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Beginner's guide to contracts

Working lives Procurement

On the path to chartered status, sooner or later you will have to get to grips with the snares and pitfalls of procurement. Toby Randle offers a crash course in construction contracts.

Even hardened construction professionals get hot under the collar when contractual claims crop up. And someone venturing into the rough, tough world of procuring construction services for the first time can be forgiven for finding the array of different contract forms to choose from bewildering.

If you are a client, figuring out what is appropriate to your job and to your organisation's experience, size and skills can seem daunting.

Coming to the contract from the other end, as a consultant, contractor, subcontractor or supplier, how are contract terms and conditions going to stack up for you, particularly if things don't go to plan?

A beginner's guide goes something like this:

Traditional contracting The client hires his own team to design the project and obtains quotes from contractors once the design is complete. The winning contractor carries out these works as designed for a fixed price. The most common contracts are NEC (options A and B), ICE 7th and JCT 98 PWQ.

Pros and cons:

Tried and tested method;

Fixed price;

Client controls design;

Client has multiple points of contact;

If things go wrong client may claim against various parties;

Risk of cost and time overruns due to client variations; and lPotential for delays in starting construction because design must be complete before tendering.

Where has it been used?

Traditional contracting has been used on the £500M Channel Tunnel Rail Link Section 1.

The National Health Service has selected NEC for its £1.4bn a year partnering procurement programme for hospital buildings.

Design and build The client only deals with a contractor, who prices the project based on the client's general brief.

The contractor completes the design and carries out the works for a fixed price. The most common contracts are NEC, ICE Design & Construct and JCT 98 WCD.

Pros and cons:

Fixed price;

Client has limited control over design;

Client has single point of contact;

If things go wrong the client can make a single claim against the contractor;

Client has limited involvement in the construction process;

Good buildability because design and construction are carried out by same firm;

Quick start on site because design does not need to be complete at the outset;

But not suitable for very complicated projects;

Where has it been used?

Design and build was used on the London Eye.

Management contracting and construction management Management contracting is very similar to traditional contracting.

The key difference is that the client engages the management contractor very early on in the project to contribute to the design process. The management contractor then manages the project and sub-contracts the works to trade contractors.

Construction management is similar but the trade contractors are engaged directly by the client not the construction manager.

Both JCT and NEC have management contracting and construction management forms.

Pros and cons:

Contractor contributes to the design process;

Client retains control of design;

Contractor does not tender a fixed price;

Quick start on site is possible;

Suited to highly complex, highvalue projects.

Management contractor is responsible for project management and carrying out of the works.

Construction management contractor is only responsible for project management.

Where has it been used?

Contractor Bovis Lendlease used management contracting to deliver the eye catching Lowry art gallery in Salford, Manchester.

Construction management is being used on the controversial £400M Scottish Parliament project.

Cost plus contracting As soon as enough of the design is complete, the contractor begins work and gets paid his costs plus an agreed mark-up. Standard forms include JCT Prime Cost, NEC option E and IChemE Green Book.

Pros and cons:

Quick start on site is possible;

Client retains design control;

Flexibility in design;

Difficult to control costs;

Heavy reliance upon trust and openness.

Where has it been used?

No doubt about it, this contract form is unattractive - so much so, that nobody I know will admit to having used it.

Term contracting This is used for maintenance and ad-hoc works to be undertaken as and when required during a set period. The contractor gets paid on the basis of a schedule of rates and agreed mark-up. There is no completion date but rather an expiry date for the contract period.

The most common contracts are ICE Term and JCT Measured Term.

Pros and cons:

Price based on schedule of rates;

Simple contract;

Scope of works is uncertain.

Where has it been used?

The Highways Agency, Environment Agency and BAA have pioneered term contracting for regular works on highway maintenance, flood defence and airport apron projects.

Toby Randle is a solicitor specialising in construction and engineering at Simmons & Simmons.

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