Case Study Flashcards
Why was a bespoke contract used?
-Similar to NEC Term Services Contract (and JCT Measured Term Services contract)
-But TSC didn’t have provision for SoR jobs….. This bespoke contract had both SoR + Cost Reimbusrable projects
As well as lump sum/target cost tenders (basically copied NEC options)
-So this contract a hybrid of TSC and framework
-Trying to cover a large variety of jobs that fit into the ‘simple’ category
Also had:
-Bespoke payment terms for the SoR, such as rates include up to 1.5m of excavation
-Many bespoke arrangements such as more detailed inflation, creation of new rates, novation (not a thing in NEC)
-Bespoke KPI’s eg whether documented images are sufficient for small jobs
How does an NEC framework contract work?
-Very slim contract that facilitates others
-Clients can get suitable contractors in for work they haven’t sorted out yet and then issue out specific NEC contracts
-So they don’t have to go to open tender every time
How did the bespoke contract work?
-Works called off using works orders based on client’s paid quotes
What was the bespoke contract hard for
-Simple projects that weren’t Major Projects or Capital Delivery
-Did not go through external tendering
-Did not require complex work, and could be priced entirely on framework rates eg preliminaries and basic staff
Issue 1
How would cash flow be maintained for the contractor?
And how would this affect TW?
-They were expected to be able to account for not paying the site setup rate
-Contractor passed financial health tests based on expected contract value
-The only mechanism was payment on account, which was used for when the jobs had not been assessed
-If there were issues, then possibility of step in rights of contractors from other contracts
Issue 1
How would cash flow be maintained by TW?
-Cash flow was not an issue on this contract
-Costs not accounted for (allocated to a specific section) in the financial year would result in an OPEX loss to the business, and would essentially be deducted from any profit made on this contract
-So basically if costs were paid from this dispute after April, then would be loss
-In terms of the wider picture, would contribute to the statutory undertaker’s debt and difficulty in securing funding
Issue 1
Why was it bad that the costs would be absorbed as Tariffs?
-The cost to TW for that financial year is calculated on average of all jobs
-So paying the site setup costs would essentially mean a required increase to customer’s bills
How is work instructed?
Call off works orders based on client’s paid quote, with client’s requirements, TW concept design
How did SoR projects and bespoke projects differ?
SoR projects based on the rates and cost reimbursable costs (for select costs)
Bespoke projects paid on actual cost basis , using NEC principles eg compensation events
What is a novation agreement
Agreement where contractual rights transferred from one party to another
One contract is rescinded (in TW case a work order) and a fresh contract is substituted in where the original contract obligations carried out by different party
Transfers benefits AND burdens
How did the novation agreement work in this contract?
-Works order (mini contract) stages that design done by TW design team and is a TW risk
-When it changed from a traditional (SoR) project to a D&B project, the original works order was rescinded and a new was was put in place
-this new contract now had the contractor having design control, but it required APPROVAL from the 2 specific TW designers (who did concept design) to be signed off
-Effectively allowed those TW designers to go and work on other projects, but had that extra safety of TW approval, so retained a bit of design control
-Did not use a ‘consultant switch’ as these were internal (in-house) TW designers
Note: TW retained responsibility of design done at concept stage
What was in the novation agreement?
-Make clear which services the TW designers will do under the contractor: provide documents, assist with innovation, and approve it the contractor’s final design
-Gives TW final approval of design despite contractor having responsibility of design
-Likewise, states that contractor only responsible for design AFTER the agreement (TW responsible for the concept design)
-The burden of ‘right to pay’ stayed with TW as they paid the designers
-Original contract had express terms that had to accept novation
Why was assignment not used?
Assignment only transfers the benefits of the first party’s benefits to the second party, not the obligations
So would have not transferred the design risk
Issue 2
Who had design risk?
-TW had design risk for concept design
-Contractor had design risk once contract signed to change to D&B project
(Novation a separate agreement signed at similar time)
-Novation agreement stated TW held design risk for works done at concept stage
Issue 2
Following the change from SoR to D&B project, was there an increase in programme?
And how was it calculated?
Yes, increased from 70 days original programme to 130 days D&B, but this was less than 160 days of traditional
This is because contract states contractor has a minimum of 30 days to design and 30 days to tender. Could do them at the same time in same number of days
If TW designed it, after speaking to designers they stated it wouldn’t be much quicker
——-
-Original (SoR): 70 days
-LLC delay (SoR): 70 + estimated 30 days excavation delay = 100
-Traditional (bespoke): 70 + 30 days design + retender 30 days + estimated 30 days excavation delay = 160
-D&B (bespoke): 70 + 30 days design and retender + estimated 30 days excavation delay = 130
30 days minimum in accordance with public procurement minimum time for contractor. Following discussions with the internal team/contractor, I determined that this would be a sufficient tender period for the contractor to design the works and tender to a decent standard.
If TW did the design (traditional), TW internal designers estimated approximately 30 days to redesign the works, and so it done traditionally would need this 30 days plus 30 days for minimum retendering
Note: project privately funded but framework contract states contractor entitled to minimum 30 days tendering
30 day LLC delay: I advised PM on issuing a framework instruction to contractor to halt the works and change scope. (Contractor not to be entitled to these costs as in a framework agreement but were allowed demob/remob costs)
Contractor then produced a revised programme of 30 days additional delay (DIFFERENCE between original excavation and excavation with LLC).
I assessed its validity with the PM and then viewed this 30 days proposed delay against the other durations above to produce a procurement length for each option, where I advised design & build was within The Client’s time period
Issue 2
How much longer was the new pipe?
-original pipe 272m
-new pipe 330m
Issue 2
How would redesign/traditional procurement facilitate a lower price?
-Redesign and doing it internally (traditional procurement) go hand in hand
-Because new design not possible under rate card as has complex connection
-If want to go through rate card route, then have to keep the design simple (and deal with low level concrete)
-So did a negotiated tender of new design to be LOWER than the original route going through the LLC
Issue 2
How did you know that redesigning it (and procuring it though traditional or design and build) would be cheaper than the original route?
-Used historical data to do a high level estimate: determined that extra bit of pipe and new connection would be cheaper than 272m of LLC
-Pipe would now be paid on actual cost, which is cheaper than rate card (which is only used for convenience of assessing lots of jobs)
-Contractor obliged to provide tender, but TW had option to continue with original options if cheaper price couldn’t be determined
Issue 2
What variations occurred?
-Delay in closure of footpath and roads
-Delay in re-coordinating water shut
-Long lead materials of specialist fittings those issued by TW
-Ground conditions provided by TW more challenging than envisaged, didn’t have sufficient time for full ground investigation
-Flooding which was a client risk under contract
What materials make up a road?
-Natural Earth
-Sub base (type 1 - crushed aggregate which has been compacted)
-Base course
-Binder course
-Wearing
Issue 2
How does initial site investigation work?
For mains jobs that require site investigation. contractor is paid for these works under NEC Option E
(Just like DSTC1)
Advantage and disadvantages of framework agreements
Advantages:
- Encourages long term collaboration between parties
- Saves time through procurement process
- Opportunity for repeat work
- Rates and prices usually agreed up front
- Capped OH&P
Disadvantages:
- Contractors can become complacent
- Bidders could invest time and money to get onto the framework, then not receive any work
-High administrative burden
What is novation?
-Where the obligations and deliverables of one party is transferred from one party to another party, by agreement of all parties involved.
-Transfers burdens and benefits
-For example, a design team who has a contractual obligation to a client, may then be moved to work directly for the contractor, and therefore their obligations and rights have transferred to the contractor
Advantages and disadvantages of novation?
Advantages:
-reduced learning curve due to familiarity with project, team and client
-Reduce contractual risk for employer, as design liability is transferred to the contractor
Disadvantages:
-employer will require execution of collateral warranties to the designers to ensure the employer retains recourse against the original consultant for potential design liability….. BUT IN THIS CASE STUDY THERE IS AN EXPRESS TERM THAT DOES THIS ALREADY
-Potential conflict of interest as designers may feel obligated to still support the client and maintain that relationship, and also may find it difficult to critique their own design
Issue 2
How were the site investigation works dealt with:
1 when LLC first discovered (before the re-procurement happen)
2 site investigation carried on during design and build tender
1 paid on cost reimbursable basis (option E)
2 works continued under same contract as above
How did you ensure competition was apparent / value for money provided on this non competitive tender?
-Done with open book tendering, so contractor provided COMPETITION AT SUBCONTRACTOR LEVEL with subcontractor quotations eg for materials, surveys
-Ensure pre agreed framework rates were used (COMPETITION FOR RATES) eg staff, prelims, plant, labour gangs already done through competitive process
Understand where the competition was ^
-
-Ensuring value for money even though only one contractor
-Ensure tendered costs align with scope and programme
-Value got money report once agreed
What were the advantages and disadvantages of negotiated tendering?
Advantages:
- Speed of appointment
- No tender analysis required
- Process allows for early contractor involvement
Disadvantages:
- Contract negotiations could be lengthy and therefore cause delays
- Cost premium due to lack of competition
- Heavy reliance of trust between parties
- No competition with other contractors
What issues with the Rate Card did this issue show?
-Best used when scope of works cannot be determined
-Basically used for convenience of assessing lots of jobs
-But on this occasion, Project X should probably should never have been used under this pricing method
Issue 2
Why did you advise on target cost
Employer’s requirements not fully formed and so not 100% sure there would be no changes
Issue 2
Disadvantage of target cost
In the end, the profit was shared with the contractor
But it can be argued that this was offset by the contractor working more collaboratively to get under budget (as priced with open book accounting)
Issue 2
How did contract work in terms of new procurement?
Jobs through rate card initially procured through works orders
But bespoke projects are let under NEC contracts
-So site investigation works under option E
-Then main works procured through Option C
Issue 2
What is difference between RIBA Stage 2 and 3?
Stage 2 for straight project with simple connections
Stage 3 when engineering information required such as on projects with lots of turns, complicated connections, thrust blocks
Issue 2
When might you recommend a framework?
• If client wishes to reduce time associated with procurement
• Financial benefits, eg maximum
OH&P
• Efficiency benefits, eg procurement team on hand to advise
• Public sector clients would generally use frameworks for procurement
Issue 2
What were the original programme requirements?
Service connections have standard times based on value (client doesn’t have briefs for these jobs and TW aim to complete in 40 days)
For mains, programme is provided by the contractor and a careful consideration of requirements
Issue 2
Do the projects have change control procedures?
No (service and mains)
Only if they are procured as ‘bespoke projects’
What are the advantages and disadvantages of Bespoke Contracts?
Advantages:
- Flexibility
- Tailored to meet the needs of the project
Disadvantages:
- Can conflict with legislation if not properly drafted
- Can be expensive
- Can have conflicting clauses
- No experience of lessons learnt as the contract is new
- Risk may be unevenly distributed between parties
-No case law for disputes
