***Emily Law 06.06.24 (Forwarded Questions) Flashcards
Continued from previous session (03.06.24)
Key issue 2 (Cont’d)
Option 2: Omitting a substantial amount of works could lead to the contractor claiming loss of profit, how would you deal with this? [also, The greater loss of profit - Option 1 or Option 2? - OPTION 1 TERMINATION - abrupt end and no time for the contractor to make alternative arrangements to mitigate losses, HOWEVER, Option 2 depends on the size and the balance of add/omissions that occur - which can’t be predicted!]
Short answer:
Contractor would need to demonstrate the basis of the claim, link costs to causes, provide evidence of the costs.
Process - Notification sent indicating contractual basis of claim ie Relevent Matter; I review validity; make assessment (approximation)/ascertain (identification) of actual costs and agree payment on this basis.
Loss of profit - Heads of Claim:
-Underemployment of labour/plant
-Resource that could have used elsewhere.
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The contractor would need to make a claim for loss and expense:
-Notify client that they will claim L&E stating the reasons and the conditions of contract in which this is possible.
-Identify the costs they wish to claim - indicating which Heads of Claim they are claiming under eg loss of profit due to ‘underemployed labour/plant’; change in quantities; change in conditions of working.
-Provide substantiation of the costs claimed broken down, in the examples above, by, demonstrating profit that would have been made under initial contract and the loss in profit they made as a result of the changes.
-Work that could have been undertaken elsewhere with their resources and the profit lost from this
-Others??
-The contract administrator would confirm the changes are a result of Instruction and the client is liable.
-I would assess the costs, reach agreement, and recommend the payment due to the CA and Client.
-….?
The greater loss of profit - Option 1 or Option 2? - Termination ie more abrupt ending, no time to make preparations for alternative works - therefore greater loss of profit? (wider costs - company OH to arrange termination; prelims arrange shutdown take a while; …??
1/2 Chat GPT: (THIS IS GOOD - but similar to the Termination expenses identified further down)
If a SUBSTANTIAL AMOUNT OF WORK IS OMITTED from the contract after works have already started, a contractor may make several typical Loss and Expense claims, including:
Loss of Profit:
Profit that would have been earned from the omitted work.
Costs Incurred to Date:
Costs already incurred on the omitted work, including materials, labor, and subcontractor payments.
Demobilization Costs:
Expenses related to the cessation of work on the omitted portion, including the removal of equipment and personnel from that area.
Wasted Expenditure:
Costs for work done or materials purchased specifically for the omitted work that cannot be repurposed or used elsewhere.
Storage and Protection Costs:
Expenses for storing and protecting materials and equipment intended for the omitted work.
Overhead Costs:
Proportionate share of the contractor’s overheads that were allocated to the omitted work.
Legal and Professional Fees:
Legal and professional costs associated with addressing the contractual changes, including any required documentation or negotiations.
Financing Costs:
Interest or financing costs related to loans or credit used to fund the omitted work.
Penalties and Damages:
Any penalties or damages the contractor may incur from subcontractors or suppliers due to the omission of work.
Reallocation Costs:
Costs associated with reassigning labor and equipment to other parts of the project or different projects.
Impact on Project Schedule:
Additional costs if the omission affects the project schedule, such as delays or acceleration costs for remaining work.
These claims need to be substantiated with detailed records and documentation to demonstrate the extent of the loss and expense incurred by the contractor due to the omission of work.
2/2 Chat GPT: (THIS IS GOOD)
If a building contract is WRONGFULLY TERMINATED by a client, a contractor may make several typical Loss and Expense claims, including:
Loss of Profit:
Profit that the contractor would have earned had the contract not been wrongfully terminated.
Costs Incurred to Date:
Costs already incurred by the contractor up to the point of termination, including materials, labor, and subcontractor payments.
Demobilization Costs:
Expenses related to the cessation of work and removal of equipment and personnel from the site.
Remobilization Costs:
Costs incurred if the contractor needs to remobilize to another site or project.
Wasted Expenditure:
Costs for work done or materials purchased that cannot be repurposed or used elsewhere.
Storage and Protection Costs:
Expenses for storing and protecting materials and equipment that were intended for the project.
Overhead Costs:
Proportionate share of the contractor’s overheads that were allocated to the project.
Legal and Professional Fees:
Legal and professional costs associated with addressing the wrongful termination, including legal advice and potential litigation costs.
Financing Costs:
Interest or financing costs related to loans or credit used to fund the project.
Penalties and Damages:
Any penalties or damages the contractor may incur from subcontractors or suppliers due to the premature termination of the contract.
Loss of Future Opportunities:
Potential loss of future work or reputation damage resulting from the wrongful termination.
These claims are typically substantiated with detailed records and documentation to demonstrate the extent of the loss and expense incurred by the contractor.
Option 2: Overlapping of contractor could result in the line of responsibility being unclear, what would be the risk of this and how to mitigate?
Alex Spring flashcard.
Hand notes
Risk - H&S(CDM - Principal Contractor); Insurance (responsibility for site)
Areas of responsibility need to be clearly delineated and no dual working within areas unless a Principal Contractor is identified and takes responsibility for all actions within that area. - manages H&S and the carrying out of works (insurance requirements).
Option 3: Could you talk me through the process of open book approach that you introduced?
Joint ownership of the developing scope of works:
1) Documents:
-AFA doc
-Programme
-Variations list
2) Conditions:
-Time at Large (Statement: ‘The parties agree that time shall be at large, and the Contractor shall complete the works within a reasonable time’.
-EoT no longer applicable
-LADs no longer applicable
-No L&E claims outside of agreed variation costs and prolongation costs.
-OPEN BOOK: Variations are given estimated costs based on valuation rules and/or ‘reasonable’ ie market rates, either agreed at that rate or contractor submits additional costs required
-OPEN BOOK: No hidden costs from contractor ie transparency! Early warning from contractor if any additional costs are required to proceed with variations. Additional costs allowed to demonstrate variations not profitable ie if contract rated works = £x and the contractor’s costs = £y (based on subcontractor invoices; prime costs process - quotes, material costs, labour rates; then £y would apply if higher and OHP added accordingly)
-The contractor will not be entitled to any payments beyond the capped contract sum.
3) Management:
-Weekly meeting discussing joint development and agreements of the three key docs
-Agreements recorded in AFA
-Discussions minuted
-All parties feed into, develop, and agree the three key documents.
-Mitigation of costs and staying within budget the primary focus.
-Scope reductions or VE requirements developed as AFA budget demands.
-Variations are given estimated costs based on valuation rules and/or ‘reasonable’ ie market rates, either agreed at that rate or contractor submits additional costs required (OPEN BOOK section above).
-Variations are Instructed when programme demands and the Instruction identifies the costs agreed.
Please provide one example where you have complied with RICS rules of conduct in your case study.
Among the three, which of them incur highest cost to the client?
Short answer below:
Ultimately, the Key Issue and solution is dependent on MINIMISING Risk and MAXIMISING Efficiency.
All options have elements of risk (the scope of works is unknown!).
The most efficient method to proceed is Option 3 where an efficient method for management and planning is used. This method also minimises risk associated with the other options.
Least risk and most efficiency - lowest cost - OPTION 3.
Great risk and least efficient - highest cost - Option 1 (abrupt, highest waste (L&E), future market costs, no consideration of developing scope).
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Option 1:
-L&E - ref earlier answer ie Abrupt, no time to arrange alternatives - higher than option 2. HIGH
-Prof Fees - HIgh, High, 10 weeks, £9k HIGH
-Total Construction Period - SHORTEST/LOW
-Preliminary Costs - MOST EFFICIENT (new contract)
-Rates - HIGH (all FUTURE market rates)
Overall: HIGHEST COST
Option 2:
-L&E - ref earlier answer ie depends on the size and balance of add/omissions, but lower than option 1. LOWER
-Prof Fees - High, Low, 8 weeks, £6k. LOWER
-Total Construction Period - LONGER/HIGHER
-Preliminary Costs - INEFFICIENT (one or two contractors)
-Rates - MEDIUM (some FUTURE market rates)
Overall: LOWER COST
Option 3:
-L&E - Depends on size and balance of adds/omissions, but potential loss/expenses would be careful planned to allow for mitigation between contractor and client and absorbed in the agreement of variations by the OPEN BOOK PROCESS - this would reduce ‘wastage’ resulting in claims - LOWEST
-Prof fees (and contractor QS) - Medium (but gradually reducing), However, these professional fees would be expended in this contract rather than in the other Options contracts’ durations which is at same risk of duration in all options. LOWEST ((Assume no re-tendering required)).
-Total Construction Period - LONGER/HIGHER
-Preliminary Costs - EFFICIENT (planning required, but use of existing site resources)
-Rates - LOWEST (contract rates; EXISTING market rates ie PROFIT UPLIFTS BASED ON CURRENT MARKET)
Overall: LOWEST COST
Original Contract:
Survey £8k (BS)
Design Works £18k (BS)
RIBA 1 £2k (BS)
RIBA 2 and 3 £12k (say £8k BS; £4k QS)
RIBA 4 and 5 £10k (say £7k BS; £3k QS)
RIBA 6 £20k (say £15k BS; £5k QS)
Total: £70K
Option 1 (Terminate and then Re-Tender):
Professional Fees
QS - Oversee termination and agreement of costs; Re-Tender the works - organise, repackage (and make resurvey document adjustments), issue, period, analysis and report - as KI 1 (HIGH RESOURCE BURDEN)
BS - Oversee termination and authorisation of costs; Re-Tender the works - resurveying the works; updating the new design informaton,Qualitative analysis (HIGH RESOURCE BURDEN)
TIME DURATION - at least 10 weeks
RESOURCE INTENSITY - Pretty high.
TOTAL COST- say, say, £9k
(£6k QS (RIBA 3 and 4); £3k BS (RIBA 3 and 4)) [based on original costs above]
Contractor Costs
Ref my comment earlier flashcard re greater loss of profit - option 1 or 2:
Higher contractor L&E costs, but, £???
TOTAL COSTS (OPTION 1) - £9k + High L&E
Option 2 (Omit/Possibly Re-Tender - ASSUMED BOTH REQUIRED):
Professional Fees
QS - Oversee omissions - no, part of post contract duties; Re-Tender the works - organise, repackage (and make document adjustments), issue, period, analysis and report - as KI 1 (HIGH RESOURCE BURDEN)
BS - Oversee omissions - no, part of post contract duties; Re-Tender the works - resurveying the works- no, part of post contract duties; updating the new design informaton,Qualitative analysis (LOW RESOURCE BURDEN)
TIME DURATION - at least 8 weeks
RESOURCE INTENSITY - fairly low.
TOTAL COST- say, £6k
(£4k QS (RIBA 3 and 4); £2k BS (RIBA 3 and 4)) [based on original costs above]
Contractor Costs
Ref my comment earlier flashcard re greater loss of profit - option 1 or 2:
Lower contractor L&E costs, but, £???
TOTAL COSTS (OPTION 2) - £6k + Lower L&E
Option 3 (Manage/Possibly Re-Tender - ASSUME JUST MANAGE (Re-Tender similar to Option 2)):
Professional Fees
QS - Managing the joint planning and costing of works with the contractor; advising and liaising with client and CA/Designer weekly; additional cost reporting (All This - Say, at least DOUBLING OF FEES).(HIGH RESOURCE BURDEN)
BS - Participating in joint planning of works; advising and liaising with the client QS weekly; additional reporting (All This - say, at least DOUBLING OF FEES).(HIGH RESOURCE BURDEN)
TIME DURATION - Ongoing
RESOURCE INTENSITY - High.
TOTAL COST- say, £10K (but depends on intensity of variations, how many)
(£3k QS (RIBA 5); £7k BS (RIBA 5)) [based on original costs above]
Contractor Costs:
Additional management costs (say QS (x2), but other management - Contracts Manager, Site Manager, would be covered under Open Book
QS, say double ie £13k (but depends on intensity of variations, how many).
Open Book Costs:
Difficult to determine (like L&E on other options), but less than L&E of other options?
TOTAL COSTS (OPTION 3) - £26k + Lower L&E (Open Book) + (Saving on: Prelims; Future Market Rates; … as identified in report.
Quantification and costing
Level 3
Can you tell me the valuation rules under JCT contract?
If the contractor asks to revise the unit rate of an item in the SOR due to significant quantity change compared to the original qty in contract, would you accept that?
Can you tell me how would you assess the quote that submitted by a contractor for a variation, where those items are not in your SOR.
Could you walk me through how you assess the direct and loss expense claim for EOT using the prelim item in the schedule of works?
Emily:
Big Project - Prolongation claim - open book approach (staff longer periods, site)
Smaller Projects - Prolongation claim - prelim rates - work related/time related/fixed.
Level 2
In accordance with NRM 1, what items would you need to include for basement construction?
For NRM 1, the items would be more broadly categorized and might not include the detailed measurement codes seen in NRM 2. Here is how the items for basement construction might be grouped under NRM 1:
Substructure:
Site clearance and preparation
Excavation to reduced levels
Disposal of excavated material
Dewatering and groundwater control
Strip foundations, pad foundations, or piled foundations
Ground beams and pile caps
Basement slab (reinforced concrete, damp-proof membranes, insulation)
Basement walls (reinforced concrete, blockwork or brickwork, waterproofing membranes, insulation)
Structural supports (columns, beams, retaining walls)
Internal and external drainage systems
Sump pumps and associated pipework
Waterproofing treatments and protection boards
Retaining walls:
Concrete retaining
walls, including concrete,
reinforcement, formwork and
excavating and backfilling working
space required to facilitate
construction of retaining walls.
