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Contents

Section 1 Range of Standard Contract Forms

Section 2 Contracts by Project Type

Section 3 Conflict and its Avoidance                                      

 

Description:  The purpose of this unit is to enable you to be able to assess a range of standard contract forms and project types to identify likely areas of conflict and propose strategies to avoid these conflicts.

Author:  Gates MacBain Associates


Section 1  Range of Standard Contract Forms




Aims and Objectives

At the end of this section you should be able to:
  • Identify the standard forms of contract
  • Recognize different forms of Collaborative contract


Standard forms of construction contract or alternatively entitled model forms of contract, have been developed by various institutions and bodies that represent different parts of the construction industry.  Generally these standard forms relate to specific aspects of construction work; principally JCT (Joint Contracts Tribunal) contracts being intended for building works and ICE (Institution of Civil Engineers) contracts being intended for civil engineering works. 

Many terms in these contracts are similar (see Table A1: Definitions used in model conditions of contract – Civil Engineering Procedure, 6th Edition) but there are some clear distinctions, most notably in their allocation of risk.  For example, under JCT forms of contract the responsibility for ground conditions lies with the Contractor whereas under ICE the risk remains with the Employer or Promoter. 

The institutions representing mechanical, electrical and chemical engineering (IME, IET, IChemE) produce standard forms of contract for plant installation.  These contracts are designed to enable the completion of building works ancillary to the main project (ie. building alterations to accommodate new mechanical, electrical or process machinery). 

The Office of Government Commerce (OGC) publishes a suite of contracts for Government projects that are used for works of a building or civil engineering nature. These are no longer published but are still used by some Promoters.  

FIDIC (Fédération Internationale des Ingénieurs-Conseils) publishes a suite of engineering and building contracts for major international projects.  These pass a great proportion of the risk for project delivery to the Contractor which is more akin to continental contracts than domestic.  

All of the above standard forms of contract have evolved over many years and are the product of wide consultation with representative bodies from the construction industry. Therefore, their terms are accepted as being broadly fair and mutually consistent but many Promoters produce their own bespoke amendments to these contracts.  In following such practice it is important to ensure that the amendments are clearly drafted and the principle of being mutually consistent is maintained. Typical forms of contract are:  

Building Works: JCT suite of contracts:
  • Standard Building Contract 2005
  • Minor Works Contract
  • Intermediate Contract
  • Major Project Contract
  • Management Building Contract
  • Construction Management Building Contract
 
Civil Engineering Works: ICE suite of contracts: 
  • ICE Conditions of Contract 7th Edition 2003
  • Minor Works Contract
  • Ground Investigation Contract
  • Design and Construction Contract

New Engineering Contract (NEC) 1992 

ICE Conditions of Contract Term Version, 1st Edition 2002  

Building and Civil Engineering Works on British Government projects: 
  • OGC – ‘GC/Works’ suite of construction contracts including:
  • Minor Works Contract
  • Design and Build Contract

Building and Civil Engineering works ancillary to plant installation:
  • Mechanical/Electrical Plant
 
IME/IET – MF/1 Model for General Conditions of Contract:
  • Process Plant
 
IChemE suite of contracts:
  • Green Book for Reimbursable works
  • Red Book for Lump Sum works 
 
Building and Civil Engineering works on International projects: FIDIC suite of contracts:
  • Red Book (works designed by employer)
  • Yellow Book (works designed by contractor)
  • Silver Book (turnkey projects)
  • White Book (consultant services agreement)
A guide to the standard forms of Construction Contracts can be found at the weblink below. 


Collaborative Contracts  

Standard forms of contract set out the obligations of each party in terms of delivering that part of the project for which they were engaged.  Accordingly each party concentrates on fulfilling its own obligations and contract relationships are consequently adversarial. This has proven to be counter-productive and wasteful. Collaborative contracts on the other hand place an obligation on all parties to collaborate with and consider the interface between all members of the project team. By working in this manner, the actions of all parties are concentrated on the quality of the overall project outcomes.  
 

Constructing the Team 

Standard forms of building and civil engineering contracts have undergone years of development (eg. JCT 1st Edition 1931, ICE 1st Edition 1945) to ensure their acceptance in terms of responsibilities and the balance of risk.  Despite this, the UK construction industry had a poor record of delivering on customer requirements and in response the Government and construction industry organizations commissioned Sir Michael Latham to review procurement and contractual arrangements.   

In his report entitled Constructing the Team (1994) he advocated partnering and collaboration as a means of removing process inefficiencies, adversarial relationships and the lack of respect shown to employees.  He recommended contract arrangements which emphasized co-operation, trust and mutual understanding between all parties to the contract.  In response at least five groups were established to introduce reform through partnering and best practice.  


Rethinking Construction 

To give a further lead on the implementation of Sir Michael Latham’s report the Office of the Deputy Prime Minister set up a task force led by Sir John Egan. He was asked to look at the industry from a client’s perspective with a view to improving the efficiency and quality of construction works.   

The recommendations in his report entitled, Rethinking Construction (1998) focused on improving product development, project implementation, partnering the supply chain and production of components.  Once again the industry responded with groups to introduce innovation and change through the various factions that make up the industry.  


Constructing Excellence 

The groups that followed the publication of the Latham and Egan reports were to lead the industry towards reform but each had its own terms of reference.  It was soon clear that their work required  better co-ordination and through various mergers the groups amalgamated under Constructing Excellence in 2005. 

As an industry membership organization it continues promoting best practice and administering the further changes that the industry needs.  Part of the change has seen the promotion of further evolutionary change with building and civil engineering contracts. Examples of these are given below.   

Civil Engineering 
  • NEC Engineering and Construction Contract (now NEC3 2005)

Building 
  • ACA (Association of Consulting Architects) Project Partnering Contract (PPC 2000)
  • JCT Constructing Excellence 2005 (incorporated ‘Be Collaborative’ Construction Contract 2003)

Government Contracts 

OGC introduced principles on collaboration, entitled ‘Achieving Excellence in Construction’ but ceased to publish any further amendments to its own contract documents.  However, in 2005 OGC endorsed NEC3 as complying with these principles and recommended its use. In 2008, PPC 2000 and JCT Constructing Excellence 2005 were still awaiting a similar endorsement from OGC though there is industry acceptance that they have adopted the same attributes.          

For an extensive list of Model Conditions of Contract see Civil Engineering Procedure Sixth Edition, Appendix A. 

An outline of the key characteristics and components of the different types of contract is given in ‘A Guide to Standard Forms of Construction Contract’ which can be found by clicking on the Constructing Excellence website shown below. 




Websites



Publications

  • Joint Contracts Tribunal (2005) JCT suite of contracts : JCT Ltd
  • Institution of Civil Engineers (2003) ICE suite of contracts : Thomas Telford
  • Institution of Civil Engineers (2009) Civil Engineering Procedure Sixth Edition: Thomas Telford



Self-Assessment Task

  • Outline the principal duties and responsibilities of a Contractor under the JCT Standard Building Contract
  • Outline the principal differences between the JCT Standard Building Contract 2005 and the JCT Constructing Excellence Contract 2005




Section 2  Contracts by Project Type




Aims and Objectives

At the end of this section you should be able to:
  • Identify the different types of contract used for project  construction
  • Recognize how project outcomes are influenced by the choice of contract


There are various ways of procuring and delivering construction works depending on the objectives of a project, the commercial basis on which procurement is being pursued and the allocation of risk. An initial consideration of the project development process would see each stage (ie. outline and detailed design, documentation and tender, construction, maintenance and hand-over) being undertaken separately, consecutively and probably by different people or organizations. However, this does not have to be the case and there are several different types of contract that allow alternative approaches to this traditional line of thinking.  

With the desired outcome in mind, the Promoter must decide on the degree of involvement and control they wish to exercise throughout the project delivery process. They must decide at which stage to invite the contracting group in and how best to manage the supply chain, including any specialist providers.  In addition, there is the question of who will manage the principal risks?  These criteria and others will determine the type of contract needed to deliver the project in its desired form. The types of contract include: 

Lump Sum - a single price for constructing the whole of the project as designed with the Contactor being responsible for verifying the quantities. 

All-in/Turnkey - a contract for delivering the design, construction and commissioning of the project by a single organization.  

Package-Deal – a contract where the Promoter contracts directly with the supply chain and employs a Construction Manager or a Management Contractor to manage the construction processes.     

Measurement – a contract that is tendered on the basis of a fully completed design but whose final price is determined by measuring the quantities of work elements after the work is completed. 

Term Maintenance/Framework – a long term contract (typically 3 to 10 years) for the completion of many individual work orders or a number of large scale schemes. Generally tendered on a Measurement contract basis. 

Cost Reimbursement – a contract where a contractor is paid the actual cost of labour, plant, materials etc. in addition to a management fee.  This can include target-costing where the client and contractor agree a target price before undertaking the works and a bonus/penalty mechanism for the final cost being below or above the target. 

Private Finance Initiative/Public Private Partnerships (PFI/PPP) are long term contracts (up to 20 or 30 years) where the project delivery team raise private finance for the design, construction, operation/maintenance and hand-over of a project in return for staged payments over the life of the project.    

For further explanation on the different types of contract, their application and benefits see Civil Engineering Procedure Sixth Edition, Chapter 4.   


Influence on Project Outcome

The primary outcome of any project is measured in terms of its cost, quality and delivery time and the contract type has a bearing on the certainty with which these can be predicted or influenced.  Who takes responsibility for each element according to the contract type is given in the table below entitled, ‘Project Outcomes by Contract’.  By implication, the degree of influence that each party can exercise over the final outcome can be similarly recognized.   


Promoter Requirements 

It is the Promoter who, generally after taking professional advice, selects the type of contract that will best deliver the project as envisaged. The parameters that describe the Promoter’s desired contract outcome and enable tenders to be prepared and fairly compared are referred to as the Promoter’s Requirements.  These include:  
  • Performance specification
  • Project Constraints
  • Legal and contractual requirements
  • Financial and commercial constraints
  • Drawings and the functions the project is to perform
  • Planned/unplanned works under term arrangement
  • Duties and powers of managing organization under CM/MC
The Promoter’s Requirements will be described in the contract documents and to ensure they are clear and without ambiguity there are conventions in place to assist with the formatting.  However, there will always be a potential for misunderstanding, interpretation, alteration, addition or alternative proposals and these once again can introduce a degree of uncertainty over the Promoter’s vision being realized by the project outcome.      


Project Outcomes by Contract  


























Publications

  • Institution of Civil Engineers (2009) Civil Engineering Procedure (Sixth Edition) Thomas Telford



Self-Assessment Task

  • Select a type of contract that would be appropriate for the Services installation of a new office complex and compare its benefits with the perceived disadvantages of at least three other types of contract





Section 3  Conflict and its Avoidance



Aims and Objectives

At the end of this section you should be able to:
  • Identify the contractual issues that could cause conflict
  • Recognize the opportunities for developing conflict avoidance strategies


Conflict is defined as a state of opposition or a clash of opposing principles.  In terms of project construction it could be the opposition of incompatible requirements between Promoter, Architect or Contractor or be the result of contradiction.  It could simply be the contention associated with expressing opinion. 

In practical terms a conflict can result when a contract or Contractor does not deliver the project in the manner expected by the Client or Promoter. The reasons for this can be numerous; expectations being wrongly or inconsistently specified being at one end of the spectrum and inadequate performance by the Contractor or supply chain being at the other.  Another source of conflict could be that the returns offered by the Promoter are incompatible with the Contractors expectations.  

Potentially there are innumerable causes of conflict and some of these are outlined below.  


Type of Contract 

When working under contract each party has responsibilities and their nature and scale differ with each contract type.  This can involve significant issues; responsibility for the ground investigation, for the final design, for contracting with the supply chain and so on. For example, a Promoter will retain responsibility for the project design under one type of contract and will pass that responsibility to the Contractor under another.   

In following the latter option the Promoter will have had a perception of the aesthetic qualities of the finished project  and will have described these in the project brief. However, when developing the design the Contractor will take into account, amongst other things, build-ability, resource options (particularly materials, products and prefabrication) and the likely influences on production efficiency.  This may not fully deliver that which the Promoter had in mind. As the Contractor’s tender will have been accepted on the basis of such proposals then the differing opinions may lead to conflict under the contract. Of course, if an Architect is separately instructed and contracted to undertake the design then there is an added opportunity for misunderstanding, differing aspirations and possible conflict.  


Specification 

A design is described by drawings and specification and a Contractor’s tender is an undertaking to deliver the works within the boundaries they establish.  But a Contractor aims to work in an efficient and cost effective manner and will have commercial considerations when choosing materials, products or work processes.  So whilst staying within the bounds of the specification a Contractor may deliver a product of a different look and quality than the Promoter perceived.  This may be acceptable.  If not so then the order to remove or vary the price will likely become a matter of conflict. It is easy to see how similar situations could arise with workmanship, incompatible products and the works and services of nominated suppliers and sub-contractors.  


Duties and Responsibilities 

All members of the project team have duties and responsibilities and these have been explained in the constructionsite unit Responsibilities and Working Relationships. In addition, all members have legal obligations under contract; see Standard Forms of Contract (Section 1 of this unit).  Breaching the terms of the contract or not accepting the responsibilities assigned or failing in one’s duty will lead to conflict.  Examples of failure could be a Promoter failing to give possession of the site at the time it is required or a Contractor failing to work in a manner that would meet the constraints of the contract period. The many areas of possible conflict can be identified by identifying the principal duties and responsibilities of each party under the relevant conditions of contract.   


Cost/Quality/Time 

Using the Table entitled, ‘Project Outcomes by Contract’ (see Section 2 Contracts by Project Type, sub-section Influence on Project Outcome) it is possible to see that the certainty or predictability of cost, quality and time can vary because a different party has responsibility for their delivery.  For example, the cost to the Promoter under a ‘lump sum’ contract is reasonably certain at the outset because generally the design was completed before tenders were invited and the Contractor has responsibility for checking measurements before submitting a price.  So the tender sum is generally the price to be paid by the Promoter.  Of course, if the Promoter changes the specification whilst the works are in progress then additional costs may be incurred but with a ‘lump sum’ their value will be difficult to predict, another possible source of conflict.  

So the choice of contract type is not just determined by the intended works but also by the priorities of the Promoter. For example, the Promoter of a new supermarket will generally require a speedy construction so that the store can begin trading with the minimum of delay.  Therefore the Promoter will place a greater emphasis on time of completion and hand over.  Clearly, Promoters of other projects will have different priorities and conflict can easily arise by misunderstanding their principal desire for the project.      


Communications 

It is easy to see that conflict will arise from dissatisfaction, misunderstanding and poor performance but this could easily be the result of poor or inadequate communications. There are strict requirements on contractual communications and they have a distinct bearing on the quality of instructions and ultimately the final product. So ineffective communications can mislead, fail to give proper guidance or necessary clarification even fail to avoid catastrophe. But also, effective communications are essential for productive contractual relationships and for ensuring the whole team heads towards the same project outcomes with a similar desire and motivation.  

If effective communications promote proper project delivery then ineffective communications can easily be associated with conflict.  Consider the problems that ambiguity and document inconsistency promote and the possible implications of non-clarification.  Consider also the likely failures from not following contract communication procedure or failing to keep all people necessarily informed.  How will honesty, mutual trust and good working relationships be achieved if communications do not take place and how will conflict be avoided in such circumstances?  


Risks 

Contingent and unforeseen risks in the construction industry, particularly civil engineering, are generally far higher than in other industries.  Therefore effective management of risk is crucial and this involves pre-tender assessments, contingency plans, appropriate responses to the unforeseen and strict adherence to contract procedure.    

Accepting contract responsibilities without understanding or accounting for the foreseeable risks leads to shortcomings in preparations and contingency planning.  If such risks come to light then the need to allocate blame, mitigate the effects and deal with the costs brings added pressures and almost certain conflict.    


Contractual Claims   

Whether justified or not such matters will always be viewed with conflicting interests. The principal causes of contractual claims are associated with instructions and unforeseen circumstances and whilst there may be established facts and qualifying criteria, inevitably opinions will differ.  Instructions that vary the works or clarify the specification will be readily understandable but paying for their effects may be somewhat contentious. Discovering physical conditions or artificial obstructions will raise questions as to whether they could have been reasonably foreseen by an experienced contractor. The opinions that emanate may be conflicting.            


Opportunities for Conflict Avoidance Strategies   

In developing strategies for avoiding conflict it is necessary to start with the potential failures, investigate the root cause and determine how they can be countered.  So the strategies will most likely involve preparation, timely actions, communications, responsiveness, collaboration, negotiation, review, continuous improvement.  The list is extensive.      


Pre-tender Investigation   

Ensuring the site and the proposed works have been appropriately investigated to assess the constraints, risks and build-ability as well as determining supply chain capacity and any fitness for purpose issues.     


Cost Certainty   

Ensuring the completeness of estimates/tenders and efficient working practices in addition to achievable targets and cost control would all aim towards delivering cost certainty.     


Timeliness   

Delivering any project on time requires preparedness in terms of process planning, programming, resourcing and production but also effective leadership of properly skilled and informed managers and workers.     


Quality Driven   

Mutually consistent specification, drawings and instructions remove the problems of ambiguity and misinformation and ensure that works processes are properly planned and deliverable.  Equally, all personnel need skills, direction and control and the works and products they produce are subject to appropriate testing, acceptance and rectification.     


Collaboration   

Early Contractor Involvement and collaboration are the essentials for a partnership approach to construction.  This requires tactful and co-operative attitudes, shared information, advice and assistance all aimed at delivering a project that best fits the real project priorities.  Partnership, on the other hand should not remove or reduce the requirements of the contract or its associated documents but help to enhance the delivery of a cost effective and timely quality project.     


Dispute Resolution   

Working under contract always carries the possibility of conflicts and disputes but it is the manner of their resolution that will determine whether a contract will be completed successfully or not. Most contracts include clauses on mediation, arbitration or adjudication but current industry guidance includes references to Alternative Dispute Resolution (ADR) (see websites below).  Whatever process is appropriate, the value of experience, impassioned debate, fairness and justification should not be overlooked.     


Customers   

What do the customers think about the delivered project or services?  If they are not consulted then continuous improvement cannot take place, dissatisfaction will ensue and inevitable conflict regarding the allocation of blame.  It was customer concerns (the Government and tax payers in this case) that led the industry to commission Sir Michael Latham and Sir John Egan to seek improvements in the whole process of project delivery. Their recommendations started with being sure about what the customer really wants and ran right through to customer feedback and continuous improvement.     


Procedure   

Contract procedures defined or implied by contract or its associated documents are designed to ensure all relevant parties are properly instructed or informed at the right time and can take actions appropriate to the intention of the procedure. All procedures can be identified from the duties set out in the relevant standard forms of contract as discussed in the previous section of this unit.




Websites



Publications

  • Joint Contracts Tribunal (2005) JCT Standard Building Contract: JCT Ltd
  • Institution of Civil Engineers (2003) ICE Conditions of Contract Seventh Edition : Thomas Telford



Self-Assessment Task

  • Compile a strategy for avoiding a conflict due to works not being strictly in accordance with the project specification.





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