Irish Construction Law Conference 2015 Kevin Kelly Royal

Irish Construction Law Conference 2015 Kevin Kelly Royal Marine Hotel, Dun Laoghaire, Co. Dublin 03 December, 2015

Introduction § Review of Public Works Contracts commenced December 2013 § May 2014 on-line questionnaire launched § December 2014 GCCC published “Report on the Review of the Performance of the Public Works Contract” § April 2015 report on implementation of the interim measures (Construction Procurement Policy Unit of the Office of Government Procurement)

Introduction (cont’d) § Interim Measures made: “In recognition of the changed market and to encourage more realistic pricing of public works projects…”

What are the four Interim Measures? § 1. Making Bill of Quantities (“Bo. Q”) primary reference document for tender purposes on Employer designed contracts § 2. Direct tendering of specialist works packages where: – significant proportion of the overall Project value; or – significant impact on the long-term performance of the Project § 3. Greater concentration on quality criteria directly linked to the Project to deter unsustainable pricing § 4. Informal dispute resolution methods § Will discuss three of them today

Interim Measure 1 § Bo. Q primary reference document for tender purposes on Employer designed contracts

Interim Measure 1: Bo. Q § Currently, Employer has option to transfer the risk of quantities to Contractor (PW-CF 1, PWCF 3 and PW-CF 5) § Proposal is to remove this option, making the Bo. Q the primary reference for pricing purposes in Employer designed contracts § Production of a Bo. Q will be mandatory for PWCF 1, PW-CF 3 and PW-CF 5

Interim Measure 1: Bo. Q (cont’d) § Contractor will be able to rely on the Bo. Q to arrive at the tender sum § Drawings and specifications remain primary reference documents as to the scope of the Project

Interim Measure 1: Bo. Q (cont’d) § Where a Works Item is described in the drawings or specification but not included in the Bo. Q: – Employer’s Representative (“ER”) may direct the work to be completed and Contractor is entitled to an adjustment in accordance with Clause 10 – ER or Employer may direct Contractor not to complete the Works Item in which case there is no adjustment to Contract Sum

Interim Measure 1: Bo. Q (cont’d) § Where a Works Item is described in the Bo. Q but has not been included in the drawings or specification: – Employer or ER may direct Contractor to complete the Works Item in which case no entitlement to an adjustment to the Contract Sum – Employer or ER may direct Contractor not to complete the Works Item in which case Contract Sum is adjusted

Some further comments: Bo. Q § All elements of the work are to be described in the Bo. Q prior to going to tender under an unamended, agreed method of measurement – ARM 4 for building works; – CESSM 3 for standard civil engineering works; and – TII’s MMRW for road construction

Interim Measure 1: Bo. Q (cont’d) § Clause 3(a)(i) GDLA ‘ 82 “If the Articles of Agreement provide for the inclusion of the Bill of Quantities as a Contract Document then the Contract Sum shall be deemed to provide for the quality and quantity of work set out in the descriptions and quantities in the Bill…. ”

Interim Measure 1: Bo. Q (cont’d) § Clause 3(a)(i) GDLA ’ 82 (cont’d) § “…The Bill unless otherwise expressly stated shall be deemed to have been prepared in accordance with the Method of Measurement of Building Works last before issued or approved by the Society of Chartered Surveyors in the Republic of Ireland the Construction Industry. …”

Interim Measure 1: Bo. Q (cont’d) § Clause 3(a)(i) GDLA ’ 82 (cont’d) § “…Any error in description or quantity in the Bills of Quantities or any omission of items therefrom shall not vitiate this Contract but shall be rectified and the rectification treated as a variation under Clause 13 hereof…. ”

Some further comments: Bo. Q (cont’d) § Inclusion of provisional sums, provisional quantities, or provisional descriptions within the Bo. Q in lieu of adequate design not permitted – except with permission of GCCC and – where temporarily used until the successful completion of direct tendering of a specialist by the Employer for the purposes of nomination or novation § All such sums must be converted to lump sums prior to finalising the Main Contract

Interim Measure 2: Nomination § Direct tendering of specialist works packages

Interim Measure 2: Nomination § Proposed to be permitted where: – specialist works make up a significant proportion of the overall Project value; or – where they have a significant impact on the long-term performance of the Project § Proposes an addition to the existing provision for novation § Specialists would be nominated to the Main Contractor as sub-contractors

Interim Measure 2: Nomination (cont’d) § Tendered price for the specialist work package will either: – be included in the Pricing Document in advance of the Main Contract tender if the specialist works tender is concluded prior to the Main Contract tender; or – by way of an adjustment to the Main Contractor’s Tender Sum in advance of setting the Contract Sum by means of substituting the specialist works tender sums in place of the pre-determined Prime Cost Sum(s)

Interim Measure 2: Nomination (cont’d) § Currently forms PW-CF 1 to PW-CF 5: – allow for a separate tender process for specialist work packages – following tender process, Employer awards a public works contract to a specialist; – understanding is that the contract will be novated to the Main Contractor who will take the place of the Employer

Interim Measure 2: Nomination (cont’d) § Main criticism is that the public works contract is a Main Contract form and does not suit the nature of sub-contract works, once novated § Reverting (but not fully) to the concept of nomination: – Employer carries out tendering procedure – Main Contractor obliged to enter into a subcontract with the nominated specialist – form of industry agreed sub-contract

Interim Measure 2: Nomination (cont’d) § Proposal is to adopt the “Conditions of Sub. Contract (NN)” published by the CIF § Acknowledged that, along with the domestic subcontract form, they are the most used between sub-contractors and main contractors where the Public Works forms of contract are used § Tailored for the nature of a traditional subcontract relationship § Reflecting the conditions of the Public Works Contract

Interim Measure 2: Nomination (cont’d) § Collateral warranties will be required between specialists and Employer § Employer brings the tendering procedure to the point of confirming the successful tenderer but does not enter into a formal contract

Interim Measure 2: Nomination (cont’d) § Is this the end of novation? § No. Novation still useful where early engagement of specialists is required, particularly with a significant design input § A contract in those circumstances must be awarded because payment is required for the performance of the contract § If novation is used, the novated contractor will provide a collateral warranty to the Employer

Interim Measure 2: Nomination (cont’d) § Provision or PC sums may be used in the Main Contract tender but only up to the point of award of the Main Contract § This is for the purposes of establishing an approximate cost for the tendering contractors of the nominated specialists’ packages § Full cost of any nominated specialist works established via the conclusion of a tendering process in advance of signing the Main Contract

Interim Measure 2: Nomination (cont’d) § Including PC or provisional sums in the Bo. Q post –award of the Main Contract only allowed in exceptional circumstances § Examples include specialist fit-out works in large hospital projects where the rate of technological development not conducive to awarding the specialist contract at the same time as the Main Contract

Interim Measure 2: Nomination (cont’d) § Limited grounds for objection by a Main Contractor to the appointment of a nominated specialist: – inability to provide any bond – inability to provide tax clearance or any other evidence to demonstrate compliance with legal requirements – inability to provide the insurances required – change in circumstances of a nominated specialist such that they would not meet the standards on which they prequalified

Interim Measure 2: Nomination (cont’d) § Default of a nominated sub-contractor will result in no relief for the Main Contractor § Main Contractor responsible for replacement of any nominated sub-contractor § Contrast with GDLA ‘ 82

Interim Measure 2: Nomination (cont’d) § GDLA ’ 82 (Clause 16(f)) “… if a nominated subcontractor before final completion of a subcontract commits an act of Bankruptcy or being a company enters into liquidation whether compulsory or voluntary (except liquidation for the purpose of reconstruction) or if a Receiver is appointed the Contractor shall not be liable for any increase in the cost of sub-contract work that may arise by reason of the necessity to have the said work completed by another Sub. Contractor. ”

Interim Measure 2: Nomination (cont’d) § Will the specialists provide a bond to the Main Contractor? § Clause 1(i)(1) of the CIF Conditions of Sub. Contract (NN) makes provision for a bond of 25% of the Initial Sub-Contract Sum § Under GDLA ’ 82 there was possibility of direct payment combined with a form of collateral agreement (“Green” form) § Under new arrangement, no mechanism for direct payment of nominated or novated specialist sub-contractors

Interim Measure 2: Nomination (cont’d) § Reliance on mechanisms in the Construction Contracts, Act 2013 instead § However each Payment Certificate to the Main Contractor will be accompanied by a breakdown of the amounts included in that payment for each of the nominated or novated specialists

Interim Measure 3: MEAT § Greater concentration on quality criteria directly linked to the Project to deter unsustainable pricing

Interim Measure 3: MEAT (cont’d) § Quality Criteria – anticipated Contract Sum of € 2, 000 or greater – quality and long-term performance of certain Works Items could have a significant effect on the outturn costs of the Project at the end of its life – examples: lifts, window systems, roofing systems, building management systems.

Interim Measure 3: MEAT (cont’d) § The new measure mandates the inclusion of the quality of integral project elements as an effective MEAT award criteria § Tendering Authority select specific Work Items to be considered § Tenderers will be required to – name each product/material they propose to use in response to the category of Works Item inserted by the Employer – provide supporting evidence of the performance (data sheets, certified test results) as part of Works Proposals

Interim Measure 3: MEAT (cont’d) § The products/materials proposed which meet the specification pass the criterion with additional marks (up to a stated maximum) awarded to products/materials under pre-determined performance sub-criteria § Examples of sub-criteria may include – minimum life guarantee – minimum parts warranty – maximum energy consumption – maintenance cycle – availability of after sales and technical support

Interim Measure 3: MEAT (cont’d) § Contracting Authorities advised not to: – draft minimum performance criteria so as to close the specification to a single available product/supplier in the market – name a product/supplier as a way of setting minimum performance specification – allow the weighting of marks for quality such that price is no longer the majority weighting (except in complex or innovative projects)

Interim Measure 3: MEAT(cont’d) § Interim Measure 3 is seen as a longer term goal § OGP plan to invite industry stakeholders to sit on a working group to further expand the measure

Conclusion § Back to the Future? § Not quite…. § Thank you § Kevin Kelly kevin. kelly@mccannfitzgerald. ie Direct +353 -1 -607 1205

Irish Construction Law Conference 2015 Kevin Kelly Royal Marine Hotel, Dun Laoghaire, Co. Dublin 03 December, 2015