Types of Contract 2013 Hand Outs PDF

THE INSTITUTION OF CIVIL ENGINEERS

West Midlands Region

COURSE ON CIVIL ENGINEERING LAW AND CONTRACT PROCEDURE

2012/13

held in in lecture room MB108, on the first floor,

Aston University, Main Building, Aston Triangle, Birmingham

LECTURE 2

TYPES OF CONTRACT

Contents

1.0 Basis of a Contract under English Law

2.0 Employers Objectives

3.0 Risk Transfer

4.0 Standard Forms of Contract

5.0 Principal Risks

6.0 Basic Types of Construction Contract

7.0 ICE Conditions of Contract

8.0 CECA Form of Sub-Contract

9.0 NEC Engineering and Construction Contracts

(Covered in detail in lectures 4&5)

10.0 Other Standard Forms of Contract

11.0 Typical Exam Questions

Lecturer - Carl Morris

January 2013

CIVIL ENGINEERING LAW AND CONTRACT PROCEDURE 2012/2013

TYPES OF CONTRACT

The Institution of Civil Engineers West Midlands Region

1

1.0 Preliminary review on the basis of a Contract under English Law

1.1 In English Law, subject to certain conditions a contract is created when a verbal

or written offer is accepted by a second party. The second party may make a

counter offer which would have to be accepted by the first party for the contract

to be established.

1.2 In civil engineering contracts the Contractor’s tender may constitute the offer, but

it is also possible for the Employer to make an offer, which is accepted by the

Contractor. With the possibility of offer and counter offer, it is important to be

clear which is the offer and who has accepted it.

1.3 Note: In most standard Forms of Contract the promoter of the project is called

the “Employer”. In some Forms the term “Purchaser” or “Authority” is used

instead of “Employer”. These notes follow the example of the ICE Conditions of

Contract and use the term “Employer” throughout.

1.4 There are certain other requirements that have to be satisfied before a legal

contract exists. These include:

• The intention of the parties to create a legal relationship.

• There must be genuine consent of the parties.

• The parties must be legally capable of entering into a contract.

• The contract must be for a legal purpose and not illegal.

• There must be a consideration; something of value must change

hands after the successful outcome.

2.0 EMPLOYER'S OBJECTIVES

2.1 Where an Employer seeks to engage a Contractor to carry out construction work,

he must be clear about his objectives. These objectives will be embodied in the

Contract, which is entered into by the Employer and the Contractor.

2.2 There are very many standard Forms of Contract in use in the Construction

Industry. The Employer is at liberty to use whatever form of contract it wishes,

but the use of a standard form has the advantage of familiarity to the parties and it

will have been tested in use.

2.3 Whether the design is carried out by a Consultant working for the Employer or by

the Contractor (or a mixture of the two), it is important that the Employer defines

the purpose of the construction work. The works must then be designed to be

suitable for that purpose (“Fitness for purpose” is a precise term, which is

discussed elsewhere).

2.4 Responsibility for design and arrangements for the transfer of information to the

Contractor will be set out in the Contract.

2.5 To fulfil the Employer’s objectives, the Contract will have to address a wide

range of issues.


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2.6 These include the following:

• The balance between time, quality and cost in relation to the

construction work

• The transfer of risk from the Employer to the Contractor

• The allocation of responsibilities between the parties

Not only must the Employer exercise great care in the selection of a suitable

Contractor; he must also select a Form of Contract, which is appropriate for his

purpose.

2.7 This Lecture will consider the question of risk transfer, the principal risks that

may arise and the basic types of construction contract available. It will refer to

the various Standard Forms of Contract that an Employer may use and introduce

the ICE Conditions of Contract 7th Edition. The ICE New Engineering Contracts

and the Engineering and Construction Contract in particular will be the subject of

later Lectures.

3.0 RISK TRANSFER

3.1 Risks in the execution of construction work can be transferred by the Employer

to the Contractor by means of the Contract. This is Risk Transfer. The various

Standard Conditions of Contract define the transfer of risk for different types of

application and to suit different Employers and different circumstances.

3.2 The initial inclination of an Employer may be to transfer the maximum amount of

risk to others. If the Employer seeks to protect himself against every conceivable

construction risk, this will inevitably lead to higher tender prices. Moreover, the

more responsible Contractors may not be competitive and may not even wish to

compete.

3.3 Contracts that are one-sided in favour of the Employer, with the Contractor left

unprotected, are likely to become adversarial and lead to disputes. Excessively

onerous conditions may have the opposite effect to that intended by the

Employer. Indeed, in extreme cases, some clauses may be deemed to be

“unfair”.

3.4 Furthermore, the very clauses that place heavy obligations on the Contractor also

place similar obligations on the Employer to fulfil its own duties. For example, a

Contract may state that in relation to the works programme “time is of the

essence”. It follows that the same obligation of urgency applies to the Employer

and it is even more imperative that he ensures that he does not delay the

Contractor by issuing information late or by issuing instructions to vary the

works.

3.5 A sensible sharing of risk between Contractor and Employer is likely to give the

best outcome for the Employer, with the avoidance of serious disputes on site.


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4.0 STANDARD FORMS OF CONTRACT

4.1 Although there is nothing to stop Employers from writing their own Contracts,

over the years bodies representing the interests of various sides of the industry

have drawn up standard conditions, which are widely accepted. There are many

standard forms to suit different types of Employer and different circumstances.

4.2 For example these are some of the Standard Conditions of Contract:

� Civil Engineering contracts ICE Conditions of Contract

NEC Contracts

� Water Industry contracts Institution of Chemical Engineers

Conditions

� Building contracts Joint Contract Tribunal (JCT)

Forms of Contract

� Government contracts GC/Works/ Contracts

� International contracts FIDIC

There are many more. Most of these have versions to deal with different

applications.

In civil engineering the principal contract has been:

4.2.1 Institution of Civil Engineers (ICE) Conditions of Contract.

4.2.1.1 This is published under the auspices of the Institution of Civil Engineers, the

Association of Consulting Engineers and the Civil Engineering Contractors

Association. It was first published in 1945 and the current edition is the 7th

Edition, Measurement Version (which was published in 1999).

4.2.1.2 There are other versions of the ICE Conditions covering; Design and construct

“ICE Design and Construct 2nd

Edition (2001)”; Smaller, less complex contracts

“ICE Minor Works Contract 3rd

Edition (2001)” and Term Contracts “ICE

Conditions of Contract Term Version 1st Edition”

4.2.1.3 Although the ICE Conditions have stood the test of time and have produced a

considerable amount of case law to help to define their meaning, there is always

room for fresh thinking. Accordingly in the 1990’s the Institution brought out a

new suite of contracts under the title:

4.2.1.4 New Engineering Contracts. (NEC/ECC)

4.2.1.5 The principal contract is known as The Engineering and Construction Contract.

4.2.1.6 The NEC Contracts are now in regular use and have to a large extent replaced the

ICE Conditions over a wide range of civil engineering and construction work.


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4.2.1.7 The object of all these standard forms of contract is to apportion risk between the

parties to the contract in a fair and reasonable manner. From time to time these

standard conditions have been revised and refined in the light of experience and

to keep abreast of current legislation. This development process continues to this

day.

4.2.1.8 Some Employers adopt and modify standard conditions to suit their own

perceived purposes particularly in an attempt to reduce their risk. This can be

unwise. This sort of amendment may have an effect on the inter-relationship of

clauses and destroy the integrity of the Contract as a whole.

4.2.1.9 The ECC is modular in nature and has six major options, one of which must be

chosen. These are:

Option A – Priced contract with activity schedule

Option B – Priced contract with bill of quantities

Option C – Target contract with activity schedule

Option D – Target contract with bill of quantities

Option E – Cost reimbursable contract

Option F – Management contract

5.0 PRINCIPAL RISKS

5.1 We can consider the more obvious areas of risk and how they are dealt with in

the different Standard Forms.

5.2 Payment

5.2.1 Ultimately the Employer will pay for the work carried out (the “consideration” in

the Contract). This will normally be by monthly payments. The Contractor

carries the risk of work in progress until payment is made. This is a real risk and

cost to the Contractor that is not always recognised by the Employer or his

representative.

5.2.2 Monthly or interim payments may be by remeasurement of work carried out in

the period, or they may be paid in a series of lump sums as portions of the work

(activities) are completed (see below).

5.2.3 In the ICE Conditions, payments are made on a monthly basis (ICE 7th

Clause

60). Following receipt of a statement of the contract value from the Contractor,

the Engineer must within 25 days certify the amount due to the Contractor.

Payment by the Employer to the Contractor becomes due on certification with the

final date for payment being 28 days after the Contractors statement was

delivered.

5.2.4 In certain circumstances the Employer may not have funds available until a later

date and the Contract would have to be drafted to allow for this. In effect the

Employer incurs a debt, which is repaid over an extended period with interest.

The most obvious examples of this are in the Private Finance Initiative (PFI) or

Design Build Finance Operate (DBFO) schemes that may be financed by the


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Contractor by means of equity and long-term debt. The debt is repaid as part of a

payment for a service provided over a 25 or 30-year Concession Period. These

sorts of contracts are bespoke for specific schemes.

5.3 Land

5.3.1 The provision of land is usually a risk carried by the Employer. Most standard

forms have clauses covering possession of the site giving the Contractor right of

access.

5.3.2 The contract will set out the responsibilities of both the Employer and the

Contractor in respect of site possession and access and also the consequences of

failure by the Employer to provide the appropriate possession and access in

accordance with the contract. In the ICE Conditions, this subject is covered in

ICE 7th

Clause 42.

5.4 Planning Consent

5.4.1 Responsibility for Planning Consent and Public Inquiries usually rests with the

Employer (e.g. ICE Conditions)

5.4.2 There are exceptions where the planning risk is transferred to the Contractor with

its attendant cost.

5.5 Design

5.5.1 The design process is fundamental to any construction project.

5.5.2 Should the Employer retain responsibility for the Design himself, or pass it on to

the Contractor? There are different versions of the Standard Forms of Contract to

cover various options and the Employer must decide what is best, taking all the

circumstances into account.

5.5.3 Advantages of the Employer’s Consultant or the Engineer being responsible for

Design:

• Design can be completed before the Contract is let

• Likely to be the cheapest tender price (but not necessarily the

cheapest outturn price)

• Full dialogue with Employer

• Where applicable it allows Public Inquiry and Statutory Processes

to proceed in advance of contractor selection

• Full documentation/Bill of Quantities can be available prior to

Tender – makes changes easier to control and value

• Employer may perceive he has more control of the Contract when

his own Consultant or the Engineer does the design and supervision


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5.5.4 Advantages of Design and Construct:

• Better appreciation of outturn cost

• Less likely to produce adversarial relations and disputes

• No divided responsibility between Designer and Contractor

• Contractor can exercise skills of buildability and knowledge of cost

of construction

• Simple interim payments

• Quality control by Contractor should give saving in supervision

costs

• Long term responsibility for design with Contractor

• Overall faster programme

5.5.5 An unwelcome use of design and construct contracts, particularly in the building

sector, is where the design is completed almost in its entirety by the Employer’s

Designer. The designers are then novated to the Contractor, who takes over full

responsibility for the design. Few of the real benefits of a Design and Construct

Contract apply, other than to remove the divided responsibility between Designer

and Contractor (e.g. late issue of information, mistakes by the Designers, etc). It

is seen as a claim limitation device.

5.5.6 In the ICE 7th Conditions the Contractor is not responsible for the design or

specification of the Permanent Works or any part thereof except where it is

expressly provided in the Contract, (see ICE 7th

Clause 8.2).

5.5.7 It is normal practice in the Insurance Industry for responsibility for “fitness for

purpose” to be excluded from designer’s Professional Indemnity Insurance. The

insurer’s liability is limited to the designer exercising all reasonable skill care and

diligence in the execution of the design. As a consequence, the same limitation

of design risk is followed in the principal Forms of Contract, (see ICE 7th

Clause

8.2).

5.5.8 In some major Turnkey Contracts the Employer demands “fitness for purpose”.

Some P.F.I. Contracts also include “fitness for purpose” clauses. This is usually

a bone of contention, since without insurance cover the financial consequences

can be severe.

5.6 Quantities

5.6.1 Where the Employer’s Consultant essentially completes the design before the

Contractor is appointed, it has been normal practice for a Bill of Quantities to be

prepared. This Bill of Quantities would be prepared in accordance with a

standard Method of Measurement (e.g. CESMM in civil engineering contracts).


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5.6.2 In his Tender, the Contractor fills in rates for each item and extends the item by

multiplying the quantity by the rate. The sum of all these priced items, including

any Provisional Sums, PC Sums, percentages etc, is the Tender Price. This

process is called admeasurement and is in effect the apportioning of the Contract

sum to the various items in the Bill. On completion of the work the quantities are

remeasured and the process repeated to reach a new Contract Sum. In this case

the Employer carries the risk for any changes in the quantities. I.C.E. 7h Edition

(Measurement Version) is an example of this principle. This admeasure system

is also used for interim payments by taking the quantities achieved each month.

5.6.3 It is important to understand that in this sort of admeasurement contract the

tender total is only an approximate and probably low guide to the final value.

The Employer should be made aware of this through his adviser e.g. the

Engineer.

5.6.4 Another type of contract is where the Employer provides the quantities, which

are fixed without remeasure. This is one version of a Lump Sum Contract, since

the quantities can only be varied by the Employer issuing a Variation Order

within the terms of the Contract. (An example is JCT98 with Quantities).

5.6.5 A second version of a Lump Sum Contract is where only the drawings and

specification are issued to the Contractor and the Contractor is asked to submit a

Lump Sum price for the job. This is sometimes called “Plan and Spec”. In this

case the Contractor may take off quantities for his own use, but they do not form

part of the Contract. In Lump Sum Contracts the Contractor is at risk for

quantities.

5.6.6 There is a growing trend away from the use of full bills of quantities due in part

to the risk falling on the Employer and in part to the amount of work involved

particularly with regard to interim measurements.

5.7 Activity Schedules

5.7.1 In other types of Contract (such as the NEC Engineering and Construction

Contract), the Contractor prepares a list of activities to encompass all of the

work. He then prices each activity and the total of all of the lump sums for each

activity is the Contractor’s price for the works.

5.7.2 Again, changes can only be ordered by means of a change order (in the case of

NEC contracts called a Compensation Event).

5.7.3 Risk in assessing the work content and the quantities in each of the scheduled

activities rests with the Contractor. For example if the Contractor fails to price

an activity then he does not get paid for that activity.

5.8 Time

5.8.1 Whether the Employer specifies the time period for the construction work or asks

the Contractor to make a proposal, the Contract will invariably fix the Start Date

and the Completion Date. Almost all forms of Contract also require the

Contractor to produce a Contract Programme. Responsibility for time and

adherence to this Contract Programme becomes very much the Contractor’s

responsibility and risk, although all forms of contract have some basis for the


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granting of an extension of the Contract period where the delay is the

responsibility of the Employer.

5.8.2 In the ICE Conditions, ICE 7th

Clause 14 requires the Contractor to submit a

programme and method statement within 21 days of award of the Contract and

the Engineer to accept or reject it within 21 days.

5.8.3 Generally, overrun of the programme (taking due account of permitted

extensions) would leave the Contractor open to action by the Employer to recover

his losses. Most commonly this is by way of the levy of Liquidated Damages,

which are predetermined at the outset of the Contract.

5.8.4 In some Contracts Liquidated Damages are not stated and the potential risk to the

Contractor could be greater since the Employer is at liberty to sue for his actual

losses.

5.9 Inflation

5.9.1 Contracts are either Fixed Price where the Contractor is fully responsible for any

increase in his costs due to inflation, or Fluctuating (Variable), where rising

prices (or falling prices) are compensated for in some way. In the present market

most Government Contracts of up to two years duration are Fixed Price.

Contracts lasting over two years may be Fluctuating.

5.9.2 The effects of inflation in Fluctuating Price Contracts are usually dealt with by

means of standard indices (for Government Contracts, a list of these indices is

published on a monthly basis). The Contractor carries any residual risk.

5.9.3 In the ICE Conditions fluctuating price is dealt with by a special condition (ICE

7th

Clause 72 onwards) under the heading “Contract Price Fluctuations Civil

Engineering Work.”

5.10 Weather

5.10.1 Most standard Forms of Contract leave weather as a risk to be borne by the

Contractor, except that extensions of time may be claimed for “exceptional

adverse weather conditions” (ICE 7th

Clause 44). This is deemed to mean

significantly worse than normal. Even this protection is sometimes omitted from

Contracts. An award under Clause 44 would be for additional time but not for

additional costs.

5.11 Ground Conditions

5.11.1 Difficult ground conditions can have a significant financial effect on a Contract.

Most of the standard Forms of Contract incorporate clauses, which have the

effect of sharing this risk between Employer and Contractor. For example, the

I.C.E. 7th

Edition (Clause 12) permits claims from the Contractor when he

encounters physical conditions or artificial obstructions, which could not

reasonably have been foreseen by an experienced Contractor. Claims made

under ICE 7th

Clause 12 have to follow a set procedure.

5.11.2 The Site Investigation is usually a material factor in deciding whether the

Contractor could have foreseen the adverse physical conditions.


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5.11.3 Certain forms of Design and Construct Contract, including DBFO Contracts,

leave ground condition risk entirely with the Contractor.

5.12 Labour and Materials

5.12.1 The Contractor is invariably responsible for the construction of the works and for

the provision of labour and materials. The problem of a contractor not being able

to obtain labour and materials at rates in line with his tender is clearly a risk

which most Employers would wish to have transferred to the Contractor (ICE 7th

Clause 8 see later).

5.13 Safety

5.13.1 All parties to a construction contract have statutory duties to meet in relation to

safety. These include the Employer, the Engineer, the Designer and the

Contractor. These statutory duties are generally set out in the Health & Safety at

Work Act (1974) and the Construction (Design and Management) Regulations

(1997), generally known as the “CDM Regulations”.

5.13.2 All standard forms of contract have clauses relating to safety. In the ICE 7th

Conditions, Clauses 8, 19 and 20 define the responsibilities placed upon the

Contractor for Safety and Care of the Works. These clauses also define where

these responsibilities remain with the Employer. ICE 7th

Clause 71 deals

specifically with CDM Regulations.

5.13.3 Health and Safety is dealt with in detail in a later Lecture

6 BASIC TYPES OF CONSRUCTION CONTRACT

6.1 Simple Agreement

6.1.1 A simple offer, acceptance and consideration. This is often in the form of a

letter.

6.2 Professional Services Agreement

6.2.1 A Contract to provide a professional service such as design.

6.3 Lump Sum Contracts

Either,

a) Where drawings and specification are provided and the Contractor is

responsible for taking off his own quantities

or,

b) Where the Employer provides quantities but there is no

remeasurement on completion (variations excepted).

6.4 Admeasurement Contracts

6.4.1 These are contracts where the Employer’s Designer/Quantity Surveyor provides a

full Bill of Quantities, but the quantities are only approximate and are remeasured

on completion.


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6.5 Contracts with a Priced Activity Schedule

6.5.1 A type of lump sum contract where the work is divided into activities that are

selected and priced by the Contractor.

6.6 Schedule of Rates Contracts

6.6.1 Rates are priced for a variety of work items without quantities. There is usually

an understanding (if not a contractual agreement) that a certain volume of work

will be generated. Profit and overheads are usually quoted as a percentage or as a

fixed fee.

6.6.2 The Contractor may be called upon to do any or all of the items of the work.

6.7 Term Contracts

6.7.1 Similar to a Schedule of Rates

6.7.2 The Contractor undertakes to carry out all of a particular type of work (e.g. repair

and maintenance) over a fixed period.

6.8 Serial Contracts

6.8.1 The Contractor undertakes similar work, probably in different locations, on a

rolling programme, using similar rates and conditions.

6.9 Design and Construct

6.9.1 The Contractor can be responsible for all or part of the design. A number of

Forms of Contract are written solely for Design and Construct (e.g. I.C.E. D & C

Conditions of Contract and J.C.T. 98 with Contractor’s Design).

6.9.2 Other forms can accommodate varying parts of the works being designed by the

Contractor (e.g. NEC Contracts). In the ICE Conditions (ICE 7th

Clause 8.2) the

Contractor may carry out parts of the permanent works design (e.g. piling).

6.9.3 The advantages and disadvantages of design and construct are discussed above

under Design.

6.10 Target Cost Contracts

6.10.1 These contracts provide an incentive for the Contractor to keep costs down for

both himself and the Employer.

6.10.2 The Target Price is the Contractor’s tendered estimate of Actual cost. The

Employer pays for the Actual Outturn Cost plus a fee (generally a percentage). If

the Actual Outturn Cost (subject to Compensation Events etc) is less than the

Target Price, the Contractor receives an agreed percentage of the saving. If it is

higher, he pays a percentage of the additional cost.

6.11 Cost Reimbursable Contracts

6.11.1 This type of contract is used when it is not possible to define the works

accurately or where extensive variations are anticipated.


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6.11.2 The Contractor’s direct costs are reimbursed plus a fee. The fee may be a

percentage, or a fixed sum

6.12 Management

6.12.1 In Management-type Contracts the Management Contractor or Construction

Manager manages the contract but does not generally carry out the work himself.

This is done by Works or Package Contractors. The Works Packages are

designed so as to leave no gaps at the interface between the Works Contracts.

6.12.2 The Management Contractor should be appointed as a member of the Project

Team at a very early stage, and certainly before the design is carried out. He will

be involved in the selection of other members of the team.

6.12.3 The philosophy of management contracting is that the Management Contractor

has a low commercial risk and hence can manage the project solely for the

benefit of the Employer.

Management Contracting

All of the Works Contractors are subcontractors to the Management

Contractor. The Employer pays for the total cost of the work and this

payment is passed on to the Works Contractors. In addition, the Management

Contractor receives a percentage fee to cover profit and overheads, plus an

agreed cost of the services he provides (staff and site office overheads, etc)

Since the Works Contractors are in contract with the Management Contractor

their contractual responsibility (and hence perceived financial return) is to the

Management Contractor. This allows the Management Contractor to exert

greater control. The Management Contractor also benefits from the cash flow

through his books.

Construction Management

A similar arrangement, except that the Works Contractors are in direct

contract with the Employer.

This is a fee-earning type of contract and the Construction Manager must

have low overheads. Since the Works Contractors are not in contract with the

Construction Manager their contractual responsibility is to the Employer but

they receive instructions from the Construction Manager. This can present

problems.

Design and Manage

Similar to Management Contracting but design is included. Payment for the

designers is similar to that of a Works Contractor.

Project Management

Can have many definitions, but generally describes the function of setting up

a Contract from the inception to final completion.


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Project Managers come from many backgrounds including professional

specialists, quantity surveyors, consultants and contractors. Employers

frequently carry out this function themselves.

Generally Project Management would include the management of land

acquisition, obtaining Planning Consent, appointing designers, quantity

surveyors, contractors and overall financial control.

Typically there would only be a small management resource with the process

being carried out by others

6.13 Turnkey

6.13.1 This is an all-in Contract in which the Contractor/Supplier provides a total

service. The Employer may only state his requirements in terms of the final

product (e.g. a power station producing a defined amount of power) and the

works are then fully designed, constructed and commissioned so that a future

operator can take over a functioning facility on completion.

6.14 PFI Contracts

6.15 Design Build Finance Operate (DBFO) / Public Private Partnership (PPP)

etc.

6.15.1 These usually involve a complex Concession Agreement with a wide

hierarchy of supporting agreements. They are bespoke for specific

projects.

6.15.2 The Highways Agency has its own form of contract.

7 ICE CONDITIONS OF CONTRACT

7.1 Introduction

7.1.1 As has been stated the ICE Conditions have been in use for very many years.

The following versions may be encountered:

• I.C.E. 6th Edition (1991)

• I.C.E. 7th Edition, Measurement Version (1999)

• I.C.E. Design and Construct 2nd

Edition (2001)

• I.C.E. Minor Works 3rd

Edition

• I.C.E Term Version 1st Edition

7.2 I.C.E. 7th

Edition, Measurement Version (1999)

7.2.1 General

7.2.1.1 The Conditions set out in a carefully structured form the various obligations and

rights of the Employer and Contractor that become the basis of their contractual


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arrangement. They also identify and describe the role of the Engineer and the

Engineer’s Representative.

7.2.2 The Form of Tender

7.2.2.1 This is a preformed statement whereby the tenderer offers to enter into a contract

to undertake work in accordance with the stated documents and it is signed by the

tenderer (Ref. Specimen included with the ICE Conditions of Contract). The

offer when accepted without qualification forms the binding contract. At this

stage the contract is in simple form. It is generally intended that subsequently the

contract will be executed formally as a deed for which purpose the Form of

Agreement is used.

7.2.2.2 If a tender is only accepted conditionally, this amounts to a counter-offer and the

contract is not formed until it in turn is accepted.

7.2.2.3 The Form of Tender is generally accompanied by an Appendix, which is a

vehicle for setting out salient facts required by the Conditions of Contract (Ref.

Specimen included with the ICE Conditions of Contract). Part 1 is completed by

the Engineer prior to invitation of tenders, whilst Part 2 is to be completed by the

contractors when tendering.

7.2.3 The Form of Agreement

7.2.3.1 This document is a restatement of the contract, which has usually been entered

into at an earlier stage by the offer and acceptance procedure. It is used to

complete the contract as a deed. Within this agreement are stated the various

contract documents and care should be taken to ensure that they are entirely

complete and without ambiguity.

7.2.4 The Engineer

7.2.4.1 There are only two parties to the Contract, the Employer and the Contractor and

they may sign the Form of Agreement as a Deed. Nevertheless, the role of the

Engineer is fundamental to the ICE Conditions.

7.2.4.2 The Engineer (see Clause 2) who has to be a named Chartered Engineer is

required to act impartially. The duties of the Engineer are set out in the

Conditions and in effect he administers the contract. In many cases the firm that

is appointed to take the Engineer’s role will also have carried out the design.

7.2.4.3 The Engineer’s duties and responsibilities fall into two parts:

a) He acts independently in respect of issuing certificates and making

decisions under Clause 66 (Disputes).

b) He acts as the Employer’s agent when ordering variations or supplying

information.

7.2.5 Contractor’s General Responsibilities

7.2.5.1 Clause 8 sets out the Contractor’s general responsibilities, which in effect are to

be responsible for labour, materials and workmanship, but not the design. E.g.:


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Clause 8 (1) “The Contractor shall subject to the provisions of the

contract

a) Construct and complete the Works and

b) Provide all labour materials Contractor’s Equipment

Temporary Works transport …... and everything whether of

a temporary or permanent nature required in and for such

construction and completion so far as the necessity for

providing the same is specified in or reasonably to be

inferred from the contract.”

(Note this latter wording is an important qualification and an

example of balance in the contract)

Clause 8 (2) The Contractor shall not be responsible for the design or

specification of the Permanent Works ……… etc.

Clause 11 covers the provision of information and the sufficiency of the Tender.

Clause 11 (1) (revised in the 7th Edition)

Requires the Contractor to be responsible for the

interpretation of information provided by the Employer

before the Tender, in respect of ground conditions and pipes

and cables. Information obtained on behalf of the Employer

but not provided to the Contractor at the tender stage can no

longer be taken into account (as was the permitted with the

6th Edition).

Clause 11(2) This is an all embracing clause stating that the Contractor

shall be deemed to have inspected and examined the Site and

information connected therewith and have satisfied himself

in respect of ground conditions, the extent and nature of the

work and access (etc.) and “in general to have obtained for

himself all necessary information as to the risks

contingencies and all other circumstances which may

influence or affect his tender.”

Clause 11 (3) The contractor is deemed to have based his tender on the

aforesaid inspection and examination and satisfied himself as

to the correctness and sufficiency of the rates and prices in

the Bill of Quantities, “which shall (unless otherwise

provided in the Contract) cover all his obligations under the

contract.”

7.2.5.2 Although these clauses sometimes lead people to believe that the Contractor

should be deemed to have allowed for everything in his prices there are many

clauses, which give the Contractor entitlement to additional payment.

7.3 I.C.E. Design and Construct 2nd

Edition (2001)

7.3.1 Overall Concept

7.3.1.1 Guidelines Clause 2.1


TYPES OF CONTRACT


15

“The basis of these Conditions is that of an Employer who sets out in the

Employer’s Requirements the design brief and other matters relating to design

and construction ….. and that of a Contractor who then develops these

Employer’s Requirements and designs and constructs the Works”.

7.3.2 Design

Clause 8 General Obligations

- “Design, and construct and complete” replaces “construct and complete”

- it now requires provision of “all design services” as well as “all labour

and materials” (Clause 8 (1) )

7.3.3 Employer’s Representative

Clause 1

- “Employer’s Representative” is a new defined term.

Clause 2

- The Employer’s Representative replaces the role of the Engineer under

the ICE 7th. Hence the title “Engineer” does not exist in ICE D&C

Conditions.

- The Employer’s Representative carries out the duties etc that were

previously carried out by the Engineer and can issue instructions, inspect

the works, certify payments, etc but the Employer’s Representative

cannot amend the Contract.

- Throughout the document there are many clauses, which are very similar

to ICE 7th, but with the words “Engineer” replaced by “Employer’s

Representative”.

- The Employer’s Representative can issue instructions and he has the

power to alter the Employer’s Requirements (Clause 51).

- It is acknowledged that the Employer’s Representative is acting as the

agent of the Employer (see Guidance Notes). (This is also the case with

the Engineer).

- The Employer’s Representative does not now have to be an engineer. (It

is a requirement of ICE 7th that the Engineer is a Chartered Engineer).

- The independent role of the Engineer has been eroded over the years.

The change in title to “Employer’s Representative” recognises this shift

of emphasis although the related clauses have very similar wording.

- In practice the change is fundamental because under ICE D&C the

Contractor is responsible for ensuring the work carried out is acceptable

under the Contract (N.B. in ICE 7th, it has to be acceptable to the

Engineer)


TYPES OF CONTRACT


16

7.3.4 Employer’s Requirements

Clause 1 - “Employer’s Requirements” is a new defined term

Form of Tender - The Employer’s Requirements are set out in a document of

that name issued to Tenderers. Their scope may vary from

a statement of the overall requirement to a far more detailed

description including outline design, specification,

standards of performance, appearance and other matters.

The Employer’s Requirements may also set out:

- Requirements for a quality assurance scheme

- safety issues relating to adjacent structures

- the length of the Defects Liability Period, etc

Clause 5 - If there are any ambiguities or discrepancies between the

Employer’s Requirements and the Contractor’s Submission

the Employer’s Requirements shall prevail.

Clause 51 - The Employer’s Representative has the power to alter the

Employer’s Requirements after consultation with the

Contractor.

7.3.5 Contractor’s Submission

Clause 1

- “Contractor’s Submission” is a defined term meaning “the tender and all the

documents forming part of the Contractor’s offer together with ----

modifications and additions ----- etc”

Guidance Notes

- It is envisaged that there is a period of negotiation during which the

Employer’s Requirements and the Contractor’s Submission are amended so

that they set out an agreed scheme and specification for the Works. This is

not a normal procedure under ICE 7th.

7.3.6 Contractor’s Representative

Clause 1 - “Contractor’s Representative” is a new defined term.

Clause 15 - The Contractor is required to provide a named person who will

provide overall superintendence of the Works. (called the

Contractor’s Representative)


TYPES OF CONTRACT


17

- The Contractor’s Representative is required to have authority to

act and commit the Contractor as if he were the Contractor for

the purposes of the Contract.

7.3.7 Checking of design and workmanship by the Contractor

Responsibility for ensuring that the work is acceptable under the Contract is entirely

with the Contractor. [This is a change from the principle of the Engineer checking work

in ICE 7th]

Clause 36 (1) and (2)

- “.. requires the Works to be designed constructed and completed

in accordance with the Contract etc”.

- “All materials and workmanship to be of the respective kinds

described in the Contract or …… to be appropriate in all the

circumstances”.

7.3.8 Alterations and Additional Payments

Clause 51 - The Employer’s Representative has the power after Consultation

with the Contractor’s Representative to alter the Employer’s

Requirements.

Clause 52 - When requested by the Employer’s Representative the

Contractor is required to submit a quotation and an estimate of

delay. Wherever possible the value and delay should be agreed

before work starts.

7.3.9 Payment

Clause 1 - “Contract price” is a defined term and means the sum to be

ascertained and paid for the design, construction and completion

of the Works.

Clause 55 - Unlike ICE 7th there is no specific requirement for a Bill of

Quantities although in particular cases it may be called for.

Clause 56 - In ICE 7th the principle of admeasurement (measure and value)

is used (Clause 56 (1)) and the Engineer has to “ascertain and

determine” the “value”.

- ICE D&C departs radically from this principle. The Form of

Tender provides for payment on a lump sum basis although


TYPES OF CONTRACT


18

other forms of payment may be used.

7.4 ICE Conditions of Contract for Minor Works, 2nd

Edition (1995)

7.4.1 This standard form is designed for smaller and simpler contracts for which the

main ICE 7th Edition Conditions would be considered over complex.

7.4.2 Its intended use is for those contracts which:

i. Are relatively low cost and straightforward,

ii. Exclude Contractor’s design liability for permanent works,

iii. Exclude nominated subcontractors,

iv. Have design completed before invitation of tenders.

7.4.3 The Minor Works form follows the main 7th Edition in broad principle but the

following differences should be noted.

i. It is not specifically drafted as a remeasurement contract; other bases of

evaluation may be used.

ii. There are no measurement clauses,

iii. There is no procedural clause governing submission of claims,

iv. Nominated subcontracting is not provided for,

v. Insurance of the Works is at the option of the Employer,

vi. Liquidated Damages will have a maximum limit,

vii. There are no rules governing determination

8.0 CECA Form of Subcontract (Blue Form)

8.1 This Form of subcontract agreement is designed for use with the ICE Conditions

of Contract.

8.2 A Sub-contract is a contract between two parties, usually the main contractor and

the sub-contractor. It is a contract in its own right and all the usual provisions of

contract law apply.

8.3 The only distinguishing feature between a sub-contract and any other contract is

that it is an element of a larger contract into which the main contractor has

entered with another party - the employer. To facilitate this relationship there are

links between the main contract and sub-contracts, of which there may be several

in any one scheme, whereby the sub-contractor is expected to recognise the main

contractor's obligations and assume similar responsibilities.

8.4 Whilst it is clear that a sub-contractor will have obligations towards the employer

flowing through the contractual link via the main contractor, there is privity of

contract between the sub-contractor and main contractor and separately between


TYPES OF CONTRACT


19

the main contractor and employer i.e. there is no direct link between the

employer and sub-contractor and therefore no contractual liability one to the

other.

Employer

Contractor

1 2 3 Etc.

Sub-contractors

8.5 In certain circumstances, arising from representations made by a sub-contractor to

an employer upon which the employer relies, a collateral contract can be created..

Shanklin Pier Ltd -v- Detel Products Ltd (1951). A similar principle has recently

been introduced in the Contracts (Rights of Third Parties) Act 1999, which came

into force for contracts formed from 11th May 2000 onwards. The Act allows

parties to exclude its provisions by incorporation of specific wording in contract

terms and conditions, eg. Clause 3(2) of the CECA Form of Sub-contract.

8.6 Where there is no legally enforceable connection between employer and sub-

contractor, the employer's only course of action in the event of a breach of contract,

even if it is the sub-contractor's fault, is against the main contractor, who in turn can

take action against the sub-contractor. This immediately breaks down if the chain is

broken, i.e. the main contractor is no longer there, as there is no direct contractual

link between the employer and sub-contractor. Faced with this predicament,

employers have attempted actions in tort against sub-contractors, with limited

success. e.g. Junior Books -v- Veitchi Co. Ltd (1983).

8.7 This case marked the high point of success of such actions and the law seems to

have settled on the principle that an injured party can successfully pursue an action

for negligence against another but only to the extent of compensation for physical

damage or injury: this does not extend to economic loss.

8.8 It is as a result of the exposure suffered by employers caused by this lack of direct

contractual liability that there has been such an upsurge in the requirement for

collateral warranties. These are agreements entered into by parties involved in

construction contracts but who, in the normal contractual structure, have no

contractual liabilities. A common example is the collateral warranty between

employer and sub-contractor, which is a separate agreement between them creating

legally enforceable rights to each other. For many years there has been a standard

form of warranty for building contracts, currently referred to as Agreement NSC/W,

being part of the JCT Standard Forms for Building Contracts, but there is no

standard form for civil engineering works. NSC/W provides amongst other matters,

warranties from the sub-contractor in respect of suitability of design, materials and

compliance with any performance specification, whilst confirming the sub-

contractor's right to direct payment by the employer in the event that the main

contractor fails to make such payment.

8.9 Collateral warranties may also be encountered between funding authorities and main

contractor and sub-contractors; between building owners (if different from the

developers) and main contractor and sub-contractors; between tenants and main


TYPES OF CONTRACT


20

contractor and sub-contractors. All such agreements have to be executed either as a

deed or with nominal consideration, otherwise they are not binding.

8.10 If the provisions of the Contracts (Rights of Third Parties) Act are not written out of

contracts, then it is hoped that the need for collateral warranties will largely

disappear.

8.11 Different types of sub-contractor.

a) Nominated sub-contractor

- A sub-contractor who is chosen by the Employer, often before the

Contractor is selected, and notified to the Contractor. There are

specific provisions within Clauses 58 and 59 of the Main Contract

governing the appointment of nominated sub-contractors and only if

those procedures are followed, can a sub-contractor be correctly

described as nominated.

- The term `sub-contractor' in this instance includes suppliers only of

goods as well as suppliers and installers.

- Depending upon individual circumstances it may be prudent for an

Employer/Sub-contractor warranty to be concluded.

b) Domestic sub-contractor

- A sub-contractor who is entirely the Contractor's choice. The

Employer and Engineer will have little interest in such arrangements

other than the over-riding consideration of ensuring the work is

satisfactory. Clause 4 of the Main Contract gives power to the

Engineer to take action in the event of a sub-contractor's unsatisfactory

performance.

c) Specified sub-contractor

- A sub-contractor named by the Employer to whom the Contractor has

no right of objection. In such situations the requirement is for the

Contractor to employ the sub-contractor on the same basis as a

domestic sub-contractor i.e. the Contractor has to take all the risks

without any of the safeguards provided by the nomination procedure. It

is a system which is frowned upon by the industry generally but

nevertheless is still used.

Provided the sub-contractor fulfils his obligations satisfactorily then

there is no problem. The difficulties arise when the opposite happens:

the Contractor has an obligation to use the specified sub-contractor but

has no solution if he fails to perform. Incorporation of a specified sub-

contractor into the main contract is usually accomplished by

information, including the name of the sub-contractor, being available

to the Contractor before the main contract is formed. It would be

impossible to impose such a sub-contractor at a later stage without the

Contractor’s agreement, although there could be difficulties if the main

contract included provision for the Employer or Engineer to specify

sub-contractors of their choice during the course of the contract.


TYPES OF CONTRACT


21

d) Labour only sub-contractors

(8) Although referred to in Clause 4(3) of the Main Contract and in the

C.E.C.A. Daywork Schedules, there is no clear definition of this type

of sub-contractor. Taken literally it would mean provision purely of

labour services to the Contractor in an alternative manner to his own

employees. In practice many sub-contractors, referred to loosely as

labour only, also provide their own plant and sometimes make minor

contributions of materials.

Labour only sub-contractors are entirely a matter for the Contractor’s

own choice and the form of sub-contract between them is often

expressed in only the simplest of terms, if at all.

8.12 Main Contract Provisions

8.12.1 Clause 4. Sub-contracting generally.

(9) The Contractor may sub-contract the whole of the Works but only with the

prior written consent of the Employer.

- Unless the Contract forbids it, the Contractor can sub-contract any part

of the Works or their design. The Contractor must notify the Engineer

in writing the name and address of the sub-contractor a minimum of 14

days before entry upon the Site or, in the case of design, upon

appointment. The Engineer has 7 days in which to object to the

proposed sub-contractor, giving reasons in writing.

This requirement does not apply to labour only sub-contractors.

- The Contractor is responsible for all activities of the sub-contractor.

- Any sub-contractor who fails to perform his duties satisfactorily, may

be dismissed by instruction from the Engineer to the Contractor after

written warning from the Engineer.

8.12.2 Clauses 58 and 59. Nominated Sub-contractors.

- There are only two ways in which a Nominated Sub-contractor may be

appointed: either via a Provisional Sum or a Prime Cost Item.

Definitions of both are to be found in Clause 1(1) with further

explanation in CESMM, Section 5.

- A Provisional Sum is included within the contract for works, which at

tender stage are uncertain. After the Contract is formed the Engineer

may instruct expenditure of Provisional Sums either by employment of

the Contractor or a Nominated Sub-contractor or not at all.

- A Prime Cost Item is included in the contract for specific works,

usually of a specialist nature, for which it is envisaged a Nominated

Sub-contractor will be employed, although the Engineer still has the

choice whether to ask the Contractor or a Nominated Sub-contractor.


TYPES OF CONTRACT


22

However in this case the Contractor can choose whether or not he

wishes to take on the work.

- If expenditure of a Provisional Sum or Prime Cost Item is intended to

include design obligations, then that must be stated in the contract

documents, otherwise the Contractor will not carry this liability, even

though the sub-contractor may shoulder the task.

- A series of provisions are stated in Clause 59 for the regulation of

Nominated Sub-contract arrangements. They may be summarised as

follows.

(1) The Contractor can object to entering into the Sub-contract if the Sub-

contractor is not prepared to accept similar obligations to those imposed

on the Contractor under the Main Contract or indemnify the Contractor

in the case of default by the Sub-contractor.

(2) When a sub-contract is not successfully concluded or if it is validly

terminated, the Engineer is required to decide on an alternative course

of action which may be:

(a) nominate an alternative sub-contractor,

(b) vary the works,

I omit the work so that it is dealt with separately by the

Employer; the Contractor is still entitled to his charges and

profit;

(d) instruct the Contractor to obtain a price from an alternative

sub-contractor of the Contractor’s choice,

(e) ask the Contractor to do the work.

(3) The Contractor carries full responsibility for the sub-contract works to

the same extent as if he had done them himself.

(4) If the Contractor believes he has valid grounds for terminating the Sub-

contractor’s employment, he must notify the Engineer in writing with

reasons. Only if the Engineer agrees in writing with this course of

action, is the Contractor allowed to proceed with the termination.

Whatever additional costs the termination may have caused to the

Contractor and Employer, the Contractor is to take all practical steps to

recover them from the defaulting Sub-contractor or bondsman, if there

is one. To the extent that such costs are not recoverable, they are to be

reimbursed to the Contractor by the Employer.

(5) The Contractor will be paid in respect of sub-contract work, the net

value except discounts for prompt payment, plus the values identified in

the Bill of Quantities for labours, other charges and profit.

(6) The Engineer is to be provided by the Contractor with all quotes and

payment papers relating to the Sub-contract when requested.

(7) The Employer may make payment direct to the Sub-contractor the

value of any payment which the Contractor has failed to pass on. The

Engineer’s certificate is required for this to happen but before taking


TYPES OF CONTRACT


23

this step, the Contractor is to be allowed to give written explanation to

both the Engineer and the Sub-contractor.

8.13 The C.E.C.A. Standard Form of Sub-contract (July 1998).

8.13.1 The Form of Sub-contract (often referred to as the Blue Form) has been produced by

the Federation of Civil Engineering Contractors, now replaced by the Civil

Engineering Contractors Association, for use in conjunction with the I.C.E.

Conditions of Contract. However, it is not obligatory to use this Form and it is not

referred to within the I.C.E. Contract.

8.13.2 The Sub-contract Form is equally capable of use whether for domestic or nominated

sub-contracts. Its links to the I.C.E. Contract (the Main Contract) are created by

specific reference as follows.

(1) The introductory wording of the Agreement declares that the Sub-

contractor has had an opportunity to read and note the provisions of the

Main Contract with the exception of the Contractor’s prices.

(2) Clause 3(1). The Sub-contractor is deemed to have full knowledge of

the provisions of the Main Contract. The Contractor is required to

provide a fully copy of the Main Contract, except for prices, to the Sub-

contractor, if requested and at the Sub-contractor’s cost. No charge is

made if it is just a copy of the Appendix to the Form of Tender of the

Main Contract and any contract conditions which differ from the

standard I.C.E. Conditions, but the Sub-contractor is still required to

make the request.

(3) Clause 3(2). The Sub-contractor is to comply with all the obligations of

the Main Contract insofar as they apply to the Sub-contract works.

(4) Clause 3(4). Breaches of the Sub-contract by the Sub-contractor are

likely in turn to cause the Contractor to be in breach of the Main

Contract and other contracts and this is to be within the contemplation

of the parties. When linked with Clause 3(3) the Sub-contractor takes

full liability for the costs of breaches which he causes. (Victoria

Laundry (Windsor) Ltd –v- Newman Industries Ltd (1949)).

(5) In various other places throughout the Sub-contract Clauses, there are

references to the Engineer and the Employer having influence over the

Sub-contractor’s works and activities.

8.13.3 The Sub-contract is not restricted to one method of pricing like the Main Contract

but may be either a lump sum or a measure and value contract - Clause 1(1)(e).

8.13.4 To ensure that the Sub-contract is clearly identified, in particular its links with the

Main Contract, there are five Schedules which are required to be completed giving

specific information pertaining to the Sub-contract. They are accompanied by Notes

for Guidance on their completion.

8.13.5 First Schedule. Particulars of the Main Contract.

Date when Main Contract formed.


TYPES OF CONTRACT


24

Names of Employer and Contractor.

A list of documents comprising the Main Contract.

Brief description of Main Contract Works.

Dates when the Contractor will be submitting his valuation

statements to the Engineer. This is termed the `Specified Date'

which governs the time table for submission of the Sub-

contractor's valuation statements - Clause 15.

The minimum amount of interim certificates.

8.13.6 Second Schedule. Sub-contract general details.

A full list of Sub-contract Documents. Note that standard printed

conditions attached to other documents are automatically

excluded unless specifically included by reference here -Clause

1(1)(b).

A description of the Sub-contract Works.

Price fluctuation provisions, if any.

The Main Contract Arbitration Procedure.

8.13.7 Third Schedule. Sub-contract valuation and completion information.

Provision for indication that the Sub-contract is lump sum or

measure and value.

Note that where a bill of quantities is included within the Sub-

contract Documents, it is not intended to define the limit of the

work unless expressly stated - Clause 9(4).

Percentage of retention held from the value of works and

materials.

Limit of retention, if any.

Period for completion. Note that there are no provisions for

liquidated damages. Any damages would be actual, as

established by circumstances.

Minimum value of work before payment is triggered.

Note that the Contractor has discretion whether or not to apply

this sanction.

8.13.8 Fourth Schedule. Contractor's facilities provided for the Sub-contractor.

Part I, Common Facilities - Clause 4(2). Divided into two parts,

Contractor's equipment and other facilities. This part of the

Schedule is to be completed identifying such items which the

Contractor is prepared to make available for the use of the Sub-


TYPES OF CONTRACT


25

contractor and any other contractors, e.g. water, lighting, lifting

equipment, etc. Any conditions of use and charges are to be

identified.

Part II, Exclusive Facilities - Clause 4(3). Also divided into two

parts, Contractor's equipment and other facilities but in this

instance the Sub-contractor has exclusive use of these items.

Again conditions of use and charges are to be stated.

8.13.9 Fifth Schedule. Insurances - Clause 14

Part I, Sub-contractor's insurances. The particular liabilities to be

insured are to be stated e.g. third party similar to Clause 23 of the

Main Contract.

Part II, Contractor's insurance. If the Contractor's insurance

cover for the Works is to extend to cover the Sub-contractor's

liability then details are to be given. If the cover does not extend

to the Sub-contractor then this Part of the Schedule should be

marked `not applicable'.

In both Parts care is to be taken to avoid duplication of insurance

cover.

8.13.10 The Standard Form concludes with space for signature by the parties either as a

simple contract or a contract as a deed.

8.13.11 Examination of Important Provisions.

1. Issuing Instructions

(a) The Sub-contractor is to comply with instructions and decisions given

by the Engineer or the Engineer's Representative provided the

Contractor issues them in writing - Clause 7(1).

(b) The Contractor and Sub-contractor have the same powers and rights to

issue instructions and receive decisions as the Engineer and Contractor

enjoy under the Main Contract - Clause 7(2). The Main Contract

Clause governing these provisions is 2(6), which includes confirmation

of oral instructions.

(c) All variations are to be instructed by the Contractor in writing. The

Sub-contractor is to ignore any variation which is not in writing -

Clause 8(1), (2) and (3).

2. Time for Completion

(a) Sub-contract operations are to start on site within 10 days (unless

otherwise agreed) of the Contractor's written instruction - Clause

6(1).

(b) Works are to proceed with diligence and without delay, unless

sanctioned or ordered by the Contractor or beyond the control of the

Sub-contractor - Clause 6(1). (West Faulkener Associates -v- London

Borough of Newham (1992)).


TYPES OF CONTRACT


26

(c) Sub-contract works should be completed within the Period for

Completion stated in the Third Schedule - Clause 6(1).

(d) The Sub-contractor is entitled to an extension of the Period for

Completion if any delay occurs which:

(i) entitles the Contractor to an extension of time under the Main

Contract (other than resulting from the Sub-contractor's

default);

(ii) is as a result of a variation to the Sub-contract Works;

(iii) is a breach of the Sub-contract by the Contractor.

- Clause 6(2).

(e) The Sub-contract Works may be divided into parts with separate

Periods of Completion. To be detailed in the Third Schedule - Clause

6(3).

(f) The Sub-contractor is to be notified by the Contractor of all extensions

of time which are granted under the Main Contract and which relate to

the Sub-contract.

(g) There is no clause referring to preparation of a programme for the Sub-

contract Works but as it is an obligation under the Main Contract

(Clause 14), it could also be required under the Sub-contract - Clause

3(2).

3. Payment Provisions

(a) Schedule 1 identifies the `Specified Date' for submission of the

Contractor's valuation statements to the Engineer. The Sub-contractor

is required to submit his statement to the Contractor at least 7 days

before that date - Clause 15(1)(a).

(b) The value of work done, materials on and off site up to the date of the

statement is to be included in it in the form and detail required by the

Contractor and at the rates contained in the Sub-contract - Clause

15(1)(a).

(c) The Contractor is required to pursue payment by the Employer of

certified values including those on behalf of the Sub-contractor - Clause

15(2)(b).

(d) Payment falls due to the Sub-contractor within 35 days of the Specified

Date and the Contractor is to determine the amount within the same 35

days. The Contractor then has a further 3 days in which to make

payment. - Clause 15(3)(a).

(e) The Contractor may with-hold payment in whole or in part, if:

(i) Contra-charges are levied as provided under the Sub-contract.

(ii) Sums are set off in accordance with Common Law.


TYPES OF CONTRACT


27

(iii) The value does not reach the minimum payment amount under

the Sub-contract or the minimum certificate value is not

reached under the Main Contract.

(iv) The value is reduced, disputed or otherwise not certified by the

Engineer or is not paid through the Employer’s insolvency.

(v) The value is disputed by the Contractor or Employer.

- Clause 15(3)(b).

(f) Different time scales apply where the Sub-contractor’s valuation

statement becomes incorporated into the Contractor’s final account. In

this case the Contractor notifies the Sub-contractor in writing of the

amount which the Engineer certifies relative to the Sub-contract works,

within 28 days of certification. Payment is made 7 days later unless the

Employer is insolvent. - Clause 15(3)(d). .

(g) Interest is payable upon any sums incorrectly with-held at the same rate

as provided in the Main Contract. - Clause 15(e) and (f).

(h) First half of retention is released to the Sub-contractor within 35 days of

it's inclusion in the Engineer's certificate, unless the Employer is

insolvent.

Second half of retention is released within 28 days of the issue of the

Defects Correction Certificate, with payment being made 7 days after

the Contractor’s notification to the Sub-contractor.

- Clause 15(5)(a) and (b).

(i) No later than 3 months after completion of defects (Clause 13) or 14

days after the Contractor receives payment from the Employer,

whichever is sooner, the Contractor is to notify the Sub-contractor of

the final Sub-contract value. Payment occurs 7 days later.

This is dependant upon expiration of 1 month after the Sub-contractor's

submission of his ‘valid statement of final account' to the Contractor -

Clause 15(6).

(j) The Sub-contractor must put in writing to the Contractor all his claims

for payment prior to issue of the Defects Correction Certificate under

the Main Contract, otherwise he loses all entitlement - Clause 15(7).

(k) All notifications of payment from the Contractor must state the amount

and basis of calculation. - Clause 15(8).

(l) If the Contractor intends to with-hold any payment after the date when

payment is to be made then he must notify the Sub-contractor not less

than 1 day earlier. The notice must explain how much and why. -

Clause 15(9).

(m) Variations are valued at or based upon prices contained in the Sub-

contract or, if not applicable, then at fair and reasonable rates - Clause

9(2).


TYPES OF CONTRACT


28

(n) Variations valued on a daywork basis are to follow the rules contained

in the Main Contract using rates in the Sub-contract or, if there are

none, in accordance with the F.C.E.C. Daywork Schedule - Clause

9(5).

(o) Claims for adverse physical conditions or artificial obstructions. The

Sub-contractor is to give written notice to the Contractor in sufficient

time to enable the Contractor to comply with his obligations under the

Main Contract. Provided this is done, then the Sub-contractor is

entitled to the same benefits in both time and expense as the Contractor

is entitled under the Main Contract, but no more. - Clause 10(2)

9 NEC Engineering and Construction Contract (3rd

Edition)

9.1 One of the principal aims of the NEC was greater clarity and simplicity compared

with more traditional conditions of contract.

9.2 Chronology of the development from the NEC to the ECC.

9.2.1 It was March 1993 when the first edition was launched with a number of major

companies1 adopting this type of contract as their preferred procurement route.

9.2.2 During 1994 the first editions of the Adjudicator’s Contract and the Professional

Services Contract (PSC) were published.

9.2.3 The PSC was designed to be used for design, project or construction management

services or site supervision both when using the NEC as the construction

contract.

9.2.4 In November 1995 the second edition of the NEC was published and renamed the

NEC Engineering and Construction Contract (ECC).

9.2.5 In April 1998 amendments to the payment and adjudication clauses of the ECC

were published as an addendum in order to comply with the Housing Grants

Construction and Regeneration Act 1996, Part II.

9.2.6 Shortly after the above amendments an in or around June 1998 the second

editions of the Adjudicator’s and Professional Services Contracts were published.

9.2.7 During 1999 the Engineering Construction Short Contract was published.

9.3 The ECC tries to describe a generic process for the management of problems

which inevitably arise during a construction or engineering project. In doing this

it attempts to tread a fine line between sufficient tightness, so that contract

participants follow the procedures and sufficient looseness so that it can be

interpreted in a way appropriate to the situation encountered. However, this

stimulus of good Project Management is dependant upon all parties ‘singing from

the same hymn sheet’ and being committed to a common goal, i.e. embracing the

full philosophy of partnering.

9.4 In June 2005 the third edition of the NEC was published. The NEC 3 family of

contracts comprises of;

1 One off larger companies being BAA


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� the NEC 3 Engineering and Construction Contract

� the NEC 3 Engineering and Construction Sub-Contract

� the NEC 3 Professional Services Contract

� the NEC 3 Short Contract

� the NEC 3 Short Sub-Contract

� the NEC 3 Adjudicator’s Contract

� the NEC 3 Term Services Contract

� the NEC 3 Framework Contract

9.5 The NEC 3 Contracts are supported by officially published guidance notes, flow

charts and an advisory document entitled NEC 3 Procurement and Contract

Strategies. The Engineering and Construction Contract has six main procurement

options. Whilst the ‘Black Book’ covers all six options, each option has been

published separately. In all, the complete set of NEC 3 documents (as at June

2005) comprised twenty three volumes.

9.6 The amount of change from ECC 2 to NEC 3 is quite small in volume terms -

perhaps no more than 5% or so of the text. However, that belies the importance of

the changes. There are new provisions of considerable potential impact and

changes which significantly affect the operation of the contract. And as with

changes generally to contracts and other formal documents, a change in one clause,

however small, can have effects not immediately apparent on other clauses. For these

reasons and because there has been quite an amount of re-arrangement and re-

numbering, NEC 3 is best treated as a new contract rather than an update of ECC 2

9.7 Significant new features

key dates - these are dates set by the employer by which

the contractor has to bring a stated part of the

works to a specified condition.

risk register - a register maintained by the project manager

and intended to include all risks stated in the

contract data or subsequently identified by the

project manager and the contractor.

key performance indicators - aspects of performance for which targets are

set in an incentive schedule.

prevention provisions - new clauses by which the employer carries

the time and cost risks of events similar to,

but potentially wider than, force majeure.

entire agreement clause - statement that the contract is the entire

agreement between the parties.

quotations treated - right to submit quotations for ‘comp-events’ as having been accepted


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limitation of liability - new option clause limiting the contractor's

liability to the employer for indirect or

consequential loss.

delay damages - proportioning down clause included for parts

of the works taken over before completion.

9.8 Significant Changes

cost schedules - increased use of shorter schedule of cost

components to simplify assessment of

compensation events.

rates and lump sums - by agreement rates and lump sums can be

used to assess compensation events.

fee percentages - separate fee percentages for subcontracted

work and direct work.

conditions precedent - revised and clarified provisions on notices

and timing restrictions for the submission of

compensation events.

Interest - revised and clarified provisions on

entitlements to interest.

dispute resolution - choice to be made between alternative sets of provisions.

9.9 The full details of the NEC 3 Suite of Contracts will be discussed in lectures 4 &

5 and therefore they are not repeated herein.

10 OTHER STANDARD FORMS OF CONTRACT

10.1 Institution of Chemical Engineers

2. Institution of Chemical Engineers

Model Form for Process Plants, 3rd

Edition (Red Book)

Suitable for lump sum contracts

3. Institution of Chemical Engineers

Model Form for Process Plants (Green Book)

Suitable for cost reimbursement contracts

4. Model Form of Subcontract (Yellow Book)

For use in conjunction with the Institution of Chemical Engineers

Forms of contract

These forms of contract have been widely used in the water industry.


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10.2 Joint Contract Tribunal

JCT 98 Standard Forms of Building Contracts

- Private With Quantities

- Private Without Quantities

- Local Authority With Quantities

- Local Authority Without Quantities

- Private With Approximate Quantities

- Local Authority With Approximate Quantities

- Contractors Design Portion Supplement

JCT 98 with Contractors Design

JCT 98 Intermediate Form

JCT 98 Management Contracting

JCT 98 Measured Term

JCT 98 Minor works

JCT 98 Prime Cost

JCT 98 Works Contract

These are the most frequently used contracts in the building industry.

10.3 Government Contracts

GC/Works/I (1998) (replaces GC/Works/1 Edit 3)

- With Bill of Quantities

- Without Bill of Quantities

- Design / Build

GC/Works/2 (1998) Minor Works (replaces GC/Works/2 (1990) and C1010)

GC/Works/3 (1998) (replaces C1020 and C1030)

Mechanical/Electrical

GC/Works/4 (1998)

Mechanical / Electrical Small Works (replaces C1001)

Used on a wide range of Government contracts.


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11.0 Typical Exam Questions (2004)

Question 5

Boring Workers Limited is employed to construct a 5km motorway extension by Wiltshire

County Council. The form of Contract is the ICE 7th Edition.

Part of the Works consisted of the construction of a 150 metres single bore tunnel. Shortly

after the tunnel had driven approximately 25 metres the rate of tunnelling production slowed

significantly. Boring Workers informed the Engineers Representative that tunnelling

conditions had deteriorated due to the presence of rock which, Boring Workers maintain,

was not foreseen. Boring Workers have informed the Engineers Representative that they

would be making a claim under the Contract for both additional payment and extensions of

time

a. Outline the steps which Boring Workers has to take, by reference to the

conditions of contract, to establish an entitlement to:

i) additional payment; and [7 marks]

ii) extension of time [7 marks]

b. Describe the nature of the information which Boring Workers should provide to the

Engineer to enable him to make a decision [11 marks]

Question 6

You are the Engineer's Representative to whom full authority under the ICE 7th has been

delegated by the Engineer.

a. i) Describe what powers you have under the contract to effect the removal of

defective work from Site. [5 marks]

ii) Identify what powers you have under the contract to oblige the

contractor to open up works and alternatively to search for defects.

Additionally

explain who is responsible for the cost of opening or searching in the event

that

no defects are found. [8 marks]

The Contractor gives you 5 days notice of his intention to carry out a concrete pour to a

section of a retaining wall. Due to reasons beyond your control you are unable to inspect the

Contractor's work. The Contractor waits several hours for you to turn up and eventually

proceeds with the pour without having his work inspected.

b. Was the Contractor right to proceed with the pour in the absence of an inspection from

you? [5 marks]


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Part of the retaining wall is subsequently found to be defective. The Contractor claims

additional costs and an extension of time on the basis that had you inspected the work prior

to the pour the defective work would have been discovered.

c. By reference to the contract conditions explain the approach you would take to

determine the Contractor's claims. [7 marks]

Question 8

By reference to the ICE 7th Edition

a. In what circumstances can the Engineer order variations to the Works?

b. Explain the procedure to be followed by the Engineer in ascertain the value of

variations ordered by him, outlining the factors which the Engineer has to consider in

reaching a fair valuation.

c. The contractor maintains that due to variations instructed by the Engineer the rates

and prices for various elements of work are no longer applicable.

Does the contractor have a remedy under the contract to have these rates and prices

adjusted?

What obligations are placed on the Engineer to consider and adjust such rates and

prices?

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