Transcript TBH_New_Construction_Contracts_2007

SOCIETY OF CONSTRUCTION LAW
NEW CONSTRUCTION CONTRACTS:
THE IRISH EXPERIENCE
2 October 2007
National Liberal Club,
London
William E. Gladstone (1869)
“I am oppressed day and night with the condition of
Ireland, with the sad and painful spectacle it exhibits
to the world …”
Celtic Tiger
• 13 years of strong growth
• Fastest growing economy in Western Europe
• Second wealthiest economy in Europe on a per
capita basis
• Fastest growing population in Europe
> 20% growth in fifteen years
• Construction output growth c.10% per annum since
1994
• House construction
– c. 25,000 in 1994
– c. 93,500 in 2006
National Development Plan
• “Transforming Ireland - a Better Quality of Life for
All”
• Investment of €180 billion over 7 years
National Development Plan
Key Themes
• Tackle infrastructural deficits
• Encourage enterprise sector
• Recognize that economic and social progress are
interdependent
• Balanced regional development
• Protection of the environment
• Innovative and integrated policy development
National Development Plan
Construction Industry
• Capital investment in infrastructure and building
– €78 billion
• Upgrading roads and other areas of public
transport
• Investment in air transport facilities
• Strategic port facilities and harbours
• Increased Government capital investment –
average €11 billion per annum
Transport 21
• Plan to transform transport network in a 10 year
financial framework
Transport 21 – Key Statistics
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9.4 million per day for transport for 10 years
170 million extra public transport users
75 million extra suburban rail passengers
Central Dublin to airport metro
80 million light rail and metro passengers per
annum
• 7 new light rail projects
New Government Contracts
• Reform construction procurement
• Greater cost certainty at contract award
stage
• Value for money
• More efficient delivery of projects
New Government Contracts
Guiding Principles
• Tender price and final outturn cost to be the same
• Optimum transfer of risk to the Contractor
• Risk transfer dependent on provision of detailed
information
Reform
Reform approach to public works projects
“… to achieve optimal risk transfer supported by good
quality information to help achieve greater cost certainty,
better value for money and timely and more efficient
delivery of projects.”
[Charlie McCreevey, Minister for Finance, December 2003]
Risk Transfer
How do the new forms measure up?
“There is a growing realisation that it is often in the
Principal’s interest to ensure that the project risks are not
simply passed down the chain but instead there is some
degree of ‘risk optimisation’ or efficiency in risk allocation”.
[John Baartz and Nick Longley, Allens Arthur Robinson
(2003)]
Abrahamson Principles
A party should bear a construction risk where
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the risk is in his control, or
he can transfer the risk by insurance or spread it
directly and it is most economically beneficial and
practical to do so, or
the preponderant economic benefit of running the
risk accrues to him, or
placing of the risk is in the interest of efficiency, or
if the risk eventuates, the risk falls on him in the first
instance and it is not practical to transfer the risk
Max Abrahamson
“At least it is best to work from declared
principles rather than undeclared and perhaps
unconscious prejudices”
New Contracts
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Civil engineering works designed by the Employer
Civil engineering works designed by the Contractor
Building works designed by the Employer
Building works designed by the Contractor
Minor works contract
Guidance Notes
“These contract reforms are a key part of value-for-
money Government initiative that is wide ranging
and will impact on all three stakeholders (the client,
the consultants and the contractors) in the delivery
process for capital projects”.
Risk Transfer
How do the Contracts deal with allocation of
responsibility and risk:
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Programme/Progress Reports
Delay and Disruption
Insurance and indemnity
Specialist contractors
Price variation
Arbitration
Programme
“…of quality that will permit effective monitoring of the works
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Onerous requirements must include details of
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when instructions are required
sequence and timing of work
when Contractor’s Documents will be submitted
methods of execution and temporary works
estimate as to when personnel, equipment etc., will be on site
work which is the Employer’s responsibility
current critical path, critical resources, floats and other flexibilities
last review of programme logic and durations
anything else required by the Works Requirements
Progress Reports and Notices to E.R.
• Monthly progress reports – full details on status,
personnel and equipment, instructions required,
delay occurring, accidents etc.,
• 10 days notice to E.R. of any required instructions
Delay Events
• Delay caused by Employer or Employer’s Representative
(12 events)
• Loss or damage to the Works at Contractor’s risk
• Weather event
• Strike or lock-out
• Delay caused by court order or action by public authority
• Archaeological finds
• Unforeseeable ground conditions (not in D&B)
• Unforeseeable utilities (not in D&B)
• Failure by owners of utilities to relocate or disconnection
Compensation Events
Compensation payable for
• Delay by Employer or E.R.
• Optional events
Compensation Events – Optional
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Archaeological find
Unforeseeable ground conditions (not in D&B)
Unforeseeable utilities (not in D&B)
Failure by owners of utilities to relocate or
disconnect utilities
• Errors in bill of quantities (greater than €500 per
item) (not in D&B)
“Unforeseeable”
“A condition, circumstance or occurrence is
unforeseeable if an experienced contractor
tendering for the Works could not have reasonably
foreseen it … having inspected the Site and its
surroundings and having satisfied itself, insofar as
practicable and taking into account any information
in connection with the Site provided by the
Employer …”
Project Contingencies
Contractor to include in Contract Sum and
Programme Contingencies for delays caused by
Compensation Events
• First threshold – no EoT
• Second threshold – 50% EoT
Compensation Events
Entitlements
• Adjustments to Contract Sum
– value of any additional, substituted and omitted
work
• Delay cost
– delay cost as tendered by the Contractor
• Notice is condition precedent to entitlement
Limitations
• Clause 10.1.2
“The Contractor’s sole remedies for a Compensation
Event shall be those stated in the Contract.”
• Clause 10.7.4
“… [notwithstanding anything else in the Contract]
losses or expenses arising from or in connection with
delay, disruption, loss of productivity or knock-on effect
shall not be taken into account or included in any
increase in the Contract Sum and the Employer shall
have no liability for such losses or expenses”.
Loss / Damage / Injury
Employer bears risk of
• war, invasion, etc.
• pressure waves caused by aircraft etc
• contamination by radioactivity, hazardous
substances etc
• terrorism (only if permitted exclusion under
Contractor’s insurances)
• use or occupation of the Works by Employer
Care of the Works
Contractor bears risk
• Starting Date to Substantial Completion
• After Substantial Completion for
– Defects
– prior occurrences
– its own activities
Contractor’s Indemnity
Contractor to indemnify Employer against
• liability
• loss or damage to property
arising from Contractor’s performance or nonperformance of the Contract
Employer’s Indemnity
Where
• caused by Employer’s negligence
• property damage is “unavoidable result” of
carrying out the Works
Does not extend to death, injury etc., to
Contractor’s Personnel
Insurance
• Contractor to maintain
– insurance of the Works
– public and employer’s liability insurance
– PI insurance (if required)
• “Co-insureds” – PL and insurance of the
Works
– cross liability clause
– waiver of subrogation
Specialist Contractors
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No longer any nominated sub-contractors
No prime cost sums
No provisional sums
Replaced by specialist for whom Contractor is fully
responsible
Sub-contractors and Specialists
Specialist defined as:
• Sub-contractor or supplier of work items and
named in the Contract
• Contractor Personnel who do or are to do design
• Contractor’s Personnel stated in the Works
Requirements to be Specialists
Specialists
Contractor input only
• Contractor input only - named in Works Proposals
Employer’s input only
• Named in Works Requirements
• Employed by Employer under separate contract
Contractor and Employer Input
• Alternative specialists proposed by Contractor
Specialists
• Contractor will submit Specialists for suitability
assessment either at prequalification (in restricted
procedure) or with its tender (under an open
procedure)
• If Specialists named in Works Requirements
Contractor must engage and identify them in its
tender
• Novation where Specialist already engaged –
contract transferred to the Contractor
Specialists
• Contractor responsible for work (and design) a
Specialist – “shall ensure” performance
• Collateral Warranty to be provided (if required)
• Payment withheld if warranty not provided on time
Price Variation
Two methods of calculation
• PV 1 – proven cost method – based on
invoices
• PV 2 – formula fluctuations method
Price Fluctuation Provisions
• Price fluctuation free period
– PV 1 - 30 months from Contract Date
– PV 2 - 36 months from designated date/recovery date (6
months for tender assessment)
• Recovery date = designated date corrected for
Contractor’s delay in commencement of Works
Price Fluctuation Provisions
• Contractor recovers
– Price fluctuation as calculated under PV 1 or PV
2
– Changes in law after Designated Date
– Hyper-inflation – 50% increase in a month (by
reference to the greater of the price at the
Designated Date or the start of that month)
Termination by Employer
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Contractor’s default
Contractor’s insolvency
Employer’s election
Reference to conciliation
– 21 days
– recommendation
– if reversed by arbitrator – treated as termination
at Employer’s election
Dispute Resolution
• Conciliation
• Arbitration
Arbitration
• Any opinion, certificate, determination, assessment
or objection of the Employer’s Representative may
be revised except decision stated in Contract to be
“conclusive” – e.g.,
– Value engineering proposal
– Rejection of Defect
Ian Duncan Wallace Q.C. (1982)
“Only if the assumption of a risk by a
contractor is likely to be self-defeating …
causing increases in tender prices out of all
proportion to any corresponding advantage
conferred on the Employer, is an impartial
adviser entitled to counsel that employers
should bear that risk”
New Government Contracts
• The experience so far
• Keating on Building Contracts
“The alternative policy of requiring Contractors to
accept most of the risk of unforeseen contingencies at
tender stage would be likely to result in tenders at
higher rates or widespread insolvency among
Contractors. Neither of these would be in the longterm interests of Employers.”
William E. Gladstone
“No man ever became great or good
except through many and great mistakes”
SOCIETY OF CONSTRUCTION LAW
NEW CONSTRUCTION CONTRACTS:
THE IRISH EXPERIENCE
2 October 2007
National Liberal Club,
London