General Principles of Contract Management

GENERAL PRINCIPLES OF CONTRACT MANAGEMENT

Training to DEME

(March, 25th – 27th, 2019)

Mark Castell – Regional Managing Director Ernst Jan de Jong – Senior Consultant [email protected] [email protected] What we do

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. Global reach with projects undertaken worldwide. Global Presence General Principles of Contract Management

Workshop Objectives

On days 1 and 2, to:

. Increase your awareness and understanding of contract management.

. Demonstrate how you can improve the DEME Group’s contractual and commercial position in both the pre-contract and post-contract phases of projects.

On day 3, to:

. Introduce the main FIDIC standard forms of contract.

. Explain the philosophy of the main FIDIC standard forms of contract and what their use means.

. Compare FIDIC with some other standard forms of contract. Some questions to start with Q: What is common to every project?

A: Contracts, whether with a client, a supplier or a subcontractor.

Q: What is a Contract?

A: Simply speaking, it is an agreement.

Q: What is the objective of a contract?

A: To define the relationship and how the parties act – the ‘rules of the game’. Q: What is contract management and what does it cover? A: Management of: Opportunities & Risks Responsibilities Entitlement Change The Client or Subcontractor It should include the avoidance of Disputes

Is this not part of project management? Q: When should the management of contracts begin?

A: At the conception of a contract.

Q: When should the management of contracts end?

A: At the finalisation of all matters. Contracts involve a Proces – from Cradle to Grave

. Understanding the clients’ needs and the opportunities and risks involved

. Making an offer, or tender

. Forming a legal agreement (‘wettelijk’; hier ‘afdwingbaar’)

. Understanding the parties’ obligations under the agreement

. Monitoring the parties’ actions against these obligations

. Identifying any variance

. Invoking (‘inroepen’) the terms of the contract according to the circumstances

. Issuing and/or receiving requests for extra payment and additional time

. Agreeing financial and other matters Contract’s life cycle A ‘bad’ contract

What do we mean by the term ‘bad contract’?

. Discrepancies (‘tegenstrijdigheden’)/anomalies (‘afwijkingen’) . Unclear wording . Too much risk . Technical difficulties . Price too low for this work . Schedule too tight . etc Responsible for a ‘bad’ contract

Q: Is it true (or fair) to say that a bad contract is the fault of those involved at the tender stage?

A: No. Why?

Q: Is it true (or fair) to say that an unprofitable project is the fault of those involved at the implementation stage?

A: No. Why? Q: Who is involved in managing a contract?

Revised Q: Who should be involved in managing a contract?

A: Everyone within the business...

I suggest that this could be the key challenge with respect to contract management Course agenda

As managing contracts must be ‘from conception to grave’, course agenda follows this:

Days 1 and 2 1. Tender stage 2. Procurement and Sub-Contracting 3. Contracts (Construction contracts and Letters Of Intent) 4. Setting up the project 5. Planning and Progress 6. Financial issues 7. Management of Change and Variations 8. Dispute resolution

Day 3 . FIDIC introduction . Overview of differences between different standard forms . Specific requirements of FIDIC contracts . Comparison with other standard forms 1. Tender Stage

What is its main purpose?

Photograph credits to FreeDigitalPhoto.net & Grant Cochrane Priority for a Tenderer

The priority is for a tenderer to understand what will be expected of all the parties involved

This includes:

. Technical requirements . Type and scope of works (i.e. dredging, design and build) . Timing and timescale

. Legal considerations . Type of contractual relationship (i.e. main contract, sub contract) . Applicable terms and conditions

. Commercial aspects . Method of valuing works (i.e. lump sum, re-measurable) . Guarantees and payment conditions How is this achieved?

. Studying all parts of the RFQ or tender documents. . Verify all documents have been received . Verify the correct documents have been received

. Involving supporting departments and area personnel. . Legal and insurance - analysis of legal risks – LICRA . Planning engineering – variance analysis of different scenarios

. Incorporating Opportunity and Risk Management (ORM). . O & R register populated during tender phase ORM

O & R REGISTER Description

O&R Register • Main ORM tool that is used to manage O&R during tender and execution phase ORM

What Opportunities exist at tender stage?

. To understand the customer’s needs . To see whether the proposed contract describes the same thing . To influence the customer’s way of thinking . To influence the provisions of the contract (terms and conditions) . To influence the allocation of risk . To agree the duration for undertaking the works . To agree the price for undertaking the works . To agree security of payment . Et cetera ORM

The client will have considered Risk allocation. Remember:

. Risk should be allocated to the party best able to manage it.

. Standard Forms of Contract (such as one of the FIDIC or BIMCO forms) generally allocate risk reasonably and fairly.

What type of risks should be considered? ORM

Contracting Risks (1 of 2)

1. Extent of the scope of work

2. Safety provisions

3. Provision of bonds, guarantees

4. Security for payment

5. Liabilities

6. Physical conditions and access

7. Practicality of schedule dates

8. Use of specialist suppliers/sub contractors/ third parties

9. Dispute resolution provisions ORM

Contracting Risks (2 of 2) 1. Clarity of the contract wording and provisions (no discrepancies) 2. Wording and provisions that can be easily understand by all concerned 3. Document submittals at, or just after commencement 4. Condition precedent clauses (‘ontbindende voorwaarden’) 5. Notice requirements 6. Requirement for record keeping 7. Change process 8. Claims process ORM

Contracting Risks are often indicated by:

. Manner in which contract was secured (‘binnen gehaald’) . The consultants and their roles . The level of definition of the works . Feasibility (‘haalbaarheid’) . The procurement status . Financial circumstances . Political aspects . Legal / contractual . New concept ORM

Apart from risk allocation, why else should major revisions to Standard Forms of Contract be considered carefully by tendering contractors?

The revisions may prevent the contract from working in certain circumstances.

In other words, links from one clause to another may be broken. Management of the tender stage

Other requirements:

. Clarifying the responsibilities − Document control essential – single point communication? − Register of questions and answers – summarises status − Records of any verbal discussions and meetings – how?

. Establishing a commercial strategy for the project Exercise 1 – Tender Phase

Please refer to handout 2. Procurement and Sub-Contracting Be aware ! Opportunity and Risk Sharing

. Risk should be allocated to the party best able to manage it.

. In sub-contract relationships, risk that is passed on should be stepped down.

. Should opportunities be passed down too?

. Sometimes opportunities and risk must be retained at main contractor level and especially on EPC/EPCI projects. Examples of typical Opportunities and Risks

. Extent of scope of work (includes design?) and interfaces

. Safety provisions

. Provision of bonds and guarantees

. Practicality of programme dates within overall duration

. Notice and reporting provisions

If we are main contractor, what do we want to happen with these in our subcontracts?

If we are a subcontractor, what do we want to happen with the contents of the main contract? Terms and Conditions for a Sub-Contract - 1

Which terms and conditions are to be used for a subcontract?

. The ‘main’ contract conditions?

. Revised ‘main’ contract conditions? If so, how to revise?

. The DEME standard terms?

. Revised DEME standard terms? If so, how to revise?

. The phrase ‘back to back with the main contract’? If so, what does it mean? ‘Back to back’

. A commonly used phrase that can lead to practical problems . How can ‘applying the provisions of a main contract to a subcontract’ work in practice? − Is Contract Price the same as Subcontract Price? − Are all the main contract conditions applicable? − Involvement of the client (i.e. approvals)? − Values of bonds? − Insurance coverage? . It’s not a shortcut for proper drafting of sub-contracts . Can create a strong potential for disputes Examples of Subcontract Wording …

. Article 3.1 says that ‘Subcontractor shall be deemed to have full knowledge of the provisions of the Main Contract... Contractor shall (if requested) make available a copy of the Main Contract.

. Article 3.2 says ‘Subcontractor shall carry out and complete Subcontract Works so that no act or omission of the Subcontractor shall result in any breach of the Main Contract by the Contractor.

. Article 3.3 says ‘to the extent that such obligations and liabilities relate to the Subcontract Works, the Subcontractor shall perform the obligations and assume the liabilities of the Contractor under the Main Contract.’ An example of Main Contract Wording …

. Article 3.4 says ‘Subcontractor shall indemnify (‘vrijwaren’) the Contractor against any claim, arising from any breach or non observance of such obligations or non compliance therewith.’

. Article 15 (c) says that ‘Contractor must make all the terms and conditions of Contract (as far as the same are applicable ) terms and conditions of Subcontract and must not permit any alteration of the Subcontract without the prior written consent of Company and must enter into a Subcontract with the Subcontractor accordingly.’ Terms and Conditions for a Sub-Contract - 2

Which terms and conditions are to be used for a subcontract?

. The ‘main’ contract conditions? . Revised ‘main’ contract conditions? If so, how to revise? . The DEME standard terms? . Revised DEME standard terms? If so, how to revise?

All can work but in all cases, the parts of the main contract relevant to the subcontract need identifying (and possibly revising), and then be incorporated into the subcontract. 3. Contracts

Photograph credits to FreeDigitalPhoto.net & Boians Cho Joo Young Simply speaking...

a Contract is an agreement, which should be based upon the mutual understanding that was built up in the tender stage. Contractual Agreement

Depending on the applicable jurisdiction, there may need to be:

. A clear offer (or counter offer); . Consideration (‘overweging’) – outlining circumstances; . Capacity (i.e. authority – ‘bevoegdheid’) to bind a contracting party; . An intention to create a mutually binding agreement that creates obligations for both parties; . Certain and essential terms (i.e. parties, scope, price, time): . Express terms, . Implied terms (based on jurisprudence and statute - ‘wet’); . Acceptance of the offer, creating consensus over price and performance: . This can take many forms The situation with POs

. You submit an offer to a prospective client.

. You receive a Purchase Order from the prospective client that does not expressly refer to the offer.

. The Purchase Order includes certain terms and has on the back of the document, the prospective client’s general terms and conditions.

. The first general term and condition says that “acceptance of this order constitutes unconditional acceptance of these conditions”.

− What is the Purchase Order in this situation?

− What should you do? Construction Contract Considerations

Type of industry: Type of payment: . Dredging . Lump sum . Energy . Target price . Building . Unit rates / re-measurement . Industrial . Reimbursable . Infrastructure

Type of arrangement: . Employer & contractor . Contractor & subcontractor . Turnkey . Design & build Contract Requirements

Contracts vary in contents but they should however:

. Identify the names of the parties . Allocate functions / responsibilities (i.e. scope of work) . Allocate risk between the parties − Including defining limitations on liability . Identify the applicable law and language . Define price and payment conditions . Provide for changes in scope . Deal with time (i.e. start and finish) . Provide for changes in duration Failure to comply

What is the consequence of a party failing to comply with the contract? Breach of Contract

Failure to comply is a breach of contract

In the event of a breach:

. Follow contractual procedures if a breach of an express term occurs; . If a breach of an implied term, there is a possibility to relay on damages at law; . Unless the contract states otherwise, a party will normally have the opportunity to remedy the breach within reasonable time (following receipt of a notice of default). Failure to comply with Milestones

Breach of the time provisions by the contractor (i.e. delay to completion) is normally expressly dealt with.

. Stated damages for late completion allow definition of risk, if it is the only remedy for delay.

. If none stated, damages still apply.

. Note; Liquidated damages (LDs) has a particular meaning under English Law. What if works are needed to start prior to a contract being in place? The Dilemma ...

. Employers and contractors are faced with time constraints in negotiating full contract documentation

. The start of the procurement process (where there are long lead in times) or the start of engineering or mobilisation needs to happen so the required completion date(s) will be met

. The alternative is delaying contract commencement but this will mean the required completion date(s) will not be met Some further Considerations

. What has caused the problem?

− Did Employer (to be) start its procurement process too late? − Is it however, now in your interest to start?

. Who should resolve it?

− Resolution needs to be undertaken together

. What can you do / ensure happens?

− If works starts, you must ensure the basis upon which it does so is defined in writing Various Options

. A mini contract for the works that are needed to start

− Should be straight forward to agree and formalise

− Should not need agreement of the full terms and conditions

− May be standalone, or eventually merged into the full contract

. A binding Letter Of Intent (‘LOI’)

− This requires careful drafting Difficulties with LOIs

. They are often letters of comfort (i.e. one party’s intention towards another with no agreement and no instruction or authorisation for any works).

. They are sometimes unclear or vague as to the extent of the parties’ commitment (i.e. entire project, initial works).

. They can be non-binding because they omit certain legal requirements (i.e. offer, acceptance, intention to create a legal relation and certain essential terms – names of parties, scope of work, price, time) Exercise 2 Consider the following

Please refer to the next slides, Part 1 and Part 2 Part 1

Example Letter of Intent sent by Main Contractor to Sub-Contractor

“As you know from our meeting this morning, we have just received a letter of intent from [X] for the [Y] project, which includes your [equipment]. In our turn, we are pleased to confirm that it is our intention to enter into a sub contract with [you] for your [equipment], this will be generally be on the basis of the Sub Contract document that we discussed this morning (ref…) We also agreed that we would incorporate your final comments on the draft Sub Contract and that you would provide details of the Advance Payment Bond, on-demand Performance Bond and insurance that you can offer. The main contract commencement date is… Please acknowledge receipt.”

Consider what this letter is saying and what your response would be Part 2

Second example Letter of Intent sent by Main Contractor to Sub-Contractor

“This is to place a letter of intent (LOI) for [W] works to [X] ... by [Y] … strictly in accordance with the following terms and conditions and to give an authorisation to proceed immediately with the engineering, procurement and manufacturing in accordance with this requisition.” Sections then cover matters including: . Scope and Price . Payments Terms . Delivery Terms and Date . Contract Documents . Etc.

Consider what this letter is saying and what your response would be 4. Setting up the Project Now, Contract is signed – we’re in a risky stadium !

. All knowledge gained at tender stage must be transferred to project team . Strong tendency to re-do engineering process (no budget for this !) . Several urgent needs: . Baseline and SoW must be (made) clear . Admin according to contracted requirements . Insurance in place . Procurement . Project organisation aligned (resources, equipment, subcontractors, suppliers, ….) . Several deliverables due within ‘a month’ . …. ORM revisited

The DEME procedure is for the O & R register to be updated upon contract award

Why?

. With Contract Award (“sign off”), the O & R profile is now fixed . Changes may have been made since it was drawn up at tender stage

And: it should kept up to date throughout contract life. Knowledge Transfer Process - 1

. It’s essential, good practice and now a DEME policy

. It means a structured hand-over of knowledge gained at the tender and pre-award stages, to the execution team

. It involves: − Knowledge Transfer Checklist to be populated − Knowledge Transfer Meeting to be held according to template Knowledge Transfer Meeting - Template

Tender-project transition

• Hand Over Checklist aims to structure the hand over between TM and PM • Hand over checklist will be part of updated PMM • Signed by AM/TM/PM Knowledge Transfer Process - 2

. It’s essential, good practice and now a DEME policy

. It means a structured hand-over of knowledge gained at the tender and pre-award stages, to the execution team

. It involves: − Knowledge Transfer Checklist to be populated − Knowledge Transfer Meeting to be held according to template − Responsible, Accountable, Consulted, Informed (RACI) table to be populated and kept up to date RACI Table

Item Topic Description Responsible Accountable Consulted Informed 1Tender-Project Transition

1Project Responsible & Assign ORM 'point of contact' for project Project Manager Project Manager ORM department Accountable PM p.p. Knowledge Transfer Meeting Define attendees Project Manager Project Manager PM p.p. Knowledge Transfer Meeting Sign Knowledge Transfer Checklist Project Manager Project Manager ORM department Tender Manager Tender Manager O&R Register Update/manage O&R Register Project Manager Project Manager ORM department (SC) PM p.p. Work budget Create/update work budget Project Manager Project Manager AD/BU/GM PM p.p. Area Controller Contingency budget Create/update contingency budget Project Manager Project Manager AD/BU/GM PM p.p. Area Controller Primary Kick-Off Meeting Define attendees Project Manager Project Manager DRIVE department PM p.p. Primary Kick-Off Meeting Organize/prepare Primary Kick-Off meetings Project Manager Project Manager PM p.p. Primary Kick-Off Meeting Define mitigation strategies for O&R Project Manager Project Manager DRIVE department PM p.p. Operational Action log Create/update operational action log Works Manager Project Manager DRIVE department DRIVE (SC) All action holders (SC) Operational staff (SC) Non-operational Action log Create/update non-operational action log Finance Manager Project Manager Relevant supporting Core Project Management departments Team (SC) Knowledge Transfer Process - 3

. Does this process repeat when more implementation personnel join the project?

. Does it repeat again prior to the offshore phase? Relevance of the Contract

Design & Engineering

Opportunity Planning & Risk Contracts

Finance Procurement and subcontracting So, do you ?

Review your contract to identify obligations and the need for project-specific systems?

If so, what for?

. Securities and guarantees; insurance requirements

. Deliverables

. Planning submittals

. Discrepancies

. Notices

. Payments

. Correspondence and reporting Do You also ?

Have a kick off meeting with the Employer ?

If so, what do you cover?

. Confirmation and clarification of scope or uncertainties . Agreement of formats/procedures for reporting and coordination . Communication routes/details . QHSE

How useful is a kick off meeting with the Employer when considering commercial strategy for a project? 5. Planning and Progress The Planning Process

The Planning Process involves deciding:

> What to do (scope)

> How to do it (method)

> When to do it (schedule)

> What resources to use (staff, equipment, plant and material) Planning and Programming

. A programme is a project management tool used to monitor and control the project . It is not just a ‘picture’ Consider ….

. Should the Contractor submit a programme (schedule) early in the implementation stage? − Yes – to show how it intends to undertake the works

. On what basis should this programme (schedule) be put together? − It should show what was agreed in the Contract and serve as the baseline

. Should the programme (schedule) be agreed? − This depends on the wording of the contract but it generally shows Contractor's choices The Baseline Schedule

. It should: − Reflect the Contract requirements (the Baseline)

− Show contract Milestones

− Show intended sequence of Works

− Incorporate any resource constraints

− Show the critical path

And remember:

No planning → no deviation →

no variation → no compensation Critical Path

The Critical Path – why is it important?

. Determines the earliest completion date for the project.

. Determines the earliest and latest completion dates for individual activities.

. Calculates float.

. Identifies which activities are important to the completion of the project.

. Identifies areas of opportunity and risk.

. Identifies areas where action should be taken to reduce the project duration or recover from delays.

The Critical Path - Shortest route between work and the pub Critcal Path Analysis - 1

New Wall No Activity Time (days) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1 Excavate the trench 2 Pour the foundation 3 Raise the brickwork 4 Place the coping 5 Complete 6 7 8

Link Activity Critcal Path Analysis - 2

New Wall No Activity Time (days) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1 Excavate the trench 2 Pour the foundation 3 Raise the brickwork 4 Place the coping 5 Complete 6 7 8

Critical Link Critical Activity Critcal Path Analysis - 3

New Wall No Activity Time (days) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1 Excavate the trench 2 Pour the foundation 3 Raise the brickwork 4 Place the coping 5 Complete 6 Design 7 Order concrete 8 Order bricks

Critical Link Critical Activity Critcal Path Analysis - 4

Total Float Exercise 3 – Planning

Please refer to next slide for instruction and hand out for doing the exercise Instruction for Exercise 3

Activity No Description Duration 010 Apply hand brake 0 Make a 020 Find spare wheel 2 min 030 Check that there is air in the spare wheel 1 min programme (if 020 & 030 are unsuccessful the whole sequence is obsolete) (schedule) for: 040 Find something to chock wheels 2 min (safety should be planned into a project) 050 Chock car wheels 1 min . When you are 060 Find car jack & wheel brace 2 min 070 Loosen wheel nuts 6 min alone 080 Position jack 3 min 090 Raise car 4 min 100 Remove wheel nuts 1 min 110 Remove wheel 1 min . When you have 120 Install spare wheel 1 min 130 Replace wheel nuts 1 min a friend helping 140 Tighten wheel nuts 2 min 150 Lower car 1 min 160 Final tighten wheel nuts 2 min 170 Remove jack 1 min 180 Stow jack, wheel brace & punctured wheel 2 min . When you have 190 Remove chocks 1 min 200 Wipe hands 1 min two friends 210 Complete 0 helping Solution 1: When you are alone

Barchart for Wheel Change - Alone (35 minutes) Activity Activity Description Duration Hour 1 No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

10 Apply hand brake 0 20 Find and remove spare w heel 2 30 Check air in spare tyre 1 40 Find something to 'chock' w heels 2 50 Chock car w heels 1 60 Find and remove jack & brace 2 70 Loosen w heel nuts 6 80 Position jack 3 90 Raise car 4 100 Remove w heel nuts 1 110 Remove w heel 1 120 Install spare w heel 1 130 Replace w heel nuts 1 140 Tighten w heel nuts 2 150 Low er car 1 160 Final tighten w heel nuts 2 170 Remove jack 1 180 Stow jack, brace & punctured w heel 2 190 Remove chocks 1 200 Wipe hands 1 210 Wheel change complete 0

Legend : Project : Wheel Change Current Plan Date : 1 Jan 2015 Prepared by : Superplan Solution 2: When you are with a Friend

Barchart of Wheel Change - With a Friend (26 minutes) Activity Activity Description Duration Hour 1 No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Legend : Project : Wheel Change Driv er Passenger Date : 1 Jan 2015 Prepared by : Superplan Solution 3: When you are with two Friends

Barchart for Wheel Change - With 2 Friends (24 minutes) Activity Activity Description Duration Hour 1 No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Legend : Project : Wheel Change Driv er Passenger Date : 1 Jan 2015 Prepared by : Superplan 2nd Passenger Resource Planning and Critcal Path

Barchart for Wheel Change - With 2 Friends (24 minutes) Activity Activity Description Duration Hour 1 No Minutes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Legend : Project : Wheel Change Driv er Passenger Date : 1 Jan 2015 Prepared by : Superplan 2nd Passenger Critical path

Driv er Passenger 2nd Passenger Networked Planning

zoek blokkeer blokken de wielen 40 2 50 1

Trek zoek het controleer los de handrem reserve druk in wielbouten 10 0 20 2 30 1 80

zoek krik verwijder Plaats de krik de en wieldop krik auto 60 1 70 1 90 3 100 4

verwijder verwijder plaats plaats wiel zet bouten wiel wiel reserve bouten vast

Changingwheel 110 1 120 1 130 1 140 1 150 2

trek plaats wielbouten wieldop 170 2 190 1

laat auto verwijder berg krik, maak wiel is zakken krik de sleutel handen verwisseld 160 1 180 1 200 1 220 1 230 0

verwijder blokken/st 210 1 Progress Reporting

Involves:

. Measuring actual progress

. Updating your plan or schedule for this actual progress

. Forecasting the impact in the future

. Making a report

This has to be done in context of the Contract with your Employer.

For this, you will require details from your Subcontractors but who should report in the context of their Contract with you. Contractor’s Progress Records and Monitoring

. The need for progress records and monitoring

− Accurate assessment of status of project − Accurate & agreed records in case of dispute − Record and keep results − How deal with changes? − Plot and compare results − Analyse trends - predict the future − Compare different trends

. Contractor may not want to declare the actual status of project . Contractor may not want accurate & robust records – confuse the issue Consider …

. The items the Contractor should include in its Progress Reports.

. Should the contractor prepare different Progress Reports for internal circulation to that submitted to the Employer ?

. If so, what would be the differences? Other required records

. These include, for example:

− Correspondence

− As-built, it’s easier to do as the project advances

− Daily reports including weather and numbers of resources

− The reasons for decisions to move resources

− Effects of changes

. Consider how and where they are kept.

Remember, for Subcontract and Main Contract activities. 6. Financial Issues Common valuation options

On a lump sum basis

On a lump sum basis with schedule of rates

On a lump sum basis with bill of quantities

On a re-measurable basis with bill of quantities

Cost plus

What do each mean? For Lump Sum Contracts

. Only changed for adjustments allowed the Contract (i.e. instructed Variations and Claims)

. No change resulting from a Contractor revising its design For re-measurement contracts

. Changed for adjustments allowed the contract (i.e. re-measurement, instructed variations and claims)

. Is there a difference between re-measurement and variations?

. Needs a method of measurement . What does re-measurable on a ‘net’ basis mean? Interim Payments

Common Interim Payments options

. Based on actual value of work undertaken

. Based on a pre-agreed schedule

. Based on achieving milestones Issues to be addressed

. How calculate value of work undertaken?

. Front loading of schedule . Effect of poor progress

. Variations – how much and when? . Completed/part completed . Agreed/disputed

. Definition of each milestone – is it clear or controllable? . Achievement of milestone means what? Timing of Payments

Are these milestones clear? Controllable by the contractor?

. 10% of purchase price at order confirmation

. 10% of purchase price at order of main materials

. 10% of purchase price at mobilisation on site

. 20% of purchase price at completion of section 1

. 20% of purchase price at completion of section 2

. 20% of purchase price at completion of all works onsite

. 10% of purchase price at issue of ‘as builts’ Issues to be addressed

. Remember, the Employer’s primary obligation is to pay the contractor for the work undertaken.

. Late payments – recourse?

. Adherence to Contract procedures is essential . Agreed format in the Contract, or one to be agreed?

. Issue a request for payment or an invoice?

. Agreed procedure, or one to be agreed?

. Timing of request and / or invoice 7. Management of Change and Variations “No Contract goes completely to plan” Indicators of potential problems-at tender (Slide 24 refers)

. Manner in which the Contract was secured

. The consultants and their roles

. The level of definition of the works

. Feasibility

. The procurement status

. Financial circumstances

. Political aspects

. Legal / contractual Early days of Project execution

. Drawings, information and ‘Holds’

. Approvals

. Relationships

. Consultants’ performance

. Access to works

. Local authority / government bodies

. Payment

. The manner in which early problems are dealt with

. Performance of nominated sub-contractors The Project under way

. Major design changes . Widening gap between . Policy changes by client application and certification . Many variations . Programme slippage . Lots of day work . Problems with . Long information sub-contractors outstanding list . Labour disputes . Inability to procure long . Poor drawings lead items . Arguments about consultants’ . Payment problems responsibilities . Valuation problems . Acceleration . Interim payments not . Tone of letters detailed . Relationships The Management of Change and Variations Example Areas of ‘Change’

. Additional or omitted . New or revised drawings work being issued . Varied or modified work . Holds being placed on . Substituted work drawings . Standard of work . Identity of owner . Physical or geological or representative/ consultants/ marine conditions subcontractors/ vendors . . Time of year work carried Identity of contractors out personnel . . Location work is carried Late access to site out . Late issue of material

So can affect scope and/or schedule and/or conditions The Employer can ‘change’

. The scope of work

. The location of the work / equipment within

. The timing and extent of access to site

. The amount of information available to the Contractor

. The period for drawing review / approval

. The period for responding to requests for information

. The extent of interference

. The amounts and timing of payment

. The supervisory staff or personnel

. The type of equipment or materials it provides The Contractor can ‘change’

. Method of working

. Sequence of working

. Coordination of the work processes

. Timing of undertaking the works

. Quality or standard of the permanent works

. Submission of required records and notices

. Workers, staff or supervision personnel

. Provision of access / facilities / materials to Subcontractors

. Design

. Use of Subcontractors The Subcontractor can ‘change’

. Method of working

. Sequence of working

. Timing of undertaking the works

. Quality or standard of the permanent works

. Submission of required records and notices

. Workers, staff or supervision personnel

. Manning levels

. Price of work

. Location of off-site works

. Design In Construction / Engineering projects: ‘change’ means what?

“Something different from the contractual agreement”.

It can affect scope and/ or schedule and/ or conditions

And can be initiated by: subcontractors and/ or contractors and/ or customers. Management of Change

Involves awareness that change will occur, recognition of the Change itself and the subsequent actions –

5 steps Step 1

Management of change

1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects Contracts contain obligations and responsibilities - 1

What if the obligations within the Contract are unclear?

. Is there a contract clause for dealing with anomalies?

. Does it matter whether such a clause exists? As an example …

“The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be …:

[a] The Contract Agreement (if any) [b] The Letter of Acceptance [c] The Letter of Tender [d] The Particular Conditions [e] These General Conditions [f] The Employer’s Requirements [g] The Schedules, and [h] The Contractor’s Proposal and any other documents forming part of the Contract

If an ambiguity or discrepancy is found … the Engineer shall issue any necessary clarification or instruction.” Contracts contain obligations and responsibilities - 2

What if the obligations within the contract are unclear?

. Is there a contract clause for dealing with anomalies?

. Does it matter whether such a clause exists?

Contracts also foresee / allow certain types of Changes

What types? As an example …

The various types of foreseeable changes can include:

1) Failure of the client to give the contractor right of access to site.

2) Failure of the client to provide the contractor with free-issue materials.

3) The existence of unforeseeable physical conditions.

4) Suspension of part or all of the works.

5) Instructed variations.

6) The contractor proposes value engineering.

7) The whole or part use of Provisional Sums.

8) Force Majeure. Allowable and foreseeable Changes - issues

. What constitutes each type of change?

. Has the correct procedure been followed?

. Who has the authority to initiate each type of change?

. Are there any limitations or restrictions? As an example …

In the case of instructed Variations, further relevant details are often contained elsewhere and can include:

1) The definition of a Variation (i.e. what can it comprise).

2) The communications rules (i.e. for the instruction).

3) The language for these communications.

4) Who has the authority to issue instructions that are a Variation.

5) Who has the authority to receive instructions that are a Variation.

6) Whether instructions need to be complied with; or if not, in what situations.

7) Variation valuation rules. Management of change

. Be aware that changes will occur.

. Appreciate that the correct contractual process

may not always be followed.

. Refer back to the baseline as a reference point.

. Constantly monitor events, occurrences and communications

to identify the cause or effect of change.

. Drawings – new ones, revisions and holds

. Progress updates

. Cost reports Management of change

. What type of change has occurred?

. What is the correct procedure to be followed in this case?

. Written notification is often required. Notices

. Notices must often be submitted to the client when a contractor is aware (or sometime worded as ‘should have been aware’) of an event or circumstance that gives rise to entitlement to a possible claim for time and / or money.

. The notices are sometimes subject to restrictions on timing and can also be condition precedent to payment of additional money and / or award of more time.

. Notices must state the event and be clear it’s notice of a potential claim

. Notices are for the benefit of the recipient.

. Notices cannot be refused. Compliance with instructions

. Properly given instructions must sometimes be complied with without agreement of the time and money effect.

. There may be circumstances however, in which this is not the case. For example:

. If the materials and / or equipment cannot be procured.

. If it impacts on any overall guarantees that are part of the contractors obligations. Management of change

1. Read the contract to understand the baseline 2. Identify a change has occurred 3. Follow the appropriate contractual process 4. Maintain records 5. Assess the time and money effects Record Keeping

. Why?

. What type?

. Should they be agreed?

. How should they be maintained for future use? Management of change

Change

Time / schedule Cost Value

Direct Indirect Valuation of Change

. What type of change has occurred?

. Any procedural requirements for the valuation?

. Time frames for submission

. Time frames for response

. What is the correct method for valuation to be followed?

. Money – value, cost or cost and profit?

. Time – prospective or respective?

. Consider direct and indirect effects. Under many contracts a ‘Variation’ is: Simply, an instructed change to the baseline scope of work.

Valuation should include time impact as well as money impact.

Valuation rules will normally apply – money is value or cost plus profit;

Time either prospective or respective.

And a ‘Claim’? Simply, a request for reimbursement, from one party to another, of the money and / or time consequences flowing from an event that the contractor was not required to anticipate.

Valuation rules will normally again apply – money mainly cost or cost and profit; time either prospective or respective. Money impact Valuation of Claims for compensation beyond Contract

Good Quantity Surveying Practice

. Use contract unit rates for valuing work of similar character undertaken under similar conditions

. Use contract unit rates as a basis for valuing work of dissimilar character or undertaken under dissimilar conditions

. Do not use Contract unit rates for quite different work. Consider cost plus reasonable profit.

And again:

good records enhance substantiation Time Impact – extension of Time Claims Extension of Time

An Extension of Time:

. does not (‘automatically’) mean an entitlement to additional money

. relieves Contractor from liability to pay damages for delay (for the ‘old’ milestone/ completion date)

. establishes new milestones/ a new completion date

. allows the Employer to impose damages for any delay (after the new milestone/ completion date) Extension of Time considerations

. Contract provisions define the basis of entitlement

. Delay to be on the critical path

. ‘Ownership’ of float

. Effect of concurrency

. Choice of delay analysis technique Delay analysis techniques

. Time extensions after completion of project (retrospective): . Collapsed As-built . As-planned –v- As-built . Windows Analysis Retrospective or actual based analysis

Activity 1 2 3 4 5 6 7 8 9 10 11

ACTIVITY A

Original ACTIVITY B Completion

ACTIVITY C

Why Delay? Delay analysis techniques

. A. Time extensions after completion of project (retrospective): . Collapsed As-built . As-planned –v- As-built . Windows Analysis

. B. Time extensions during currency of project (prospective) . Impacted As-Planned . Time Impact Analysis Prospective or Model Based Analysis

Activity 1 2 3 4 5 6 7 8 9 10 11

ACTIVITY A Event

Original ACTIVITY B Completion

ACTIVITY C

Estimate of Delay Delay analysis techniques

. A. Time extensions after completion of project (retrospective): . Collapsed As-built . As-planned –v- As-built . Windows Analysis

. B. Time extensions during currency of project (prospective) . Impacted As-Planned . Time Impact Analysis A. As-Planned V As-Built Method - 1

The As-Planned Programme

Activity A Activity B Activity C Activity D Activity E Completion A. As-Planned V As-Built Method - 2

Plot the As-Built Programme

Activity A Activity B Activity C Activity D Activity E Completion A. As-Planned V As-Built Method - 3

Identify the Employer events

Activity A Activity B Activity C Activity D Activity E Completion A. As-Planned V As-Built Method - 4

Assess delaying effect of events

Activity A Activity B Activity C Activity D Activity E Completion (extension of time) (contractor culpable) A. As-Planned V As-Built Method - 5

. Advantages − Simple to understand − Transparent − Does not require a networked programme − Relies upon actual progress

. Disadvantages − Subjective assessment of critical delays − Depends also on opinion − Requires as-built programme B. Impacted As-Planned Method - 1

. The As-Planned programme

Activity A Activity B Activity C Activity D Activity E Completion B. Impacted As-Planned Method - 2

. Impact (add) the delaying event

Activity A Activity B Activity C Delaying event Activity D Activity E Completion B. Impacted As-Planned Method - 3

. Reschedule the programme

Activity A Activity B Activity C Delaying event Activity D Activity E

Completion Impacted completion date (extension of time) B. Impacted As-Planned Method - 4

. Advantages − Quick − Simple to carry out and understand − Transparent − As-built programme not required − Can demonstrate acceleration and mitigation

. Disadvantages − Theoretical conclusions − Requires a reasonable and robust as-planned programme − Ignores actual progress − Can hide concurrent delay Delay Analysis Methods

Which technique should be used ?

Consider: . Contract conditions . Records available . Time available . Applicable law . Value of dispute . Most practical and common sense approach in circumstances Delay Analysis Techniques

Analysis Critical Path Delay Impact Method of analysis Requires Type Determined Determined

Impacted as-planned Cause & Logic linked baseline Prospectively Selection of delay effect Prospectively events Logic linked baseline Updated programmes / Time impact analysis Contemp- progress data Cause & Prospectively effect oraneously Selection of delay events Logic linked baseline Windows analysis Contemp- Updated programmes / Effect & Retrospectively oraneously progress data cause

As-planned v as-built Effect & Contemp- baseline Retrospectively cause oraneously As built data

From SCL Delay and Disruption Protocol, 2nd edition paragraph 11.5 Exercise 4 - Case Study ‘The Delayed Project’

Please refer to next slide for instrcutions and the hand out for the exercise itself Instruction for Exercise 4

1. Taking the position of the 1.) Sub-Contractor, 2.) Contractor or 3.) Employer, your team has to prepare for three progress meetings – end of months 1, 2 and 7. 2. You will be handed over a list of the relevant correspondence that it has submitted to that other team showing date, subject matter and brief description of contents. 3. During the meetings, the sub-contractor, contractor and client team/ representatives are to explain to the other party/parties:

. Current status of the project and anticipated future programme. . The factual background to the delay and the over-run on man-hours. . The contractual situation.

 Your team will be required to simulate participation to a real progress meeting and content of your input into this meeting should be based upon case analysis of the technical, factual and contractual aspects. Recovering Time and/ or Money Impact following a Change Recovery of entitlement

. Requires timely notice

. Require a well drafted document, showing:

. Contractual entitlement

. Narrative / story

. Cause and effect

. Apportionment

. Quantum of time or money

. Requires recognition of strengths and weaknesses 6 Steps for making an Extension of Time Claim

1. The contract

2. The records

3. The facts

4. The planning analysis

5. The Scott Schedule

6. The Statement of Claim Step 4 – The planning analysis

[with assumed proper performance of: Steps 1 (Contract read), 2 (Facts straight), and 3 (Records properly made)]

1 2 3 4 5 6 7 8 9 10 11 12 13 14 Planned 1 STEEL FRAME Completion Sub-Contractor A

2 WALLS & ROOF Main Contractor

3 SWITCH GEAR plus Sub-Contractor B 1 week’s float Delay 3 Inherent Design Fault 4 ACCESS GANTRY Discovered Main Contractor

200T CRANE Main Contractor

Approved Programme Step 5 – The Scott Schedule

To be populated meticulously – a highly valuable tool at any stage

Event Description Brief Facts Clause Notice Relevant Activity Period of No Ref Docs Affected Delay

1 Design Fault The connection 26.4(ii) Letter MOM Act 4.AG 2 wks to Access detail for the 10.10.01 31.10.01 Gallery upper part of Drg 201 rev A the gantry was dated identified as 27.10.01 being Progress underspecified report on 10.10.01. 30.11.01 The engineer was immediately notified. A revised drawing was issued on 22.10.01 and the works proceeded on 24.10.01. Step 5 – The Scott Schedule

Event Description Brief Facts Clause Notice Relevant Activity Period Separation No Ref Docs Affected of Delay of events 1 Design Fault The connection 26.4(ii) Letter MOM Act 4.AG 2 wks to Access detail for the 10.10.01 31.10.01 Gallery upper part of Drg 201 rev A the gantry was dated identified as 27.10.01 being Progress underspecified report on 10.10.01. 30.11.01 The engineer was immediately notified. A revised drawing was issued on 22.10.01 and the works proceeded on 24.10.01.

Linking cause, communication, entitlement and effect(s) Step 6 – The Statement of Claim

The actual claim for compensation is simple and efficient

“In accordance with clause x, the contractor claims a 2 week extension of time arising from Event 1, notified on 10.10.01, all as particularised in the Scott Schedule and planning analysis.” Burden of Proof with Claimant

Entitlement ↔ Obligation (ref. Contract)

CAUSE

Gives rise to the Entitlement / Breach

EFFECT 8. Dispute Resolution Dispute Avoidance – the basics 1

Steps (conditions) to avoid comments becoming a dispute:

1) Enter into a clear, comprehensible contract 2) The enquiry to comment or event occured: Scope Conditions Risks Facts 3) Link results of the enquiry to the Contract 4) Formulate clearly and unambiguously 5) Create shared understanding (= agreement) on ‘2’ and ‘3’ Dispute Avoidance – the basics 2

. Have a commercial strategy (e.g. ‘minimising risk’, ‘optimising profit’, etc.)

. Work procedures (e.g. internal - external communication, document management, ….)

. Agree records (“what do we accept to be substantiation if needed ?”)

. Encourage, submit and respond to notices (in a timely manner !)

. Publish in compliance with the contract (do not make assumptions here !) Dispute Resolution - Generally

Non-Binding

. Negotiation us . Mediation us with help . Conciliation us with more help . Mini trial us with even more help . Expert determination them . Adjudication them

Binding . Arbitration them . Litigation them If there are no further questions:

Mark Castell – Regional Managing Director Ernst Jan de Jong – Senior Consultant [email protected] [email protected]

www.drivertrett.com

Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici GENERAL PRINCIPLES OF CONTRACT MANAGEMENT

Training to DEME (March 25th – 27th, 2019)

Mark Castell – Regional Managing Director Ernst Jan de Jong – Senior Consultant [email protected] [email protected] As managing contracts must be ‘from conception to grave’; course agenda follows this.

. Days 1 and 2 . Tendering . Procurement and sub-contracting . Construction contracts and letters of intent . Setting up the project . Planning & progress . Financial issues . Management of change . Dispute resolution

. Day 3 . FIDIC introduction . Overview of differences between different standard forms . Specific requirements of FIDIC contracts . Comparison with other standard forms

2 Introduction to FIDIC

3 FIDIC

Fédération Internationale des Ingénieurs-Conseils

. Federation of national associations of consulting engineers . Based in Geneva . Founded in 1913 with original founding members from France, Belgium and Switzerland . UK joined 1949, USA joined 1958 . Seen as international from 1970s and members from about 70 counties FIDIC aims

. High ethical standards

. High professional standards

. Development of engineering profession in developing countries FIDIC documents

. Standard Forms of Contracts – since 1957

. Guides to Standard Forms of Contracts

. Tendering procedures

. Model Agreements Standard Forms of Contract

7 General principles of FIDIC Standard Forms of Contract - 1

. Often known by their colour i.e. red, yellow, silver, blue. . Historically based on Anglo Saxon type of contracts. So, more reliance on documentation as part of contract itself. . Drafted for general use on an international basis. So, applicable law and ruling language needs to be agreed / stated. . Modifications may be required in some jurisdictions. These should be included as revisions. General principles of FIDIC Standard Forms of Contract - 2 . FIDIC standard forms are:

- generally accepted to be well-written,

- capable of being understood by users

- and have a balanced risk/reward allocation.

. They recognise there will be problems and potential for conflict and dispute on projects but set out processes to resolve them including:

. Placing a significant administrative burden on the parties and

. Requiring the parties to deal with issues the moment they occur. The Current FIDIC Standard Forms of Contract

10 CURRENT FIDIC MAIN STANDARD FORMS OF CONTRACT

Blue-Green Green Red Pink (2016) (1999) (1999) (2010)

Yellow (1999) Silver (1999) Gold (2008) CURRENT FIDIC MAIN STANDARD FORMS OF CONTRACT

Blue-Green Red book: book: Construction Dredgers Contract Contract

Green book: Pink book: Short Form MDB Construction Contract CURRENT FIDIC MAIN STANDARD FORMS OF CONTRACT

Yellow book: Plant and Design-Build Contract

Silver book: EPC/Turnkey Contract

Gold book: DBO Contract WHEN DO YOU USE WHICH STANDARD FORM?

For dredging and reclamation works: the Blue book

Can be used for Employer designed or Contractor designed Works WHICH CONTRACT FOR WHICH SITUATION ?

Employer Straightforward project ? Design ? < € 500K or < 6 months no yes no yes Contractor design

Little employer All types of project involvement, no with high unforeseen no major risks unforeseen risks yes

yes Ongoing operation ? no yes Confirm your understanding 1

16 EXERCISE

Low Risk to Contractor High

Arrange in the order of risk to Contractor (low to high). ANSWER - 5

Burden of risk on Contractor Low High

Q: But, where should the Blue Book be placed?

A: It depends on the specific project Overview of Current FIDIC Standard Forms of Contract

19 The Blue book

20 GENERALLY – BLUE BOOK

. FIDIC produces the General Conditions (15 clauses) and does not anticipate separate Particular Conditions to be used (however notes for guidance are included).

. Tenders issued with Specification and Drawings. . Sub-clause 1.1.23, Specification includes the Employers design and its requirements in respect of design to be carried out by the Contractor . Sub-clause 1.1.12, Drawings are the Employers drawings of the Works . Sub-clause 5.2, Employer is responsible for Specification and Drawings

. Tenders issued with site data. . Sub-clause 2.3 Employer to provide “all data in Employer’s possession relevant to the execution of the Works including climatic, hydrological, geological, and soil conditions and properties, man-made and other objects, maritime traffic and environmental data” GENERALLY – BLUE BOOK

. Contract Data used to contain project-specific information.

. Rules for Dispute Adjudication, Dispute Adjudication Board Member’s Agreement and Forms of Securities are included. . Agreement records offer and acceptance and signifies a contract has been entered into. FORMATION OF A CONTRACT – BLUE BOOK

FIDIC Blue Book Form of Agreement

Printed form to avoid uncertainties regarding ‘letters of acceptance’ and ‘letters of intent’.

Step 1: Employer part completes for tender documents:

23 FORMATION OF A CONTRACT – BLUE BOOK

FIDIC Blue Book Form of Agreement

Step 2: Contractor completes offer as part of tender:

24 FORMATION OF A CONTRACT – BLUE BOOK

FIDIC Blue Book Form of Agreement

Step 3: Employer completes acceptance to effect a Contract:

25 FORMATION OF A CONTRACT – BLUE BOOK

So, Employer signing the Acceptance part of the Agreement and the Contractor receiving a copy signifies the contract coming into full force

Any changes from negotiations should be noted and initialled

26 BLUE BOOK GENERAL CONDITIONS

Clause 1 - General Provisions

Clauses 2 to 4 - The Employer, the Engineer and the Contractor

Clause 5 - Design

Clause 6 - Defined Risks

Clauses 7 and 8 – Time for Completion and Taking Over

Clause 9 - Remedying Defects

Clauses 10 and 11 – Variations, Claims, Contract Price and Payments

Clause 12 - Default

Clauses 13 and 14 – Risk, Responsibility and Insurance

Clause 15 – Resolution of Disputes GENERALLY – BLUE BOOK

. Clause 1 includes:

. Definitions (sub-clause 1.1).

. Priority of documents provisions (sub-clause 1.3).

. Applicable law stated in Contract Data (sub-clause 1.4).

. Communications rules (sub-clause 1.5). GENERALLY – BLUE BOOK

The Communications rules are important -1

Part of sub-clause 1.5 says: “... communications shall be in writing and shall not unreasonably withheld or delayed and shall be sent by one of the methods and to the addresses stated in Contract Data. All communications shall be in the language stated in the Contract Data” GENERALLY – BLUE BOOK

The Communications rules are important - 2

. Employer has a limited role after contract is signed:

. Pay those fees and other charges stated in the Contract Data (sub-clause 1.6) GENERALLY – BLUE BOOK

. Employer has a limited role after contract is signed, continued:

. Provide Site and right of access (sub-clause 2.1). . Obtain those permits etc in respect of any planning, zoning or similar permissions for the permanent work (sub-clause 2.2). See also Notes for Guidance . Shall appoint an authorised person (sub-clause 2.4). . Shall submit reasonable evidence that financial arrangements have been made and are being maintained to fulfil his payment obligations under the Contract if requested by the Contractor (sub-clause 2.5). GENERALLY – BLUE BOOK

. Contractor is responsible for interpreting site data and for inspecting Site and making enquiries “so far as practicable (taking account of cost and time) before submitting his tender” (sub-clause 2.3)

. Notes for Guidance (under sub-clause 6.1) recommends a geotechnical base report being set as a reference.

. Engineer appointed as representative of Employer acting after contract is signed to “carry out the duties assigned to him in the Contract” (sub-clause 3.1).

“When valuing, certifying or making determinations, the Engineer shall exercise his duties and authority promptly and in a fair manner and in accordance with the Contract.” (sub-clause 3.1). GENERALLY – BLUE BOOK

. Engineer can delegate specific duties and authority to assistants (sub-clause 3.1).

. Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.2).

. No approval or consent or absence of comment by the Employer or Engineer shall affect the Contractor’s obligations (sub-clause 3.3).

. Contractor appoints Contractor’s Representative who is the only person authorised to receive instructions (sub-clause 4.2).

Note; don’t forget the communications rules at sub-clause 1.5 GENERALLY – BLUE BOOK

. Any Contractor’s design responsibility is stated in the Contract Data (sub-clause 5.1)

. Contractor to submit designs for comment or rejection by the Engineer within 21 days of receipt (sub-clause 5.1).

. Works may proceed if comments received but design must be resubmitted (sub-clause 5.1).

. Contractor is responsible for its design “which shall be fit for the intended purpose as specified in the Contract, or where no purposes are specified, fit for their ordinary purposes” (sub-clause 5.2). GENERALLY – BLUE BOOK

. Responsibility for Defined Risks with Employer (sub-clause 6.1).

. Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clause 7.1). . Contractor to submit a programme to the Engineer as stated in the Contract Data. Revised programmes to be submitted “whenever reasonably required to do so by the Engineer” (sub-clause 7.2).

Note: no requirement for agreement of it GENERALLY – BLUE BOOK

. Contractor entitled to an extension of the Time for Completion if delayed by any of the Defined Risks or if actual re-measured quantities are greater than the quantity stated in the Contract (sub- clause 7.3). . Contractor to make “a substantiated application with supporting documents as soon as possible.” (sub-clause 7.3)

. Contractor liable if it fails to complete within the Time for Completion (sub-clause 7.4).

Note: it’s the Contractor’s only liability for delay GENERALLY – BLUE BOOK

. Engineer issues Taking Over Certificate to signify Works (or a Section) are ready for taking over. This does not necessarily mean they are complete (sub-clause 8.2).

. Provision for Taking Over for any completed part of the Works “...the Employer shall not occupy or use any part of the Works prior to the issue of a Taking-Over Certificate for that part of the Works” (sub- clause 8.3)

. Period for remedying defects stated in the Contract Data (sub-clause 9.1).

. No period for remedying defects for dredging works defined in the Contract Data (sub-clause 9.2). GENERALLY – BLUE BOOK

. Only the Engineer (or delegated assistants) can vary the Works (sub-clause 10.1).

. Variations is a defined term.

. Several options for valuing Variations (sub-clause 10.2).

. Early warning notices shall be issued by either Party as soon as they are reasonably aware of any delay or disruption to the Works or any possible claim for additional money (sub-clause 10.3).

. The claim procedure is to be followed when a Defined Risk occurs and Contractor incurs Cost or suffers delay (sub-clauses 10.4 and 10.5).

. Employer’s claims possible (sub-clause 10.6) GENERALLY – BLUE BOOK

. Valuation / payment to be as specified in the Contract Data (sub- clause 11.1).

. Any advance payment is subject to a guarantee and is progressively reduced as works proceeds (sub-clause 11.2) GENERALLY – BLUE BOOK

. Contractor entitled to be paid at monthly intervals and submits a statement to the Engineer (sub-clause 11.3);

. The Engineer certifies the monthly interim payments to be paid to the Contractor. Can be withheld until Performance Security and evidence of insurance received (sub-clause 11.4);

. Retention rules different for dredging works and other works (sub-clauses 11.5 and 11.6);

. Contractor entitled to financing charges for late payment (sub- clause 11.9);

. Remedies available to Contractor for failure of Engineer to certify or Employer to pay (sub-clause 12.2);

. DAB appointed to resolve disputes on an ad-hoc basis with subsequent recourse to Arbitration if needed (clause 15). The Red book

42 GENERALLY – RED BOOK

. FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included).

. Tenders issued with Specification, Schedules (includes Bill of Quantities) and Drawings . Sub-clause 1.1.1.5, Specification specifies the Works . Sub-clause 1.1.1.6, Drawings are the Employers drawings of the Works

. Tenders issued with site data. . Sub-clause 4.10 Employer to provide “all relevant data in Employer’s possession…” GENERALLY – RED BOOK

. Appendix to Tender used to contain project-specific information.

. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included. FORMATION OF A CONTRACT – RED BOOK

FIDIC Red Book Letter of Tender

Contains statements including:

“...We offer to execute and complete the Works and remedy any defects therein, in conformity with this Tender ... for the sum of [amount of money]...”

“We agree to abide by this Tender until [date] and it shall remain binding upon us and may be accepted at any time before that date.”

“If this offer is accepted, we will provide the specified Performance Security, commence the Works as soon as reasonably practicable after the Commencement Date and complete the Works in accordance with the above-named documents within the Time for Completion.”

“Unless and until a formal Agreement is prepared and executed, this Letter of Tender, together with your written acceptance thereof, shall constitute a binding contract between us.”

45 FORMATION OF A CONTRACT – RED BOOK

Employer Letter of Acceptance signifies the contract coming into full force

Refer definition at sub-clause 1.1.1.3 – includes annexed memoranda

Contract Agreement either follows, or used instead of a Letter of Acceptance (sub-clause 1.6) to signify the contract coming into full force

46 RED BOOK GENERAL CONDITIONS

. Clause 1 - General Provisions . Clauses 2 to 4 – The Employer, the Engineer and the Contractor . Clause 5 – Nominated Subcontractors . Clauses 6 and 7 - Staff, labour, plant, materials and workmanship . Clause 8– Commencement, delays and suspension . Clauses 9 and 10 – Tests on Completion and Employer’s Taking Over . Clause 11 - Defects Liability . Clause 12 – Measurement and Evaluation . Clause 13 – Variations and Adjustments . Clause 14 – Contract Price and Payment . Clauses 15 and 16 – Termination and suspension . Clauses 17 to 19 – Risk, Insurance and Force Majeure . Clause 20 – Claims, Disputes and Arbitration

47 GENERALLY – RED BOOK

. Clause 1 includes: . Definitions (sub-clause 1.1).

. Communications shall be in writing, transmitted using specific methods and to the addresses stated in Appendix to Tender. Allowable electronic systems of transmission also stated in Appendix to Tender (clause 1.3).

. Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4).

. Priority of documents provisions (sub-clause 1.5). GENERALLY – RED BOOK

. Employer has a limited role after contract is signed (clause 2). . Provide right of access and possession of Site (sub-clause 2.1). . Provide reasonable assistance to the Contractor at the request of the Contractor, for the Contractor’s application of any permits etc (sub-clause 2.2). . Can pursue financial claims against the Contractor (sub-clause 2.5)

. Engineer appointed as representative of Employer acting after contract is signed to “carry out the duties assigned to him in the Contract” (sub-clause 3.1).

“…Except as otherwise stated in these conditions:

Whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer. …” GENERALLY – RED BOOK

Clause 3.5 gives the exception …

“Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.” GENERALLY – RED BOOK

. Engineer can delegate specific duties and authority to assistants (sub- clause 3.2).

. Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.3).

. Contractor appoints Contractor’s Representative who is the only person authorised to receive instructions (sub-clause 4.3).

Note; don’t forget the communications rules at sub-clauses 1.3 and 1.4

. Contractor responsible for interpreting site data, inspecting and examining Site and “to the extent which was practicable (taking account of cost and time)” obtained all necessary information as to anything that may affect the Tender or Works (sub-clause 4.10) GENERALLY – RED BOOK

. Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2).

. Contractor to submit a “detailed time programme” to the Engineer within 28 days of the notice of commencement showing all stages (sub-clause 8.3). . Revised programmes to be submitted “whenever the previous programme is inconsistent with actual progress or with the Contractor’s obligations” (sub-clause 8.3). . Engineer has 21 days to respond and give notice that it does not comply with the Contract (sub-clause 8.3). . Contractor to proceed in accordance with it (sub-clause 8.3). GENERALLY – RED BOOK

Contractor to submit progress report (sub-clause 4.21): . To be submitted monthly until completion of all work . Comprehensive - shall include: a) Charts & descriptions of progress for each stage b) Photographs c) Manufacture report d) Contractor’s personnel & equipment e) QA documents, test results etc f) Notices of claims g) Safety statistics h) Comparisons planned versus actual progress, risks and mitigation measures GENERALLY – RED BOOK

Rate of progress provisions at sub-clause 8.6 state:

“If, at any time: a) Actual progress is too slow to complete within the Time for Completion, and / or b) Progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3… other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time]… GENERALLY – RED BOOK

Rate of progress provisions at sub-clause 8.6 continued:

…then the Engineer may instruct the Contractor to submit…a revised programme…

Unless the Engineer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and / or in the numbers of Contractor’s Personnel or Goods, at the risk and cost of the Contractor…

If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay these costs to the Employer, in addition to delay damages (if any) under Sub- Clause 8.7 below.”

55 GENERALLY – RED BOOK

. Contractor entitled to an extension of the Time for Completion if completion is or will be delayed for any of the stated reasons (sub-clause 8.4).

. Contractor liable for delay damages if it fails to complete within the Time for Completion (sub-clause 7.4). . Sum stated in the Appendix and the Contractor’s only liability for delay (sub-clause 7.4).

. Provision for Tests on Completion (clause 9). GENERALLY – RED BOOK

. Employer issues Taking Over Certificate to signify Works (or a Section) are ready for taking over. This does not necessarily mean they are complete (sub-clause 10.1).

. Provision for Taking Over for any completed part of the Works “...the Employer shall not use any part of the Works unless and until the Engineer has issued of a Taking-Over Certificate for that part..” (sub-clause 10.2)

. Period for undertaking outstanding work and remedying defects stated in the Appendix to Tender (sub-clause 11.1). . Performance Certificate issued at the end of Defects Notification period and confirms Employer acceptance of the Works (sub- clause 11.9) GENERALLY – RED BOOK

. Works to be valued on a re-measurable basis (clause 12). . Adjustments for valuing the Works are possible (sub-clause 12.3).

. Only the Engineer (or delegated assistants) can vary the Works (sub-clause 13.1). . Variations is a defined term. . Value engineering provisions are at sub-clause 13.2

. Contractor entitled to be paid at monthly intervals and submits 6 copies of a statement to the Engineer (sub-clause 14.3). . The Engineer certifies the monthly interim payments to be paid to the Contractor. Can be withheld until Performance Security received (sub-clause 14.6). GENERALLY – RED BOOK

. The Employer pays at certain timescales (sub-clause 14.7). . Retention rules apply (sub-clause 14.9). . Any advance payment is subject to a guarantee and is progressively reduced as works proceeds (sub-clause 14.2)

. Payment procedure is different after Taking Over Certificate is issued (sub-clauses 14.10 to 14.13)

. Contractor entitled to financing charges for late payment (sub- clause 14.8).

. Remedies available to Contractor for failure of Engineer to certify or Employer to pay (sub-clause 16.1). GENERALLY – RED BOOK

. Notice shall be issued by Contractor whenever it considers it to be entitled to more time and / or money and within 28 days of being aware (or should have been aware). Failure to comply means a loss of rights to claim (sub-clause 20.1). . Subsequent procedure for submission of any claims also subject to timescales (sub-clause 20.1).

. DAB appointed to resolve disputes with subsequent recourse to Arbitration if needed (sub-clause 20.2). The Yellow book

61 GENERALLY – YELLOW BOOK

. FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included).

. Tenderers issued with Employer’s Requirements

According to Sub-clause 1.1.1.5, ERs must specify (cannot imply) for each part of the works:

. The purpose . The scope . The design . Other technical criteria GENERALLY – YELLOW BOOK

. Tenders issued with site data. . Sub-clause 4.10 Employer to provide “all relevant data in Employer’s possession…”

. Appendix to Tender used to contain project-specific information.

. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included.

. Letter of Acceptance signifies a contract has been entered into, or the Contract Agreement if no Letter of Acceptance. YELLOW BOOK GENERAL CONDITIONS

. Clause 1 - General Provisions . Clauses 2 to 4 - The Employer, the Engineer and the Contractor . Clause 5 - Design . Clauses 6 and 7 - Staff, labour, plant, materials and workmanship . Clause 8 - Commencement, delays and suspension . Clauses 9 and 10 - Tests on Completion and Employer’s Taking Over . Clause 11 - Defects Liability . Clause 12 - Tests after Completion . Clause 13 - Variations and Adjustments . Clause 14 - Contract Price and Payment . Clauses 15 and 16 - Termination and suspension . Clauses 17 to 19 - Risk, Insurance and Force Majeure . Clause 20 - Claims, Disputes and Arbitration

64 GENERALLY – YELLOW BOOK (AS RED BOOK)

. Clause 1 includes: . Definitions (sub-clause 1.1).

. Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4).

. Priority of documents provisions (sub-clause 1.5). GENERALLY – YELLOW BOOK (AS RED BOOK)

. Engineer appointed as representative of Employer acting after contract is signed to “carry out the duties assigned to him in the Contract” (sub-clause 3.1).

“…Except as otherwise stated in these conditions:

Whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer. …” GENERALLY – YELLOW BOOK (AS RED BOOK)

Clause 3.5 gives the exception …

. Engineer can delegate specific duties and authority to assistants (sub- clause 3.2).

. Contractor shall comply with instructions in respect of the Works given by the Engineer (sub-clause 3.3).

. Contractor appoints Contractor’s Representative who is the only person authorised to receive instructions (sub-clause 4.3).

Note: don’t forget the communications rules at sub-clauses 1.3 and 1.4

. Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1).

. Intended purpose must be specified in the Employer’s Requirements as defined in sub-clause 1.1.1.5.

. Treatment of errors in the Employer’s Requirements provided for by the ‘experienced contractor test’ (sub- clause 5.1). . Resolution could be as a Variation or a claim.

. Procedure for the Engineer to review and / or approve submitted documents (sub-clause 5.2). GENERALLY – YELLOW BOOK (AS RED BOOK)

. Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2).

Contractor to submit progress report (sub-clause 4.21): . To be submitted monthly until completion of all work . Comprehensive - shall include: a) Charts & descriptions of progress for each stage including design b) Photographs c) Manufacture report d) Contractor’s personnel & equipment e) QA documents, test results etc f) Notices of claims g) Safety statistics h) Comparisons planned versus actual progress, risks and mitigation measures GENERALLY – YELLOW BOOK (MAINLY AS RED BOOK)

Rate of progress provisions at sub -clause 8.6 state:

“If, at any time: a)Actual progress is too slow to complete within the Time for Completion, and / or b)Progress has fallen (or will fall) behind the current programme under Sub- Clause 8.3… other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time]… GENERALLY – YELLOW BOOK (MAINLY AS RED BOOK)

Rate of progress provisions at sub -clause 8.6 continued:

…then the Engineer may instruct the Contractor to submit…a revised programme…

73 GENERALLY – YELLOW BOOK (MAINLY AS RED BOOK)

. Contractor entitled to an extension of the Time for Completion if completion is or will be delayed for any of the stated reasons (sub-clause 8.4).

. Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12). GENERALLY – YELLOW BOOK (AS RED BOOK)

. Employer issues Taking Over Certificate to signify Works (or a Section) are ready for taking over. This does not necessarily mean they are complete (sub-clause 10.1).

. Only the Engineer (or delegated assistants) can vary the Works (sub-clause 13.1). . Variations is a defined term. . Value engineering provisions are at sub-clause 13.2

. Works to be valued on a lump sum basis (clause 14).

. Contractor entitled to be paid at intervals stated in the Appendix and submits 6 copies of a statement to the Engineer (sub-clause 14.3). . The Engineer certifies the monthly interim payments to be paid to the Contractor. Can be withheld until Performance Security received (sub-clause 14.6) GENERALLY – YELLOW BOOK (AS RED BOOK)

. Payment procedure is different after Taking Over Certificate is issued (sub-clauses 14.10 to 14.13)

. Contractor entitled to financing charges for late payment (sub- clause 14.8).

. Remedies available to Contractor for failure of Engineer to certify or Employer to pay (sub-clause 16.1). GENERALLY – YELLOW BOOK (AS RED BOOK)

. DAB appointed to resolve disputes with subsequent recourse to Arbitration if needed (sub-clause 20.2). The Silver book

79 GENERALLY – SILVER BOOK (AS YELLOW BOOK)

. FIDIC produces the General Conditions (20 clauses) and anticipates separate Particular Conditions to be used (notes for guidance are included).

. Tenderers issued with Employer’s Requirements

According to Sub-clause 1.1.1.3, ERs must specify (cannot imply) for each part of the works:

. The purpose . The scope . The design . Other technical criteria GENERALLY – SILVER BOOK (AS YELLOW BOOK)

. Tenders issued with site data. . Sub-clause 4.10 Employer to provide “all relevant data in Employer’s possession…”

. Appendix to Tender used to contain project-specific information.

. Forms of Letter of Tender, Contract Agreement (including Appendix to Tender), Dispute Adjudication Agreement and Forms of Securities are included.

. Letter of Acceptance signifies a contract has been entered into, or the Contract Agreement if no Letter of Acceptance. SILVER BOOK GENERAL CONDITIONS

. Clause 1 - General Provisions . Clauses 2 to 4 – The Employer, the Employer’s Administration and the Contractor . Clause 5 – Design . Clauses 6 and 7 - Staff, labour, plant, materials and workmanship . Clause 8– Commencement, delays and suspension . Clauses 9 and 10 – Tests on Completion and Employer’s Taking Over . Clause 11 - Defects Liability . Clause 12 – Tests after Completion . Clause 13 – Variations and Adjustments . Clause 14 – Contract Price and Payment . Clauses 15 and 16 – Termination and suspension . Clauses 17 to 19 – Risk, Insurance and Force Majeure . 82 Clause 20 – Claims, Disputes and Arbitration GENERALLY – SILVER BOOK (AS YELLOW BOOK)

. Clause 1 includes: . Definitions (sub-clause 1.1).

. Applicable law and ruling language stated in Appendix to Tender (sub-clause 1.4).

. Priority of documents provisions (sub-clause 1.5). GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

. Employer’s Representative may be appointed to act on Employer’s behalf after contract is signed (sub-clause 3.1).

Note: prime duties restricted to monitoring progress, quality and testing. GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

Clause 3.5 is worded as follows…

“Whenever these Conditions provide that the Employer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Employer shall consult with the Contractor in an endeavour to reach agreement. If agreement is not achieved, the Employer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.” GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

. Employer or Employer’s Representative can delegate specific duties and authority to assistants (sub-clause 3.2).

. Contractor shall take instructions from the Employer or Employer’s Representative (sub-clause 3.4).

. Contractor appoints Contractor’s Representative who is the only person authorised to receive instructions (sub-clause 4.3).

Note; don’t forget the communications rules at sub-clauses 1.3 and 1.4

. Contractor responsible for verifying and interpreting site data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in sub-clause 5.1 (sub-clause 4.10) GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

. Contractor to design and construct the Works so they are fit for the purposes for which the Works are intended as defined in the Contract (sub-clause 4.1).

. Intended purpose must be specified in the Employer’s Requirements as defined in sub-clause 1.1.1.5.

. Contractor generally responsible for the accuracy of the Employer’s Requirements (sub-clause 5.1).

. Procedure for the Employer to review submitted documents (sub-clause 5.2). GENERALLY – SILVER BOOK (SIMILAR TO YELLOW BOOK)

. Contractor to commence Works on the Commencement Date and complete within the Time for Completion (sub-clauses 8.1 and 8.2).

. Contractor to submit a “detailed time programme” to the Engineer within 28 days of the notice of commencement showing all stages (sub-clause 8.3). . Revised programmes to be submitted “whenever the previous programme is inconsistent with actual progress or with the Contractor’s obligations” (sub-clause 8.3). . Employer has 21 days to respond and give notice that it does not comply with the Contract (sub-clause 8.3). . Contractor to proceed in accordance with it (sub-clause 8.3). GENERALLY – SILVER BOOK (AS YELLOW BOOK)

Contractor to submit progress report (sub-clause 4.21): . To be submitted monthly until completion of all work . Comprehensive - shall include: a) Charts & descriptions of progress for each stage including design b) Photographs c) Manufacture report d) Contractor’s personnel & equipment e) QA documents, test results etc f) Notices of claims g) Safety statistics h) Comparisons planned versus actual progress, risks and mitigation measures GENERALLY – SILVER BOOK (AS YELLOW BOOK)

Rate of progress provisions at sub -clause 8.6 state:

“If, at any time: a)Actual progress is too slow to complete within the Time for Completion, and / or b)Progress has fallen (or will fall) behind the current programme under Sub- Clause 8.3… other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time]… GENERALLY – SILVER BOOK (SIMILAR TO YELLOW BOOK)

Rate of progress provisions at sub -clause 8.6 continued:

…then the Employer may instruct the Contractor to submit…a revised programme…

Unless the Employer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and / or in the numbers of Contractor’s Personnel or Goods, at the risk and cost of the Contractor…

91 GENERALLY – SILVER BOOK (AS YELLOW BOOK)

. Contractor entitled to an extension of the Time for Completion if completion is or will be delayed for any of the stated reasons (sub-clause 8.4).

. Provision for Tests on Completion (clause 9) and Tests after Completion (clause 12). GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

. Employer issues Taking Over Certificate to signify Works (or a Section) are ready for taking over. This does not necessarily mean they are complete (sub-clause 10.1).

. Taking Over for any completed part of the Works is not permitted unless agreed by the Parties (sub-clause 10.2)

. Only the Employer (or delegated assistants) can vary the Works (sub-clause 13.1). . Variations is a defined term. . Value engineering provisions are at sub-clause 13.2.

. Works to be valued on a lump sum basis (clause 14).

. Contractor entitled to be paid at intervals stated in the Appendix and submits 6 copies of a statement to the Employer (sub- clause 14.3). . The Employer assesses the monthly interim payments to be paid to the Contractor. Can be withheld until Performance Security received (clause 14.6). GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

. Payment procedure is different after Taking Over Certificate is issued (sub-clauses 14.10 to 14.13)

. Contractor entitled to financing charges for late payment (sub- clause 14.8).

. Remedies available to Contractor for failure of Employer to pay (sub-clause 16.1). GENERALLY – SILVER BOOK (DIFFERENT TO YELLOW BOOK)

[Responsibility for nearly all risk with the Contractor]

. DAB appointed to resolve disputes with subsequent recourse to Arbitration if needed (sub-clause 20.2). Confirm your understanding 2

97 EXERCISE

Low Risk to Contractor High

Employer design Re-measurable Engineer Contract Data

Appendix to Employer’s Tender Contractor design Lump Sum Representative Particular Conditions

Q for each book:

1. Who has design responsibility?

2. What is the basis of valuation?

3. Who supervises the Works?

4. Where do you find the project specific data?

5. Arrange in the order of risk to Contractor (low to high). ANSWER – 1 - 4

Design responsibility Contractor design Contractor design Employer design project specific

Valuation project Re-measurable Lump Sum Lump Sum specific

Engineer Engineer Engineer Employer’s Representative

Contract Data Appendix to Appendix to Appendix to Tender Tender Tender

Particular Particular Particular Particular Conditions Conditions Conditions Conditions project specific anticipated anticipated anticipated ANSWER - 5

Low Burden of risk on Contractor High

Q: But, where should the Blue Book be placed?

A: It depends on the specific project Confirm your understanding 3

101 EXERCISE

Assuming a longer duration Yellow Book FIDIC project, list :

. The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award

. The ‘things’ that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award

102 EXERCISE - ANSWERS

The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award:

. Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance. . Sub-Clause 4.2 [Performance Security] states that the Contractor shall provide to the Employer Performance Security. . Sub-Clause 4.3 [Contractor’s Representative] provides for the Contractor to appoint a Representative who will have the authority to act for the Contractor (including issuing and receiving communications). . A detailed time programme (and separate report) under sub-clause 8.3 [Programme]. . If Sub-Clause 14.4 [Schedule of Payments] applies and the Contract does not contain a schedule of payments, the Contractor shall submit to the Engineer within 42 days of the Commencement Date, non-binding estimates of the expected payments during each quarterly period. . If Sub-Clause 14.2 [Advance Payment] applies, the Contractor shall provide to the Employer an advance payment guarantee. . Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer. EXERCISE - ANSWERS

The ‘things’ that the Contractor should expect to receive from the Employer and/or his representative within say 28 days of Contract Award:

• Sub-Clause 1.6 [Contract Agreement] says that the Employer and Contractor shall enter into a Contract Agreement within 28 days of the Contractor receiving the Letter of Acceptance. • Sub-Clause 2.1 [Right of Access to Site] says that the Employer shall give the Contractor right of access to, and possession of parts of the Site as stated in the Appendix to Tender. • Sub-Clause 3.2 [Delegation by the Engineer] allows the Engineer to assign duties and / or delegate authority to Assistants; this would include authority to communicate with the Contractor on certain matters. • Not less than 7 days notice of the Commencement Date (sub-clause 8.1). • If Sub-Clause 14.2 [Advance Payment] applies, the Employer shall pay the advance payment in accordance with Sub-Clause 14.7 [Payment]. • Sub-Clause 18.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer. Some particular concepts of FIDIC standard forms

105 Subcontracting

106 FIDIC requires a Contractor to obtain consent to sub-contract works

Blue book Clause 4.3 “Contractor shall not subcontract the whole of the Works. Contractor shall not subcontract any part of the Works without the consent of the Engineer.”

Yellow book Clause 4.4 “Contractor shall not subcontract the whole of the Works. … shall be responsible for the acts and defaults of any Subcontractors… as if they were the acts and defaults of Contractor. … shall not be required to obtain consent for suppliers of Materials, or a subcontract … named in the Contract. The prior consent of the Engineer shall be obtained to other proposed Subcontractors. … shall give the Engineer not less than 28 days notice of the intended date of commencement of each Subcontractor’s work…”

107 Variations Variations – Blue Book

The Engineer under clause 10.1:

. Has the power to instruct Variations to limits in Contract Data.

. Cannot instruct omissions from the Works if then done by others.

. Has power to reach agreement on valuation.

. May request quotation in advance (time and cost).

. May instruct without agreement of consequences.

109 Variations – Blue Book

The Contractor under clause 10.1 (and 10.5):

. Must notify Engineer if instruction requires: . Mobilisation of extra major dredging equipment. . Early mobilisation of planned major dredging equipment. . Shall comply with instructions from the Engineer (see also clause 3.2) unless the above occurs and no agreement on time and cost consequences. . Shall submit a build up of time and cost consequences, if not agreed, within 28 days of instruction.

110 Valuation of variations – Blue Book

. Clause 10.1 - to include time and cost consequences.

. Clause 10.2 - financial valuation:

. An agreed lump sum.

. Rates in the Contract.

. Using the rates in the Contract as a basis.

. Appropriate agreed new rates or as considered appropriate by the Engineer.

. If instructed, at day work rates.

111 Variations – Yellow Book

. Clause 13.1 does not set out the types of changes that can be made i.e. authority for variations

. A variation is defined (Clause 1) as “a change to the Employer’s Requirements”

112 Procedure – Yellow Book

. Clause 3.3 states that the Contractor must comply with all instructions from the Engineer

. Clause 13.1 does stipulate limited reasons for not doing so

. Clause 13.3 also provides for a Contractor’s proposal to be requested prior to an variation being instructed

113 Valuation of variations – Yellow Book

. Adjustments to the Contract Price are to be agreed or determined by the Engineer

. Reasonable profit is to be included

114 Claims Blue Book Clause 10.6 – Employer’s claims

. Employer to submit particulars to the Contractor and Engineer . No criteria regarding timing of issue is given . Engineer to check the Employer’s submission, consult with Parties and if possible agree the amount. . Otherwise, Engineer shall determine . Can deduct monies due

116 Yellow Book Clause 2.5 – Employer’s claims

. Employer or Engineer to give notice and particulars to the Contractor . To be given as soon as possible after being aware of the event or circumstance that gives rise to claim . Engineer to agree / fairly determine (clause 3.5) . Can deduct monies due

117 Yellow Book Employer’s claims

. Clause 2.5 provides for and sets out procedure . Claims include: . Electricity, water and gas consumption – clause 4.19 . Equipment and free issue materials – clause 4.20 . Rejection / retesting – clause 7.5 . Failure to do remedial work – clause 7.6 . Revised methods cause additional costs – clause 8.6 . Delay damages – clause 8.7 . Failure to pass tests on completion – clause 9.4 . Extension to Defects Notification Period – clause 11.3 . Failure to insure – clauses 18.1 / 18.2

118 Blue Book Clause 10.3 – Early Warning

. Either Contractor or Employer to notify other as soon as they are aware of circumstance that gives rise to entitlement;

. Parties to minimise effects;

. Entitlement to additional payment / extension of time limited to what due had Contractor given prompt notice and taken reasonable steps.

119 Blue Book Contractor’s claims

Clause 10.4 - if Cost caused by the Defined Risks, entitlement to recover the Cost, subject to the application of rates stated in the Contract for this purpose (i.e. standby).

Clause 10.4 - if necessary to change Works, dealt with as a Variation.

Clause 10.5 - itemised make-up to be submitted within 28 days of any event that gives rise to entitlement.

Clause 10.5 - Engineer to check, consult and agree time and cost effects, or determine.

120 Blue Book Clause 6.1 – Defined Risks

Defined Risks include:

. Use or occupation by the Employer except as specified.

. Design by the Employer / Engineer.

. Any unforeseeable operation of the forces of nature.

. Any failure by the Employer or Engineer.

. Any unforeseeable physical obstructions or conditions. Notes for Guidance recommends a geotechnical base report be used as a reference for what is unforeseeable.

. Adverse climatic conditions (refer to Contract Data for baseline).

. Delay or disruption caused by a Variation.

121 Yellow Book Clause 20.1 – Contractor’s claims

. Notice is mandatory and to be submitted within 28 days of being aware of an event or circumstance that gives rise to entitlement

. Notice must be worded so the potential for a ‘claim’ is recognised

. Notice is condition precedent to additional payment / extension of time

122 Yellow Book Clause 20.1 – Contractor’s claims

. Records shall be kept, Engineer permitted to view . Fully detailed claim to be submitted within 42 days of any event or circumstance that gives rise to entitlement including full supporting particulars . Further claims to be submitted on a monthly basis if on-going . Late submission of details may prejudice Contractor’s position . Final submission within 28 days of end of effects

123 Yellow Book Clause 20.1 – Contractor’s claims

. Engineer to respond with 42 days of submission . May request further particulars but must respond on principles of claim . Interim payments allowed for amounts substantiated . Engineer to agree / fairly determine (clause 3.5)

124 Yellow Book Contractor’s claims

. Clause 20.1 provides for and sets out procedure . Claims include: . Delayed drawings or instruction – clause 1.9 . Late access or possession – clause 2.1 . Setting out reference point errors – clause 4.7 . Adverse unforeseeable conditions – clause 4.12 . Extension of Time – clause 8.4 . Interference with tests – clause 10.3 . Variations – clause 13.3 . Change in law – clause 13.7 . Force Majeure – clause 19.4

125 FIDIC Exercise – identifying the changes

126 Dispute resolution Resolution of Disputes under Blue Book

If not agreed, Engineer to make a determination (cl. 10.5). Any dispute can be referred to the procedure in cl. 15:

. Adjudication by a Dispute Adjudication Board (DAB) in accordance with the Appendix . If any Party dissatisfied or decision not made when it should, Notice of Dissatisfaction issued within 28 days . Arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC)

128 Resolution of Disputes under Yellow Book

If not agreed, Engineer to fairly determination (cl. 3.5). Any dispute can be referred to the procedure in cl. 20:

. Adjudication by a Dispute Adjudication Board (DAB) in accordance with the rules in the standard form . If any Party dissatisfied or decision not made when it should, Notice of Dissatisfaction issued within 28 days . Arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC)

129 YELLOW BOOK TYPICAL SEQUENCE OF DISPUTE EVENTS ENVISAGED IN CLAUSE 20

Parties present submissions to DAB Amicable settlement

<28d <84d <28d >56d December 2017: Changes in the FIDIC Standard Forms

131 Second editions of the Red, Yellow and Silver books are published in 2017

Why?

. To enhance project management tools and mechanisms

. To reinforce the role of the Engineer

. To achieve a balanced risk allocation

. To achieve clarity, transparency and certainty

. To reflect current international practice

. To address issues raised by users

. To emphasis dispute avoidance MAIN TOPICS OF 2017 FIDIC-EDITION

 21 instead of 20 Clauses, clauses elaborated (‘huge book’ now);

 ‘Golden Principles’ for Special Conditions;

 Elaborated Procedural Rules for DAAB;

 Balanced risk allocation to Parties →

 Number of rights and obligations to both Parties;

 Incorporation of Best practices;

 New ‘advanced warning’ provision;

 Contractor not liable for defects or damages >2 years after DNP;

 ‘Exceptional Eevents’ replaces ‘Force Majeure’;

 Insurance obligations extended. THE ROLE OF THE ENGINEER

. Shall continue to be deemed to act for the Employer except when seeking to reach an Agreement or making a Determination;

. Then to act ‘neutrally’ between the Parties;

. Sub-clause 3.5 (Determinations) to be amended:

. headed “Agreement or Determination”,

. Engineer to have an obligation to encourage settlement of claims,

. Must provide a record of any consultation with the Parties,

. Time limits for undertaking determination,

. Failure to comply with these time limits means claim is rejected and can be referred to DAAB. DISPUTE AVOIDANCE

. Clause 20 is split in two:

. Clause 20 has become “Employer’s and Contractor’s Claims”,

. Clause 21 has become “Disputes and Arbitration”.

. A Claim is to make a request for an entitlement under the Contract;

. A Dispute arises if that claim is rejected (in full or in part).

. DAB to be a Dispute Adjudication / Avoidance Board (‘DAAB’)

. To be standing (not ad hoc) and with expanded procedures,

. Primary purpose is to prevent claims from becoming disputes,

. To be used as a ‘sounding board’. CLAIMS PROCEDURE

. Concept is: early or advance warning to encourage Parties to work together to resolve potential difficulties at an early stage,

. Detailed claims procedure (with timings and time bar) to remain,

. Notices must state it’s a notice and make reference to the relevant sub-clause. TIME ISSUES

. More obligations with respect to programming, including:

. Contractor submissions to be in hard and soft (electronic) copy,

. All activities to be logic linked, showing early and late start and finish dates, float and critical path,

. Must also show holiday periods, right of access dates, key delivery dates.

. Enforced obligation (Clause 8.7) to submit updated programme when it ceases to reflect actual progress.

. Engineer to review all submitted programmes within time limits,

. Failure to comply with time limits means the programme is deemed to comply. FIDIC v BIMCO v LOGIC

138 IN OVERVIEW

FIDIC Drafted for Needs Can include Engineer Construction onshore significant design appointed by the Contract construction revision for responsibility Employer projects offshore works

BIMCO Drafted for Needs Charter party Just the Owner Charter charter of significant only Party vessels revision for inclusion of any works

Logic Drafted for Suitable for Can include Just the Offshore Oil offshore offshore works design Company & Gas construction responsibility Representative Construction projects Contract A FIDIC and LOGIC contract means the Contractor takes on the obligations and responsibility to complete certain Works in a prescribed period of time for an amount of money that will be determined.

A BIMCO Supplytime contract is a time charter party under which the Owner provides its vessel and its capabilities for a prescribed period of time for an amount of money that will be determined.

Which carries more risks to DEME? FIDIC v BIMCO v LOGIC

The contractual relationships between the parties involved are different:

Employer Engineer

Owner Contractor

Company Charterer

Contractor General principles of contract management

Workshop Objectives

On days 1 and 2, to:

. Increase your awareness and understanding of contract management.

. Demonstrate how you can improve the DEME Group’s contractual and commercial position in both the pre-contract and post-contract phases of projects.

On day 3, to:

. Introduce the main FIDIC standard forms of contract.

. Explain the philosophy of the main FIDIC standard forms of contract and what their use means.

. Compare FIDIC with some other standard forms of contract.

142 IF THERE ARE NO FURTHER QUESTIONS:

Mark Castell – Regional Managing Director Ernst Jan de Jong – Senior Consultant [email protected] [email protected]

www.drivertrett.com

Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici 143