More than 4 years after the introduction of the Public Works Contracts ("the Contracts"), parties are now familiar with their provisions. But are parties aware of the various amendments that are made to these
Contracts1 on a regular basis?
This update considers some of the recent changes published by the Department of Finance on the Construction Procurement Reform website on 28 July 2011. This most recent version of the Contracts was accompanied by a note summarising the changes, describing them as "minor". No point of reference was provided as to where the listed changes actually appear in the Contracts and their description as "minor" should be viewed with a degree of caution. It may also be unwise to assume that no further changes have been made to the Contracts other than those highlighted in the summary note of the changes.
Key Changes made in July 2011
An entirely new clause has been inserted at clause 1.10 of the Contracts entitled "Background Information". The clause is very broad in scope and seeks to absolve the employer from any responsibility for the newly defined 'Background Information' which may be provided to the contractor. "Background Information", as defined, will include information made available to the contractor before, on or after the Contract Date and includes any information "stated to be Background Information". The definition makes clear that it is intended to deal only with information which is not included within the Contract. Thus, information included within the Works Requirements is dealt with elsewhere in the Contract. Site surveys provided at tender will now be described as Background Information and cannot be relied upon, even in circumstances where there is no opportunity for the contractor to carry out its own testing. While this is not a dramatic shift in the usual allocation of risk, it does make clear beyond any doubt that no claim will lie against the employer if such information transpires to be incorrect or misleading.
What if an Employer's Representative fails to make any determination under Clause 10?
A significant change now introduced is that where an Employer's Representative ("ER") simply fails to take any action within the prescribed time-limits in determining a claim submitted by the contractor under Clause 10.3 or in respect of a contractor proposal pursuant to clause 10.4, then the ER will be deemed to have made a determination of no adjustment to the Contract Sum or Programme.
The newly inserted sub-clause 10.5.4 then goes one step further and provides that all ER determinations (either made expressly or by default) will be final and binding unless the contractor or the employer disputes the determination and refers it to conciliation within 28 days of the date the determination was made or was taken to have been made. Thus, a contractor will need to ensure that, following submission of a claim, he has assessed the date by which a determination is to be made by the ER, and that, where no such determination is made within the prescribed time, he refers the 'deemed' determination of no adjustment to the Contract Sum or Programme on to conciliation within 28 days. Failure to do so will result in the contractor's entitlement to pursue his claim being lost.
This could result in the very inefficient situation whereby several mini conciliations are commenced and underway simultaneously during the course of a project by reason of disputed ER determinations or possibly due solely to the ER's failure to take any action at all in determining a claim. The contractor, as is true in respect of any conciliation, would be responsible for 50% of the costs of any such conciliations, even if the sole reason for initiating the conciliation proceedings is due to the ER's inaction in failing to issue a determination within the prescribed time-limits and even if such a "default determination" is ultimately overturned.
Contractor's Final Statement
Clause 11, already quite an onerous provision of the Contracts which prescribes that all items must be included within the contractor's final statement in order to be assessed, has been amended to impose a further obligation on the contractor. Newly inserted clause 11.5.1 now provides a cutoff point for the delivery by the contractor of its final account, including particulars of all claims for any adjustment to the Contract Sum, after which, the employer will be released from any further liability to the contractor. If the contractor has not submitted its final statement within 2 months of Substantial Completion, the Contracts now provide that the employer will have no further liability to the contractor whatsoever. In effect, non-compliance with this time-frame will deny the contractor access to its final payment under the Contracts, including in respect of any claims.
Arbitration Costs – who is responsible?
S. 21 (1) of the Arbitration Act 2010 allows for parties to make such provision as to the costs of the arbitration as they see fit. In or around early September of this year, the Government Construction Contracts Committee inserted a new costs undertaking in the Standard Form of Tender for use with the Contracts. This new costs undertaking prescribes that each party must bear its own costs of any arbitration entered into (relevant to that contract), except in the case where a sealed offer is made and the contractor does not beat it, then the contractor will be liable for both parties' costs. The provision does not, however, allow for the reverse situation whereby the contractor beats the sealed offer and would ordinarily be entitled to recoup its reasonable costs. On the contrary, it seems that, in such circumstances, the contractor is still responsible for its own costs of the arbitration. The insertion of such a provision will clearly impact contractors when tendering as it may be viewed as an impediment to a contractor ever taking a claim forward to arbitration. Anyone involved in arbitration knows that the costs can be very significant, and the imposition of a requirement that each party bear their own costs, no matter what the outcome, and no matter whether a sealed offer is made or not, will render arbitration inaccessible to many, notwithstanding the merits which a contractor's claim may have.
It is difficult to reconcile the revised Standard Form of Tender with the Arbitration Rules 2008 (the "Arbitration Rules") applicable to the Contracts. The Arbitration Rules have yet to be updated to reflect the Arbitration Act 2010 and provide that the costs should in principle "follow the event", namely, the successful party recoups its costs. This is quite clearly out of synch with what is now prescribed in the Form of Tender.
Far from "minor", it is considered that the changes discussed in this note will have a fundamental impact on tenderers, employer's representatives and contractors alike, particularly as regards the tendering and administration of the Contracts and the pursuit of contractual entitlements thereunder.
1. In this article, we consider changes to the five principal contracts, namely: Building Works Designed by the Employer, Building Works Designed by the Contractor, Civil Engineering Works Designed by the Employer, Civil Engineering Works Designed by the Contractor, Minor Building & Civil Engineering Works Designed by the Employer
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.