Issues in Selecting a Valid Construction Contract Agreement - Coursework Example

Issues in Selecting a Valid Construction Contract Agreement [Name of Presenter] [Name of Institution] The Scenario: The client UOG has to build a large atrium campus in the heart of Cardiff City Centre and after the successful floating of a tender has selected the main contractor and needs to finalise the contract as soon as possible after due diligence. The work needs to be completed within one year and speed is of vital importance to the client. It has been decided that the main contract and the works contract will both the signed on the new Standard Form JCT 98 Management Construction Contract and the works contract will be on the new JCT 98 Standard Form Works Contract. Parties in a Construction Contract Typically a construction contract should bind three classes of people. The first party is the owner or client, the second party is the designer or architect and in large projects, the third party is the construction management contractor who appoints the subcontractors who execute the project for the client. Traditionally, there are two contracts that the client directly inks. The first one is with the designer or the architect of the building for the necessary drawings to meet the client’s requirements and expectations from the project. The designer works on the client’s brief of the project and designs the entire building; in most cases the interior as well, thus providing a broad guideline to the constructor, instructions valid to the minutest point. The second contract is typically a construction management contract and the nature of the document varies according to the scale of the activity. In smaller constructions, a direct works contract is issued to the builder and in larger projects, where the expertise of a large number of contractors or expert skill sets are required, a construction manager is hired to manage the execution of the project for a fee and the manager further allots the work to junior subcontractors who work under him. The manager also shares a portion of the risk and liability aspect of the project. Many clauses in these contracts also govern activities between the designer as well as the builder; their relationship and occasional reviews are important for any construction project to proceed. An alternate model also includes three contracts where the client directly has a contract with the sub contractor. In such cases, the construction manager’s role is limited to being the adviser to the other parties. The role of a construction manager in the project The construction manager is a fee based service and is largely responsible for the following: Give proper advice to the parties concerned at all stages of the project: The Manager has a large talent pool of design experts, construction engineers and managerial expertise at his disposal. Hence the manager has an overview of the entire spectrum and can offer as an expert counsel to the client on matters that are interdisciplinary in nature and beyond the scope of any single expert to address. Examples may include the implementation of fire control system in the proposed building and incorporating safety features at the design or conceptual stage of the project which would lead to avoiding delay in fixing or adapting drawings at a later stage or even to a lower insurance premium to the underwriter or the insurer. Expert guidance can always save costs and time. Optimum returns from the money spend and project-based fund management: The manager should ensure that the client is getting maximum benefit for each dollar he spends on the project. In projects where the manager is not involved in the preconstruction services, he should ensure that he has absolute control over the construction process and should coordinate well with the designer to ensure that there are no hitches in the construction processes Control of the scope of work and its execution: The Manager has perfect control over the entire execution processes and at no time should he fail to audit and integrate the work process of any works contractor under him and keep the client appraised. Project scheduling and monitoring: The project schedule should be perfect and he should control the processes that in many ways can ride on top of each other such as the plumbing and electrification work can start soon after the structure is finished thereby saving time. Time is of the essence here for the university. Hence whatever works can go parallel, should be piggy backed together and offered to the respective works contractor so that no time is lost and wasted. Hence all prequalification processes should be strategically scheduled and controlled. Optimum use of the design agency’s skills and talents where applicable: This is not of much essence here. Since the management contract does not include the preconstruction services and the client is providing the designs. However modifications of design and drawings should be well managed for necessary legal and auditory compliances such as civil works clearance and insurance regulations. The manager should make sure that the drawing is perfect in all aspects and bring to the notice of the designer as soon as he discovers any hitch in the same. Avoidance of delays and disputes: This is a massive responsibility given that the university has just one year to complete and commission the project. Since time is vital, the works manager should ensure that there is no dispute in the land or the necessary permits to build. Adequate material transport and handling systems are in place before and after the work rolls on. At no stage can he afford to lose any man-days in the construction process. The works auditing process should also be in such a manner that the subcontractor’s interests are not hampered at any stage by which he will be forced to stop the work on the project. The contract between the manager and the subcontractor should ensure that the time-loss risk is shared between the parties and adequate incentives should be guaranteed to ensure the completion of the project in time to motivate the subcontractor. This system has been found to be more effective than the threat of legal proceedings and compensation at the end of the project. The manager should take specific care to make sure that there are no legal problems during the building process. Such processes can hamper the atmosphere at the work place and drain out the enthusiasm of the work force leading to further delays and low productivity. Monitoring and ensuring quality all during the construction process: Three sorts of quality audit should be part of the agreement draft. The first one has to happen at the materials stage to ensure that only the top-quality ingredients are used in the construction process. The second stage should be at the works implementation level so that total adherence to best practises is ensured thereby giving a higher perspective to quality management and control. Proper audits of each of these two stages should be incorporated into the legal tendering documents. The third one, the post execution inspection, though part of the standard contract should be implemented with due care. This would also serve to make sure that no time and effort is lost to reconcile the processes to meet the standards of quality. Optimize the procurement processes: The procurement processes should be of the highest standard. The manager should be legally compliant to perform an audit of the quality mechanisms of the industries who have been tendered to deliver the materials to be used in the construction. Proper appraisal of the contributing firms should be executed in an impartial environment. Companies that provide the highest quality of construction materials should only be empanelled to deliver goods for the project. Since time is of vital importance, the manager can also draw on the previous expertise of the firm in this area. Since time is important, the manager should ensure that the source companies have the necessary capacity and capability to ensure that the goods that they are supposed to deliver would be delivered in time. Procurement should also be planned to handle time-availability-shortage risks and the orders are placed well in advance. A proper RDBMS should be included in the contract and provisions weekly appraisals and update material statements in this respect should be made available for the client’s review. Legal risks in this area should be adequately covered in the contract and provisions should be altered and customised to include all foreseeable events. Natural calamities and disaster mitigation plans should also be part of the procurement contract since the risk of these cannot be overseen in any construction project. Material handling experts should be brought in to conduct the process in an orchestrated manner. Computer simulations of the designer should serve as a guide to making sure that no small detail is missed out in any stage of the procurement process. The workers should also be armed with the necessary spares and materials at each stage well in advance so that no man-hours are wasted in trying to procure the same. As far as possible the manager should ensure that he brings in adequate pre-assembled materials to the site so that time is not lost at the site during the assembly processes. Planned structural engineering and adequate workshop facilities with modern machinery and tools would ensure that the manager saves a lot of time on the building process. Comprehensive management of the construction project from its very conception to the very end: Since in this case, there is no involvement of the manager in the preconstruction services, the manager should have adequate meetings with the designer to discuss the plans and drawings in detail. Once the process starts, the designer should be given a real-time picture of the entire construction activity so that his expert comments and suggestions can be drawn upon. The client, the university should ensure that risk mitigation methods by the manager and the designer is still in compliance with the requirements of the project. Frequent meetings between the three is vital and a frame work for the same should be laid out in the JCT 98 contract. The “At-Risk” model of Construction Management is a method that entails a commitment by the manager to deliver the project within a Guaranteed Maximum Price (GMP). In most instances of GMP, the manager is also involved in the “Preconstruction Services” or consultancy assignments in the design stage. Later when the project hits the roads, the manager ensures that there is optimum spending of the money and shares the risk of cost escalation. It eliminates the low bid construction contracts and includes a large number of adjustments in responsibilities required by the Manager. The following are the benefits that the client accrues in following the At Risk model of contract: The Construction manager is involved in the preconstruction stage thus eliminating design flaws and ensuring that optimum creative outputs are drawn from the designer Re-designing or eliminating aspects that would lead to unviablilty of the project or cost escalation with no benefits to the client To manage the budget before the design is done Ensure that the design is executed in a stipulated time frame Since the Manager has an overview of the project, he ensures that parallel efforts are made or the subcontractors are lined up one upon the other so that there is no stoppage of work and wastage of time The budgets of the design stage are better managed Since the aforesaid contract is a JCT 98 where the manager is not a prt of the designing process and where as the client has agreed to provide the design and drawing of the complex, the At Risk model need not be adopted. The contract should however be drafted with a Guaranteed Maximum Price equation so that the university doeas not have to lose time and money in the project. A time limit manadate has to be implemented and drawn as part of the project documentation since the university cannot afford to lose any time in the construction process. --------------------------------------- The Joint Contracts Tribunal (JCT) The JCT was established in 1931 by Royal Institute of British Architects (RIBA) and the National Building Trades Employers (NFBTE) with the objective to publish and amend a standard form of building contract. Subsequent editions were published after due revisions and updations in 1939, 1963, 1980, 1998 and 2005. After having expanded its scope of activity, JCT became a public limited company in the year 1998. Today, the Joint Contracts Tribunal is an organisation that drafts standard construction contracts, guidance notes as well as other forms of legal ddocumentation for the construction sector. Following the revisions that were mandated in the Latham report and amendments in the operational structure of the company, it now comprises of an eight member committee who review and authorise reports for publication. They are: The Association of Consulting Engineers The British Property Federation The Construction Confederation The Local Government Association The National Specialist Contractors Council The Royal Institute of British Architects The Royal Institution of Chartered Surveyors The Scottish Building Contract Committee The suite of standardised forms would emphasise that all parties in the industry would have to follow the same document, customised to particular requirements and adpated to the required standard norms of the various parties within the broad scope of work the individual project mandates. The suit includes the following: Consultant agreements: a main contract between the employer and the main contractor Sub-contracts between the main contractor and its sub-contractors (both for sub-contractors selected by the employer and for other sub-contractors) A standard form of sub-sub-contract between a sub-contractor and such sub-contractor's sub-sub-contractors A design agreement between an employer and a specialist designer Forms of tender for issue by an employer to prospective main contractors and for issue by a main contractor to prospective sub-contractors and for issue by a sub-contractor to prospective sub-sub-contractors A form of contract for the supply of goods Forms of bond (including performance bonds) and collateral warranties The Standard Form of Building Contract (JCT 98) is available in the following variants: Local Authorities edition with quantities Local Authorities edition without quantities Local Authorities edition with approximate quantities Private edition with quantities Private edition without quantities Private edition with approximate quantities There is also a Contractor's Designed Portion Supplement (CDPS) Major Project Form (MPF 03) Intermediate Form of Building Contract (IFC 98) Standard Form of Building Contract With Contractors Design (WCD 98) Management Contract (MC 98) Minor Works Agreement (MW 98) Prime Cost Contract (PCC98) Measured Term Contract (MTC 98) Jobbing Agreement (JA 90). This consists of the tender JA/T and the agreement conditions JA/C Agreement for Housing grant Works (HG(A)) Building Contract for Home Owner/Occupier (where client deals directly with the builder)(HO/C) Building Contract for Home Owner/Occupier (who has appointed a consultant)(HO/RM) Contract for Home Repairs and Maintenance (HO/RM) Construction Management Documentation Choosing the right JCT Contract model The table above permits the user to select the righ contract from among the JCT drafts for the project. JCT 98 is a very flexible platform which can be suitably customised for all the requirementd of the aforesaid projects. Similar models under the provision should be modified or ammended to serve the mandatory requirments of the manager-subcontractor relationship of the aforsaid project. The following diagrams from the JCT corporation can be used as a guide to select the subcontractors: Conclusion With the above specifications, and to meet the requirements of the client as well as other parties to the contract, the JCT 98 forms would be the most appropriate. However recommendation on customisation and modification of clauses should be carried out where relevant as discussed above. Read More