NEC3 Contract Trainning

Workshop 4 – Delivering the Contract Colin Smyth MRICS MBA Gary Bogle BSc (Hons) LLM MRICS FCIArb

Wednesday 20th September 2011

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Our Agenda for Today  Delivering a project under a JCT or NEC Contract  Contract Planning & Programming  Risk Management & Cost Control  Budgeting & Cost Management

 Resolving Disputes  Company and Project Performance Measurement

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General Procurement

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General Procurement Methods 2007

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General Procurements Methods 2007

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Overview of the JCT

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JCT Suite of Contracts 

Adjudication Agreement



Collateral Warranties



Construction Management



Consultancy Agreement (Public Sector)



JCT – Constructing Excellence Contract



Major Project Construction Contract



Management Building Contract



Measured Term Contract



Design and Build Contract



Minor Works Building Contract



Framework Agreements



Partnering Charter



Generic Contracts





Home Owner Contracts

Pre-Construction Services Agreement



Intermediate Building Contract



Prime Cost Building Contract



Repair and Maintenance Contract



Standard Building Contract

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SBC/Q - 2005  SBC/Q  Appropriate for major works designed and/or detailed by or on behalf of the Employer. The contract is based on drawings and bills of quantities to define the quantity and quality of the works  Where a Contract Administrator and Quantity Surveyor have roles to play in the administration of the conditions

 Variants:  Where the contractor is to design discrete parts of the work (Contractor‟s Designed Portion)  Where the work is to be carried out in sections  By both private and local authorities

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SBC Conditions (1)  There are nine sections in the SBC/Q outlining the provisions of this contract  Section 1 - Definitions and Interpretation  e.g. Activity Schedule, Architect/CA, Health & Safety Plan and Electronic Communications  Section 2 - Carrying out the Works  e.g. Contractor‟s Obligations, Adjustment of Completion Date and Defects  Section 3 - Control of the works  e.g. Access and Representatives, Person-in-charge, Architect/CA‟s Instructions

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SBC Conditions (2)  Section 4: Payment

 e.g. Contract Sum and Adjustments, Certificates and Payments, Retention and Loss and Expense  Section 5: Variations  e.g. The Valuation Rules  Section 6: Injury, Damage and Insurance

 e.g. Injury to Persons or Property and Insurance

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SBC Conditions (3)  Section 7: Assignment, Third Party Rights and Collateral Warranties  e.g. Assignment, Rights for Purchasers and Tenants, Contractor‟s Warranties

 Section 8: Termination  e.g. Meaning of insolvency, reinstatement and Corruption

 Section 9: Dispute Resolution  e.g. Mediation, Adjudication and Arbitration

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Overview of the NEC 3

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The NEC Journey so far ……..

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The NEC3 Suite – The Contracts  The NEC Suite of Contracts:  Generic name for a family of contracts published for the Institution of Civil Engineers by Thomas Telford Ltd.  NEC 3  Engineering and Construction Subcontract  Engineering and Construction Short Contract  Engineering and Construction Short Subcontract  Professional Services Contract (PSC)  Adjudicator‟s Contract  Term Service Contract & Guidance Notes  Framework Contract www.ulster.ac.uk/ceni

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The NEC3 Suite – The Contracts

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NEC 3 - Background  Catalyst for NEC:  Sir Michael Latham‟s industry report „Constructing the Team, 1994‟

 Believed NEC complied with most of the principles that the report advocated.

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NEC 3 - Background

 Latham

 Improving industry‟s performance Teamwork better VFM

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NEC 3 - Background  Latham  Clients  Well informed – know what they want & take decisive steps to achieve it  Knowledgeable but not necessarily modern in their approach  Others are feeling their way under new administrative arrangements  Some know nothing & need extensive help & guidance for formulate their wishes then match them to the available budget

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NEC 3 - Background

 Latham  Client Objectives VFM Pleasing to look at Free from defects on completion Delivered on time Fit for the purpose Supported by worthwhile guarantees Reasonable running costs Satisfactory durability www.ulster.ac.uk/ceni

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NEC 3 - Background

• Sir Michael Latham • Believed NEC complied with most of the principles that the report advocated.

• Constructing the Team • A specific duty for all parties to deal fairly with each other, and with their subcontractors, specialists and suppliers, in an atmosphere of mutual cooperation. • Firm duties of teamwork, with shared financial motivation to pursue those objectives. These should involve a general presumption to achieve “win-win” solutions to problems which may arise during the course of the project. www.ulster.ac.uk/ceni

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NEC 3 - Background

• Constructing the Team • A wholly interrelated package of documents which clearly defines the roles and duties of all involved, and which is suitable for all types of project and for any procurement route. • Easily comprehensive language and with Guidance Notes attached. • Separation of the roles of contract administrator, project or lead manager and adjudicator. The Project or lead Manager should be clearly defined as the client‟s representative. • A choice of allocation of risks, to be decided as appropriate to each project but then allocated to the party best able to manage, estimate and carry the risk. www.ulster.ac.uk/ceni

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NEC 3 - Background • Constructing the Team • Taking all reasonable steps to avoid changes to preplanned works information. But, where variations occur, they should be priced in advance, with provision for independent adjudication if agreement cannot be reached. • Express provision for assessing interim payments by methods other than monthly valuation i.e. milestones, activity schedules or payment schedules. Such arrangements must also be reflected in the related subcontract documentation. The eventual aim should be to phase out the traditional system of monthly measurement or remeasurement but meanwhile provision should still be made for it. www.ulster.ac.uk/ceni

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NEC 3 - Background • Constructing the Team • Clearly setting out the period within which interim payments must be made to all participants in the process, failing which they will have an automatic right to compensation, involving payment of interest at a sufficiently heavy rate to deter slow payment. • Providing for secure trust fund routes of payment. • While taking all possible steps to avoid conflict on site, providing for speedy dispute resolution if any conflict arises by a pre-determined impartial adjudicator/referee/expert. • Providing for incentives for exceptional performance. www.ulster.ac.uk/ceni

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NEC 3 - Background • Constructing the Team • Making provision where appropriate for advance mobilisation payments (if necessary, bonded) to contractors and subcontractors, including in respect of off-site prefabricated materials provided by part of the construction team.

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NEC 3 - Background

 Emergence of NEC:  Client Dissatisfaction  Questioned if existing standard forms adequately served the best interest of all parties

 Time, cost and quality of projects  Greater need of certainty of outcome  Required appropriate allocation of risk that other contracts did not provide www.ulster.ac.uk/ceni

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NEC 3 - Background

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NEC 3 - Background

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Egan – Rethinking Construction  UK Construction Industry highly capable  Concern that industry is under-achieving  Low profitability  Invests too little in capital, research & development and training

 Aim of Task Force based on their experiences in other industries  Deliver improvements in • Quality • Efficiency www.ulster.ac.uk/ceni

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Egan – Rethinking Construction Drivers for Change

Improving the Project Process

Targets for Improvement Capital cost

-10%

Construction time Predictability

-10%

the supply chain

-20%

Production of

Defects Accidents

components

Productivity

+10%

Turnover & profits

+10%

Committed leadership Product

Focus on the customer

development

Partnering

Product team integration

Quality driven agenda Commitment to people

Project implementation

5-4-7 Mantra of Rethinking Construction www.ulster.ac.uk/ceni

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+20%

-20%

Egan – Rethinking Construction  Using experience  Set ambitious targets  Effective measurement of performance

 Improvement

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Performance An industry wide group developed a set of simple headline Key performance Indicators (KPIs) based on the 7 Rethinking Construction targets but with the addition of Client Satisfaction measures:

 Product  Service

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Rethinking Construction KPI‟s

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Egan – Performance Measurement Drivers for Change Committed leadership

Improving the Project Process Product development

Focus on the customer Project

Product team integration

Quality driven agenda Commitment to people

implementation

Targets for Improvement

Partnering the supply chain Production of components

Respect for Sustainability People

Construction cost Construction time Predictability (cost) Predictability (time) Client Satisfaction - P Client Satisfaction - S

Defects Profitability Productivity Safety

5-6-10 Model www.ulster.ac.uk/ceni

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Egan – Rethinking Construction Industry  Changes in culture & structure to support improvement  Safe working conditions  Improve management & supervisory skills at all levels

 Design projects for ease of construction  Maximum use of standard components & processes

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Egan – Rethinking Construction Industry  Replace competitive tendering in favour of  Long term relationships based on • Clear measurement of performance • Sustained improvements in quality & efficiency

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Egan – Rethinking Construction Demonstration Projects  Leading edge organisations that demonstrate  Innovation  Change which can be measured & evaluated

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Egan – Rethinking Construction Ambition of Rethinking Construction  50 projects  Total value £500m

Accelerating Change - Actual  400 projects  Total value of over £6bn  38% are housing projects  62% the rest of the construction industry www.ulster.ac.uk/ceni

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Demonstration Projects These provide examples of:  Off-site fabrication  Standardisation  Use of new technology  Sustainability  Respect for people activities  Partnering  Supply chain integration www.ulster.ac.uk/ceni

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Egan – Rethinking Construction

 Bring together those committed to “rethinking construction”  Encourage openness, sharing and learning  Develop benchmarking and co-operation

 Demonstrate innovation and best practice  Disseminate to the whole of the industry

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NEC 3 - Background  Difference in NEC3 and other standard forms of contract:  3 clear objectives:  Flexibility  Clarity and simplicity  Stimulus to good management

 Cultural change  Assessment of change  Trust and cooperation  Collaboration www.ulster.ac.uk/ceni

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NEC 3 - Background  3 clear objectives • Flexibility • Clarity and simplicity • Stimulus to good management

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NEC 3 - Background  Objective 1- Flexibility: • Multi-disciplinary – can be used by any discipline in the industry • Design – can be used for Employers design or Contractors design, or partial design • Pricing – 6 main options ranging from fixed price to cost reimbursement • Applicable – worldwide on a variety of projects www.ulster.ac.uk/ceni

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NEC 3 - Background  Objective 2 – Clarity and simplicity: • Plain English which avoids excessive use of legal jargon • Simple structure:

• short sentences, • same format,

• no cross referencing, • no reference to the Law • Procedures are not open ended or conflicting

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NEC 3 - Background • Objective 3 – Stimulus to good management: • Encourages collaboration and forward planning • Clear allocation of responsibilities • Early warning procedure • Detailed procedure for dealing with changes • Programming facilities that is used in joint decisionmaking by the contractor and project manager

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Engineering & Construction Contract  Growth of NEC3:  OGC ‘recommends the use of NEC3 by public sector construction procurers on their construction projects’. Office of Government Commerce 2005

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Engineering & Construction Contract  Structure of ECC:  „pick and mix‟ arrangement  9 Core Clauses  6 Main Options • Employer must select main option

 2 Dispute resolution procedures (ECC 3 only) • Employer must select dispute resolution option

 18 Secondary Options www.ulster.ac.uk/ceni

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Core Clauses  Structure of ECC:  9 Mandatory Core Clauses: • 1 – General • • • • • • • •

2 – The Contractors main responsibilities 3 – Time 4 – Testing and Defects 5 – Payment 6 – Compensation events 7 – Title 8 – Risks and Insurance 9 – Disputes and Termination

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Main Options  Structure of ECC:

      

Options: A – Priced Contract with activity Schedule B – Priced Contract with bill of quantities C – Target Contract with activity schedule D – Target Contract with bill of quantities E – Cost reimbursement Contract F – Management Contract

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Secondary Options  Secondary Option Clauses:

 X1 – price adjustment for inflation  X2 – changes in the law

 X3 – multiple currencies  X4 – parent company guarantee

 X5 – sectional completion  X6 – bonus for early completion

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Secondary Options

     

Secondary Option Clauses: X7 – delay damages X12 – partnering X13 – performance bond X14 – advanced payment to the contractor X15 – limitation of the contractors liability for design  X16 – retention

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Secondary Options

    

Secondary Option Clauses: X17 – low performance damages X18 – limitation of liability X20 – key performance indicators Y(UK)2 – Housing Grants, Construction and Regeneration Act 1996  Y(UK)3 – Contract (Rights of Third Parties) Act 1999  Z – Additional conditions of contract www.ulster.ac.uk/ceni

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Questions ?

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Introduction to the NEC 3 Short Contract

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NEC 3 Short Contract  Formally Launched 30 July 1999 • Not a minor works form • No financial ceiling on value of projects

 Used for contracts which • Do not require sophisticated management techniques

• Comprise straightforward work • Impose only low risks on both the employer and the contractor

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NEC 3 Short Contract • Provisions • Early Warnings • Programmes • Compensation Events NB: Shortened to suit the simpler nature of the contracts

• Structure • • • •

No main options No secondary options Additional conditions can be inserted on page 3 Price list allows for a number of pricing arrangements (lump sum or rates)

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NEC 3 Short Contract Contents 1.

Contract Data

2.

Clauses

3.

Index

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Programming under NEC

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Purpose of NEC Programme

 Co-ordinate Works  Assess CE‟s

 Monitor Progress (to learn lessons)  Maintain Focus  Identify Problems www.ulster.ac.uk/ceni

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Short Form Programme

 Clause 31 – The Contractor submits

programmes to the Employer as stated in the Works Information

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ECC Clause 31.1  Cl 31.1 Contractor must submit a first programme within the period stated in the Contract Data  Cl 31.2 Detailed Programme • Starting date, access dates, Key Dates & Completion Date • Planned Completion • Order & timing of operations • Provision for float, time risk allowances, health & safety

 Cl 31.3 Project Manager accepts or rejects www.ulster.ac.uk/ceni

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Early Warning

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Early Warnings  Cl 16.1 – Contractor and Employer give early warnings by notifying the other as soon as either becomes aware of any matter which could • Increase Prices • Delay Completion • Impair the works

 Cl 16.2 - Contractor and Employer co-operate in making and considering proposals and recording actions

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Compensation Events

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NEC 3 Short Contract Compensation Events • •

• • •

Cl 60 – Cl 63 Cl 60 – Reduced number of CE‟s • 14 in total • Provisions for dealing with change are largely same as ECC, but Contractor only notifies change! Cl 61 – Notifying compensation events Cl 62 – Quotations Cl 63 – Assessing

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Clause 61 – Notification (1) •

Cl 61.1 - Contractor notifies Employer if: • • •

•

He believes it‟s a CE Employer has not notified him 8 week long stop then NO COMPENSATION

Cl 61.2 – Employer decides if it: • • • •

Arises from a Contractor default Hasn‟t or won‟t happen Doesn‟t effect time or cost Isn‟t on the list

Otherwise, Employer asks Contractor for a quotation www.ulster.ac.uk/ceni

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Clause 61 – Notification (2) • Cl 61.3 – Employer notifies missed early warning • Cl 61.4 - Employer may decide effect of CE is too uncertain to reasonably forecast, so • He makes stated assumptions • If assumption is wrong Contractor notifies correction • Cl 61.5 – No notification after “defects date”

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Clause 62 – Quotations (1) • Clause 62.1 - Quotation comprises Contractor’s assessment with details of: • Changes to prices

• Delay to Completion Date • Contractor submits a quotation within 2 weeks of being instructed or within 2 weeks of the CE notification if no instruction was received

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Clause 62 – Quotations (2) •

Cl 62.2 – Contractor does not put a proposed instruction or change into effect without a instruction from the Employer first

•

Cl 62.3 - Contractor submits within 2 weeks. Employer replies within 2 weeks:

•

Notifying that instruction will not be given

•

Accepting; or

•

Does not agree

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Clause 62 – Quotations (3) • Cl 62.4 – If Employer doesn‟t agree with quote • Contractor can submit a revised quotation within 2 weeks • If Employer still doesn‟t agree with quote • Assesses the CE • Notifies the assessment • Cl 62.5 – Employer can ask for alternative quotations

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Clause 63 – Assessment (1) • Clause 63.1 – CE that only affects quantities of work shown on Price List • Changed quantities X Price List rates = assessment • Clause 63.2 – Other CE‟s are assessed by forecasting the effect upon the Defined Costs; or

• If event has already occurred, the Defined Costs due to the event which the Contractor has incurred

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Clause 63 – Assessment (2) • Effects on Defined Costs are assessed separately for

• People employed by the Contractor • Plant & Materials

• work subcontracted by the Contractor and • Equipment

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Clause 63 – Assessment (3) • Clause 63.3 – Defined Costs are assessed at open market or competitively tendered prices • The following are deducted from the Defined Costs for assessment • Cost of events for which the contract requires the Contractor to insure • Other costs paid to the Contractor by insurers

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Clause 63 – Assessment (4) • Clause 63.4 - Delay is effect of CE on the Completion Date • Clause 63.5 – Failure to warn, may mean reduction • Clause 63.6 – Cost and Time risks are included • Clause 63.7 – We assume Contractor reacts competently and is promptly, additional cost and delay are reasonable • Clause 63.8 – Ambiguities are assessed in the Contractor’s favour

• Clause 63.9 – CE can‟t be revised if a forecast upon which is was based is later shown to be wrong www.ulster.ac.uk/ceni

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Questions ?

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Contract Planning & Programme

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Stages of Project & Types of Planning Programme Project Stage

Type of Programme

Who Plans?

Overall Project

Project master schedule

The client or Project Manager

Design

Project master schedule

Designer: Architect/ Engineer

Tender

Pre-tender programme

Tendering Contractors

Pre-contract

Master programme Target programme Subcontractors’ programme Procurement programme

The Main Contractor

Contract

Stage programme Short-term programme As-built programme

The Main Contractor and Subcontractors

Reasons for Overall Planning Programme  To establish a realistic project master schedule  To identify key dates or gateways at critical stages of the project

 To facilitate control of the design and tendering process  To identify potential risks to progress and avoid possible delays to project completion and revenue generation  To facilitate the arrangement and draw-down of client cash funding  To establish a realistic time period for the construction stage  To monitor actual progress and take corrective action www.ulster.ac.uk/ceni

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Microsoft Project  Project Management Software  Helps with assigning resources and tasks to a given project  Assists in monitoring budgets, production progress and workloads  Can help companies maximise the use of physical and human resources on numerous production projects

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Microsoft Project Entering Production Tasks:  The production of buildings can be broken down into a series of tasks that must be carried out to achieve the overall result  A task is an activity that requires a period of time or the input of a physical or human resource, for example:  Concrete and adhesives need a certain amount of time to cure  Pouring concrete or applying adhesives need human input before they can cure www.ulster.ac.uk/ceni

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Entering production tasks

Text also appears in the entry bar.

Point and click your cursor in the first „Task Name‟ cell. When you press Return, notice this task has been given a duration of 1 day

Re-entering misspelled tasks

If mistakes are made when entering tasks they can be changed in two ways.

Firstly, by clicking on the erroneous cell, or by navigating using the arrow keys, a wrongly entered task can be re-entered correctly. This requires the whole task to be re-typed. Secondly, by clicking on the erroneous cell, or by navigating using the arrow keys, the entry bar can be used to change a specific part of the task.

Deleting tasks

In order to delete a task, all attributes of that task must be deleted. The whole row must be selected. This is done by clicking on the number identifier as highlighted

Deleting tasks

Note: Erect front formwork has been deleted and all subsequent tasks have moved up Note: after „Erect front formwork‟ is deleted, the row with the fourth task remains highlighted.

Inserting tasks

In order to insert a task you must select the task which is going to become the next task in the list. For example, the task to be inserted now will become task 4, so the current task 4 „Place concrete‟ will become task 5.

Inserting tasks

Assigning task duration

Notice that the default duration applied to each task is „1 day?‟. This shows that the default duration is one day however it is also asking “Is this the duration to be assigneed to this task”? In order to assign a different duration, highlight the duration cell for the specific task. Input the new duration. If the duration is one week input 1w, if the duration is two days input 2d and if the duration is three hours input 3h.

Applying task duration

Notice that as the task durations were applied, the Gantt chart changed to reflect these changes.

Applying milestones

Tasks 1 and 9 are changed to milestones by giving them a duration of 0d as they are specific points in time and do not have any duration.

Assign task relationships (1)

Notice how all tasks have been linked in the Gantt Chart. To link two or more tasks, select the tasks in the „Task Name‟ column.

Assigning a relationshi p between tasks can be done in threes ways.

Firstly, when tasks have been selected use the link and unlink commands under the Edit menu,

Secondly, when tasks have been selected use the link and unlink shortcuts on the Standard menu toolbar.

Thirdly, the mouse can be used to link tasks by clicking on one task and dragging the mouse cursor to another task.

Assign task relationships (1)

 The relationships in the previous slide are all „series‟ relationships. This means that they happen one-after-the-other.  There are times when tasks can be run simultaneously, or „parallel‟ TASK 1

TASK 1

TASK 2 TASK 2

Series tasks

Parallel tasks

Parallel relationships

The task information box can be accessed by double clicking on the task or clicking on the Task Information shortcut on the standard toolbar.

The predecessors tab is used to change tasks from running in series (or one-after-theother) to parallel. Note that tasks 3 and 4 are now parallel tasks that can be carried out at the same time. Task 4 through 9 continue in series with this parallel pair (task 2 and 3).

Network diagram

The network diagram can be accessed by selecting Network Diagram under the View menu.

Questions ?

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Risk Management

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Application of RM in Construction

 RM Application stages Initial appraisal Outline or sketch design Detailed design Contract strategy Construction www.ulster.ac.uk/ceni

Potential for Risk Management

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Risk Management Process

 Risk Identification  Risk Assessment / Risk Management Framework Classification  Risk Analysis / Evaluation Risk Identification Risk Classification  Risk Response / Control Risk Analysis

Risk Response www.ulster.ac.uk/ceni

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Risks in construction projects: How they arise? Expectations Decisions

Activities

Risk

Results  Decisions lead to activities which may differ from expectations  Uncertainties are the cause of differences  Information allows to foresee results  Helps the decision maker  Example: deep basement construction www.ulster.ac.uk/ceni

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Defining Risk in Construction  Risk in construction projects The possible occurrence of an uncertain event or outcome, which should it occur, will cause significant variations or consequences Additional costs (cost risk) Delays (time risk) Substandard quality (quality risk)

 Risks occur due to risk causes or risk factors Bad weather Industrial action Turbulent economic conditions, many more…….. www.ulster.ac.uk/ceni

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Nature of Risk  Risks occur as a result of poor prediction?  Measured by chance or probability of happening  3 Attributes of risk  Risk factor - Range of outcomes • Optimistic outcome, pessimistic outcome, most likely outcome • Only one will actually happen

 Individual consequences • Consequence of each outcome • OO – Profit, PO – Loss

 Probability • Assess the probability of each of the outcomes occurring www.ulster.ac.uk/ceni

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Purpose of Identifying Risks (Risk Analysis)  Identification of major risks that affect project objectives  Possible outcomes and consequences of risks

 Likelihood of project objectives being attained  Methods of controlling or accommodating risks

 Increased confidence in investment decision  Provides a framework for identifying & managing risks www.ulster.ac.uk/ceni

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Example of Construction Risk Types

Techniques for Identification of Risk

 Brainstorming  Team based: identify potential risks  Creative process: generate ideas, no criticism  List of large number of potential risks  Group output better than individual: sense of involvement

 Tree diagrams  Traces: causes, origins and consequences of risks  Multi-level analysis, graphical  Uses probability values for each risk www.ulster.ac.uk/ceni

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Techniques for Identification of Risk

 Risk Registers List of pre-identified typical risks Developed through consultation example

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113

114

Risk Sources

Source

Event

Effect

Example:

115

Risk Analysis

 Quantitative evaluation of risk factors Risk to the project Consequences of risk Individual risk Combined consequences of all risks

 Risk profile of the project Possible future events and probability of occurring Adopt strategy to deal with major risks www.ulster.ac.uk/ceni

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Risk Analysis Process

117

Risk Analysis Process  Alternatives and options  Risk attitude  Identify and classify risks  Measure the risk: quantitatively & qualitatively  Interpretation of results  Strategy to deal with risks  What risks to deal and what risks to allocate

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Example of Analysis Likelihood of damage to adjoining buildings as a result of pile driving

Risk Measurement  Involves finding what is more risky

 Different techniques used  Probability analysis

 Sensitivity analysis  Simulation technique (Monte-Carlo simulation)  Scenario analysis  Correlation analysis

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Probability Analysis

 How probable is the risk  Uses probability distribution against all possible occurrences of risk  Probability classified as: Objective probability - common Subjective probability Defined from experience, intuition

 Standard probability distributions used for interpretation www.ulster.ac.uk/ceni

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Probability Analysis Example

 Scenario: Estimate: need for connection to gas main Full survey not done, hence, uncertainty as to the exact condition of the gas main connection costs Typical cost of new gas main £ 2,500 Highly competitive: many sub contractors looking for work Fixed price job

 Estimate the cost of new gas mains to minimise risk to the contractor www.ulster.ac.uk/ceni

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Probability Analysis Example

Option

A B C

Price

Probability

Probable Cost

Some modification No modification

£5000

0.50

£2500

£2000

0.30

£600

Substantial modification Risk free estimate

£15000 0.20

£3000 £6100 123

Risk Response

Risk Response

Risk Retention Risk Absorption

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Risk Reduction

Risk Transfer

Risk Avoidance

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Risk Response Options

 Retention  Not all can be transferred, not economical to do so  Consider risk reward: insurance - limited excess provision

 Reduction  Spread of risks to other parties Sub contractors, work packages

 Methods: Education and training (staff training) Physical Protection (e.g. sprinkler system, protective gear) Checking & monitoring (QA) www.ulster.ac.uk/ceni

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Risk Response Options

 Transfer  Reduce the burden, not the possibility  Insurance: professional indemnity, all risk  Retention to cover residual risks • 1-5% of contract sum • Performance bond

 Avoidance  Refusing to accept risks (non contracting) Rescind the contract for fundamental breach

 Usually avoidance occurs at early stage of projects  Use of exemption clauses www.ulster.ac.uk/ceni

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Questions ?

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Budgeting & Cost Management

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Cashflow Forecast  Cash flows for the company are usually prepared on a contract – by – contract basis and accumulated for the company as a whole so as to give a complete picture of what is happening

 This helps a company to predict the minimum and maximum cash required over the trading year so as to arrange a comfortable working capital facility www.ulster.ac.uk/ceni

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Company Cash Flow for a Small Contractor

Value Forecasting Using the Bar Chart

Expenditure Forecasting

Strategies for Improving Cash Flow At Tender Stage These methods will bring in early money but must be done before submitting the priced bills:  Load money into under measured items  Load money into early items such as excavation and substructures  Load money into mobilisation items in the preliminaries

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Strategies for Improving Cash Flow During the Contract These methods will reduce working capital requirements:  Submit interim applications on time

 Over measure the work in progress  Over value materials on site  Agree on the value of variations as soon as possible  Keep good records and submit claims early  Deal with defective work quickly to avoid delayed payment  Make maximum use of trade credit facilities www.ulster.ac.uk/ceni

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Strategies for Improving Cash Flow Post Contract These methods will increase profit levels:  Submit all documentations as soon as possible  Ensure timely release of retentions by submitting

health and safety file information on time  Agree on final account as soon as possible

 Collect outstanding retentions on time www.ulster.ac.uk/ceni

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Questions ?

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Dispute Resolution

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Dispute Resolution Dispute Resolution:  Litigation  Arbitration ? Alternative Dispute Resolution Civil Procedure Rules 1998 – the courts are to actively manage the process by „encouraging the parties to use an “alternative dispute resolution” procedure if the courts consider that appropriate and facilitating the use of such procedure‟ r 1.4 (2) (e)

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Dispute Resolution Alternative Dispute Resolution:



Negotiation



Mediation



Conciliation



Med-Arb



Mini Trial



Expert Determination



Adjudication

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Alternative Dispute Resolution Features:  Third party  Is not binding unless parties agree  Consensual

 Emphasis on encouraging parties to reach settlement

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Alternative Dispute Resolution Negotiation:  Bargaining position of the parties  Relationship between the parties  Who is undertaking the negotiation  Amount in dispute  Relative strength of case/legal argument  Personal style of negotiator www.ulster.ac.uk/ceni

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JCT Provisions There are 4 methods of dispute resolution: 1. Mediation 2. Arbitration 3. Adjudication 4. Litigation

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JCT Provisions Article 7: Adjudication

If any dispute or difference arises under this Contract, either part may refer it to adjudication in accordance with clause 9.2

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JCT Provisions Article 8: Arbitration Where Article 8 applies, and subject to Article 7… any dispute or difference between the parties of any kind whatsoever arising out of or in connection with this Contract, whether before, during the progress or after the completion of abandonment of the Works or after the termination of the contractor‟s employment, shall be referred to arbitration in accordance with clauses 9.3 to 9.8 and the JCT 2005 Construction Industry Model Arbitration Rules (CIMAR)

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JCT Provisions Article 9: Legal Proceedings

Subject to Article 7 and (where it applies) to Article 8, the English courts shall have jurisdiction over any dispute or difference between the Parties which arises out of or in connection with this Contract.

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JCT Provisions Clause 9.1 Mediation: Parties have the right to resolve dispute via Mediation they are not obligated to do so



A footnote directs the reader to the Guide which says that while supporting the use of Mediation and ADR in suitable cases the JCT did not think it appropriate to endorse any particular method or body

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JCT Provisions Clause 9.2

Adjudication

Parties have the right to resolve dispute via Adjudication and JCT has adopted rules in compliance with the Scheme: Appointment: 

Adjudicator named in the contract particulars



Nominating body to be stated

The Adjudicator should have appropriate experience/ expertise If the adjudicator does not have appropriate experience/ expertise there is provision to appoint an expert witness www.ulster.ac.uk/ceni

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JCT Provisions Clause 9.3 Conduct of Arbitration:

Arbitration shall be conducted in accordance with JCT 2005 – Construction Industry Model Arbitration Rules (CIMAR)

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JCT Provisions Clause 9.5 Powers of an Arbitrator:



Power to obtain advice



Powers set out in s 38 of the Arbitration Act



Power to order the preservation of work, goods and materials



Power to request the parties to carry out tests



Power to award security for costs



Powers to review and revise any certificate, opinion, decision, requirement or notice and to disregard them if need be

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NEC Provisions Clauses W1 & W2: 

Option W1 used, unless the HGCR Act 1996 applies



Option W2 is used when the HGCR Act 1996 applies

Employer states in the contract data which option applies

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NEC Provisions Clause W1: 

Specifies what disputes can be referred to adjudication



What notifications are to be given



It allows eight weeks for the adjudicator‟s decision to be given

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NEC Provisions Clause W2: 

W2 is compliant with the HGCR Act 1996



It is not restrictive on what disputes can be referred or when



It allows four weeks for the adjudicator‟s decision to be given (subject to extension by consent)

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NEC Provisions Review by the tribunal 

Tribunal should be stated in the contract data



In the event none is stated  Litigation will apply by default

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NEC Provisions Review by the tribunal 

The tribunal settles the disputes referred to it



The tribunal has power to reconsider any decision of the adjudicator and to review and revise any action or inaction of the project manager or the supervisor related to the dispute



A party is not limited in tribunal proceedings to the information, evidence (and in W1.4(4) arguments) put to the adjudicator

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Questions ?

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Company and Project Performance Measurement

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2011 UK Industry Performance Report

Centered upon projects completed during 2010  Sharp fall in profitability from 7.7% to 5% Workloads have fallen Margins squeezed

 Previous improvements in client satisfaction sustained  Predictability of project delivery, both to cost and budget has improved further www.ulster.ac.uk/ceni

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2011 UK Industry Performance Report

2011 UK Industry Performance Report

2011 UK Industry Performance Report

2011 UK Industry Performance Report

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2011 UK Industry Performance Report

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2011 UK Industry Performance Report

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2011 UK Industry Performance Report

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2011 UK Industry Performance Report

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Questions ?

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Workshop 4 – Delivering the Contract Colin Smyth MRICS MBA Gary Bogle BSc (Hons) LLM MRICS FCIArb

Wednesday 20th September 2011

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