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Construction Mgmt & Economics CONTRACT ADMINISTRATION 341 Kee Bee Kheng (Ms)

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1 Construction Mgmt & Economics CONTRACT ADMINISTRATION 341 Kee Bee Kheng (Ms)

2 Unit Outline General Introduction Introduction To The Unit Teaching And Learning Objectives Method Of Study Prescribed Texts Recommended Reading Structure Of Unit Point Of Access To Topic Notes

3 Twelve (12) Study Topics Introduction And Contract Law Core Clauses, Strategies & Characteristics Tendering And Risk Sub Contracting Variations (Changes) Payments Insurances Time Claims Contract Completion & Close Out Disputes Computer Aided Contract Administration

4 Learning Objectives Identify Core Characteristics of Standard Forms; Know Various Contractual Identities & Their Roles; Know Types Of Contracts; Recognise Contract Admin Practices & Procedures; and Become Familiar With Contractual Documentation & Its Interconnectivity.

5 References Accompany Text –JCC-C Standard Forms Of Contract (Australian) References –AS 4000, AS 2124, NEC and C21 (Australian) –PSSCOC, SIA (Singapore) –JTC (United Kingdom) Recommended Texts –Constrn Industry Terminology, David Standen –Bldg & Constrn Contracts In Australia, Dorter & Sharkety –Constrn Law In Australia, Ian I Bailey –Contract Mgmt In Australia, John F. James

6 Types of Contract Formal Contract –under deed or company seal (signed, sealed & delivered); –do not require any consideration (value); –rarely used in construction contracts; –have to be signed by all parties, all signatures witnessed and signed. Simple Contract –parties in the contract identify their required elements; –perform their duties under the contract to deliver those elements.

7 Topic 1 - Contract Law Learning Objectives What is Law? Branches Of Law. What is a Contract? (Simple) The Basic Elements Of A Binding Contract. Offer & Acceptance. Counter Offers. Shortcomings Of Letters Of Intent. Legal Concept Of Privity Of Contract & How It Affects Sub-Contractors. Self Assessment Questions.

8 What Is LAW? Is A Body Of Rules Aimed To Guide Ones Action In Society. It Includes: –Common Law Is governed by the Doctrine of Stare Decisis. –Statue Law Laws approved by Parliament in the form of an act. –Equity fairness or justice. Is based on principles of conscience. to supplement the statute or common law.

9 Branches Of Law Criminal Law (Is public law) Civil Law (Private Law) THE STATE Person Succession Family Contract Tort Property Employment Person

10 What Is A Contract? A legally binding agreement between two or more parties, by which rights are acquired by one or more to act or forebearances on the part of the other or others.

11 Basic Elements Of A Binding Contract Offer & Acceptance Intention Capacity Consent Legality Possibility Consideration

12 Formation Of A Contract Orally By Conduct or Implied Action By Deed In Writing

13 Offer An offer is an expression of willingness to contract on certain terms made within the intention that it shall become binding as soon as it is accepted by the person to whom the offer is addressed.

14 Invitations To Treat/ Offer Invitations To Treat –Advertisement –Invitation To Tender –Supply As and when required Offer –to supply a specific quantity on specific date. –To supply a specific quantity over a period of time.

15 Acceptance Acceptance may be defined as an unconditional agreement, communicated by the offeree to the offeror, to all the terms of the offer, made with the intention of accepting that offer. Whether an acceptance has in fact occurred is determined from the behaviour of the parties including any correspondence that has passed between the parties.

16 Basic Elements of An Acceptance Knowledge of the Offer. If there is an acceptance. How an acceptance is made? Acceptance or Counter-offer. Is there a communication? According to specific instruction? No acceptance by silence.

17 Counter Offer A Conditional Instruction To Proceed. An Attempt To Negotiate Price Or Specification. Paper War Subject To Clients Terms & Conditions (often happen between main & sub contractors).

18 Withdrawal Of Offer Can be anytime before acceptance UNLESS there is a condition for the offer be kept open for a period of time; Must be communicated to the person making an offer; Must reach the person before it was accepted; Postal rule does not apply; and If by fax or telex, it must be received by the person in person.

19 Discharge Performance Agreement Operation of Law Frustration or subsequent impossibility

20 Breach - Remedies Refusal of further performance; Rescission; An action for specific performance; An action for an injunction; An action for damages; and An action for a Quantum Meruit

21 Privity Of Contract Only persons who are parties to the contract are affected. Cannot impose obligations nor confer rights on others who are not privity to it.

22 Letter Of Intent Where immediate signing of contracts not possible; If works were done, contractor can claim Quantum Meruit; Exception, where Letter Of Intent combines with Instruction To Proceed. The latter is a conditional acceptance of a tender (e.g. subject to acceptance of client.)

23 Is There A Contract? Example: 1We are pleased to inform you that, subject to an acceptance of our main contract by the Client, the contract for the work will be placed with your company. 2We are pleased to inform you that, subject to a satisfactory outcome to negotiations between us on certain points in your tender as above, the contract for the work will be placed with your company.

24 Self Assessment Questions ÊExplain how a contract may exist because one of the essential criteria is said to be implied. ËA road bridge over a river collapses sending the cars on the bridge into the water below. One of the drivers in one of the cars is seriously injured as a result of the fall. Is the injured driver of the vehicle prevented from claiming compensation for his injuries as a result of not being privy to the contract for the design and construction of the bridge.

25 Self Assessment Questions -2 ÌUnder what circumstances should consideration be given to the use of a Letter of Intent? ÍA contractor builds a house for his mother which he sells 5 years later when his mother dies. The purchaser subsequently sells the house after 4 years to a purchaser who has various inspections undertaken to ensure the house is in sound and good condition. Two years later the house develops serious and substantial cracks. To what degree do you consider the contractor to be liable?

26 Topic 2 - Strategies & Characteristics Learning Objectives; Background To Standard Forms Of Contract; Contract Strategies; Self Assessment Questions.

27 2-Learning Objectives Different Contract Philosophies; Core Characteristics Of Standard Forms Of Contract; Typical Contract Clauses; and A System Approach To Contract Components.

28 Contract Philosophies - 1 JCC-C –Proprietor/Builder –Fair apportionment of responsibility; –Aim the party best able to deal with a responsibility bear the risk; –e.g. Proprietor is responsible for accuracy of information whilst Builder is responsible for means & methods of construction. Neutral risks are equally shared.

29 Contract Philosophies - 2 AS –Based on NPWC/NBCC Joint Working Party Paper on No Disputes; –Set out rights & obligations of the parties; –Set out 100 circumstances where written notice may be required from one party to another; –Emphasises contract is the essential means of communication to enable proper & orderly admin of the contract.

30 Contract Philosophies - 3 NEC (New Engineering Contract) from New South Wales; –Presume Win-Win scenario; –Use plain English & easily comprehensed language with guidance notes; –Separate the roles of contract administrator from certifier & assessor; –Apportion risk to the party best able to manage it.

31 Contract Philosophies - 4 C21 –widely use in UK; –provides a clear distinction between contract management & administration; –allows up front incentive payments to contractor; –simplify delay procedures; –no Superintendent - rep of Principal & Contractor act for themselves.

32 Contract Philosophies - 5 AS –derives from AS 2124; –writes in plain English; –some clauses vary from AS 2124 e.g. include Intellectual Property and Novation of part of the work; and –roles & responsibilities remain unchanged.

33 Contract Philosophies - 6 PSSCOC 95 –Adaptability –Sound Construction Management –Construction Quality –Allocation of Risks –Clarity of Language

34 Conditions of Contract JCC-C 94 1 General 2 Documents 3 The Site 4 Sub-Contracts 5 Administration 6 Execution Of The Works 7 Separate Contracts 8 Insurances 9 Time 10 Payment & Adj CS 11 Final Certificate & Final Payment 12 Determination 13 Dispute Resolution 14 Notices 15 Special Conditions 16 Appendix SIA 99 1 Architects Directions & Instruction 2 Methods of Working & Temp Works 3 Design & Completion Responsibilities 4 Programme 5 Make-Up Of Contractors Prices 6 Administration 7 Statutory Obligations 8 Setting Out 9 Access For Architect 10 Possession of Site & Commencement 11 Quality of Materials & Workmanship 12 Variations & Valuation of Additional Payt 13 Measurement & BQ 14 Discrepancy Or Divergence 15 Assignment & Subcontracting 16 Plant & Materials 17 Artists, Tradesmen & Other Contractors 18 Indemnities To Employer 19 Injury (Persons, Property) & W C 20 Insurance Of Works 21 Due Diligence By Contractor 22 Time for Completion 23 Extension of Time 24 Delay & LAD 25 Phase & Stage Completion 26 Partial Re-occupation 27 Maintenance 28 Designated NSC 29 Nomination & Rights of Objection 30 Payment of NSC 31 Payment of Contractor 32 Termination by Employer 33 Termination by Contractor 34 Outbreak of war 35 War Damage 36 Antiquities 37 Arbitration 38 Optimal Cl (Fluctuations) 39 Optimal Cl (Excess) 40 Appendix n PSSCOC 95 1 Definitions & Interpretation 2 S.O. & S.O. Representative 3 Contract Documents 4 General Obligations Of Contractor 5 Sub-Surface & Ground Conditions 6 Permanent Work Designed by Contractor 7 Notices & Fees 8 Setting Out 9 Programme For the Works 10 Quality In Construction 11 Administration 12 Possession Of Site 13 Suspension 14 Time For Completion 15 Expedition Progress Of Works 16 Liquidated Damages 17 Substantial Completion 18 Defects 19 Variations To The Works 20 Valuation Of Variations 21 Measurement 22 Claims For Loss & Expense 23 Procedure For Claims 24 Constrn Equipment Temp Wks Mat & Goods 25 General Responsibilities 26 Indemnity Provisions 27 Injury (Person & Property) & W C 28 Insurance Of The Works 29 Damage To Property Of Employer Or Govt 30 Assignment & Subcontracting 31 Termination By The Employer 32 Progress Payments & Final Account 33 Final Completion Certificate 34 Settlement Of Disputes 35 Recovery By The Employer 36 Governing Law & Notices 37 Appendix

35 Conditions of Contract JCC-C 94 1 General 2 Documents 3 The Site 4 Sub-Contracts 5 Administration 6 Execution Of The Works 7 Separate Contracts 8 Insurances 9 Time 10 Payment & Adj CS 11 Final Certificate & Final Payment 12 Determination 13 Dispute Resolution 14 Notices SIA 99 1 Architects Directions & Instruction 2 Methods of Working & Temp Works 3 Design & Completion Responsibilities 4 Programme 5 Make-Up Of Contractors Prices 6 Administration 7 Statutory Obligations 8 Setting Out 9 Access For Architect 10 Possession of Site & Commencement 11 Quality of Materials & Workmanship 12 Variations & Valuation of Additional Payt 13 Measurement & BQ 14 Discrepancy Or Divergence n PSSCOC 95 1 Definitions & Interpretation 2 S.O. & S.O. Representative 3 Contract Documents 4 General Obligations Of Contractor 5 Sub-Surface & Ground Conditions 6 Permanent Work Designed by Contractor 7 Notices & Fees 8 Setting Out 9 Programme For the Works 10 Quality In Construction 11 Administration 12 Possession Of Site 13 Suspension 14 Time For Completion

36 Conditions of Contract JCC-C Special Conditions 16 Appendix SIA Assignment & Subcontracting 16 Plant & Materials 17 Artists, Tradesmen & Other Contractors 18 Indemnities To Employer 19 Injury (Persons, Property) & W C 20 Insurance Of Works 21 Due Diligence By Contractor 22 Time for Completion 23 Extension of Time 24 Delay & LAD 25 Phase & Stage Completion 26 Partial Re-occupation 27 Maintenance 28 Designated NSC n PSSCOC Expedition Progress Of Works 16 Liquidated Damages 17 Substantial Completion 18 Defects 19 Variations To The Works 20 Valuation Of Variations 21 Measurement 22 Claims For Loss & Expense 23 Procedure For Claims 24 Constrn Equipment Temp Wks Mat & Goods 25 General Responsibilities 26 Indemnity Provisions 27 Injury (Person & Property) & W C 28 Insurance Of The Works

37 Conditions of Contract JCC-C 94 SIA Nomination & Rights of Objection 30 Payment of NSC 31 Payment of Contractor 32 Termination by Employer 33 Termination by Contractor 34 Outbreak of war 35 War Damage 36 Antiquities 37 Arbitration 38 Optimal Cl (Fluctuations) 39 Optimal Cl (Excess) 40 Appendix n PSSCOC Damage To Property Of Employer Or Govt 30 Assignment & Subcontracting 31 Termination By The Employer 32 Progress Payments & Final Account 33 Final Completion Certificate 34 Settlement Of Disputes 35 Recovery By The Employer 36 Governing Law & Notices 37 Appendix

38 Usual Conditions Scope of Work Price Time Quality Risk Disputes Owners Responsibility Contractors Responsibility

39 Grouping Performance –Obligation –Right –Time Risks –Document –Site Possession –Ground Condition –Information Supplied –Insurance Adaptatory –Variations –Work Types –Organisations Adjudicatory –Dispute Resolution –Loss/Expenses –Determination Recognitory –Definition –Representations –Administration –Programme –Notice –Antiquities –Subcontracts/Assignment Quality –Temporary Works –Design –Materials –Workmanship –Defects –Statutory Obligations –Setting Out

40

41 Project Procurement Method - Development The Needs to secure: –Project Mgmt Services –Design Mgmt Services –Construction Mgmt Services Factors Affecting Change –Types of Clients –Clients Objectives –Design Requirements –Other Requirements

42 Clients Objectives Time Cost Quality Risk Avoidance

43 Time How long to complete? Site availability. Justifiable delay? Key deliverables & dates. Suspension of the work. Extensions to finish dates. Notices.

44 Cost How much to complete? Justifiable increase. Justifiable decrease. Key stages & costs (milestones). Suspension of the work. Extensions to finish work. Notices.

45 Quality Supervision of the work. What if work is poor or sub standard. Who has obligation to ensure work is satisfactory? Changes to the work. Suspension of the work. Notices.

46 Traditional System Project Leader Usually The Architect Client - Designer - Contractor Suitable For Projects: –with long lead time available –where specialist designer is not required –building type is simple Contractor will construct & Designer will supervise on behalf of the Client

47 Advantages & Disadvantages Clear demarcation between designer & construct functions. Parties are clear about their mechanics. Well & truly tested. Risks are relatively low. Modified method (remeasurement)allows flexibility with partially design, thus, overlapping for design & construction. Brief usually sketchy. Design, tendering & construction virtually done sequentially.

48 Design & Build Client wants the design & construct by one party. Single party contract with Client to complete the building, guarantee workmanship, cost & time. Client - Builder (Client retains some supervision). Suitable for simple type of projects, though preferred for some complex projects Tasks Force Report on Construction Productivity in Singapore recommends the method.

49 D&B - Advantages & Disadvantages Client commits requirements in advance. Incorporate builders experience. Integrate design & construct foster co- operation & close gap in communication & control. Client deals with one party. Overlap D & C improve speed. Client pays one fees. Changes later on may be costly. Builder carries risks, client liable for extra if design changes initiated by him. Method not fully tested. May not lead to better quality construction. Tendency for cost overrun.

50 Management Set up within the traditional JCT contractual framework. 2 versions: –Mgmt Contracting : Client - Manager - Builder (I.e. Builder as sub-contractor). –Construction Mgmt: Client - Builder.

51 Construction Mgmt - Advantages & Disadvantages Clarity of roles, risks & relations for all parties. Only one layer of Mgmt responsibility. Develop of D & C can run concurrently. Client has distinct obligations to resolve conflicts. Implicate the professional roles. Not fully tested. Legal & cost fees may required for claims. Not suitable for rehabilitation project. Client must be involved.

52 Self Assessment Questions 1 ÊTwo parties C & P agreed over the phone that if one of them, C, the Contractor could get the finance then other, P, the Principal would instruct their QS to negotiate a fair and reasonable contract with C. The contract sums would be based upon agreed estimates of net cost + cost of general overheads + 5% profit. C got the necessary finance but after negotiations between the QS and C broke down P got the work done by other contractors. C brought an action against P contending that a contract to negotiate existed and claimed Breach of Contract and loss of profit. Did a contract exist between C & P?

53 Self Assessment Questions 2 ËA NSC had a tender unconditionally accepted by the Superintendent. When the Contractor ordered the work to be done by the Sub-contractor the Contractor added some new terms not previously mentioned. One of those terms said the Sub- Contractor would not be paid until the Contractor had been paid. Despite the uncertainty of when they were entitled to be paid the Sub-Contractor commenced the work. Did a contract exist between the NSC and the Contractor and if it did what were their terms of payment?

54 Topic 3 - Learning Objectives Best Practice In Tender Processes & Documentation; Links Between Contract Strategies & Tendering; Value Vs Cost; and Risk In Relation To Standard Forms Of Contract.

55 Codes of Tendering Tendering Procedures - The Principal Tender Documents Tender Processes Cost of Tendering Time Tender Evaluation Express & Implied Terms of Contract

56 Tendering Evaluation Criteria Conformity; Innovation; Value for Money; Construction Period; Quality Assurance; Price Tendered Versus Estimate; Management Ability; Performance Record; and Industrial Relations & Safety Records

57 Tender Documents Clear definition of contractual obligations; Full details of scope of works; Information especially those affects the risks; Clear identification of special conditions & obligations; Particulars of a person to contact for queries; Time & lodgment details of the tender; Version of Standard Forms of Contract attached; and Tender evaluation criteria to be based on.

58 Terms Of Contracts Express –By Signature –By Course of Dealing –Incorporate By Reference Implied –Terms Implied By Law –Terms Implied By Statute

59 Contra Proferentem The doctrine that the construction least favourable to the person putting forward an instrument should be adopted against him. Example: Form of Condition of Contract Bills of Quantities Specification

60 Novation/Assigned Contract Novation –A tripartite agreement whereby a contract between 2 parties is rescinded & a new contract is formed based on same rights & obligations. Assignment –Similar, but only the benefits are assigned. E.g. right to receive payment (both parties agree).

61 Lecture Objectives Key Difference Between Nominated & Domestic Sub Contractors Meaning, Difference & Effects On Sub-contractors –Vicarious Performance –Novation –Assignment The Pay when Paid Concept; and Sub-contractors Rights in Respect of Materials Delivered to Site.

62 Sub-contracting Defined as a delegation of part of responsibilities acquired under a contract without transferring any of the contractual accountability.

63 Sub-Contract Is a contract between two parties where one contracts to do for the other, part of the work which that other has contracted to do for a third party.

64 Reasons For Sub-Contract System Better productivity & economies; Reduced capital outlay; Conservation of management resources; Better estimation of likely cost of work; and Smaller workforce to accommodate in times of recession.

65 Types Of Sub-Contractor Nominated Sub-Contractors; Domestic Sub-Contractors; and Designated Sub-Contractors.

66 Nominated Sub-Contractors (NSC) Often specialist skills for particular elements of the work; Principal nominates & main contractor signed contract; A Prime Cost/Provisional Sum is included in the tender document to cover their cost; Contracts for NSC often called after main contracts are awarded; In JCC-C, builder is allowed to object but with reasons; Builder ensures NSC enters into a sub-contract with terms and conditions consistent with main contract; and Proprietor has control over NSC.

67 Factors Affecting Choice For NSC Proprietor gets sub-contractor of choice; Relationship between builder & NSC imposed; Part of risk is transferred to Proprietor; NSC is in a more powerful negotiating position at tender time;and NSC has greater security.

68 Payment To NSC Specific payment conditions are imposed on builder. BWIC (Builders Work In Connection) or Attendance is work in attendance on NSC e.g. chasing plaster for electrical conduits. An allowance is made for this and for profit. The allowance can be in percentage or lump sum.

69 Domestic Sub-Contracts Sub-contractors employed by Proprietor direct. Why? –Builder does not have the required skill. Proprietor plays no part in the selection process; Builder provides details of sub-contract in Tender Documents.

70 Privity Of Contract Proprietor and Sub-Contractors has no privity of contract. i.e. sub-contractors has no rights of redress with Proprietor. Thus, builder ensures Back to Back arrangement is in place. This means neither builder nor sub-contractor is disadvantaged as a result of actions by either proprietor or the builder.

71 Sub-Contract Formation Like main contract, ample time must be given to sub- contractor to tender. Advantages to sub-contracting: –Works carried out by expert & responsibility still remain with builder; –Sub-contracting reduces builders overheads; –Improved productivity; and –Improved efficiency;

72 Sub-Contract Formation Disadvantages –Lack of training & opportunities for apprentices; –Lack of onsite supervision and control; –Builder can become a middle man only & become a bottle neck in the process; –Contractual problems can develop from an over extended contractual chain; –Sub-contractor may lack resources for the tasks - capital, equipment, people, business acumen and mgmt skills.

73 Vicarious Performance Execution of a contractual obligation by a person not contracted to do it; Performance of sub-contractor is Vicarious Performance Builder secure vicarious performance of another through sub-contractors depending on terms of main contract; Builder is vicariously liable for actions of sub- contractor; and Most standard forms has provision for sub-contract but not when the contract is assigned.

74 Assignment Transfer to another of its rights under the contract; And retain its duties and obligations; Example - Factoring services; Requires consent of both parties to the contract.

75 Novation A third party is involved and a fresh contract is requires; Transfer all rights, duties and obligations to the third party through a fresh contract; The fresh contract is a Contract of Novation; The existing contract is being substituted; and All three parties by agree to the novation.

76 Contractual Chains If sub-contract fails to perform, then: –Proprietor takes action against builder under main contract and builder takes action against sub through sub-contract; –Sub claims payment from builder and builder claims payment from Proprietor; Requires back to back terms and conditions incorporated in sub-contract; Basic elements to contract formation applied in sub- contract; A sub can withdraw up until acceptance & builder will not accept until his tender is being accepted.

77 Pay When Paid No expressed clause in JCC-C, but NSC should be paid within 6 days after builder is paid; Without PWP, problem will exist if proprietor fails to pay; Sub is allowed to claim from builder even the latter is not being paid.

78 Rights Over Materials By implied term, once materials are fixed, they become the property of the proprietor. By implied term, once delivered to site but not fixed, they become the property of builder even the proprietor has paid for them unless there is an expressed term to the opposite, which is usually is. However, for nominated supplier, once delivered to site, they become the property of proprietor unless the sub-contractor invokes a Retention of Title clause.

79 Self Assessment Define, distinguish and give an example for the following terms: –Novation –Assignment –Sub-Contracting A clause in a contract empowers the proprietor to order the work to be stopped at any time in which case the builder will receive an extension of time for the time it was stopped, but no compensation for loss or expense. Acting under this clause, the proprietor stops the work and the builder passes the instruction on to his sub who is performing the work. The sub then claimed for loss and expense as well as an extension of time. Is the Sub entitled to payment of his L&E?

80 Self Assessment - 2 What would be the outcome if a builder uses a subs price in their tender and wins the tender but the sub withdraws their offer in the interim? A sub delivers a quantity of roof tiles to site for inclusion in the works. The client pays the builder for the tiles. However, the builder goes broke before paying the sub for the tiles. Who owns the tiles?

81 Lecture Objectives Definition of Contract Variations & Examples; Application of Standard Contract Variation Clauses; Authorisation, Measurement & Payment of Variations; Strategies to Minimise Variations; and Valuation of a Variation.

82 Reasons For A Variation Clause/Disadvantage Allows proprietor to order changes and additional works; If no provision, proprietor is restricted to agreed specification; Builder would not be obliged to carry out the works; Builder would be allowed to negotiate a new price for the whole contract each time a change is made; Disadvantage: - consultants may leave decision to latter stage.

83 Definition Any agreed change which adds to or subtracts from the terms and conditions or intent of the original contract. No variation will vitiate the contract. Vitiate means to make invalid or ineffectual.

84 Definition in JCC-C Increases or decreases in or omissions from the Works. Changes in the character or quality of any material or work. Changes in the levels, lines, positions or dimensions of any part of the Works. Execution of additional work.

85 AS 4000 Definition The contractor shall not vary … except as directed in writing. The S.O. may … of a character and extent contemplated by, and capable of being carried out.. Same as JCC-C with an addition to allow for: –Demolish or remove material or work no longer required by the Principal.

86 Conditions - 1 Be within the general scope of the contract; In AS 4000, limited to similar in character and extent to the original contract & what parties reasonably have contemplated would be a variation; be capable of being executed within the terms of the contract; be used for unforeseen changes; be adjusted to the Contract Sum;

87 Conditions - 2 be given due consideration for EOT/OT/L&E; be issued (i.e notice is required) or confirmed (emergency cases) in writing; be specific and ordered prior to the works commencement; be within the power of the Architect (includes Instruction from COW & confirmed by Architect); be excluded instructions (directives) to cure defects or breach of builder or requested by builder himself (e.g. to ease method of working).

88 JCC-Cs Valuation Of Variations Application both for Additions & Omissions –By Agreement (If price is agreed, no further adjustment is allowed) [AS applicable [comparable] rates in the contract]; –By Applying Bills of Quantities/Schedule of Rates under similar conditions pro-rated rate –By Otherwise [AS Reasonable rates or prices] Daywork/Cost Plus [Exclude Rise & Fall] Accepted Specialist Quotations

89 Valuing Variations By Derivations By Reconciliation Of Analysis

90 Procedures For Processing Variations A variation is considered to be warranted; The Architect issues advice of variation requesting prices; The builder prices the work & advises the Architect of the cost; If the cost is acceptable, the proprietor is advised of the variation together with the cost; Of proprietor agrees, the Architect instructs the builder to proceed; and The contract is varied accordingly, in both time & cost.

91 Commonly Occurring Variations - 1 Under-measurement of provisional or prime cost sums; Unavailability of specified materials; Lack of coordination of trades and consultants; Change in user requirements (works & materials, quantity and specification); Design changes by the Architect; Changes in site condition not shown in test data/subsurface condition;

92 Commonly Occurring Variations - 2 Mistakes by the contractor; Latent defects; Lack of research into local conditions; Changes by authorities; Errors in documentation/contract docu/BQ; and Lack of proper communication between parties.

93 Steps In Minimising Variations - 1 Take care in establishing the contract documentation; Read and respond to the brief; Examine precedence; Prepare check lists on all phases of the works; Make adequate provision for the unknown; Ensure that there is adequate site testing; Consult with authorities; Coordinate consultants and listen to them; Work as a team, obtain building advice when unsure;

94 Steps In Minimising Variations - 2 Examine climatic and local conditions; Resist the temptation to be too innovative; Test specified materials before use; Construct prototypes and samples; Do resource planning on labour and materials; Build in flexibility; and Carry out post occupancy evaluation &disseminate resulting information. MaLagan (1991)

95 Topics For Discussion Work included in the contract (expressed & implied terms); Where actual quantities differ from those in the bills; Where work is not mentioned in the bills; Mistakes of contractor in the bills; Necessary work in contracts at schedule of rates; Promise to pay when contractor already bound; Instructions to assist builders in difficulty; Instructions as to Method of Working.

96 Self Assessment Questions - 1 Indicate which of the following variations would be admissible under a standard form of contract and provide your reasons: –A change in the size of window. –The increase in the floor area of a proposed warehouse from 200 m2 to 2000 m2.

97 Self Assessment Questions - 2 Are the following examples a variation? Give your reasons for your decision. –8 houses are to be built & a variations amending this to 12 is issued. –1008 houses are to be built and then a variation amending this to 1012 is issued. –A variation order is issued amending the contract from the construction of a house to the construction of a swimming pool. List ways in which you think variations could be minimised.

98 Victoria Construction Management Pte Ltd has recently been awarded for the following proposed project. The developer is Alliance International (A) Ltd. You will be appointed by Victoria as a Construction Manager for the project. Project Description Five thirty-storey prestigious condominium blocks will be constructed on a prime land in central Perth. Every apartment unit will be able to overlook the Swan River. The whole building will be fully air-conditioned and protected by closed-circuit television 24 hours throughout. The lift will stop at every floor and is fully automatic. ASSIGNMENT 1

99 The estate will have three-store basement carparks, an Olympic size swimming pool, three tennis courts, one squash court, a three-storey clubhouse and an unique landscape fronting the building. On completion, the whole estate will be run and managed by a management corporation. The total built in floor area of the estate will be 90,000 m2 and it is estimated to cost about $200 million. Your task is to source the respective sub-contractors for the projects.

100 Assignment Assuming that Victoria Construction Management Pte Ltds primary business is construction management. Before you are deployed for the task, you are to evaluate and propose suitable types of sub-contracts for the project. Additionally, you are to study and report on the rights, duties and remedies of the sub- contractors if JCC-C Standard Form of Contract For Building Works would to be used. Your Senior Manager would want you to put your recommendation in a form of a report so that he could present it to the Project Management Committee..In your report, you are to consider the common problems in employing sub- contractors and recommend precautionary measures in minimising the problems for the project.

101 Curtin University of Technology Accredited Professional Development Programme Bachelor of Applied Science (Construction Management & Economic) CONTRACT ADMINISTRATION 341 Assignment 1 TOPIC: Submitted By: (Registration No. ) Name of Lecturer: Ms Kee Bee Kheng Date of Submission

102 Topic 6 - Payments Learning Objective Payment procedures for standard forms; Assessment of interim payments; Methods of administering prelims; Obligations with regards to unfixed materials; Contract sum adjustments for V.O. & P.S.; Final adjusted contract sums; and A Financial control system.

103 Payments - 1 Purpose; Types of contracts; Method of payment; Payment procedure/Timing of claims; Failure to pay; Assessing Payment - The process & inclusions;

104 Payments - 2 Preliminaries Breakdown; Cash flows; Unfixed Materials; Retention; Contract sum adjustment/final account; Financial control; and Right to payment in non-completion.

105 Purpose What is payment? –Payment is consideration for the works undertaken by the builder; What is the purpose? –To relieve builders from heavy financial outlay.

106 Types of Contract Lump Sum with provisional sum for unknown items; Measurement & value contracts (with approximate quantities or schedule of rates)

107 Methods of Payments Payment upon completion of entire contract; Payments by installments or at predetermined stages: –Period e.g. monthly payments; –Interim/progress payments: payment on account payment by percentage completion milestone e.g. stage payments

108 Payment Procedures When interim payment due (see flow chart); When final payment due (substantial completion); and Release of retention fund (end of DLP).

109 Progress Payment Procedure The builder completes a quantity of work; The builder submits a progress claim to the Architect according to JCC-Cs conditions; The PQS examines the claim & assesses the work completed compared to the work claimed; The certificate is forwarded to the Architect for certification; A progress certificate is issued in accordance with the contract documents (Architect may amend if he thinks fit); The certificate is presented to the employer for payment; and The employer pays the builder in accordance with the contract document.

110 Amendment to Progress Certificates Final Certificate is the only conclusive certificate; Progress Certificate may be subject to amendment in a later certificate.

111 Assessing Payments Often, paid based on account as works proceeds; JCC-C states Once each month and on a date as stated in the Appendix the builder shall submit to the Architect a progress claim; If builder fails to claim, the Architect may issue a certificate using PQSs assessment & process it the same way.

112 Timing of Progress Claims JCC-C states 10 days from the date of claim submitted by the builder for the Architect to certify payments; the employer has further 5 days to pay the amount certified by the Architect; If period differs, it will be stated in the Appendix of JCC-C; Claim prepared by builder & Architect certifies correct & employer pays

113 Failure to Pay Interest accrue at the rate stated in the Appendix of JCC-C.

114 The Process & Inclusions (JCC-C) - 1 Joint site measurement between builder & PQS; Extent of works carried out since beginning of the contract and previous measurement deducted; Valuation of the following works carried out: –Preliminaries; –Builders work; –Variations;

115 The Process & Inclusions (JCC-C) - 2 Valuation of the following works carried out: –Unfixed materials (JCC-C - 80% or as in Appendix); –Rise & Fall; –Retention amount; –Amount previously certified; –Total amount previously paid; –Amount for NSC including variations; and –Evidence of payments to NSC previously certified and payment to works.

116 Preliminaries Breakdown - 1 By apportionment: –Over contract period; –Over contract sum after deducting the prelim & P.S.; –Percentage of work carried out; –Breakdown under 4 headings: cost related; time related; single payment (spot items); or combination of two or more.

117 Preliminaries Breakdown - 2 Cost related depends on the contract sum expended for their value; Time related items depend on the contract duration expired for their value; and Single payment items have no relationship to either duration or value of the works and are selected at a particular point in the contract. Example: scaffolding - erection cost, dismantling cost, weekly hire charge in between.

118 Cash Flows S Curve

119 Self Assessment Question See the attached progress claim and calculate the amount due this claim.

120 Topic 7 - Insurances (Learning Objectives) Definition of 3 types of insurance; The Risks requiring cover by insurance; Characteristics that differentiate annual & specific insurance; Implications of early occupation on insurance liabilities; and Workers compensation & professional indemnity insurance.

121 Course Content Introduction; Insurance - General Principles; Types of Insurance; Risks to be insured; Period of insurance (Annual/Specific); Early Occupation; Professional Indemnity; Provision for Insurance in JCC-C; and Self Assessment Questions.

122 Introduction Contracts & Risks Controllable & Uncontrollable Risks; Insurable & Uninsurable Risks; Property & Liability; Party in control & party not in control of risk; and Interference within control of one party & beyond control of both parties.

123 General Principles 2 classification of insurance: –Liability Insurance Policy; and –Loss Insurance Policy. The Insured Persons & the Insurer; The Policy (A Contract): –Endorsement –Extension –Exclusions –Excess The Premium; The Claim Procedure; and Fraudulent claims - insurer not liable.

124 Types of Insurance Comprehensive (contractors all risk); Public Liability (risk), Third Party (common law); and Workers Compensation (Statutory Law - Workers Compensation & Rehabilitation Act).

125 Risks To Be Included Increases in labour & material costs; Temporary works & plant; Demolition & clearance of damaged areas; Removal of debris; and Additional consultancy fees for reconstruction works.

126 Insurance Conditions - 1 To comply with obligations of the policy; To inform the insurer of any changes to the risk insured such as the final cost, variations and increased costs (R&F) if applicable; To take reasonable precaution to avoid loss or damage (an implied condition). Builder needs to carefully consider its approach to the works; selecting plant, training of the workforce, etc.

127 Insurance Conditions - 2 Insurer is not liable if the claim were found to be fraudulent; To ensure claim procedure is followed. This will help to preserve insured person right to claim under the policy or insurers rights against other parties responsible for the loss or damage; and To pay the premium within stipulated time.

128 Periods of Insurance - 1 Annual Basis (automatically covered all contracts, except exclusions). –Advantages Tailored to suit annual turnover. Builder may include in its tender the exact required value; Small jobs are automatically covered without prior arrangement. –Disadvantages Lock with one insurer, thus less competitive premium. Often, include exclusions such as demolition, tunnelling, wet risks (e.g. on, below, over water or adjacent to water). Need prior notice before commencement if extension being given.

129 Periods of Insurance - 2 Specific –Advantages Premiums attached to specific risks on particular jobs. Premium may be cheaper. Insurance companies in competition may quote unusual jobs. Get a feel for the market-competition. –Disadvantage Time-lag; Need vetting for every policy received.

130 Early Occupation Most standard forms allowed early occupation, except certain obligations are met. Additional cover may be required due to additional risks, because more people occupying the place. Prior notice to insurer may be needed to compute additional premium or to determine party responsible for payment.

131 Professional Indemnity - 1 It protects the professional from financial consequences of any claim brought against him; It covers liability in both contract & tort (in negligence); It requires disclosure on types of activities to be carried out by the insured; Any variation, the insured should be advised to ensure adequate cover exists. Normally, it includes contingent professional liability coverage where design work is sub-contracted to outsiders.

132 Professional Indemnity - 2 The Nature of the Liability –Opinion or design of a person who has specialist knowledge & training; –Until 1963, the person owes the duty of care only to the party in the contract; –Now, professional liability extends to third party, not a party in the contract, if his opinion or design could be reasonably foreseen and is relied upon. E.g. design of a bridge.

133 Provision in JCC-C - 1 Section P8 - Insurance Effected by Proprietor; and Section B8 - Insurance Effected by Builder. The Clauses: –Liability for Damage to Property –Liability for Injury to Persons –Insurance of the Works –Public Liability Insurance

134 Provision in JCC-C - 2 –Workers Compensation & Employers Liability Insurance; –Cross Liability; –Insurances Notices; –Exclusions, Conditions and Excesses; –Periods of Insurance; –Occupation; –Evidence of Insurances; –Procedure as to Claims, and –Settlement of Claims.

135 Self Assessment Questions - 1 List some risks that you consider insurable and those that you consider would be non-insurable in a building contract. What special considerations might apply in the case of a contract for? –Alterations, –Additions to an existing building. Why is there a provision in the appendix of the Contract for Excesses?

136 Self Assessment Questions - 2 If the Principal is to insure the works, why is it necessary for all the information to be included in the Contract? List some of the items and risks for which a builder should consider insurance. List some of the insurance policies that, as a builder, you would be required to take up.

137 Self Assessment Questions - 3 As a consultant, who covers the risks for the work that you undertake? What is the difference between Third Party insurance & Public Liability insurance?


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