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1 W E L C O M E. CICES & PCE–UAE 6 July 2010 – Abu Dhabi Contract Workshop Gary Beamish Eng.C, C.Eng, C.Env, C.WEM, MICE, MCIWEM, MQSI M: 050 4889751 E:

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Presentation on theme: "1 W E L C O M E. CICES & PCE–UAE 6 July 2010 – Abu Dhabi Contract Workshop Gary Beamish Eng.C, C.Eng, C.Env, C.WEM, MICE, MCIWEM, MQSI M: 050 4889751 E:"— Presentation transcript:

1 1 W E L C O M E. CICES & PCE–UAE 6 July 2010 – Abu Dhabi Contract Workshop Gary Beamish Eng.C, C.Eng, C.Env, C.WEM, MICE, MCIWEM, MQSI M: 050 4889751 E:

2 2 CONTENTS 1.Parties 2.Roles & Responsibilities 3.Contract Essentials 4.Letters of Intent / Acceptance 5.Common Delays 6.Entitlements & Variations 7.Claim Document 8.Records & ADR

3 3 1. The Parties

4 4 Traditional Players The Employer Designer / Lead Consultant / Architect Sub-consultants/Specialists Contractor Subcontractors / Suppliers / Nominations Engineer (Construction period)

5 5 Contractual Links The Employer contracts with Designer / Lead Consultant / Architect Designer / Lead Consultant / Architect contracts with Sub- consultants/Specialists The Employer contracts with the Contractor The Contractor contracts with subcontractors & suppliers The Employer contracts with Engineer (Construction period)

6 6 Possible Other Parties Master Developer; Employers Representative; Employers Third party reviewers; Statutory Authorities; Programme Manager; Project Manager; Contracts Consultant; Cost Consultant; Quantity Surveyors (BoQ/Packaging); Dispute Adjudication Board or other ADR; End User, i.e. tenant.

7 7 In Times Gone By! Buildings made largely of stone & timber; Castles, cathedrals etc; Programme; The Employer: (King or a.n.other) Employers Representative: (Learned staff) Contractor/Engineer/Architect: (Master Mason) Nowadays a Prime cost reimbursement contract! Client & Trades: Construction Management JCT!

8 8 Emergence & Distinction Agriculture, industrial, services; 1666... and later, the Industrial Revolution; The Engineer… Military... then Civil... Structural, roads, bridges, railways, sewerage, water supply etc, etc… The Architect; Aesthetics, spatial use, ID; The QS; Thus was born the modern roles!

9 9 2. Roles & Responsibilities

10 10 Employer Ensure cash availability; Appointment of in-house or external Employers representative; Appoint Consultants under consultancy agreements; Sign off project brief, design brief and budgets; Decide the duration of works (with Engineer); Accept Tender; Confirm start date & facilitate access; Nominate subcontractors & suppliers; Make payments Non-hindrance & co-operation.

11 11 Contractor Estimate costs & risk; Procure, co-ordinate & manage resources; Manage cash flow; Submittals as per conditions; Comply with instructions; Insure & indemnify; Notify as per conditions of contract, implied or express; Records, records, records! Deliver the product (Works) in accordance with the contract/design/time intent, including defects period.

12 12 Engineer Appoint Engineers Representative; Notify delegated authority; Provide technical & managerial expertise; Watch & supervise; Review/consent/approve, (fairly or impartially); Issues further drawings/instructions; Agent for ordering variations; Direction for expenditure under Provisional Sums; Certify (payments/taking over etc); Competent mediator, EOTs & initial disputes;

13 13 3. Contract Essentials

14 14 Choice of Contract Form Partnering approach: common goals; collaborative; integrated project team; spirit of trust, good faith, fairness and mutual co-operation, no- blame culture. All use KPIs, Value and Risk Management. PPC 2000; Pre-Possession Agreement. Partnering Charter, a multi- party contract relating to a single project through risk management; NEC3 (ECC); Option X12, Programme led contract. Schedule of Partners & Core Group Members; between more than two parties on the same project. Be Collaborative; Client*/Purchaser and Supplier, co-operative and collaborative manner. Supplier is responsible for the risk register. GMP; Ceiling price reached through VE, agreed preliminaries and benchmarking etc Cost +; Mutual agreement on preliminaries and ceiling price. Hybrids; targets, incentives, pain gain etc.

15 15 Types of Contract Simple contracts orally or in writing. Correspondence; Signed document(s) - most common; Implied from conduct, BUT must possess certain essential elements for the formation of a valid contract. Contracts executed as deeds. Always written; Signed, sealed & delivered.

16 16 Formation of a Contract The essentials of a valid simple contract are: 1.1Offer & unconditional acceptance; 1.2Consideration; 1.3Intention to be bound (to create legal relationship); 1.4Legality of purpose (Contract must be legal); 1.5Capacity of the parties to contract; 1.6Reasonable Certainty (Sufficiency) of Terms; 1.7Possibility of performance; 1.8UAE Federal Law.

17 17 1.1. Offer & Unconditional Acceptance Definite offer - accepted unconditionally, the meeting of two minds (consensus ad idem). Qualified (conditional) acceptance, a counter-offer (invitation to treat?) Genuine agreement and consent, i.e. no duress;

18 18 1.1.1 Communication of Offer and Acceptance Time Allowed for Acceptance of an Offer: An offer can be revoked at any time before it is accepted. The offeror may waive or extend the time-limit (promise). The offer, and acceptance of the offer, must be properly communicated by the one party to the other; The contract is brought into existence upon communication of the acceptance; The act of acceptance creates the contract and once communicated the acceptance cannot be revoked;

19 19 1.1.2. Offers and Counter Offers (1 of 3) Always reaffirm the conditions and terms that shall prevail upon acceptance. Beware of the terms and conditions attached to an offer, particularly a final offer! …why? …

20 20 1.1.2. Offers and Counter Offers (2 of 3) Chichester Joinery Co v John Mowlem (1987) The last shot was fired by the sub-contractor with an Acknowledgement of Order This effectively re-imposed the terms of their own quotation which had been countered by Mowlems Order document Mowlem did not object to the acknowledgement, believing that their order prevailed; unfortunately for Mowlem, it did not.

21 21 1.1.2. Offers and Counter Offers (3 of 3) Agreement terms must be certain or capable of being made certain otherwise no contract; acceptance must be absolute and identical with the offer; offer must be expressed with precision and unconditional acceptance in accordance with requirements and intentions; A definite and unconditional offer becomes a binding promise upon acceptance.

22 22 1.1.3. Acceptance by conduct An offer may be accepted by : Despatching goods in response to an offer Carrying out work on receipt of an order

23 23 1.2. Consideration Definition: Consideration is some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other. an exchange of an act; a promise of an act; or, a forbearance not to carry out an act. Examples of valid consideration would be the payment of money, a promise to pay money, a promise to perform work, or forbearance from deducting damages. The monetary value of the consideration is not material for the formation of a contract as long as it has some value.

24 24 1.2.1 When is Consideration needed? The essential element of consideration should be borne in mind with particular regard to the following: Fairness of the bargain is irrelevant – e.g. AED 5 for a Rolls Royce; Simple contracts (as opposed to contracts by deed) require each party to give consideration for a contract to be binding; A gratuitous promise is not normally enforceable; Hence, the presence of any consideration demonstrates that the promise is not simply gratuitous; In every simple contract each partys promise is the consideration for the other partys promise. In other words there is an exchange of promises.

25 25 1.3. Intention to be bound (1 of 2) No binding contract will exist unless it has been made in contemplation of legal consequences; A mere statement of intention made in the course of conversation will not normally constitute a binding promise, though acted upon by the party to whom it was made.

26 26 In written commercial transactions... intention to create legal relations is presumed, however in social and domestic arrangements it is the opposite, the courts have presumed that the parties did not have intention to create legal relations. 1.3. Intention to be bound (2 of 2)

27 27 1.4. Legality of purpose The contract must be legal; Illegal by Law: An illegal term in a contract will be void and effectively struck out. E.g., any detail or specification which contravenes UAE Law is invalid. If the Contractor or Subcontractor knowingly incorporates the illegal detail then there may be no obligation on the Employer to pay for that work.

28 28 1.5. Capacity Companies can only contract in accordance with the services allied to their Licence. Minors, drunks and lunatics cannot enter into a contract. That is to say, any purported contract entered into by persons in those or similar categories will be declared void by the courts.

29 29 1.6. Reasonable certainty of terms (1 of 2) It is necessary that the parties agree on its essential terms. The essential terms must not be so vague as to be incapable of ascertainment. Provided the essential terms are agreed, the courts may imply ancillary terms to give what is called business efficacy to the contract e.g., where the contract sum and the extent of work are agreed but no contract period has been fixed. The court may determine what is a reasonable time in all the circumstances for completion.

30 30 1.6. Reasonable certainty of terms (2 of 2) Court of Cassation, Case Study - 34011999: here the judgment confirmed that when interpreting contracts, the correct approach based on Article 265 of Federal Law No. 5 of 1985 (the Civil Code), is that: if there is scope for interpretation of the contract, an enquiry shall be made into the mutual intentions of the parties beyond the literal meaning of the words, and guidance may be sought in so doing from the nature of the transaction, and the trust and confidence which should exist between the parties in accordance with the custom in such dealings.

31 31 1.7. Possibility of performance (1 of 2) A party to a contract is entitled to have the contract performed in the manner described in the contract. That party cannot be compelled to accept a different mode of performance. Whether, what has been done constitutes performance of the contract is a question depending in each case on the construction of the terms of the contract and/or the facts of the situation. The parties may, by agreement or waiver, substitute a different mode of performance for that originally agreed and by so doing create a new contract, providing that valuable consideration is present in so doing.

32 32 1.7. Possibility of performance (2 of 2) Occurs, where the circumstances imply a requirement for performance by an exact time; Failure to perform gives rights to the other party. The general principle is that performance must be carried out within a reasonable time. The exceptions to the general principle for a reasonable completion time arise where time is expressed in writing as of the essence; Where time was not originally of the essence in a contract and one party has been guilty of undue delay, the innocent party may give notice requiring the contract to be performed within a reasonable time, in which case time is said to become of the essence.

33 33 1.8. UAE Federal Law Federal Government & Federal Laws: Laws of the UAE; Individual Emirate Government & individual Emirate Laws; Islamic Sharia Law: Overall law of the UAE. UAE is largely based on civil law, not common law, therefore, in theory legal principles apply, NOT history from previously decided cases. Federal Laws with respect to construction includes, Civil Laws and Commercial Laws. Priority of Laws of the land: Federal law; Emirate laws; Construction industry custom; General custom; Laws pertaining to civil matters.

34 34 4. Letters of Intent

35 35 Letters of Intent Avoid letters of intent wherever possible a dangerous vehicle to rely on for the formation of a contract

36 36 Letters of Acceptance (1 of 4) In most instances it should be possible to negotiate and compile a comprehensive formal Contract Agreement: hence, a scantly written Letter of Acceptance should be the exception, not the standard approach

37 37 Letters of Acceptance (2 of 4) Different letter types, Acceptance, Confirmation, Agreement, etc, check the purpose and content: A simple statement of intention is uncertain; British Steel Corporation v Cleveland Bridge (1984) A request for work to be carried out may be binding depending on parties conduct; Beware: A statement confirming that contract terms and conditions will be FIDIC etc … does not necessarily invoke those conditions. Bryen and Langley v Martin Rodney Boston (2004)

38 38 Letters of Acceptance (3 of 4) An expression in writing of a partys present intention to enter into a binding contract with clearly stated scope, agreed terms and conditions including clearly identified terms and conditions yet to be finalised. A Letter of Acceptance might be used where we want work to commence before the full scope, terms and/or conditions are settled, i.e.: Scope of Works yet to be fully designed; Pressure on immediate start; Long lead-in period for materials; Contract sum yet to be finalised, etc;

39 39 Letters of Acceptance (4 of 4) The letter should include clear details of: final offer and acceptance letters/documents and terms; back-to-back conditions of main contract, attach copies etc; payment terms and procedures; authorization to proceed with specific defined activities; defined limit of expenditure and subsequent arrangement; defined period of letter validity and subsequent arrangement; termination & winding down clause; Bonds, advance payments; time for submittals, programme, insurances/indemnity etc; intellectual property rights, warranties; liquidated damages and/or penalties, per day, limit; start and completion/section dates; provisions for variations and instructions; applicable Law, no privity of contract, time is of the essence, etc; signatures to confirm acceptance of the terms and conditions

40 40 5. Common Delays

41 41 Typically… Access/logistics problems; Issue of variations expanding the scope of the contract; Late issue of drawings or instructions (including design details etc); Late return of submittals; Misinterpretation of the contract; Late nominations for sub-contractors/suppliers; Subcontractors and/or supplier delays; Market shortages, Materials, Labour and Plant; Poor procurement schedules/planning; Disruption or lost productivity; Late or re-inspections sign-off; Additional rigorous testing; Third parties (or other contractors etc).

42 42 Excusable and Non-excusable delays Excusable delays, two categories: Entitlement to an extension of time thus relieving the obligation to pay liquidated damages and, delays which provide a right to both more time and financial compensation.

43 43 Excusable and Non-excusable delays Non-excusable delays: usually those due to some fault of the contractor (or faults of those for whom he is responsible) that do not have relief from liquidated damages.

44 44 Force Majeure - FIDIC Red Book 19.1 Definition of Force Majeure In this Clause, "Force Majeure" means an exceptional event or circumstance which prevents or impedes the due performance of the contract by that party : (a) which is beyond a Partys control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party.

45 45 Other delays Neutral event: the fault of neither party; E.g. external strikes and other forms of industrial unrest, riots, delays by local authorities and statutory undertakers, and if the contract is silent as to delays by a neutral event then the contractor may take the risk.

46 46 Other delays Concurrent delay: Employer & Contractor delays at the same time… applying only to the period of overlap. The Shorter Oxford Dictionary also gives concurrent' a wider meaning with 'contributory cause. Disputes arise not so much on how long was the period of the overlap, but to what cause should it be attributed and to what extent is it permissible to consider the knock-on effects.

47 47 Delay response Best Endeavours: Contractor to prevent or mitigate the potential delay and mitigate its loss; usually by re-programming the works; the proviso does not contemplate the expenditure of substantial sums of money. [Keating on Building Contracts 5th Edition] ; Hence, residual consequences may occur due to out of sequence working or loss of efficiency, etc.

48 48 6. Entitlements & Variations

49 49 Notices Advance notice? Has the Engineer or Employer been prevented from or substantially prejudiced by the failure to investigate the claim? Contractor must identify the entitlement provision(s), cause and effect; Send an interim claim providing full and detailed particulars of the amount claimed and the grounds on which the claim has been made; Further particulars… Contractor must maintain contemporary records;

50 50 Notices Additional payment under contract provisions : Due to variations; Due to re-measure; Miscellaneous provisions/other entitlement clauses. Damages for breach of contract: Breaches affecting performance; Breaches resulting in termination or rescission of contract; Breach of Employers payment obligation.

51 51 FIDIC Entitlement Clauses The 1999 edition of the Red and Yellow Books each contain over 20 sub-clauses specifying events which may give rise to entitlement; The Silver Book, which places greater risk on the contractor also contains 20 + such sub-clauses; The sub-clauses in the new Red and Yellow Books giving entitlement for additional money or time are listed in the following slides (an asterisk indicates that it is also contained in the Silver Book):

52 52 FIDIC Entitlement Clauses

53 53 FIDIC Entitlement Clauses

54 54 FIDIC Entitlement Clauses

55 55 FIDIC Entitlement Clauses

56 56 FIDIC Entitlement Clauses

57 57 7. Claim Document

58 58 The Claim Document Covering letter; The Document, Appendices … contents. 1 EXECUTIVE SUMMARY 1.1 Time Related Matters 1.1.1 Extension of Time 1.1.2 Acceleration Measures 1.1.3 Disruption and Out of Sequence Working 1.2 Cost Related Matters 1.2.1 Loss and/or Incurred Damages 1.2.2 Negation of Liquidated Damages/Penalties 1.2.3 Payment of Financing Charges Accruing 1.3 Summary

59 59 The Claim Document 2 INTRODUCTION 3 ABBREVIATIONS & CLARIFICATIONS 3.1 Abbreviations and Terms Used 3.2 Clarifications 4 CONTRACT PARTICULARS 4.1 The Parties, Period and Contract Price 4.2 The Contract Documents and Order of Precedence 4.3 Relevant Contract Agreement Particulars 4.3.1 The Contract Price 4.3.2 The Completion Period 4.3.3 Penalties 4.3.4 Claim Notification and Submittal Period 4.3.5 Substantive Law 4.4 The Works Generally 4.5 Programme of Work

60 60 The Claim Document 5 CONTRACT CLAUSES GIVING RISE TO ENTITLEMENT 6 STATEMENT OF CLAIM 6.1 Introduction 6.2 Matters Relating to Cost 6.2.1 Concurrency as it relates to compensation for prolongation 6.2.2 Float as it relates to compensation 6.2.3 Mitigation of loss 6.3 Matters Relating to Time 6.3.1 Generally [from the SCL Protocol] 6.3.2 Concurrent and Culpable Delays 6.4 Matters Relating to Negation of Penalty for Delay 7 PREVENTION AND BREACHES OF EXPRESS OR IMPLIED TERMS BY THE EMPLOYER, OR THE ENGINEER ACTING AS THE EMPLOYERS AGENT 7.1 Prevention By the Employer/Engineer Generally 7.2 Provision of Information by the Employer/Engineer 7.3 Employer/Engineer's Approval 7.4 Employer/Engineer's Procedural Breaches

61 61 The Claim Document 8 CONDITIONS PRECEDENT TO ENTITLEMENT 8.1 Introduction 8.2 Conditions Precedent to the Deduction of Damages by the Employer 8.3 Notification as a Condition Precedent to the Award of an Extension of Time 9 CAUSES OF DELAY AND THEIR EFFECT ON THE WORK 9.1 Delay Event No. xxxx 9.1.1 Introduction 9.1.2 The History of the Event (the "Cause") 9.1.3 The Impact of the Event (the "Effect") 9.1.4 Conclusion 10 COMPOSITE EFECT OF EVENTS 10.1 Delays Giving Rise to Extension of Time 10.2 Disruption of the Works

62 62 The Claim Document 11ASSOCIATED COSTS 11.1 Prolongation Costs 11.1.1 Site Overheads 11.1.2 Head Office and Other Overheads 11.1.3 FORMULAE COMPARISON (Hudson, Emden, Eichleay) 11.1.4 Plant Costs 11.1.5 Finance Costs 11.1.6 Loss of Profit 11.1.7 Summary of Prolongation Costs 11.2 Acceleration Costs 11.2.1 Supervision 11.2.2 Additional Resources 11.2.3 Disruption and Uneconomic Working 11.2.4 Exceptional Costs (e.g. Air Freight) 11.2.5 Summary of Acceleration Costs 11.3 Disputed Costs 11.3.1 Variations 11.3.2 Other Issues 11.4 Summary of Associated Costs

63 63 The Claim Document Prolongation overhead elements might include:- Staff Costs; Salaries + bonuses + benefits Site Staff Directors' emoluments and expenses Medical Expenses / Medical Insurance Staff Site Overheads; Audit Fees Contractor's & Engineers Printing & Photocopying Progress reports & photos Travel Visits from HO / Others Vehicles, fuel, maintenance, hire Tel/Fax/Postage & Courier/Books/Other expenses Security & Site boundary maintenance Road and pavement maintenance Site Expenses & Depreciation of Assets; Contractor's & Engineers Site offices Maintenance of warehousing and yards Rental charges for areas outside the site boundary Contractor's welfare facilities & rubbish clearance Stores, Canteen, stationary, refreshments Depreciation; vehicles, computers, FF&E, plant & tools Plant, Tools & Other Requirements; Scaffolding, PPE, plant & tools; rental, maintenance, fuel Heat, light, power, water and housekeeping Repairs to buildings, plant and equipment Transport and mobilisation costs Financial Liabilities; Insurances & Bonds

64 64 Causation... Leyland Shipping Co v. Norwich Union Fire Insurance Society (1918) : a torpedoed ship in harbour, towed to a breakwater, then due to a gale towed out to an anchorage where she sank. It was held that the cause was the torpedoing and that the unsuccessful attempts to save the ship did not break the chain of causation.

65 65 Linkage to Effect It is often not difficult to prove the facts of the occurrence which are often well-known by all parties to a contract. It is equally often not difficult to demonstrate that certain effects were felt by the claiming party, additional costs incurred, delay, and so on. What is more difficult, but is essential, is to link the two. The value of detailed programmes and as built records cannot be overstated in this regard. Contemporaneous records in the form of reports and diary entries, correspondence and meeting minutes, can also be extremely useful in establishing the causal nexus.

66 66 Competing causes (a) the Devlin approach. If a breach of contract is one of two causes of a loss, both causes co-operating and both of approximately equal efficacy, the breach is sufficient to carry judgment for the loss. (b) the dominant cause approach. If there are two causes, one the contractual responsibility of the defendant and the other the contractual responsibility of the plaintiff, the plaintiff succeeds if he establishes that the cause for which the defendant is responsible is the effective, dominant cause. Which cause is dominant is a question of fact, which is not solved by the mere point of order in time, but is to be decided by applying common sense standards. (c) the burden of proof approach. If part of the damage is shown to be due to a breach of contract by the plaintiff, the claimant must show how much of the damage is caused otherwise than by his breach of contract, failing which he can recover nominal damages only.

67 67 8. Records & ADR

68 68 Records, Records, Records: Records of records: in/out logs, distribute, track, response; Monitoring records: resources, measurements, programme; Conformity records: inspection, testing, defects; Event records: instructions/variations, notices, delays, additions; Costs records: planned and unplanned costs; Contemporaneous records: site diary, submittal registers, photos.

69 69 ADR Techniques include: (slide 1 of 2) Negotiation: the most common form of dispute resolution where the parties themselves attempt to resolve the dispute. An express provision in a contract for good faith negotiations to take place can be enforced; Mini Trial: this is a formalised settlement procedure at which representatives of the parties make short presentations to a panel which comprises at least one senior member from each party and usually a neutral adviser who assists the parties in reaching an agreement. The outcome of the mini trail is not binding unless an agreement is reached, committed to writing and signed; Mediation: (including Conciliation), a private and structured form of negotiation assisted by a third party that is initially non-binding. If settlement is reached it can become a legally binding contract; Neutral evaluation: a private and non-binding technique whereby a third party, usually legally qualified, gives an opinion on the likely outcome at trial as a basis for settlement discussions; opinion is non binding;

70 70 ADR Techniques, contd (slide 2 of 2) Expert determination: a private process involving an independent expert with inquisitorial powers who can give a binding decision but it depends upon the terms of the contract; Adjudication: an expert is instructed to rule on a technical issue and the decision is binding until finally determined by arbitration, litigation or agreement; Arbitration: a formal, private and binding process where the dispute is resolved by the decision of a nominated third party. The arbitrator or arbitrators awards are final and binding and enforceable in court with rights of appeal being limited and then only in respect of errors of law; Litigation; the odd one out!! The formal process whereby claims are taken through the civil courts and conducted in public. The judgments are binding on parties subject to rights of appeal.

71 71 SUMMARY... For discussion 1.Parties 2.Roles & Responsibilities 3.Contract Essentials 4.Letters of Intent / Acceptance 5.Common Delays 6.Entitlements & Variations 7.Claim Document 8.Records & ADR

72 72 The End … Thank you!

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