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Status Note amended March 2013

CONCODE

Contracts and commissions for the NHS

estate - Policy

1995

STATUS IN WALES

ARCHIVED

UK Health Departments

Executive

Contracts and commissions for

the NHS estate Policy

lmj Estates An Executive Agency of the Department of Health

Executive

Contracts and commissions for

the NHS estate Policy

London: HMSO

IFa Estates An Executive Agency of the Department of Health

0 Crown copyrrght 1995 Applicatrons for reproduction should be made to HMSO Copyright Unrt Frrst published 1993 Second edition 1995

ISBN 0 11 322211 4

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About this publication

A code of procedure for building and

engineering contracts for the NHS

(Concode) was introduced in 1983.

Concode contains a mixture of policy

and guidance for those involved with

works contracts and consultant

commissions. It has been amended on

numerous occasions.

NHS Estates proposes to issue, over a

period of time, separate guidance

documents to assist in the

implementation of the policy laid down

in this publication.

Policy

This new publication deals with policy

only. It includes Government and

Department of Health policy on matters

such as:

0 contract strategy;

l selection of contractors and

consultants;

l contract conditions.

It is complementary to Capital

Investment Manual health building

procedures.

The policy statements are printed in bold

type for easy identification and are

supplemented by a fuller explanation in

the text. The policy statements are

reproduced in a summary for reference

in Chapter 1. NHS bodies must comply

with this policy.

This publication applies to NHS bodies in

England and Wales only. The

Department of Health and Social

Services, Northern Ireland propose to

issue their own policy documents, which

will include amendments to suit their

own requirements.

Scotland

The principles and guidance in this

publication are relevant to Scotland.

However, some of the detailed

references to the statutes and other

matters are not applicable. Where the

document refers to either the

Department of Health or NHS Estates,

this is to be taken as referring to the

Management Executive of the NHS in

Scotland. Essential Scottish amendments

are provided in the Management

Executive Letter (MEL) which

accompanies the distribution of this

document in Scotland; copies are

available from the Management

Executive, NHS in Scotland, Room 355,

St Andrew’s House, Edinburgh EHI 3DH.

Contents

About this publication 4.6 Health, safety and welfare 4.10 Data Protection Act 1984

Overview page 3 4.1 1 Specifications - proprietary articles 4.14 Value Added Tax

1. Summary of policy page 4 4.16 Fluctuations

Chapter 2 : Contract strategy and management 4.16 General

Chapter 3 : Selection of consultants and contractors 4.22 Methods of calculating fluctuations

Chapter 4 : Conditions of contract 4.25 Financial safeguards

Chapter 5 : Consultant commissions 4.25 Performance bonds/parent company

Chapter 6 : Requirements of European Community guarantees

directrves 4.27 Prompt settlement of accounts Chapter 9 : Miscellaneous 4.28 Loss/expense clarms and settlements of disputes

4.28 General

2. Contract strategy and management page 8 4.3 1 Contractual payments

2. I Introduction 4 32 Extra-contractual matters

2.3 Project directors/project managers 4.33 Commercial settlements

2.5 Contract strategy 4.35 lnterrm ascertainments

2.1 1 Selecting a contract strategy and assessing risk 4.37 Failure by architect/contract administrator and

2.13 Further guidance on contract strategies contractor to reach a settlement - arbitratton or litrgation

3. Selection of consultants and 4.39 Liquidated and ascertained damages

contractors page 10 4.43 Planning legislation, building regulation and codes of

3. I Introduction practice

3.2 Selectrve competitive tendering the norm 4.44 Construction Industry Tax Deduction Scheme 3.7 Appraisal of tenderers (contractors and consultants) 4.48 Works insurance

3.1 1 Approved lists 4.48 General

3.13 Consortium (or joint venture) tendering 4.51 New buildings

3.14 Exchange of information 4.52 Existing buildings

3.16 Civil liability and criminal offences 4.53 Evidence of insurance carried

3.18 Standards of conduct 4.55 Transfer of contracts for works or services between

3.20 Audit role NHS bodies

3.21 Tendering procedures 4.56 Existing contracts 3.21 Natronal Joint Consultatrve Committee for 4.57 New contracts

Building 4.60 Notification

3.23 Single tender action 4.61 Latent defects in buildings transferred to NHS trusts 3.25 Negotiated contracts

3.28 Issue, receipt and evaluation of tenders 5. Consultant commissions page 21

3.36 Notification of tender results/fee competition 5.1 Introduction

3.36 Contractors 5.2 Standard forms of agreement

3.37 Consultants 5.6 Feedback

3.38 Post tender negotiation 5.7 Certificates

3.39 Letting the contract 5.8 Value Added Tax

3.42 Letters of intent 5.11 Prompt payment of accounts

3.44 Attestation 5.12 Settlement of disputes

3.46 Named and nominated sub-contractors and suppliers 5.13 Professional indemnity insurance 5.14 Amount of insurance cover

4. Conditions of contract page 15 5.16 Additional insurance

4.1 Introduction 5.17 Small practices

4.2 Standard forms of contract 5.18 Evidence of insurance carried

4.3 Feedback 5.19 Contractor’s design liability - Design and build

4.4 Mechanical and electrical (M & E) work contracts.

4.5 Racial discrimination 5.20 Health, safety and welfare

Contents

6. Requirements of European Community directives page 24

6.1 Introduction 6.5 Directives governing public procurement 6.13 Unacceptable notices

6.14 Criteria for award of contracts 6.17 Statistical returns 6.19 Provision of informatron about contract award

procedures

7. Private finance page 26 7.1 Introduction 7.2 Further guidance on private finance

8. Market testing page 27 8.1 Introduction 8.6 Further guidance on market testing

9.2 Building in adverse weather conditions 9.3 Preservation and destruction of documents 9.9 Retention of documents and the Latent Damage Act

1986 9.10 Standards and quality assurance

Appendix 1 - Glossary page 30

Appendix 2 - Certificates page 3 1

Appendix 3 - EPL(94)4 Parent Company Guarantees/ Bonds page 33

Bibliography page 36

Other publications in this series page 37

About NHS Estates page 38

9. Miscellaneous page 28 9.1 Introduction

Overview

This section of ‘Contracts and commissions for the NHS’ (Concode) deals with the policy aspects of works contracts and consultant commissions in the NHS. NHS trusts, authorities, FHSAs and any other centrally-funded organisations, from now on referred to as NHS bodres, must comply with the Government and Departmental policy contained within It.

This document reflects the policy issues in the Capital Investment Manual (CIM) which replaced Capricode in 1994. The two documents should be read in conjunction with each other.

The Private Finance Initiative (launched in April 1993) has enabled NHS bodres to have greater freedom to use private finance without specific Treasury approval. The aims of the initiative are to achieve service objectrves and delivery more effectively, to improve the working relationship between the public and private sectors and to ensure that public money IS used efficiently. Chapter 7 of this document deals with private finance.

NHS bodies are required to carry out a value for money evaluation of all tenders. This requires that technical expertise, quality of product or service and prrce are all evaluated. The lowest tender is not always the best.

The provision of services delivered by estates functions has been subject to extensive market testing for some time. NHS bodies must however regularly review the services provided whether performed In-house or already contracted out. Chapter 8 of thus document deals with market testrng.

The expenditure of public funds is subject to particular scrutiny and although achieving value for money is a major aim, this must not compromrse standards of conduct. Propriety should be maintained through complrance with procedures provrdrng checks and balances, placing the responsibility for contracts on more than one person, ensuring confidentiality and equal treatment of bidders

1.0 Summary of policy

Chapter 2: Contract strategy and

management

l NHS bodies act as principals in building and engineering contracts. As these contracts are almost wholly financed from public funds voted by Parliament, NHS bodies have not only a duty to secure best value for money but, as they are acting on behalf of the Secretary of State, they must comply with Government policy in contractual matters (paragraph 2.1).

l NHS bodies must secure suitable professional advice either from in-house resources or by employing professional consultants, in order to carry out their responsibilities properly (paragraph 2.2).

l Project directors must be appointed for all schemes. These will normally be officers of the NHS body. Project managers must be appointed for major schemes. For smaller or less complex schemes, project management duties can be carried out by another discipline (paragraph 2.3).

l A full assessment must be made of the .

constraints, requirements and objectives of a scheme so that the optimum contract strategy can be adopted. This assessment must be summarised in the outline and full business case submission and the preferred contract strategy stated (paragraph 2.12).

.

Chapter 3: Selection of consultants

recommendation of their professional officers and consultants. EC requirements must be met where applicable, but at least three genuine tenders must be received to ensure a competition to establish the best market price for the work. If three genuine tenders have not been received, the contract must be re-tendered (paragraph 3.4).

l NHS bodies should not charge consultants or contractors for inclusion on tender lists. They also should not charge for tender documents when using selective competitive tendering (paragraph 3.5).

l NHS bodies must manage every aspect of the building process so as to give protection to public funds in accordance with the requirements of the Public Accounts Committee of the House of Commons (paragraph 3.7).

. NHS bodies must complete a financial and technical check of all firms being considered for inclusion on tender lists for the supply of goods and services for building and engineering works (paragraph 3.8).

and contractors

l The usual practice in the NHS is that building and engineering commissions and contracts must be awarded following competition based on selective competitive tendering (paragraph 3.2).

l Competitive fee bids generally must be obtained from three or more firms of consultants or contractors. However, in exceptional circumstances or for works of low value, consultants’ fees may be negotiated unless NHS bodies decide to seek competitive offers (paragraph 3.3).

l NH5 bodies should take the decision on the selection of firms to tender on the

NHS bodies must update established approved lists to take account of suitability and known performance. Lists must be reviewed at intervals of not more than five years. NHS bodies must not charge firms for processing applications for inclusion on lists (paragraph 3.12).

NHS bodies must only deal with firms in whose integrity they can place full confidence (paragraph 3.16).

l Ethical standards of conduct must be maintained by NHS bodies during the procurement process (paragraph 3.18).

l Financial directions issued by the Department of Health require that NHS bodies must maintain proper financial control, including carrying out internal checks to safeguard resources and must provide an internal audit function (paragraph 3.20).

l The Department supports the principles set out in the NJCC codes of tendering procedures and requires that NHS bodies comply with the principles therein. However, care must be taken to ensure that any action in the tendering procedure does not contravene the

4

1.0 Summary of policy

requirements of the EC directives (or the appropriate regulations where they have been enacted into UK law) (paragraph 3.22).

Single tender action is justified only where there is no choice of contractor or in special circumstances (paragraph 3.23).

NHS bodies may negotiate with a single contractor in exceptional circumstances (paragraph 3.25).

It is essential that each tender is based on identical tender documents that are clear and free from ambiguity to ensure that selective competitive tendering is fair and effective (paragraph 3.30).

Tender documentation should state that NHS bodies do not bind themselves to accept the lowest, or any, fee offer tender (paragraph 3.32).

All contract records should be numbered sequentially to discourage fraud and act as an aid to audit (paragraph 3.33).

NHS bodies must require tenderers to provide a declaration certifying that their tenders are bona fide competitives and are not the results of any restrictive or collusive practices (paragraph 3.34).

Tenders received after the time and date specified in the formal invitation must be rejected unopened unless there are any unforeseen exceptional circumstances, for example if the tender has a certificate of posting that demonstrates that adequate time was allowed for delivery and the tender was not delivered by the due date/time (paragraph 3.35).

NHS bodies must ensure that the agreement/ contract is signed before either authorisation to commence work on the design or the contractor is given possession of the site (paragraph 3.43).

NHS bodies wishing to secure the fullest protection available under the law of contract should arrange for the contract concerned to be executed as a deed.

Nomination must be avoided except where the work is of a specialised nature or where design input is required to be provided by the sub- contractor or supplier (paragraph 3.46).

NHS bodies should implement the provisions of the Public Works Contracts Regulations and the Public Services Contracts Regulations with regard to the selection of sub-contractors and suppliers. To avoid discrimination, the words

“or equivalent” must be added to any specifically named firm or any list of firms included in tender documentation (paragraph 3.47).

Chapter 4: Conditions of contract

NHS bodies should use standard forms of contract wherever possible (paragraph 4.2).

NHS bodies are subject to the legislation on racial discrimination (including the penalties for contravention) and must remind contractors of the need to comply with the provisions of the Race Relations Act 1976 or any statutory modification or re-enactment thereof relating to discrimination in employment (paragraph 4.5).

NHS bodies are subject to legislation on health, safety and welfare measures (including the penalties for contravention) and must remind contractors of the need to comply with all statutory duties while employed on a contract for them. Contractors should be reminded of their responsibilities in this respect, by the inclusion of a general statement on health, safety and welfare measures in the contract preliminaries (paragraph 4.6).

NHS bodies are subject to the legislation on data protection (including the penalties for contravention) in respect of any confidential personal or commercial data owned or held by them upon any medium. The onus of complying with the requirements of the legislation rests with the contractor. NHS bodies must ensure that contractors indemnify them against contravention of all legislation concerning data protection, principally the Data Protection Act 1984 (paragraph 4.10).

The specifying of proprietary articles in contract documents should be avoided in order not to deprive NHS bodies of the benefit of the resulting competition when the contractor is given a wider choice (paragraph 4.11).

NHS bodies must include the words “or equivalent” where they name single firms (paragraph 4.12).

Public sector contracts may be let on a full fluctuations basis where the contract has an estimated duration exceeding two years. Only in very exceptional circumstances should a contract be let on a full fluctuations basis

5

1 .O Summary of policy

where the duration does not exceed two years - a satisfactory explanation of such a proposal must be included in the outline and full business case submission (paragraph 4.19).

l The Government has given an undertaking to the construction industry that contracts tendered on a fixed price/limited fluctuations basis will be:

0)

(ii)

(iii)

(iv)

thoroughly pre-planned to the level dictated by the procurement method;

of a duration not exceeding two years;

free from any undue delay in accepting tenders, making the site available or, where applicable, nominating sub- contractors or suppliers;

subject to the minimum of changes during the construction stage

(paragraph 4.20).

l Parent company guarantees and performance bonds should not be used, except in exceptional circumstances, as a means of safeguarding the client from the results of a contractor failing (paragraph 4.25).

l NH5 bodies must not use “on demand” performance bonds (paragraph 4.26).

l NHS bodies must ensure that accounts for construction work are paid promptly with any time limits set by the conditions of the contract and should not normally exceed 30 days. Failure to meet such time limits is a breach of contract and could involve additional costs. All contracts contain a clause requiring main contractors to pay their sub-contractors and suppliers within 30 days of receipt of accounts (paragraph 4.27).

l NHS bodies must manage building contracts so that as far as possible situations are avoided which give rise to claims for additional payments to contractors (paragraph 4.28).

l Commercial settlements and ex-gratia payments are extra-contractual payments. Any such payments are dealt with under the losses procedure under which NHS bodies have limited powers of write-off. The financial limit delegated to NHS bodies for this procedure is f 5000 (see EL(90)P/62 Appendix 5) (paragraph 4.34).

l Where it is clear beyond doubt that some payment in respect of loss and/or expense is due to a claimant, an interim ascertainment in respect of all or part of such amount should be made and payment certified even though final determination of the claimant’s full entitlement is not possible at the time. Each case must be

appraised on its merits and the contract administrator or quantity surveyor must take into account the risks involved and weigh them against the likely benefits before deciding the course of action (paragraph 4.36).

As soon as NHS bodies learn that there is the prospect of arbitration or litigation, they must become actively involved, through the project director, with advice from the project manager. These proceedings can easily become protracted, consume a lot of resources and lead to heavy outgoings in payments to professional consultants and in various legal expenses (paragraph 4.38).

NH5 bodies must pursue the recovery of liquidated and ascertained damages and, in cases of difficulty and uncertainty, take legal advice (paragraph 4.41).

Under the provisions of the NHS and Community Care Act 1990, Crown immunity was withdrawn from the NHS on 1 April 1991. As a result, NHS bodies must now comply with the procedural requirements of planning legislation and building regulations (paragraph 4.43).

NHS bodies should observe the spirit of the Finance Act 1975, although they are not legally bound by it (paragraph 4.44).

NHS bodies must assess the risks to which they will be subject and select the appropriate insurance arrangements to provide them with the protection they require (paragraph 4.50).

Chapter 5: Consultant commissions

l Consultants must be appointed under the terms of a formal agreement (paragraph 5.2).

l The agreements fully comply with current policy and have been prepared in conjunction with the relevant professional bodies. Their use is recommended in all cases, with unamended conditions of engagement. Where amendments are essential, they must be based on competent professional advice, particularly when the balance of risk is being considerably changed or fixed lump sum bids are invited for commissions of long duration (paragraph 5.4).

l NHS bodies must ensure that fee accounts are paid promptly within any time limits set by the conditions of engagement and should not normally exceed 30 days. Failure to meet such time limits is a breach of contract and could involve additional costs. All conditions of engagement must contain a clause requiring

6

consultants to pay sub-contractors and suppliers within 30 days of receipt of accounts (paragraph 5.11).

l It is Government policy that NH5 bodies must ensure that adequate and economical arrangements are made for insurance against professional negligence. As a result, consultants are required (as a condition precedent to appointment) to be adequately insured against enforceable claims which might result from the work undertaken by them by virtue of their appointments. This insurance must cover all claims arising as a direct result of any negligent act, error or omission in the conduct and execution of their professional activities. Professional indemnity insurance is required to be maintained for the period during which defects are most likely to occur irrespective of whether the contract is executed as a simple contract (under hand) or as a deed formally (under seal). Government policy requires professional indemnity insurance to be maintained for a minimum period of six years from the date of completion of the commission (paragraph 5.13).

l If one consultant is to be responsible for the duties of more than one discipline, or a group of consultants are appointed jointly, NHS bodies must establish that the overall level of insurance is adequate for the services being provided (paragraph 5.15).

l Evidence that consultants are adequately insured must be by means of a certificate provided by the insurer (paragraph 5.18).

l Where the contractor has the responsibility for both the design and the construction of the project, NHS bodies should adopt a procedure similar to that used with regard to professional consultants’ insurance. Professional indemnity insurance must be maintained for the period during which defects are most likely to occur and NHS bodies must therefore ensure that professional indemnity insurance is maintained by the contractor for a minimum period of six years from the date the contract is completed (paragraph 5.19).

Chapter 6: Requirements of European

Community directives

l It is Government policy that NHS bodies must comply with the requirements of the directives which apply to their activities (paragraph 6.3).

l There are three alternative contract award procedures: open, restricted and negotiated.

1 .O Summary of policy

The award procedure normally used in the NHS is the “restricted procedure”. The “negotiated procedure” should only be used in exceptional circumstances as specified in the regulations, and this may include schemes involving the Private Finance initiative (paragraph 6.10).

Specification practices should not discriminate against potential suppliers from other EC countries. In cases of items specified which cannot be described in terms of a European standard, the words “or equivalent” must be used to accompany the description of that item (paragraph 6.12).

The Commission feels strongly that notices placed in the Official Journal should not contain statements or requirements which it holds to be discriminatory to potential tenderers from other EC member states. It is Government policy that notices must not contain such statements (paragraph 6.13).

NHS bodies should normally specify that a contract will be awarded on the basis of the most economically advantageous offer rather than the lowest price. This is consistent with the need to obtain value for money (paragraph 6.14).

The public procurement regulations require that NH5 bodies provide the Department with reports on contracts awarded under the regulations (paragraph 6.17).

The public procurement regulations require that NHS bodies must, within 15 days of receipt of a request from any contractor whose tender has been treated as ineligible or has been rejected, inform the contractor of the reasons for the decision. NHS bodies must therefore prepare a record in relation to each contract or commission awarded by it under the terms of the regulations (paragraph 6.19).

Chapter 9: Miscellaneous

All building contracts must contain a requirement that the contractor will use best endeavours to prevent the progress of the works being delayed (paragraph 9.2).

NHS bodies must observe the guidance given in HC(89)20 - ‘Preservation, retention and destruction of records - responsibilities of health authorities under the Public Records Acts’ (paragraph 9.4).

NHS bodies must promote quality assurance in design and construction as a means of achieving better value for money (paragraph 9.12).

7

2.0 Contract strategy and management

Introduction

2.1 The Secretary of State for Health, in accordance with the NHS Act 1977 as amended by the Health Services Act 1980 and the NHS and Community Care Act 1990, has directed NHS bodies to exercise the functions in respect of building and engineering contracts subject to such lrmitations as may be specified. Therefore, NHS bodies act as principals in building and engineering contracts. As these contracts are almost wholly financed from public funds voted by Parliament, NHS bodies have not only a duty to secure best value for money but, as they are acting on behalf of the Secretary of State, they must comply with Government policy in contractual matters.

2.2 NHS bodies must secure suitable professional advice either from in-house resources or by employing professional consultants, in order to carry out their responsibilities properly.

Project directors/project managers

2.3 The ‘Project organisation’ section of CIM requires that:

a. project directors must be appointed for all schemes. These will normally be officers of the NHS body;

b. project managers must be appointed for all major schemes. For smaller or less complex schemes, project management duties can be carried out by another discipline.

2.4 The vesting of responsibility for scheme management in an individual project manager is a CIM recommendation and the activities of project directors are referred to in the ‘Agreement for the appointment of project managers for commissions for construction projects in the National Health Service’.

Contract strategy

2.5 A contract strategy is primarily concerned with how design aspects are related to construction; who bears the design risk and controls the design detail; in other words, how complete the design should be prior to the

commencement of construction. These strategy decisions affect the project timescale, the organisation and management of resources, the cost risk to the client and hence the requirement for financial approval.

2.6 Selection of the contract strategy is one of the most important decisions in the management of a project. It will influence the design strategy, employment of consultants and the project management requirements, and profoundly influence the timescale and ultimate cost of the project. It has been estimated by HM Treasury’s Central Unit on Purchasing (CUP) that the strategy can influence the overall project cost by between 10% and 15%. CUP have also produced a guide to contract strategy selectron for major projects (CUP Guidance Note number 36).

2.7 All contracting strategies represent a balance between cost, trme and quality. These are the major risks in every project. Project objectrves will determine the contract strategy. The risks of the objectives not being met in usrng a particular strategy must be evaluated. Although there may be a wide variety of rusks involved, only a few will have major effect. It is on these that risk allocation and management should concentrate. The contract type - as opposed to strategy - is concerned with the allocation of risk within the contract and the method of calculating payment.

2.8 As well as considering the overall method of contracting, NHS bodies should consider the resources which will be needed for the procurement method and the availability of those resources within the organisation.

2.9 Clearly the ideal from a cost control viewpoint is to obtain competitive tenders on a fixed price lump sum basis. But to do so, the scope of the work and all the specifications and quality standards have to be fully defined. This takes a considerable time. Changes to a contract which has already been awarded are possrble but they may be disruptive to the contractor’s planned programme and therefore lead to the possibility of contractual claims.

2.10 Overlapping design and construction also introduces risk; risk of aborted or Inadequate design and, in some methods, cost risk. On the other hand, this technique can significantly reduce overall project duration and allows a greater degree of flexibility to finalise design at a later stage in the project.

2.0 Contract strategy and management

Selecting a contract strategy and

assessing risk

2.11 During the preparation of the outline and full business case submission, the key factors in considering the contract strategy are:

a. In-house resource availability;

b. project size and complexity;

c. importance of timescale and possible phased completion requirements;

d. importance and availability of information about the requirements of the scheme and its quality;

e. availability of funding;

f. availability of standard design or components

2.12 A full assessment must be made of the constraints, requirements and objectives of a scheme so that the optimum contract strategy can be adopted. This assessment must be summarised in the outline and full business case submission and the preferred contract strategy stated.

Further guidance on contract strategies

2.13 Detailed guidance on different contract strategies can be found in “Guide to contract strategies for constructron projects in the NHS”.

9

3.0 Selection of consultants and contractors

Introduction

3.1 The selection of the most suitable consultant or contractor is an Important part of the process of procuring a building and if the wrong decision is made, the results can detrimentally affect the proposed building contract. Departmental policres have been developed in an attempt to ensure that all necessary precautions are taken to avoid unsuitable consultants or contractors being selected while complying with Government policy on competition.

Selective competitive tendering the

norm

3.2 The usual practice in the NHS is that building and engineering commissions and contracts must be awarded following competition based on selective competitive tendering.

3.3 Competitive fee bids generally must be obtained from three or more firms of consultants or contractors. However, in exceptional circumstances or for works of low value, consultants’ fees may be negotiated unless NHS bodies decide to seek competitive offers.

3.4 NHS bodies should take the decision on the selection of firms to tender on the recommendation of their professional officers and consultants. EC requirements must be met where applicable, but at least three genuine tenders must be received to ensure a competition to establish the best market price for the work. If three genuine tenders have not been received, the contract must be re-tendered.

3.5 NHS bodies should not charge consultants or contractors for inclusion on tender lists. They also should not charge for tender documents when using selective competitive tendering.

3.6 NHS bodies’ standing orders usually contain the basic requirements with regard to the issue and receipt of fee bids and tenders. The following paragraphs are intended as a more comprehensive guide incorporating comment on Government policy where appropriate.

Appraisal of tenderers (contractors and

consultants)

3.7 NHS bodies must manage every aspect of the building process so as to give protection to public funds in accordance with the requirements of the Public Accounts Committee of the House of Commons.

3.8 NHS bodies must complete a financial and technical check of all firms being considered for inclusion on tender lists for the supply of goods and services for building and engineering works. The objective is to ensure that, as far as possible, tenders will only be awarded to firms of proven competence and financial stability.

3.9 Investigations of financial and technical competence are time-consuming. The procedures should, therefore, permit some flexibility so that the degree of attention devoted to them can be related to the size and importance of the intended contract, or, in the case of firms proposing for nomination as sub-contractors or suppliers, the effect that failure might have on the main contract. The cost and time devoted to such enquiries are justified if they prevent greater cost and failure during the contract period. NHS bodies should consider where the likely balance of these two factors Ires.

3.10 At times when tendering is particularly competitive there is a danger that some consultants may submit tenders which cast doubt on their abrlity to perform effectively. Particular care should be taken in the briefing of consultants and award of contracts and commissrons to ensure that the required quality of services can be maintained; it is also important that firms are fully appraised with regard to their suitability for the type and size of scheme concerned. In addition, thorough financial appraisal of firms invited to tender is essential.

Approved lists

3.11 As the financial and technical checking of firms for specific contracts can be time-consuming, an alternative method of selecting firms using approved lists was developed for use by NHS bodies. However, it is important to note that for schemes to which a European Community (EC) directive applies, a firm need not be on an approved list. For example, for a building or engineering scheme of an estimated value, above the EC Works Directive threshold value, it is compulsory, except in specific

10


circumstances, to select tenderers from contractors throughout the EC by means of a contracts notice placed in the supplement to the Official Journal of the European Communities. Firms responding who are not already on approved lists are required to meet similar standards of financial standing and technical competence as part of their being considered in the selection process. If insufficient firms respond to the notice, firms who are on an approved list, who may not have responded to the advertisement, may be approached to ensure that the number for invitation to tender provides adequate competition.

3.12 NHS bodies must update established approved lists to take account of suitability and known performance. Lists must be reviewed at intervals of not more than five years. NHS bodies must not charge firms for processing applications for inclusion on lists. The Local Government Act 1988 precludes local authorities from charging as a condition of inclusion or continued inclusion on their approved lists. Although the NHS IS not specially mentioned in the Act, NHS bodies are required to comply with this provision.

Consortium (or joint venture) tendering

3.13 Where NHS bodies require a service (professional or contractor), it should be noted that if the service is to be provided by a consortia, each member must be acceptable to the NHS body.

l NHS bodies need to ensure that the consortium is sufficiently integrated legally so that its constituent partners remain jointly and severally responsible for completing the scheme whatever may happen to any one constituent partner.

l When considering the appointment of a consortium to provide professional services, NHS bodies should consider the need for independent advice from disciplines such as the project manager and the quantity surveyor.

l NHS bodies must ensure that adequate arrangements are made for professional indemnity insurance.

Exchange of information

3.14 In order to provide a safeguard against ineffective expenditure on public funds, NHS Estates acts on behalf of the Department as a reference point for the exchange of details of firms of contractors or consultants who may not be able, for one reason or another, to properly fulfil their role in an NHS contract or commission. Should NHS bodies obtain information about contractors or consultants in respect of their financial stability or technical competence which might affect other NHS schemes, they should write

to NHS Estates under the classification “restricted - commercial”. Where appropriate, this Information will then be put at the disposal of other NHS bodies.

3.15 Similarly, NHS Estates, on behalf of the Department, will also provide “restricted - commercial” warnings to NHS bodies where it may be desirable to treat particular firms with especial care. NHS bodies will also be informed of firms with whom the Government has decided it would be undesirable to place public contracts or commissrons.

Civil liability and criminal offences

3.16 NHS bodies must only deal with firms in whose integrity they can place full confidence. From time to time, firms or individuals who are, or have been, involved in Government contracts are convicted of criminal offences or have incurred liability in civil cases which are sufficiently serious as to cast doubt on their integrity. It would be inappropriate to invite such firms to tender for work.

3.17 Where NHS bodies learn that a firm is under police investigation or is likely to be prosecuted for a serious offence, they must consider the risk of dealing with that firm, and also whether a confidential warning should be sent to the Department through NHS Estates. Similarly, if action against an individual is contemplated, the position of firms with which that person is connected must be considered. If a convrction of a firm or an indivrdual occurs, NHS bodies must advise the Department through NHS Estates of the circumstances. NHS Estates will take action to ensure that other NHS bodies are made aware of the facts. NHS Estates issues lists on behalf of the Department from time to time, indicating the status of firms about which there are doubts as to their integrity.

Standards of conduct

3.18 Ethical standards of conduct must be maintained by NHS bodies during the procurement process. The expenditure of public funds is subject to particular scrutiny and although the drive for improved value for money is a major aim, this must not compromise standards of conduct. Some issues which may arise in this sense are:

conflict of interest; for example a personal interest in a company with which an NHS body intends to do business;

receipt of gifts or hospitality - anything other than inexpensive gifts or modest hospitalrty could be misinterpreted and must be avoided;

confidentiality - commercial information must be kept confidential to avoid accusations of bias or unfairness;

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l fair dealing - relationships with suppliers should be honest, farr and even-handed.

3.19 Further guidance should be contained in NHS bodies’ own standing orders.

Audit role

3.20 Financial directions issued by the Department of Health require that NHS bodies must maintain proper financial control, including carrying out internal checks to safeguard resources and must provide an internal audit function. NHS bodies will also be the subject of scrutiny by the National Audit Office.

Tendering procedures

National Joint Consultative Committee for Building

3.21 The National Joint Consultatrve Committee for Building (NJCC) has published a number of codes of procedure for different forms of tendering. These include:

l Two-stage selective tendering (1994);

l Selective Tendering for Design and Build (1985);

l Single-Stage Selective Tendering (1994);

l Management Contracting (1991).

3.22 The objective of the selection procedures advocated by the NJCC is to enable the final choice of contractor to be simple and allow the firm offering the lowest acceptable tender to be chosen with a mrnimum of further enquiry. The Department supports the principles set out in the NJCC codes of tendering procedures and requires that NHS bodies comply with the principles therein. However, care must be taken to ensure that any action in the tendering procedure does not contravene the requirements of the EC directives (or the appropriate regulations where they have been enacted into UK law).

Single tender action

3.23 Single tender action is justified only where there is no choice of contractor or in special circumstances. Some examples include:

l contracts involving a public utility;

l equipment which needs to be compatible with that already installed;

l equipment which can only be serviced by one person or firm;

l cases of great urgency such as storm or fire damage or breakdown of vital equipment.

3.24 Single tenders must be checked to establish, as far as possible, that value for money can be achieved.

Negotiated contracts

3.25 NHS bodies may negotiate with a single contractor in exceptional circumstances. Negotiatrons may be conducted wrth a firm which is already carrying out (or has recently completed) similar work for the NHS body. Examples are where:

l there is a need for further work of a srmilar nature to that already being executed and normally on the same or a closely adjoining site;

l there IS a need for alterations during the defects IlabilIty period to the works executed in the original contract whrch it is important should be carned out by the same contractor. This safeguards the NHS bodres’ rights with regard to defects in the works.

3.26 The aim should be to arrive at a tender sum no higher than that which would have been achieved In competrtion. The sum should be obtained by negotiation and be based, as far as possible, on the prices established in competition for the earlier contract. The contract for the new work should not be of a disproportionately high value (as a general rule not more than 50%) in relation to the value of the initial contract.

3.27 Care should be taken not to infringe the requirements of any EC directives with particular reference to circumstances where negotiation is permitted and/or there is UK legrslation relating to competrtion for public works contracts.

Issue, receipt and evaluation of tenders

3.28 Before NHS bodies proceed to issue invitations to tender, completed certificates for the scheme rndicatrng I readiness to proceed to tender shall be obtained from:

a. each consultant employed on scheme;

b. the project director.

Examples of these forms are contained in Appendix 2

3.29 The final list of firms to be invited to tender must be drawn up from those responding favourably to a preliminary invrtation, or, for a scheme that has been advertised in the Official Journal of the European Communrties and where the restrrcted procedure is used, from those firms responding to the contract notice.

3.30 It is essential that each tender is based on identical tender documents that are clear and free from ambiguity to ensure that selective competitive tendering is fair and effective. Formal invrtatrons to tender should be issued to all those firms on the final list

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of tenderers, and the tender documents enclosed with the invitations should be complete and leave no doubt as to the conditrons and contractual requrrements that will apply NHS bodies must carry out value-for-money evaluations of all tenders. Technical expertise, qualrty of product or service and price should all be evaluated The best tender IS not always the lowest.

3.31 When selecting a final short-list of firms to be invited to tender, NHS bodies should note the following:

Number of firms

invited to tender

NJCC ‘Code of Procedure maxrmum 6 for Single-Stage Selective Tendering’ (paragraph 3.21)

NJCC ‘Code of Procedure prelrminary invitation - for Selective Tendering for 6-12 Design and Build’ final tender list - (paragraph 3.21) maximum 3 or 4

NJCC ‘Code of Procedure maximum of 8 for a Selection of a Management Contractor and Works Contractors’

Public Works Regulations, mrnrmum of 3 Public Services Contracts (where range stated Regulations mrnimum 5 maximum 20)

(where negotiated procedures require a prior call for competrtion a minimum of 3 is required)

3.32 Tender documentation should state that NHS bodies do not bind themselves to accept the lowest, or any, fee offer/tender.

3.33 All contract records should be numbered sequentially to discourage fraud and act as an aid to audit.

3.34 The use of a declaration to be signed by tenderers certifying that their tenders are bona fide competrtrve and are not the result of any restrictive or collusive practrces, was introduced in 1970. It IS Government policy to achieve true competition in tendering and therefore NHS bodies must require tenderers to provide such a declaration certifying that their tenders are bona fide competitive and are not the results of any restrictive or collusive practices. A sample declaration is included in Appendix 2.

3.35 Tenders received after the time and date specified in the formal invitation must be rejected unopened unless there are any unforeseen exceptional circumstances, for example if the tender

has a certificate of posting that demonstrates that adequate time was allowed for delivery and the tender was not delivered by the due date/time.

Notification of tender results/fee

competition

Contractors

3.36 Detailed guidance on thts can be found in ‘Contracts and commissrons for the NHS estate - contrac procedures’.

Consultants

3.37 Detailed gurdance on this can be found It- ‘Gurde to procedures for commissionrng building and engineering consultants’.

Post tender negotiation

3.38 Tender reductions may be achieved by reducrng the specrfrcatron, elimination of work from the project or seeking more efficient constructron methods. It must never be a dutch auction or just an attempt to beat down the price for a Job.

Letting the contract

3.39 NHS bodies must complete a certificate of readrness to award contract as requrred by CIM ‘Management of construction projects’, Stage 3 - a specimen copy can be found In Appendix 2.

3.40 A contractor whose tender is under consrderat/on for acceptance should be asked to review/confirm the statement of outline proposals to build and resource the scheme and provide any further InformatIon, for example details of insurance polrcres which were not available at the time the tender was submitted. Such a statement, at this stage, should be as complete as possible subJect only to possible changes In the list of sub-contractors, as this will depend upon circumstances prevailing at the time that orders are placed.

3.41 Prior to appointing the contractor, NHS bodies are recommended to:

l ensure that the prospective contractor does not object to any of the prospective nominated sub- contractors;

l ensure that the prospective contractor is able to agree provisionally an Integrated programme wrth all prospective nominated sub-contractors,

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l obtain assurances from the prospective contractor that goods from all prospectrve nominated suppliers can be obtained to suit the programme.

Letters of intent

3.42 Letters of Intent are used to create a binding contractual relatronship between parties where there is insufficient time to execute a formal contract or agreement. NHS bodies must always enter into a formal agreement prior to work commencing (see Chapter 4) so letters of intent may only be used In exceptional circumstances, for example for emergency work.

3.43 A letter should be sent to the successful tenderer notifyrng him of acceptance of his tender and statrng that he WIII shortly be sent the formal contract documents for execution. Notwrthstandrng the letter of acceptance, NHS bodies must ensure that the agreement/contract is signed before either authorisation to commence work on the design or the contractor is given possession of the site.

Attestation

3.44 There IS an optron for contracts to be executed as a simple contract (“under hand”) or as a deed. Under the law of contract, the period wrthin which an action for breach of contract may be brought IS limited to SIX years from the time of accrual of the cause of the action for contracts executed as a simple contract and 12 years for contracts executed as a “deed”. NHS bodies wishing to secure the fullest protection available under the law

of contract should arrange for the contract concerned to be executed as a deed (contracts over f 1 million in value should normally be executed as a “deed”, but It may be considered that a particular contract of lower value may also require this protectron)

3.45 In additron, NHS bodies should note that, under the terms of the Latent Damage Act 1986, the lrmitatron perrod for action for damages for negligence (except for personal injury) IS 15 years.

Named and nominated sub-contractors

and suppliers

3.46 Namrng, listrng and nominating sub-contractors and suppliers are alternative methods that are provided in various standard forms of contract. These enable the employer to appoint a particular sub-contractor or supplrer, or to require that the contractor selects a sub- contractor or supplier from a list of firms which the employer considers suitable. Nomination must be avoided except where the work is of a specialised nature or where design input is required to be provided by the sub-contractor or supplier, for example curtain walling.

for

3.47 NHS bodies should implement the provisions of the EC Works Contract Regulations with regard to the selection of sub-contractors and suppliers. To avoid discrimination, the words “or equivalent” must be added to any specifically named firm or any list of firms included in tender documentation.

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4.0 Conditions of contract

Introduction Racial discrimination

4.1 This chapter briefly explains the prrnciples of Government and Department of Health policy affecting standard conditions of contract. Where standard condrtions of contract, other than those produced by the Department, are used by the NHS, they WIII require amendment to comply with the policies outlined in this chaoter.

4.5 NH5 bodies are subject to the legislation on racial discrimination (including the penalties for contravention) and must remind contractors of the need to comply with the provisions of the Race Relations Act 1976 or any statutory modification or re-enactment thereof relating to discrimination in employment. The onus of complyrng with the requirements of the legislatron rests with the contractor.

Standard forms of contract Health, safety and welfare

4.2 The standardisation of the legal basis of building contracting is intended to ensure that the competition relates to the price for the works required, rather than the contractor’s assessment of the effect of contract provisions which have been rndivrdually prepared for a particular contract. The greater the degree of standardrsatron, the greater the likelrhood of good communrcation and understanding between all concerned with the design and construction of the building. In the NHS, standardisation gives common ground to officers of NHS bodies and the Department, as well as avoiding the confusion of national contractors being employed by a number of NHS bodies without a common basis of contract. NHS bodies should therefore use standard forms of contract wherever possible. Some amendments have to be made to the standard forms to adapt them to the requirements of Government and Departmental policy but these do not disturb the general mechanism and balance of the forms. Whenever an amendment is made, the intention to do so must be stated in the tender documents.

Feed back

4.3 Where NHS bodies believe, based on general experience in use, that amendments to the JCT standard forms of contract are necessary or desirable, they should notify NHS Estates so that consideration can be given to a central revision of the forms.

Mechanical and electrical (M&E) work

4.4 NHS bodies should ensure that the mechanical and electrical elements are fully specified and/or designed and co-ordinated with the rest of the specifications and/or design before proceeding to tender.

4.6 NHS bodies are subject to legislation on health, safety and welfare measures (including the penalties for contravention) and must remind contractors of the need to comply with all statutory duties while employed on a contract for them. Contractors should be reminded of their responsibilities in this respect, by the inclusion of a general statement on health, safety and welfare measures in the contract preliminaries.

4.7 The responsibility for complying with existing requirements and any new ones that may be Introduced should rest with the contractor. NHS bodies should not list particular Acts or Regulations nor the provrsrons thereof as this may result in the transfer of responsibilrty from the contractor to themselves.

4.8 Although demolition work IS subject to the provisions of the Health and Safety at Work etc Act 1974, firms invited to tender should be asked to confirm that they will observe the safety provisions of British Standard 6187:1982 ‘Code of practice for demolition’, or any equivalent European standards, where appropriate.

4.9 The Construction (Design and Management) Regulations (CDM) 1994 came into force on 3 1 March 1995. The objective of the Regulations is to raise the standard of health and safety management In the construction industry. NHS bodies are subject to the provisions of the CDM Regulatrons. See Appendix 3 for a copy of contracts guidance sheet 24 on this subject.

Data Protection Act 1984

4.10 NHS bodies are subject to the legislation on data protection (including the penalties for contravention) in respect of any confidential

15


personal or commercial data owned or held by them upon any medium. The onus of complying with the requirements of the legislation rests with the contractor. NHS bodies must ensure that contractors indemnify them against contravention of all legislation concerning data protection, principally the Data Protection Act 1984.

Specifications - proprietary articles

4.11 The specifying of proprietary articles in contract documents should be avoided in order not to deprive NHS bodies of the benefit of the resulting competition when the contractor is given a wider choice.

4.12 There may be occasrons when the desrgners hold a pre-tender selection process in order to establish a single named firm (who will in due course become a sub- contractor of a supplrer) whose installation or materials and goods are to be specified for inclusion into the works. The pre-tender selection process should involve the submission of quotations by selected firms to the NHS bodres to enable them to obtain the benefits of competition before naming a single firm for rncluslon in the contract documents. NHS bodies must include the words “or equivalent” where they name single firms.

4.13 Detailed guidance can be found in ‘Guide to the requirements of EC public procurement dlrectives’.

Value Added Tax

4.14 It IS important to note that as tender sums, contract sums and the sums payable under architects’/contract administrators’ certificates are exclusrve of Value Added Tax (VAT), the calculation and payment of VAT is between NHS bodies and contractors by agreement.

4.15 Tenders should always be Invited on the basrs of their being exclusive of VAT for which NHS bodies may become liable to pay contractors in respect of the works, and this should be made clear in the tender documents. NHS bodies are entitled to ask tenderers for an lndicatlon of the amount of VAT for which they may be liable Queries on VAT should be addressed to HM Customs and Excise.

Fluctuations

General

4.16 Fluctuations, in the context of tenders and contracts, may be defined as “those increases or decreases in labour and materials costs which occur after the date of tender but before the completron of the works and which,

in accordance with the conditions of contract, are paid to or allowed by the contractor”.

4.17 The followlng terms are used In connection with fluctuations:

a.

b

C.

4.18

price fluctuatrons contract -full fluctuations: fluctuations in labour and materials costs and In statutory contributions, levies and taxes;

firm price contract - limited fluctuations: fluctuations restricted to statutory contributions, levies and taxes;

fixed price contract - no fluctuations whatsoever.

The majority of the standard forms of contract contain alternative clauses regarding the provision for fluctuations. These also set out detailed rules for their calculation, so once the form of contract and the method of tendering have been selected, a decision IS required as to whether the sums tendered are to be full fluctuations, limited fluctuations or fixed price basis. Contractors are generally unwilling to submit tenders on a fixed price basis except for minor works of a very short duration. The choice left for NHS bodies is to opt for either full fluctuations or limited fluctuations and this choice is influenced by Government policy.

4.19 Government policy strongly favours the minimum of subsequent price adjustments to tender prices. However, It is accepted that it IS not reasonable to burden contractors with the risks arising from the uncertainty of forecasting changes in costs in inflationary condrtlons over long periods of time, and that they will protect themselves by quoting higher tender prices. Public sector contracts may therefore be let on a full fluctuations basis where the contract has an estimated duration exceeding two years. Only in very exceptional circumstances should a contract be let on a full fluctuations basis where the duration does not exceed two years - a satisfactory explanation of such a proposal must be included in the outline and full business case submission. The exception to this rule is “term contracts” whrch may be let for a period of one to five years, and are normally used for work of a maintenance or minor capital nature where methods of price indexing, usually on an annual basis, are written into the contract conditions.

4.20 The Government has given an undertaking to the construction industry that contracts tendered on a fixed price/limited fluctuations basis will be:

a. thoroughly pre-planned to the level dictated by the procurement method;

b. of a duration not exceeding two years;

c. free from any undue delay in accepting tenders, making the site available or, where applicable, nominating sub-contractors or suppliers;

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d. subject to the minimum of changes during the construction stage.

4.21 If NHS bodies are able to obtain limrted fluctuations tenders for contracts whose duration exceeds two years, they may do so provrded they are satisfied that value for money is marntained. NHS bodies should note in this respect that the longer the period “is fixed” the more likely It is that the contractor will submit an Inflated price to cover the risks to be taken, particularly in times of uncertarnty. It is therefore important to check that value for money IS being obtained.

Methods of calculating fluctuations

4.22 Some standard forms of contract provide for alternative methods of calculating full fluctuations. These

a. the tradltronal method based on the actual hours worked and materials used (this method of adjusting fluctuations is not recommended for use);

b. the formula method in which fluctuatrons are calculated by reference to published indices (this method IS most commonly selected by NHS bodies where it is available in the standard form of contract);

C. the negotratron method, in whrch, after a specified period of time, NHS bodies negotiate a revision in any rates and prices with contractors. This method has limited application and is used in term contracts where there is no suitable index for the work in question.

4.23 When adopting the formula method for the calculation of fluctuations under the Joint Contracts Tribunal Standard Form of Building Contract (1980 edition), the appendix must be completed in respect of the percentage addition and the non-adjustable element to comply with Government policy as follows:

a. percentage addition - the percentage addition for use with clause 38.7 must be “Nil” and that for use with clause 39.8 must be up to 15% only. NHS bodies may insert a lower figure if they consider it appropriate. The contract bills must state (at tender stage) how this item in the appendix will be completed;

b. non-adjustable element -the non-adjustable element must be 10%.

4.24 For further details of the formula method for the calculatron of fluctuations involving the above, NHS bodies are referred to ‘Consolidated Main Contract Formula Rules’ dated October 1987 published by the Joint Contracts Tribunal.

Financial safeguards

Performance bonds/parent company guarantees

4.25 Parent company guarantees and performance bonds should not be used, except in exceptional circumstances, as a means of safeguarding the client from the results of a contractor failing. Examples of exceptional circumstances could be where:

l the contract period is long;

l the contract value is high;

l there are a number of major contractors involved interacting on each other.

4.26 NH5 bodies must not use “on demand” performance bonds. Appendix 3 contains further guidance on performance bonds and parent company guarantees.

Prompt settlement of accounts

4.27 NH5 bodies must ensure that accounts for construction work are paid promptly within any time limits set by the conditions of the contract and should not normally exceed 30 days. Failure to meet such time limits is a breach of contract and could involve additional costs. All contracts contain a clause requiring main contractors to pay their sub- contractors and suppliers within 30 days of receipt of accounts.

Loss/expense claims and settlements of

disputes

General

4.28 NH5 bodies must manage building contracts so that as far as possible situations are avoided which give rise to claims for additional payments to contractors. CIM is aimed at facilitating this. However, claims for addrtronal payment by contractors will be encountered from time to time caused, perhaps by:

l late delivery of design information to the contractor;

l variations to the works;

l changes in statutory requirements.

4.29 NHS bodies must seek an explanation for claims for additional payment. Reports from the project manager may point to action against the consultants if the claims are due to some failure in design or inspection for which they are responsible. NHS bodies should facilitate improvement to procedures or their application if claims have arisen from changes to the client’s requirements which could have been handled differently.

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4.30 Once the firm or person appointed to carry out adminrstratron duties under the terms of the contract (the contract admrnistrator) has included a claim in a certificate, NHS bodies are under a contractual obligation to pay within the period specified In the form of contract. Auditing and financial arrangements should be arranged to meet that contractual obligation. The project manager must be aware of the circumstances of any claim and take any required action.

Contractual payments

4.31 NHS bodies, as parties to contracts, are empowered to accept for settlement;

l any claim included in an interim certificate issued by the contract administrator appointed by the NHS body;

l any award by an arbitrator appointed under the contract;

l any award by the Commercial Court

Extra-contractual matters

4.32 In certain circumstances an NHS body (with the benefit of appropriate professional advice) and a contractor may agree to settle claims for loss and expense “by agreement”, there being no substantiating information available in respect of such sums. Examples of such matters are:

l ex-gratla payments. This may cover matters that anse because of difficult circumstances or because the NHS body has not fully met the conclusions set out when the tender was invited;

l commercial settlements. This occurs where during the preparation of a case for hearing by an arbitrator or court, one of the partres offers to settle out of court, usually for a sum between that ascertained and certified on behalf of the NHS body and that being claimed by the contractor.

4.33 Such settlements are beneficial to both sides In the settlement of disputes, as they avoid the certainty of heavy additional expenses in preparing and progressing cases for arbitration or court proceedings as well as the uncertainty of how the eventual decision will go and the possibility that the party favoured by the decision may still be left with a heavy burden of additional costs (especially legal costs) Such claims fall outside the contract administrator’s responsibility and must therefore be dealt with by the project drrector on behalf of NHS bodies, although advice may be sought from the contract administrator.

4.34 Commercial settlements and ex-gratia payments are extra-contractual payments. Any such payments are dealt with under the procedure under which NHS bodies have limited powers of write-off.

The financial limit delegated to NHS bodies for this procedure is f 5000 (see EL(90)P62 Appendix 5).

Interim ascertainments

4.35 The financing of large sums in respect of loss and/ or expense can be a very costly undertaking for a claimant and for this reason it IS important that the architect/ contract administrator or quantity surveyor makes his ascertainment with the minimum of delay so that payment can be made.

4.36 Where it is clear beyond doubt that some payment in respect of loss and/or expense is due to a claimant, an interim ascertainment in respect of all or part of such amount should be made and payment certified even though final determination of the claimant’s full entitlement is not possible at the time. Each case must be appraised on its merits and the contract administrator or quantity surveyor must take into account the risks involved and weigh them against the likely benefits before deciding the course of action.

Failure by architect/contract administrator and contractor to reach a settlement - arbitration or litigation

4.37 Where the contractor is not prepared to accept the contract administrator’s or quantity surveyor’s ascertainment of loss and/or expense and is unable to reach agreement with the employer, he may consider going to arbitration under the terms of the contract. In these circumstances, It is extremely important for contract administrators to keep NHS bodres fully informed of developments as they occur. Wherever feasible, the NHS body and contractor should aim to settle all outstanding differences without recourse to arbitration or litigation. The forms of contract provide for arbitration in the event of a dispute and where the disagreement is concerned mainly with technical matters, the parties should confine themselves to this remedy. Where, however, a dispute hinges on a point of law or the interpretation of the wording in a contract, It will be necessary to seek judicial clarification. This may be either by the arbitrator referring the particular point in question to the court for a ruling or by takrng the entire dispute to the court in the first place providing both parties to the contract agree.

4.38 As soon as NHS bodies learn that there is the prospect of arbitration or litigation, they must become actively involved, through the project director, with advice from the project manager. These proceedings can easily become protracted, consume a lot of resources and lead to heavy outgoings in payments to professional consultants and in various legal expenses. NHS bodies should try to minimise this additional expense by reaching as favourable a settlement

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as can be obtained in the interest of saving public money whrle allowing contractors their due where there IS a justifiable case.

Liquidated and ascertained damages

4.39 Most standard forms of contract contain provrsions that enable the employer to recover “liquidated and ascertained damages” in the event that the contractor does not complete the works by the completion date. “Liquidated and ascertained damages” can be described briefly as sums of money usually inserted in the appendix to the contract as being a genuine pre-estimate of the antrcrpated cost to the employer of the contractor’s delay.

4.40 The form of contract being used will specify the procedures to be followed both to permrt the NHS body to deduct liquidated and ascertained damages and to set out the methods of recovery of the sums due to him. For example, the JCT Standard Form of Burldtng Contract 1980 Edition states that the contract adminrstrator must issue a certificate of failure to complete the works prior to any deduction from sums due to, or recovery of amounts from, the contractor.

4.41 NHS bodies must pursue the recovery of liquidated and ascertained damages and, in cases of difficulty or uncertainty, take legal advice.

4.42 NHS bodies should be aware that if contractual provisions require the contract administrator to fix a new completion date for the contract before the exrstrng completron date has passed, and these provisions are not followed, recovery of liquidated and ascertained damages will not be possible. In these crrcumstances the contract becomes “at large” and NHS bodies must then pursue any recovery of unliquidated and ascertained damages for breach of contract through the courts.

Planning legislation, building

regulation and codes of practice

4.43 Under the provisions of the NHS and Community Care Act 1990, Crown immunity was withdrawn from the NHS on 1 April 1991. As a result, NHS bodies must now comply with the procedural requirements of planning legislation and building regulations.

Construction Industry Tax Deduction

Scheme

4.44 The current tax deduction scheme for the construction industry is governed by the Finance Act 1975 and the Income Tax (Sub-Contractor in the Construction

Industry) Regulations 1975. NHS bodies should observe the spirit of the Act, although they are not legally bound by it.

4.45 If they so decide, NHS bodies must ensure that all firms employed by them either produce a valrd tax certificate or provide reasons for not holding one. If a firm does not hold a valid tax certificate, NHS bodres should make the appropriate tax deduction from the labour element of any payment made to that firm in respect of a “construction operation”.

4.46 Records must be kept of tax certificates held by, and all payments made to, each firm, whether certified or not. An annual return must also be made to the Inland Revenue.

4.47 Detailed guidance concernrng the checking of tax certificates, procedures and record keeping is contained in two Inland Revenue publrcations:

a. ‘Construction Industry Tax Deduction Scheme’;

b. ‘Contractors’ Checking Guide’.

Works insurance

General

4.48 There IS a Government and Departmental policy which affects the Insurance of the works and this must be incorporated wrthtn the standard forms of contract. This section deals with the general principles of this policy. Insurance arrangements for NHS bodies will depend on individual circumstances.

4.49 In respect of works insurances, the followrng two situations arise withtn the NHS:

a. where the Crown carries the risk of loss or damage to completed Government-owned buildings,

b. where the responsibilrty for the estate has been transferred to an NHS trust In this case, the NHS trust must judge whether risks can be satrsfactorrly covered from their own resources or by taking out commercial insurance.

4.50 NHS bodies must assess the risks to which they will be subject and select the appropriate insurance arrangements to provide them with the protection they require.

New buildings

4.51 Where an NHS body IS constructing a new burldrng, the contractor is required to take out Insurance in respect of a variety of liabilities in connectron with the works. The contractor will normally take out a joint names policy for

19


the works in the names of the NHS body and the contractor.

Existing buildings

4.52 Where an NHS body IS extending, refurbrshing or otherwrse carrying out construction work involving existing burldrngs, the NHS body WIII either have to take out a jornt names polrcy for the works or adopt a polrcy of self- insurance.

Evidence of insurance carried

4.53 NHS bodies should check at tender stage that the contractor IS adequately insured by means of a certificate provided by the contractor’s Insurer Checks should be carried out penodically to ensure that Insurance IS maintained for the duration of the contract period. An alternative to contractor’s lrabilrty Insurance IS contract- specific Insurance. This need only be checked once (at tender stage) and usually provides protectron both during constructron and after. If considered necessary, advice should be sought from an Insurance expert

4.54 More detailed Information on insurance is contained in EL(90)195 dated 2 October 1990 (Insurance Arrangements from April 1991).

Transfer of contracts for works or

services between NHS bodies

4.55 An NHS body rnvolved In the transfer of property, rights and lrabrlrtres to another NHS body may need to assrgn to them current contracts for caprtal works and agreements with works consultants.

Existing contracts

4.56 For contracts/agreements already entered into between an NHS body and contractor/consultant prior to the operatronal date on which the NHS body to which the contract/agreement IS being assigned comes Into being, It is considered that the National Health Service and Community Care Act 1990 (Part 1, Section 8) provides for transfer to take place without the consent of the third party (that is, the contractor or consultant). The contract/

agreement concerned should be included In the written agreement between the NHS bodres which Identifies the property, rights and liabilities which are to transfer.

New contracts

4.57 For all new contracts/agreements, the contract/ agreement must provide for possrble future transfer without the consent of the contractor/consultant.

4.58 Where the JCT Standard Form of Building Contract (1980 Edition) IS used, the following addition should be made at the end of clause 19.1.1: assignment and sub- contracts;

“However, the Contractor’s consent shall not be required to the assignment of this Contract by the Employer to another NHS body”.

A similar addition will be required for other contract forms In the JCT series.

4.59 The assignment clauses In the ‘Agreement for the appointment of archrtects, surveyors and engineers for commissrons in the National Health Service’ and the ‘Agreement for the appointment of project managers for commissions for construction projects In the National Health Service’ provide for the assignment of these agreements without the consent of the consultants.

Notification

4.60 Where a contract/agreement is transferred, the contractor or consultant must be notified.

Latent defects in buildings transferred

to NHS trusts

4.61 The Latent Damage Act 1986 extended the limitation period for action for damages for negligence (except for personal Injury) to an absolute long stop period of 15 years It is therefore important, when buildings that are less than 15 years old are transferred from a health authority to a trust, that the parties rnvolved agree who will be responsible for seeking redress if a defect arises.

20

5.0 Consultant commissions

Introduction

5.1 This chapter briefly explains how Government and Departmental policy affects the commissioning of consultants for health building schemes

Standard forms of agreement

5.2 Consultants must be appointed under the terms of a formal agreement and to thus end NHS Estates has publlshed two standard forms of appointment for the commissioning of professional consultants:

a. ‘Agreement for the appointment of architects, surveyors and engineers for commissions in the National Health Service’ (1995 edition);

b. ‘Agreement for the appointment of project managers for commissions for construction projects in the Natronal Health Service’ (1995 edition).

5.3 Both agreements are compatrble with current Departmental caprtal building procedures

5.4 The agreements fully comply with current policy and have been prepared in conjunction with the relevant professional bodies. Their use is recommended in all cases, with unamended conditions of engagement. Where amendments are essential, they must be based on competent professional advice, particularly when the balance of risk is being considerably changed or fixed lump sum bids are invited for commissions of long duration.

5.5 Consultants not included In standard forms prepared for NHS use (for example landscape architects) may be commrssroned using the standard form of appointment published by that consultant’s professlonal body, surtably amended to take account of Government and Departmental policy.

Feed back

5.6 Where NHS bodies believe, based on general experience in use, that amendments to the standard forms of appointment for commissioning consultants are necessary or desirable, they should notify NHS Estates so that consrderation can be given to a central revision of the forms.

Certificates

5.7 Under the standard forms of agreement, consultants appointed by NHS bodies must, at the appropriate time, complete desrgn/construction certificates and certificates indicating that the scheme is ready to proceed to tender.

Value Added Tax

5.8 Under the Finance Act 1972, a consultant IS required to account to HM Customs and Excise for VAT at the standard rate on the total amount of his fees, disbursements and out-of-pocket expenses payable under the terms of his commission.

5.9 In all cases where works attract VAT, the VAT- exclusive works costs should be used as the basis of calculation of a consultant’s fee. VAT is then payable on the total fee so calculated.

5.10 NHS bodies should ensure that VAT claimed on expenses by consultants properly complies with the rules for calculating VAT. NHS bodies can claim back VAT on fees. Queries on VAT should be addressed to HM Customs & Excise

Prompt payment of accounts

5.11 NH5 bodies must ensure that fee accounts are paid promptly within any time limits set by the conditions of engagement and should not normally exceed 30 days. Failure to meet such time limits is a breach of contract and could involve additional costs. All conditions of engagement must contain a clause requiring consultants to pay any sub-contractors and suppliers within 30 days of receipt of accounts.

Settlement of disputes

5.12 The Department’s two standard agreements contain three provrsions for the settlement of disputes: “adjudications”, “arbrtratron” and “by agreement”. This means that the methods available for settlement of disputes with consultants are similar to those for settlement of claims with contractors, and the principles and procedures outlined previously apply equally to consultants.

21


Professional indemnity insurance

5.13 It is Government policy that NHS bodies must ensure that adequate and economical arrangements are made for insurance against professional negligence. As a result, consultants are required (as a condition precedent to appointment) to be adequately insured against enforceable claims which might result from the work undertaken by them by virtue of their appointments. This insurance must cover all claims arising as a direct result of any negligent act, error or omission in the conduct and execution of their professional activities. Professional indemnity insurance is required to be maintained for the period during which defects are most likely to occur irrespective of whether the contract is executed as a simple contract (under hand) or as a deed formally (under seal). Government policy requires professional indemnity insurance to be maintained for a minimum period of six years from the date of completion of the commission.

Amount of insurance cover

5.14 Consultants are required to carry the following amounts of professional indemnity insurance:

a. architects, engineers, project managers and other construction consultants: these consultants must carry insurance providing cover to meet each and every claim of not less than twice the annual gross fee income earned on UK commissions, except that the level of insurance must be sufficient to meet a minimum claim f250,OOO for each and every claim. An upper limit of f 5,000,OOO for each and every claim is acceptable in most cases;

b. quantity surveyors: quantity surveyors must carry insurance providing sufficient cover to meet each and every claim of not less than f250,OOO where the annual gross fee income of a practice exceeds f 100,000. Where the income falls below this figure, a consultant must provide a minimum insurance cover of f 100.000.

5.15 If one consultant is to be responsible for the duties of more than one discipline, or a group of consultants are appointed jointly, NHS bodies must establish that the overall level of insurance is adequate for the services being provided.

Additional insurance

5.16 Where, in exceptional circumstances, it is considered that the general provision above would not provide sufficient cover (that IS, considering the size of the contract, the complexity of design, or the degree of innovation involved), the consultant should be required to take out a higher level of cover for a particular contract. If,

in the case of a large contract, it is solely the size or scale of a scheme that creates the higher amount of risk, the commensurate fee should be sufficient to allow for any necessary extension of the consultant’s insurance.

Small practices

5.17 For small practrces, or firms doing low risk work such as surveys and reports, it may be unreasonable in some cases to insist on the level of insurance normally needed for public sector work. It might be appropriate to seek Insurance on a job-specific basis or at an overall level relative to the size and/or complexity of a scheme taking account of.

a. other public sector schemes in which the practice is involved; and

b. the estimated fee value

Similar action could also be considered where a larger firm’s involvement in public sector work represented only a small proportron of its total workload, and It would be unreasonable for the normal level of insurance for public sector work to apply to the whole practice.

Evidence of insurance carried

5.18 Evidence that consultants are adequately insured must be by means of a certificate (see examples contained in Appendix 2) provided by the insurer. This signifies that the insured firm carries professional indemnity insurance which provides the required cover. Where appointments are made from an approved list, the requirement to carry adequate indemnity insurance should be a condition precedent to inclusion in that list.

Contractor’s design liability - Design and build contract5

5.19 Where the contractor has the responsibility for both the design and the construction of the project, NHS bodies should adopt a procedure similar to that used with regard to professional consultants’ insurance. Professional indemnity insurance must be maintained for the period during which defects are most likely to occur and NHS bodies must therefore ensure that professional indemnity insurance is maintained by the contractor for a minimum period of six years from the date the contract is completed. Should it be found that the contractor does not carry insurance covering liability for design work, the firm’s suitability for the award of a “design and build” contract should be reconsidered.

22


Health, safety and welfare

5.20 The Construction (Design and Management) Regulations 1994 came into force on the 31 March 1995. The objectives of the Regulations is to raise the standard of health and safety in the construction industry. NHS bodies are subject to the provision of the Regulations. See Appendix 3 for a copy of contracts guidance sheet 24 on this subject.

23

6.0 Requirements of European Community directives

Introduction

6.1 The European Commission, as part of the programme of legrslation aimed at creating the single European market, has issued, and will continue to issue, a large number of directives, many of which affect the constructron industry and the field of public procurement.

6.2 Detailed gurdance on those having particular relevance to building procurement can be found In ‘Guide to the requirements of EC public procurement directives’.

6.3 It is Government policy that NHS bodies must comply with the requirements of the directives which apply to their activities.

6.4 A central theme of the public procurement regulatrons is the encouragement of member states and their NHS bodies to make their procedures for the selection of tenders and award of contracts as transparent as possible and thus free from any possible accusation of drscrimination. Properly applied, the directive should open up the field of public procurement to competrtion from contractors/consultants In other member states with the potential of improving value for money for NHS bodies as a result.

Directives governing public

procurement

6.5 Three of the main public procurement dlrectives have been enacted into UK law by means of regulations; the Public Works Contracts Regulations 1991, the Public Supply Contracts Regulations 1991 and the Public Services Contract Regulations 1993.

6.6 Failure to comply with the requirements of the regulations could leave an NHS body liable to court action.

6.7 Each category has a threshold value above which the directive applies and every two years the European Commlssion revalues the ECU against sterling for the Procurement Directive thresholds:

Sterling equivalent ECU

Works Contracts (93/37 EEC)

Services Contracts (92/50 EEC)

Supplies Contracts (77/62 EEC)

f 3,743,203 5,000,000

f 149,728 200,000

f96,403 130,000

6.8 The sterling values are frxed until 31 December 95 and will be reviewed after this date.

6.9 The value relates to each separate contract or commisslon and is exclusive of VAT.

6.10 There are three alternative contract award procedures: open, restricted and negotiated. The award procedure normally used in the NHS is the “restricted procedure”. The “negotiated procedure” should only be used in exceptional circumstances as specified in the regulations, and this may include schemes involving the Private Finance Initiative. The regulations contain model contract notices for each procedure as well as details of time lrmits for potential contractors to respond to contract notices.

6.11 Technical specifications must be included in the contract documents for the purpose of inviting a tender. These specifications must use an order of preference when referring to national or International standards. Where European standards (or European technical approvals and common technical specifications) exist they must be used. If they do not exist, UK national standards, which are recognised as complying wrth European standards or technical approvals/specifications, must be used. Only when neither of the above is available can ordinary UK national standards, UK technical approvals or any other standards be used.

6.12 Specification practices should not discriminate against potential suppliers from other EC countries. In cases of items specified which cannot be described in terms of a European standard, the words “or equivalent” must be used to accompany the description of that item.

24

6.0 Requirements of European Community directives

Unacceptable notices

6.13 The Commission feels strongly that notices placed in the Official Journal should not contain statements or requirements which it holds to be discriminatory to potential tenderers from other EC member states. It is Government policy that notices must not contain such statements. The Department will advise NHS bodies of any specific complaints directed against UK NHS bodies for their Information. Some examples, which have resulted in complaints, concerned notices which included:

basis of the most economrcally advantageous offer taking account of price, technical merit, quality and overall value for money”.

6.16 NHS bodies should try to ensure that all relevant award crrteria are taken into account and If any other than those stated above are relevant, they will need to be quoted either in the notice or in the tender documents, if possible in descending order of Importance.

Statistical returns

l a requirement that potential tenderer5 indicate the 6.17 composition of therr workforce, including whether

The public procurement regulations require

they proposed to use therr own labour force or rely that NHS bodies provide the Department with

on local recruitment. This was held to be a breach of reports on contracts awarded under the regulations.

the Works Directive; The Department WIII ask NHS bodies for their individual reports every two years.

l reference to the contractor’s experience of specifically UK construction practice. This has been 6.18 NHS bodies may also be required to submit reports

held to be discriminatory; on particular individual contracts or commissions for the

l a requirement that a works contractor should purpose of informing the Commrssion.

employ local residents as at least a certain percentage of its workforce. This has also been held to be discrimrnatory.

Provision of information about contract

award proced u res

Criteria for award of contracts

6.14 NHS bodies should normally specify that a contract will be awarded on the basis of the most economically advantageous offer rather than the lowest price. This is consistent with the need to obtain value for money.

6.15 A form of words suitable for inclusion in the contract notice is: “The contract will be awarded on the

6.19 The regulations require that NHS bodies must, within 15 days of receipt of a request from any contractor whose tender has been treated as ineligible or has been rejected, inform the contractor of the reasons for the decision. NH5 bodies must therefore prepare a record in relation to each contract or commission awarded by it under the terms of the regulations.

25

7.0 Private finance

Introduction Further guidance on private finance

7.1 As part of the process of preparing a business case, NHS bodies are required to consider the option of utilising private finance. This is the result of the promotion of the Private Finance Initiative (PFI) by the government.

7.2 Detailed guidance on private finance IS available in:

l CIM: ‘private finance guide’;

l FDL(93)33 - Private Finance in the NHS: Approved Procedures;

l HSG(95)15 - Private Finance and Capital Investment Projects.

26

8.0 Market testing

introduction

8.1 Market testing is the process whereby the management of NHS bodies ensure that the services they are delivering are being delivered effectively and represent true value for money.

8.2 In the field of “estates”, market testing can be applied to:

a. building and engineering;

b. design services;

c. construction of buildings;

d. maintenance of buildings and engineering works.

8.3 Historically, the provision of these services has been subject to extensive market testing in that those appointed to carry out the servrces/works have been appointed as the result of a selective competitive tendering process, that is the works/services were not automatically carried out by “in-house” services.

8.4 However, NHS bodies should not be complacent in this area and should be constantly reviewing the situation to ensure that they are achieving value for money.

8.5 The NHS Executive Value For Money Unit will be monitoring the performance of NHS bodies In the respect of market testrng.

Further guidance on market testing

8.6 in:

.

.

Detailed guidance on market testing can be found

EL(95)28 Market testing for healthcare services - a guide for purchasers (queries should be addressed to: PMD 38 - Purchasing Unit, NHS Executive, Quarry House, Quarry Hill, Leeds LS2 7UE, tel. 01 13 254 5000);

EL(95)29 Market testing in the NHS - Update and future plans (queries should be addressed to the Market Testing Team, Rm 3 1 1, Eileen House, 80-94 Newington Causeway, London SE1 6EF).

27

9.0 Miscellaneous

Introduction

9.1 In addition to the prevrously stated requirements of government policy and their effect on the procurement of burlding and engineering contracts and the servrces of consultants, there are certarn factors to consrder both during and after the procurement process. This chapter explains these factors and the current Government and Departmental polrcy.

Building in adverse weather conditions

9.2 All building contracts must contain a requirement that the contractor will use best endeavours to prevent the progress of the works being delayed. Exceptionally adverse weather conditions are accepted as being beyond the contractor’s control, but it is nevertheless important to impress on the contractor that the firm’s best endeavours must include the taking of all reasonable steps to cope wrth the effects of weather conditions.

Preservation and destruction of

documents

9.3 The preservation and destruction of documents concerning buildrng and engineering works must be considered not only In the light of their usefulness for reference, but also in the light of the law relating to the accrual of causes of action and limitation in cases of negligence rnvolvrng latent defects.

9.4 NHS bodies must observe the guidance given in HC(89)20 - ‘Preservation, retention and destruction of records - responsibilities of health authorities under the Public Records Acts’, extracts from which are set out below.

9.5 Records of building and engineering works must be considered not only in the light of the Public Records Acts and of their usefulness for reference (for example in cases of maintenance, repair or alteration), but also In the light of the law relating to litigation in cases of negligence in design or construction Involving latent defects as well as the requirement of the Constructron (Design and Management) Regulations 1994. The general principles to be followed in regard to these records are, therefore, that they should be preserved for the life of the buildings and installations to which they refer.

9.6 In accordance with these principles, records to be preserved should Include:

l documents relating to town and country planning;

l all formal contract documents for building and engineering works (for example executed agreements, condrtrons of contract, drawings, bills of quantities and specificattons);

. site plans;

l surveys;

. “as built” record drawings;

l documents on the appointment and conditions of engagement of professional consultants;

l records of decisions leading to the adoption, abandonment or deferment of major works projects.

9.7 Notwithstanding the above, documents for contracts purely for the routine maintenance, repair or servrclng of buildings and engineering Installations, not involving significant amounts of design work or alteration, may be destroyed six years after the end of the financial year in which the work was completed (12 years after If the contract was executed as a deed). Engineers’ inspection reports on boilers, lifts and the like should be preserved for the life of the rnstallatrons to which they refer.

9.8 Certain records may be considered for permanent preservation. These may include plans for major projects (rncluding projects which have been abandoned or deferred). Further guidance IS contained in HC(89)20

Retention of documents and the Latent

Damage Act 1986

9.9 The Latent Damage Act 1986 extended the limitation period for action for damages for negligence (except for personal injury) to an absolute long stop period of 15 years from the date of any negligent act or omrssron which wholly or partly causes alleged damage. NHS bodies are advised to review their system of keeping records so that documents which they consider essential to enforce legal lrabrlrty are held for a minimum of 15 years

Standards and quality assurance

9.10 Government policy on standards and quality assurance IS set out in the Department of Trade and

28

9.0 Miscellaneous

Industry White Paper ‘Standards, Quality and International Competitiveness’ Issued In July 1982.

9.11 The White Paper concluded that there was a significant role for the public sector in enhancing the status of standards and quality assurance by linking its own purchasing requirements to standards and by making greater use of quality assurance certification and of appropriate standards for regulatory purposes.

9.12 NHS bodies must promote quality assurance in design and construction as a means of achieving

better value for money. Benefits may include a reduction of design and construction faults, and reduced maintenance costs.

9.13 As a mrnrmum, the status of contractors and consultants in terms of BS EN 1509000 (BS5750 prior to May 1995) or equrvalent quality assurance standard certrficatron should be established when firms are considered for inclusron on tender lists. NHS bodies must actively encourage firms without quality assurance certification to become quality assured.

29

Appendix 1

Glossary

Capital - a document which provides the Investment mandatory procedural framework for Manual managing NHS capital building schemes

Concode - a code of procedure for building and engineering contracts for the NHS

Concise - a software system for the NHS capital programme. It comprises a suite of programmes designed to assist project managers, finance managers and construction specialists

The ‘Department’ or ‘DH’ - Department of Health

NHS bodies - NHS trusts, NHS authorities FHSAs and any other centrally-funded organisations

NHS Estates an Executive Agency of the Department of Health

NJCC National Joint Consultative Committee for Building

Other centrally- - bodies being part of the NHS and funded bodies directly funded by the Department

SHAs - special health authorities

JCT - Joint Contracts Tribunal

30

Appendix 2

Declaration that tender is a bona fide competitive tender

Tender for .._...._........

Returnable

The essence of selective tendering is that the client shall receive bona fide competitive tenders from all those tendering. In recognition of this principle, we certify that this is a bona fide tender, intended to be competitive, and that we have not fixed or adjusted the amount of the tender by, or under, or in accordance with, any agreement or arrangementwith any other person. We also certify that we have not done and we undertake that we will not do at any time before the hour and date specified for the return of this tender any of the following acts:

a. communicate to a person other than the person calling for those tenders the amount or approximate amount of the proposed tender, except where the disclosure, in confidence, of the approximate amount of the tender was necessary to obtain insurance premium quotations required for the preparation of the tender;

b. enter into any agreement or arrangement with any other person that he shall refrain from tendering or as to the amount of any tender to be submitted;

c. offer, pay or give or agree to pay or give any sum of money or valuable consideration directly or indirectly to any person for doing or having done or causing or having cause to be done In relation to any other tender or proposed tender for the said work any act or thing of the sort described above.

In this certificate, the word “person” includes any persons and any body or association, corporate or unincorporate; and “any agreement or arrangement” includes any such transaction, formal or informal, legally binding or not.

Signed. _.,,,,,_.._.._............_..,........._...._................_......................................

On behalf of . . . . . . . . . . . . . . .._._.._...................._.._.__._........................................

31

Appendix 2

Certificate of readiness to award contract

NHS body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........................................

Project .,.

Date ,.. ,. ,. ..,

1. There are no:

l wayleaves;

. restrictive covenants;

l rights of way;

l listed buildings; or

l other protected items affecting the site.

2. The sate is available for the contractor to commence construction in accordance with the programme.

3. The availability of funding for the scheme has been confirmed.

4. The contract documents will be executed either:

a. *when using a traditional contract strategy prror to the contractor being given possession of the site; or

b *when using a design and build contract strategy prior to the contractor commencing work on the desrgn.

* project director to delete as appropriate

Signed:

.,.,...............,...,.............._..........,..,,.,..........................,...,..........................

Project Director

Approved:

Chief Executive

32

Appendix 3

EPL(94)4

CONTRACTS GUIDANCE SHEET 24

Building/Engineering Contracts - Parent Company Guarantees/Bonds

Introduction

When selecting firms for inclusion on a tender list for a specific contract, NHS bodies are required to undertake financial and technical investigations of firms to ensure that they only enter into contracts with firms that have the technical, commercral and financral capacity and capability to successfully perform the proposed contract. If thus process IS carried out, there should not normally be any need for additional financial safeguards; however, there may be occasions when NHS bodres consider that additional financral safeguards are prudent, for example when the general tendering climate is highly competitive.

This contracts guidance sheet provides more detailed gurdance on the options available to NHS bodies.

Parent company guarantees

A parent company guarantee is a document whereby a parent company guarantees to the NHS bodies that its subsidiary will properly perform its contractual obligation. It can only be requested where the company under consideration is a member of a group.

Several points to note are:

a. the contractor is normally given the opportunity to remedy any non-performance by a period of notice before the guarantee is called;

b. the liability can take several forms including a financial guarantee of completion of the project itself or the employment of another contractor (which should be subject to the NHS body’s agreement) to complete the project for it;

c. the guarantee is only as good as the parent company itself, as shown by the following examples:

(i) if the parent company is a small holding company with no real or capital assets, the subsidiary with whom the NHS body is contractrng may actually be a larger and sounder company and a parent company guarantee may not be beneficial;

(ii) rf the parent company is the substantial and stable company and the subsidiary is in danger of being overextended, a parent company guarantee could be extremely beneficial; for example, if problems occur and the contractor is clearly not going to make a profit, the guarantee will discourage the parent from putting the subsidiary into liquidatton and thereby avoiding paying any damages for non-completion.

Performance bonds

Performance bonds are provided as a financial guarantee (normally 10% of the contract value) which becomes payable if the contractor fails to fulfil his obligations under the contract. They are underwritten by a surety (usually a bank or an insurance company) and provide a fixed sum in compensation that can help the client pay for the additional expenses that may be incurred in making alternative arrangements for the work to be completed if the contractor defaults.

The main parties and their roles in the process are:

a. NHS body-the benefrcrary;

b. contractor-the person/company having its performance guaranteed;

c. surety (or bondsman) -the person/company underwriting the guarantee on behalf of the contractor, normally an insurance company or a bank.

33

The two most common types of bond are:

l conditional bond -this type of performance bond normally includes the following requirements:

(i) a calling mechanism;

(ii) a reason for calling the bond;

(iii) a period of notice for the contractor to remedy the default before the bond is called. Normally this type of performance bond states that proof of default is required before payment is made by this surety to the NHS body.

l On-demand bond -this type of performance bond normally includes the following requirements:

(i) a calling mechanism;

(ii) a reason for calling the bond.

Normally this type of performance bond states that payment must be made by the surety to the NHS body on first written demand.

It is important to note that:

l as performance bonds are contract-specific, that is, a performance bond is taken out by a contractor for a specific contract, the decision to incorporate bonding requirements should be made before issuing tender documents. The total costs of providing may be passed on to the NHS body in the tender price, and therefore the requirement to obtain value for money must be borne in mind when the decision is being taken on their use. Conditional bonds are significantly less expensive in comparison to on-demand bonds;

l there is an overall limit to the value of the performance bonds which can be obtained from a bank, and;

(i) if the bond is obtained from a bank, the bank will treat the bond as an extension of the contractor’s overdraft facility;

(ii) if the bond is obtained from an insurance company, there will be a Counter-Indemnity, which is a promise that the contractor will repay the full amount of the bond to the insurance company should the bond be called. The counter-indemnity is often secured either by a charge on the contractor’s assets or by personal guarantees by directors.

Therefore, as any contractor’s overdraft facilities and the value of their assets/the directors’ assets are not unlimited, there is a limit on the total value of performance bonds that any contractor can obtain. The inability to obtain a bond may be as a result of the contractor having reached his/her financial limit for the purpose of obtaining bonds, but it may also be a sign of financral insecurity.

Duration of parent company guarantees/performance bonds

It is common practice to release the contractor from the liability entered into on practical completion of the works, but on important projects, it may be prudent to make the release date the end of the defects liability period. However, as performance bonds are expensive, the requirement to obtain value for money must be borne in mind when making a decision to retain them beyond practical completion. NHS bodies should be careful to ensure that if a specific date for termination of liability has been stated and the contract is delayed for any reason, the termination date is amended. The additional cost may be repayable to the contractor if the revised termination date reflects an extension of time granted by the NHS body. This will ensure that the parent company guarantee/performance bond remains enforceable until the required date of release.

Recommendations

Where NHS bodies consider that additional financial safeguards are prudent on a specific contract, parent company guarantees or conditional performance bonds are recommended for use by NHS bodies.

However, in accordance with Government policy, on-demand performance bonds should not be used

34

Appendix 3

Additional guidance

Further guidance on performance bonds can be found in ‘NJCC Guidance Note No 2, Performance Bonds’. The Department supports the principles therein.

NHS Estates December 1993

35

Bibliography

Regulations EL(95)28 Market testing for Health Care Services: a guide for purchasers

The Public Works Contract Regulations 1991

The Public Supply Contracts Regulations 199 1

EL(95)29 Market testing rn the NHS: Update and future plans

The Public Services Contract Regulations 1993 HS4(95)15 Private Finance and Capital Investment Projects

Health notices Miscellaneous

FDL(93)33 dated 2 1 April 1993 ‘Private finance in the NH5 - Approval Procedures’

CUP Guidance Note No 34 ‘Market Testing and Buying in’

FDL(93)7 1 dated 1 October 1993 ‘Competition and the Private Finance initiative -A Cons&at/on Note from HM Treasury’

‘Competing for Quality: Competitive Tendering of the Maintenance of the Estate’ Health Estate Facilities Management Association.

36

Other publications in this series

Given below are details of other documents in the Concode serves which are either publrshed by HMSO or in preparation. Information is correct at time of publication of this document.

Agreement for the appointment of project managers for commissions for construction projects in the National Health Service, 1995

Guide to the Agreement for the appointment of architects, surveyors and engineers for commissions in the National Health Service, 1995

Guide to the Agreement for the appointment of project managers for commrssrons for construction projects in the National Health Service, 1995

Agreement for the appointment of architects, surveyors and engineers for commrssions in the NHS. Vol 1: Scheme particulars, memorandum or agreement, conditions of appointment, provision for fees and expenses, specimen certificates, definitions, 1995

Vol 2: Supplementary annexure, 1995

Contracts and commissions for the NHS estate: Contract procedures, 1994

Guide to the JCT Agreement for minor building works, 1994

Guide to the requirements of European community public procurement directives, 1995

Guide to contract strategres for construction projects In the NHS, 1995

Guide to the JCT Standard Form of Building Contract, 1980 Edition, Local Authorities (as amended), 1995

Documents published by HMSO can be purchased from HMSO Bookshops in London (post orders to PO Box 276, SW8 5DT), Edrnburgh, Belfast, Manchester, Birmingham and Bristol or through good booksellers.

Enquiries (but not orders) should be addressed to: NHS Estates, Department of Health, 1 Trevelyan Square, Boar Lane, Leeds LSI 6AE.

NHS Estates is a non-profit-making Executive Agency of the Department of Health.

The price of this publrcation has been set to make some contribution to the costs incurred by NHS Estates in Its preparation.

Guide to procedures for commissioning building and engineering consultants, 1994

37

About NHS Estates

NHS Estates is an Executive Agency of the Department of Health and is involved with all aspects of health estate management, development and maintenance. The Agency has a dynamic fund of knowledge which it has acquired during 30 years of working in the field. Using this knowledge NHS Estates has developed products which are unique in range and depth. These are described below. NHS Estates also makes its experience available to the field through its consultancy services.

Enquiries about NHS Estates should be addresses to: NHS Estates, Department of Health, 1 Trevelyan Square, Boar Lane, Leeds LSI 6AE. Telephone 0113 254 7000.

Some other NHS Estates products

Activity Database - a computerised briefing and design system for use in health buildings, applicable to both new build and refurbishment schemes. NHS Estates

Design Guides - complementary to Health Building Notes, Design Guides provide advice for planners and designers about subjects not appropriate to the Health Building Notes series. HMSO

Estatecode - user manual for managing a health estate. Includes a recommended methodology for property appraisal and provides a basis for integration of the estate into corporate business planning. HMSO

Works Information Management System - a computerised information system for estate management tasks, enabling tangible assets to be put into the context of servicing requirements. NHS Estates

Health Building Notes - advice for project teams procuring new buildings and adapting or extending existing buildings. HMSO

Health Guidance Notes - an occasional series of publications which respond to changes in Department of Health policy or reflect changing NHS operational management. Each deals with a specific topic and is complementary to a related HTM. HMSO

Health Facilities Notes - debate current and topical issues of concern across all areas of healthcare provision. HMSO

Health Technical Memoranda - guidance on the design, installation and running of specialised building service systems, and on specialised building components. HMSO

Firecode - for policy, technical guidance and specialist aspects of fire precautions. HMSO

Capital Investment Manual Database - software support for managing the capital programme. Compatible with the Capital Investment Manual. NHS Estates

Model Engineering Specifications - comprehensive advice used in briefing consultants, contractors and suppliers of healthcare engineering services to meet Departmental policy and best practice guidance. NHS Estates

Quarterly Briefing - gives a regular overview on the construction industry and an outlook on how this may affect building projects in the health sector, in particular the impact on business prices. Also provides information on new and revised cost allowances for health buildings. Published four times a year; available on subscription direct from NHS Estates. NHS Estates

Works Guidance Index - an annual, fully cross- referenced index listing all NHS Estates publications and other documents related to the construction and equipping of health buildings. NHS Estates

Items noted “HMSO” can be purchased from HMSO Bookshops in London (post orders to PO Box 276, SW8 5DT), Edinburgh, Belfast, Manchester, Birmingham and Bristol or through good booksellers.

NHS Estates consultancy services

Designed to meet a range of needs from advice on the oversight of estates management functions to a much fuller collaboration for particularly innovative or exemplary projects.

Enquiries should be addressed to: NHS Estates Consultancy Service (address as above).

Prlnted I” the UnIted Kingdom for HMSO Dd 300629 Cl20 6/95 9385 2390

38

Department of Health

Welsh Office

Scottish Office

Department of Health and Social Services Northern Ireland

Published by HMSO and available from:

HMSO Publication Centre (Mail, fax and telephone orders only) PO Box 276, London, SW8 5DT Telephone orders 0171 873 9090 General enquiries 0171 873 0011 (queuing system in operation for both numbers) Fax orders 0171 873 8200

HMSO Bookshops 49 High Holborn, London, WClV 6HB (counter service only) 01718730011 Fax0171831 1326 68-69 Bull Street, Birmingham, 84 6AD 01212369696Fax01212369699 33 Wine Street, Bristol, BSl 2BQ 01179264306Fax01179294515 9-21 Princess Street, Manchester, M60 8AS 01618347201 Fax01618330634 16Arthur Street. Belfast. BT1 4GD 01232238451 Fax01232235401 71 Lothian Road, Edinburgh, EH3 9AZ 01312284181Fax01312292734 The HMSO Oriel Bookshop The Friary, Cardiff CFl 4AA 01222395548Fax01222384347

HMSO’s Accredited Agents (see Yellow Pages)

and through good booksellers

HMSO F

ISBN O-11-322211-4

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I.

9 780113 222117

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