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Viewpoint: Aligning the supply chain

Consistent contract terms are vital to successful waste contracts, says chartered civil engineer and Burges Salmon LLP partner Will Gard.

The challenges and opportunities for civil engineering in the waste sector are plain for all to see. Civil engineers have of course always played a major role in the waste industry. Even so, there have been many new entrants into the market in the last few years. In addition, for each new entrant there are many more specialist technology suppliers, a significant proportion of which are relatively new to the UK.

The majority of these new infrastructure projects are led by local authority needs. The recent publication by the Department for Environment, Food and Rural Affairs of the long awaited draft standard terms for residual waste treatment contracts will hopefully help to provide a consistent approach to the procurement of such projects in the future.

Published for consultation in June 2009, the time for comments closed in July 2009 and we continue to await a final draft. The documents can be found at www.defra.gov.uk/environment/ localauth/funding/pfi/consultation.htm.

The new terms were largely influenced by the Greater Manchester Waste Disposal Authority project experience (NCE 26 November). However, the flexibility in the draft terms (incorporated to accommodate the wide range of potential waste solutions) is in sharp contrast to the inflexibility in the final, project specific, contract documents. This continues to give rise to significant challenges within the supply chain.

A key example of this is the management of design development. It is vital that key members of the supply chain are aligned and understand how the final contracts are likely to operate legally and practically. This will usually mean adopting the design development processes in the contract many months before the contracts are actually signed.

If the project documents do not reflect the actual state of design development at the time they are signed, contractors are left with an uphill struggle to get them changed under the standard terms. The knock on effect of also having to address a change to the testing and commissioning regime and completion tests, in the face of looming deadlines and the significant financial consequences of any delay, makes such a position very unattractive commercially (for everyone).

The standard terms provide for regulated design development. Any variation to the design may only take place through the change mechanism and the Authority has an absolute right to reject a proposed change. Even where a change is accepted, the Authority is likely to be entitled to a substantial percentage of any savings.

The risks of a mismatch between actual design development and the contract documents can be reduced by ensuring that the contractor’s designs are updated at financial close. This is easier said than done on a large complex project unless it is properly addressed throughout the bidding process. The only way of avoiding the risks is to ensure key suppliers are engaged in formal design development protocols at an early stage in the bidding process.

  • Will Gard is a chartered civil engineer and a partner at law firm Burges Salmon LLP

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