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Law Standard forms Part 2

After last month's general introduction to standard forms, we look at one of the best known engineering standard forms - ICE 7.

By Professor Phillip Capper and the Lovells projects and engineering team, projects. engineeringteam@lovells. com, www. lovells. com

ICE 7: What is it?

Issued in 1999, ICE 7 is the most recent of the numerical series of contract forms which started just after the Second World War. Some may think it obsolescent but it is likely to be with us, with or without amendment, for some years yet.

To pick up on a point in last month's article (31 October), we still encounter disputes on contracts based on ICE 5 and proposals for new contracts based on ICE 6. We all prefer the devil we know, but the devil is also in the detail.

If the details have been changed by experience and new legislation, the use of superseded forms can be expensive. So, having picked the current version, the questions are when and how it should be used and what it is like.

When to use it? Tricky. ICE 7 is the most traditional, even venerable, of the engineering forms and tradition dies hard. As such, it has appeal. The trouble is that central government has set its heart on PFI, design and build and prime contracting. Not much room for ICE 7 there, and anyway, central government has its GC/Works stable of contracts - and there is also competition from the New Engineering Contract.

Furthermore, many potential private sector clients will be averse to the lack of price certainty involved in a re-measurement approach. Time will tell where the market for ICE 7 will lie - perhaps it will be local authority and utility clients who have a history of using the predecessor versions. They will probably use it for standard midsize civil engineering works.

How should it be used? ICE 7 contains a number of forms apart from the main conditions of contract; a form of tender, an appendix to the form of tender, a form of agreement, a form of bond and various price fluctuation clauses.

Proper use of ICE 7 requires the use of the tender form and its appendix because the contract conditions depend upon their use.

The form of agreement is optional and, in these days of low inflation, the price fluctuation provisions will rarely be used on medium size, and therefore relatively short duration, works.

The contract conditions also depend on a series of key documents which appear in the definitions - specification, drawings and bill of quantities.

Referring again to last month's article, it is very common to encounter contracts on ICE 7 and its predecessors where the tender forms have not been used and one or more of the key documents are absent. Even if the correct forms are used, care must be taken to 'fill in the blanks' to avoid argument over the identity of the engineer, the length of the defects correction period and other provisions essential for the proper working of the contract.

What is it like? ICE 7's longevity gives it familiarity and exposure to the courts so that there can be some confidence as to the legal effect of its provisions. On the other hand, its layout is less than user friendly.

It starts with a set of definitions in random order and then waits until clause 8 to get to the core general obligations. The commencement and timing provisions are not encountered until clause 43. Furthermore, on frequent visits to the courts provisions akin to those in ICE 7 have not had the easiest of rides.

Problems 1. Site conditions/variations Some years ago the National Audit Office noted that there was a pattern of cost overruns on UK road contracts usually related to variations and site conditions. In these critical areas, ICE provisions have a controversial history.

The infamous clause 12 has been the focus of much criticism.

By allowing time and money for physical conditions or obstructions not reasonably foreseeable by an experienced contractor, the clause invites an expensive debate.

Similarly, clause 51 on ordered variations and clause 56 on increase in quantities cause much difficulty.

More recently an arbitrator, the Technology & Construction Court and the Court of Appeal failed to agree on the variation valuation provisions in ICE 6 and in the end the Court of Appeal sent the issue back to the arbitrator.

2. Contractor's equipment Of more concern is the recent finding that one of the termination provisions in ICE 7 is, in practice, largely ineffective. Under clause 65, on termination for contractor default, the employer is entitled to use contractor's equipment to complete the works and may sell the equipment and use the proceeds to settle any money owed to the employer.

An employer tried to use this provision after termination and after the contractor had an administrator appointed. The House of Lords held that the provision created a floating charge which was void for non-registration.

Accordingly the administrator was entitled to damages for conversion against the employer - who was only doing what the clause appeared to say he could do.

The right to use the contractor's equipment probably survives.

However when a contractor is insolvent the right to sell is ineffective unless registered. Yet few employers are likely to register charges against their contractors and in any case the true owner of the equipment may be a hire company.

3. Dispute resolution Another occasion when the court has considered provisions similar to those in ICE 7 concerns the Housing Grants, Construction & Regeneration Act 1999 - or the Construction Act for short. This gives the right to refer any dispute or difference to statutory adjudication at any time.

In response, ICE 7 introduced a 'dissatisfaction' procedure as a precondition to statutory adjudication. This helps overcome the 'ambush' criticism of statutory adjudication.

However, one judge reflected a widely held opinion that the provision was inconsistent with the Construction Act. The issue remains open but subsequent cases on the necessary ingredients for a dispute provide support for the dissatisfaction procedure. No doubt this issue will be further considered.

In the meantime an employer faced with a contractor claim might respond that he notes the content but has referred it to the Engineer in accordance with the contract.

Would the contractor in those circumstances feel it appropriate to circumvent the authority of the Engineer to save a relatively small amount of time - particularly if the Engineer gave a rapid response?

Amendment There is cause for concern that ICE 7 does not provide a clear cost effective solution to problems that arise. As with most standard forms, the draftsmen warn against any amendment to their creation.

The Guidance Notes issued with ICE 7 contain this health warning.

However freedom of contract remains a cornerstone of contract law, and no two projects are the same, so the case for some amendment is strong.

If, as is often the case, the pro forma tender and appendix are not used, changes must be made. The same is true if the underlying project specific documents do not fit with the specification, drawings, bill of quantities formula prescribed by ICE 7.

Amendments may also be required to deal with the court decisions on variations, sale of contractor's equipment and dispute resolution. Of course, if amendments are made, care must be taken to avoid knock-on effects.

Examples of amendments Market forces may encourage some readjustment of the contract risk profile. Employers are known to produce schedules of amendments for incorporation into an ICE 7 based contract to provide a measure of extra protection.

Examples of common amendments of this risk-adjusting type are:

lto the prohibition on assignment without consent. Employers frequently need to assign the benefit of a contract to a funder.

They may also wish to make intragroup assignments or assignments to a successor;

lto the limited delegation permissible from the Engineer to the Engineer 's representative - either to permit full delegation or to amalgamate the two roles;

lso that all subcontracting requires the Engineer 's approval;

lto deal with the risk of ambiguities within and between documents;

lto introduce restrictions on publicity;

lto reduce the risk of claims for delayed information by programming information release;

lto underpin any obligation to provide security so that payment may be withheld for failure to provide the security. Frequently an amendment is made to require a different form of security from the ICE standard bond;

lto allocate site risk to the contractor rather than the employer by reversing the clause 12 allocation;

lto deal with the Construction (Design & Management) Regulations;

lto provide for overall project insurance procured by the employer;

lto deal with concurrent delay and avoid the use of deleterious materials;

lto allow time extensions for any wrongful acts of the employer to avoid loss of liquidated damages for contractor delay;

lto provide for collateral warranties in favour of funders and other third parties.

Recent cases Mitsui Construction v A-G of Hong Kong Smith v Bridgend C.C Alstom Combined Cycles v Henry Boot

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