Case Study

Question 1

What is a DoV?

Answer 1

Deed of Variation is a legal document that “varies” or changes one or more clauses of a former contractual agreement.

Question 2

How did I manage stakeholder expectations throughout the OSR DoV negotiations?

Answer 2

Initial meetings with stakeholders/ clients identified objectives and desired timescales

I then had meetings with the contractor to ascertain whether these timescales were achievable and advised the stakeholders on the ability to meet these timescales

Regular meetings with the stakeholders enabled me to advise them on the progress being made, options considered and obtain their feedback to use in negotiations going forward. Stakeholder buy in at all stages of the negotiations was important to allow informed decisions and agreements to be made.

I documented and visualised analysis of the options (quantitative table showing achievement of objectives and qualitative assessment of each option)

Question 3

How did I align EFC/ quantify contractor liabilities?

Answer 3

I produced a liabilities schedule for subbie accounts, identifying the fixed price for measured work reviewing additional items presented to date as either CE’s, contra charge or disallowable cost. I identified further allowances in the latest forecast allocating these into the three identified categories.

I held regular meetings with the appropriate contractor’s administrators discussing and obtaining additional information to allow items to be correctly assessed and categorised.

Clear communication was vital for successfully establishing contractual principles, negotiating and agreeing the valuation of the subcontractor EFCs.

Question 4

How were the contract models assessed for the OSR DoV?

Answer 4

Discussions were had with MS to review the different options and identify how it achieved the objectives. (table detailing advantages and disadvantages and which objectives were achieved). Cost model was also produced to look at financially best option. The outcomes of this were passed onto the business and they were advised that this was the most suitable option.

Question 5

What communication and negotiation techniques were used?

Answer 5

Identify the objectives & strategy (e.g. OSR was the client & main contractor objectives identified in initial meetings, a timeline and strategy- align EFC, review models)

Identify the authority (e.g. OSR was commercial director/ CCO, regular meetings with these parties allowed us to receive authority and to make empowered decisions during the meetings)

Understand true stop position (e.g. OSR we identified how much were we willing to give away before it became unequitable and no deal should be made)

Emails/ meeting minutes/ key items discussed sent out following calls/ meetings to keep a record of discussions and identify actions.

EFC build up, cost models, table showing equitability etc. used to provide evidence/ present to parties to show our view

Question 6

How were risks quantified for OSR?

Answer 6

Risk workshop held to update the risk register based on reduced contractual liabilities. E.g. risk estimated costs min, max, and expected may be altered due to prolongation risks not having prelim costs associated.

The EMV (expected cost x risk probability) for contractor risks was then used to calculate a suitable risk value.

Question 7

What were the change control & governance procedures for the DoV2?

Answer 7

An internal variation recommendation was required to support the change and request additional procurement authority and evidence compliance with procurement regulations.

A Programme Investment Committee paper was required to realign the funding (give pack saving made through reduced EFC and risk).

The actual DoV2 T&Cs (schedule of amendments, updated contract data, SoCC etc. implemented the actual change in the contract between the parties)

Question 8

How did the people rates within an Option E work? And what issues were caused by this?

Answer 8

The framework in which the original call-off was let under included a schedule for maximum people rates with no allowance for overtime. Whilst it is not the norm for agreed framework rates to be used in an Option E as it is just based on actual cost to employ, it was agreed as part of DoV1 that the maximum people rates would be used and inflation applied. It was also agreed that overtime would be paid based on these framework rates to accelerate programme.

This caused two issues, one being the inflation index used to uplift the people rates, the other being payment of overtime.

Question 9

What is meant by the term without prejudice discount?

Answer 9

Without prejudice means not to be used in court. Statements made in writing or in meetings and discussions as part of a genuine attempt to settle an existing dispute can be prevented from being put to a court as evidence against the party.

Therefore the negotiation of a without prejudice discount means a proposed discount which is not to be used against MS in a dispute, until it is part of the signed DoV.

Question 10

What is re-baselining programme?

Answer 10

Amending the agreed contract completion date, this effectively removes any delay damages as the Employer is entitled to charge delay damages at X amount per day after the contract completion date until the date of actual completion/ Employer takes over the works

Question 11

How would the discount be reduced based on EFC?

Answer 11

Maximum discount agreed is £4m based on an EFC of £106m. For every £500k the EFC is reduced by, the discount reduces by £250k. Therefore should the EFC be reduced as far as £98m, no discount would apply.

This was mechanised in the contract by saying up to £98m TfL would pay 100% of Work Done to Date between £98m and £106m we would pay 50% of PWDD. After £106m when the full discount would have been reached, we would then go back to paying 100% of the PWDD

Question 12

Any other solutions to resolve key issue other than change contract

Answer 12

Greater involvement from TfL/ assistance in management was attempted to try to mitigate spiralling cost & programme.

Change in project teams also attempted looking to drive collaboration and improving working relationships but again little change.

Question 13

What were the contractual amendments made and the implications of these?

Answer 13

Fixed price agreed for General Preliminaries- contractor accountable for schedule overrun

Contract Completion date changed- removed damages to date

Delay damages free period reduced- contractor accountable for schedule overrun

£4m discount- settlement of commercial issues

Question 14

How the contractual amendments on the OSR DoV worked

Answer 14

Contract data updated
- payment schedule added for General Preliminaries & schedules showing inclusions into General Preliminaries.
- discount mechanism added
- contract completion amended and reduced damages free period

Schedule detailing amendments to conditions of contract
- Payment & CE mechanism changed to state splitting out of General Preliminaries and all other Defined Cost, the same as reporting of forecast
- all other relevant amendments to the Option E clauses to ensure implementation of the fixed price and without prejudice discount

Schedule of Cost Components
- Updated to spilt out General Preliminaries & other Defined Cost

Question 15

How is the Lawyer unbiased?

Answer 15

Whilst I can acknowledge that due to the lawyer being employed by the client, complete impartiality may be difficult. There was an agreement between the parties to employ the lawyer to ensure the clear drafting of the contract, implementing the agreed changes into the contract.

Also as with us as Quantity Surveyors, layers have an obligation to be impartial and ensure that the amendments are fair to both parties, and as per the intentions of both parties.

Question 16

What has led to the changes in cost on the OSR project?

Answer 16

• £55m Implemented change/ scope additions
• £27m Prolongation/ coordination

Question 17

How have the costs changed on the OSR subcontracts you oversee?

Answer 17

The cost of measured work was circa £5m

That has now doubled to circa £10m:
- £3m due to additional/ unlet scope and Employer led change
- £2m due to prolongation (mainly due to coordination/ access delays)

Question 18

Why is the OSR risk & opportunity figure unchanged across all option?

Answer 18

This is the main contractors figure based on the risk of the works which would still remain the same.

We amended our internal risk value which we add onto the EFC to obtain an appropriate Procurement Authority and budget request

Question 19

Why is the incentive payment unchanged across all option?

Answer 19

The incentive payment has already been paid

Question 20

Why was the risk & opportunity figure unchanged?

Answer 20

This was the figure provided by the contractor for their view of risk. They only changed this figure based on additional risk to them for an option A contract.

The TfL internal reported risk figure was amended based on reduced contractual liabilities. It changed from £7m to £4.2m

Question 21

What was the reason for the scope changes which led to the first DoV?

Answer 21

• design updates and scope additions including re-design of the MSE & UKPN enclosure
• changes as a result of a drive from TfL and the Mayor to deliver the project as quickly as possible resulting in some construction elements starting before sufficient development of design and all necessary consents achieved e.g LBI

Question 22

What options were reviewed as part of the first DoV

Answer 22

• to continue as an option C was deemed to be increasingly challenging due to extent of scope changes with more effort spent on negotiating cost and programme than delivering works
• options to terminate contract and re tender/ deliver in house were deemed more costly due to termination fees and time/ lack of resources to re tender/ deliver in house
• stop the project completely was considered but due to cost to date and zero benefits delivered this was discounted
• option e was believed to reduce EFC by £9m due to risk transfer back to client with £4.5m to be used as incentivisation to prevent cost and programme increase. Believed more focus would also be spent on delivering the project

Question 23

Would a change of the pain gain split on the original contract have been more effective than the DoV1?

Answer 23

Whilst it would have been possible to amend the pain split, it was deemed an unsuitable option as

• it was difficult to set/ agree the prices as a result of the emerging scope and request of acceleration without an agreed completion date
• the contractor was not willing to take accountability of risk due to the immature scope and programme so would either have priced in such a high risk it would have been unviable for our business to accept or they would have wanted such a low pain percentage (still with risk priced in) that it might as well have been an option e

It was therefore deemed that we were best placed to manage the risk and could use some of the risk reduced from the contractors pricing as an incentive to achieving the works as quick as possible and to the lowest cost as possible

Question 24

How does option 4, full option E worsen main contractor commercial standing if they are already under option E?

Answer 24

They were making money on their staff as the staff rates were from the framework, if we paid the actuals on this it would have been less

Question 25

What made up £30m EFC increase from contract award to DoV1?

Answer 25

Additional scope & increased labour resources/ weekend working to accelerate programme

Question 26

What caused programme delays from award to DoV1, DoV1 to when I joined & whilst I joined

Answer 26

Award to DoV1- design updates and scope additions including re-design of the MSE & UKPN enclosure

DoV1 to DoV2- Covid-19, design issues (fire system in retail units, bin store roof), clashes with utility providers, poor coordination

Question 27

Why could an Option A/ C could not be agreed if there was an aligned EFC

Answer 27

the alignment was based on a number of assumptions, if the main contractor was responsible for the risk of changes to these assumptions they would not have agreed to it, e.g. some prolongation was agreed at 75% based on information to date but only as they knew if further information came to light or a contra charge was not agreed they could still recover the full value of this cost. For option A they would not commit to a risk value due to design uncertainty, for option C there was packages that they were still concerned once started could have design development issues that would not constitute CE/ contra charge and under option C they would have to share cost of this.

Question 28

What was the inflation mechanism agreed on OSR DoV2

Answer 28

BCIS PAFI- Civil Engineering
As per RICS guidance in the Fluctuations guidance note, this was selected as its most relevant to the works being measured

Question 29

What was the original tender process for this contract.

Answer 29

Single stage tender undertaken via a selective tender from our civils framework for a design and build procurement.

Works were split into 2 stages:

Stage 1- design (option E with the deliverable being a design and revised target price for stage 2).

Stage 2- Build (option C with original target set as per tender and revised following stage 1).

Contract had a break clause to allow Employer to go back to the business following issue of revised target to achieve re-endorsement of the works. Once confirmation from Employer that they were satisfied the Employer would issue the Contractor with a notice to proceed for stage 2.

Question 30

How did the re-design issues come about if the works were split into 2 stages. Was this not picked up in stage 1 and included in revised target value?

Answer 30

The stage 1 design was produced by the Contractor based on the Employers requirements/ concept which was for the MSE with seating up the roof like times square.

The Employer then issued the notice to proceed for stage 2 with the target price based on this design however unknown to the project team the Employer had still not received approved planning permission for this concept.

Shortly into stage 2 the planning permission was rejected and the Contractor requested to re-design the MSE. At this time the request for acceleration also came in due to pressure from local government to improve the safety.

Question 31

How did Covid-19 impact the project and how was it dealt with under the contract?

Answer 31

Covid had limited impact on the ongoing design elements as this was able to continue through remote working.

Construction was also able to continue but with significantly reduced productivity due to safe working policies such as social distancing.

Under the contract clause 60.1 (19) was used for initial costs (prolongation, accommodation, welfare & PPE adjustments) and this CE was included within DoV1, however it assumed prolongation of 9 weeks due to early emergence of Covid-19 at the time of this CE & DoV1.

Following implementation of DoV1 and re-baselining of the programme the full extent of Covid-19 began to be evident with a much longer impact duration and the further lockdowns so the CE’s for this were based on 60.1 (17) which is a correction to an assumption by the PM.

Question 32

What is the risk of BCIS?

Answer 32

1. the level of inflation indicated by the BCIS index may differ from the actual inflation that affects the projects that are being delivered. E.g. if a project used a significant quantity of concrete, a significant increase in concrete prices as a result of high global demand would lead to an overall cost increase which would be greater than that predicted by the BCIS index
2. BCIS is a complex tool with multiple different indices available and different ways of applying them. Therefore those not familiar with how to correctly apply it could use the wrong information/ incorrectly apply the uplift.

Question 33

You had to agree a fixed price and must have been given a fee forecast for option C. Was the target setting the only reason this one wasn’t considered? If worked together on a price would have been better than option E running in part?

Answer 33

• A fixed price was never agreed with the values in the EFC build up being the Employers assumed risk values for the Contractor based on our evaluation of the risks and associated costs.
• So not just the concern of being able to set a target price/ fixed price but the time it would take to actually agree this would exceed the clients time objective and would limit the opportunity for this DoV to provide any benefit.

There were a number of subcontractor accounts where prices were assumed and the contractor would not commit to a price for these e.g. OAG (MSE glazing contractor) had £800k CE for costs associated with the movement of the structure, the cause of this movement (design or construction issue) is still not determined and therefore whether it is a CE or defined cost payable by the Employer is still not agreed.

Question 34

How did I check the valuation of subcontractor CE’s?

Answer 34

The subcontractor CE’s were valued using the shorter schedule of cost components in the subcontracts.

A build up to their CE assessments was included in the payment application where i check appropriate quantities/ duration had been used and the rates as per the subcontract.

I had access to these rates through clause 26 of the option E contract

Question 35

Why did you advise on escalation of X1 & overtime issues, what advise did you provide as part of this escalation & how was this resolved resolved?

Answer 35

-during the initial negotiation strategy discussions with the client they made it clear that the X1 item was non-negotiable and that the correct mechanism was not being used.

The contractor proposed that instead of a deduction in previous incorrect payments for this they would increase their WP discount so this would be returned via the discount mechanism instead. As the WP discount was a max discount based on an EFC which was higher than the Employers true belief there was a risk we would not receive the full discount and payment returned so I escalated this as it became beyond my authority.

To assist with this I advised the steering group (Senior commercial manager & head of procurement) of the clients previously stated position on this issue and the cost associated with this disagreement (£1.3m) so they could determine if it was an equitable deal.

Final decision was for the WP discount to be increased to account for the X1 and overtime payments incorrectly paid to date, and for the correct mechanisms to be applied from May 23.

Question 36

Why was EFC alignment required?

Answer 36

EFC alignment was required to prevent a dispute arising due to differences in X1 & overtime and disallowed costs. The Dov2 resolved the majority of this with some elements associated with disallowed costs for subcontractor items still to be fully agreed, hence Option E on these allows this to be possible

It was also required for cost certainty/ clarity of final cost for the Employer to ensure budget was available

Question 37

Why was a change in contract required?

Answer 37

A contract change was necessary to place more accountability on the contractor for prolongation and prevent increasing costs for the Employer due to programme extensions which could result in budget being exceeded

Question 38

What is section 72 of PCR 2015?

Answer 38

This clause sets out when a contract may be modified without a new procurement procedure being required.

Question 39

What is considered a substantive change under PCR 2015 Section 72(e)?

Answer 39

• renders the contract materially different from the initial one
• introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates; allowed for the acceptance of another tender, or attracted additional participants in the
  procurement procedure
• changes the economic balance of the contract in favour of the contractor in a manner not provided for in the initial contract
• extends the scope of the contract considerably
• replaces a contractor in cases other than those provided for in 72 (d)

Question 40

What is considered a permitted modification under procurement regulations?

Answer 40

The permitted reasons are:
72(a)– Changes that were provided for in the initial procurement documents in review clauses (Evidence must be provided e.g. contract extract)
72(b)- Additional works, services or supplies by the original contractor that have become necessary and were not included in the initial procurement
72(c)- Changes arising from circumstances which a diligent contracting authority could not have foreseen
72(d)- Change of contractor
72(e)- Non-substantial changes.
72(f)- Low value changes.