1st Section of questions Flashcards
What are the key contract documents, who produces them, what are some of the problems experienced with contract documentation?
Articles of agreement and conditions of a contract - Produced by solicitor, lawyer
Working drawings - Design consultant, employers advisor
Bills of quantities - Consultant, quantity surveyor
Specifications - Consultant
Main problems:
- Missing information
- Late information
- Wrong information
- Insufficient detail
- Impractical designs
- Unclear Information
What is the definition of a contract?
A contract is a legally binding agreement which imposes legally binding duties and responsibilities upon the parties to a contract.
A written or spoken agreement that is intended to be enforceable by law
A contract is a legally binding agreement between two parties
How do you know if it is a contract, what are the essential elements?
OFFER and ACCEPTANCE
Parties must intend to be legally bound
Parties must have provided valuable consideration
Parties must have legally capacity to act
Genuine consent of the parties
What are the key rights and obligations of the parties to the contract?
Contract defines the rights and obligations of the parties
Sets out procedures for claims due to problems which arise under or in connection with the contract
What are the main standard forms of contract in construction and why are these used?
Contract documents are produced by commitees which seek to represent a variety of interests:
Documents:
- FIDIC
- NEC3
- JCT
- ICE
- IChemE
Benefits:
- Not subject to imminent pressures and will have been crafted with care
- Available and predictable
- Reliable
- Tried and tested
- Confidence and predictability that most of the risks are covered and sensibly dealt with
- Designed to ensure that the risks are shared out in a proportionate and workable manner
Problems:
- New forms and forms including for mandatory ADR, not tried and tested
- Ammendments and Z clauses
- People - contracts are only as good as the people entrusted with operating them. The choice of individual can therefore be as important as the choice of contract.
What is FIDIC?
FIDIC is a standard form of contract
It’s key objectives are to represent the interests of consulting engineers internationally
To promote professional interests and to develop and disseminate documents, practice notes, and policies which are of value to the members and the engineering development industry generally.
Intended for international use
However, increasingly used for domestic projects
- Drafted by engineers with lawyers to ensure legal consistency
- Drafted based on ICE conditions of contract
What does the opening paragraph of NEC3 say?
NEC is a modern day family of contracts that facilitates the implementation of sound project management principles and practices as well as defining legal relationships.
What are the 3 objectives of NEC3? Be able to describe the key principles of each objective.
Stimulus to Good Management:
- By focusing on communications, co-operation and programme
- Updated risk register and active risk management
- Early warning of issues as process for resolution
- Timescales to all actions, some sanctions/stimuli if not done - especially for project manager
- Separate and better defined roles and responsibilities
- Period of reply is defined in contract data
Flexibility:
- Promotes easy selection of BEST FIT procurement route for project circumstance
- Whole family of interlocking contracts for engineering and construction as well as any term or professional contract
- Similar structure and terminology across whole family to promote ease of learning
- MODULAR STRUCTURE within each contract so that can rapidly assembly BEST FIT procurement arrangement without expensive legal input
Clarity:
- Simple and common structure
- Shorter sentences, bullet points, no cross referencing
- Less ssubjective: precise definitions
- Avoidance of technical and legalistic language
- Clear division of function
- Clearer definition of compensation events and client risks
What are some of the problems with respect NEC3 in general and with respect to clarity that were discussed on the module?
- It’s not always clear whether the contract intends to impose obligation on the contractor or project manager
- In conventional drafting obligations and optional activities are distinguished by the use of “must, or shall” for the former “may” for the latter
- NEC3 and its predecessors occasionally make use of these expressions but more frequently it simply describes the activity that is anticipated
- It is ironic that in one of the few instances that “shall” is used in relation to the some what vague obligation in the core clause 1 to “act in a spirit of mutual trust and co-operation”
What are the main procurement options in NEC3 and where does the risk lie with each?
Option A: Priced with activity schedule
Option B: Priced with bill of quantities
Option C: Target cost with activity schedule
Option D: Target cost with bill of quantities
Option E: Cost Reimbursement
Option F: Management Contract
Going from A to E employer takes more risk and contractor takes less risk.
What is meant by ‘pain-gain’ share?
The intention behind NEC target contracts is to share the “pain” of cost overruns and the “gain” of the cost savings between contractor and employer.
This gives both parties an interest in completing the project on time and on budget and, where possible, incorporating value engineering changes.
Pain gain share does not take place until completion when a preliminary assessment of the contractors share is made, with a final assessment being made at the final accounting stage.
Difference in total prices and the price for work done to date = share ranges
Briefly discuss how NEC3 treats early warnings and compensation events.
Early Warning - The vehicle for notification and commencement of the project based risk management process
NEC3 utilises early warning to highlight risks and mitigate them through collaboration between the contractor and PM o that an efficient solution is found
If the contractor does not notify a compensation event within 8 weeks of becoming aware of the event, he is not entitled to a change in the prices.
A compensation event is awarded by the NEC3 contract when the contractor encompasses a risk to which they are not expected to resolve alone when it arrives by no fault of their own. A compensation event is only awarded by the PM and is quoted for by the contractor after an early warning risk reduction meeting has taken place.
How much does it cost typically to tender?
Tender costs are usually 0.5% of contract value.
Describe a typical tender process.
Tender Notification Published Expression of Interest Pre-Qualification Questionnaire Invitation to Tender Tender Preparation Evaluation Contract Award Feedback
Give examples of items that might need pricing in a tender.
Direct works Project staff Offices and rates including clients requirements Utilities including IT Signage, hoarding, fencing and security Temporary Works Waste Management
