absence of any express time limit, a counter-offer will lapse after

the passage of time.


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Chapter 1 5

Contract negotiations are frequently a series of counter-offers, but in construction contracts there

are dangers arising from the tendency to begin work before the contract negotiations are complete.

While this is an entirely pragmatic approach, it is important to ensure that beginning work is not

deemed to be acceptance by conduct of terms and conditions with which the Steelwork Contractor is

unhappy.

A typical sequence of events runs as follows:

1. A Steelwork Contractor is invited to tender for work on the basis of an unamended standard

form of sub-contract (invitation to t reat).

2. The Steelwork Contractor submits his tender on the basis of the standard form. (Offer).

3. The main contractor places an order with the Steelwork Contractor on the basis of his own terms

and condit ions wh ich appear on the reverse of th at order. (Counter-offer).

4. The Steelwork Contractor acknowledges receipt of th e order and begins work. (Acceptance of

Counter-Offer).

5. Several days after starting work the Steelwork Contractor attempts to negotiate terms of contract

with the main contractor (the Steelwork Contractor may well be bound by the terms of the

Counter-Offer).

In the above example, the Steelwork Cont ractor could have started work with out ty ing him self to the

main cont ractors terms although this does not mean th at the Steelwork Cont ractor is working under

his own t erms. It is crucial that unacceptable terms are disputed before any work is carried out, and

the Steelwork Contractor should also make clear that any off-site or on-site work does not constitute

an acceptance of the main contractors terms.

Main contractors orders frequently have an apparently innocuous tear-off acknowledgement slip

att ached at the bottom. Careful consideration should be given before such tear-off slips are signed

and returned, as they almost invariably include a statement that by signing and returning the slip

the sub-contractor is deemed to h ave accepted all of t he terms contained in the order. This would

probably result in the contract being concluded on the main contractors own terms. If Steelwork

Contractors wish to acknowledge receipt of an order, they should write a simple letter

of0acknowledgement on their own stationery, making it clear th at the terms contain ed in the order

are not accepted.

Battle of FormsThe negotiations leading up to a contract are often a series of offers and counter-offers. This is

sometimes referred to as the batt le of forms to describe each sides standard terms and cond itions

being sent backwards an d forw ards. The leading case on the batt le of forms is the Court of Appeal

decision in Butler Machine Tool Co. v Ex-Cell-O Corporation (1979).

The sellers (Butler) offered to sell to Ex-Cell-O a machine tool on th eir standard t erms which included

a variation of price clause. Ex-Cell-O ordered the machine tool on their own terms and conditions

which did not contain a variation of price clause. The buyers conditions contained a tear-off

Acknowledgement slip which contained the words, We accept your order on the terms and

conditions thereon. The sellers completed and returned the slip, accompanied by a letter statingtha t they accepted the order on the basis of their original offer.

However, the Court of Appeal held that by signing and returning the tear-off slip, the seller had

accepted the buyers terms, notwithstanding the accompanyin g letter.


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A more recent case on the battle of forms is Sauter v Goodman (1986)which concerned a contract

for boiler replacement at Windsor Castle. The key q uestion was whether a retention of tit le clause in

Sauters own terms and condit ions had become part of the contract .

Sauter had quoted to Goodman on the basis of their own terms and conditions which included a

retention of tit le clause.

G oodman had accepted the quotat ion on terms and condit ions in accordance with th e main contract

wh ich w as G C/Works/1 Ed it ion 2. GC/Works/1 provides that every subcontract must include a term

that, all things for incorporation belonging to the subcontractor which are brought onto site in

connection wit h th e sub-contract shall vest in th e contractor, in oth er words the exact opposite of a

retention of tit le clause.

The Court h eld that Sauter had accepted G oodmans terms (which amounted to a counter-offer) by

delivering the goods, and th erefore there was no retention of tit le clause in the contract.

On the batt le of forms, the following key principles should be borne in mind by Steelwork Contractors:

1. An acknowledgement slip should not be completed and returned unless the Steelwork Contractor

agrees that the condit ions to which i t refers are acceptable in their entirety.

2. Rejection of the terms of an offer should be writt en in unequivocal terms and should be incapable

of being misconstrued.

3. If Steelwork Contractors wish to proceed with the work while continuing negotiations, they

must make it very clear prior to commencing work that by so doing they are not accepting the

employers or main contractors terms and cond itions.

Letters of intentL etters of intent are a minefield for the unsuspecting sub-contractor. Steelwork Contractors are

particularly vulnerable as they are an early trade and are therefore frequently requested to carry out

preparatory work and fabrication off-site before a formal order or cont ract is issued.

1. Definition

In law, a letter of intent is simply a statement of t he writers intentions. I t does not constitute an offer,

counter-offer or acceptance, and therefore does not create a binding contract .

L etters of intent are sometimes used as a device by t he Employer (or archi tect or consulting engineeracting on his behalf) whereby the Steelwork Cont ractor is effectively instructed to carry out preliminary

work pending the selection of a main cont ractor and the execution of a sub-contract .

In such cases although a document may be headed letter of intent , consideration of its content may

reveal th at it is actually an acceptance or counter-offer which requests the recipient to carry out all or

part of the work referred to in the letter. If the so-called letter of intent makes it clear that all t he

essentia l terms of the contract have been agreed, commencement of work following receipt of such a

letter may lead to a contract coming into being. In the event of a dispute as to whether or not a

contract had actually been concluded, the Court would take into account th e heading of the document

but it would not be decisive in determining its nature. The Court would look at the content of the

document, and , if it was in substance an acceptance or counter-offer, th ey would construe it as such.

2. Terms of Letter of Intent

When a Steelwork Contractor receives a letter of intent, his first thought should be: If I act on th is and

the job is subsequently cancelled (or given to someone else) will I get paid for the work Ive done?


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Provided the letter clearly instructs the Steelwork Contractor to undertake the work, and the Steelwork

Contractor does not go beyond that instruction, the answer to that question is likely to be yes: the

Steelwork Contractor will be entitled to be paid for t he work he has carried out.

As to payment for work done in reliance upon a letter of intent, in t he absence of any provisions in

the letter about payment, the Court would imply an entitlement to payment of a reasonable sum

(sometimes referred to as quan tum meruit) for the work. A Steelwork Cont ractor s position w ould

be strengthened if the letter included an express undertaking to pay a reasonable price for the work

executed. I f the letter simply refers to covering the costs incurred, Steelwork Contractors should be

aware tha t wh ile a reasonable price w ill include overheads and profit, costs may not . The phrase

loss and expense has been equated by the courts wi th d amages, and would therefore be preferable

to costs as it would include overheads and profit. Obviously the best position for a Steelwork

Contractor as to payment under a letter of intent would be one where the price or the rates for his

work are clearly set out or referenced in the letter.

It is vital that the Steelwork Contractor does not carry out more work than i s authorised by th e letterof intent. I deally, the letter should identify in detail wh at th e Steelwork Contractor is required to do.

For a Steelwork Contractor this will normally comprise:

(a) ordering the material

(b) designing the connections

(c) preparing detailed drawings

(d) planning the contract both on site, and at the Steelwork Contractors works

(e) fabricating the material

If the Steelwork Contractor is required to carry out work beyond that specifically authorised, he

should obtain a further written instruction (including an undertaking to pay) from the party who

issued t he letter of intent.

3. Obligations Regarding Time

With t he popularity of fast-track construction th e question of how q uickly work must be carried

out is becoming increasingly important. I f no contract is ever agreed, it seems that there is no obligat ion

to adhere to a particular programme. This is illustrated by the case of British Steel Corporation v

Cleveland Bridge & Engineering Co Ltd (1981). Cleveland Bridge had been engaged as

sub-contractors to fabricat e an unusual steel latt ice-work frame for a bank in Saudi Arabia. C levelandBridge approached Br itish Steel with a view to employing them to cast nodes for the frame, but the

negotiations both regarding the specification an d the terms of the contract were long and complex.

In February 1979 Cleveland Bridge sent British Steel a letter of intent which stated an intention to

place an order at the price quoted by British Steel, but on Cleveland Bridges own terms, which

placed unlim ited liabilit y on the sellers for th e costs of any d elay.

British Steel made it clear they would not accept those terms. but nevertheless constructed and

supplied the nodes. The final node was not delivered until April 1980 owing to a nat ional steel strike.

British S teel sued for the value of the nodes and Cleveland Bridge counter claimed for damages for

late delivery.

The Court held that there was no contract because the parties had not agreed on important aspects

such as progress payments and liability for late delivery. B ritish S teel could not be liable for damages

for late delivery. H owever. th ey were enti tled to be paid a reasonable price for the work because it h ad

been done at C leveland B ridges request and accepted by t hem.


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It is not always, of course, the case that a Steelwork Cont ractor wh o carried out work in ant icipation

of entering in to a contract will be able to claim a reasonable sum for that work if the contract i s not,

ultimately, entered into. In Regalian plc v. L D D C (1995) the Court rejected the contractors argument,

holding tha t the costs which it now sought to recover were the costs of putting it self in the position

to obtain and perform th e contract.

However, this does not mean that when working on a letter of intent, Steelwork Contractors can

afford to ignore the main contractors or employers requirements regarding programme, because

any terms subsequently agreed may apply retrospectively to the work executed on the basis of the

letter of int ent. For example, in the case of Trollope & Colls Ltd v The Atomic Power Construction

Company Limited (1963)sub-contractors had tendered for a power station contract. In June 1959,

the sub-contractors were asked to start work on the basis of the letter of intent w hich read as follows:

We have to inform you that it is our intention to enter into a contract with you for (the works).

As soon as matters outstanding between us are settled we will enter into a contract agreement

with you, and in the meantime please accept this letter as an instruction to proceed with thework necessary to permit you to meet t he agreed programme.

The parties agreed the terms of the contract in April 1960, but the contract was never signed.

The sub-contractors subsequently argued that no contract had been formed an d therefore they were

entitled to reasonable payment rather than the prices they had quoted. They also argued that the

terms of the contract eventually agreed applied only t o work executed after April 1960, and did not

cover the work executed on the basis of the letter of intent.

The Court held that a contract came into existence in April 1960, and the terms of that contract

applied retrospectively.

4. Authority to Write Letter of Intent

It is important that a Steelwork Contractor checks the letter of intent is written by someone with

appropriate authori ty to act. A letter from the Employer or from the main contractor should be

acceptable. Where, however, a lett er is received from another party, such as a consultant , a Steelwork

Contractor should check with the Employer or main contractor tha t they have the necessary authority.

If a St eelwork Contractor is in any d oubt about the authority of the person who has signed the letter,

he should ask for a written confirmation from the employer or the main contractor before starting

any work.

Payment for Preparatory Work where No Letter of Intent is Issued

Following th e decision of the Court in Marston Construction v Kigass (1989), it may be possible to

recover the cost of preparatory work even w here no letter of intent has been issued. Marston tendered

for a design and build contract to provide a replacement for K igass factory, which had burn t down.

The insurers did not pay enough to cover the cost of rebuilding so the contract w as never placed, but

Marston claimed a substantia l sum for the preparatory work they had carried out over and above the

preparation of th e tender itself.

K igass had not wri tten a letter of intent , nor had they given an assurance (requested by Marston) that

the preparatory costs would be met. On the other hand, Marston were not given any ind ication thatthe preparatory work would be at their risk.

The Court held that Marston were entitled to be paid a reasonable sum for the preparatory works,

because they had been done at the implied request of K igass, and K igass had obtain ed a realisable

benefit, in the form of some design work as a result.


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Notwithstanding this decision, it is obviously preferable for Steelwork Contractor to obtain clear

undertakings regarding payment before executing an y preparatory work as described in L etters of

Intent above.

Incorporation of Terms by Reference

Frequently, neither the invitat ion to t ender nor the tender itself spells out all the conditions which

will apply to any resulting contract. They will simply refer to condit ions writ ten elsewhere such as

D OM/1 . The conditions referred to will be incorporated into the as if they were writt en out in full.

The Court s have held such incorporation by reference valid even where the reference was incomplete

and partially incorrect e.g. referring to the green form as the appropriate form for nominated

subcontractors (RIB A 1965 Edition) .

Where there is an indication tha t some step, such as signature of documents, is to be taken, in order

to incorporate conditions, the Courts will take this into account in deciding whether the conditions

have been incorporated especially if the condit ions conta in onerous provisions. InJonathan Wren

& Co & anr v Microdec plc(Case Number 1999 TCC 8), the Technology and Construction Court

considered the case of a software supplier whose quote stated that it was subject to their standard

condit ions. Although the quote was signed and returned on behalf on th e buyer, the suppliers

standard conditions were not given to the buyer. In addit ion, the condit ions themselves stated that

they would only become binding w hen signed by the parties. They were never signed. The Court

held that the suppliers standard conditions were not incorporated into the contract.

Tender documents frequently include a general stat ement tha t the sub-contractor shall observe and

comply with all the terms of the main contract as if the same were set out in the sub-contract. Whether

such attempts to incorporate the main contracts terms will be successful depends on the circumstancesof the individ ual case. In Dunlop & Ranken v Hendall Steel Structures (1975)it was held that the

incorporation of th e terms of the main cont ract by loose general words would not normally b ind the

sub-contractor to specific terms in th e main contract.

Conversely, in the case of Sauter v Goodmandescribed above, the Court held that relevant main

contract terms could apply between the main contractor and sub-contractor (with the necessary

changes) so that for contractor one read subcontractor, and for Authority, contractor.

Steelwork Contractors should carefully consider whether it is appropriate to incorporate all of the

main contract terms into a sub-contract , which th ey may be about to enter into. For example, if the

main cont ractor provides for the main contractor to provide insurance covering all of the main contractworks, it may not be appropriate to impose the same obligation on a sub-contractor who will be

responsible for only part of the works. The Steelwork Contractor wi ll in any event normally expect

the main contractor to provide temporary work such as access roads and hardstandings and would

therefore not wish t o accept the obligation to provide these.

Simple and Specialty Contracts

A contract under hand is one which is simply signed by the parties. It i s sometimes referred to as a

simple contract.

A contract w hich i s executed under seal (i.e. wh ere the company seals of the parties is affixed to th e

contract) or as a deed is known as a specialty contract. Unti l July 1990, the common method of

executing a specialty contract was to impress a seal on the document. As part of a package of measures

designed to lighten the administrative burden on smaller companies, the Companies Act 1989

abolished the requirement for company seals, and introduced arrangements whereby a document


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10 Chapter 1

stated to be executed as a deed, and signed by two directors or a d irector and the company secretary,

had the same effect as if it had been executed under the company seal.

The main differences between contracts executed under hand and those under seal or executed as a

deed are:

contracts under hand have a limitat ion period of six years from the date of the breach of contract

whereas those under seal or executed as a deed have a limitat ion period of twelve years.

contracts und er seal or executed as a deed do not require consideration (see Elements of a

B inding Contract above).

Interpretation of Contract

In deciding the meaning of words used in the contract, the Courts will follow their natural and

ordinary meaning. The fact that one party may not have appreciated or intended the meaning of any

particular word s or understood their implications does not normally a ffect the position.

H owever, it is important to note that the Courts when interpreting contracts, will take account of the

factual background to the contract i.e. information available to all parties at the time the contract was

made. This may well help in situat ions where there is ambiguity.

Further, where consideration of the factual background makes it clear that the words used cannot

have reflected the int ention of all part ies, the Court will construe the contract so as to give effect to

tha t intention. This occurred in another context in Mannai Investment Co. Limited v. Eagle Star

Life Insurance Co. Limited (1997) and in Investors Compensation Scheme v. West Bromich

Building Society (1997).

Rights of Third Parties under a Contract

The tradi tional position of E nglish law has been th at Third P arties (persons not parties to a contract)

are not entit led to enforce any righ ts under that contract. This is known as the doctrine of P rivity of

Contract. The doctrine has been subject to a number of limited statutory exemptions.

The position has now been considerably changed by the Contracts (Rights of Third Parties) Act

1999. When a contract either:

a. expressly provides that the Third Party may enforce a right under the contract, or

b. purports to confer a benefit on a Third Party

the Third P arty m ay enforce provisions of the contract as though he were a party to th e contract . A

Third P arty may be an in dividual person or company or a member of a defined class. No consideration

from the Third Party is required.

There is considerable uncertainty as to th e effect of the word s quoted in (b) above. It is possible that

in certain circumstances they could be interpreted as allowing, for example, the Employer, to enforce

direct the provisions of a sub-contract against the sub-contractor. For that reason, almost all of the

standard forms are being amended to make it clear that the contract does not intend to confer a

benefit on any Third P arty.The Act came into force on 11 October 1999 and applies automatically to all contracts entered into

on or after 11 May 2000. The part ies may opt into the Act before that date. The Act does not apply

to Scotland.


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Chapter 1 11

Summary

Interpretation of Contracts:The Courts will normally adopt th e natural and ordinary meaning of

word s used. Where th ere is ambiguity, then that m ay be resolved by reference to th e factual

background. The Courts may disregard the literal meaning of words where it is clear from the

factual background that such an interpretation would not reflect the intention of all parties.

Third Parties:Unti l recently, a Third P arty could not in m ost cases enforce right s under a contract.

This has now changed in respect of contracts concluded on or after 11 May 2000. A Third P arty will

be able to enforce provisions under a contract wh ere the contract expressly so provides or the contract

purports to confer a benefit on the Third P arty.

Elements of a binding contract:There are five elements of a binding contract: intent, capacity,

agreement, reasonable certainty of terms and consideration. Consideration is not necessary in contracts

executed under seal. There is no legal requirement for writing, but in practice it is important for

reasons of proof.

Invitation to Treat:is merely an offer to receive offers. Invitat ions to t ender, catalogues and price

lists are normally invitat ions to treat.

Offer:a document m ay be an offer even if described as a budget price if it is sufficiently detailed to

form th e basis of a bind ing contract. Offers at large may be accepted by anyone, and therefore when

tendering to the Employer for a nominated sub-contract Steelwork Cont ractors may wish to reserve

the right to withdraw if an unacceptable main contractor is appointed.

The decision to qualify a tender is a commercial one which may result in t he rejection of the tender.

Offers may be withdrawn at any time before acceptance under English law unless the tenderer has

been paid to hold th e offer open.Acceptance:an acceptance must normally be unconditional: if it in troduces new terms it is probably

a counter-offer. Acceptance can be inferred from conduct (e.g. start ing w ork). It must be communicated

to the other party, unless made by post in which case it often takes effect when posted. If a

sub-contractor does not accept all the terms in a main contractors order, he must communicate that

fact before starting work. Acknowledgement-of-order slips provided by the main contractor normally

refer back to the terms of the order and should not be signed unless the sub-contractor wishes to

accept all t he terms contained in the order.

L etter of Intent : should include an express undertaking to pay the contractor for preparatory w ork if

no contract results, and should specificallyauthorise the work required. The sub-contractor should

not go beyond the terms of the letter of intent, and should ensure it is written by someone with

appropriate authority.

Incorporation by reference: terms incorporated by reference are binding, even if the reference is

incomplete or partia lly incorrect.


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12 Chapter 1


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Classes of Contract

Chapter 2 1

CHAPTER 2

CLASSES OF CONTRACT

Construction cont racts fall into a number of classes or types, and the class of contract determines

whether certain documents form part of the contract and, to an extent the basis of payment to the

contractor. The most widely used standard forms are discussed in more detail in Chapter 3; t his

Chapter outlines the main d istinguishing characteristics of the main classes of construction contract.

1. Lump Sum, Without Quantities

This type of contract incorporates an agreement to carry out and complete a whole project, e.g. a

bridge, for a lump sum, in return for a stated cash sum. Such a contract is normally based on drawin gs

and specifications which taken together define the work covered by the price. Quantities are not partof the description of the work and any rates incorporated in the contract are for variation purposes

only.

In a pure lump sum contract, the contract price is to be changed only where the Employers plans

are varied (e.g. by a d esign change), and t he contractor will n ot be entitled to extra payment if carrying

out the work for which he tendered turns out to be more difficult and costly than he originally

envisaged. No work d one or cost in curred which is ind ispensably necessary to carrying out th e works

may be valued as an extra. This type of contract is not therefore suitable for a job where the extent of

the work necessary is uncertain.

JCT98 Without Quantities is an example of this class of contract.

2. Lump Sum, with Quantities

In th is type of contract, the bills of quant ities are intended to be the exact measure of the work to be

carried out. If there are errors in the bills, or if the contractor fin ds any d iscrepancy between the bills

and any other contract document, any corrections are treated as variations and are valued accordingly.

The rates in t he bills will also be used, where appropriate, for the purpose of valuing any variations

which may be ordered under the contract.

The essential feature which distinguishes a lump sum contract with quantities from that without

quan tit ies is that t he quant ities in the bill form part of th e description of the works to be done, andthus the lump sum tendered for the work is only in respect of the quantities set out in the bill: the

contractor is entit led to extra payment for an y work done beyond t hat . Any provisional sum included

within t he bills is measured and valued when th e work in respect of which th e provisional sum was

included is carried out, unless it relates to work which is to be carried out by a nominated

sub-contractor, in which case the work w ill be valued und er the relevant sub-contract terms.

JCT98 With Quantit ies is an example of th is class of contract , alth ough if the bills have been prepared

in accordance with SMM7, they may include approximate quantit ies in an otherwise firm bill. When

the contractor executes work for which an approximate quantity was included in the bills, the rate

for the approximate quant ity determines the valuation of th e work, provided the approximate quantit y

was a reasonably accurate forecast of the quan tit y of work required. Some commentators feel that the

inclusion of approximate quantities undermines, to some extent, the lump sum character of this

form of contract.


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Classes pf Contract

2 Chapter 2

3. Remeasurement

A remeasurement or measure and value contract is one where the contract price is recalculated on

final measurement using the rates set out in the tender. There may be a bill of approximate quant ities

against w hich t he contractor tenders. The final quantit ies are remeasured w hen th e work is completed

and the contractor is paid at the rates he tendered for t hose measured quant ities.

The contractors tender total is simply an estimate based on the proposed volume of work to be

carried out, and has no purpose other th an as a basis for selection.

On re-measurement contracts variations are normally concerned with design or quality changes

rather than q uantity changes.

JCT98 With Approximate Quant ities and t he ICE 7th Edition are re-measurement contracts.

Under JC T98 With Approximate Quanti ties, if the approximate bills are not a reasonably accurate

forecast of the work required, the work is valued at the tendered rates and prices plus a fair allow ance

for th e difference in quantit y. Work not covered by the bills is subject to a fair valuat ion , or ifappropriate, may be measured on daywork.

4. Prime Cost

Under a prime cost contract t he contractor is entitled to be paid the actual cost he incurs in carrying

out th e work plus a fixed fee for his overheads and profit. Architects Instructions will not normally

lead to any variat ion in the fee, although ad dit ional work will be paid for as part of the prime cost.

This type of contract is normally used where an early start is required. e.g. after fire damage.

The JCT Management Contract 1998 is an example of a P rime Cost Cont ract.

5. Design and Build

The classes of contract described above are based on the tradi tional division of responsibilities between

the designer and contractor: they assume that a professional practit ioner (architect and/or engineer)

appointed by the Employer will be responsible for design, and the contractor will be responsible for

materials and workmanship.

In recent years there has been a pronounced move by clients away from trad itional contract ing towards,

amongst oth er things, design and build contracts, whereby the contractor provides a total design and

construction package. The two major characteristics of design and build contracts are that they provide

for the contractors responsibility for design and th e Employer may only vary t he design of th e works

with the contractors consent.

The JCT publishes both a standard form With Contractors Design WCD98 and a Contractors

Designed Portion Supplement to JCT98 for use where the Contractor is to design only part of the

works. WCD98 is discussed in more detail in Chapter 21.

6. Management Contracting

There are many variants of management contracting but in its most popular form the Employer

appoints a professional team, normally led by an architect and a management contractor.

The management contractor manages and co-ordinat es the project but d oes not carry out any of the

work on site: this is done by works or trade contractors, each of whom has a separate contract with

the management contractor. This method of contracting is normally of very low risk for the

management contractor, as he is relieved of th e consequences of default by th e Works Contractors,


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Classes of Contract

Chapter 2 3

provided he has enforced the provisions of the works contracts against them. It is therefore the

Employer wh o takes the risk of Works Contractors insolvency or failure to pay claims.

Management contractin g is generally acknowledged to be suitable only for large and complex projects,

and i s particularly appropriate where an early start and fast completion are required.

The JCT publish a Stand ard F orm of Management Contract - MC98. Comments on MC98 are made

throughout this Han dbook.

7. Construction Management

Another approach to construction projects is construction management. U nder th is system each of

the separate trades has a direct contract with the Employer and is paid by him. The work on site is

managed and co-ordinated by a project manager or construction manager .

8. Partnering

P artnering has no precise legal meaning.

There are various types of partnering but some common features of partnering arrangements include:

An intent ion for t he parties - employers, contractors and sub-contractors - to work together co-

operatively, in good faith for the benefit of t he project as a whole. This intention is sometimes

supported by a commitment to a mission statement, arrangements for early reporting of problems

and a team approach to problem-solving.

Some form of risk/reward sharing. This may, for instan ce, involve the part ies agreeing to take

responsibility for a portion of cost overruns if the project finishes late or over budget or to be

paid a bonus if th e project finishes early or under budget.

Steelwork Contractors may derive benefits from participating in partnering arrangements but the

risks involved in such arrangements should also be considered. In particular th ey should consider:

The extent t o wh ich their exposure to taking a share of cost overruns is under th eir control or

under the control of other parties.

The extent to which their entitlement to bonus is under their control or under the control of

other part ies.

Whether the roles of and resources to be provided by each of the part ies is clearly stated or, if not ,

tha t t here are fair mechanisms for agreeing t hese.

Sometimes the high-level partnering ideals are contain ed in a n on-legally bindin g document such as

a charter leaving the legally bind ing provisions to be dealt with in contracts. In some circumstances,

however, even though a partnering charter may not be legally binding, a court may still take its

provisions into account at it did in th e case of Birse Construction Ltd v St David Ltd (1999).

The Association of Consultant Architects have recently published a Standard Form of C ontract for

P roject P artn ering PP C 2000. P P C 2000 aims to address the key recommendat ions of Sir Michael

L atham in h is report Constructing the Team . P P C 2000 describes itself as a single, fully integrated

project partnering contract, designed to underpin a t eam-based approach and to promote clarity and

confidence among partn ering team members.


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Classes pf Contract

4 Chapter 2

9. Prime Contracting

P rime contracting aims to replace the trad itiona l confrontat ional relationships with processes which

concentrate on delivering better value. P rime Contractin g often features:

L ong term relationships between the P rime Contractor an d suppliers - not just for one project. Collaborative working.

Focus on through-life costs of a project rather than solely on capital cost.

A continuous improvement regime.

Acceptance by the Prime Contractor of responsibility for almost aspects of the project from

inception.


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Standard Forms of Contract

Chapter 3 1

CHAPTER 3

STANDARD FORMS OF CONTRACT

There are various standard or model forms of contract published for use in connection with

construction projects. In this H andbook we will concentrate on the forms most likely to be

encountered by Steelwork Contractors, namely, those published by the Joint Contracts Tribunal

(JCT) and by the Institution of Civil Engineers (ICE) and the associated sub-contract forms

published by the Construction Confederation and by th e Civil Engineering Contractors Association.

The ICE have also published the Engineering and Construction Contract - a brief comment on

this form is included at t he end of this Chapter.

The JCT Forms of Main Contract and Associated Sub-ContractsThe JCT publishes a wide variety of forms of contract. Many of these forms were until recently

subject to numerous and lengthy amendments which made them cumbersome to work with.

Fortunately, in 1998 most of the relevant amendments were incorporated into new editions of the

JCT forms with the exception of th e Terrorism Cover provisions which are still separate. In this

H andbook, we will concentrate on the 1998 editions of the JCT forms. For those readers who w ish to

know more about the previous editions and the various amendments, please see Appendix A.

The forms most likely to be relevant to St eelwork Contractors are:

Standard Form of B uilding Contract - JCT98

JCT98 is the main JCT document for use where the Employer h as engaged professional consultan ts

to design the works, and requires a contractor to carry out those works by supplying the necessary

workmanship and materials. There is no upper limit on the size of project for w hich t he form can be

used, but it would be somewhat complex for reasonably simple contracts of relatively low value and

short duration.

Six versions of J CT98 have been published:

Private With Quantities

Private Without Quantities

Private With Approximate Quantities

Local Authorities With Quantities

Local Authorities Without Quantities

L ocal Authori ties With Approximate Quant ities

Nominated Sub-Contracts for use with JCT98

Various documents are issued by the JCT relat ing to nominated sub-contractors. These are referred

to in clause 35.4 of JCT98 and are as follows: NSC/T

The Stand ard F orm of Nomin ated Sub-Contract Tender. It comprises 3 parts: P art 1: The Employers Invita tion to Tender to a Sub-Contractor P art 2: Tender by a Sub-Contractor


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2 Chapter 3

Part 3: P articular Conditions (to be agreed by a Cont ractor and Sub-Contractor nominated

under clause 35.6 of JCT98)

NSC/A

The Standard Form of Articles of Nominated Sub-Contract Agreement between a Contractor

and a Nominated Sub-Contractor

NSC/C

The Standard Conditions of Nominated Sub-Contract

NSC/W

The Standard Form of E mployer/Nominated Sub-Contractor Agreement

NSC/N

The Standard Form of Nomination Instruction for a Sub-Contractor

Domestic Sub-Contracts for use with JCT98In addit ion to nominated sub-contractors, JCT 98 also provides for the appointment of domestic (i.e.

non-nominated) sub-contractors. Domestic sub-contractors are selected by the main contractor to

carry out work which has been priced by the main contractor.

JCT98 does not specify an y man datory form of domestic sub-contract .

Most large main cont ractors have their own forms of domestic sub-contract, but there is a standard

form, DOM/1, which is published by the Construction Confederation. DOM/1 is published

in two parts: the Articles of Agreement and th e Sub-Contract Condit ions.

Intermediate Form IFC98 Main Contract

This form is intended for use on projects where JCT98 is considered to be too heavy-weight.

Notes on the back of IF C98 state that i t is suitable for use where:

1. the works are of simple content (i.e. involving the normally recognised trades and skills of the

industry);

2. there is no specialist complex work:

3. the work is adequately specified and billed pre-tenderThe main provisions of IF C98 and the way s in wh ich it allocates risk are generally similar to JCT 98.

However, the contract is much shorter than JCT 98,and some of the procedural aspects of that

document have been omit ted.

The main differences between JCT98 and IFC98 are:

1. JCT98provides for th e nomination of sub-contractors, whereas IF C98 provides only for namin g,

which is an upgraded form of domestic sub-contracting whereby the architect selects the

sub-contractor, but once appointed h e is treated as a domestic sub-contractor.

2. IF C98 does not allow for conventional fluctuations. Contracts are let either on a fixed price or

formula basis.

There is an embargo on oral instructions under I FC 98.


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Chapter 3 3

Sub-contracts for use with IFC98

Clause 3 of IF C98 permits the appointment of tw o types of subcontractor: named and domestic.

Named Sub-Contracts for use with IFC98Where a named sub-contractor is to be appointed, the Employer (or th e architect/engineer on his

behalf) selects the tender list, invites tenders, selects the sub-contractor and instructs the main

contractor to enter into a sub-contract w ith that sub-contractor. The use of both a stan dard form of

tender (NAM/T) and a standard sub-cont ract (NAM/SC) is man dat ory. To th is extent, naming is very

similar to nominat ion. H owever, named sub-contract work will be priced by the main contractor,

and will n ot be the subject of a prime cost sum.

Once the sub-contractor has been selected, he is t reated like any other domestic subcontractor, albeit

he has the protection of a standard and mandatory sub-contract form. The named subcontractor

does not receive copies of architects certificates of payment, and it is the main contractor who issuesinstructions to him and awards extensions of time. For these reasons, naming under IFC98 should

be regarded as upgraded domestic sub-contracting rather than down-graded nomin ation.

In add it ion to the stand ard tender, NAM/T, and the standard sub-contract, NAM/SC, there is an

Employer/Subcontr actor agreement, E SA/1, which deals with design carried out by n amed

subcontractors.

Domestic Sub-Contracts for use with IFC98

A standard form of d omestic sub-contract for use with the Intermediate Form called IN/SC has beenproduced. This document is completely optional: the main contractor is free to use his own terms

and condit ions if the sub-contractor agrees. IN/SC is produced in t wo parts: the recitals and articles

of agreement. Which incorporate by reference the separately issued cond itions of contract.

In view of the named sub-contractors essentially d omestic status once he has been appointed, the

terms of I N/SC are very similar to th e terms of NAM/SC.

JCT With Contractors Design Main Contract WCD98

The JCT With Contractors D esign Form WCD 98 is for use where the contractor is designing

the works. This form has become increasingly importan t, part ly because of the trend t owards design

and build cont racts and also because the form is used by some major private sector employers where

the contractor is required to have only a partial design input.

WCD 98 requires the Employer to state his requirements, which may be little more than a d escription

of the accommodat ion required, or an yth ing up to a full scheme design prepared for t he Employer by

his own consultants or other professional advisers.

In response, the contractor submits his proposals for th e design of the works, a lump sum price

and a contract sum analysis which will be the basis of valuing changes (variations) in the

Employers requirements. A more detailed commentary on WCD 98 is given in Chapter 21 - JCT

Standard Form With Contractors D esign.


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4 Chapter 3

Sub-contracts for use with WCD98

The JCT itself has not published any standard forms of sub-contract for use with WCD 98, and as all

sub-contractors under WCD98 are domestic, no standard sub-contract is stipulated. However, the

Construct ion Confederat ion have issued a standard form, D OM/2. D OM/2 comprises Articles of

agreement, and a set of conditions.

JCT Management Contract 1998- MC98 Main Form

MC98 comprises Articles of Agreement and Conditions.

MC98 is deliberately low risk for the Management Contractor. Essentially, the Management Contractor

manages the construction process while th e work on site is actually carried out by Works Contractors.

The JCT advises that suitable conditions for use of the Management Contract would be where:

(i) the Employer wishes the design to be carried out by an independent architect and design team

(ii) there is a need for early completion

(iii) the project is fairly large

(iv) the project requirements are complex

(v) the Employer while requiring early completion want s the maximum possible competition in

respect of the price for th e building works.

Under MC98, th e design of the project is to be carried out by a P rofessional Team comprising an

architect or contract administrator, quantity surveyor and any other professional advisers as are

necessary, for example, consulting or structural engineers.

Works Contractors may also carry out some design w ork, which is catered for both by t he separate

Works Contractor/Employer agreement and a provision in the Works Contract w hich makes the

Works Contractor liable to the Management Contractor for the failure to exercise reasonable skill

and care in any d esign he carries out.

The Management form is not a lump sum contract. The quanti ty surveyor prepares a Contract Cost

Plan which is an indication of the price the Employer will pay for his project (exclusive of the

Management Contractors fee). The Management Cont ractor is entit led to be paid the actual cost of

building the project (i.e. the prime cost). In addit ion to the prime cost, the employer also pays th e

Management Contractors fee for his management services, wh ichcan be either a lump sum or may

be calculated as a percentage of the contract cost plan tota l.The project period i s divided in to t wo phases: a pre-construction period and a construction period.

D uring the pre-construction period the Management C ontractor will prepare a detailed construction

programme, assist in appointing Works Contractors and advise on th e practical aspects of design.

Before the end of the pre-construction period the Management Cont ractor an d the P rofessional Team

must have agreed upon the Contract Cost P lan, and the content of the all important thi rd schedule

of MC98 which is a list of the services to be provided by t he Management Con tractor.

When the Architect decides that it is practicable to commence construction of the project, the

Employer must decide whether he wishes the Management Contractor to proceed. In other words,

there is a break clause between th e pre-construction and construction periods, which gives theEmployer an opportunity t o decide whether he wishes the same Management Contractor to contin ue

into the construction phase. If he does not, then the Management Contractor is paid a separate

pre-construction period man agement fee which is identified in his tender.


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Chapter 3 5

During the construction period the Management Contractor has possession of the site. He is not

contractually responsible for the prime cost of the project i f it exceeds the contract cost plan total,

but he is contractually responsible for securing the completion of th e project on or before the da te of

completion. His main obligation during the construction period is to set out, manage, organise,

supervise and secure the carrying out and completion of the project t hrough the Works Contractors.

The provisions of MC98 in terms of risk are somewhat complex. The Management Contractor is

fully liable to the Employer for breach of obligations regarding t ime, workmanship and mat erials by

the Works Cont ractors. He must enforce th e terms of th e Works Cont racts, if necessary to the extent

of taking any disputes to adjudication, litigat ion or arbitrat ion. However, the Management Contractor

is entit led to be paid by the Employer the costs of such litigation or arbit ration, provided it has been

undertaken after consultation with the Employer and the architect. Any shortfall which cannot be

recovered from the Works Contractor (for reasons of in solvency or oth erwise) is borne by the Employer

and not the Management Contractor. Similarly, the Employer may recover liquidated damages from

the Management Con tractor only to the extent that the Management Contractor recovers them from

the Works Contractors.

The only exception to these relief provisions is where the Management Cont ractor has incurred

costs due to his own negligence in carrying out h is duties which are listed in the th ird schedule.

Works Contracts for use with MC98

MC98 describes the contractors who carry out the work as Works Contractors, not sub-contractors.

The Works Contract documentat ion comprises:

Works Contract/1 wh ich is a standard form of tender Works Contract/2 which contains th e conditions of contract

Works Cont ract/3 which is an (option al) agreement between the Em ployer and th e Works

Contractor

ICE Conditions 7thEdition

The ICE C ondit ions of Cont racts are wid ely used for civil engineering projects.

The 7thedition of the ICE Condi tions was published in September 1999.

ICE 7this a re-measurement contract. Where there are significant changes in q uantit ies, th e contract

rates may be altered.

Sub-Contracts for use with ICE 7th

The ICE 7th prohibits sub-contracting of the whole of the works without the prior consent of the

Employer. Sub-contracting of part of the works is permit ted but the extent of the works to be sub-

contracted and th e name and ad dress of the sub-contractor must be notified to the Engineer prior to

the sub-contractors entry onto the site or, where the sub-contractor is carrying out design, on

appointment.

The ICE 7th provides for the appointm ent of nomin ated sub-contractors, but does not make the use

of a standard form of sub-contract man datory.


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6 Chapter 3

A Form of Sub-Contract (1998 edition) has been published by the Civil Engineering Contractors

Association for use with th e ICE 6thbut as at 1 Jan uary 2000 no version has yet been published for use

with the ICE 7th.

The Engineering and Construction Contract - 2ndedition

The contract comprises a set of core clauses which are to be used in every case where the contract

is used.

The core clauses must be supplemented by one of six possible sets of provisions aimed mainly at

payment which are:

Option A Priced contract with activity schedule

Option B Priced contract with bill of quantities

Option C Target contract with activity schedule Option D Target contract with bill of quantities

Option E Cost reimbursable contract

Option F Management contract

Although A to F are called Main Options , at least one of them must be chosen.

In addi tion to the above, the parties may chose other Secondary Options to form part of the contract.

It not necessary to adopt any of these Secondary Options and, except where otherwise stated, they

may be used in any combination . These other optional provisions are:

Option G Performance Bond

Option H Parent company guarantee

Option J Advanced payment to the Contractor

Option K Multiple currencies (not to be used with Options C,D,E and F)

Option L Sectional Completion

Option M L imitation on the Contractors liability for his design to reasonable skill and care

Option N P rice adjustment for inflation (not to be used with Options E and F)

Option P Retention (not to be used with Option F)

Option Q Bonus for early Completion

Option R D elay damages

Option S Low performance damages

Option T Changes in the law

Option U The Construction (D esign and Management) Regulations 1994 (to be used for

contracts in the UK)

Option V Trust Fund

Option Z Additional conditions of contract


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Chapter 3 7

Some of the key feature of the Engineering and Construction Contract are:

The wording of the Engineering and C onstruction Cont ract is much simpler than tha t found in

the other standard forms especially the JCT forms w ith none of the extensive cross referencing

of provisions which is a feature of the JCT forms.

The Contract includes a mission statement that the parties will act in a spirit of mutual t rust

and co-operation.

It provides for both part ies to give to the other early warn ing of any matt er which could increase

the tot al of the prices or delay completion or impair the performance of th e works in use.

The Contractors liability for defects in the works due to his design that are not listed in the

defects certifi cate are limited to the amount stated in the contract da ta (in addit ion to any stat ed

damages for delay or low performance). If Option M is incorporated into the contract, the

Contractor w ill not be liable for defects in the Works caused by his design provided he can prove

th at he used reasonable skill and care to ensure that h is design complied with th e Works

Information.

Bad weather for the purposes of assessing compensation is defined as being a value which, by

comparison with weather data, is shown to occur on average less frequently than once in 10

years.


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8 Chapter 3


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Tenderi ng P rocedures

Chapter 4 1

CHAPTER 4

TENDERING PROCEDURES

As explained in Chapter 1, a tender is a form of offer and will form th e basis of a bindin g contract if

it is unconditionally accepted. This Chapter deals with general tendering matters, particularly the

Code of P ractice for the Selection of Subcont ractors . The Code was published as part of a series of

Codes and Guidance Documents by the Construction Industry Board in April 1997. This Chapter

also describes the tendering procedures under the standard forms of subcontract, and comments

upon the standard tender documents.

Qualifications to t enders and withdrawal of tenders are dealt w ith in Chapter 1-Format ion of Contracts.

The CIB Code of Practice for the Selection of SubcontractorsThe Code states that it is aimed at improving the quality, effectiveness and efficiency of the

construction industry.

There follows a summary of the key provisions of the Code - the numbers in square brackets are to

paragraph numbers of the Code.

QUALIFICATION

Main cont ractors to follow a formal and systematic qualificat ion process as a preliminary tocompiling tender lists (if they neither maint ain nor have access to an approved li st). [2.4]

Criteria for q ualification to in clude [2.3]: work quality past performance overall competence health and safety record financial stability insurance cover size and resources

technical and organisational ability ability to innovate

Main contractors to regularly review their list and not ify any addi tions or removals.[2.5] It should be noted that whilst the Code is stated to apply to sub-contracts/sub-sub-

contract s of more than 10,000 (excluding VAT), there is no reason why t he principles

should not be applicable to contracts of any size.

SELECTION FOR A SPECIF IC P ROJECT

Main contractors to draw up preliminary list (e.g. from an approved list of qualified

subcont ractors). [2.6]

Tenderers on preliminary list to be asked if they are willing to tender. [2.8]

Tenderers to be assured t hat Code will be applied. [2.8]

Potential tenderers to be given sufficient information to enable them to decide if they are

willing to tender. [2.9]


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Tendering Procedures

2 Chapter 4

Any briefing sessions must have standard agenda to ensure consistent t reatment.

Point s to note: The informat ion to potential t enderers should include:

job and location nature, scope and approximate value of the sub-contract works including reference

to the extent of any design work required the likely dates and duration of both the tendering process and the sub-contract

works the number of tenderers being invited to submit a formal t ender whether the main contractor is already being appointed or is also tendering the main contract t ender date the approximate value and period of the main contract , if known whether, and how, any costs of tendering, may be shared whether the tender will be based on bills of quantities or other pricing documents

or on specification and drawings the selection procedure and selection criteria the main and sub-contract conditions the names of the client and t he relevant consultan ts

COMPILING TENDER LISTS

Main contractors to produce draft tender lists and seek confirmation from potential t enderers

of w illingn ess to tender. [2.13]

Potential tenderers to notify unwillingness to tender before issue of full tender enquiry

documents. [2.13]

Maximum number of invita tions t o tender not t o exceed 6 in respect of construct/install

only. For design only, maximum is 4. For design and construct maximum is 3. [2.15]

If m inimum n umber of tenders is received contractor should not seek more. D esign only =

3. Construct only = 4. Design and construct = 2. [2.15]

Potential tenderers to reconfirm willingness to tender if tender documents not received

within 3 months of in itial confirmat ion of w illingness to tender. [2.18]

Main contractors to identify and notify reserve tenderers - maximum of 2 reserves to be

invited to tender if original tenderers drop out but must have sufficient time in which to

tender. [2.16/2/17]

Poin t t o note: In no case should the maximum number of tenderers exceed six.

TEND ER ENQUI RY DOCUMENTS

Tenderers to be informed if informat ion is approximate. [3.1]

L evel of detail required in tender submission to be clearly stated and it should be indicated

if priced schedules are required as well as a lump sum price. [3.1]

Point s to note: Annex I to the Code lists the minimum information to be included in tender

documentation assessment crit eria (should have regard to value for money rather than

lowest price); contract conditions and amendments to standard forms; payment terms

(cash retentions or retention bonds, advance payment for materials, security of payment

and protection against non-payment); approximate dates for commencement and

completion of sub-contract works programme.


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Chapter 4 3

TEND ERING TIME

10 weeks for design and construct; 6 weeks for construct only and 3 weeks for design only.

[3.5]

Point s to note: The time for tendering should t ake account of bank holidays The above periods are suitable for most projects but extra time could be required in

certain circumstances, e.g. where products or materials have to be obtained from distant

or unfamiliar suppliers.

TEND ER INVITATIONS

Tender invitat ions to be issued on the same date for all t enderers and should state whether

alternative tenders are acceptable in conjunction w ith (but not instead of) compliant tenders.

[3.7]

Tenderers to acknow ledge receipt of documents and confirm w illingness to supply complianttender.[3.7]

The tender invita tion should also state whether tenderers are to be interviewed and, if so, for

what purpose and at what stage. In terviews must not involve second round bidd ing.[3.8]

Not later than 7 days before the date for submission of tenders, tenderers should submit in

writing any clarification which they may require.[3.9]

The main contractor should inform all tenderers in writing of its response to requests for

clarification.[3.9]

If the tender documenta tion is consequently amended, all t enderers must be informed.[3.9] Point to note: The Code states that its provisions are designed to encourage compliant tenders.

TEND ER SUBMI SSION AND OPENING

Under no circumstances should tender prices be disclosed to third parties by the main

contractor before the award of the sub-contract. U se of cover prices is a breach of

confidentiality.[3.12]

Tenders to be submitted in sealed packages and clearly labelled as tenders for the works;

identification of tenderers names is not permitted.[3.13]

Tenders to be kept in a secure place and only opened on the date and t ime stated for receiptof tenders.

When opened, forms of tender should be signed and prices should be listed against the

names of the tenderers. The person opening the tenders should sign the list.[3.13]

Bills of quanti ties should only be completed if they were in the tender documentation and i t

is also required that they be part of the tender submission.[3.14]

Poin t to note: It is suggested those inviting tenders self-certify to their tenderers that these

requirements have been met.

LATE TEND ERS Tenders received after t he dat e and t ime specified for return of tenders will not be

accepted.[3.15]


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TEND ER ASSESSMENT

Tendering enquiry documents to provide tender assessment criteria.[4.1]

Weighting factors to be decided in advance, used consistently and a record kept of scores

awarded during the assessment.[4.1] To ensure parity of tendering, non-complian t t enders to be rejected.[4.3]

Unsolicited tenders are unacceptable.[4.5]

Any mathematical errors to be notified to the tenderer who should be asked whether he

stands by his tender price.[4.6]

The next preferred tenderers can only be approached i f the preferred tenderer w ithdraws or

post-tender negotiations break down.[4.9]

In general, tender prices can only be changed in exceptional circumstances e.g. where the

programme or scope of the works in respect of specification, quantities, programme havechanged or where more information has become available.[4.11]

Where a preferred sub-contractors tender is used in a main (or principal sub-contract) tender

submission, the sub-contractor should be notified.[4.12]

The identity of t he sub-contractor whose price has been incorporated in t he main cont ract

tender should be notified to the client unless the client has indicated that this is not

necessary.[4.12]

Point to note: The provisions about unsolicited tenders, changing of tender prices and identi ty

of sub-contractor are designed to combat du