Pre-Contract Stage and Contract Selection - Term Paper Example

i. Introduction A client who wants to undertake a full range of contract administration duties for his projects requires some information and recommendation on the type of contract to use. His fist project is an external decoration work for his low-rise office block with an estimated cost at £40,000 plus VAT. The second project is a £250,000 refurbishing work of his recording studio that involves significant specialist contractor design. Moreover, the client also wants to have a “hands-on” approach to the second project’s design. As his contract administrator, he would like a brief outline of the difference between JCT and EEC Contract so he would know which contract is appropriate for future projects. Our report will discuss the type of contracts are suitable for the current project including tender documentation and period. It will also concisely discuss the main difference between EEC and JCT Contract Suite. ii. Types of Contract An effectual construction contracts involve cautious and accurate preparation of each activity undertaken to produce them. This includes the proposal, design, document selection and preparation, bid package assembly, and contract award stages. Those assigned to these activities must be selected for their skill, ability, and knowledge because the frequency of project delays, cost overruns, and claims will be directly influenced by the quality of their labours. Consequently construction contracts pass through five distinct phases; proposal, design, award, construction, and completion. To guarantee consistent, systematic, and efficient procedures, contract management control and administer project design, bid package preparation, contract award, application, progress, spending, schedules, inspection, completion, and acceptance. It should guarantee that all procedures related to construction site work is reasonable to all the parties involve, coherent, rational, and apposite for use with construction projects and contracts of any type, magnitude, or setting (Phillips 1999:4). Owners need comprehensive information about proposed construction projects before they can make sensible decisions regarding project viability. The types of information they require include a project objective, design criteria, product information, expected results, and a cost estimate. Concept proposals are used to present this basic information as well as suggestions for the method of contract award, the type of contract and construction management more suited to the work, a list of proposed bidders, and bond and insurance coverage. Either competitive bidding or negotiation awards construction contracts. Competitive bidding is usually selected for those construction projects where the work can be well defined. Negotiated contracts on the other hand may be considered for projects with unusual requirements of size, time, and complexity and with a less than well-defined scope. Owners pre-qualify contractors to determine those best qualified for their needs. Lump sum, unit price, cost plus not to exceed, design-build, and design-build with qualifiers such as “lease back” or “buy back” or any combination of these, are just some of the possible contracts that may be negotiated. Owners select the method of award and type of contracts that they feel is best suited to their project that will give them more construction for their money (Phillips 1999:8). Traditionally, there are four basic types of construction contracts: fixed price, unit price, cost plus, and design-build. However, in some occasions, combination or alternative of the basic types may be appropriate. Fixed price or lump sum contracts quote a single, guaranteed price as compensation for all the labour, materials, equipment, and services stipulated to complete the facility described in the construction contract. Fixed priced contracts provide owners with an exact sum (exclusive of changes and exemptions), to budget for their construction project. Almost the majority of private construction contracts awarded are for a fixed price, as most owners believed it is the most cost-effective means to deliver their completed construction projects. On the other hand, unit price contracts are used for those less-complicated projects that are based on readily identifiable units. Unit price contracts also require careful preparation to prevent disputes. Well-estimated guide quantities for each unit price item as well as clear instructions for their measurement are the key to successful unit price contracts. Another type of contract to consider is cost plus which may be the best choice in emergencies or when the additional time and cost to specify a project accurately are unacceptable. Variations of cost plus contracts may or may not include a fee, which can be negotiated or fixed, and a “not to exceed price” (Philips 1999:9). The intent is to stipulate a fair cost for the contractor’s fees, expenses, and profit. Cost plus contracts, too, require precise wording to prevent spending overruns and claims. Fixed or percentage fees, mark-ups, profit, services, and work limits must be clearly defined in the contract. Lastly, design-build contracts are a type of project delivery system assigning both design and construction services to one group (Ashworth 2002:313; Phillips 1999:9) . Of the numerous standard contracts that are available, the JCT (Joint Contracts Tribunal) family of Contracts will be use since this contract suite is widely accepted in the United Kingdom. The JCT Agreement for Minor Building Works and the Intermediate Form of Building are probably the more useful for small works (Dickinson and Thorton 2004:48). Since the first project is, an external minor building works with an estimated budget cost is £ 40,000 plus VAT, the JCT Agreement for Minor Works which is often use for maintenance and works of simple nature is considered. It is a simple contract intended for use where a professional is involved in preparing the drawings and a specification. Moreover, it is recommended for work with a maximum contract value of £100,000. For the second project, where the work involved is simple character and designed by or on behalf of the employer, the JCT Intermediate Building Contract (IC) is recommended. It is a much larger document intended for use where a professional is involved for works fitting between the minor works contract and the JCT Major Project Form Contract. Its significant features include the provision for the contract administrator to select specialist subcontractors by naming them. More importantly, it is suitable for contracts with a value up to £400,000 (Dickinson and Thornton 2004:48). Since the owner has a regular flow of maintenance and minor works including improvements to be carried out, he either can contract separately for each piece of work or can engage one contractor to carry out all such work in respect of specified properties for a specific period. Choosing the first alternative for each piece of Maintenance or Minor Works, owner can have the work carried through his professional consultant and use the Agreement for Minor Works Building Contracts (MW) (Geddes and Williams 1996:7). iii. Pre-Contract Procedures Prior to entering into a contract, the owner or his representative begins developing general plans for construction. However, this planning does not include specific constructions means, methods, or procedures, which are primarily the responsibility of the contractor. Planning at this stage is only focus on issues that must be address before the contractors begin work at the site. The key aspect of pre-contract planning for construction should include assessment of the owner’s capabilities, the evaluation of the resources available for construction, regulatory guidelines, site development, the review of construction alternatives, and contractual arrangements (American Society of Civil Engineers (2000). The need for agreement between the employer’s requirements and the contractor’ proposal will often produce a series of pre-contract negotiations over their content. This will lead to revisions and refinements to the documents as each is adjusted until they are the same. Consistency is vital since identifying the precise documents from within the contract, severe misunderstandings can be avoided (Murdoch 2000:51). The following stages will be involved in the pre-contract planning for both projects. The pre-contract meeting and arrangements for commencing work, placing orders for subcontractors and suppliers, site layout planning, construction method statement, master programme preparation, preparation of requirement schedules, preparation of contract budgets, preparation and approval of the construction health and safety plan. However, we must consider that no two companies undertake exactly the same procedure at the pre-contract stage. These procedures depend on the policy of the company and the need for establishing standard routines why may be followed on every new contract (Cooke and Williams 2004:288). A more formal approach to the arrangement prior to commencing work are series of pre-contract meetings that will be called by the client’s representative in order to coordinate the start of works on site. It is very important to establish lines of communication between the client’s team and the contractor that are clear and transparent to avoid confusion and disagreement. They should tackle organization and contractual details, dates of progress and valuation meeting, safety management arrangements, and the commencement of work on site (Cooke and Williams 2004:289). “No term or condition will be enforceable if it was not included in the pre-contract negotiations leading to the formation of the contract” (Dickinson and Thornton 2004:46) iv. Tender Documents The principal objective of any set of tender and succeeding contract documents is to guarantee that everything required for the proper completion of the work is included by the contractor, and that tenders are submitted on a comparable basis (Clamp 1995:30). In adopting the JCT Agreement for Minor Building Works for the fist project, requires the employer through his professional consultants to provide at tendering stage drawings, specifications, or schedule or a combination of any of these as required to describe the works. Following acceptance of a tender, whatever documents are so provide become contract documents defining the works, which are the subject of the sum set out in the Agreement to be paid by the Employer. The agreement contains conditions, which are less detailed than those in the Intermediate Form. The price range should not exceed £70,000. For the second project, the JCT Intermediate Form of Contract requires the owner through his professional consultants to provide at tendering stage a set of drawings together with another document. Where the other documents consists of Bill of Quantities or Schedules of Work, the Contractor is required to have priced it; but where the other documents consists of a Specification the Contractor is required either to have priced it or to have supplied a Schedule of Rates or a Contract Sum analysis. Following the acceptance of the tender, these drawings and the other document, which is priced by the contractor where appropriate, becomes the Contract Documents defining the works, which are the subject of the Contract Sum. Moreover, the priced Bills or Specifications or Schedules of Work or, as the case may be, the Schedule of Rates or Contract Sum Analysis provide price data for assistance in the valuation of variations. The form of contract contains conditions, which are less detailed than those for With and Without Quantities Forms but are more detailed than those for the Agreement of Minor Building Works. The price range is from £70,000 to £280,000 (Geddes and Williams 1996:4). v. Tender Period The time for the tendering should be determined by the three factors: the size of the project, the complexity of the project and the standards of the documents. In practice, the design and tender documentation is often late with clients wanting to make a start on site quickly. A rough estimate could be produced swiftly but contingency sum would be needed for unidentified risks. Contractors would prefer to scrutinize the project, the site, and the documents and agree methods with contract staff and sub-contractors, prepare programme and look for tipping facilities. In fact the longer the tender period, the more likely it is that the contractor will find savings which would increase the possibility of winning the contract and may produce a better price for the client (Brook 2004:244). Since the JCT Design and Build Contract tender period should not be less than 12 weeks (Chappel 2007:18) and our aim is to give the client a much better price, we can recommended a minimum tender period of 12 weeks for the first project. For the second project which is much larger and with coordinated design (owner and contractor), a tender period of 18 weeks is recommended. vi. JCT and EEC Suites of Contract The Engineering and Construction Contract or also known as the NEC (New Engineering Contract) second Edition, was published in 1995 to reflect the aspiration of NEC panel that the contract should be used for construction work in all sectors, including traditional building. Like JCT, the contract is not a single contract but a suite of contracts, which share a core body of definitions and interrelationships. However, JCT’s wide range of contracts which have been developed specifically for building works are very rarely use for civil engineering works. According to O’Reilly and Clarke (1999), the expression ‘traditional contract’ is widely used to describe an arrangement where the employer takes on a consulting engineer to advise him on all aspects of the scheme, to design the works and to administer the construction to completion. However, the qualifier ‘traditional’ is quite misleading since these contracts originated from the 18th century and are direct product of the separation of design and construction activities and the high status accorded to individual engineers. The main difference between JCT and EEC is that JCT as a traditional contract that allows the complete separation of construction and design. EEC only offers contracts with Engineers design and administration, contracts with contractors design, international turnkey contracts, and contracts with specialist management, term contract, and concession contracts. More importantly, EEC does not offer contracts with owners design and widely encourage contractor design and build, and does not employ contract administrators but owner appointed Project Manager who is the senior administrator of the project that act as an independent decision-maker (p.151). vii. 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