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Table of Contents

Chapter 1. The construction industry

Abstract
Imagine for a moment a world without ‘us’. A world without safe water to drink, sewers, waste and sewage treatment; electricity and gas supplies, telecommunications; roads, railways, airports, canals, docks and harbours; schools, hospitals, offices, shops and factories; houses; art galleries, churches and cathedrals; and you see a world without the construction professional. You see a world without civilisation. But construction is not a straightforward endeavour. It is very complex, with numerous interconnecting professions and activities requiring skill, knowledge, coordination and expertise. This is the realm of the construction professional who works within the built environment.
Geoff Powell

Chapter 2. The investment process

Abstract
This is where it all begins … with an idea – an idea on the part of the ‘employer’, which needs translating through the investment process into concrete, steel, bricks and mortar, into a new asset to serve the employer’s needs. The employer is the person, company, local authority or agency who has the need and who will pay for the design and construction of the new asset. The employer is often called ‘the client’ by design organisations such as consulting engineers or architects. Effective construction professionals explore the employer’s need, provide advice, and then develop the employer’s requirements into the design for a construction project. The contractor will build or construct this project.
Geoff Powell

Chapter 3. Parties and stakeholders

Abstract
The investment Process is made up of people and organisations that carry out, or pay for, work as part of a legally binding contract. The people or organisations with these contracts are called parties to those contracts. ‘Parties’ is a legal term indicating someone with rights or obligations under a contract. In the main they will be employers, designers, contractors, sub-contractors and suppliers. Most construction affects other people or organisations who are not parties to these contracts. Such people and organisations are commonly known as stakeholders. Some stakeholders are simply affected by a project, but many others will have a direct influence on it in some form or another. Many stakeholders will have a statutory function to discharge. Identification of stakeholders, communication with stakeholders and management of the relationship
Geoff Powell

Chapter 4. An introduction to contracts

Abstract
realising it. We make contracts when we buy something or perform a service for money for example. Thus, on most days we will make contracts when we buy a newspaper or a book, get on a train or bus, buy petrol, buy a parking ticket, buy a coffee or a sandwich, go to a café for lunch and so on. Whenever people have a commercial agreement to carry out work for payment, they have a contract. The people or organisations that make the contract are called parties. The formation of the contract is based on an offer to do something (in our case to carry out design or construction work), an acceptance of this offer and consideration (payment in return for the design work or the construction work). There are a number of other requirements which will be explained below. In the construction industry we make a contract during the process of tendering and contractor selection as described in Chapter 5. Tendering is the industry word for inviting contractors to submit priced bids based on the employer’s tender documents.
Geoff Powell

Chapter 5. Tendering and contractor selection

Abstract
This chapter describes ‘traditional tendering’. In traditional tendering, an employer can negotiate or tender in any way that the employer chooses provided it is within the law. The law gives few restrictions on tendering options and processes provided there is no fraud or misrepresentation. However, a very different situation exists where an employer is subject to the Public Contract Regulations or the Utilities Contracts Regulations (called ‘the regulations’ from now on). These regulations set out in great detail rules and procedures which apply to tendering and contractor selection for many employers, and which must be followed. Because they are so important, the regulations are described in detail in Chapter 11, the EU Procurement Directives. Employers who are subject to the regulations and break the regulations can be subject to massive fines.
Geoff Powell

Chapter 6. Site investigation

Abstract
These terms are often confused, especially by civil engineers from an earlier generation, who will often refer to ‘the SI’ when they actually mean the ground investigation. The reason may be that in the previous century, ground investigation was the largest part of site investigation. In those days there were far fewer laws and regulations controlling the activities of those who wished to build. It is worth emphasising that interrelationship is a very important consideration. The environment and surroundings will affect the construction of the asset, and the asset will affect its surroundings and local environment. Both aspects need thorough investigation by the construction professional. Ground investigation is concerned with the properties of the ground in which a structure is designed and constructed. Site investigation is concerned with all aspects of the location of a structure and its interrelationship with its surroundings both during construction and in future use.
Geoff Powell

Chapter 7. The Construction (Design and Management) Regulations 2015 (CDM 2015) and safety

Abstract
In the construction industry the site is the dangerous place, not the design office or the offices of the employer. Most accidents, injuries and deaths occur onsite. What this quotation emphasises is that many risks could be eliminated by improved design and more aware employers (‘clients’ in the context of the quotation). Since accidents and deaths almost always occur on-site it is all too easy to blame the contractor, and in fact this approach used to be very common. Contractors may be at fault of course, but they have to manage a difficult and complex construction process, outdoors, with ground conditions that cannot always be predicted and with a workforce that may be drawn from many trades and the self-employed, and today from many countries. Additionally, some of the larger employers seek to impose their own views and practices on health and safety. In view of all these factors, for the contractor, managing health and safety is a Herculean task.
Geoff Powell

Chapter 8. Contract strategies: separated, integrated and management

Abstract
The contract strategy is a major part of the investment process. The contract strategy determines the contract links between the employer, the design organisation, contractors, sub-contractors and other professionals engaged in the construction process. Each of these links will also have contract documents and usually a standard form of contract. Contract strategies are sometimes called procurement strategies, but this book treats procurement as a wider issue which includes purchasing strategy, tendering policy and possibly other issues such as standardisation, contract relationship management and so on.
Geoff Powell

Chapter 9. Contract strategies: partnering and commercial arrangements

Abstract
Partnering is a philosophy of working together in a more effective and less adversarial way, with the expectation of cooperation and trust. It is a structured management approach to developing and improving working relationships to the overall benefit of all the participants and the project itself. It usually stresses relationships and culture, and relies on the contract itself to cover the commercial issues. The partnering strategy has developed largely as a result of the Latham and Egan reports, and a desire to reduce the conflict, waste and adversarial attitudes that plagued the construction industry in the United Kingdom particularly in the last two decades of the twentieth century. These government-sponsored reports into the construction industry were Sir John Egan’s report Rethinking Construction published in 1998, and its forerunner, Sir Michael Latham’s report, Constructing the Team published in 1994.
Geoff Powell

Chapter 10. Designers and design contracts

Abstract
As we have seen in the chapters on contract strategies, one of the major issues for the employer to determine is who designs the project. The traditional strategy has stood the test of time, but its main drawback is the separation of design and construction into two different organisations: the architect or consulting engineer, and the contractor. Many of the other contract strategies have evolved to try and address this issue, but have generated new drawbacks of their own. We see that design is very important. Everything that is built has to be designed by someone. Even on the smallest scale in construction we see design. So two bricklayers constructing a garden wall ‘design’ the foundations when they settle on the dimensions of a concrete strip footing, and ‘design’ the wall when they decide on its thickness and mix the mortar, determining its strength and durability by the mix proportions that they choose. It is very important to understand this wide-ranging concept of design because many construction professionals take on design liability without realising it, and hence expose themselves to potential legal action if their design is inadequate and they have been negligent.
Geoff Powell

Chapter 11. Framework agreements and the EU Procurement Directives

Abstract
This chapter begins with a brief description of the EU Procurement Directives before describing in detail the operation of framework agreements which largely evolved from them. Framework agreements have a major influence on the UK construction industry particularly the civil engineering sector. The EU (European Union) Procurement Directives were enacted to encourage competition and opportunity across Europe. In other words, the intention was to make it easier for companies and suppliers to sell their products and services across the whole of Europe, rather than being restricted by national standards, specifications or procedures. The construction industry across Europe spends immense amounts of money every year, and hence is a prime target for legislation to open up competition and markets.
Geoff Powell

Chapter 12. Pricing and payment mechanisms

Abstract
must be paid to the contractor, in return for a completed project. The payment mechanism describes when the contractor will be paid and how payments will be calculated. The employer will want to have a pricing mechanism which indicates as closely as possible what the final cost of the project will be, at the time that tender prices are received. It is also an advantage to be able to compare the detail behind the tender prices submitted by different tenderers, in addition to a statement of the total tender price. This detail is often called the ‘tender make-up’.
Geoff Powell

Chapter 13. Methods of measurement and BoQs

Abstract
Until the advent of activity schedules in the previous two decades, bills of quantities were probably the most used pricing/payment mechanism in construction contracts. The BoQ was used to break down and explain the tender price (pricing) and it was used to make regular monthly payments for work done (payment). Bills of quantities are still used extensively in building contracts, often using one of the JCT standard forms of contract; whereas today, civil engineering contracts tend to use NEC3 ECC options A and C, which use activity schedules as the pricing mechanism. The bill of quantities is often abbreviated to BoQ or ‘the bill’. Bills of quantities were touched on in Chapter 12 and are explained in more detail here.
Geoff Powell

Chapter 14. Time and programmes

Abstract
Time is of fundamental importance in all contracts, during their preparation, design and construction. Construction professionals plan, manage, monitor and coordinate activities by means of programmes, and thus bring time under control.So wrote Andrew Marvell almost 400 years ago in the poem ‘To his coy mistress’. It sums up the attitude of the employer, the designer and the contractor in construction contracts, as if it had been written today.
Geoff Powell

Chapter 15. Contract law

Abstract
This chapter describes the main principles of contract law, but it is not a legal textbook and the author is a chartered engineer, not a lawyer. Design contracts and the diverse range of contracts associated with construction are all contracts under English contract law. Since construction professionals are all involved in some way with these contracts, a basic understanding of contract law is very important. Significantly, construction contracts such as NEC3 and JCT contracts are usually administered by a construction professional, not a lawyer. It is not unusual for inexperienced construction professionals to make mistakes or errors of judgment that can lead to very expensive claims. This is often through lack of knowledge of the way that contracts and the law actually work.
Geoff Powell

Chapter 16. Liquidated damages

Abstract
As we have seen, contracts are made between the parties (such as the employer and the contractor) and they contain terms which give the parties both rights and obligations. If a term is broken, then this is likely to be a breach of contract. In a construction contract these terms will normally be written down and can be found in the conditions of contract, the specification, the contract particulars, the works information, details and dimensions shown on the drawings and so on. For the employer one of the most important terms is the completion date for the contract. The employer is paying for its new asset and will want the benefit of that new asset on the due date. If the contractor is late in completing the project, without a valid reason for additional time, then this will be a breach of contract. Late completion happens on many projects, largely due to the difficulties inherent in construction.
Geoff Powell

Chapter 17. Negligence

Abstract
Hence, tort is concerned with the interactions between individuals who do not usually have a contract relationship, although they may have. Where a contract relationship exists as well as a potential action in tort, the lawyers will often advise their clients to seek an action in both. If they are successful, however, the claimant can only be compensated once. Torts generally are concerned with maintaining the status quo, and compensating those who have been disadvantaged. The law tries to strike a difficult balance between one person’s rights and freedom to act, and the effect it might have on the rights and freedoms of someone else.
Geoff Powell

Chapter 18. Construction contracts

Abstract
The major publishers of contracts produce a range of standard forms of contract for different purposes and the various contract strategies. Sometimes these families are called ‘suites’ of contracts. Since construction is complex and covers such a diversity of projects, there are many standard forms of contract. The ones most used in the UK construction industry are NEC contracts and JCT contracts, and this chapter will concentrate on these. All standard forms of construction contract have much similarity but the differences can be very important. The NEC website publishes a useful free resource comparing NEC3 and JCT contracts. NEC3 ECC is covered in detail in Chapters 19 to 25. JCT SBC is explained in Chapter 26. For full explanations of any terminology used in this chapter, please refer to the detail in these chapters..
Geoff Powell

Chapter 19. NEC3 ECC (2013) fundamentals

Abstract
The New Engineering Contract, or NEC, has its origins in a 1985 initiative from the Institution of Civil Engineers to fundamentally review contract strategies. A third edition (NEC3) was launched in 2005 taking into account user feedback in the intervening ten years. In 2013 the range of NEC3 contracts was updated and revised. In fact, the changes are generally minor. This book uses the 2013 version (with occasional reference to the 2005 version. This book will refer to the 2013 edition, simply as NEC3 ECC.
Geoff Powell

Chapter 20. NEC3 ECC (2013) preparing the contract

Abstract
We saw in the previous chapter how the core clauses form the essential part of the NEC3 ECC contract, regardless of which other options are chosen. The core clauses are described in detail in chapters 21 to 25. The selected options are added to the core clauses. Some of these options are obligatory and some are truly optional. Figure 20.1 illustrates the selections which are described below. The employer will seek one or more tenders. The employer prepares the tender documents by first selecting whichever NEC3 standard form of contract is to be used (NEC3 ECC, for example).
Geoff Powell

Chapter 21. NEC3 ECC (2013) core clauses one and two

Abstract
This chapter will often refer to compensation events, which are covered fully in Chapter 24. Compensation events are those that are the employer’s risk. If a compensation event occurs and it is not caused by a fault of the contractor, then the contractor is compensated. The compensation could be more time to complete the contract or more money because of the cost of the compensation event, or often both. Compensation events include such items as changes, ‘adverse weather’, late access being given by the employer and so on..
Geoff Powell

Chapter 22. NEC3 ECC (2013) core clauses three and four

Abstract
Time is such an important issue in all contracts that this book devotes Chapter 14 to the general subject of time and programmes. This chapter will deal with how NEC3 ECC treats the contractual issues around this subject. There are a number of important terms relating to dates in NEC3 ECC. These are listed below in chronological order, and assume that the contractor achieves completion before the completion date. These terms will be described in more detail in this chapter. Most are defined in clause 11.2.
Geoff Powell

Chapter 23. NEC3 ECC (2013) core clauses five

Abstract
Pricing mechanisms and payment mechanisms have been covered in general terms in Chapter 12. In NEC3 ECC, options C and D use a different pricing mechanism from the payment mechanism. This is why it is important to understand the difference The payment mechanisms in NEC3 ECC may seem complicated at first, but it must be remembered that NEC3 covers payment under six different options, A to F. Thus, the payment section five in the core clauses (which apply to all options) is just over a page long and some of the options A to F add as much again in the sections relating to each option.
Geoff Powell

Chapter 24. NEC3 ECC (2013) core clauses six

Abstract
Compensation events are those that are the employer’s risk and there are 19 main ones which will be described below. If a compensation event occurs and it is not caused by a fault of the contractor, then the contractor is compensated. In NEC3 ECC, contractors are compensated for any effect that the event has on their prices, the completion date and any key dates. Thus, the contractor gets ‘time and money’ where there is a justification.Before we look at the detail of this process, it is worth thinking about avoiding compensation events in the first place. Compensation events are not rare occurrences.
Geoff Powell

Chapter 25. NEC3 ECC (2013) core clauses seven to nine

Abstract
This short section deals with ownership of plant and materials. We need to remember again that NEC3 ECC does not use the word ‘plant’ in the traditional sense of contractor’s plant such as excavators and dumpers. Plant and materials are defined in clause 11.2(12) as items ‘intended to be included in the works’. Hence, plant could include boilers, electrical panels, an overhead crane and so on. There can be project situations where it is advisable for the employer to secure ownership of plant which is off-site. Such plant could, for example, be expensive pieces of equipment before they are brought to site, or, for materials, perhaps a large quantity of pipes when there is a long delivery of such pipes because of a national shortage of production relative to demand.
Geoff Powell

Chapter 26. JCT Standard Building Contract SBC11

Abstract
JCT SBC11 is a traditional contract in common with the ICE7 contract, which has now been withdrawn in favour of the Infrastructure Conditions of Contract. The JCT 2011 family of contracts replaces the JCT 2005 family. JCT contracts have been with us for many decades, and the term ‘traditional’ should not be thought of as meaning out of date or old-fashioned. It simply reflects the traditional contract strategy where the employer has separate contracts with the design organisation and the contractor.
Geoff Powell

Chapter 27. Dispute resolution

Abstract
As we know, contracts are made between the parties (such as the employer and the contractor; or the contractor and sub-contractor) and they contain terms which give the parties both rights and obligations. If a term is broken, then this is likely to be a breach of contract. In a construction contract these terms will normally be written down and can be found in the conditions of contract, the specification, the contract particulars, the works information, details and dimensions shown on the drawings and so on. Hence, there will usually be many thousands of terms. In a simply drafted contract there may be no procedures within the contract itself for resolving difficulties. However, because construction is a complex affair, with thousands of terms in the contract (including dimensions shown on the drawings and so on), it is very easy to break a term. There would be no sense in construction professionals having to go to court over such breaches. As a result construction contracts usually contain procedures such as compensation events in NEC3 ECC for resolving the day-to-day difficulties and problems that arise on most projects. These procedures were covered in detail in the chapters on NEC3 ECC and JCT SBC contracts.
Geoff Powell
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