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DESIGN RISK ALLOCATION UNDERA TRADITIONAL BUILD CONTRACT

Apaper based on the commended prize entryin the Hudson Prize essay competition 2011

Kim Rosenberg

September 2012

D140

www.scl.org.uk
http://www.scl.org.uk/http://www.scl.org.uk/


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DESIGN RISK ALLOCATION UNDER

A TRADITIONAL BUILD CONTRACT

Kim Rosenberg

1 Introduction

Under a traditional build contract, who takes responsibility for buildability

deficiencies in the permanent works design?1 It would be unwise for a

contractor to assume automatically that it has no responsibility for this design

riskand if the risk crystallises, it can lead to significant overrun.

Traditional build contracts are a common means of procuring constructionprojectsthe employer engages the contractor to build the relevant works to

specifications and drawings previously prepared on behalf of the employer.

The basic premise is that the contractor is responsible for constructing the

design provided to it.2 The design team is separately engaged by the employer

under consultancy agreements to prepare those specifications and drawings

and, in many cases, subsequently to supervise construction and administer the

construction contract.

Accordingly, assuming a simplistic arrangement, the contractual framework

for a traditional build procurement is as follows:

Given that there is no direct contractual relationship between the engineer3

andthe contractor, the employer shuttles between those two where design issues

arise under the construction contract or where (less likely, given the timing of

procurement) construction issues arise under the consultancy agreement.

This procurement method is commonplace: towards the end of the first decade

of this century, in the United Kingdom nearly 50% of construction contracts

1 This paper focuses on the design for the permanent worksnot the temporary works.

2 Of course, it is also common for the contractor to expressly take on responsibility for

certain parts of the permanent works design, which ought to be clearly identified in the

construction contract.3 For ease of reference, this paper uses the term the engineer. However, this is intended

to encapsulate all members of the design team.

Engineer

Employer Contractor

CONSULTANCY AGREEMENT

CONSTRUCTION CONTRACT


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by number were procured on a traditional build basis and over 18% by value.4

As a result, this procurement method dominated the smaller project field in

that region. Internationally, traditional build contracts are often used by

international development banks and agencies, particularly when financing

government projects.5 Hence, this procurement method is also common for

international infrastructure projects.

An important issue that arises is the allocation of responsibility for

deficiencies in the permanent works design which make it more time

consuming or costly (or even impossible) during the construction phase to

build to the specifications and drawings. For ease of reference, this is referred

to as thebuildability design risk. At first glance, one might assume that the

contractor has no such responsibility, given the fundamental premise of a

traditional build contract is build onlywith no design. On that assumption, it

should be up to the employer to shuttle off to the engineer to obtain the

corrected design information and deliver this to the contractor. This would be,

however, an unwise assumption. Contractors, employers and engineers alikemay be surprised by current case law regarding this risk and give greater

thought to it during negotiations. After all, it is not uncommon to find, on

preparation of the working drawings, that crucial information is missing,

members clash, openings have been forgotten and similar such buildability

design deficiencies.6

To be clear, this paper is not concerned with responsibility for the fitness for

purpose of the permanent works design or, in other words, whether the

finished structure will stay up and perform for its intended life span (the

fitness for purpose design risk).7 It is only concerned with getting that

structure up in the first place.8

The structure of the paper is as follows. Section 2 considers current case law

in common law jurisdictions (particularly the United Kingdom) on the

allocation of the buildability design risk. Against that background, section 3

looks in detail at how this risk is allocated under the FIDIC Red Book 1999

4 RICS, Contracts in Use: A Survey of Building Contracts in Use during 2007.

5 For example, see paragraph 2.5 of the Guidelines Procurement Under IBRD Loans And

IDA Credits, May 2004 (revised 1 October 2006 and 1 May 2010); ProcurementGuidelines for the Asian Development Bank, April 2010; African Development Bank

Group, Rules and Procedures for Procurement of Goods and Works, May 2008.

6 It is not suggested that such buildability design deficiencies constitute negligence on the

part of the engineerthis is dependent upon the facts of each case.

7 Nor does this paper address the separate issues of whether the contractor has a duty to

warn the employer during the construction phase of (a) design deficiencies which maymean that the permanent works will not be fit for purpose; or (b) physical conditions that

make it more difficult to construct the designsuch as unforeseeable ground conditions.

8 This is consistent with the distinction drawn by the Saskatchewan Court of Queens

Bench in Sunnyside Nursing Home v Builders Contract Management Ltd(1986) 2 Const.

LJ 240 in relation to design responsibilities: (a) design proper [or ensuring that the

design is fit for purpose] and (b) involvement in changes in the context of savings,

rectification of errors and clarification, when design did not, because of omissions orambiguity, provide adequate guidance to [the contractor] in construction detail

(page 243).


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(the Red Book)9as an example of a standard form contract for traditional build

procurement. Section 4 then considers what arguments the contractor might

advance to avoid the cost and time implications if it is (perhaps unwittingly)

saddled with the buildability design risk. Finally, section 5 sets out the

conclusions.

2 Buildability design risk: current case law

The starting position in relation to current case law in the United Kingdom on

the buildability design risk is the House of Lords decision in Thorn v The

Mayor and Commonalty of London,10 a case over 130 years old, which

involved a rebuild of Blackfriars Bridge over the Thames in London.11

The employer advertised the construction contract, based upon drawings and

specifications prepared by an engineer employed on its behalf. The

specifications, which then formed part of the contract, provided, amongst

other things, that the foundations of the piers will be put in by means ofwrought iron caissons and the casing of the lower part of which caissons will

be left permanently in the work. The use of caissons as a construction

method, as opposed to timber coffer-dams, was a novel method of

construction at the time. In terms of the risk allocation, the specifications

provided that the contractor must satisfy himself as to the nature of the

ground through which the foundations have to be carried; all the information

given on this subject is believed to be correct, but is not guaranteed and all

risk and responsibility involved in the sinking of these caissons will rest with

the contractor. The works were to be carried out in three years, with monthly

liquidated damages applying for any delay, and for a lump sum price, subject

to any variations.

Upon winning the construction contract, the contractor proceeded to prepare

the caissons in accordance with the specifications. However, it was

discovered that the caissons would not resist the external pressure of the

Thames at high tide. As a result, the upper parts of the caissons were

abandoned and the corresponding parts of the foundations could only be built

when the tide was sufficiently low.

The contractor had engaged its own engineer prior to tendering for this

contract and it was accepted by the parties that, had that engineer carefully

examined the specifications and drawings, he would have identified thedeficiency with the caissons.12 The contractor sought to shift responsibility for

this design deficiency to the employer by arguing, on a special case, that the

9 The Red Book: FIDIC (Fdration Internationale des Ingnieurs-Conseils), Conditions

of Contract for Construction: For Building and Engineering Works Designed by theEmployer (1st edition 1999).

10 Thorn v The Mayor and Commonalty of London(1876) 1 App Cas 120. The House of

Lords was constituted by Lords Cairns LC, Chelmsford, Hatherley and OHagan.

11 By currentthe author means binding case law that has not been overruled and hence

remains good lawdespite the yellowing pages of the books in which it is reported. In

fact, so much time has passed since this decision that the City of London Corporation is

now on to Blackfriars Bridge Mark III.12 Whilst not stated, as not an issue in this case, this suggests that the engineer engaged by

the employer may have been negligent in preparing that design.


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employer impliedly warranted that the bridge could be built according to the

drawings and specifications produced on its behalf in particular, that the

caissons would resist the pressure of the Thames during construction.

The House of Lords unanimously (and vociferously) rejected this argument,

finding that there were no grounds to imply such a warranty. As a result,despite the shortcomings of the engineers design, it was the contractor who

was left to bear the consequences of the buildability design risk. Lord

Chelmsford made the following remarks:

There can be no doubt that the [contractor], in the exercise of common

prudence, before he made his tender, ought to have informed himselfof

all the particulars connected with the work, and especially as to the

practicability of executing every part of the work contained in the

specification, according to the specified terms and conditions. It is said

that it would be very inconvenient to require an intended contractor to

make himself thoroughly acquainted with the specification, as it would

be necessary upon each occasion for him to have an engineer by his side.

Such an imagined inconvenience is inapplicable in this case, as it

appears that the [contractor] has his engineer, who examined the

specification for him, though not carefully. Butif the [contractor]ought

prudently and properly to have full information of the nature of the work

he is preparing to undertake, and the advice of a skilful person is

necessary to enable him to understand the specification, is it any reason

for not employing such a person that it would add to the expense of the

contractor before making his tender? It is also said that itis the usage

of contactors to rely on the specification, and not to examine it

particularly for themselves. If so, it is an usage of blind confidence ofthe most unreasonable description.13 [emphasis added]

This judicial pronouncement should ring alarm bells for contractors. How can

the contractor be expected to have the design resources to critique the

specifications? This is a particularly pertinent question if the tender period is

short or if the design is complex and novel especially given that the

contractor is unlikely to have the engineers calculations from which the

specifications have been prepared. This issue is brought into sharper focus

when one moves down the contracting chain to perhaps less sophisticated

subcontractors who are further removed from the head contract and the overall

design.

This decision was followed up two years later by another equally strong

decision of the House of Lords in Tharsis Sulphur and Copper Co Ltd v

MElroy & Sons.14 This case concerned the construction of a treatment plant

in Cardiff for calcining and precipitating ores from Spain for a lump sum

price, subject to variations.

The specifications required gutter girders to be made of a specified weight and

thickness. However, when the contractor went to cast these girders, it

13 Thorn, note 10, page 132.14 Tharsis Sulphur and Copper Co Ltd v MElroy & Sons(1878) 3 App Cas 1040. The

House of Lords was constituted by Lords Cairns LC, Hatherley, Blackburn and Gordon.


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discovered that they were cracking and warping during cooling. The

contractor took this problem to the engineer who agreed, on behalf of the

employer, that heavier and thicker girders could be erected instead. The

contractor then claimed the incremental cost of the girders as variations.

The House of Lords unanimously rejected the claim, finding that thecontractor took on the risk that the specified girders could be built. Lord

Cairns LC stated:

It is sufficient for me to say that, as I understand that contract and its

construction, it was one which obliged the [contractor] to execute the

work which was contracted for, and if in the execution of the work the

castings which were to be supplied (the castings, for example, for the

girders), occasioned any difficultyin the work, if the girders had to be of

a length different from what was specified or of a breadth different from

what was specified, that was a risk which the [contractor]took; and they

were obliged to execute the work with the necessary alterations in the

size of the castings.15 [emphasis added]

The judge then went on to hold that there was no agreement that the employer

would pay the additional costs of the thicker girders (simply an agreement that

this was a variation for the contractors convenience), so the contractor was

left to bear these costs.

The effect of these two decisions (both of which remain good law) is that the

contractor, in submitting its tender and entering into the construction contract,

agrees that, firstly, it can and will build the design incorporated into the

construction contract and, secondly, it will do so for the specified price even

if that design is flawed from a buildability perspective.16 Hence, it is the

contractor who takes on the buildability design riskit bears the time and cost

consequences of buildability design deficiencies.

This stance has been supported in other common law jurisdictions.17 In

particular, in the Canadian case of Grace v Osler, Cameron JA stated that in

agreeing to do the work in the specifications and drawings for an office

building there under consideration, the contractor binds himself absolutely to

do the work in accordance with the drawings and specifications; and whether

these are perfect or imperfect, or, in fact, impossible of execution, is here

immaterial.

18

Of course, the actual risk allocation under a construction contract is subject to

the particular wording in each case. The next section of this paper considers

how a commonly used standard form contract, the Red Book, allocates the

buildability design risk.

15 Tharsis Sulphur, note 14, pages 1043-1044.

16 I N Duncan Wallace,Hudsons Building and Engineering Contracts(11th ed., 1995),

paragraph 4-054.

17 For example: Grace v Osler[1912] 19 WLR 109 (Manitoba Court of AppealCanada);

Wilkins and Davies Construction Co Ltd v Geraldine Borough [1958] NZLR 985

(Supreme Court, TimaruNew Zealand); Catre Industries Ltd v Alberta(1990) 63 DLR(4th) 74 (Alberta Court of AppealCanada).

18 Grace v Osler, note 17, page 128.


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3 Allocation of the buildability design risk under the Red

Book

The Red Book19 is the latest in a line of traditional build standard form

contracts published by the Fdration Internationale des Ingnieurs-Conseils

(FIDIC) since the first in 1957. It has also been amended specifically for useby Multilateral Development Banks (the Pink Book).20 Given the prominence

of the Red Book for traditional build procurement, it has been selected as an

example standard form contract to work through in detail how the buildability

design risk is allocated. For ease of reference, relevant extracts from the Red

Book are set out in the Appendix.

As made clear by its full title (Conditions of Contract forConstruction: For

Building and Engineering Works Designed by the Employer), the Red Book

is intended to bestow design responsibility on the employer as expected of a

traditional build contract. However, it is submitted that this risk allocation is

not without ambiguity and the contractor may find itself on the end of adetermination that it bears the buildability design risk under the Red Book.

The starting point of this analysis is Clause 4.1 of the Red Book, which sets

out the contractors general obligations. This provides for the contractors

fundamental obligationthat it will execute the works in accordance with the

construction contract (and hence in accordance with the incorporated

permanent works design). The contractor must do all that is necessary to

satisfy this fundamental obligation.21 This is effectively a repetition of the

decisions in Thorn22and Tharsis Sulphur.23

Clause 4.1 then addresses two separate responsibilities in relation to thepermanent works: (a) how the permanent works design is to be built (i.e.

buildability)24and (b) what the design is to do (i.e. fitness for purpose). 25 The

contractor is responsible for the former, but only the latter where the

construction contract specifies that the contractor shall design any part of the

permanent works. But what about the allocation of the buildability design

risk? This boils down to paragraph (ii) of the third paragraph of Clause 4.1:

The contractor shall not otherwise be responsible for the design or

specification of the Permanent Works. What does this mean?26

19 The Red Book: note 9.

20 ThePink Book: Fdration Internationale des Ingnieurs-Conseils, Conditions of

Contract for Construction for Building and Engineering Works Designed by the

EmployerMultilateral Development Bank Harmonised Edition (March 2006). This

has the same risk allocation as the Red Book, insofar as relevant to this paper.21 Clause 4.1, first paragraph.

22 Thorn: note 10.

23 Tharsis Sulphur: note 14.

24 Clause 4.1, third and fourth paragraphs.

25 Clause 4.1, fifth paragraph.

26 Clause 4.1, third paragraph: The contractor shall be responsible for the adequacy,

stability and safety of all Site operations and of all methods of construction. Except tothe extent specified in the Contract, the contractor (i) shall be responsible for all

Contractors Documents, Temporary Works, and such design of each item of Plant and


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On a proper construction of Clause 4.1, it is submitted, the contractor is

responsible for doing everything necessary to permit it to discharge its

responsibility for the adequacy, stability and safety of all Site operations and

of all methods of construction but not: (a) otherwise in relation to the

permanent works design; or (b) to the extent specified in the Contract.

Arguably the adequacy of all methods of constructionmeans the capabilityof the chosen construction methods to permit the contractor to discharge its

fundamental obligation to execute the works in accordance with the

construction contract. On that basis, the otherwise referred to in paragraph

(ii) in relation to the permanent works design can only be a reference to the

fitness for purpose of that designnot the buildability of that design. Hence,

under Clause 4.1, the contractor is responsible for the buildability design risk,

but not the fitness for purpose design risk.27

It is then necessary to consider whether the remainder of the Red Book

displaces this risk allocationboth from a time and cost perspective. The two

main provisions in this regard are the variation and extension of timeclauses.28

Variations

The starting position is that the Red Book specifically dictates that the

contractor cannot change the permanent works design such as to overcome a

buildability design deficiency without a variation instruction.29 Therefore,

where such a deficiency arises, on the above interpretation of Clause 4.1, the

contractor must persuade the engineer to instruct a variation for its

convenience. However, what of the costs consequences of such a variation?

Where the contractor flags a buildability design deficiency, the engineer can

ask the contractor to submit a variation proposal to overcome it, including any

necessary modifications to the time for completion and the evaluation of costs

resulting from this.30 Ordinarily, there is no commercial reason for the

engineer to agree to such a variation and therefore the contractor may need to

concede responsibility for the time and cost consequences. If, however, the

engineer does not request a variation proposal but simply instructs the

variation, that variation will automatically fall to be valued in the contractors

favour under the general measurement provision (Clause 12).31 This is

because in such circumstances the engineer does not have power to include a

Materials as is required for the item to be in accordance with the Contract, and (ii) shall

not otherwise be responsible for the design or specification of the Permanent Works.

27 This interpretation is consistent with sub-clause (c) of the fifth paragraph of Clause 4.1,

which then sets out when the contractor will be responsible for the fitness for purpose

design risk, namely to the extent it designs part of the permanent works.28 Also note that in the Pink Book, note 20, the employer must specifically approve any

extensions of time or variations (Clause 3.1, seventh paragraph); however, it cannot

unreasonably withhold or delay such approval (Clause 1.3, second paragraph).

29 Clause 13.1, fourth paragraph. Nor can the contractor make any significant alteration to

its construction methods without notification to the engineer pursuant to Clause 4.1,

fourth paragraph.

30 Clause 13.3.31 Clause 13.3, fourth paragraph. The contractor will also be entitled to time relief for

critical delay under Clause 8.4(a).


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direction in its variation instruction that the costs of a variation for the

contractors convenience are to be dealt with in a different manner.32 The

engineers general power to issue instructions arguably does not assist in this

regard, as this power is limited to instructions which may be necessary for

the execution of the Works and the remedying of any defects, all in

accordance with the Contract.33

The issue of concern is not the execution ofthe Works, but rather the costs consequences of a variation for the contractors

convenience. The effect is that in such circumstances the buildability design

risk shifts to the employer. The engineer and the employer need to be aware

of this consequence of the engineers variation instructions.34

Given that the Red Book is a remeasurement contract, if the change to the

Permanent Works to overcome a buildability design deficiency involves an

increase in quantities, then the allocation of responsibility for the costs

associated with those increased quantities is a more difficult scenario. This

involves a balancing act between the quantities risk borne by the employer and

the buildability design riskprima facieborne by the contractor. The outcomewill depend upon the specific circumstances. However, it is submitted that the

contractor is likely to have the better argument on costs where the bill of

quantities includes a work item for the activities involved in overcoming a

buildability design deficiency.

Extensions of time

Critical delay relief may be available in four circumstances that are potentially

relevant where a buildability design deficiency arises:

(a) Where there is a variation instruction (unless the time consequenceshave been agreed as part of the variation proposal process referred to

above);35

(b) Where there is a substantial change in the quantity of an item ofwork;

(c) Where there is any delay, impediment or prevention caused by orattributable to the employer, the employers Personnel, or the

employers other contractors on the Site;36or

(d) Where there is a cause of delay for which the contractor has anentitlement under another provision of the Red Book.37

32 Where the engineer has not sought a variation proposal, the only grounds upon which the

engineer can instruct that the costs of a variation are to be evaluated otherwise than under

Clause 12 are where the variation (a) relates to a provisional sum (Clause 13.5) or (b) is

instructed on a dayworks basis (Clause 13.6).33 Clause 3.3, first paragraph.

34 Cf. Yorkshire Water Authority v Sir Alfred McAlpine & Son (Northern) Ltd(1985) 32

BLR 119 (QB Comm), where the ICE Conditions (5th ed) provided that the contractor

was entitled to a variation if it was impossible to complete the works in accordance with

the construction contract and the engineer issued an instruction to overcome that

impossibility (Clause 13(3)). Such provision is not in the Red Book.

35 Clause 8.4(a).36 Clause 8.4(e).

37 Clause 8.4(b).


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The first of these has been addressed above the buildability design risk

(time38 and cost) will shift to the employer unless the variation proposal

process is employed by the engineer and the contractor agrees to bear the time

and cost consequences of the variation for its convenience.

The second of these circumstances, a change in quantities, has also beenreferred to above. Three points are important. It is only substantial changes

that trigger critical delay relief. Next, it is only a change in the quantity (as

opposed to the cost) that is relevant. If there is a small increase in the actual

quantities of a costly work item, though this could have significant costs

consequences, it does not entitle the contractor to critical delay relief. Lastly,

it is only changes to an item of work included in the Contract that provides

relief. Therefore, there can be no critical delay relief for new items of work.

Unless each of these elements is met, the contractor bears the time

consequences of a buildability design deficiency that results in a change in

quantities.

As to the third circumstance, this prima facie may provide relief to the

contractor if the buildability design deficiency can be attributed to the

employer, as the party who provided the design, or if the engineer, who falls

within the definition of employers Personnel, caused the deficiency.

However, it is submitted that this is not without significant doubt. First, if the

design deficiency has arisen because of the specific construction methods

selected by the contractor, the contractor will not be entitled to an extension of

time. Second, it is arguable that this relief is not available for buildability

design deficiencies because the contractor has expressly taken on

responsibility for this risk pursuant to Clause 4.1, thereby superseding any

attribution of this deficiency to the employer or the engineer. Pursuant to suchargument, this relief is available only for impediments caused by or

attributable to the employer or the engineer after contract signature. This is

consistent with the remainder of the grounds in Clause 8.4, which are aimed at

events having a similar temporal trigger.

As to the fourth and final circumstance, there are a number of other potentially

relevant provisions of the Red Book that entitle the contractor to an extension

of time (as well as additional payment):

1 Clause 1.9 provides the contractor with time and costs relief if theengineer fails to issue drawings within a particular time. However,this provision is only applicable if the contractor has notified the

engineer that it requires the drawings. In any event, Clause 1.9 only

provides relief if the contractor suffers delay and/or incurs cost as a

result of the failure of the engineer to issue the notified drawing

within a reasonable time not the fact that the drawing needs to be

issued at all or that the content of that drawing constitutes an

amendment to the design (i.e. because there is a buildability design

deficiency).

38 Where timeis referred to hereafter, it is a reference to an extension of time where thebuildability design deficiency has caused critical delay. Non-critical delay is not covered

by Clause 8.4.


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2 The contractor may be entitled to time and costs relief in certaincircumstances where there are errors in the original points, lines and

levels of reference specified in the Contract or notified by the

engineer.39 However, this relief is only available if an experienced

contractor could not reasonably have discovered such errors and

avoided the delay or additional cost. This condition precedent canbe a high hurdle to surmount. After all, to the extent which was

practicable, the contractor is deemed to have inspected and

examined the site and all available information before submitting its

tender.40 Further, the contractor may be expected to have checked

the items of reference in the specifications before contract signature

because to simply rely upon the specifications without doing so may

be considered to be an usage of blind confidence of the most

unreasonable description.41

3 The contractor may be entitled to time and costs relief where itencounters unforeseeable physical conditions.

42

However, this reliefwill only be available if it is the physical conditions that cause the

buildability design deficiency as opposed to a deficiency

regardless of the physical conditions. In addition, this relief is only

available if the physical conditions were not reasonably foreseeable

by an experienced contractor by the date for submission of the

tender. For the same reasons as the previous provision, this

condition precedent can be a high threshold.

4 The contractor is entitled to time and costs relief if any of theemployers risks (which includes design of any part of the Works

by the employers Personnel or by others for whom the employer is

responsible) results in loss or damage to the Works.43 However,this does not apply to buildability design deficiencies to the extent

they result only in economic loss, as opposed to physical damage.

5 Finally, the contractor may be entitled to time and costs relief uponthe happening of a force majeure event.44 However, a buildability

design deficiency cannot be classified as such an event, given that it

is not beyond either partys control and could have been reasonably

provided against before entering into the contract particularly

since, as stated above, the decisions in Thorn45 and Tharsis

Sulphur46 decree that the contractor should be examining the

specifications during the tender period to identify any suchdeficiencies.

In short, there are certain limited circumstances in which the contractor clearly

may be entitled to time and costs relief when faced with a buildability design

39 Clause 4.7.

40 Clause 4.10.

41 Thorn, note 10, page 132 (Lord Chelmsford). Cf the minority judgment of Thomas J in

R M Turton & Co Ltd v Kerslake & Partners[2000] NZCA 115, paragraphs [122]-[133].

42 Clause 4.12.

43 Clause 17.4, with the employers risks defined in Clause 17.3.

44 Clause 19.4.45 Thorn v The Mayor and Commonalty of London: note 10.

46 Tharsis Sulphur: note 14.


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deficiency in the original permanent works design (ie when the buildability

design risk shifts to the employer). It is submitted that these are only where:

(a) The engineer instructs a variation without having sought a variationproposal from the contractor, the latter having conceded to bear the

costs and time consequences;

(b) There are errors in the levels of reference and an experiencedcontractor could not reasonably have discovered such errors and

avoided the delay and/or cost (a high threshold); or

(c) There are unforeseeable physical conditions that would not havebeen reasonably foreseeable by an experienced contractor (again a

high threshold).

However, even if the contractor can squeeze within one of these limited

circumstances, the buildability design risk may not shift to the employer if the

contractor fails to comply with the notification and substantiation

requirements in the Red Book when advancing claims for such relief.47 This

depends upon whether the governing law will enforce notice requirements as

conditions precedent to entitlement. For example, in the United Kingdom and

Scotland, the recent trend of case law is to uphold notice requirements as

conditions precedent to entitlement.48 In Australia, however, there is

conflicting case law between states.49

Overall, if the contractor cannot fit within one of these limited circumstances

(or fails to comply with conditions precedent to entitlement), it will bear the

buildability design risk. But the story gets worse for the contractor. Given the

limited contractual relationships underpinning a traditional build procurement

method, the contractor has no contractual cause of action against the engineer

in order to recoup its losses arising out of buildability design deficiencies. The

next section considers alternative arguments that the contractor may advance

to recover these losses.

4 Alternative arguments to relieve contractor

Where the contractor bears the time and cost consequences of a buildability

design deficiency under the construction contract, there may be alternative

47 Clause 20.1. The contractor will not have any entitlement to additional payment or anextension of time if it fails to provide timely notice of its claim (second paragraph).

Thereafter, the contractor is only entitled to additional payment or an extension of time

that has been substantiated (seventh paragraph).

48 City Inn Ltd v Shepherd Construction Ltd[2001] ScotCS 187, [2003] BLR 468,

paragraph [23];Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No

2)[2007] EWHC 447 (TCC), paragraphs [103]-[105];Steria Ltd v Sigma WirelessCommunications Ltd [2008] BLR 79 (TCC), paragraphs [87]-[91].

49 In the Northern Territory: Gaymark Investments Pty Ltd v Walter Construction Group

Ltd[1999] NTSC 143, paragraphs [69]-[71], in which it was effectively held that notice

requirements are not a condition precedent. In New South Wales: Turner Corporation

(Receiver & Manager Appointed) v Austotel Pty. Limited(1994) 13 BCL 378, Turner

Corporation (In Provisional Liquidation) v Co-Ordinated Industries Pty. Limited (1994)

11 BCL 202,Peninsula Balmain Pty Ltd v AbigroupCcontractors Pty Ltd[2002]NSWCA 211, paragraph [78], in which it was held that notice requirements are a

condition precedent.


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arguments, depending upon the governing law, that it can deploy to recover its

losses. In common law jurisdictions, these arguments include that:

(a) The extra work required for overcoming that deficiency wasexecuted outside the construction contract;

(b) The construction contract has been frustrated; or(c) The engineer has breached a duty of care owed to the contractor in

relation to the permanent works design (ie negligent misstatement).

Extrawork executed outside the construction contract

The genesis of this argument is the obitercomments of Lord Cairns in Thorn50

to the effect that if the work required to be carried out to overcome a

buildability design deficiency was so peculiar from that which the contractor

calculated upon when entering into the construction contract, it has two

options, one of which is to only proceed with that work if it is paid outside the

construction contract on a quantum meruitbasis.51 In making this statement,however, the judge expressly stated that he gave no opinion upon the merits of

such an argument.

Since this decision, contractors have latched on to these comments where

buildability design deficiencies arise. However, it is submitted that such an

argument is unlikely to succeed, given the contractors fundamental obligation

to do all that is necessary to execute the permanent works design.

In the case of Wilkins and Davies Construction Co Ltd v Geraldine Borough,52

the Supreme Court of New Zealand was faced with circumstances where the

design for a sewage treatment scheme specified a tank and pump chamber tobe sunk below ground level, the floor of the tank to be kept dry by pumping

from a 44-gallon drum. As it transpired, the ground conditions meant that it

was difficult to sink the tank and pump chamber and it was said to be

impossible to keep the tank dry using a 44-gallon drum. As a result, the

design was abandoned and an entirely new design was adopted. The

contractor sought to recover its additional costs of the redesign by arguing that

the work was wholly different from that originally contemplated and hence

was executed outside the construction contractfor which it was entitled to be

paid on a quantum meruitbasis. The court rejected this argument. Henry J

stated:

It appears to me that the [contractor] expressly took the responsibility for

pumping and the responsibility for sinking the tank, and it cannot escape

liabilityby calling on [the employer] to pay for additional work which

was acquiesced in and permitted to enable the [contractor] to minimize

its loss as the result of finding it had undertaken a responsibility which it

could not fulfil [T]he work in respect of which the claim was made

was not work done outside the contract. It was work within the contract

necessary to enable the [contractor]to carry out its obligations. It

was an agreed on means whereby the [contractor] was allowed to

50 Thorn: note 10.51 Thorn, note 10, pages 127-128.

52 Wilkins and Davies Construction Co Ltd v : note 17.


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complete its undertaking in a modified form and thus avoid exposing

itself to a claim for damages for non-completion. If that be so, no

amount can be recovered under the guise of quantum meruit 53

[emphasis added]

On the basis of this rationale, such a quantum meruit argument will notsucceed. The contractor will have to look to another argument to recover its

losses.

Constructi on contract has been f rustrated

A construction contract will be frustrated where some outside event or

extraneous change of situation happens which, before breach by one of the

parties, renders performance impossible or only possible in a very different

way from that contemplated.54 There are two outcomes favourable to the

contractor where the construction contract is frustrated. First, the construction

contract is brought to an end, thereby relieving the contractor of its ongoingfundamental obligation to build the permanent works design. Second, the

contractor may be entitled to be paid on a quantum meruit basis for work

carried out prior to that frustration.55

It is, however, only a narrow class of events that could trigger the doctrine of

frustration.56 It is not hardship or inconvenience or material loss itself which

calls the principle of frustration into play. There must be, as well, such a

change in the significance of the obligation that the thing undertaken would, if

performed, be a different thing from that contracted for.57 In particular,

frustration cannot arise simply because the construction contract is more

onerous to perform.58

This argument was advanced by the contractor in Davis Contractors Ltd v

Fareham Urban District Council59on the basis it had been unable to procure

sufficiently skilled labour so as to permit it to complete the works by the due

date. This argument was rejected by the House of Lords. In the words of

Viscount Simonds, it by no means follows that disappointed expectations lead

to frustrated contracts.60

A similar outcome ensued in Wilkins and Davies,61 where the contractor

argued that the discovery of difficult ground conditions constituted a

frustrating event. The Supreme Court of New Zealand rejected this argument.First, the court considered that it was not impossible for the contractor to

complete the work it was just more difficult and a modified method was

53 Wilkins and Davies, note 52, pages 994-995.

54 J Lauritzen AS v Wijsmuller BV (The Super Servant Two)[1990] 1 Lloyds Rep 1(CA).

55 In the United Kingdom, the Law Reform (Frustrated Contracts) Act 1943 regulates the

rights and liabilities of parties to frustrated contracts.

56 Davis Contractors Ltd v Fareham Urban District Council[1956] AC 696 (HL).

57 Davis v Fareham, note 56, page 729.

58 J Lauritzen AS v Wijsmuller BV: note 54.

59 Davis v Fareham: note 56.60 Davis v Fareham, note 56, page 715.

61 Wilkins and Davies: note 52.


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required. Second, it held that the parties were aware that the works

necessitated the piercing of the ground water level and if the contractor wished

to protect itself from potential difficulties that might ensue, it ought to have

done so expressly. As a result, this argument failed.

Accordingly, it will only be in very limited circumstances that a contractorwill be able to rely upon the doctrine of frustration to relieve itself from the

consequences of buildability design deficiencies. This leaves one last

argument for the contractor and a different targetthe engineer.

Negligent misstatement by the engineer

Typically, when the engineer produces the specifications and drawings under a

traditional build procurement method, it knows that these will be used for the

purposes of tendering the construction contract and then the construction

phase. To the extent that that design contains buildability design deficiencies

and this constitutes professional carelessness, the contractor may seek to arguethat the circumstances are such that the engineer owed the contractor a duty of

care during the tendering period in producing the design, which has been

breached.62 The success of this argument is entirely dependent upon the

factual scenario under consideration.

This argument was advanced by the contractor in Galliford Try Infrastructure

Ltd v Mott MacDonald Ltd,63 albeit in the context of a design and build

contract, on the basis, it said, that pile bracing forces had not been adequately

addressed by the engineer, which resulted in a redesign and, in turn, delay.

The alleged negligence related to a design concept provided by the engineer

orally during relatively informal meetings. Akenhead J stated:

In the ordinary course of events, I have no doubt that an [engineer]

engaged by [the employer] would not owe a duty of care (at least in

relation to economic loss) to tendering contractors even though the latter

had been supplied by the [engineer] with tender information, drawings

and specification upon which to base their tenders. The successful

tenderer would be considered to have taken the risk in respect of that

information. It is very common for there to be oral and written pre-

contract exchanges between the [engineer] and the [contractor] in

connection with the tender. [Engineers] would, I suspect, be surprised

and not a little concerned, if it was established that they owe duties ofcare in effect in the context of preventing contractors under-pricing

building jobs, except possibly in exceptional circumstances.64

The court then determined that there was no material reliance by the contractor

on the engineers relevant design statements during the tender period. This

was, however, very much dependent upon the commercial, contractual and

factual contextunder consideration.65

62 This is a claim for negligent misstatement, the foundation for which cause of action is

Hedley Byrne & Co Ltd v Heller & Partners Ltd[1964] AC 465 (HL).

63 Galliford Try Infrastructure Ltd v Mott MacDonald Ltd[2008] EWHC 1570 (TCC).64 Galliford Try, note 63, paragraph [315].

65 Galliford Try, note 63, paragraph [316].


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This argument has also been advanced in other common law jurisdictions with

mixed degrees of success. In Edgeworth Construction Ltd v ND Lea &

Associates Ltd,66the Supreme Court of Canada unanimously determined, on a

pre-trial motion, that the engineer did owe the contractor a duty of care in

relation to design information incorporated into the tender package for a

highway project. The court was of the view that the pleaded facts establishedaprima faciecause of action for negligent misstatement against the engineer

and the contractual matrix did not negate the imposition of tortious liability.

Nor did policy considerations. In fact, the court considered that as a matter of

policy, good practical and economic sense required that the responsibility for

the adequacy of the design be placed on the shoulders of the [engineer],

assuming reasonable reliance and barring disclaimers.67

The opposite outcome arose inR M Turton & Co Ltd v Kerslake & Partners,68

where the Court of Appeal of New Zealand held, by a majority, that the

engineer did not owe a duty of care to the contractor in circumstances where

the engineers specification provided for certain heat pumps to achieve acertain standard of performance. It subsequently transpired that those heat

pumps could not achieve that standard. Henry and Keith JJ considered that the

duty of care contended by the contractor would cut across and be inconsistent

with the contractual matrix under consideration, which included carefully

defined liability for the engineer under the consultancy agreement. In

reaching their decision, the majority judges were not swayed by any policy

considerations, in particular, that the effect was that a contractor may be

required to review the professional accuracy of plans and specifications.69

They majority concluded that they had a measure of real concern in endorsing

what could be construed as a general principle, namely that in a building

contract situation, an architect or engineer will be liable in tort to contractorsand subcontractors for negligence in design or specification.70

Hence, whilst there might be grounds to make out this tortious argument based

upon the facts under consideration, the tide seems to be against the contractor,

particularly if the engineer has included a disclaimer on its design and has

incorporated a limitation of liability in the consultancy agreement.

This discussion demonstrates the difficult position in which a contractor can

find itself when left shouldering the buildability design risk: it is very difficult

for the contractor to successfully advance alternative arguments to seek to

recover its losses arising out of buildability design deficiencies.

66 Edgeworth Construction Ltd v ND Lea & Associates Ltd[1993] 3 SCR 206.

67 Edgeworth Construction, note 66, page 5.

68 R M Turton & Co Ltd v Kerslake & Partners[2000] NZCA 115, [2000] 3 NZLR 406.

69 Turton v Kerslake, note 68, paragraph [36]. It should be noted that Thomas J dissented,

finding in favour of a duty of care being owed by the engineer to the contractor. The

judge focussed on policy considerations and stated that it is entirely unrealistic today to

expect a tenderer to independently check the engineers design or to ask the employer toprotect the contractor from buildability design deficiencies: paragraphs [122]-[133].

70 Turton v Kerslake, note 68, paragraph [36].


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5 Conclusions

The allocation of the buildability design risk is an issue to which consideration

ought to be given by all players involved in a project procured on a traditional

build basis particularly the contractor. As demonstrated by an analysis of

common law case law and the Red Book, the contractor may find itselfbearing this risk and without recourse for its losses even if the buildability

design deficiency was a product of the engineers negligent design.

It is suggested that the contractor therefore needs to give some proactive

thought to possible ways that it might stave off the implications of buildability

design deficiencies. To start with, it can try to negotiate a contractual risk

profile where the employer is responsible for the buildability design risk.

Another alternative might be for the contractor to seek the novation of the

consultancy agreement, with retrospective operation,71 to ensure that it has

contractual recourse against the engineer if they are the culprit for the

problem. However, even if the engineer and the employer agree (which seemsunlikely from a commercial perspective), the employer may require the

contractor to take on the fitness for purpose design risk, converting the

traditional build contract into a design and build contract, which the contractor

may not find satisfactory from a risk profile perspective. As a last ditch effort,

the contractor may consider employing its own design resources to peer-

review the engineers design or procuring liquidated damages insurance to

protect itself from any critical delay arising out of buildability design

deficiencies.

Even if achievable, each of these measures will inevitably add considerable

cost to the contractors tender price and therefore its prospects of beingawarded the construction contract, unless each of the tenderers in the running

is cognisant of, and takes measures to protect itself from, the buildability

design risk. However, this must be weighed up against the risk that a

buildability design deficiency may arise which has significant time and cost

implications, with the contractor, like the former Blackfriars Bridge builder,

left holding the can.

Kim Rosenbergis a Senior Associate at Freshfields Bruckhaus DeringerLLP in London.

Kim Rosenberg and Society of Construction Law 2012

The views expressed by the author in this paper are hers alone, and do notnecessarily represent the views of the Society of Construction Law or the editors.Neither the author, the Society, nor the editors can accept any liability in respect ofany use to which this paper or any information or views expressed in it may be put,whether arising through negligence or otherwise.

71 To overcomeBlyth & Blyth Ltd v Carillion Construction Ltd(2001) 79 ConLR 142 (Ct

of Session, Outer House).


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APPENDIX

Relevant Provisions of the FIDIC Red Book72

1. GENERAL PROVISIONS

1.9 Delayed Drawings or Instructions

The contractor shall give notice to the engineer whenever the Works are likely to bedelayed or disrupted if any necessary drawing or instruction is not issued to thecontractor within a particular time, which shall be reasonable. The notice shallinclude details of the necessary drawing or instruction, details of why and by when itshould be issued, and details of the nature and amount of the delay or disruptionlikely to be suffered if it is late.

3. THE ENGINEER

3.3 Instructions of the engineer

The engineer may issue to the contractor (at any time) instructions and additional or

modified Drawings which may be necessary for the execution of the Works and theremedying of any defects, all in accordance with the Contract. The contractor shallonly take instructions from the engineer, or from an assistant to whom the appropriateauthority has been delegated under this Clause. If an instruction constitutes aVariation, Clause 13 [Variations and Adjustments] shall apply.

The contractor shall comply with the instructions given by the engineer or delegatedassistant, on any matter related to the Contract. Whenever practicable, theirinstructions shall be given in writing. If the engineer or a delegated assistant:

(a) gives an oral instruction,

(b) receives a written confirmation of the instruction, from (or on behalf of) thecontractor, within two working days after giving the instruction, and

(c) does not reply by issuing a written rejection and/or instruction within twoworking days after receiving the confirmation,

then the confirmation shall constitute the written instruction of the engineer ordelegated assistant (as the case may be).

4. THE CONTRACTOR

4.1 contractors General Obligations

The contractor shall design (to the extent specified in the Contract), execute andcomplete the Works in accordance with the Contract and with the engineersinstructions, and shall remedy any defects in the Works.

The contractor shall provide the Plant and contractors Documents specified in the

Contract, and all contractors Personnel, Goods, consumables and other things and

72 The Red Book: note 9. Reproduced with the kind permission of the FdrationInternationale des Ingnieurs-Conseils (International Federation of Consulting

Engineers).


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services, whether of a temporary or permanent nature, required in and for this design,execution, completion and remedying of defects.

The contractor shall be responsible for the adequacy, stability and safety of all Siteoperations and of all methods of construction. Except to the extent specified in the

Contract, the contractor (i) shall be responsible for all contractors Documents,

Temporary Works, and such design of each item of Plant and Materials as is requiredfor the item to be in accordance with the Contract, and (ii) shall not otherwise be

responsible for the design or specification of the Permanent Works.

The contractor shall, whenever required by the engineer, submit details of thearrangements and methods which the contractor proposes to adopt for the executionof the Works. No significant alteration to these arrangements and methods shall bemade without this having previously been notified to the engineer.

If the Contract specifies that the contractor shall design any part of the PermanentWorks, then unless otherwise stated in the Particular Conditions:

(a) the contractor shall submit to the engineer the contractors Documents for thispart in accordance with the procedures specified in the Contract;

(b) these contractors Documents shall be in accordance with the Specification andDrawings, shall be written in the language for communications defined in Sub-Clause 1.4 [Law and Language], and shall include additional informationrequired by the engineer to add to the Drawings for co-ordination of eachPartys designs;

(c) the contractor shall be responsible for this part and it shall, when the Works arecompleted, be fit for such purposes for which the part is intended as arespecified in the Contract; and

(d) prior to the commencement of the Tests on Completion, the contractor shallsubmit to the engineer the as-built documents and operation and maintenance

manuals in accordance with the Specification and in sufficient detail for theemployer to operate, maintain, dismantle, reassemble, adjust and repair thispart of the Works. Such part shall not be considered to be completed for thepurposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works andSections] until these documents and manuals have been submitted to theengineer.

4.12 Unforeseeable Physical Conditions

In this Sub-Clause, physical conditions means natural physical conditions and man-made and other physical obstructions and pollutants, which the contractor encountersat the Site when executing the Works, including sub-surface and hydrological

conditions but excluding climatic conditions.

If the contractor encounters adverse physical conditions which he considers to havebeen Unforeseeable, the contractor shall give notice to the engineer as soon aspracticable.

This notice shall describe the physical conditions, so that they can be inspected by theengineer, and shall set out the reasons why the contractor considers them to be

Unforeseeable. The contractor shall continue executing the Works, using such properand reasonable measures as are appropriate for the physical conditions, and shallcomply with any instructions which the engineer may give. If an instruction

constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply.

If and to the extent that the contractor encounters physical conditions which areUnforeseeable, gives such a notice, and suffers delay and/or incurs Cost due to these


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conditions, the contractor shall be entitled subject to Sub-Clause 20.1 [contractorsClaims] to:

(a) an extension of time for any such delay, if completion is or will be delayed,under Sub-Clause 8.4 [Extension of Time for Completion]; and

(b) payment of any such Cost, which shall be included in the Contract Price.

After receiving such notice and inspecting and/or investigating these physicalconditions, the engineer shall proceed in accordance with Sub-Clause 3.5[Determinations] to agree or determine (i) whether and (if so) to what extent thesephysical conditions were Unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent.

However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the engineer may also review whether other physical conditions in

similar parts of the Works (if any) were more favourable than could reasonably havebeen foreseen when the Contactor submitted the Tender. If and to the extent that

these more favourable conditions were encountered, the engineer may proceed inaccordance with Sub-Clause 3.5 [Determinations] to agree or determine the

reductions in Cost which were due to these conditions, which may be included (asdeductions) in the Contract Price and Payment Certificates. However, the net effectof all adjustments under sub-paragraph (b) and all these reductions, for all thephysical conditions encountered in similar parts of the Works, shall not result in a netreduction in the Contract Price.

The engineer may take account of any evidence of the physical conditions foreseenby the contractor when submitting the Tender, which may be made available by theContactor, but shall not be bound by any such evidence.

8. COMMENCEMENT, DELAYS AND SUSPENSION

8.4 Extension of Time for Completion

The contractor shall be entitled subject to Sub-Clause 20.1 [contractors Claims] toan extension of the Time for Completion if and to the extent that completion for thepurposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be

delayed by any of the following causes:

(a) a Variation (unless an adjustment to the Time for Completion has been agreedunder Sub-Clause 13.3 [Variation Procedure] or other substantial change in the

quantity of an item of work included in the Contract,

(b) a cause of delay giving an entitlement to extension of time under a Sub-Clause

of these Conditions,(c) exceptionally adverse climatic conditions,

(d) unforeseeable shortages in the availability of personnel or Goods caused byepidemic or governmental actions, or

(e) any delay, impediment or prevention caused by or attributable to the employer,the employers Personnel, or the employers other contractors on the Site.

12. MEASUREMENT AND EVALUATION

12. 1 Works to be Measured

The Works shall be measured, and valued for payment, in accordance with thisClause.


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Whenever the engineer requires any part of the Works to be measured, reasonablenotice shall be given to the contractors Representative, who shall:

(a) promptly either attend or send another qualified representative to assist theengineer in making the measurement, and

(b) supply any particulars requested by the engineer.

If the contractor fails to attend or send a representative, the measurement made by (oron behalf of) the engineer shall be accepted as accurate.

Except as otherwise stated in the Contract, wherever any Permanent Works are to bemeasured from records, these shall be prepared by the engineer. The contractor shall,

as and when requested, attend to examine and agree the records with the engineer,and shall sign the same when agreed. If the contractor does not attend, the recordsshall be accepted as accurate.

If the contractor examines and disagrees the records, and/or does not sign them asagreed, then the contractor shall give notice to the engineer of the respects in whichthe records are asserted to be inaccurate. After receiving this notice, the engineer

shall review the records and either confirm or vary them. If the contractor does not sogive notice to the engineer within 14 days after being requested to examine therecords, they shall be accepted as accurate.

12. 3 Evaluation

Except as otherwise stated in the Contract, the engineer shall proceed in accordance

with Sub-Clause 3.5 [Determinations] to agree or determine the Contract Price byevaluating each item of work, applying the measurement agreed or determined inaccordance with the above Sub-Clauses 12.1 and 12.2 and the appropriate rate or

price for the item.

For each item of work, the appropriate rate or price for the item shall be the rate orprice specified for such item in the Contact or, if there is no such item, specified forsimilar work. However, a new rate or price shall be appropriate for an item of workif:

(a) (i) the measured quantity of the item is changed by more than 10% from thequantity of this item in the Bill of Quantities or other Schedule,

(ii) this change in quantity multiplied by such specified rate for this itemexceeds 0.01 % of the Accepted Contract Amount,

(iii) this change in quantity directly changes the Cost per unit quantity of this

item by more than 1%, and

(iv) this item is not specified in the Contract as a fixed rate item;

or

(b) (i) the work is instructed under Clause 13 [Variations and Adjustments],

(ii) no rate or price is specified in the Contract for this item, and

(iii) no specified rate or price is appropriate because the item of work is notof similar character, or is not executed under similar conditions, as any

item in the Contract.

Each new rate or price shall be derived from any relevant rates or prices in theContract, with reasonable adjustments to take account of the matters described in sub-paragraph (a) and/or (b), as applicable. If no rates or prices are relevant for thederivation of a new rate or price, it shall be derived from the reasonable Cost of

executing the work, together with reasonable profit, taking account of any otherrelevant matters.


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Until such time as an appropriate rate or price is agreed or determined, the engineershall determine a provisional rate or price for the purposes of Interim PaymentCertificates.

13. VARIATION AND ADJUSTMENTS

13. 1 Right to Vary

Variations may be initiated by the engineer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for thecontractor to submit a proposal.

The contractor shall execute and be bound by each Variation, unless the contractorpromptly gives notice to the engineer stating (with supporting particulars) that thecontractor cannot readily obtain the Goods required for the Variation. Upon

receiving this notice, the engineer shall cancel, confirm or vary the instruction.

Each Variation may include:

(a) changes to the quantities of any item of work included in the Contract(however, such changes do not necessarily constitute a Variation),

(b) changes to the quality and other characteristics of any item of work,

(c) changes to the levels, positions and/or dimensions of any part of the Works,

(d) omission of any work unless it is to be carried out by others,

(e) any additional work, Plant, Materials or services necessary for the PermanentWorks, including any associated Tests on Completion, boreholes and other

testing and exploratory work, or

(f) changes to the sequence or timing of the execution of the Works.

The contractor shall not make any alteration and/or modification of the Permanent

Works, unless and until the engineer instructs or approves a Variation.13.2 Value engineering

The contractor may, at any time, submit to the engineer a written proposal which (inthe contractors opinion) will, if adopted, (i) accelerate completion, (ii) reduce thecost to the employer of executing, maintaining or operating the Works, (iii) improvethe efficiency or value to the employer of the completed Works, or (iv) otherwise beof benefit to the employer.

The proposal shall be prepared at the cost of the contractor and shall include the itemslisted in Sub-Clause 13.3 [Variation Procedure].

If a proposal, which is approved by the engineer, includes a change in the design of

part of the Permanent Works, then unless otherwise agreed by both Parties:(a) the contractor shall design this part,

(b) sub-paragraphs (a) to (d) of Sub-Clause 4.1 [contractors General Obligations]shall apply, and

(c) if this change results in a reduction in the contract value of this part, theengineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] toagree or determine a fee, which shall be included in the Contract Price. This

fee shall be half (50%) of the difference between the following amounts:

(i) such reduction in contract value, resulting from the change, excludingadjustments under Sub-Clause 13.7 [Adjustments for Changes in Legislation]and Sub-Clause 13.8 [Adjustments for Changes in Cost], and

(ii) the reduction (if any) in the value to the employer of the varied works, takingaccount of any reductions in quality, anticipated life or operational efficiencies.


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However, if amount (i) is less than amount (ii), there shall not be a fee.

13. 3 Variation Procedure

If the engineer requests a proposal, prior to instructing a Variation, the contractorshall respond in writing as soon as practicable, either by giving reasons why hecannot comply (if this is the case) or by submitting:

(a) a description of the proposed work to be performed and a programme for itsexecution,

(b) the contractors proposal for any necessary modifications to the programmeaccording to Sub-Clause 8. 3 [Programme] and to the Time for Completion,

and

(c) the contractors proposal for evaluation of the Variation.

The engineer shall, as soon as practicable after receiving such proposal (under Sub-Clause 13.2 [Value engineering] or otherwise), respond with approval, disapproval orcomments. The contractor shall not delay any work whilst awaiting a response.

Each instruction to execute a Variation, with any requirements for the recording of

Costs, shall be issued by the engineer to the contractor, who shall acknowledgereceipt.

Each Variation shall be evaluated in accordance with Clause 12 [Measurement andEvaluation], unless the engineer instructs or approves otherwise in accordance withthis Clause.

20. CLAIM, DISPUTES AND ARBITRATION

20. 1 contractors Claims

If the contractor considers himself to be entitled to any extension of the Time for

Completion and/or any additional payment, under any Clause of these Conditions orotherwise in connection with the Contract, the contractor shall give notice to theengineer, describing the event or circumstance giving rise to the claim. The noticeshall be given as soon as practicable, and not later than 28 days after the contractorbecame aware, or should have become aware, of the event or circumstance.

If the contractor fails to give notice of a claim within such period of 28 days, theTime for Completion shall not be extended, the contractor shall not be entitled toadditional payment, and the employer shall be discharged from all liability inconnection with the claim. Otherwise, the following provisions of this Sub-Clauseshall apply.

The contractor shall also submit any other notices which are required by the Contract,

and supporting particulars for the claim, all as relevant to such event or circumstance.

The contractor shall keep such contemporary records as may be necessary tosubstantiate any claim, either on the Site or at another location acceptable to theengineer. Without admitting the employers liability, the engineer may, afterreceiving any notice under this Sub-Clause, monitor the record-keeping and/orinstruct the contractor to keep further contemporary records. The contractor shall

permit the engineer to inspect all these records, and shall (if instructed) submit copiesto the engineer.

Within 42 days after the contractor became aware (or should have become aware) ofthe event or circumstance giving rise to the claim, or within such other period as maybe proposed by the contractor and approved by the engineer, the contractor shall sendto the engineer a fully detailed claim which includes full supporting particulars of the


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basis of the claim and of the extension of time and/or additional payment claimed. Ifthe event or circumstance giving rise to the claim has a continuing effect:

(a) this fully detailed claim shall be considered as interim;

(b) the contractor shall send further interim claims at monthly intervals, giving the

accumulated delay and/or amount claimed, and such further particulars as the

engineer may reasonably require; and(c) the contractor shall send a final claim within 28 days after the end of the effects

resulting from the event or circumstance, or within such other period as may beproposed by the contractor and approved by the engineer.

Within 42 days after receiving a claim or any further particulars supporting a previousclaim, or within such other period as may be proposed by the engineer and approvedby the contractor, the engineer shall respond with approval, or with disapproval anddetailed comments. He may also request any necessary further particulars, but shallnevertheless give his response on the principles of the claim within such time.

Each Payment Certificate shall include such amounts for any claim as have beenreasonably substantiated as due under the relevant provision of the Contract. Unlessand until the particulars supplied are sufficient to substantiate the whole of the claim,the contractor shall only be entitled to payment for such part of the claim as he hasbeen able to substantiate.

The engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] toagree or determine (i) the extension (if any) of the Time for Completion (before orafter its expiry) in accordance with Sub-Clause 8.4 [Extension of Time forCompletion], and/or (ii) the additional payment (if any) to which the contractor isentitled under the Contract.

The requirements of this Sub-Clause are in addition to those of any other Sub-Clausewhich may apply to a claim. If the contractor fails to comply with this or another

Sub-Clause in relation to any claim, any extension of time and/or additional paymentshall take account of the extent (if any) to which the failure has prevented orprejudiced proper investigation of the claim, unless the claim is excluded under thesecond paragraph of this Sub-Clause.


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The object of the Society

is to promote the study and understanding of

construction law amongst all those involved

in the construction industry

MEMBERSHIP/ADMINISTRATION ENQUIRIESJill Ward

The Cottage, Bullfurlong Lane

Burbage, Leics LE10 2HQ

tel: 07730 474074

e-mail: [email protected]

website: www.scl.org.uk

D140 Rosenberg

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