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Presentation by Ciaran McGovern - Operations Director, TOBIN to Engineers Ireland (Thomond / West Region)...

Presentation by Ciaran McGovern - Operations Director, TOBIN to Engineers Ireland (Thomond / West Region)
8th March, 2011
Presentation title: GCCC Contracts Experience to date:
A review of the operation of the GCCC Contracts on Civil Engineering projects

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    GCCC contracts experience to date 08'03'11 GCCC contracts experience to date 08'03'11 Presentation Transcript

    • Presentation to Engineers Ireland (Thomond / West Region) 8th March, 2011 March, 0 GCCC Contracts – Experience to date:A review of the operation of the GCCCContracts on Civil Engineering projects Ciaran McGovern TOBIN Consulting Engineers
    • Topics• Background • Risk Management• Works Requirements W k R i• VAT Issues• Suitability Assessment Questionnaires Suitability Assessment Questionnaires• Delegation of duties to ER’s Site Representative• Construction Issues• Delay & Compensation Events• Employer Claims• Client Communications
    • Background (1)• Personal greatest exposure to date primarily with  Conditions of Contract for Civil Engineering Works designed  by the Employer (Aug 2007) by the Employer (Aug 2007)• Documents downloaded from  http://www.constructionprocurement.gov.ie/ • No change log for updates• Difficult to keep current when documents are constantly  changing• Suggest an RSS feed is prepared for the site which would  alert of changes?
    • Background (2)• Guiding Principles: (DEHLG training material) – “To ensure as far as practicable that the accepted tender  prices and the final outturn costs are the same prices and the final outturn costs are the same” – “To allocate risk so there is optimal transfer to the  Contractor”• Launch date was February 2007, we are now four years in!
    • Risk Management (1)• Fundamental concept is that risk can be managed,  minimised shared or accepted. It cannot be ignored.• Structured approach / early engagement yields dividends Structured approach / early engagement yields dividends – Focuses the Consultant / LA to look at the difficult decisions up front e.g.  “do we divert the ESB cables or dig around them?” – Think about the issues likely to threaten the success of the project and Think about the issues likely to threaten the success of the project and  address them. Engagement with third parties, decide what is needed  and provide for them in the Contract in a clear way e.g. accommodation  works, traffic requirements, what are the particular constraints being  placed on the Contractor. – Can the risks be eliminated entirely – worth considering advance works  contracts. Does the programme support this? – Heretofore, risks managed in part through the use of Provisional / PC  f k d h h h f l/ Sums / Dayworks. No longer an option in New Works Contracts
    • Risk Management (2)• Risk Treatment Options in a workshop environment – Should the risks be accepted by the Employer or transferred to  the Contractor the Contractor – The need to have comprehensive information e.g. type of Site  Investigation works, uncovering works in buildings, Ground  Penetrating Radar, Utilities mapping Penetrating Radar Utilities mapping
    • Risk Management (3)• Risk allocated to whichever party is best placed to manage  them. – Optimal risk transfer is not the same as maximum risk transfer risk transfer is not the same as maximum risk transfer – Circulars from DEHLG / NRA on what default position is for standard  Contract types – schedule Part 1K default positions for Delay &  compensation events compensation events – The temptation may be to transfer all risk, but this needs to  supported by analysis of the optimal position. – Risk transfer consideration may influence Contract type selection Risk transfer consideration may influence Contract type selection
    • Risk Management (4)• Contract Selection – – Guidance note 1.4 ‐ Capital Works Management Framework Guidance  Note: Procurement and Contract Strategy for Public Works Contracts”.  gy f – Section 2 of that document states: “On projects valued below €5 million,  it is more usual to use the Minor Works Contract (PW‐CF5). However, in  certain exceptional circumstances the Employer may deem the project  sufficiently complex to warrant the use of one of the major works  ffi i tl l t t th f f th j k contracts (PW‐CF1 or PW‐CF3)”.  – Is the use of a monetary threshold the most important arbiter in  determining the default position for use of Minor / Major forms of  determining the default position for use of Minor / Major forms of Contract  – What are the exceptional circumstances, what makes the project  sufficiently complex? – Risk transfer considerations lead into this selection process
    • Risk Management (5)• Consideration of particular types of Complex Projects. – Construction of Engineered Landfill Cells – Major Civil Engineering Works but typically rolled out in works Major Civil Engineering Works, but typically rolled out in works  packages less than €5M – Civil Engineering Works designed by the Employer, but placing  particular design related to Bentonite Enhanced soils with the  particular design related to Bentonite Enhanced soils with the Contractor – Contractor has to source all materials and retain Specialist to  batch / mix batch / mix – Risk on remeasurement considered to be optimal if passed to the  Contractor – First review suggests Minor Works Form but optimal risk transfer First review suggests Minor Works Form, but optimal risk transfer  suggests Major Forms
    • Risk Management (6)• Watermains / Trenchless Technology – Water Services – Very often tendered as open cut trench using Minor Works Form  of Contract of Contract – Contractor wishes to propose trenchless technology – No Value Engineering Clause in Minor Works Forms (clause 4.8) – G Ground risk optimally managed by contractor if proposal accepted d i k ti ll db t t if l t d – Minor works Forms pre‐selects allocation of Ground Risk as being  an Employer retained  – Optimal risk transfer suggests Ground Risk should be retained by  f the Contractor for such technologies as he is best placed to  manage it.
    • Works Requirements (1)• Should they include…. – Digital design models in 3D – If risk K17 (remeasurement) is not a Compensation event is the If risk K17 (remeasurement) is not a Compensation event, is the  contractor then obliged to undertake a detailed analysis of the quantum. – Does a 3D model assist with such an exercise. – Would such a proposal be of equal benefit to both small and large  p p q g Contractors – If such information was provided, should it be included within the  “Relevant Background Information” or part of the Works Requirements – If it is part of the Works Requirements, can the contractor then rely  upon it  – Would this undermine the original intent of transferring the risk related  to remeasurement i.e. Risk K5 – F t l E t t i Ri k K5 Factual Error about the site  b t th it
    • Works Requirements (2)• Is a Bill of Quantities needed?  – In Water Service Projects, the default position is that a detailed  Bill of Quantities using CESMM should be prepared Bill of Quantities using CESMM should be prepared – Similarly Roads projects use MMRB – In the absence of guidance from Specific Government Sections,  what do the Department of Finance Guidance Notes say what do the Department of Finance Guidance Notes say
    • Works Requirements (3)• Guidance Note 1.5 as available from the Government  Construction Procurement website  http://www.constructionprocurement.gov.ie/,  prescribes  http://www constructionprocurement gov ie/ prescribes details of the format of the BOQ
    • Works Requirements (4)• Referring specifically to “Section 2.6.3 ‐ Prescribing the Content of the Pricing Document” and specifically to the guidance on “Compiling the Pricing Document”, it states: p g g , “The primary pricing document may be one of the following: – A comprehensive and fully measured list of quantities and specifications drawn up in a formal Bill of Quantities; tenderers can then insert their rates against the categories specified by the Employer (this is appropriate for Employer‐designed contracts only); or. – A multiple‐page tender cost analysis detailing how the tender price is to be broken down – the Employer should follow best practice in specifying the headings under which price details are to be presented.”
    • Works Requirements (5)• Factors influencing the decision to prepare a detailed BOQ  or to specify the headings under which the Contractor  prepares his tender prepares his tender – If risk K17 (remeasurement) is not a compensation event the  Contractor is obliged to undertake a detailed analysis of all  the quantities / inputs the quantities / inputs – If the Quantities that the Contractor determines are the  inputs into the Works Requirements are different to those  quantities within the Bill; what happens titi ithi th Bill h t h
    • Works Requirements (6)• In the case where a detailed BOQ is prepared by the ER – The quantities set down within the BOQ cannot be altered. If the  q , Contractors quantities are not the same, but are derived from his  commercial judgement, then the amount inserted against each  item must be deemed to be fully inclusive q y – If the quantity entered does not match the contractors  assessment, then the rate entered will not be a “true rate” – Example: Quantity Unit Rate Amount (€) – Tender BOQ 79 m³ – Contractor take off 55 m³ €0.60 €33.00 – Final BOQ 79 m³ €0.42 €33.00
    • Works Requirements (7) – How are Change Orders valued later; Clause 10.6.1 requires  that a determination “shall be valued”….”using those rates”.  – In the example the Contractor would only be recovering In the example, the Contractor would only be recovering  €0.42 per m³ for any ordered additional works rather than  the true cost of €0.60 per m³ (assuming 55m³ was correct!) – If the Contractor determines that quantities are different at If the Contractor determines that quantities are different at  tender stage than those declared within the BOQ, should he  raise a tender clarification asking for the quantity to be  changed based upon his commercial judgement. changed based upon his commercial judgement – Is a Contractor who doesn’t declare his own assessment of  the quantities deemed to have accepted those transparently  declared within the BOQ d l d ithi th BOQ
    • Works Requirements (8)• Alternative position is not to prepare a detailed BOQ – I thi In this case, the tenderer provides an overall summary of the  th t d id ll f th BOQ under the headings specified prior to tender. – A detailed breakdown of the tender is supplied prior to  Contract signing
    • Works Requirements (9)• Programme contingency – Clause 9 4 defines that “The Contractor has included in the initial Clause 9.4 defines that  The Contractor has included in the initial  Contract Sum and shall include in its programme a contingency for  delays to the date for Substantial completion of the Works caused by  compensation Events” – The programme contingency therefore includes both time and money – The Time element is defined in Schedule Part 1K prior to going to  tender for traditional Employer Designed Contracts (Thresholds T1  and T2) – The Contractor determines the financial provision within his tender  sum – What is this financial provision deemed to include?
    • Works Requirements (10)• Adjustments to the Contract Sum – Clause 10.6 – Additional works shall be valued using the mechanisms Additional works shall be valued using the mechanisms  described in 10.6.1 to 4 – Schedule part 2E does not include rates other than for those  prescribed ib d – Rates for Contractors site management etc. can be deemed  to be included within the Programme Contingency up to the  date for completion. – Rates for Contractors personnel other than those defined in  Part 2E, deemed to be included within the Daily Cost defined  Part 2E, deemed to be included within the Daily Cost defined within Clause 10.7
    • VAT Issues (1)• There are strict rules that govern how VAT is accounted for  in construction. Feedback from Revenue is:   – Important to note VAT is continually under review – rules and rates  change – A “Principal Contractor” is generally that entity at the top of the supply  chain – Where the Employer is a Local Authority (or any body to whom  Relevant Contracts Tax applies), that Employer becomes the “Principal  pp ), p y p Contractor” – In construction, where the VAT reverse charge rule applies (see below),  VAT is paid directly to Revenue by the  Principal Contractor , rather  VAT is paid directly to Revenue by the “Principal Contractor”, rather than to the construction service supplier.        
    • VAT Issues (2)• Feedback from Revenue (contd): – The Contract Fixed Price Lump Sum (FPLS) can vary depending on whether the Employer is a “Principal  Contractor” or not – Where the Employer is a “Principal Contractor” (e g Local Where the Employer is a  Principal Contractor (e.g. Local  Authority), the FPLS should normally include any 21% VAT  (where applicable) but not the 13.5% VAT – The Employer as  “Principal Contractor” pays the 13.5% VAT directly to  Revenue, and the 21% VAT down the line in the usual way.
    • VAT Issues (3) – Where the Employer is not a “Principal Contractor”, the FPLS should  include any 21% VAT (where applicable) and the 13.5% VAT – The  Employer pays all VAT down the line in the usual way. An example of  Employer pays all VAT down the line in the usual way. An example of where 21% VAT would apply in construction is the supply and  installation of fittings that are removable (not permanent fixtures) – The special case of Geotechnical Investigations is considered The special case of Geotechnical Investigations is considered  essential to the construction process and thus subject to the VAT  Reverse Charge rule and thus paid directly by the Principal Contractor  to the Revenue.     Revenue decided that, in the special case of  to the Revenue Revenue decided that in the special case of Geotechnical Investigation, both the 13.5% (e.g. fieldwork) and the  21% (e.g. report) would both be paid directly by the Principal  Contractor to the Revenue.  C t t t th R
    • VAT Issues (4) – Based on above, where the Employer is a “Principal Contractor” (e.g.  Local Authority), the FPLS for a Geotechnical Contract should not include any VAT include any VAT – Archaeology is not considered essential to the construction process  and does not fall under VAT Reverse Charge rule, so VAT is paid  down the line in the usual way. down the line in the usual way – Lots to consider when looking at advance Contracts i.e. Roads  advance Contracts for Geotechnical works and Archaeological works  are treated differently for VAT.
    • Suitability assessment questionnaires (1)• Large changes in this area in recent years – Self Certification – The only mechanism for meeting minimum criteria is The only mechanism for meeting minimum criteria is  essentially experience – Workload for tenderers reduced with self certification – Financial information in the current climate needs to be up  to date – Standardisation of template broadly welcomed Standardisation of template broadly welcomed
    • Suitability assessment questionnaires (2)• Suitability Assessment – Recommendation from DEHLG is that all qualified applicants  are invited to tender to ensure greater SME participation are invited to tender to ensure greater SME participation (Circular 10/10, Circular L3/11 on Water Conservation reiterates SME participation) – Separation of the Assessment process from the tender Separation of the Assessment process from the tender  assessment – Procedures required to allow this to happen (two envelope  system) are generally understood at this stage. ) ll d d h – Omission of declarations are deemed grounds for rejection – Advice is that ER can clarify information rather than seek Advice is that ER can clarify information rather than seek  submission of new information originally omitted
    • Resident Engineering Staff (1)• Employers Representative defined in Clause 4.3 of the Contract.  Clause 4.3.3 of the Contract gives the ER the power to delegate  p to named representatives – “4.3.3. The Employer’s Representative may delegate in writing to  named representatives any functions or powers under the  y g pp f Contract and revoke any delegation. The appointment of such a  representative shall not prevent the Employer’s Representative  from exercising directly any functions or powers. The Employer’s  Representative shall notify the Contractor and the Employer of any  delegation, and the names of representatives, and of any  d l i d h f i d f subsequent changes, within 5 working days after the event in each  case.” – C t t Contractors do ask for notification of the powers delegated to the  d kf tifi ti f th d l t d t th ER named representative
    • Resident Engineering Staff (2)• Typically, notices sent to the ER remaining with the Consultant  and copied to the ER.  and copied to the ER – The ER’s representative on‐site is traditionally defined as the  Resident Engineer / Clerk of Works  – ER’s Site Representative needs to be given clear direction on their ER s Site Representative needs to be given clear direction on their  day to day functions from both a contractual and site  administration point of view
    • Resident Engineering Staff (3)• What functions or powers might be delegated to the ER’s  on‐site representative? – Power to issue instructions which are directions in  accordance with the Contract – Power to sign off on the materials, labour and plant content  of Change Orders for record purposes only – Power to inspect the works under clause 8 3 and witness on Power to inspect the works under clause 8.3 and witness on  site tests – Power to schedule regular meetings under clause 4.15.1 and  to issue site meeting minutes un Clause 4.15.2 to iss e site meeting min tes n Cla se 4 15 2
    • Resident Engineering Staff (4)• What functions or powers might be delegated to the ER’s  on‐site representative (contd.)? – Power to accept and check details of any Contractors Things  removed from site under Clause 4.17 – Power to carry out checks on quality requirements under the Power to carry out checks on quality requirements under the  Works Requirements or Works Proposals – Power to initiate searches for defects – St t Statements of account for Interim Valuation should be  t f t f I t i V l ti h ld b submitted both to Tobin offices and copied to the Resident  Engineer – RE to assess % completion on all works if not a  remeasurement contract
    • Construction Issues (1)• Clause 4.9 Programme – The programme is no longer just a time based MS Project  Chart,  The programme shall be of a quality that will permit  Chart “The programme shall be of a quality that will permit the effective monitoring of the works” – Nine separate inclusions defined within Clause 4.9.1 – It is now a significant undertaking to prepare all of this  f k ll f h before the starting date – Progress Report requirements are defined g p q – Employer now has the power to withhold 15% of any  payment if a revised programme is not submitted within 15  working days. Employers are exercising this right. working days. Employers are exercising this right.
    • Construction Issues (2)• Time for Completion & Extension of time – First and second thresholds not generally being exhausted – Only those delay events deemed to cause a delay to Only those delay events deemed to cause a delay to  substantial completion of the works are considered against  the programme contingency  – Critical path analysis part of the consideration in determining  l h l f h if change orders affect the time for completion – Liquidated damages are being kept low as a genuine pre‐ q g g p g p tender estimate of the Financial loss.  Employers are  exercising LDs.
    • Construction Issues (3)• Compensation Events – Timelines as specified under Clause 10.3 are not always being met (Contractor has no rights if the ER does not stick to the stated  timelines) – ERs have no options other than to reject submissions not made  strictly in accordance with timelines – Apparent lack of understanding at present that claims submitted as  “delay, disruption, loss of productivity or knock‐on effect” cannot be  considered by the ER (Clause 10.7.4) – There is no ready contractual mechanism after an ERs determination  h i d l h i f d i i to refer a decision on a Compensation event to Clause 13 ‐ Dispute – Clause 4 – Management permits “without prejudice” discussions – Projects work more effectively when the lines of communication are  k ff l h h l f held open throughout the lifespan of the project
    • Construction Issues (4)• Disputes – Formal notification requirements prescribed in Clause 13 – Compensation events can be referred individually or collectively Compensation events can be referred individually or collectively – Early resolution may benefit both parties – Concern on availability of Conciliators on short notice if project is  moving on quickly i i kl
    • Delay & Compensation events (1)• Good housekeeping essential – Incoming correspondence register should record all salient data
    • Delay & Compensation events (2)• Register – Automatically calculates relevant dates of responses / notifications
    • Delay & Compensation events (3)• Register of changes to the Contract Sum – Revised Contract Sum and any disputed amounts clearly understood
    • Valuation of Omissions (Employer Claims)• Mechanism for the Employer to adjust the Contract Sum – Change Order required to omit part of the works – In an inflationary market Contractors will put in place In an inflationary market, Contractors will put in place  purchase agreements with suppliers at the outset of the  Contract to manage PVC risks – Employer may have to take possession of such materials if  l h k f h l f they form part of the works being omitted – Clause 10.9 defines the protocol to be followed by the ER p y
    • Valuation of Omissions (Employer Claims)• Mechanism for the Employer to adjust the Contract Sum (contd.) – The calculation of the proposed adjustment to the Contract The calculation of the proposed adjustment to the Contract  Sum must be transparent and the Contractor is given an  opportunity to respond to the proposal – Cl Clause 10.6 in reverse: are Bill rates appropriate for valuing  10 6 i Bill t i t f l i the works omitted. It’s a fair starting point but likely to be  challenged in the Contractor’s response – Employer claims can be raised as a dispute under Clause 13  also – Changes of this nature during construction stage will  g g g typically represent poor value for money
    • Client Communications – ER’s determinations• Requirement specified in Clause 4.8.3 to notify the  Employer of a Value engineering proposal submitted by the  Contractor “(2) notify the Contractor and the Employer that the  Contractor’s proposals are agreed and make any resulting  ’ l d d k l adjustments to the Contract Sum, use of the programme  contingency referred to in sub‐clause 9.4 or extension to the  Date for Substantial Completion of the Works and any affected  f b l l f h k d ff d Section”
    • Client Communications – ER’s determinations – This assumes that the value of the determination is less than the  p g g limits allowed as specified in Schedule Part 1 for a single Change  Order or for the aggregated value over a 3 month period. – If the value of the determination required is greater than the limits  specified, the Employer must be consulted in making the  determination. – The contractor will not have any visibility of communications  between the ER and the Employer in this respect and the timelines  within which responses must be made still hold valid – Client needs to have an internal point of contact available to  discuss such issues, who is empowered to liaise with the ER within  the timelines specified.
    • Client Communications – Value Engineering• Requirement specified in Clause 4.8.3 to notify the  Employer of a Value engineering proposal submitted by the  Contractor “4.8.3. The Employer’s Representative shall, as soon as practicable, notify the 4.8.3. The Employer s Representative shall, as soon as practicable, notify the  Contractor whether the Employer agrees to or rejects the proposal. If the  Employer agrees to the proposal, the Employer’s Representative shall, if  agreed, determine a reduction to the Contract Sum and an adjustment to the  agreed, determine a reduction to the Contract Sum and an adjustment to the Date for Substantial Completion of the Works and any affected Section in  accordance with the agreed proposal and the Contractor shall implement the  agreed proposal. If the proposal is rejected, this shall be conclusive.” g p p f p p j ,
    • Client Communications – Value Engineering– It is the Employer’s sole responsibility to accept or reject a  Value Engineering proposal. – Typically the format of such arrangements are: Typically the format of such arrangements are: – To notify the Employer initially that a Value Engineering  proposal has been submitted – To carry out an assessment of the merits of the proposal – To recommend acceptance or rejection of the proposal – To notify the Contractor of the Employer’s decision To notify the Contractor of the Employer s decision
    • Presentation to Engineers Ireland (Thomond / West Region) 8th March 2011 March, 2011  End of Presentation mcgovern@tobin.ie @cmcgovernceng http://www.linkedin.com/in/cmcgoverntobin