Retentions: A Change In Law?

The statistics for the payment of retentions within the construction sector, although ever-changing, do not make good reading.

Some argue, due to poor compliance by a number of firms within the supply chain, retentions could be regarded as the main contract discount (as all too often are never to be seen again!).

From October 2017 to January 2018 the government conducted two consultations aimed at encouraging fair and prompt payment within the construction sector, one of which specifically targeted the practice of cash retentions under construction contracts.

The findings have clearly prompted the requirement for further action and at the Construction News Summit on the 20th November 2018, the construction minister Richard Harrington gave a speech indicating changes where imminent.

He stated the government would announce changes in the law in respect of retentions “very soon”.

So what should we expect to see?

Nobody can be certain at this stage; however, there are well-documented proposals currently under review.

MP Peter Aldous is a former surveyor and he proposes Retention Deposit Schemes. This would require any retention monies being held to be placed on deposit under a new “retention deposit scheme”.

The report prepared for the Department of Business, Energy and Industrial Strategy concluded a retention deposit scheme would merit further investigation.

Concerns have been raised as to the costs and administration required and the impact on project funding, however as outlawing retentions has been rejected; the retention deposit scheme is currently looking like the preferred option.

Although nobody can confirm the form the changes will take, indications are a change in the law in relation to retentions is imminent.

Watch this space…

How to Ensure You Make a Loss in the Construction Industry (In Six Very Easy Steps)…

As most Contractors are aware, the construction industry is a challenging market sector in which it really is quite simple to lose money.

With the collapse of Carillion and harsh market conditions in 2018, 780 companies fell into insolvency in the first quarter alone [1].

In a bid to provide certainty, in this blog we wanted to set out six key steps for you to follow to ensure failure within the industry.

Step One – Do Not Compile a Cost Plan
A robust cost plan is one of the key building blocks to facilitate the successful delivery of a construction project.

Following a cost appraisal, a cost plan is compiled by the quantity surveyor or cost consultant to set out the construction costs of the project.

The cost plan is a live document and will develop in detail and accuracy over the lifecycle of the project.

If you want to ensure the project runs over budget, potentially to the point whereby it can’t be completed due to lack of funds, ensure you don’t create a cost plan.

Step Two – Do Not Review Construction Contracts or Negotiate the Terms
Not reviewing the construction contract (i.e. sign it, put it in the draw and hope for the best) is a sure-fire way to find yourself in dispute with the client.

By blindly signing on the dotted line; main contract terms (which you haven’t even seen) become binding, Liquidated Ascertained Damage levels (you may not be able to afford) may be levied against you and risk conditions which you wouldn’t have accepted (in a million years) if you had known, are carried by you.

Further, having negated to review the contract; you don’t need to negotiate the terms. After all, for a project to be successful; the terms of the contract should reflect the tender offering and the subsequent acceptance of that offering.

So, if you want to fail in contracting; ensure you do not have a quantity surveyor review the contract document to ensure the terms reflect your intended offering. Just proceed on the basis of the contract proposed by the client.

After all, it’ll save you a couple of hundred pounds if you don’t have it reviewed. It’s worth it, right?

Step Three – Do Not Compare Tenders. Accept the First Price
Another good way to ensure losses within the construction industry is to not test the market when procuring materials or services. Do not obtain a minimum of the three comparative quotations/tenders to ensure value, just accept the first price received.

Furthermore, ensure a quantity surveyor does not assess the quotations to confirm they are comparable in terms of inclusion and presentation`.

This will ensure the best price is not obtained and will guarantee you do not receive the best value.

Step Four – Ensure you accept verbal instructions (no written instruction required…)
“The site manager said just get on with it and they’ll sort the paperwork later… he’s a good guy, it’ll be fine”, sound familiar?

To ensure you don’t receive payment for variations, act on verbal instructions without obtaining written confirmation as set out within the contract (remember the contract you didn’t read in step two?).

This will ensure any work you deliver outside of the scope of the works is carried out at your own cost.

Step Five – Pay No Attention To the Construction Programme (Just Keep One Eye On The End Date).
If you want to pave the way to an unsuccessful project conclusion, ensure you pay no attention to the construction programme.

Pay no attention to key dates or activity sequence.
Keep an eye on the completion date and if you miss it, wait to see what happens (hopefully nothing).

Step Six – Do Not Employ a Professional Quantity Surveyor
Professional Quantity Surveyors provide a multitude of support services (see our previous blog (here) including:

– Monitoring Budget & Forecast
– Preparation of Applications / Valuations / Payment Certificates
– Assess and Measure Works Delivered and Variations
– Administer Programme Amendments
– Control Cost
– Maintain Ongoing Value Engineering
– Provide Project Management
– Manage Disputes
– Advice on Contractual Disputes

Conclusion
The steps outlined above are just a few of the ways in which a construction contractor can ensure they deliver a construction project over budget, potentially over programme and at a loss.

Alternatively, where you wish to ensure the successful delivery of projects within the industry, ensure you DO NOT follow these steps.

Should you require support in any of the areas listed, contact us at info@kjtaylorconstruction.com or call on 0115 9336131.

[1] The Guardian Online report. https://www.theguardian.com/business/2018/oct/01/insolvencies-in-uk-building-firms-rise-20-after-carillion-collapse. Monday 1st October 2018.

Private Practice Quantity Surveyor (PQS) / Consultant Quantity Surveyor… What do they actually do? (How can they help?)

You hear the phrase all of the time ‘Consultant Quantity Surveyor’, ‘PQS’ or ‘Commercial Consultant’, but what do these titles convert to by means of help and support within the construction industry?

It can vary from practice to practice and consultant to consultant depending upon their specialism, however, in this blog, we wanted to give you a ‘general view’ as to the areas of support you can expect from a professional all-round quantity surveying practice.

Pre-Construction (Design phase)
Prior to construction is the perfect time engage a good PQS as they will offer support in several capacities:

Cost Planning
A professional quantity surveyor will work through the construction project requirements and carry out cost planning, value engineering, feasibility studies, value management, life-cycle costing and cost value benefit analysis to enable the client to assess the project financially.

In turn, the QS will compile the relevant financial information needed for the project; including bills of quantities (BoQ), tender documentation, construction forecast and budgets.

Contract Engagement
With an in-depth knowledge of construction contracts (including NEC3, NEC4, JCT, FIDIC, ICE and bespoke contract terms) this is the next key stage of the construction process in which the support of a professional quantity surveyor is vital.

Compiling and reviewing contract documents and identifying key risks contained within construction contracts is a fundamental role of the quantity surveyor.

With an expertise in interpreting contract clauses, the QS will ensure the contract (and the risk allocation) balances the risk as the parties as intended.

NOTE: A detailed contract review by a professional quantity surveyor prior to execution is an absolute MUST for specialist contractors within the construction industry (if I had a pound for each time I heard the statement ‘I didn’t know the contract said…’. A contract review can save a contractor a significant sum across a construction project).

In addition to the contract review, the PQS can take the lead in negotiating out any risks or clauses which are not viable or acceptable.

Construction Phase
Throughout the construction phase, the professional quantity surveyor really is pivotal to the financial, commercial and contractual delivery. A professional PQS will:

– Monitor Budget / Forecast
– Prepare Applications / Valuations / Payment Certificates
– Assess and measure works delivered and variations
– Administer Programme Amendments
– Control costs
– Maintain ongoing Value Engineering
– Provide Project Management
– Manage Disputes
– Advice on Contractual Disputes

Completion & Defects Period
Ensuring completion is accurately captured is critical to the project in terms of damages, delays, warranties, insurance and the commencement of the defect’s liability period and a professional quantity surveyor will be fundamental in ensuring this is executed correctly.

For further help and support in any of the areas discussed within this blog contact us at info@kjtaylorconsulting.com or 0115 9336131.

 

Who are you contracting with?

Contracting Parties – Who are you contracting with? – Are you sure? (Read on…)

The Scenario:

The parties are engaged and the project is going well until unexpected ground conditions pose a risk to the design.

Consequently; an independent third-party designer is engaged and contracted to provide a solution.

Sounds straightforward right?

Wrong…

Introducing the recent case:

Williams Tarr Construction Limited v Anthony Roylance Limited and Anthony Roylance [2018] EWHC 23

The Project: A Housing Development in Cheshire
The Main Contractor: Williams Tarr Construction Limited (WTC)
The Designer: Anthony Roylance Limited OR Anthony Roylance (And here lies the problem)

So who were the contracting parties?

WTC believed they had engaged Mr. Roylance in his capacity as an individual.

Mr. Roylance maintained WTC had contracted with his limited company Anthony Roylance Ltd.

And the Scope?

WTC set out Mr. Roylance had been contracted to design a solution to overcome the problems with the wall so that the wall would ultimately be fit for purpose.

Mr. Roylance stated the engagement had been limited to the scope of a design for the drain for the wall and maintained he had not designed the wall nor did the company carry the obligation to ensure the wall was fit for the purpose intended.

Conclusion

The courts considered the relevant correspondence between the parties in a bid to establish the parties to the contract, the basis of engagement and the scope of the parties.

The documents were found to be unclear which introduced further complexities with WTC producing alleged “design documents” which had been produced by Mr. Roylance with Mr. Roylance stating these were “as-built” drawings for record purposes.

WTC went on to state in the most part, the documents were that of Mr. Roylance acting in his capacity as individual as he did not use company headed paper which documented his limited company.

Mr. Roylance presented that the payments were processed through the limited company and the contractual draft collateral warranty produced by WTC made clear reference to the registration number of Anthony Roylance Ltd.

The key lesson from this case is to ensure the contracting parties and the scope of works is clearly defined within the contract to avoid confusion should a dispute arise.

Let’s talk DELAYS…

We have all been there, the date was set; ‘easy to achieve’ the team thought and there it is, slipping away from you by the second.

How did that happen you ask?

Accurate delay analysis can prove vital to a construction project; as it allows the parties to mitigate and/or manage the potential impact (and cost) of project delays.

So how do you analyse delays?

There are various methods that can be applied including Time Impact Analysis (TIA), As Planned V’s As Built Analysis and Collapsed As Built Analysis (CAB) to name but a few.

These names only begin to play a part in delay analysis when used by the experts; and, if the analysis descends into this level of detail; the impact is likely to be significant.

So what do WE need to know?

Critical Path Management (CPM) will benefit most construction projects and I for one am a big believer in the adage ‘failing to plan is planning to fail’.

So what is Critical Path Management (CPM)?

CPM is a method of analysis in which the various stages of the project life cycle are described in detail in order to establish a base line programme.

CPM is the most widely used method of programming within the construction industry.
Identifying Delays

The identification of delay entitlement is far from straight forward and the reliance on detailed records is always substantial (lesson one: keep detailed contemporaneous records).

For an extension of time claim to be successful, it should establish causation and liability. In addition it should demonstrate time related disruption costs and damages. The purpose of delay analysis is to satisfy the causation requirement, in turn allowing the resulting damages to be assessed.

Delays may be:
• Excusable
• None excusable
• Compensable
• None Compensable

In order to carry out successful delay analysis both the As Planned and As Built programmes will need to be prepared and compared (lesson two: keep a clean As Planned programme and keep the As built programme up to date).

Events

Delay events can be identified as an ‘effect based’ approach or a cause based’ approach depending on the method of analysis adopted.

The Delay Claim Life Cycle

A delay claim has a defined process which is often referred to as the ‘delay claim life cycle’. The key stages of this life cycle are as follows:

Delay Claim Life Cycle

So, as demonstrated delay analysis is far from straight forward. The key things to remember are:
• Keep detailed contemporaneous records throughout the works.
• Keep a clean As Planned programme and keep the As built Programme up to date.

If you require further information or support with detailed delay analysis, contact one of our specialists at info@kjtaylorconsulting.com or visit www.kjtaylorconsulting.com.

1 Keane & Caletka. 2016. Delay Analysis in Construction Contract. West Sussex. Wiley Blackwell.

Overpayments – Can you recover the money? Apparently not. Read on…

Man reading paper

Following the recent decision in Graham Leslie v Farrar Construction Ltd [2016] EWCA Civ 1041 we thought it would be useful to recap on the facts of the case and highlight the warning that the decision brings.

So what happened…?
Mr Leslie and Farrar Construction entered into an oral Framework Agreement in which the parties would collaborate in the development of five separate sites.

The Framework Agreement provided that Farrar Construction would be paid its “build costs” (which were not defined) and the parties would split the profit made when each site was sold on the open market.

Throughout the course of the developments; Farrar submitted applications to Mr Leslie for round sums which did not include detailed substantiation. Mr Leslie accepted the sums on the basis they were in line with the agreed budgets.

Following completion, the profits were agreed and shared without any further substantiation being provided.

Over time the relationship deteriorated and Mr Leslie sought to recover what he deemed to be overpayments.

Decision One…

The court of first instance held that an employer could not recover overpayments which it made at the Contractor’s request without further investigation.

The Court of Appeal Decision…

The Court of Appeal upheld the decision.

The Lesson…

This case serves as an important warning. Where a payment is made against an application without further enquiry; the Employer will lose the right to challenge the sum later. Consider the application carefully at the time to ensure sums applied are correct.

NEC4 – The Key Changes – A detailed review…

Prior to the launch of the NEC4 last year, our May 17 blog provided a summary of the key changes between the NEC3 and NEC4.

One year on and following ongoing requests, we thought it would be useful to add a further layer of detail to the changes introduced and how they have been received by the industry so far.

During the 2017 annual NEC seminar the panel confirmed this contract was to be an “evolution not a revolution” and having spent the last year working with the contract in detail, we agree they have achieved exactly that.

It is important to remember these changes are based upon industry feedback (via the NEC User group and other industry forums) and key changes to delivery methods.

One of the key intentions of the drafting team was to seek to reduce the volume of Z clauses incorporated into the contract.

So what are the key changes?

Compensation Events
• The introduction of a Compensation Event to compensate the contractor for costs in preparing quotations which are not implemented or accepted.
• The option for the parties to introduce additional Compensation Events within the Contract Data which negates the requirement for additional Z clauses.

Payment Provisions
• A change in payment provisions now requires the contractor to make a periodic assessment and application and failure to do so will result in no payment being made.

Programme
• The deeming provision has now been extended to include the programme. If the project manager fails to respond within prescribed time periods, the programme will be deemed as accepted.

Defined Cost Assessment
• Within the cost-based contracts (C, D, E and F) the contractor is allowed to review the Defined Cost. In addition, the deeming provision applies if the PM fails to reply within the prescribed time periods.

Dispute Resolution
• A tiered four-week escalation and negotiation period has been introduced to encourage the settlement of disputes prior to the instigation of formal proceedings.

This process includes a compulsory settlement meeting with senior representatives of each party.

Note: Where the Housing Grants Construction and Regeneration Act applies (W2) this process is consensual.

Contractor Proposals
• There are new provisions within the contract which allow proposed changes by the contractor including acceleration and a change in Scope.

Terminology Changes:
There have been some changes to the contract terminology to align the contract wording with the industry ‘standard’. The key changes are:
• “Employer” becomes “Client”
• “Risk Register” becomes “Early Warning Register”
• Works descriptions have become “Scope”
In addition, the wording is now gender neutral.

Additional Core Clauses
• Bribery and Corruption have now been added as a core clause and the provisions in the event of.
• Transfer of benefits has been added as a core clause.
• Quality Management requirements have been added.
• Confidentiality and Publicity have also been covered in a new core clause.
Additional Contracts
In addition to the changes there are two new forms of contract:

Alliance Contract
The Alliance contract provides a performance base as the foundation for the terms with alliancing best practice and an integrated risk/reward model to motivate the parties to work in the best interest of the project.

Design, Build and Operate Contract (DBO)
The DBO contract provides a life cycle delivery solution which makes provision for the services before and after the construction works.

Should you wish to obtain further information regarding NEC contracts or the changes from the NEC3 to NEC4 contracts please get in touch at info@kjtaylorconsulting.com or call on 0115 9336131.

The NEC Users Group is also a great way to get involved and provide industry-specific feedback.

Please note. The information provided on this website is NOT LEGAL ADVICE and is for information purposes only. No action or inaction should be taken due to this information or any reliance placed upon this information. Please note where legal advice is required this should be obtained by an appropriate qualified legal practice and no information provided within this website should form the basis of any legal, contract or commercial decision. K J Taylor Consulting Ltd. are commercial quantity surveyors and not construction legal advisors.

Let’s talk DELAYS…

We’ve all been there, the date was set; ‘easy to achieve’ the team thought and there it is, slipping away from you by the second.

How did that happen you ask?

Accurate delay analysis can prove vital to a construction project; as it allows the parties to mitigate and/or manage the potential impact (and cost) of project delays.

So how do you analyse delays?

There are various methods that can be applied including Time Impact Analysis (TIA), As Planned V’s As Built Analysis and Collapsed As Built Analysis (CAB) to name but a few.

These names only begin to play a part in delay analysis when used by the experts; and, if the analysis descends into this level of detail; the impact is likely to be significant.

So what do WE need to know?

Critical Path Management (CPM) will benefit most construction projects and I for one am a big believer in the adage ‘failing to plan is planning to fail’.

So what is Critical Path Management (CPM)?

CPM is a method of analysis in which the various stages of the project life cycle are described in detail to establish a base line programme.

CPM is the most widely used method of programming within the construction industry.

Identifying Delays

The identification of delay entitlement is far from straight forward and the reliance on detailed records is always substantial (lesson one: keep detailed contemporaneous records).

For an extension of time claim to be successful, it should establish causation and liability. In addition, it should demonstrate time related disruption costs and damages.

The purpose of delay analysis is to satisfy the causation requirement, in turn allowing the resulting damages to be assessed.

Delays may be:
• Excusable
• None excusable
• Compensable
• None Compensable

In order to carry out successful delay analysis both the As Planned and As Built programmes will need to be prepared and compared (lesson two: keep a clean As Planned programme and keep the as built programme up to date).

Events

Delay events can be identified as an ‘effect based’ approach or a ’cause based’ approach depending on the method of analysis adopted.

The Delay Claim Life Cycle

A delay claim has a defined process which is often referred to as the ‘delay claim life cycle’. The key stages of this life cycle are as follows:

Delay Claim Life Cycle

 

So, as demonstrated delay analysis is far from straight forward. The key things to remember are:
• Keep detailed contemporaneous records throughout the works.
• Keep a clean As Planned programme and keep the As built Programme up to date.

If you require further information or support with detailed delay analysis, contact one of our specialists at info@kjtaylorconsulting.com or visit www.kjtaylorconsulting.com.

1 Keane & Caletka. 2016. Delay Analysis in Construction Contract. West Sussex. Wiley Blackwell.

The Launch of NEC4 – June 2017 What You Need to Know…

linked-in

Following from our previous update in March we can confirm the launch date for NEC4 is June 2017.
So what do you need to know…
We have worked to summarise the key changes that have taken place from NEC3 to NEC4 and how they will affect Contractors and Sub-Contractors across the industry.

The key changes within the Engineering and Construction Contract (ECC) and the Engineering and Construction Subcontract (ECS) are outlined below:

  • The Risk Register has been re-named the ‘Early Warning Register’ and there are now default periods for early warning meetings.
  • There are new Programming changes which introduce a new ‘dividing date’ similar to those used with compensation events.  Where the project manager does not respond to programmes issued, the provisions provide for ‘treated acceptance’.
  • The term ‘Employer’ becomes ‘Client’ and ‘Works Information’ becomes ‘Scope’ in a bid to standardise terminology.

The ECC and ECS will further promote collaboration in the following ways:

    •  Identify opportunities
    • Early Contractor Involvement
    • Supporting information modelling
    • A new 4-week period for escalation of dispute negotiation
    • Dispute avoidance option W3
    • Financial agreement for payment applications and final accounts

 Additional new and updated provisions within the ECC and the ECS include:

    • Collaboration update – X12 has been changed from ‘Partnering’ to ‘Collaboration’ to reflect the intention.
    • Retention – X16 now includes for a retention bond as an alternative to withholding funds.
    • Confidentiality – The Introduction of new Confidentiality provisions.
    • Communication – Methods and the use of a communication system.
    • Quality – The issue of a Quality Management Plan.
    • Cost Component Schedules – The schedules have been simplified.
    • Fee Percentage – Consolidation to one fee percentage.

KJ Taylor Consulting will be delivering a training series following the official launch of NEC4 in June so have your diary at the ready.

In the interim; should you require any further support with NEC4 or any other commercial issues please don’t hesitate to get in touch.