Comparing Construction Contracts

Comparing
Construction
Contracts
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Table of Contents

1 Introduction

7 Lesson 1 - Contract Comparison & Distinguishing Features

23 Lesson 2 - Structure

31 Lesson 3 - Parties & Role Players

51 Lesson 4 - Sub-contracting

59 Lesson 5 - Time & Change Management

79 Lesson 6 - Variations

87 Lesson 7 - Claims

93 Lesson 8 - Suspension and Termination

103 Lesson 9 - Dispute Resolution

117 Case Studies

Comparing Construction Contracts
 Introduction | 1

Introduction

The principles behind construction law can be traced back thousands of years. The modern civil
justice system is based on biblical principles and has continued to develop over the past 4,000
years.

The earliest known principles of construction law can be found in the Code of Hammurabi,
which dates to around 1760 BC. Hammurabi was the sixth king of Babylon and ruled from 1792
BC to 1750 BC. The Code of Hammurabi contained 282 laws inscribed on twelve stone tablets
which were placed in public view. Notice these laws which pertained to the built environment:
ƒƒ If a Contractor builds a house for a man and does not make its Construction firm and the
house which he has built collapses and causes the death of the owner of the house, that
Contractor shall be put to death.
ƒƒ If it causes the death of the son of the owner of the house, they shall put to death the
son of the Contractor.
ƒƒ If it causes the death of a slave of the owner of the house, he shall give to the owner of
the house a slave of equal value.
ƒƒ If it destroys property, he shall restore whatever is destroyed and, because he did not
make the house which he built firm and it collapsed, he shall rebuild the house which
collapsed at his own expense.

If a Contractor builds a house for a man and does not make its Construction meet the
requirements and a wall falls in, that Contractor shall strengthen the wall at his own expense.

While the death penalty is no longer in force in civil law, many of the principles of dispute
resolution found in this example are still applied today.

A standard form contract can contribute greatly to the success of a project, but if the parties
involved do not clearly understand the contract, much time and money can be wasted on
unnecessary disputes and claims. A lack of understanding could also result in the selection of a
contract that is not best suited to the project.

Why do we need to understand the different standard conditions for construction contracts?
Consider the following case study:

Comparing Construction Contracts

2 | Introduction

When considering this case study – refer to the following clauses in the FIDIC Red Book:

Sub-clause 3.5 [Determinations]:

“…the Engineer shall consult with each Party in an endeavour to reach agreement. If
agreement is not achieved, the Engineer shall make a fair determination in accordance
with the Contract, taking due regard of all relevant circumstances.”

Sub-clause 4.1 [Contractor’s General Obligations]:

“The Contractor shall design (to the extent specified in the Contract), execute and
complete the Works in accordance with the Contract and with the Engineer’s instructions,
and shall remedy any defects in the Works…”

Sub-clause 20.4 [Obtaining Dispute Adjudication Board’s Decision]:

“If a dispute (of any kind whatsoever) arises between the Parties in connection with, or
arising out of, the Contract or the execution of the Works, including any dispute as to any
certificate, determination, instruction, opinion or valuation of the Engineer, either Party
may refer the dispute in writing to the DAB for its decision, with copies to the other Party
and the Engineer. Such reference shall state that it is given under this Sub-Clause.”

A 12m long concrete bridge needs to be constructed and the Works are let under the
FIDIC Construction Contract, Red Book.
Halfway through the completion period, two of the columns supporting the bridge start
to crack and a survey determines that a section of the bridge is starting to collapse. A
number of investigation meetings are held between the Contractor, Employer, and Engi-
neer, but they only result in screaming matches and no agreement can be reached.
The Engineer then determines per Clause 3.5, based on Clause 4.1, that the Contractor
did not execute and complete the Works in accordance with the Contract and therefore
he needs to rectify all defective work at his own cost. The Contractor is not happy with
the determination as he feels the design, which was entirely the responsibility of the
Engineer, was substandard and therefore the Works failed. The Contractor feels strongly
that he did construct the Works per the Engineer’s design. He declares a dispute and the
matter is referred to the Dispute Adjudication Board as per the Contract Clause 20.
How could the dispute have been avoided? If all parties involved had clearly understood
the terms of the contract and applied them, they may have been able to reach an agree-
ment before referring the matter to the Dispute Adjudication Board.

Comparing Construction Contracts

 Introduction | 3

There are four main contracts that are currently used in Africa.

1. NEC3

The NEC3 is a family of contracts which focuses on effective project management. The contract
is designed to be as flexible as possible and is written in clear and simple language to make it
easier to understand. This is especially helpful to those not used to formal contracts or whose
first language is not English.

Perhaps the most important characteristic of the NEC3 is the stimulus to good management.
Every procedure has been designed so that its implementation should contribute to good
management of the work.

2. JBCC

The JBCC Principal Building Agreement has been used almost exclusively in the building industry
for projects in the private sector. The State took the policy decision that it too would use these
agreements, subject to appropriate modification. These modifications were incorporated in the
March 2005 edition of the JBCC Principal Building Agreement.
The 6.1 Edition was recently published in March 2014.

3. FIDIC

With the 1999 contracts FIDIC has introduced a Construction Contract suitable for use in
building works, engineering works and small works projects. These colour-coded contracts have
also contributed a focused Design & Build/ Turnkey contract.

All books are intended to be flexible, recognizing the wide variety of users’ requirements;
however, selecting the appropriate book is critical to the success of a project.

4. GCC

The GCC contract was released late in 2015 and the main objective is to set out fair, equitable,
efficient, economic and transparent contract administrative procedures; and the allocation
of risks. The GCC complies fully with all the Construction Industry Development Board
(CIDB) requirements for a form of contract. GCC is for the procurement of engineering and
construction works.

5. In-house Contracts

In-house Contracts are also used on occasion – this is a non-standard bespoke contract. They
can be expensive and time-consuming to negotiate and produce, and may create legal issues
because they are untested in court. However, a bespoke contract may be necessary when a
project is complex or involves a number of parties. We will not discuss in-house contracts in this
course.

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4 | Introduction

Advantages and Disadvantages of a Standard Form Contract

Advantages

The standard form is usually negotiated between the different bodies that make up the industry
in the interests of standardization and good practice. As a result, the contractual risks are spread
equitably.

Using a standard form avoids the cost and time of individually negotiated contracts.

Changes made to the provisions of the standard form should be clearly identified in the
procurement documents, failing which they shall be null and void.

Contracting parties should be familiar with the terms and conditions of the standard form as
seminars and workshops are organized on a regular basis that are presented by experts with
extensive knowledge of the standard documentation and the construction industry

Tender comparisons are made easier since the risk allocation is the same for each tenderer.
Parties are assumed to understand that risk allocation and their pricing can be accurately
compared.

Disadvantages

There are few disadvantages to the utilization of a standard form contract. They are noted
below.

The forms may be cumbersome, complex, and difficult to understand for someone lacking
regular exposure to its use.

Because the resulting contract is often a compromise, they are resistant to change. Much-
needed changes take a long time to bring into effect.

A construction project is never a simple business. Even if the best preparations are made, things
can (and often do) go wrong. In our experience, this is the usual life cycle of a project.

Comparing Construction Contracts

 Introduction | 5

Rules and Reasonableness

When things do go wrong on a project and a dispute is taken to court, there are some general
rules that apply in South Africa’s courts.
`` For a breach of contract, where a remedy is agreed in contract, it must be followed;
`` Where no remedy is specified we must look to the common law;
`` We can and frequently do modify the common law in contract;
`` We cannot contract out of the statutory area of the legal framework.

We can see how important it is to make sure we clearly understand a contract before embarking
on a project. Before we go into detail of each standard form of contract, however, we need to
understand the term ‘reasonable’. This term is used in each of the conditions of contract.

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6 | Introduction

Chief Justice Watermeyer, in the 1950 case of Vanderbijlpark Health Committee v Wilson, said:
“Reasonableness means considering the matter as a reasonable man normally would and
then deciding as a reasonable man normally would decide.”

Each person in the project team may have a different interpretation of “reasonableness”
or “reasonable time”. Therefore, it is recommended that, where possible, a definition
and/or specified time should be given in the contract to avoid any disputes regarding this
term.

What we have learnt is that a good contract is worth a fortune. It saves nerves
and makes for a pleasant project.

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 Contract Comparison & Distinguishing Features | 7

Lesson 1:
Contract Comparison &
Distinguishing Features
While it is possible to highlight some individual differences and similarities, it is important to
keep in mind that the overall approach to each contract differs greatly, making comparison a
difficult task. For example, the NEC3 philosophy to contracting contracts differs significantly to
that of FIDIC, JBCC and GCC.

For these reasons we have divided the distinguishing features into:

`` Language and Drafting;
`` Structure;
`` Risk;
`` Options.

Language and Drafting

For most contractual personnel the language used in contracts can be confusing and alienating.
The drafters of contracts continually debate the best method of drafting contracts to make them
more accessible to all people. The four different contracts are clear in drafting techniques and
their varying approaches are taken into consideration below.
`` The JBCC, GCC and FIDIC contracts use traditional drafting techniques and a fair amount of
legal jargon. NEC3, unlike the other three, is written in what is termed “plain English”. It
is written in the present tense and uses the word “shall” only once. The intention was to
make the NEC3 Contract more accessible to contractual personnel, however, many think
that the move to “plain English” has made the contract harder to read and understand.
`` JBCC and FIDIC contain numerous clauses that cross reference to other clauses in the
contract. Readers are continuously following a trail of clauses through the whole contract.
Under NEC3 there is no cross referencing. GCC contains minimal cross-referencing.
`` Both NEC3 and FIDIC are drafted under English law and use English terminology. JBCC and
GCC are drafted according to SA law.
`` NEC3 and FIDIC contain charts and guidance notes to assist the reader, and GCC offers a
Management Guide.
`` NEC3, FIDIC and GCC are suited to all types of projects. JBCC is mainly suited to building
projects.

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8 | Contract Comparison & Distinguishing Features

`` Although there is a family of various documents, NEC3 has one main book with core
clauses, and main and secondary option clauses to suit the project. JBCC has separate
books for agreement and data as well as each contract option, while FIDIC has separate
books for each contract option. GCC has one book only.

NEC3 JBCC FIDIC GCC

Drafted in plain Uses traditional Uses traditional Uses traditional

English in the present drafting techniques drafting techniques drafting techniques
tense. with a moderate with a moderate with a moderate
amount of legal amount of legal amount of legal
jargon. jargon. jargon.

No cross-referencing. Numerous clauses Numerous clauses Minimal amount of

which cross-reference which cross-reference cross-referencing.
to other clauses in the to other clauses in the
contract. contract.

Drafted under English Drafted according to Drafted under English Drafted according to
Law. South African Law. Law. South African Law.

Charts and guidance Charts and guidance Charts and guidance

notes to assist in notes to assist in notes to assist
clarification. clarification. in clarification
Management Guide.

All projects. Building projects. All projects. All projects.

One main book Separate books Separation of books One main book.
although there is for agreement and for each option.
a family of various data as well as each
documents, with core contract option.
clauses, and main
and secondary option
clauses to suit the
project.

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 Contract Comparison & Distinguishing Features | 9

Structure

NEC3 JBCC FIDIC GCC

9 core clauses 9 Sections including 20 Clauses in the long 10 Clauses.

common within all schedule of variables. form contracts and
the different contract 15 Clauses only in the
options. Short Form contract.

Short form for simpler Minor works Short form for simpler
projects. agreement for simpler projects.
projects.

Can arrange to employer design. Red Book: Design by Design by Employer

suit Employer or the Employer. or Contractor.
Contractor design.
Yellow, Silver and
Gold: Design by the
Contractor.

Risk

NEC3 JBCC FIDIC GCC

Wide range Risk carried Red: Yellow: Silver: Risk carried

of contract by party best by party best
Employer Contractor Contractor
strategy risk suited to deal suited to deal
carries most carries most carries
allocation. with it. with it.
risk. risk, Employer virtually all
Employer carries some. risk.
pays for effect
of certain
risks.

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10 | Contract Comparison & Distinguishing Features

This Chart helps us to understand the balance of risk allocation across the different contract
options.

Cost Plus contract options, where the Contractor is paid for all his costs as and when they occur,
place more risks on the Employer.

Re-measurable contract options, where the Bill of Quantities are re-measured and agreed upon
per the actual final construction, spread risks equally between the Contractor and the Employer.

If the Employer is willing to pay more so that the Contractor carries more risks, the EPC or
Turnkey type of contract would be the best option. FIDIC and NEC3 both provide the option for
this type of contract.

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 Contract Comparison & Distinguishing Features | 11

Options

NEC3 JBCC FIDIC GCC

6 ECC Options Based on traditional Books: Based on traditional

administration administration
A: Priced contract with • Green – Minor
and management and management
activity schedule Works
of construction of construction
B: Priced contract with contracts. • Red – Construction; contracts.
Bill of Quantities Employer Design
Can be used with Contracts in
C: Target contract with or without Bills or • Pink – allows for lower region of
activity schedule Quantities. financial “lender” to Contractor’s grading.
be part of contract
D: Target contract Includes complete Emphasis on
with Bill of Contract Data forms. • Yellow – Plant community-based
Quantities and Design-Build; and labour intensive
Contractor Design projects.
E: Cost reimbursable
contract • Silver – EPC/Turnkey Broad Risk
F: Management • Gold – Design-Build- appropriation.
contract Operate

Can arrange to Employer design Red Book: Design by Design by Employer.

suit Employer or the Employer.
Contractor design.
Yellow, Silver and
Gold: Design by the
Contractor.

Projects: Projects: Five possible standard Projects:

contracts for Civil
Infrastructure; Building Work. Building;
Engineering and
Building Work; Construction Works, Engineering.
Engineering Work. depending on the
type of project

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12 | Contract Comparison & Distinguishing Features

NEC 3
The Engineering and Construction Contract comes with the following options:
`` A: Priced contract with activity schedule;
`` B: Priced contract with Bill of Quantities;
`` D: Target contract with activity schedule;
`` E: Cost Reimbursable contract;
`` F: Management Contract.

Engineering and Construction Contract Projects could involve Infrastructure; Building Work and
Engineering Work.

JBCC
The JBCC Standard Form will either use the Principal Agreement 5.0 or Principal Agreement 6.1.

Principal Agreement 5.0

The JBCC Principal Agreement 5.0 is based on the traditional administration and management
of contracts. It is designed by the Employer and can be used with or without a Bill of Quantities.
The Principal Agreement 5.0 includes the complete Contract Data Forms and used in Building
Projects.

Principal Agreement 6.1

The JBCC Principal Agreement 6.1 is also based on the traditional administration and
management of contracts. As with Principal Agreement 5.0 it is designed by the employer
and can be used with or without a Bill of Quantities. The Principal Agreement 6.1 includes the
complete Contract Data Forms and is used in Building Projects.

FIDIC
FIDIC has 5 possible Standard Contracts for Civil Engineering and Construction Works, depending
on the type of project:
`` The Green book is for Minor Works;
`` The Red book is for Construction of Works Designed by the Employer;
`` The Yellow book is for Plant and Design-Build For works Designed by the Contractor;
`` The Silver book is for EPC or Turnkey contracts;
`` The Gold book is for Design-Build-Operate projects.

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 Contract Comparison & Distinguishing Features | 13

In 2010, the ‘MDB Harmonised Edition’, or Pink book, was added to the FIDIC family. The Pink
book is essentially a Red book with additional or changed clauses. It allows the Employer to
design, the Contractor to construct, and also allows for a ‘lender’ to be part of the contract. This
could be any financial institution, such as the World Bank, which will provide the money for the
project.

What are some differences between the Red and Pink books?

In the Pink book, the phrase “Appendix to Tender” becomes “Contract Data” and “DAB”, or
Dispute Adjudication Board, becomes “DB”, or Dispute Board.

Additional wordings include “Bank”, “Borrower” and “Inspections and Audit by the bank” to
allow for the financial institution providing funds for the project to be a part of the contract.

Notice of Employer’s claims must now be given within 28 days of the Employer’s becoming
aware of the claim.

Some conditions have been added which require the Engineer to obtain approval of the
Employer.

The period for notification of the replacement of the Engineer is changed from 42 days to 21
days.

Contractor’s Equipment is exempt from import duties and taxes.

Changed Clauses include:

1.12 “ Confidential details”: The Employer retains copyright and intellectual property rights in
documents made by or on behalf of the Employer
8.1 “Commencement of Works”: A list of conditions to be fulfilled before commencement
14.2 “Advance Payment re-payment”: Re-payment commences when certified interim
payment exceeds 30% of the Accepted Contract Amount, less Provisional Sums.
Deductions are at the amortization rate stated in the Contract Data.
14.7 “Payment”: It has been added that payment could be at a time when the Bank’s loan or
credit is suspended
14.9 “Payment of Retention Money”: Proportion of retention paid when Taking-Over
Certificate is issued at 50%

Among others, various changes to conditions under clause 20 involving the Dispute Board and
Arbitration.

A Schedule of Payment Currencies has been added to Sub-Clause 14.15

Two additional sub-clauses have been added:

15.6 “Corrupt or Fraudulent Practices”; and
17.7 “ Use of Employer’s Accommodation or Facilities”

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14 | Contract Comparison & Distinguishing Features

Current FIDIC Contracts

“FIDIC Short Form of Contract (Green Book, 1st Edition 1999)

The FIDIC Short Form of Contract (Green Book, 1st Edition 1999) has been prepared with short
sentences and simple straightforward language, and is suitable when the work is uncomplicated
and the parties do not wish the complexities of the forms for major Works. The Short Form
General Conditions are only ten pages in length and the simple language assists easy translation.
It is recommended for building or engineering Works of relatively small capital value and/or
short construction time. Depending upon the type of work and the circumstances, this form
may also be suitable for Contracts of greater value, particularly for relatively simple or repetitive
work.”

FIDIC Construction Contract (1999 Red Book, 1st Edition 1999)

Larger and more complex than minor Works projects, traditional construction projects involve
civil engineering and building Works required by an Employer who, unless he carries out the
design inhouse, would normally commission a consulting Engineer to design the Works. It is to
be noted that traditional construction projects often also include some elements of Contractor
designed civil, electrical or mechanical engineering work.

Plant and Design-Build Contract (1999 Yellow Book, 1st Edition 1999)

Electrical and Mechanical Plant Designed by the Contractor

Contracts for the supply and installation of Plant and equipment, as opposed to civil Works
construction, involve the design, manufacture, supply, installation and commissioning of
specially engineered Plant and equipment.

Larger and more complex than minor Works projects, traditional Plant projects involve the
design, manufacture, delivery, erection, testing and commissioning of mechanical and electrical
Plant by a Contractor to an outline or performance Specification prepared by the Employer. If
these arrangements suit the Employer’s Requirements, FIDIC recommends the use of the FIDIC
Conditions of Contract for Plant and DesignBuild for Electrical and Mechanical Plant, and for
Building and Engineering Works designed by the Contractor, commonly known as the “Plant and
DesignBuild Contract” or the “1999 Yellow Book”.

EPC/Turnkey Contract (1999 Silver Book, 1st Edition 1999)

In recent years there is a need for Contract forms where the emphasis is on a fixed final price
and time as an alternative to the traditional forms where the final price and time are somewhat
variable.

Also owners, investors and developers, who do not have their own technical staff capable of
designing the facility in question or who do not wish to take the responsibility of designing
their own facility, go directly to suitable Contractors to design and construct their project on a
“turnkey” basis.

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 Contract Comparison & Distinguishing Features | 15

Some also believe that the total implementation time can be shortened if the design work is
carried out by the Contractor during the early stages of the Contract, eg. partly in parallel with
his mobilisation work.

The Specification provided by the Employer will be a performance type Specification, ie. defining
the output and performance to be achieved by the facility with very little, if any, detailed
requirements.

However, turnkey projects do also include the whole range of projects from those with
minimum Specification by the Employer right through to those with very detailed and complex
requirements being specified by the Employer.

Normally the majority of the design in a turnkey project is carried out by the Contractor but, on
occasion, a substantial part of the design is provided to the Contractor by the Employer. The
term “turnkey” can perhaps be said to be more used in Europe while the substantially equivalent
term used in the US and elsewhere is “EPC”, meaning “EngineerProcureConstruct”.

Design, Build and Operate Contract (2008 Gold Book, 1st Edition)

The Design-Build-Operate (“DBO”) approach to contracting combines long term operation

and maintenance of a facility into one single Contract awarded to a single Contractor. The
Contractor will usually be a joint venture or consortium representing all the skills called for in a
DBO arrangement.

The Contractor will be responsible, not merely for providing the facility, but in fact for providing
a lasting service. The Contractor will be encouraged to provide a facility of good quality in all
respects, otherwise he will suffer during the operation period by way of heavy maintenance,
repair and replacement Costs.

FIDIC has chosen to adopt the green-field DBO, with a twenty year operation period, and
has selected the single Contract awarded to a single contracting entity (which will almost
certainly be a consortium or joint venture) to optimise the coordination of innovation, quality
and performance, rather than award separate Contracts for designbuild and for operation.
The Contractor has no responsibility for financing the project nor for its ultimate commercial
success.

The DBO Contract is recommended for general use where Tenders are invited on an
international basis. – FIDIC Contracts a Practical Guide”

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16 | Contract Comparison & Distinguishing Features

GCC
GCC is based on traditional administration and management of construction contracts. Design is
by the Employer.

Contracts are in the lower region of Contractor’s grading with emphasis on community-based
and labour intensive projects.

Risk appropriation falls across the full range of complexities.

Projects could involve Building or Engineering work. Engineering work could include civil,
mechanical and electrical work.

Differences between GCC 2010 and GCC

The 2015 edition of GCC contains adjustments to some clauses from the 2010 edition. You can
see a complete table of changes below.

Comparing Construction Contracts

 Clause number GCC 2010 GCC
All “Engineer” Employer’s Agent.
1.1.1.17 “Engineer’s Employer’s Agent’s Representative.
Representative”
1.1.1.22 “Permanent Means the permanent works to be designed (if required), constructed, and/or provided
Works” definition: in accordance with the Contract.
means the
permanent works
to be constructed
in accordance
with the Contract.
1.3.5 “legally” added: “The Contractor shall legally be deemed to have given the Employer
a non-terminable, transferable, non-exclusive, royalty-free licence to copy, use and
Contractor’s copyright.
communicate the Contractor’s documents…”
1.3.6 New clause:
Employer’s copyright. Employer’s copyright;
Same rights per clause 1.3.5 (Contractor’s copyright) now given to the Employer.
2.1.2 “And examined” and “(as far as is reasonable)” added:
Inspection of the Site. “The Contractor shall be deemed to have inspected and examined the Site and its
surroundings and to have studied all available information pertaining thereto before
submitting his tender (as far as is reasonable).”
2.1.3 “(as far as is reasonable)” added:
Obtaining information. “The Contractor shall, in general, be deemed to have obtained all available information
Contract Comparison & Distinguishing Features |

on risks, contingencies and all other circumstances which may influence or affect the
Works (as far as is reasonable).”
2.2.4 Replace “deemed to be covered” with “regarded as covered”.

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17

Contractor’s right to claim.

 18

4.1.1 Replace “execute” with “carry out”.

Extent of Contractor’s
obligations.
4.1.2 Add “or part of the Permanent Works”:
Contractor’s liability for own “Where the Contract expressly provides that the Permanent Works, or part of the
design errors. Permanent Works shall be designed by the Contractor…”
4.4.2 New clause, and changed subsequent clause numbers.

Comparing Construction Contracts

Subcontractor to be approved. “…the Contractor shall not subcontract any part of the Contract without the prior
written consent of the Employer’s Agent…”

4.9.1 Add “regarded”:

Prohibition on removal of “All Construction Equipment provided by the Contractor shall, when brought onto the
Construction Equipment. Site, be regarded as exclusively intended for the execution of the Works…”
| Contract Comparison & Distinguishing Features

4.12.2 Contractor’s Site Construction Manager

Agent
Construction Manager.
5.6.2 Replace “statements” with “detail”:
Contents of the programme. “The initial programme and all subsequent adjusted programmes shall show and, when
relevant describe in detail, the entire extent of the work…”
5.6.2.4 Add “including float and the Contractor’s time risk allowances” at end of sentence:
Contents of the programme. “The events that influence the carrying out of the Works, including float and the
Contractor’s time risk allowances”
5.6.4 Add “and/or cash flow forecast”:
Review and adjustment of the “If so instructed by the Employer’s Agent, the approved programme and/or cash flow
programme. forecast shall be adjusted by the Contractor”
 5.7.1 If rate of progress If rate of progress of the Works fall behind the Employer’s Agent now may notify the
of the Works Contractor in writing.
Rate of progress.
fall behind the
If there is no approved programme the Employer’s Agent shall make his own
Engineer shall
assessment.
make his own
assessment
and notify the
Contractor in
writing.
5.7.2 Add “shall be deducted by the Employer’s Agent from the Contract Price”:
Night work. “In such an event the proven additional attendance cost incurred by the Employer’s
Agent or the Employer in acceding to the Contractor’s request, shall be deducted by the
Employer’s Agent from the Contract Price”
5.11.1 Replace clause with 5.11.1 to 5.11.3 and re-number clauses:
Suspension of the Works by “The Contractor may, after giving fourteen days’ written notice to the Employer, with a
Contractor. copy to the Employer’s Agent suspend the progress of the Works where the Employer’s
Agent or the Employer has failed in terms of Clause 5.10.4 (Delivery, dissatisfaction with
and payment of payment certificate) to
Deliver a payment certificate or;
Make full payment of the amount certified.”
5.11.2 Contractor shall on the written order of the Employer’s Agent stating the cause for
suspension, suspend the progress of the Works, or any part thereof, for such time or
Suspension of the Works by
times and in such manner as the Employer’s Agent shall order.
Employer’s Agent.
5.11.3 During the suspension, the Contractor shall properly protect the Works as far as is
Contract Comparison & Distinguishing Features |

necessary.
Protection of the Works during
suspension.

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19
 20

5.11.4 Was clause 5.11.2

Claim as a consequence of
suspension.
5.11.5 New clause and re-number further:
Proceeding with the Works “If full payment is received of amount certified in payment certificate, the Contractor
after payment. shall proceed with the Works within 7 days of receiving such full payment.
If payment is not received within 84 days following Employer’s receipt of written notice

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of suspension, the Contractor may treat the non-payment as a repudiation of the
Contract, Clause 9.3 shall apply.”
5.14.1 Contractor Certificate of Practical Completion are issued when the Works have been completed to
is entitled to the requirements for achieving Practical Completion as set out in the Contract Data.
Practical Completion.
receive Certificate
Replace “deemed to have been achieved” with “taken as achieved”.
of Practical
Completion when Add “or, if a penalty is imposed in terms of Clause 5.13, on expiry of the 14 days” when
the Works have Employer’s Agent do not issue list within 14 days.
| Contract Comparison & Distinguishing Features

reached Practical
Completion.
5.14.3.1 Replace “deemed to have been completed” with “considered completed”.
Consequences of Practical
Completion.
6.2.2 Add “legally” and “without limiting the Employer’s right to terminate the Contract in
terms of Clause 9.2”:
Contractor failing to select or
provide security. “It shall legally be deemed that the Contractor has selected a security of ten per cent
retention of the value of the Works without limiting the Employer’s right to terminate
the Contract in terms of Clause 9.2.”
 6.2.3 Replace “14 days prior to the expiry date, the Contractor shall extend the validity...”
with “28 days prior to the expiry date”.
Validity of performance
guarantee.
6.3.1.2 Add “provided it is not to be carried out by someone else”:
Variations “…Omit any such work, provided it is not to be carried out by someone else”.
6.4.1.1 Replace “executed” with “carried out”.
Valuation of variations.
6.5.1.2.2 Add “in the completed work”:
Basis of payment for dayworks. “The net cost of the materials actually used in the completed work”
6.5.1.2.3 Add “in respect of the said remuneration of workmen and the cost of materials”:
Basis of payment for dayworks. “The percentage allowances stated in the Contract Data, in respect of the said
remuneration of workmen and the cost of materials which allowances shall be held to
cover all charged for the Contractor’s and subcontractor’s profit, timekeeping…”
6.8.4 Add “is amended”:
Subsequent changes in “If at any time within 28 days before the closing date for tenders or thereafter, any Act
legislation. of Parliament, Ordinance, Regulation or By-law of any local or other statutory authority
is amended and this results in additional or reduced cost to the Contractor…”
6.9.1.2 Add “legally”:
Vesting of Plant and materials. “...shall, immediately on delivery to the Site or, in the case of Plant and materials not
on the Site, immediately on the conclusion of the said written agreement, legally be
deemed to have become the Employer’s property…”
6.9.2 Replace “plant” with “fixtures”.
Contract Comparison & Distinguishing Features |

Definition of “materials”.

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21
 22

6.10.6.2 Add “compounded monthly”:

Wet-off and delayed payments. “In the event of failure by the Employer to make the payment by the due date, he shall
pay to the Contractor interest, at the prime overdraft rate charged by the Contractor’s
Bank, compounded monthly, on all overdue payments…”
8.1.2 Replace “execution of the Works” with “carrying out the Works”
Pollution prevention and
interferences.

Comparing Construction Contracts

8.3.1.1 Add additional clauses as excepted risks such as “imposition of economic sanctions
between governments”, “acts of terrorism or civil war”, “etc.
Excepted risks.
8.3.2 New clause
Claim for excepted risks. “If excepted risks causes Contractor to suffer delay and/or brings about proven
additional costs, the Contractor is entitled to make a claim per Clause 10.1”.
9.1.1 Outbreak of Name change to “Termination due to external events”.
| Contract Comparison & Distinguishing Features

war, hostilities,
Termination due to external Clause 8.3.1.1 is now referred to as “Reasons to terminate the Contract”.
sanctions, etc.
events.
9.1.2 State of Name change to “Termination due to internal events”.
emergency
Termination due to internal Risks set out in Clauses 8.3.1.2 – 8.3.1.5 now referred to as “Reasons to terminate”.
events.
10.3.1.1 Replace “unresolved claim” with “rejected claim”.
Dispute notice.
10.5.1 New clause
Implementation of decision. “The parties shall implement the Adjudication Board’s decision without delay whether
or not the dispute is to be referred to arbitration or court proceedings”.
 Structure | 23

Lesson 2:
Structure

NEC3

NEC3 Structure

The information in the Contract Data will depend on which option is used.

The NEC3 Black Book is structured into six sections:

1. Section 1 – Form of Agreement;
2. Section – Contract Data (Part 1) – Data Provided by the Employer;
3. Section 3 – Contract Data (Part 2) – Data Provided by the Contractor;
4. Section 4 – Prices;
5. Section 5 – Works Information;
6. Section 6 – Site Information.

NEC3 Essential Documents

NEC3 Essential Documents to be included in the contract document as a minimum are as

follows:

Section 1: Form of Agreement

A Form of Agreement, signed by both parties, needs to be incorporated. A sample of the Form
of Agreement is on page 144 of the Professional Services Contract – Guidance notes and flow
charts.
The Form of Agreement is the record of the Agreement between the Parties for the
execution of the Contract.

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24 | Structure

Section 2: Contract Data (Part 1)

Section 2 contains data provided by the Employer. Details of this Contract Data can be found on
page 61 of the Black book. The Contract Data is the information given by the Employer to the
tenderers and subsequently to the Contractor which tells the Contractor all about the intended
Works.

It included such things as the Employer’s name and contact details, where the project is
situated, how long the Contractor will have to complete the Works and will generally include
other information such as geotechnical reports, rainfall data and the name of the Project
Manager.

The Contract Data will also confirm the starting date and access date(s).

The Contract Data will also include the specification.

Section 3: Contract Data (Part 2)

Section 3 contains data provided by the Contractor. Details of this Contract Data can be found on
page 70 of the Black Book.

This data will tell the Employer about the Contractor and will include such information as the
official contact details of the Contractor, the key people the Contractor intends to employ as well
as the fee percentage.

Section 4: Prices

In Section 4 of the contract document, the Bill of Quantities or Activity Schedule (whichever
applies) needs to be included.

Section 5: Works Information.

In Section 5 of the contract document, Works Information pertaining to the specific project must
be given and should include, as a minimum, the following items:
`` A Description of the Work;
`` A description of any design to be done by the Contractor;
`` Limitations for using the Contractor’s designs;
`` Statement of other Contractor’s in Working Areas;
`` Health and Safety requirements;
`` Security requirements;
`` Environmental requirements;
`` Order and timing of the work;
`` Key dates;

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 Structure | 25

`` A list of tests and inspections of the work;

`` A List of samples of material to be provided.

Section 6: Site information

In Section 6 of the contract document, Site Information pertaining to the specific project must
be given and should include the following items:
`` A Description of the site;
`` A Statement of constraints limiting how the Contractor provides the Works.

Z Clauses

When it is necessary to add additional clauses to the NEC3 standard conditions, Z clauses can be
created. They should be numbered as Z1, Z2, etc.

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26 | Structure

JBCC

JBCC Structure

The JBCC Contract is structured into four main sections:

`` Section 1: Form and offer of acceptance;
`` Section 2: Contract Data;
`` Section 3: Bill of Quantities;
`` Section 4: Scope of Work.

JBCC Essential Documents

Section 1: Form and Offer of Acceptance

In Section 1 of the contract document, a Form of Offer and Acceptance needs to be included.

Section 2: Contract Data

A separate printed Contract Data document must be included in Section 2. This document needs
to be completed with information pertaining to the specific project.

Section 3: Bill of Quantities

Section 3 contains the Bill of Quantities.

Section 4: Scope of Work

Section 4 defines the Scope of the Work, as well as any specifications.

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 Structure | 27

FIDIC

FIDIC Structure

FIDIC Contracts are structured into 5 main sections:

Section 1: Contract and Conditions of Contract;
Section 2: Employers Requirements (Only for Yellow, Silver and Gold Books);
Section 3: Returnable Schedules;
Section 4: Pro-formas and Appendices;
Section 5: Bill of Quantities.

FIDIC Essential Documents

Section 1: Contract and Conditions of Contract

Essential documents to be included in Section 1 are the Contract and Conditions of Contract.

The Contract comprises of

(a) The Contract Agreement (if any);
(b) The Letter of Acceptance;
(c) The Letter of Tender;
(d) The Particular Conditions;
(e) The General Conditions;
(f) The Specification;
(g) The Drawings; and
(h) The Schedules and any other documents forming part of the Contract.

Section 2: Employer’s Requirements (Only Yellow, Silver and Gold Books)

Section 2 lists Employer’s Requirements in the Yellow, Silver, and Gold Books.

The Contractor designs and builds the Works according to the Employer’s Requirements.

Section 3: Returnable Schedules

Section 3 is for any Returnable Schedules, such as:

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28 | Structure

`` Labour histogrammes;
`` Daywork rates;
`` Insurance details.

Section 4: Pro-formas and Appendices

In Section 4, any pro-formas, such as wording of performance security, etc. must be included.
Any Appendices, such as one containing health and safety information, also need to be inserted
in this section.

Section 5: Bill of Quantities

Section 5 includes the Bill of Quantities.

Each of the 1999 FIDIC Contract documents includes:

`` General Conditions (first part);
`` Guidance for the Preparation of the Particular Conditions (second part);
`` Forms (third part), eg. Letter of Tender, Contract Agreement and Dispute Adjudication
Agreements.

General Conditions

The General Conditions are intended to be used unchanged for every project, but some
Employers have reprinted their own versions of the General Conditions, with changes to suit
their own requirements.

In each of the 1999 Editions, the General Conditions comprise twenty clauses, covering similar
subject matter in the Red (Construction), Yellow (Plant) and Silver (EPC) books, with the
exception of clauses 3, 5, and 12. The twenty clauses are in reality chapters covering major
topics by numerous sub-clauses.

Particular Conditions

The Particular Conditions are prepared for the particular project to include any changes or
additional clauses to suit the local and project requirements.

The Particular Conditions consist of two parts:

`` The Appendix to Tender or Contract Data;
`` The Special Provisions (where a clause in the General Conditions is amended).

The Appendix to Tender gives essential project information, such as the language of the
contract, and percentage of retention money. Some of this information must be completed by
the Employer before issuing the Tender Documents, together with some information which
must be added by the Tenderer. X TO TENDER

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 Structure | 29

Guidance for the Preparation of the Particular Conditions

The guidance is for those preparing the Particular Conditions and (to a limited extent) those
preparing the other documents for issue to tenderers. Some example texts are included,
although much less than were published in the 1987 Red Book.

Forms

Forms include:
`` The Letter of Tender;
`` The Contract Agreement;
`` Dispute Adjudication Agreements.

GCC

GCC Structure

The GCC Contract is structured into 6 main sections.

Section 1: Form of Offer and Acceptance;
Section 2: Contract Data – Part 1: Data provided by the Employer;
Section 3: Contract Data – Part 2: Data provided by the Contractor;
Section 4: Bill of Quantities;
Section 5: Scope of Work;
Section 6: Site information.

GCC Essential Documents

Section 1: Form of Offer and Acceptance

Section 1 contains the Form of Offer and Acceptance.

Section 2: Contract Data (Part 1) – Data Provided by the Employer

Section 2 – Contract Data (Part 1) - includes Data provided by the Employer. Details of this data
can be found on page 103 of the conditions of contract.

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30 | Structure

Section 3: Contract Data (Part 1) – Data Provided by the Contractor

Section 3 – Contract Data (Part 2) – includes Data Provided by the Contractor. Details of this
contract data can be found on page 108.

Section 4: Bill of Quantities

Section 4 includes the Bill of Quantities.

Section 5: Scope of Work

Section 5 contains:
`` The Scope of the Work;
`` Applicable specifications.

Section 6: Site Information

All information pertaining to the site such as access restrictions, ablution facilities, etc. needs to
be included in Section 6. This section must contain:
`` A Description of the site;
`` A Statement of constraints limiting how the Contractor provides the Works.

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 Parties & Role Players | 31

Lesson 3:
Parties & Role Players

Parties and Role Players: Overview

NEC3 JBCC FIDIC GCC
Parties named in the Parties named in the Parties named in the Parties named in the
Contract Data. Contract Data. Appendix to Tender. Contract Data.
The Contractor’s key The contractor has a Red & Yellow The Contractor’s
person is named in Site Representative to Books: Contractor’s Construction
the Contract Data. administer and control Representative to Manager, approved by
the works. act on behalf of the the Employer’s Agent
Contractor. to represent the
Contractor.
Includes Includes domestic, Includes Domestic Includes
Subcontractors only. selected, or and Nominated Subcontractors;
nominated Subcontractors. can be selected in
subcontractors. consultation with
Employer.
The Employer The employer The Employer The Employer
appoints Project appoints Principal appoints Engineer to appoints Employer’s
Manager to manage Agent to act and to [frequently design Agent to manage the
project and the bind employer. and] manage the project.
Supervisor for overall project.
Quality Assurance. An Employer’s Agent’s
Red & Yellow Books: Representative is
The Engineer may appointed by the
assign duties to Employer’s Agent.
Engineer’s Assistant.
Silver book:
Engineer replaced
by Employer’s
Representative.

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32 | Parties & Role Players

Designer may be The employer Red Book: Designer Design may be by the
appointed by the appoints professional is the Engineer or Employer’s Agent, the
Employer to design team or contractor another party is Contractor, or another
the Works. The for the design of the appointed by the party.
Employer may appoint works. Employer to design
Designer to design the and manage the
Works project.

Yellow & Silver

books: Contractor
responsible for design.
The Project Before determination The Engineer must The Employer’s Agent
Manager assesses the principal agent consult with each gives rulings after
compensation events. is obliged to consult Party to reach consultation with the
with parties. agreement, otherwise Parties.
make a reasoned
determination.

Parties to the Contract

In each of the contract conditions, there are two main parties who are signatories to the
contract and bound by the contract, these are the Employer and the Contractor. Each has
obligations, duties and rights towards one another under the contract. In all cases, the Employer
is named Employer and the Contractor is named the Contractor. The contract assumes that
both parties fulfil the duties and obligations assigned to them.

There are other role players to the contract which include the person or body entrusted with
the administration of the contract, his/her assistant, the body or person entrusted with design
of the project, and various subcontractors, falling under control of the Contractor. These parties
and role players are common to all four contracts, however their responsibilities differ.

Dispute resolution for all the contracts is by means of adjudication as prescribed by the CIDB.

The Adjudicator is either named in the contract documentation, or agreed by both parties,
failing which the Adjudicator will be appointed by a nominated body such as the Association of
Arbitrators South Africa.

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 Parties & Role Players | 33

NEC3
The parties to the contract are the Employer and the Contractor, both signatories to the
Contract.

A Project Manager (which could be a person or a body, ie. a juristic person) is appointed by the
Employer to handle all the administration of the contract. Any party can be appointed by the
Employer to perform design duties.

The Project Manager can be an independent 3rd party or it can be someone from the
Employer’s organisation.

A Supervisor is appointed by the Employer to handle all the site activities such as supervisory of
tests, etc.

JBCC
The parties to the contract are the employer and the contractor, both signatories to the
contract.

A principal agent is appointed by the employer for the administration of the project. The
principal agent can be a person or entity appointed by the employer and has full authority and
obligation to act in terms of the construction contracts.

The principal agent is named in the contract data. The employer may appoint other agents to
deal with specific aspects of work, however, only the principal agent can issue instructions on
behalf of the Employer.

The employer is responsible for the design of the works, and may appoint a professional team
or contractor (usually reporting to the Principal Agent) for this purpose.

FIDIC
Once a contract is placed with a Contractor, the promoter or developer of a project is called an
“Employer”, and the consulting Engineer is referred to as the “Engineer”, and is appointed to
Monitor, Administrate, Supervise and Certify.

The Engineer is appointed by the Employer for the administration of the Contract and plays an
important role in the Employers team. An Engineer may delegate certain duties to an assistant,
if required. The Red and Yellow Books provide for both of these. In the EPC/Turnkey Contract
Clause 2 deals with the Employer’s Administration and Employer’s Representative takes the
place of the Engineer.

The Engineer may delegate all duties but not “Determinations” as called for in Sub-clause 3.5.

The Employer may also commission the Engineer, or another party, to undertake the design.
FIDIC also provides for design to be done by the Contractor, as in the Yellow (Design Build) or
Silver (EPC) books.

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34 | Parties & Role Players

The Engineer or Employer’s Representative is named in the Appendix to Tender (or Contract
Data) so that tenderers know, when preparing their tenders, who the Employer is intending to
appoint. Whoever he appoints must have a clear understanding of his role which is to “act for
the Employer” and in the best interests of the Employer, but at the same time, he must act with
fairness and integrity when making Determinations.

The Contractor appoints a Contractor’s Representative to represent him on the day to day
running of the site. The Contractor must have the Employer’s Representative’s Consent
before commencing duties. It is not intended that this person is changed or replaced, but if
this is necessary, then a replacement must be appointed, subject again to the consent of the
Employer’s Representative.

Some jurisdictions require the Contractor’s Representative to possess a licence or specific

experience. If so, the Particular Conditions must incorporate these additional requirements.

For example, on a contract comprising of electrical installations, the Contractor’s Representative

may have to have a Government Certificate of Competency in Electrical Engineering.

GCC
The parties to the Contract are the Employer and the Contractor, both signatories to the
Contract.

An Employer’s Agent is appointed by the Employer for the administration of the project. The
Employer’s Agent can be a person or entity appointed by the Employer and has full authority
and obligation to act in terms of the construction contract.

The Employer’s Agent may appoint an Employer’s Agent’s Representative (who must be a
natural person) to assist him, if required – sometimes referred to as the Resident Engineer.

The Employer may appoint the Employer’s Agent, or another party, to perform design duties.
GCC also provides for design to be done by the Contractor.

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 Parties & Role Players | 35

Duties and obligations of the parties

The Employer
NEC3

Access to and use of Site (Clause 33.1):

The Employer must allow access and use of each part of the Site to the Contractor. Access and
use is allowed on or before the later of its access date and the date for access shown on the
Accepted Programme.

Clause 33.1 “The Employer allows access to and use of each part of the Site to the Contractor
which is necessary for the work included in the contract. Access and use is allowed on or before
the later of its access date and the date for access shown on the Accepted Programme”.

Employer’s Risk (Clause 80.1)

The following are Employer’s Risks:

`` Claims, proceedings, compensation and costs due to:
ƒƒ Use or occupation of the Site unavoidable as a result of the Works;
ƒƒ Negligence, breach of statutory duty or interference with any legal right by the Employer
or his employees;
ƒƒ A fault of the Employer or a fault of his design.
`` Loss of or damage to Plant and Materials supplied to the Contractor by the Employer;
`` Loss of or damage to works, Plant and Materials due to:
ƒƒ War, rebellion, revolution, etc;
ƒƒ Strikes, riots, etc. not confined to the Contractor’s employees or;
ƒƒ Radioactive contamination.
`` Loss of or wear or damage to parts of the works taken over by the Employer except due to
damage occurring before the issue of Defects Certificate) which is due to:
ƒƒ A defect which existed at take over;
ƒƒ An event occurring before take over which was not an Employer’s risks or;
ƒƒ Activities of the Contractor on the Site after take-over.
`` Loss of or wear or damage to Works and any Equipment, Plant and Materials retained on
Site by Employer after a termination, except loss, wear or damage due to the activities of
the Contractor on Site after termination;
`` Additional Employer’s risks stated in the Contract Data.

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36 | Parties & Role Players

Insurance (Clause 87.1):

The Project Manager submits policies and certificates for insurances provided by the Employer
before the starting date for acceptance by the Contractor. The Contractor’s acceptance does not
change the responsibility of the Employer.

The Contractor may insure a risk if the Employer does not submit a required policy or certificate.
Cost to be paid by the Employer.

Clause 87.1 “The Project Manager submits policies and certificates for insurances and provided
by the Employer to the Contractor for acceptance before the starting date and afterwards as the
Contractor instructs. The Contractor accepts the policies and certificates if they comply with
this contract.”

JBCC

Indemnities (Clause 9.2):

`` The employer indemnifies the contractor harmless from all claims, damages, expense and/
or loss from:
ƒƒ Act or omission of the employer;
ƒƒ Act or omission of a direct contractor;
ƒƒ Design of the works where the contractor is not responsible for such design;
ƒƒ Use or occupation of any part of the works by the employer;
ƒƒ Proceeding with works on instruction from the employer without the employer
obtaining required permission under the law;
ƒƒ Interference with any servitude or other right not depicted in construction information
including removal of or weakening of or interference with support of land and property
adjacent to site unless resulting from negligent act or omission by the contractor;
ƒƒ Physical loss or damage to existing structure and contents where agreement is for
alterations or additions to existing structure;
ƒƒ Defect in free issue.
ƒƒ Physical loss or damage to works where practical completion has been certified or
deemed to have been achieved;
ƒƒ Advance payments certified and paid by the contractor to subcontractors;

Security (Clause 11.4):

`` employer shall:

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 Parties & Role Players | 37

ƒƒ Provide Guarantee for Payment where required within 15 working days of acceptance of
contractor’s offer;
ƒƒ Keep Guarantee for Payment valid and enforceable in terms of security form and provide
replacement guarantee at least 20 working days before such security is due to expire;
ƒƒ Where the employer fails to provide Guarantee for Payment, the contractor may after
10 working days’ notice suspend Works until security has been provided.

Duties (Clause 12.1):

`` employer shall:
ƒƒ Provide Guarantee for Payment where applicable;
ƒƒ Record specific requirements where existing premises will be in use and occupied ruling
execution, including restriction of working hours;
ƒƒ Record and describe relevant natural features and known services where contractor shall
be responsible for their preservation;
ƒƒ Define any restrictions to the site;
ƒƒ Identify access to water, sewer, stormwater and/or electricity connections to the site;
ƒƒ List statutory and other notices the contractor must submit and/or comply with before
possession of site can be given;
ƒƒ Give possession of the site to the contractor on agreed date;
ƒƒ Effect and keep in force insurance in joint names where the employer is responsible for
insurance;
ƒƒ Make payments by due date;
ƒƒ Make advance payments where required;
ƒƒ Permit reasonable access to works by the contractor subsequent to practical completion
to fulfil outstanding obligations;
ƒƒ Supply free issue to suit the programme;
ƒƒ Define extent of work to be carried out by direct contractor;
ƒƒ Ensure principal agent and/or agents provide adequate construction information
timeously to the contractor;
ƒƒ Make direct payment where the contractor failed to honour nominated subcontract
payment after notice of default by subcontractor.

Access to the Works (Clause 15.2)

`` “The employer shall…give possession of the site to the contractor on the date stated in
the schedule.”

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38 | Parties & Role Players

FIDIC

The Role of the Employer is dealt with in Clause 2 of the 1999 editions:
Sub-clause 2.1 [Right to Access to the Site];
Sub-clause 2.2 [Permits, Licences or Approvals];
Sub-clause 2.3 [Employer’s Personnel];
Sub-clause 2.4 [Employer’s Financial Arrangements]; and
Sub-clause 2.5 [Employer’s Claims];
The Employer’s role and obligations can be summarised in the order in which they appear in
the General Conditions.

Right of Access to the Site (Sub-Clause 2.1)

Time should be stated in the Appendix/Particular Conditions. If the Contractor suffers delay
or Costs as a result of late access the Employer will be responsible for time and costs plus
reasonable profit.
“The Employer shall give the Contractor right of access to,and possession of, all parts
of the Site within the time (or times) stated in the Appendix to Tender. The right and
possession may not be exclusive to the Contractor. If under the Contract, the Employer
is required to five (to the Contractor) possession of any foundation, structure, plant
or means of access, the Employer shall do so in the time and manner stated in the
Specification. However, the Employer may withhold any such right or possession until the
Performance Security has been received.”

Permits, Licences or Approvals (Sub-Clause 2.2)

The Employer shall give reasonable assistance to Contractor.

“The Employer shall (where he is in a position to do so) provide reasonable assistance to
the Contractor at the request of the Contractor:

(a) By obtaining copies of the Laws of the Country which are relevant to the Contract by are
not readily available, and

(b) For the Contractors applications for any permits, licences or approvals required by the
Laws of the Country:

(i) Which the Contractor is required to obtain under Sub-Clause 1.13 [Compliance with
the Laws,

(ii) For the delivery of Goods, including clearance through customs, and

(iii) For the export of Contractor’s Equipment when it is removed from Site.”

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 Parties & Role Players | 39

Employer’s Personnel (Sub-Clause 2.3)

The Employer’s Personnel must co-operate with Contractor.

“The Employer shall be responsible for ensuring that the Employer’s Personnel and the
Employer’s other contractors on the Site:

(c) Co-operate the Contractor’s efforts under Sub-Clause 4.6 [Co-operation], and

(d) Take actions similar to those which the Contractor is required to take under sub-paragraphs
(a), (b) and (c) of Sub-Clause 4.8 [Safety Procedures] and under Sub-Clause 4.18 [Protection
of the Environment].”

Employer’s Financial Arrangements (Sub-Clause 2.4)

The Employer must submit within 28 days after receiving any request from the Contractor
reasonable evidence of financial arrangements for the Employer to pay the Contract Price.

If the Employer intends to make material change to his financial arrangements he must give a
notice to the Contractor with detailed particulars.
“The Employer shall submit, within 28 days after receiving any request from the
Contractor, reasonable evidence that financial arrangements have been made and are
being maintained which will enable the Employer to pay the Contract Price (as estimated
at that time) in accordance with Clause 14 [Contract Price and Payment]. If the Employer
intends to make any material change to his financial arrangements, the Employer shall
give notice to the Contractor with detailed purchases.”

Employer’s Claims (Sub-Clause 2.5)

If the Employer considers himself entitled to any payment – notice and particulars must be given
to the Contractor. The amount can be deducted from Payment Certificates.

“If the Employer considers himself to be entitled to any payment under any clause of these
Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects
Notification Period, the Employer or the Engineer shall give notice and particulars to the
Contractor. However, notice is not required for payments due under Sub-Clause 4.19 [Electricity,
Water and Gas], under Sub-Clause 4.20 [Employers Equipment and Free-Issue Material], or for
other services requested by the Contractor.

The notice shall be given as soon as practicable after the Employer because aware of the even
or circumstances giving rise to the claim. A notice relating to any extension of the Defects
Notification Period shall be given before the expiry of such period. The particulars shall specify
the Clause or other basis of the claims, and shall include substantiation of the amount and/
or extension to which the Employer considers himself to be entitled in connection with the
contract….

This amount may be included as a deduction in the Contract Price and Payment certifications.”

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GCC

Available Data (Clause 2.1.1):

`` The Employer shall make available to the Contractor data relevant to the Works;
`` The Contractor shall be responsible for his own interpretation thereof and deductions
therefrom.

Access to the Site (Clause 5.4):

`` The Employer shall give access to Site all as stipulated in the Site Information;
`` If access to and possession of Site is not exclusive such limitations shall be set out in the
Contract Data;
`` If the Contractor suffers delay to Practical Completion and/or incurs proven additional cost
from failure of the Employer to give possession the Contractor shall be entitled to make a
claim with time limit of 28 days from time when possession of the Site has actually been
given.

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The Contractor’s Duties and Obligations

NEC3

Providing the Works (Clause 20):

The Contractor must Provide Works in accordance with Works Information.

The Contractor’s Design (Clause 21):

“The Contractor designs the parts of the works which the Works Information states he
has to design”.

The Contractor submits particulars of his design to Project Manager for acceptance. The
Contractor does not proceed with relevant work until the Project Manager accepted his
design. The Contractor may submit design in parts for acceptance, if it can be assessed
fully in each part.

People (Clause 24):

`` The Contractor employs each key person named in the Contract Data or employs a
replacement accepted by the Project Manager;
`` The reason for not accepting person is that his relevant qualifications and experience are
not as good as person to be replaced.

Working with the Employer and Others (Clause 25):

`` The Contractor co-operates with Others and shares Working Areas with them as stated in
the Works Information.

Subcontracting (Clause 26):

`` If work is subcontracted the Contractor is responsible for Providing Works as if he had not
subcontracted it.

Other Responsibilities (Clause 27):

`` The Contractor acts in accordance with health and safety requirements stated in Works
Information.

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42 | Parties & Role Players

JBCC

Law, Regulations and Notices (Clause 2.0):

`` The contractor shall comply with law, obtain permits, licenses and approvals and pay
related charges.

Works Risk (Clause 8.0):

`` The contractor shall take full responsibility for the works from date of possession of the
site up to date of issue of the certificate of practical completion.
ƒƒ Cost of additional professional services.

Security (Clause 11.1):

contractor shall:
`` Provide Guarantee for Construction within 15 working days of acceptance of the
contractor’s offer and choose:
ƒƒ 10% of contract sum Guarantee for Construction until final payment certificate has been
issued; or
ƒƒ 5% of contract sum Guarantee for Construction and a payment reduction of 5% of the
value of each payment certificate up to maximum of 5% of the contract sum. Keep
enforceable until last certificate of practical completion has been issued.
`` The contractor shall waive his lien on receipt of Guarantee for Payment from the employer-
very important and is the only one of the 4 contracts which has this provision.

Duties (Clause 12.2):

contractor shall:
`` Inspect the site and existing structures and be thoroughly acquainted with conditions;
`` Submit to the principal agent the priced document within 15 working days of acceptance of
the contractor’s offer;
`` Provide everything necessary for proper execution of the works;
`` At practical completion hand over to principal agent all operating and instruction manuals,
product guarantees, etc.;
`` Cede to the employer on the date of issue of the certificate of final completion any
guarantee, warranty or indemnity pertaining to the works.

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 Parties & Role Players | 43

FIDIC

Once a contract is placed with a Contractor, the promoter or developer of a project is called an
“Employer”, and the consulting Engineer is referred to as the “Engineer”, where the consultant
acts as Supervisor and Employer’s Agent as the Administrator and Certifier;

Two contracts are traditionally formed between the:

`` The Consulting Engineer and the Employer - the Contractor is not a party;
`` The Employer and the Contractor - the Engineer is not a party.

Contractor’s General Responsibilities (Sub-Clause 4.1)

`` The Contractor shall design (as specified), execute and complete the Works as per Contract
and with the Engineer’s instructions, and shall remedy any defects in the Works;
`` The Contractor shall take instructions only from The Engineer;
`` The Contractor shall provide Plant, Documents specified in Contract, Personnel, Goods,
Consumables and other things and services to design, execute and complete the Works;
`` The Contractor may not sub-contract the whole of the Works.

Performance Security (Sub-Clause 4.2)

`` The Contractor shall obtain Performance Security at his cost as per detail in Appendix to
Tender within 28 days after receiving the Letter of Acceptance.

Quality Assurance (Sub-Clause 4.9)

`` The Contractor’s quality assurance system must comply with requirements in the Contract;
`` The Engineer/Employer/ER may audit any aspect of the system.

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44 | Parties & Role Players

GCC Contractors Duties

Extent of Obligations and Liability (Clause 4.1)

`` The Contractor shall design, carry out and complete Works and remedy any defects as per
provisions of the Contract;
`` Notwithstanding approval by the Employer’s Agent, the Contractor shall be liable for any
error or deficiency in any drawing or document supplied by him.

Employer’s Agent’s Instructions (Clause 4.2)

`` The Contractor must comply with the Employer’s Agent’s instructions on all matters
relating to the Works;
`` The Contractor shall take instructions only from the Employer’s Agent.

Subcontracting (Clause 4.4)

`` The Contractor shall not subcontract the whole Contract;
`` The Contractor is liable for the acts, defaults and negligence of any subcontractor, his
agents or employees.

Contractor’s Employees (Clause 4.10)

`` The Contractor must make his own arrangements for engagement of all employees and for
their payment, housing, feeding, etc.;
`` If instructed by the Employer’s Agent the Contractor shall deliver information in respect of
employees employed.

Contractor’s Superintendent (Clause 4.12):

`` The Contractor shall provide superintendence during execution;
`` The Contractor’s Construction Manager (competent, authorised agent approved in writing
by the Employer’s Agent) shall be on Site at all times;
`` The Contractor’s Construction Manager shall have authority to receive all oral or written
communications from the Employer’s Agent or the Employer’s Agent’s Representative.

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 Parties & Role Players | 45

Representatives

NEC3: Project Manager and Supervisor Duties

Delegation (Clause 14.2)
`` After notifying the Contractor, the Project Manager and the Supervisor both may delegate
any of their actions and may cancel any delegation.

Clause 14.2:
“The Project Manager and the Supervisor, after notifying the Contractor, may delegate
any of their actions and may cancel any delegation. A reference to an action of the
Project Manager or the Supervisor in the contract includes and action by his delegate.”

Instructions (Clause 14.3)

“The Project Manager may give an instruction to the Contractor which changes the
Works Information or Key Date.”

Marking Equipment, Plant and Materials outside the Working Areas (Clause 71.1)
“The Supervisor marks Equipment, Plant and Materials which are outside the Working
Areas if:

`` The Contract identifies them for payment; and

`` The Contractor has prepared them for marking as the Works Information requires”.

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46 | Parties & Role Players

JBCC: Principal Agent

`` Services include:
ƒƒ Manage, co-ordinate and integrate detail design development process;
ƒƒ Management and administration of construction contracts and process;
ƒƒ Management and administration of project closeout.
`` The principal agent:
ƒƒ has full authority and obligation to act and bind the employer in terms of the
agreement;
ƒƒ has no authority to amend the agreement;
`` The employer may appoint agents to deal with specific aspects of the works;
`` principal agent shall give notice where authority to issue contract instructions and perform
duties for specific aspects of the work is delegated to agents;
`` employer shall not interfere with or prevent agents from exercising fair and reasonable
judgment when performing obligations.

Setting Out (Clause 13.0):

The principal agent shall:

`` Point out boundary pegs or beacons;
`` Define setting out points and levels required.

Contract Instructions (Clause 17.0):

ƒƒ The principal agent is authorised to issue contract instructions regarding any aspect of
the works to be executed;
ƒƒ Oral instructions shall be of no force or effect.

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 Parties & Role Players | 47

FIDIC: The Engineer

Sub-clause 3.1 [Engineer’s Duties and Authority]

The Engineer is appointed by the Employer. The Engineer is obliged to carry out the functions
described in the Contract but he has no power to amend the contract. The Engineer’s authority
to act derives from the contract documents, whether by express words and by virtue of powers
necessarily implied from the express words.

For certain further acts, specified authority is required, and the permission required by the
Engineer from the Employer must be in the Particular Conditions. The Engineer shall be deemed
to act on behalf of the Employer.

Neither any act nor omission by the Engineer shall relieve either the Employer or Contractor of
any obligation or responsibility under the contract.

Hence approval does not shift liability.

Sub-clause 3.2 [Delegation by the Engineer]

Engineer can delegate functions to assistants or to a Resident Engineer. These delegations must
be in writing and must define the extent of the functions so delegated.

Unless agreed by both the Employer and Contractor, the Engineer may not delegate his
Determination function under Sub-clause 3.5.

Sub-clause 3.3 [Instructions of the Engineer]

The Contractor must comply with the instructions given by the Engineer (or his assistants to
whom proper authority under Sub-clause 3.2 has been delegated). Where possible, these
instructions should be in writing.

Sub-clause 3.4 [Replacement of the Engineer]

The Employer must give 42 days’ notice of any intention to replace the Engineer. If the
Contractor raises a reasonable objection against the proposed replacement, then the Employer
must find someone else.

Sub-clause 3.5 [Determinations]

Where the Engineer is required by the Contractor to reach a determination, the Engineer is
bound to consult with both parties in order to reach agreement. If no agreement is reached,
the Engineer’s duty is to provide a fair determination in accordance with the contract and having
regard to all the circumstances.

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48 | Parties & Role Players

GCC: Employer’s Agent

Clause 3.1 [Qualifications of the Employer’s Agent]

The Agent shall be a registered professional in a built environment profession that is appropriate
to the Scope of Work.

Clause 3.2 [Functions of the Employer’s Agent]

`` To administer the Contract as agent of the Employer;
`` When issuing any ruling, contract interpretation or price determination to consult with the
Contractor and the Employer in an attempt to reach an agreement;
`` To act impartial and to make decision in accordance with the Contract;
`` When specific approval of the Employer is required, such requirements shall be set out in
the Contract Data;
`` Can act as representative relating to the responsibilities imposed by the Employer.

Clause 3.3 [Employer’s Agent’s Representative]

Employer’s Agent shall by written notice to the Contractor appoint a person as the Employer’s
Agent’s Representative.

Commonly known as the Resident Engineer.

Employer’s Agent’s Representative shall:

`` Observe how the Works are carried out, examine and test materials and workmanship;
`` Have the authority:
ƒƒ Assigned to him by any provision in the Contract;
ƒƒ Assigned to him by the Employer’s Agent;
ƒƒ To deliver to Contractor oral or written communications from the Employer’s Agent;
ƒƒ To receive, on behalf of the Employer’s Agent, oral or written communications from the
Contractor.
`` Powers and authority of the Employer’s Agent’s Representative shall be subject to:
ƒƒ He can’t relieve the Contractor of any of his obligations under the Contract;
ƒƒ Unless he is authorised he shall have no authority to order any work involving delay, any
additional payment by the Employer or any variation of or in the Works;
ƒƒ Failure by the Employer’s Agent’s Representative to disapprove of any work,
workmanship or materials shall not prejudice the power of the Employer’s Agent
thereafter to disapprove thereof;

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 Parties & Role Players | 49

`` The Employer’s Agent may by written notice from time to time authorise the Employer’s
Agent’s Representative to act on his behalf. Such authorisation shall continue until
terminated by written notice to the Parties;
`` Delegation is limited in respect of any decision to be taken, or certificate to be issued under
Clauses 2.2, 4.4.2, 5.12, 5.14, 5.16, 9.2, 10.1 or 10.2;
`` If the Contractor is dissatisfied with any order or instruction of the Employer’s Agent’s
Representative he shall refer the matter to the Employer’s Agent.

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50 | Parties & Role Players

Notes

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 Sub-contracting | 51

Lesson 4:
Sub-contracting

Due to the specialist nature of work required on specific Projects it is common practice for
Contractor’s to use to sub-contract work that is not specific to their core business. For example,
the scaffolding may be outsourced to a specific company for the duration of the project. There
is generally no limit to the amount of work that a Contractor may subcontract however FIDIC,
NEC3 and GCC provide that the Contractor shall not subcontract all the work.

This is to stop ”fronting” or “shelling”.

Sub-Contracting can be categorized into three different types of Subcontractors:

Domestic, Nominated and Selected.

Domestic

Domestic Subcontractors are appointed by main Contractors to carry out part of the Works on
their behalf. Work of the Subcontractor is the responsibility of the main Contractor as far as the
contract between the main Contractor and the Employer is concerned.

Nominated:

A Nominated Subcontractor is selected by the Employer to carry out an element of the Works.
Nomination takes place after the main Contractor has been appointed via an instruction in
relation to a prime cost/provisional sum to which a main Contractor is entitled to add its mark
up and attendance costs.

Selected:

A Selected Subcontractor is as per Nominated, however selection and appointment are done in
consultation with the Contractor.

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NEC3
The NEC3 Contract only allows provision for Domestic Subcontractors.

The following must be taken into account when appointing subcontractors.

If a Contractor subcontracts work, he is responsible for providing the Works as if he had not
subcontracted.

The Contractor must submit the Subcontractor names to the Project Manager for prior approval.

The Subcontractor may not be accepted by the Project Manager for the reasons below:
`` His appointment will not allow the Contractor to provide the Works;
`` A statement that parties shall act in a spirit of mutual trust and co-operation is not
included.

The Subcontractor cannot be appointed until the Project Manager has accepted him. The
Contractor submits proposed conditions of contract for each subcontract to the Project
Manager for acceptance unless:
`` An NEC3 contract is proposed; or
`` The Project Manager has agreed that no submission is required.

While the Contractor must submit the subcontractor names for approval to the Project Manager
the Contractor is not required to contract with a Selected Subcontractor.

If the Works has been delayed by the subcontractor the Contractor cannot apply for an
Extension of Time.

A Back-to-back Subcontract Agreement is available to the Contractor and Subcontractor. While

this Subcontract Agreement is not enforced it is recommended that the document is used due
to the complexity of the NEC3 contract. The decision to use the agreement is entirely based on
the two parties and the Project Manager has no decision-making authority.

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 Sub-contracting | 53

JBCC
Like with the other contracts there is no formal contractual relationship between the employer
and the subcontractor. However, JBCC does allow for a number of provisions that create a
direct relationship between the employer and the subcontractor. This makes subcontracting
under JBCC quite unique compared to the other three contracts.

The JBCC is used essentially for building works and these works rely on a multiplicity of
specialized trades.

While the other contracts allow for either nominated, domestic or selected subcontractor’s,
JBCC is different in that is provides for all three types of subcontractors. Both the nominated
and selected subcontractors are heavily regulated under the Principal Agreement.

The nominated subcontractor is selected through the principal agent. He will then instruct the
contractor to appoint the subcontractor.

The principal agent is responsible for according to clause 14:

`` The preparation of tender documents for work intended to be executed by a nominated
subcontractor;
`` Call for tenders;
`` Scrutinise tenders received for compliance in consultation with the Contractor;
`` Inform the Contractor where an advance payment is to be made to subcontractor.

The Contractor may object to the appointment of a Subcontractor under the following
conditions:
`` Against whom the contractor makes reasonable objection;
`` Who refuses or fails to enter into Nominated Subcontract agreement and/or to comply
with tender requirements;
`` Who is unable to provide security where applicable.

Where the Subcontractor is not appointed per above or is terminated, another Subcontractor
shall be nominated and appointed on instruction from the Principal Agent.

Where the Subcontractor complied with the tender requirements the Contractor shall:
`` Appoint the subcontractor as a Nominated Subcontractor and forward a copy of signed
agreement to the principal agent;
`` Provide a Guarantee for Payment within 15 working days;
`` Forward the subcontractor’s regular payment claims to the principal agent for inclusion in
the payment claim;
`` Notify the subcontractor of the amount included in the payment certificate;
`` Pay the subcontractor the amount certified by date stated in subcontract data.

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54 | Sub-contracting

Where contractor fails to provide proof of payment to the subcontractor within 5 working days
of a notice by the principal agent, the employer may instruct the principal agent to pay the
subcontractor directly and to recover the amount from the contractor.

This is unique to the JBCC contract.

Where a nominated subcontractor has been declared insolvent or is in default of a material

term the principal agent shall instruct the contractor to give notice to the subcontractor to
rectify.

If default continues for 5 working days after such notice the principal agent shall instruct the
contractor to terminate subcontract agreement.

Where the agreement is terminated with a nominated subcontractor:

`` The principal agent shall instruct the contractor to appoint another nominated
subcontractor to complete the work;
`` Due to default or insolvency of the subcontractor, or default of the employer and/
or agents, subcontract value shall be adjusted to include the cost of completing such
nominated subcontract works;
`` Due to default or insolvency of the contractor any variation in cost of completing the
nominated subcontract works shall be for the account of the contractor. The employer
may recover expense and/or loss.

There shall be no privity of contract between the employer and a subcontractor appointed by
the contractor.

Clause 15 makes provision for selected contractors.

The Selected Contractor is generally unique to building contracts. Subcontractors are appointed
in consultation with the employer and the contractor.

Principal agent shall:

`` Prepare tender documents for work intended to be executed by a selected subcontractor;
`` Call for tenders from a list agreed between the contractor and the principal agent;
`` Scrutinise received tenders for compliance in consultation with the contractor;
`` In consultation with the contractor choose successful tenderer;
`` Inform the contractor where an advance payment is to be made to subcontractor.

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 Sub-contracting | 55

On instruction from the principal agent, the contractor shall:

`` Appoint selected subcontractor and forward copy of signed agreement to the principal
agent;
`` Provide a Guarantee for Payment within 15 working days;
`` Forward subcontractor’s regular payment claims to the principal agent for inclusion in the
payment claim;
`` Notify subcontractor of the amount included in the payment certificate;
`` Pay the subcontractor the amount certified by date stated in subcontract data.

The Contractor may refuse to appoint subcontractor:

`` Who refuses or fails to enter into n/s subcontract agreement and/or to comply with tender
requirements;
`` Who is unable to provide security where applicable.

Where the subcontractor is not appointed per above or is terminated, another subcontractor
shall be chosen and be appointed on instruction from the principal agent.

Where the Contractor fails to provide proof of payment to the Subcontractor within 5 working
days of a notice by the Principal Agent, the Employer may instruct the principal agent to pay the
subcontractor directly and to recover the amount from the Contractor.

Where a selected subcontractor is in default of a material term the decision of whether or not
to terminate the Subcontract Agreement is the contractors decision.

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FIDIC
Clause 5 of the Construction Contract provides for the use of Nominated Subcontractors.

While it is not recommended FIDIC recognises that there is sometimes a need for
subcontractors. FIDIC provides for Nominated Subcontractor’s but does not provide for a
Selected (or any other type) of Subcontractor. There are three potential advantages to the
Employer or Engineer:
ƒƒ Involvement in the choice of a specialist Subcontractor;
ƒƒ Involvement in the choice of plant;
ƒƒ Avoidance of participation in the co-ordination of the interface between the nominated
Subcontractors’ and the Contractors’ Works.

There is a disadvantage of the use of Nominated Subcontractors which concerns direct payment
in specific circumstances.

If there are to be Nominated Subcontractors it is preferable for the Employer to make this clear
in the Tender Documents. Then the Contractor will know exactly where he stands when pricing
for the project. If there are to be no Nominated Subcontractors this clause should be deleted.
`` The Contractor should be aware that, at the time he enters into the Contract, he might not
know of the identity of all the Subcontractors;
`` Unless otherwise agreed, the Contractor shall not subcontract the whole of the Works;
`` If the Contractor is permitted to subcontract an element of the Works, then the Contractor
remains wholly responsible to the Employer for the acts of that Subcontractor;
`` The Engineer’s prior consent is required for all Subcontractor’s apart from suppliers and
Subcontractors named in the contract;
`` The Contractor must give the Engineer 28 days’ notice of both the intended and actual
commencement date of any Subcontractor’s work.

Objection to Nomination
`` If the Contractor objects to the employment of a Nominated Subcontractor, he must give
notice to the Engineer as soon as possible and it must be reasonable and detailed. An
objection will be deemed to be reasonable if:
`` There are reasons to believe the Subcontractor lacks competence or sufficient finances or
resources;
`` The subcontract does not specify that the Subcontractor shall:
ƒƒ Provide the Contractor with an appropriate indemnity in relation to any negligence;
ƒƒ Undertake to perform its work in such a way so as to ensure that the Contractor will
discharge his obligations under the Contract;
ƒƒ Indemnify the Contractor in respect of any failure to perform its obligations.

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 Sub-contracting | 57

`` It is important for the Contractor to remember that, in accordance with Sub-clause 4.4, the
Contractor is responsible for the acts and defaults of all Subcontractors;
`` The Employer can, if he chooses, overcome any objection to a Subcontractor of his
choosing by agreeing to provide an indemnity to the Contractor in respect of the specific
objection made by the Contractor-however this is generally not the case.

The Red Book allows for the Employer “at his sole discretion” to pay a Nominated Sub contractor
directly. This matter is regulated by Clause 5.4.

GCC
Clause 4.4.2 states that the Contractor shall not subcontract any part of the Contract without
prior written consent of the Employer’s Agent. The Contractor is liable for the acts, defaults and
negligence of any subcontractor.

According to Clause 4.4.4 even if the sub-contractor is selected, the Contractor remains fully
liable to the Employer for sub-contracted work.

No allowance is made for the Employer to pay a subcontractor directly. This means that, in
case of termination of the contract, direct payment to the sub-contractor cannot be made. This
might be necessary in the case of liquidation of the Contractor and essential equipment for a
subcontractor needs to be secured for future installation in the project. Clause 4.4.6, however,
provides a way for the subcontract to be assigned to the Employer in the case of termination.

Clause 4.4.7 provides for assignment of benefits of subcontractors to the Employer extending
beyond final approval. This could apply, for example, to services such as guarantees against
defects, or maintenance work extending beyond the date of completion. However, this must be
provided for in the Conditions of Subcontract.

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 58

NEC3 JBCC FIDIC GCC

Sub-contractor can only construct Cannot sub-contract whole of the Unless otherwise agreed the Can’t sub-contract entire works
or install part of the works. works. Contractor cannot sub-contract to Nominated or Selected
whole of the Works. Subcontractors.

Domestic Subcontractors only. Domestic, nominated, and Nominated (Red and Yellow books) Domestic subcontractors (treated
| Sub-contracting

selected subcontractors. and Domestic Subcontractors. as “Selected” Subcontractors).

Comparing Construction Contracts

Contractor responsible for Contractor may have recourse Contractor responsible for acts Contractor fully liable for
Subcontractors. against the employer. and defaults of all Subcontractors. subcontractors.
Project Manager must approve Nominated: Principal agent Engineer must approve Employer’s Agent must give
appointment of Subcontractors. appoints. Subcontractors. Subcontractors written consent for any
are named in the Contract. Subcontractors.
Selected: Principal agent and
contractor appoint.

Employer cannot pay directly. Nominated & Selected: Employer Nominated: Employer can pay Employer cannot pay directly.
can pay direct. direct.

Selected: appointed as a team.

Back to back sub-contract Back to back subcontract Red Book: Back to back sub- No form of Sub-contract; use
agreement. agreement. contract agreement. SAFCEC or BIFSA forms.

Delay by sub-contractor not listed Principal agent may provide an Provides for cession of actions Employer can instruct assignment
as a Compensation Event (unless instruction to the contractor beyond Defects Liability Period to of benefits to him by a
prevention applies). to terminate the subcontract Employer in Red book. subcontractor.
agreement.
 Time & Change Management | 59

Lesson 5:
Time & Change Management

Sequence & Programme

NEC3
Clause 31.1 states that if a programme is not identified in the Contract Data, the contractor
submits a first programme to the Project Manager for acceptance within the period stated in the
Contract Data. Clause 31.2 furthermore states that the contractor shows on each programme
which he submits for acceptance the following information:
`` starting date, access dates, Key Dates and Completion Date;
`` Planned Completion;
`` Order and timing of the operations which the contractor plans to do in order to provide
the Works;
`` Order and timing of the work of the employer and Others as last agreed with them by the
contractor or, if not so agreed, as stated in the Works Information;
`` Dates when the contractor plans to meet each Condition stated;
`` Provisions for float, time risk allowances, health and safety requirements and the
procedures set out in this contract;
`` Dates when the contractor will need access to part of the Site, acceptances, Plant and
Materials and other things provided by the employer and information from Others;
`` For each operation a statement of how the contractor plans to do the work identifying the
principal Equipment and other resources which he plans to use;
`` Other information which the Works Information requires.

Revised programmes must be submitted at intervals stated in the Contract Data.

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Programme (Clause 31):

`` The contractor shall submit to the Project Manager, within the period stated in the
Contract Data, a programme for execution of the Works in the form and detail prescribed in
Clause 31.2;
`` Within 2 weeks the Project Manager either accepts or notifies the contractor of his reasons
for not accepting his programme.

Revising the programme (Clause 32):

`` Revised programmes must show actual progress achieved, effects of implemented

compensation events, dealing with delays and other changes he proposed.

The NEC contract has provided for stringent procedures on the maintaining and updating
of the Programme. It in fact places a larger emphasis and importance on the Programme in
comparison to the other three contracts.

The contractor will face consequences if the Programme is not completed. The NEC provides
provision for these consequences, more so than the other three contracts. The employer can
withhold payment to the Contract if an acceptable Programme is not in place.

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 Time & Change Management | 61

JBCC
According to Clause 12.2.6 the contractor must prepare a programme in sufficient detail to
enable the principal agent to monitor the progress of the works. Clause 12.2.7 furthermore
require the contractor to coordinate the programme with the subcontractors’ and direct
contractors’ programme. According to Clause 12.2.8 and 12.2.9 the programme, progress
report and the schedule of outstanding construction information must be regularly revised and
modified and submitted timeously to the principal agent.

The contractor shall:

`` Within 15 working days of receipt of construction information submit a programme for the
works in sufficient detail to the principal agent;
`` Coordinate the programme with the subcontractors’ and direct contractors’ programmes;
`` Regularly update the programme to illustrate progress of the works;
`` Revise the programme where the principal agent revised the date for practical completion.

The principal agent is required to review the programme.

He must be satisfied that it meets the requirements of the contract. In order for the principal
agent to do this the contractor must provide the principal agent with the complete programme
which includes the duration of activities, resources to be used and productivity rates. Once he
has received this a reasonable review can be made.

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FIDIC
Clause 8 covers three very important subjects, all of which are related to the period during
which the contractor will construct the Works:
`` Start and duration of the construction period, at Sub-clauses 8.1 to 8.3;
`` Programme, Delays and Extension of Time, at Sub-clauses 8.4 to 8.7;
`` Suspension of Work by the Engineer, at Sub-clauses 8.8 to 8.11.

Commencement is within 7 days’ notice and not later than 42 days after acceptance.

Completion date is the date for tests on completion and a “Taking-Over Certificate”, followed
by the “Defects Notification Period”. Following notification of defects, a period (to be agreed)
upon, for remedying defects and then the Performance Certificate is issued, and Performance
Security is returned within 21 days.

Extension of time may be granted for: a) Variations, b) adverse climatic conditions, c) unforeseen
shortage of manpower, d) any action caused by or attributable to the employer or the
employer’s other contractors on the Site, e) unforeseen delays caused by authorities.

Delay damages are payable by the contractor for all delays exceeding the extension of time
granted. Normally a percentage of the contract sum per day with an upper limit (often known
as “liquidated damages”).

Suspension of work may be requested by the Engineer and the contractor shall be granted
extension of time and compensation for any extra costs.

Prolonged suspension may give reason for Termination.

contractor’s programme for the Works is to be submitted by the contractor to the Engineer.

The Programme

The contractor shall submit to the Engineer a Programme at the start of the Contract. The
programme must be submitted within 28 days from the Commencement Date-thus if the
Commencement Date is 42 Days from the Letter of Acceptance, the Programme must be
submitted by day 70.

The Programme:
`` Detail and comprehensiveness will be the first demonstration of the contractor’s ability;
`` Is the basis for monitoring the contractor’s progress and planning employer/Engineer
activities and obligations;
`` Becomes a base reference for the Engineer’s determination of contractor’s claims for
extension of Time for Completion arising from alleged disruption or delay.

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 Time & Change Management | 63

The Programme must show:

`` Order of execution of the Works, contractor’s Documents, procurement, off-site
manufacture and fabrication, delivery, construction, erection, and testing;
`` Sequencing of the Works, taking into account the lead time of procedures for obtaining any
approvals;
`` Detail of works performed by Nominated Subcontractors;
`` General description of the methods to be adopted;
`` Estimates of contractor’s Personnel and Equipment;
`` That the Works will be completed within the Time for Completion.

FIDIC contracts require the contractor to submit the Programme within 28 days after the
Commencement Date. The Programme must be prepared in detail, e.g., contract may need
Programme to be computer generated using software showing the critical path.

The Engineer must give notice to the contractor within 21 days of how the Programme does
not comply with the Contract. He cannot give comment on its attainability (he should only
acknowledge receipt).

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64 | Time & Change Management

GCC
Clause 5.6.1 requires the contractor to submit a programme to the employer’s Agent for his
approval, before the Commencement of the Works in accordance with Clause 5.3.1. Should
it be clear that the approved programme does not reflect the actual progress the contractor
shall deliver an adjusted programme. The employer’s Agent has seven days to approve the
programme submitted, failing which the submitted programme will be considered to be
approved. Approval of the programme in no way relieves the contractor of his duties or
responsibilities under the contract. Per Clause 5.9.1 the employer’s Agent shall deliver to the
contractor copies of drawings and any instructions required for commencement of the Works.

All programmes shall include as a minimum the following:

`` Commencement Date of Contract, Commencement of the Works, Due Completion Date
and the planned completion date;
`` Sequence, timing and resources for carrying out the Works;
`` Dates for Site accesses and possessions, approvals, instructions, inspections, tests and all
information required to carry out the Works;
`` Events that influence the carrying out of the Works, including float and the contractor’s
time risk allowances;
`` Other programming information set out in the Scope of Work;
`` Detailed cash flow forecast;
`` On adjusted programmes, the actual progress achieved and amounts paid.

Under Clause 5.7.1 the employer’s Agent may notify the contractor in writing if the contractor’s
rate of progress of the Works, or any part thereof, has fallen behind the approved programme.
The contractor shall thereupon take the necessary steps to expedite progress to complete the
Works, or said part thereof, by the Due Completion Date. Such steps shall be approved by the
employer’s Agent. The employer’s Agent may instruct the contractor to submit an adjusted
programme. No instruction by the employer’s Agent to the contractor to improve his rate of
progress will qualify for additional compensation.

If the contractor requests permission to work by night as well as by day then, if the employer’s
Agent grants permission, the contractor shall not be entitled to any additional payment for night
work. Such work shall be carried out without excessive noise and disturbance.

Per Clause 5.7.3 the employer’s Agent may request the contractor to accelerate his rate of
progress so as to achieve an earlier Due Completion Date. If the revised programme and cost
are accepted by the employer the Due Completion Date shall be adjusted accordingly and
conditions for payment shall be agreed in writing by the employer’s Agent.

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Time & Change Management | 65

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 66

Time and Change Management: The Programme

NEC3 JBCC FIDIC GCC

Programme not a contract Programme not a contract Programme not a contract Programme not a contract
document but obligation to document but obligation to document but obligation to document but obligation to
produce/ maintain one is a produce/ maintain one is a produce/ maintain one is a produce/ maintain one is a
contractual requirement. contractual requirement. contractual. contractual requirement.

Comparing Construction Contracts

To be provided within period To be provided within 15 days To provide within 28 days of To provide after award but before
stated in Contract Date. of receipt of construction Commencement Date. Commencement of Works.
| Time & Change Management

information.

PM accepts in 2 weeks. No approval needed. Engineer 21 days if non-compliant. Employer’s Agent 7 days to
approve.
Further requirements for revised Regular updates to illustrate Engineer to give notice if Update when progress won’t meet
programmes. progress. programme is inconsistent with Due Completion Date or when
progress, Contractor to submit a specific probable future event
revised programme. or circumstance may increase
Contract Price or delay Works,
Contractor to revise.
PM can call for quotations for Engineer can request a recovery Employer’s Agent may instruct
acceleration. programme to demonstrate how acceleration.
the Contractor intends to recover
time lost.
Programme has higher status than
others.
 Time & Change Management | 67

Commencement & Completion

NEC3
`` The contractor does not start work on Site until the first access date and does the work so
that Completion is on or before the Completion Date;
`` The Project Manager decides the date of Completion;
`` The Project Manager certifies Completion within one week of Completion;
`` The contractor does the work so that Condition stated for each Key Date is met by the Key
Date;

`` The employer takes over works not later than 2 weeks after Completion. He may use part
of works before Completion has been certified. The Project Manager certifies date of
taking over of part of the works within 1 week of the date.

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68 | Time & Change Management

JBCC
The contract agreement comes into force on the date of acceptance by the employer. The
employer shall provide a Guarantee for Payment when required in the accepted offer and the
contractor can choose to provide either a Guarantee for Construction of 10% of the contract
sum or a Guarantee for Construction of 5% of the contract sum and a payment reduction of 5%
of the value of each payment certificate up to a maximum of 5% of the contract sum. Where an
advance payment is required the contractor shall provide a Guarantee for Advance Payment.

The parties shall sign the original contract documents. The principal agent may instruct
adjustments of the contractor’s submitted priced document due to errors and/or imbalanced
prices, however the contract sum cannot change. The employer gives possession of the site
to the contractor on the agreed date stated in the contract Data. The contractor is required to
commence the Works within 10 working days from possession of the site.

The principal agent shall inspect the works at appropriate intervals to give the contractor
interpretations and direction on the standard of work and the state of completion of the works
required of the contractor to achieve practical completion. The contractor gives timeous notice
to the principal agent of the anticipated date for the inspection for practical completion of
the works to meet date for practical completion. After inspection of the works within period
stated in the contract Data the principal agent either issue a comprehensive list for practical
completion to the contractor or a certificate of practical completion. On issue of the certificate
of Practical Completion the employer shall be entitled to possession of the works and the site
subject to the contractor’s lien, where applicable.

The defects liability period for the works shall commence on the calendar day following the
date of practical completion and end at midnight 90 calendar days from the date of practical
completion. Where defects become apparent during the defects liability period the principal
agent may instruct the contractor to progressively attend to such items. On the expiry of th
defects liability period the principal agent inspects the works and within 10 working days either
issue list for final completion or issue the certificate of final completion. With the issue of this
certificate the contractor’s obligations are deemed fulfilled and the Latent Defects period of five
years (or as specified in the contract) starts to run.

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 Time & Change Management | 69

FIDIC

Clause 8.1 (Commencement of Works)

`` Engineer shall give the Contractor not less than 7 days’ notice of Commencement Date
(start of the “Time for Completion” - period within which the Contractor has agreed to
construct the Works);
`` Number of days in the Time for Completion is given in the Appendix to Tender or Contract
Data;
`` It may refer to the whole of the Works, or a designated Section of the Works;
`` “Day” defined as a calendar day rather than a working day, so the number of days includes
weekends and holidays.

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 Time & Change Management | 71

Construction Phase

`` DNP;
`` Latent Defect Stage;

`` The Contractor applies for a taking over certificate when the Works have reached such a
stage that they are complete other than for minor cosmetic items which do not affect the
safety of the Works;
`` The Engineer [or the Employer] visits the site and either requests the Contractor to
complete outstanding work, issues the T/O Certificate or does nothing!
`` If nothing is done then after 28 days, Taking Over is deemed to have occurred and the
Defects Notification Period will commence;
`` At Take Over, 50% of the Retention held is returned to the Contractor and the Employer is
now responsible for the safety, security and insurances on the Site;
`` At the end of the DNP the Works should be free from all patent defects;
`` The Employer pays the remaining 50% of the Retention held and returns the Performance
Guarantee;
`` The Engineer issues the Performance Certificate;
`` The Contract is essentially now complete and the Latent Defects Period commences.

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72 | Time & Change Management

GCC
The Contract shall commence on the Commencement Date, which is the date that the
Agreement in terms of the Form of Offer and Acceptance comes into effect. Upon the
employer’s Agent’s instruction the contractor shall commence carrying out the Works, unless it
is legally or physically impossible to commence.

When the Works are about to reach Practical Completion, per requirements set out in the
Contract Data the contractor shall request a Certificate of Practical Completion. The employer’s
Agent shall within 14 days after receiving request, issue a list setting out the work to be
completed. If such a list is not issued by the employer’s Agent Practical Completion shall be
taken as achieved. As soon as the work on list has been completed the employer’s Agent shall
deliver to the contractor and the employer a Certificate of Practical Completion with a further
list setting out work to be completed to justify completion.

When this work has been completed the employer’s Agent shall deliver to the contractor and
the employer a Certificate of Completion. The Defects Liability Period then commences.

At end of the Defects Liability Period, and if all defects have been repaired, the Engineer issues a
Final Approval Certificate, and the Latent Defects Period starts.

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 Commencement and Completion

NEC3 JBCC FIDIC GCC

Contract Date = Date when contractor commence works Commencement Date within 42 Commencement Date = Date
contract comes in to existence within number of days in Contract days of Letter of Acceptance Agreement comes into effect
Data
Documentation needed to enter After tender acceptance, Letter of Acceptance issued to Form of Offer and Acceptance &
into contract contractor submits priced contractor Schedule of Deviations
documents

Sample forms in Appendix 3 Adjustments made, no change to 28 Days to enter into Contract Tenderer has 5 days to accept
contract sum Agreement agreement received

Completion Date stated in Works contractor gives notice of practical Completion Date = Due Completion Date =
Information completion Commencement Date plus Commencement Date plus Time
number of calendar days in for Practical Completion
Appendix
Employer takes Works over within Employer takes possession of the Employer takes over Works after Employer takes over work after
2 weeks of Completion Works issue of Taking Over Certificate issue of Practical Completion Cert

Defects Correction Period starts at Defects Liability Period starts when Defects Notification Period after Defects Liability Period starts after
Completion Certificate of Works Completion issue of Taking Over Certificate issue of Certificate of Practical
issued Completion
Time & Change Management |

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74 | Time & Change Management

Early Warnings/Notices

NEC3 Early Warning

Early warning is covered in Clause 16.1.

The contractor and Project Manager give early warning, notifying the other as soon as either
becomes aware of any matter which could:
`` Increase the total of the Prices;
`` Delay Completion;
`` Delay meeting a Key Date;
`` Impair the performance of the works in use.

Early warning allows for effective project management. Early warnings are recorded in the
Risk Register by the Project Manager. The contractor and the Project Manager are required to
attend Risk Reduction meetings to discuss the following:
`` Proposals on how the effect of risks can be avoided or reduced;
`` Seeking solutions;
`` Actions and who must action them;
`` Decide how the risks can be avoided and that can be removed from Risk Register.

Clause 16.1 states “The contractor and the Project Manager give an early warning by notifying
the other as soon as either becomes aware of any matter which could:
`` Increase the total of the Prices;
`` Delay completion;
`` Delay meeting a Key Date; or
`` Impair the performance of the works in use.

The Contractor may give an early warning by notifying the Project Manager of any other matter
which could increase his total cost. The Project Manager enters early warning matters in the
Risk Register. Early warning of a matter for which a compensation event which has previously
been notified is not required.

Failure on the Contractor’s part to give early warning of an event will result in the reduction of
the payment due to him for the compensation event.

Clause 63, regulates the assessment of compensation events, states that, “If the Project
Manager has notified the contractor of his decision that the contractor did not give an early
warning of a compensation event which an experienced contractor could have given, the event
is assessed as if the contractor had given early warning”.

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 Time & Change Management | 75

Failure on the Project Manager to give early warning will result in a breach of contract. The
purpose of the Project Manager is to look after the interests of the employer, requiring him
to give early warning. This is a contractual obligation on his behalf. This could result in a
compensation event under clause 60.1 (18) “a breach of contract by the employer which is not
one of the other compensation events in this contract”.

JBCC Notice
Per Clause 23.4.2 the contractor shall give notice to the principal agent within 20 working days
of becoming aware or ought reasonably to have become aware of an occurrence of a listed
circumstance. Clause 23.1 to 3 list circumstances. In this notice the contractor shall state if he
intends to submit a claim for a revision to the date of practical completion. Within 40 working
days from being able to quantify the delay in terms of the programme the contractor shall
submit his claim.

Per Clause 26.5 the contractor shall give notice to the principal agent within 20 working days of
becoming aware, or ought reasonably to have become aware of expense and/or loss for which
provision was not required in the contract sum. Details and substantiation of this claim shall be
submitted by the contractor within 40 working days from the date of notice.

There is no responsibility for the principal agent or the employer to give notice to the
contractor.

FIDIC Notice
FIDIC requires that the Contractor must give notice within 28 days of an event or circumstance
giving rise to an entitlement to more money and time.

If the notice is not given within 28 days, the Contractor loses his right to claim

Under Sub-Clause 8.3 [Programme] the Contractor shall always notify the Engineer if his
programme is inconsistent with factual progress.
`` The Contractor shall promptly give notice to the Engineer of any future events or
circumstances which may adversely affect the Works, increase the Contract Price or delay
the completion of the Works;
`` The Engineer may, if the Contractor gives such a notice, require the Contractor to submit
an estimate of the anticipated effect of the future event and a proposal to rectify the
potential effect under Sub-clause 13.3;
`` If the Engineer considers that a programme fails to comply with the Contract or is
inconsistent with actual progress, he may give due notice to the Contractor. If the Engineer
gives such a notice the Contractor must submit a revised programme to the Engineer.

The Contractor is required to give advance notice promptly or early warning to the Engineer of
potential events which might adversely affect or delay the Works. There is no similar obligation
on the Engineer or Employer.

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76 | Time & Change Management

If the Engineer gives notice to the contractor that a programme does not comply with the
Contract, or is not consistent with actual progress, then the contractor is required to submit a
revised programme to the Engineer.

GCC
Per Clause 2.2 the contractor shall give notice to the employer’s Agent for encountering adverse
physical conditions as soon as he becomes aware of the conditions or obstructions if he is of
the opinion that additional work will be necessary. Should additional or more extensive adverse
physical conditions or artificial obstructions be encountered the contractor he shall give further
notices thereof per Clause 2.2.2.

The contractor is obliged to give the Engineer a written claim within 28 days after the
circumstance, event, act or omission giving rise to a claim. No notice is needed at this point

However, if the event or circumstance is such that the contractor cannot formulate a claim, then
he must give notice within 28 days.

If the contractor fails to comply with the 28 days he shall not be entitled to additional payment
and the employer shall be discharged of all liability in connection with the claim.

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 Time & Change Management | 77

Float
NEC3 JBCC FIDIC GCC
contractor must No obligation to No obligation to contractor must
show float in show float. show the float. show float in
programme. programme.
Float belongs to the Float belongs to Red, Yellow and Float available to
contractor. contractor. Silver books: both parties.
Float belongs to
contractor.
Green book: Float
belongs to Project.

By Float we mean the Terminal Float-in other words the float that is created by the contrac-
tor at the end of the Contract Period and is the difference between the Programmed Date of
Completion and the Contractual Date of Completion

NEC3
The NEC3 contract provides that the programme will be updated with the date the contractor
planned to complete, even if no extension of time is awarded. Extensions of time are assessed
by comparing the date the contractor plan to complete with the actual date he does complete
with works, even if it doesn’t affect the critical path. If an event impacts the critical path,
the period of extension is added to the contractual completion date. The only other form of
contract that requests the contractor to show terminal float as per the NEC3 is the GCC.

The terminal float belongs to the contractor and he may use it for his own internal
administration and problems. Any extension of time granted out of an entitlement is granted
that the terminal float is protected.

Each programme submitted by the contractor should be a snapshot of the state of the Works
at the time and should include all events impacting potential extension of time. NEC contract
encourages good project management and makes the adjudicating of extensions of time far
easier.

JBCC
JBCC does not speak about float or allocation of float to either the contractor or the employer,
however it seems that the terminal float belongs to the contractor.

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78 | Time & Change Management

FIDIC
FIDIC does not speak about float or allocate float to either Contractor or Employer, however it
seems that under the Red, Yellow and Silver Books, any terminal float created belongs to the
Contractor but, under the Green Book, it belongs to the project.

GCC
GCC specifically asks the Contractor to show float and the Contractor’s time risk allowances in
their programme.

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 Variations | 79

Lesson 6:
Variations

The common law does not provide for the valuation of variations. Based on this it is imperative
that one refers to the terms of the contract to assess how variations are to be priced. The
four different standard forms of contract differ significantly when it comes to variations and
pricing. The NEC3 contract is surprisingly innovative and in accordance with best practice value
engineering has been introduced into the new FIDIC contracts.

NEC3 takes an overall approach that is totally different than any of the other three contracts
in valuating variations. It uses open market prices as the basis for valuing variations and based
on this the Contractor receives his [ actual] “defined” cost plus agreed fee percentage for each
variation

NEC3
In Clause 60.1 nineteen “Compensation Events” are listed (such as where the Employer does not
allow access to and use of part of the Site by the date provided in the Accepted Programme).
In NEC variations are treated as compensation events and the contract provides in Clause 63.1
that the compensation event is to be calculated based on:
`` The actual Defined Cost of the work already done;
`` The forecast Defined Cost of the work not yet done; and
`` The resulting fee.

Defined Cost is defined as amounts calculated using rates and percentages stated in the Contract
Data and other amounts at open market or competitively tendered prices with deductions for
all discounts, rebates and taxes which can be recovered. This way disputes as to whether or not
the contract rates are appropriate or not will not arise.

The contract also provides for a short and long (dependent of the chosen option) schedule of
cost components which is to be completed and agreed at the time of tender. Where a forecast
Defined Cost is required for a compensation event the Contractors are required to estimate
his required resources, equipment and labour and to apply these to the schedule of cost
components to calculate a forecast.

If the Contractor gets this forecast wrong, he is bound by the forecast and he cannot
subsequently correct it to try and recover any losses as a result of an under estimation. In the
event of an over estimation, the Project Manager is entitled to reduce the quotation, clearly
identifying by reference to the schedule of cost components what reductions he made. This
Project Manager’s assessment may be challenged through the adjudication process if the

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80 | Variations

Contractor thinks that the Project Manager made a wrong assessment.

The fee percentage is a percentage of the defined Cost which is to cover the Contractor’s
overheads and profit.

It is agreed in the Contract and can typically be from 10%-25% depending on the type and
complexity of the Contract

This pre-agreement of the overhead and profit removes the subjectivity and subsequent
argument of these items if it is to be made arbitrarily by the Engineer or principal agent

Notification:

`` The instruction is given by the Project Manager or Supervisor;

`` The Contractor is to notify if he believes that an event is a compensation event (8 weeks
from becoming aware of the event);
`` The Project Manager to reply within 2 weeks.

Quotations:

`` The Contractor submits quotations within 3 weeks of instruction of Project Manager;

`` The Project Manager is to reply within 2 weeks of submission.

Assessing compensation event:

`` Actual defined cost of work done;

`` Forecast defined cost of work not yet done;
`` Fee;
`` Programme adjusted;
`` Change Works Information.

Project Manager can assess a compensation event if

`` The Contractor did not give a quote;

`` Contractor assessed event wrong;
`` Contractor did not submit a new programme.

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 Variations | 81

JBCC

Adjustment of the Contract Value of the Final Account (Clause 26.0):

The value of adjustments is covered in Clause 26. The principal agent determines the value
of adjustments in cooperation with the contractor. The contractor has the right to be present
when adjustments require measurement on site.
`` Adjustments as a result of a contract instruction for additional work shall be determined as
follows:
ƒƒ Work of similar character under similar conditions are priced at rates in the priced
document;
ƒƒ Work not of similar character are priced at rates based on those in the priced document
and adjusted to suit;
ƒƒ If none of the above apply, priced at rates based on elements plus a 10% mark-up - this
10% mark-up is often the cause for disagreement!
ƒƒ Work omitted shall be valued at rates in the priced document, but if different
circumstances, work shall be priced based on priced document and adjusted to suit.

Provisional identified work in the priced document shall be omitted by the principal agent and
the contract value of the work shall be added.

If the contractor pays for items as per a contract instruction, actual amounts paid plus 10%
mark-up shall be added to contract value limited to:
`` Charges by authorities;
`` Cost of opening up and testing;
`` Cost of insurance where applicable.

The contractor shall give notice to the principal agent within 20 working days of becoming
aware, or ought reasonably to have become aware of expense and/or loss, failing which such
claim shall be forfeited. Following notice, the contractor shall submit a detailed claim within 40
days.

These are strictly enforced time periods!

The principal agent makes fair assessment within 20 days of receipt of such details. Where the
principal agent fails to act, a claim shall be deemed to be refused. The contractor may give
notice of a disagreement where no assessment is received.

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Principal agent shall:

`` Omit prime cost amounts and budgetary allowances from the contract sum and determine
the actual value of such work to be added to contract value;
`` Omit provisional sums from contract sum and determine the actual value of such work to
be added to contract value;
`` Pro-rate the contractor’s allowances for profit and attendance on provisional sums and
prime cost amounts excluding any allowance for contract price adjustments;
`` Adjust the preliminaries amounts in accordance with the method selected;
`` Adjust the contract value according to the contract price adjustment method;
`` Rectify discrepancies, errors in description or quantity or omission of items in the contract
documents other than in this agreement.

The principal agent prepares and issues the final account to the contractor within 90 calendar
days of the date of practical completion. The contractor shall accept final account within 45
calendar days of receipt thereof failing which the final account shall be issued.

Should the contractor give notice objecting to the correctness of final account within 45
calendar days and the objection is not resolved within 10 working days, or such an extended
period as the principal agent may allow on request from the contractor, the contractor may give
notice of a disagreement

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 Variations | 83

FIDIC
In any construction project there will be a need to change the initial requirements as the
construction proceeds on Site. Clause 13 deals with the possibility that variations and
adjustments may be made to the original scope of the Works under the contract. It covers the
procedures for work being added to, or omitted from, the original contract work, together with
other matters that may increase or decrease the Contract Price.

The decision as to whether the Variation is to be executed lies with the Engineer. The Contractor
is not permitted to introduce Variations without an order or instruction in writing from the
Engineer (the Contractor is not permitted to change the Permanent Works unless the Engineer
has instructed or approved the Variation).

Variations have also seen to take place for the reasons below:
`` The Employer changes his mind about some requirement; or
`` The Engineer may need to issue further information that involves changes to the initial
requirements; or
`` It may be necessary to correct a mistake in the information that has been issued to the
Contractor.

If Employer wants to make a change, he must request the Engineer to issue the instruction. If
Employer gives an instruction direct to the Contractor then the Contractor must obtain the
Engineer’s confirmation and instruction before he executes the change.

It is critical to adhere to these requirements for the success and control of a project.

Sub-clause 13.1 [Right to Vary]

Variations can be initiated at any time prior to the issuing of the Taking-Over Certificate by the
Engineer.

The initiation of a Variation is either by way of instruction or the request for a proposal from the
Contractor. The Contractor must perform unless he gives a notice stating that he cannot obtain
the Goods required for the Variation.

Sub-clause 13.1 gives the Engineer the right to initiate a Variation at any time prior to the issuing
of a Taking-Over Certificate for the Works. However, the Engineer is not permitted to initiate a
Variation during the Defects Notification Period.

Following the issue of a Taking-Over Certificate the Engineer can no longer instruct Variations. If
it is decided, after most of the project has been built, that additional facilities are required then
presumably these additional Works will need to be the subject of a separate Contract.

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Sub-clause 13.2 [Value Engineering]

Under Sub-clause 13.2 the Contractor may make a Value Engineering proposal at any time
detailing the ways in which he feels the Contract may be completed sooner than originally
planned, or the Costs of the Works may be reduced or the efficiency may be improved. The
proposal is prepared at the cost of the Contractor and shall comply with the list of requirements
set out in Sub-clause 13.3 Variations.

If there is a:
`` Design element in the proposal, the Contractor must ensure that the design complies with
Sub-clause 4.1;
`` Resulting reduction in the Contract value, then the fee is calculated in accordance with the
prescribed formula which clearly incentivises the making of savings.

The Value Engineering provision enables the Employer to benefit from the Contractor’s
experience and proposals. The risk of the Value Engineering change is the Contractor’s one and
any savings are split 50%/50% between the Contractor and the Employer.

If the Contractor wishes to submit a proposal that will benefit the Employer in any of the ways
listed in the first paragraph of Sub-clause 13.2 then he must prepare, at his own Cost, a proposal
that includes the information that is required for a Variation proposal under Sub-clause 13 3.

If the proposal includes a design change, then unless the parties agree otherwise, the
Contractor shall design the changed part of the Works and receive a fee provided that the
reduction in the Contract value is greater than any reduction in the value of the Works to the
Employer. The fee is calculated by the Engineer, following the Sub-clause 3.5 procedure. If the
proposal does not include a design change then the Contractor will have to rely on any benefit
from savings in his own Costs.

In Sub-clause 13.2 there is a complete freedom on the part of both the Contractor to submit
Value Engineering proposals and on the Engineer to accept or reject those proposals. However,
if the proposal is accepted then the Contractor gets 50% of the net benefit of the proposal to
the Employer.

For payment of the Value Engineering savings to the Contractor, after agreement, the Employer
prepares a Variation order. The order explains the changes, maybe deletes some items from the
Contact Price and adds an item for the Value Engineering.

Sub-clause 13.3 [Variation Procedure]

Sub-clause 13.3 sets out the:

`` Procedure required to be followed if the Engineer requests a proposal prior to instructing a
Variation;
`` Procedure that should be followed by both the Contractor and the Engineer in submitting
and instructing on a Value Engineering proposal;
`` Criteria that should be included in the Contractor’s proposal.

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 Variations | 85

The Variation procedure is straightforward and emphasises a procedure whereby the Engineer,
if he so chooses, requests proposals from the Contractor. While this provision is optional,
the emphasis upon a procedure based on Contractor’s proposals has the practical advantage
that the Engineer can use the Contractor’s experience and knowledge of the Works to best
advantage in deciding how to instruct the additional work.

The purpose this sub-clause is to reduce potential disputes by encouraging agreement of the
consequences of Variations before the instruction is issued. If the Contractor considers that
to prepare a proposal is likely to be time consuming or the time and Cost implications are
uncertain then he can either find a reason not to submit a proposal or give high estimates for
the programme modification and evaluation. The proposal could then be subject to discussion
before the Engineer decides to issue the Variation.

GCC
When a Variation Order is issued, it is the obligation of the Employer’s Agent to calculate its
value, based on the following principles (Clauses 6.4.1.1 to 6.4.1.4):
`` Work of similar character and executed under similar conditions to work priced in the
Pricing Data must be valued at the applicable rates or prices;
`` Work not of similar character or done under different conditions to work priced in Pricing
Data, however an item can be used as the basis for valuation, it must be used, eg. similar
work but at a different location, requiring additional haulage;
`` If the character and conditions of the work differ from the work in the Pricing Data to such
an extent that these rates and prices cannot be used, the Engineer must consult with the
Contractor and the Employer to agree on suitable rates or prices;
`` If the above procedures for valuing the work were not applicable or successful, the
Employer’s Agent may instruct the work to be executed on a Daywork basis, following the
procedures contained in Clause 6.5.

In Clause 6.4.2 the Employer’s Agent shall within a time-barring period of twenty-eight days
issue the Variation Order. This period may be extended if agreed in writing between Contractor
and Employer. The valuation of the Variation Order must then be certified for payment. Should
the Contractor disagree with the valuation he nonetheless shall execute the work and may raise
a notice of his dissatisfaction in terms of Clause 10.2. This should however not stop payment in
terms of the Engineer’s valuation.

Clause 6.4.3 provides for the Contractor to submit a claim in accordance with Clause 10.1 if the
Employer’s Agent’s valuation is not received within the time referred to in Clause 6.4.2.

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NEC3 JBCC FIDIC GCC

Instruction by PM changing Works Principal agent can alter design, Engineer may initiate Variations Employer’s Agent may issue
Information = Compensation quality, quantity of Works, or delegate to assistant any time Variation Orders up to Certificate
Event. provided no substantial change in prior to Taking Over. of Completion.
scope.
| Variations

Instructions to be in writing. Instructions to be in writing. Written and oral instructions. Variation Orders to be in writing.
Contractor obeys instructions. Contractor obliged to comply. Contractor shall execute Variation. Contractor cannot refuse to

Comparing Construction Contracts

execute Variation Order.

PM may instruct Contractor to Contractor obliged to comply. Contractor shall execute Variation.
submit quotations or alternative
quotation.
PM may instruct Contractor to Contractor to co-operate/assist Variations evaluated by Engineer Employer’s Representative to
submit quotations or alternative PA where instruction cause in terms of measurement & calculate value of Variation
quotation. adjustment to contract value. evaluation clauses (R). Orders, if Contractor disagrees –
Dissatisfaction Claim.
Quotations to include changes to PA determine adjustment to Contractor may submit proposal Engineer’s valuation to be given
prices and dates within 3 weeks of contract value based on priced or Engineer may instruct variation within 28 days.
PM instruction. documents. based on value engineering (Y).
PM to reply within 2 weeks. Contractor notify PA within 42 Contractor to confirm oral Contractor to confirm oral order.
days of change in contract sum. instructions.
 Claims | 87

Lesson 7:
Claims

Common law does not regulate Extension of Time Claims, Time Bars and the like. The contract
must allow for grounds for claiming Extension of Time, procedures, etc. to regulate claims
pertaining to extension of time. Each contract will be specific to the project.

NEC3
In NEC3 the basis of compensation is the same irrespective of the risk event and issues such as
time and money and the effect thereof is handled in the same quotation at the same time.

Based on the latest Accepted Programme, the Contractor must provide cost and time forecasts
of the effect of the event. The cost will be on defined items of cost plus his fee (agreed at
tender stage). The Project Manager can either accepts the Contractor’s submission, asks for
alternative quotations, or he can do his own assessment.

Clause 61.3 states that the Contractor notifies the Project Manager of an event which has
happened or which he expects to happen as a compensation event if:
`` The Contractor believes that the event is a compensation event; and
`` The Project Manager has not notified the event to the Contractor.

If the Contractor does not notify a compensation event within 8 weeks of becoming aware of
the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless
the Project Manager should have notified the event to the Contractor but did not.

This is a Time Barring Clause.

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88 | Claims

JBCC
Clause 23.4 provides that if a listed circumstance occurs [23.1-3], which could cause a delay to
the date for practical completion the contractor shall:
`` Take reasonable steps to avoid or reduce such delay
`` Within 20 working days of becoming aware, or ought reasonably to have become aware
of such delay, give notice to the principal agent of the intention to submit a claim for a
revision to the date of practical completion, failing which the contractor shall forfeit such
claim.

This again is a Time Barring Clause

The contractor shall submit a claim for revision of the date of practical completion to the
principal agent within 40 working days from when the contractor is able to quantify the delay
in terms of the programme. The claim shall state separately the relevant clause on which the
contractor relies, the cause and effect of the delay illustrated by a change to the critical path on
the current programme and the extension period claimed in working days and the calculation
thereof.

The principal agent shall within 30 working days of receipt of the claim grant in full, reduce or
refuse the working days claimed. Where the principal agent fails to act within this period such
claim shall be deemed to be refused.

FIDIC
Clause 20 covers the submission of claims and the settlement of disputes. One of the principal
ways that the Construction Contract covers the special contingencies of construction projects is
by providing for specified claim rights for the contractor if and when such contingencies arise.

Sub-Clause 20.1 set’s out the procedure to be followed by the contractor when submitting a
claim.

One of the principal ways that FIDIC Contracts cover the special contingencies of construction
projects is by:
`` Specified claim rights for the contractor and Employer;
`` Procedures for the enforcement of these rights.

The contractor may assert two types of claims:

`` Legal claims, ie. claims which the contractor may be entitled to assert under the law
governing the contract;
`` Contractual claims, ie. claims which the contractor is entitled to assert by virtue of the
specific provisions of the contract.

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 Claims | 89

It is in the Contractor’s interest to make contractual claims, wherever feasible because the
Engineer has the power and authority to decide these types of claims in the first instance.

The Engineer is unable to evaluate legal claims. For contractual claims, there are about 30 sub-
clauses specifying events which, should they occur, will entitle the Contractor to claim from the
Employer.

Each claim clauses typically states that having given a notice to the Engineer, the Contractor is
entitled subject to Sub-clause 20.1 to an extension of time and additional payment and that
after receiving the notice;

The Engineer shall proceed in accordance to agree or determine these matters.

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90 | Claims

In addition to Contractor’s Claims, Clause 20 covers the appointment and operation of the DAB,
and amicable settlement and arbitration.

Where one or both parties do not agree with the Engineer’s determination of a claim, the
dispute is referred to an independent DAB as a precondition to arbitration. The DAB renders a
decision that is immediately binding on the parties whether or not one of them is dissatisfied
with the decision.

The Contractor must give notice to the Engineer of time or money claims, as soon as practicable
and not later than 28 days after the date on which the Contractor became aware, or should have
become aware, of the relevant event or circumstance.

Any claim to time or money will be lost if there is no notice within the specified time limit.
Supporting particulars should be served by the Contractor and the Contractor should also
maintain such contemporary records as may be needed to substantiate claims.

Therefore, again there is a Time Barring Clause

The Contractor should submit a fully particularised claim after 42 days after which the Engineer
is to respond, in principle at least, within 42 days. The Claim shall be an interim claim.

Further interim updated claims are to be submitted monthly.

A final claim is to be submitted, unless agreed otherwise, within 28 days of the end of the claim
event. Payment Certificates should reflect any sums acknowledged in respect of substantiated
claims.

Notice must not be later than 28 days. After becoming aware of event or circumstance this is
what is known as a time barring notice.

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 Claims | 91

GCC
Clause 10.1 makes provision for the Contractor to claim for an extension of time for the Practical
Completion. Within 28 days (time barred) after the circumstance, event, act or omission
giving rise to such a claim the Contractor shall submit a written claim including the following
information:
`` Particulars of the circumstance, event, act or omission giving rise to the claim;
`` Provisions of the Contract on which the claim is based;
`` Length of Extension of Time and the basis of calculation thereof;
`` Amount of money claimed and the basis of calculation thereof.

The 28-day period can be extended if the Contractor was not and could not reasonably have
been aware of the implications of the facts or circumstances concerned. The Employer’s Agent
shall within 28 days give his ruling on the claim.

Clause 10.2 uniquely allows the Contractor and/or the Employer to submit a dissatisfaction
claim, which is not required to be dealt with in terms of Clause 10.1, to the Employer’s Agent.
Such claims shall be submitted to the Employer’s Agent within twenty-eight days of the cause
for dissatisfaction arising. This period may not be extended, and acts as a strict time bar. The
Employer’s Agent is obliged to give his written ruling with reasons, within twenty-eight days.

In summary therefore NEC3, FIDIC and JBCC require that notice must be given within a specified
time or the Contractor will lose his rights to additional time and money.

The claim can be submitted later, but the notice must have been submitted in the prescribed
time period

GCC requires that a claim must be submitted within a specified time and if the claim cannot be
submitted then notice should be submitted and if this is not done, then the Contractor will lose
his rights to claim.

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92 | Claims

Notes

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 Suspension and Termination | 93

Lesson 8:
Suspension and Termination

TERMINATION AND SUSPENSION ARE VERY SERIOUS MATTERS-DO NOT SUSPEND OR TERMI-
NATE UNTIL YOU HAVE CONSULTED YOUR LEGAL TEAM!

NEC3

1. Suspension

No specific suspension clause is included in the conditions, however clause 34.1 gives the
Project Manager the right to instruct the Contractor to stop or not to start any work and he may
later instruct the Contractor to re-start or start the work. When this influences a substantial part
of the work for more than thirteen weeks the Contractor may terminate per Clause 91.6.

2. Termination

Both the Employer and the Contractor have rights to terminate the Contractor’s employment,
however it is important to note that the termination clauses confer rights on to the Parties,
but it is not mandatory that those rights are exercised. Only the Employer has the right to
termination entirely at his discretion.

The termination table on page 24 of the black book gives reasons for termination.

Reasons for termination (Clause 91):

Either may terminate if the other party:

`` Is bankrupt or arrangement over his assets has been made; etc. (R1-4)
`` Is liquidated or under administration, etc. (R5-10)

The Employer may terminate if the Contractor defaulted in:

`` Complying with his obligations;
`` Providing performance bond or guarantee;
`` Appointing subcontractor for substantial work before the Project Manager accepted the
Subcontractor;
`` Substantially hindered the Employer or other (even after notice);
`` Has broken health or safety regulations (even after notice).

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94 | Suspension and Termination

The Employer may terminate if an event occurs which stops the Contractor completing works or
the event stops the Contractor completing works and forecast for completion is more than 13
weeks and neither party could prevent it and was unforeseeable.

The Contractor may terminate if the Employer has not paid certified amount within thirteen
weeks of date of the certificate.

Either party may terminate if Parties have been released under the law from further performing.

The Project manager has instructed Contractor to stop or not start work within thirteen weeks.

Procedures on termination (Clause 92):

`` The Employer may complete works and may use plant and materials to which he has title;
`` The Employer may instruct the Contractor to leave site, remove any equipment, plant
and materials from site and assign benefit of any subcontract or other contract related to
performance to the Employer;
`` The Employer may use any equipment to which the Contractor has title to complete the
works;
`` The Contractor leaves the working areas and removes equipment.

Payment on termination (Clause 93):

`` Amount due:
ƒƒ The amount due is assessed for normal payments;
ƒƒ There is a defined cost for plant and materials within the working areas or to which
the Employer has title. Other defined costs are reasonably incurred in completing the
works;
ƒƒ The amounts are retained by the Employer and there will be a deduction of any un-
repaid balance of advance payments.
`` Other Amounts due (per termination table):
ƒƒ Forecast defined cost of removing equipment;
ƒƒ Deduction of forecast of additional cost to the Employer of completing whole of the
works.
ƒƒ Direct fee applied to:

 Options A, B, C and D: excess of the total of the Prices at the Contract Date of the
Price for Work Done to date;

 Options E and F: excess of the first forecast of the Defined Cost for the works over
the Price for Work Done to date less the fee.

The Project Manager must certify final payment within 13 weeks of the decision to terminate.

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 Suspension and Termination | 95

JBCC

1. Suspension

Under JBCC, only the contractor can suspend the works under Clause 28. He must give five
working days’ notice to the employer and the principal agent of the intention to suspend for
reasons stated in the conditions.

Reasons for suspension include:

`` No payment guarantee;
`` No issue of certificate;
`` No payment of full certificate;
`` No insurance;
`` No appointment of principal agent.

The contractor may suspend works until the default has been remedied and shall instruct each
subcontractor to suspend. Where work has been suspended, the principal agent must provide
a revised date for the practical completion on resumption of the works.

2. Termination

JBCC gives the employer 3 reasons to terminate, while the contractor has 7 reasons to
terminate.

Both the employer and the contractor must give notice of intention to terminate and the other
party has ten working days to remedy.

Termination by employer (Clause 29.1 - 13):

The employer may give notice of intention to terminate where the contractor has failed to:
`` Provide guarantee for construction within 15 working days of the date of acceptance of the
contractor’s offer;
`` Proceed with the works within period stated;
`` Comply timeously with a contract instruction.

The principal agent may give notice to the contractor to remedy a specified default within 10
working days of the date of receipt of such notice. If the default is not remedied the employer
may give notice to terminate forthwith.

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96 | Suspension and Termination

The employer may employ others to safeguard works, complete outstanding work and rectify
defects and the contractor shall be liable for such costs and may use materials and goods and
temporary structures on site for which payment shall be included in the final account. Should
contractor default on removing temporary structures or construction equipment from site, the
employer may remove or sell such items

The employer may recover damages from the contractor from the date of termination including
additional costs incurred in completion of remaining work. Penalties may be applied up to date
of termination where initial or revised date for practical completion has passed.

Where applicable, the employer may recover from the construction guarantee and/or
other securities. Latent defects liability period shall end 5 years from date of termination.
Where the agreement has terminated, the contractor shall give notice of termination of the
subcontractors.

Termination by the contractor (Clause 29.14 - 19):

The contractor may give notice of intention to terminate where the employer failed to:
`` Provide guarantee for payment;
`` Give possession of the site;
`` Allow principal agent and/or agents to exercise fair judgement;
`` Effect insurances;
`` Pay amount certified;
`` Appoint another principal agent and/or agents;
`` Fail to issue payment certificate by the due date.

The contractor shall give notice specifying the default to be remedied within 10 working days
from the date of notice. If the default is not remedied the contractor may give notice to
terminate.

Where the agreement is terminated:

`` The contractor shall give notice of termination of the Subcontract Agreement to each
subcontractor;
`` The contractor shall remove temporary structures, construction equipment and on notice
surplus materials and goods from the site within 10 working days;
`` Latent defects liability period for portion of the works shall end;
`` The contractor may be entitled to damages;
`` Construction guarantee shall expire on the date of termination;
`` Guarantee for payment shall expire on the date of termination.

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 Suspension and Termination | 97

FIDIC
Clauses 15 and 16 set out the grounds which will entitle:
ƒƒ Employer to terminate the contract;
ƒƒ Contractor to suspend or terminate the contract.

Clause 15 gives the circumstances under which the Employer can terminate.

These are set out at Sub-clauses 15.2 (a) to 15 (f)Sub-Clause 15.2 (b) is the most common Sub-
clause used as it refers to when the Contractor abandons the Works or demonstrates he does
not intend to continue with his obligations.

Clause 16 [Suspension and Termination by Contractor]

Clause includes:
`` Reasons (in Sub-clause 16.1) for entitlement for the Contractor to suspend work (under
Sub-clauses 14.6; 2.4; 14 7) with 21 days’ notice to Employer (where the Contractor must
give notice to the Engineer for costs and time);
`` Reasons for termination by the Contractor (Sub-clause 16.2);
`` Actions for Employer must undertake after notice of termination has been received from
the Contractor (Sub-clause 16.4).

1. Suspension

Under FIDIC, suspensions may be required due to a situation for which either (or neither) party
is responsible. There is no duty under the FIDIC conditions to instruct a suspension, even if it is
obvious that certain works must be suspended due to a serious event, such as a flood. In these
obvious cases, it is the Contractor who is at risk if he persists in executing work which should
obviously be suspended. In some cases, his persistence may make a suspension necessary for
reasons attributable to the Contractor.

No mention is made of any need for the suspension instruction to clarify the cause for the
suspension. Occasionally, the Employer may prefer to admit liability, in order to avoid notifying
a cause which he regards as confidential and in certain cases, it may be preferable for the
Contractor to be given an explanation.

Both the Employer and the Contractor may suspend the work for reasons mentioned in the
applicable clauses.

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98 | Suspension and Termination

Sub-clause 16.1 [Contractor’s Entitlement to Suspend Work]

Contractor may only suspend work if:

`` The Engineer fails to issue a timely interim certificate; or
`` The Employer fails to provide financial information as required under Sub-clause 2.4; or
`` The Employer fails to pay any sums due.

Before the Contractor can suspend, he must give 21 days’ notice. Notice must be in writing and
must set out the grounds for the suspension. If the default is remedied, the Contractor must
resume work as soon as possible. Where the suspension is valid, the Contractor is entitled to
claim for delay or Costs plus reasonable profit in accordance with Clause 20.

Generally, FIDIC requires that the Contractor suspends before he terminates.

Sub-clause 16.2 [Termination by Contractor]

Grounds under which the Contractor may terminate are:

(a) Employer fails to give evidence of financial arrangements;
(b) Engineer fails to issue a Payment Certificate on time;
(c) Employer fails to make due payment on time;
(d) Employer fails to perform its contractual obligations;
(e) Employer fails to enter into the Contract Agreement or assigns its entire interest in the
project;
(f) There is a prolonged suspension;
(g) Employer goes into insolvency;

For (f) and (g) Contractor may give immediate notice. For (a) to (e) Contractor gives 14 days’
notice.

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 Suspension and Termination | 99

2. Termination

When terminating a contract TWO IMPORTANT questions need to be considered.

1. Am I entitled to cancel on this ground? Is this a listed circumstance for cancellation?
ƒƒ Circumstances under which Employer may cancel: Clause 15.2;
ƒƒ Circumstances under which Contractor may cancel: Clause 16.2.
2. Have I followed correct procedures with regard to notices, period within which to rectify
breach etc.?
ƒƒ Cancellation by Employer: Clause 15
ƒƒ Cancellation by Contractor: Clause 16

Both parties can terminate for reasons as set out in the conditions. If the one party believes
that the other party’s failure of performance is sufficiently serious to merit termination the
party should take legal advice before giving notice. A notice of termination that is subsequently
decided to be unjustified would constitute a breach of contract by the effected party. If the one
party gives notice and then wishes to withdraw it, the parties may agree that the notice shall be
of no effect and that the Contract is not terminated.

Sub-clause 15.5

[Employer’s Entitlement to Termination]

`` The Employer may terminate at any time, for his convenience, in the absence of Contractor
default, upon 28 days’ notice;
`` If the Employer terminates on this basis, Works cannot be completed by another.

Thus, this sub-clause cannot be applied if the Employer’s intention is to remove the Contractor.
The Contractor is entitled to be paid in accordance with Sub-clause 16.3 and the Force Majeure
provisions of Sub-clause 19.6 (Engineer must determine the value of the Works done and issue a
payment certificate).

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100 | Suspension and Termination

GCC

1. Suspension

The Contractor shall on the written order of the Employer’s Agent stating the cause for
suspension, suspend the progress of the works or any part thereof. Suspending the works
or part thereof is a serious instruction that should not be ordered without considering the
substantial costs that would result upon the consequential halting of the works, and in the case
of a prolonged suspension, the possible termination of the Contract by the Contractor.

Suspension of the works (Clause 5.11):

The Employer can suspend the work on a written order stating cause for suspension.
ƒƒ The Contractor must properly protect the Works;
ƒƒ The Contractor can claim in accordance with Clause 10.1.

If Suspension lasts more than 84 days, the Contractor is to give written notice to the Employer’s
Agent requiring permission to proceed with Works or part thereof is suspended. If permission
is not granted within 28 days, the Contractor may by written notice to Employer elect to
treat suspension as an omission of a part of the Works or where it effects whole of Works as
repudiation of the Contract by the Employer and Clause 9.3 (Termination by Contractor) shall
apply.

2. Termination

The contract may only be terminated for a breach which is stipulated as a material term and if
the contract provides for the right to terminate, or where such a right is obtained by serving a
proper notice. Both parties can terminate for reasons as stated in the conditions.

If the Employer wants to terminate due to a material breach by the Contractor, the Contractor
has 14 days to remedy breach. Although the Contractor is not required to give notice to the
Employer to remedy his default, the use of “persist” indicates that the Contractor should not
terminate the contract for an initial breach, but make some demand for compliance. Only if the
Employer persistently fails to remedy the material breach, would the Contractor have the right
to terminate the Contract.

Termination by Employer (Clause 9.2):

Employer can terminate if:

`` The Contractor is sequestrated;
`` The Contractor assigns the Contract without Employer’s written consent or assigns the
Contract to creditors or carries out the Contract under the supervision of a committee
representing creditors;

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 Suspension and Termination | 101

`` The Contractor abandons Contract;

`` The Contractor fails to commence Works;
`` The Contractor fails to proceed with Work per programme;
`` The Contractor fails to remove Plant or materials from Site or to demolish and redo work
within 14 days after Engineer’s written notice;
`` The Contractor is not executing Works in accordance with Contract;
`` The Contractor pays or offer to pay person a gratuity or reward or commission;
`` The Contractor provided inaccurate information in returnable documents with tender.

The Employer can after giving 14 days written notice to Contractor to remedy the default
terminate the Contract and order Contractor to vacate Site. The Employer may complete the
Works himself or may employ another contractor to complete Works.

The Employer may use for completion as much of the Construction Equipment, Temporary
Works and materials brought onto Site by the Contractor as the Employer may think proper.
The Employer may sell any of the said Construction Equipment, Temporary Works an unused
materials except where Contractor is sequestrated

Payment to complete the Works (Clause 9.2.2):

Should the amount to complete the Works exceed sum payable to the Contractor, the
Contractor shall upon demand pay the Employer the difference.

Termination by Contractor (Clause 9.3):

The Contractor can terminate if the Employer persists in:

`` Repudiating the Contract;
`` Failure to pay the Contractor;
`` Interfere or obstruct issuing of certificate for 14 days after receipt of written notice from
the Contractor;
`` Having estate sequestrated or going into liquidation;
`` Assign the Contract without written consent of the Contractor.

Removal of items and payment to Contractor (Clause 9.3.2):

`` All Contract provisions shall continue;
`` Ownership of Plant and unused materials brought onto Site by the Contractor, but not yet
paid by Employer, revest to Contractor and can be removed from Site;
`` The Employer shall pay all as per Clause 9.1 plus amount of any additional loss or damage.

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102 | Suspension and Termination

SUSPENSION

NEC3 JBCC FIDIC GCC

Who may Clause 34: PM Clause 28: Suspension Engineer can Clause 5.11:
suspend. instruction to by the contractor. suspend at any Employer’s
stop or not start time. Agent
work. may order
Clause 16.1:
suspension.
Contractor’s
Entitlement to
Suspend Work.
Notice Contractor gives 5 Engineer does
days’ notice. not need to give
notice.
Contractor gives
21 days’ notice.
Reasons for Contractor can No payment Engineer fails to
suspension. terminate if not guarantee. certify.
starting work
No issue of certificate. No Employer’s
within 13 weeks.
Financial
No payment of full
Arrangements.
certificate.
Employer fails to
No insurance.
pay.
No appointment of
PA.

TERMINATION

NEC3 JBCC FIDIC GCC

Who may Either party can Either party can Either party can Either party can
terminate terminate. terminate. terminate. terminate.
Reasons for Employer can Employer: 3 Employer: 6 Employer: 9
Termination terminate for any reasons. reasons reasons.
reason. (Clause 15).
Termination table Contractor: 7 Contractor: 7 Contractor: 4
found on page 24 of reasons. reasons reasons.
black book. (Clause 16).

Notice Termination within 13 Both parties Employer Employer

weeks: PM certifies give 10 working must give must give
final payment. days’ notice to notice within notice within
remedy before reasonable time reasonable time
terminate. (Clause 16). (Clause 15).
Contractor – 14 Contractor – 14
days’ notice. days’ notice.

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 Dispute Resolution | 103

Lesson 9:
Dispute Resolution

The Construction Industry has a reputation for disputes and conflict. For example in Australia ca.
50% of all legal costs incurred in construction projects are associated with disputes. In 10% of all
projects ca. 10% of the total project cost was legal cost.

Disputes and conflict on a project can hinder its efficiency greatly. An ineffective dispute
resolution process can result in the breakdown of relationships between parties, a delay on
the project leading to claims, frustration and irritation and de-motivation by those working on
the project. Conflict often arises due to misunderstandings and differing interpretations of the
contract. Greyzones, interfaces and language problems often are the reasons conflict arises.

The following methods of dispute resolution have raised concerns in the building environment
due to the following:
`` The use of an Employer’s Agent in the dispute resolution has proven to delay the process
rather and shown very little gain;
`` Arbitration is a costly exercise, time consuming and subject to formal procedural rules;
`` Litigation proceedings are expensive, time consuming and determined often by legal rather
than a technically trained judge with little knowledge of construction law.

Construction dispute resolution works well when:

`` The process is speedy;
`` The process is cost effective;
`` It is conducted by an independent third party;
`` Any matter can be heard;
`` It is capable of becoming final and enforceable;
`` It is binding;
`` Is undertaken by a person (or group of people) who has the required legal/technical
knowledge or is able to acquire it;
`` Is undertaken by a person (or group of people) chosen by the parties;
`` Will not interfere with the progress of the works.

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104 | Dispute Resolution

Traditional Dispute Resolution Methodologies

There are six traditional Dispute Resolution Methodologies
ƒƒ Negotiation
ƒƒ Mediation
ƒƒ Conciliation
ƒƒ Adjudication
ƒƒ Arbitration
ƒƒ Litigation

Negotiation

Negotiation is a dialogue between two or more people or parties intended to reach an

understanding, resolve points of difference, to gain advantage for an individual or collective, or
to craft outcomes to satisfy various interests.

The Project or Party uses internal methods involving informal amicable discussions, often
resulting in compromised solutions. This process can be very quick.

Mediation

Mediation, as used in law, is a form of alternative dispute resolution (ADR), a way of resolving
disputes between two or more parties with concrete effects. Typically, a third party, The
Mediator, assists the parties to negotiate a settlement. Disputants may mediate disputes in a
variety of domains, such as commercial, legal, diplomatic, workplace, community and family
matters.

The term “mediation” broadly refers to any instance in which a third party helps others reach
agreement. More specifically, mediation has a structure, timetable and dynamics that “ordinary”
negotiation lacks. The process is private and confidential, possibly enforced by law. Participation
is typically voluntary. The mediator acts as a neutral third party and facilitates rather than directs
the process

Mediators use various techniques to open, or improve, dialogue and empathy between
disputants, aiming to help the parties reach an agreement. Much depends on the mediator’s
skill and training. As the practice gained popularity, training programs, certifications and
licensing followed, producing trained, professional mediators committed to the discipline.

This is a formal procedure led by Independent Neutral Experts in order to resolve a dispute,
often resulting in compromised solutions. The process can be very quick.

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 Dispute Resolution | 105

Conciliation

Conciliation is an alternative dispute resolution (ADR) process whereby the parties to a

dispute use a Conciliator, who meets with the parties separately in an attempt to resolve their
differences. They do this by lowering tensions, improving communications, interpreting issues,
providing technical assistance, exploring potential solutions and bringing about a negotiated
settlement.

Conciliation differs from mediation in that the main goal is to conciliate, most of the time by
seeking concessions. In mediation, the mediator tries to guide the discussion in a way that
optimizes parties’ needs, takes feelings into account and reframes representations.

Adjudication

Adjudication is the legal process by which an arbiter or judge reviews evidence and
argumentation including legal reasoning set forth by opposing parties or litigants to come to a
decision which determines rights and obligations between the parties involved.

This is a formal procedure involving a Tribunal of Independent Experts tasked to decide the
dispute, based on ascertained facts. Worldwide experience shows that close to 100% success
rate in dispute resolution when the adjudication method has been used.

Time Scale:

FIDIC: 84 days

GCC: 28 days

Arbitration

Arbitration, a form of alternative dispute resolution (ADR), is a technique for the resolution
of disputes outside the courts. The parties to a dispute refer it to arbitration by one or more
persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), and agree to be bound by the
arbitration decision (the “award”). A third party reviews the evidence in the case and imposes a
decision that is legally binding on both sides and enforceable in the courts.

Formal procedure involving Tribunal of Independent Experts tasked to decide the dispute, based
on Parties’ submissions. More legally formalistic. It is considered longwinded and expensive in
the construction industry.

Litigation

The conduct of a lawsuit is called litigation.

Lawsuit or (very rarely) “suit in law” is a civil action brought in a court of law in which a plaintiff,
a party who claims to have incurred loss as a result of a defendant’s actions, demands a legal or
equitable remedy. The defendant is required to respond to the plaintiff’s complaint.

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106 | Dispute Resolution

Formal procedure through the jurisdictional courts, involving judges that may or may not have
the technical expertise required.

Time Scale

Often not immediately possible in the construction industry due to New York Convention on
inclusion of arbitration clauses.

NEC3
NEC3, as with many of the other contracts, acknowledges that issues between parties are
resolved successfully and in a timely manner when an independent third party is involved.

Provision is made for an Adjudicator whose responsibility it is to act impartially when the
contract commences. Either the Project Manager or the Contractor may call on the Adjudicator
when conflict arises.

The Adjudicator has the authority to determine the principles and course of action to be taken
when a dispute arises. He also has the authority to assess any additional cost and delay which
the dispute itself has caused or will cause to the Contractor and/or Subcontractor.

What is important to note is that an Adjudicator is not an Arbitrator and their decision can
be challenged. This however, must be done within four weeks of the decision, after which the
matter will be referred to Arbitration.

Option W1 :
`` Disputes are referred to the Adjudicator;
`` Adjudicator to be appointed at the starting date of contract;
`` Adjudicator acts impartially;
`` If no Adjudicator is indicated in Contract Data, Parties may choose one jointly or ask
Adjudicator nominating body to choose one;
`` Disputes are notified and referred to the Adjudicator in accordance with the Adjudication
Table;
`` Times for notifying and referring may be extended by the Project Manager if the Contractor
and Project Manager agree to extension before the notice or referral is due;
`` Party referring the dispute includes information;
`` Any more information from a party must be provided within four weeks of the referral;
`` If dispute matter is connected with the a subcontract, the subcontract dispute may also be
referred to the Adjudicator at the same time as the main contract referral.

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`` The Adjudicator may:

ƒƒ Review and revise any action or inaction of the Project Manager or Supervisor related to
the dispute and alter a quotation which has been accepted;
ƒƒ Take initiative in ascertaining the facts and the law related to the dispute;
ƒƒ Instruct a party to provide further information related to the dispute within a stated time
and;
ƒƒ Instruct a party to take any other action which he considers necessary to reach his
decision and to do so in stated time.
`` All communications are communicated to both parties
`` If Adjudicator’s decision includes additional cost or delay to the Contractor, this will be
assessed in same way as a compensation event;
`` Parties must continue as if the matter disputed was not disputed until the Adjudicator
notify his decision;
`` Adjudicator’s decision is binding on parties unless and until revised by the tribunal and is
enforceable;
`` Adjudicator’s decision is final and binding if neither party has notified the other within the
time required by contract that he is dissatisfied with decision;
`` Adjudicator may, within two weeks of giving decision, correct any clerical mistake or
ambiguity;
`` Tribunal:
ƒƒ A party may give notice of referring the dispute to a tribunal. This must be done within
four weeks. If the Adjudicator does not give notice of decision within time provided,
a party may give notice of referring dispute to the tribunal (this must be within four
weeks of date Adjudicator should have given decision). The tribunal has the power
to reconsider any decision of the Adjudicator and revise any action or inaction of the
Project Manager or Supervisor related to the dispute. The Party is not limited in the
tribunal proceedings to the information, evidence or arguments put to the Adjudicator.
`` It is important to note the following:
ƒƒ If tribunal is arbitration, all relevant information must be given in contract data;
ƒƒ A Party does not call the Adjudicator as a witness in tribunal proceedings.

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JBCC
Either party may give notice to the other if a disagreement arises between them to resolve
such disagreement. If the issue is not resolved within 10 working days it becomes a dispute,
which shall be referred to adjudication within further 10 working days.

In the notice of adjudication the scope of the dispute and the relief sought by the party must be
clearly defined. If either party fail to comply to the dispute resolution clause the dispute cannot
be resolved by adjudication but only by means of arbitration.

The procedure for dispute Resolution is stated in Clause 30.0:

`` Either party may give notice of a disagreement to the other;
`` Where disagreement is not resolved within 10 working days disagreement shall be deemed
to be a dispute;
`` Dispute shall be referred to adjudication within 10 working days by means of a notice of
adjudication by the party;
`` Notice shall clearly define scope of the dispute and the relief sought by adjudication;
`` Failure of above procedure, dispute to be resolved by arbitration.

Adjudication:

The JBCC Rules for Adjudication are stated in Clause 30.6. Parties must at all times abide by
these rules highlighted below.
`` Adjudicator shall be appointed and conducted in accordance with JBCC Rules for
Adjudication;
`` Adjudicator shall not be eligible for subsequent appointment as arbitrator;
`` Determination by adjudicator shall be immediately binding upon the parties;
`` Notice of dissatisfaction may be given within 10 working days of receipt of determination,
then referred to arbitration;
`` Where adjudicator has not given determination within time period either party may give
notice to other party and to adjudicator. If determination is not received within 10 working
days of receipt of notice adjudicator’s appointment is terminated and dispute is referred to
further adjudication or arbitration.

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 Dispute Resolution | 109

Arbitration:

The rules for Arbitration are stated in Clause 30.7. The determination of the adjudicator shall
remain in place until overturned by an arbitration award.
a. Resolution of dispute shall commence anew;
b. Referring party shall be the claimant in arbitration;
c. Arbitrator shall be appointed by agreement between parties within 15 working days of
notice by either party, failing on application by either party to body as stated;
d.Applicable rules shall be agreed between parties.

Mediation (Clause 30.8):

Parties may, by agreement and at any time, refer dispute to mediation.

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110 | Dispute Resolution

FIDIC
All of the new FIDIC contracts (except the “Green Book” for minor works) require that a Dispute
Adjudication Board (DAB) be appointed at the commencement of the project, and that the DAB
should remain in place until the contract is completed.

Two types of DAB’s are contemplated by FIDIC, namely:

`` Standing DAB as provided for in the Red Book;
`` Ad-hoc DAB as provided for min the Yellow, Silver and Gold Books.

The Board is selected jointly by the Parties in accordance with Sub-Clause 20.1 [Appointment
of the Dispute Adjudication Board]. The number of persons in the Board must be stated in
the Appendix to Tender. The date by which the Board shall be appointed is also stated in the
Appendix to Tender.

The Contract may contain a list of potential members the Parties have agreed on. This list shall
be used for selection of the DAB, except only if a listed person is unwilling or unable to take the
appointment.

FIDIC has incorporated six processes into the FIDIC Forms of Contract:
1. Identification
2. Negotiation
3. Determination / Amicable Settlement
4. Dispute Adjudication Boards / DB decision
5. Amicable Settlement Attempt
6. Arbitration

Identification

Understand and know your contract!

Negotiation

In accordance with the Multistage Approach the FIDIC Suite of Contracts encourages early and
transparent notification of potential problems.

Examples:
`` Clause 4.10 Site Data;
`` Clause 8.3 Programme / Delays;
`` Clause 20.1 Contractor’s Claims;

The objective is for the day-to-day project management to identify and resolve issues before
they escalate into complex disputes.

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 Dispute Resolution | 111

Determination / Amicable Settlement (Clause 3.5)

This is arguably one of the most important but also misunderstood duties of the ENGINEER. It is
described under Sub-Clause 3.5 [Determinations]:

Whenever these Conditions provide that the Engineer shall proceed in accordance with this
Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in
an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair
determination in accordance with the Contract, taking due regard of all relevant circumstances.

Some Sub-Clauses that require the ENGINEER to act in accordance with Sub-clause 3.5:
Sub-Clause 2.1 [Rights of Access to the Site];
Sub-Clause 4.7 [Setting Out];
Sub-Clause 4.12 [Unforeseeable Physical Conditions];
Sub-Clause 12.3 [Evaluation];
Sub-Clause 20.1 [Contractor’s Claims].

There are 24 Sub-Clauses in total requiring the ENGINEER to act in accordance with 3.5!

There is no apparent time-limit for the ENGINEER to act in accordance with 3.5! However, with
reference to Sub-Clause 1.3 [Communications] this is put into perspective:

Approvals, certificates, consents and determinations shall not be unreasonably withheld or

delayed.

DAB / DB decisions (Clause 20.4)

If a dispute arises between the Employer and the Contractor then it may be referred to the DAB
/ DB, under Clause 20.4 [Obtaining Dispute Board’s decision]. The wording of Sub-Clause 20.4 is
not restricted to disputes as a result of a claim being rejected, but includes disputes of any kind
whatsoever, in connection with or arising out of the Contract or the execution of the Works.

Detailed provisions and procedures for the DAB / DB are included at Sub-Clauses 20.2 to 20.4,
the Appendix ‘General Conditions of Dispute Adjudication Agreement / General Conditions of
Dispute Board Agreement’ and the Annex: Procedural Rules

Source: FIDIC User’s Guide 3rd Edition Barr / Grutters (ICE Publishing)

Amicable Settlement Attempt (Clause 20.5)

Sub-Clause 20.5 [Amicable Settlement] provides for a 56-day period after the issue of a notice of
dissatisfaction before arbitration can commence. This is to allow time for the Parties to attempt
to settle the dispute amicably. From a practical point of view, it can be questioned why this
additional period was inserted into the procedure. The dispute is normally the result of an issue
discussed at length between the parties at project level. Subsequent failure to reach agreement
sent the issue to the DAB / DB, who in turn made a decision. The suggestion that after all this
tension filled procedural manoeuvring the parties all of a sudden see the light of day is doubtful

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112 | Dispute Resolution

The Contract does not stipulate any particular procedure for the attempt at amicable settlement.
It may consist of a further attempt by the Engineer, or a direct negotiation between senior
managers of the Contractor and the Employer. Taking the dispute away from the people who are
directly involved and who have established fixed positions may help to achieve a settlement that
is acceptable to both sides.

Arbitration (Clause 20.6)

Sub-Clause 20.6 [Arbitration] gives the provisions for a dispute to be settled by arbitration. The
FIDIC Contract refers to the Arbitration Rules of the International Chamber of Commerce in
Paris, but the rules of a different arbitral organisation may have been included in the Particular
Conditions. Any arbitration will be subject to the applicable arbitration law as well as the
Arbitration Rules and the governing law as stated in the Contract.

Dispute Adjudication Board

A dispute board is a ‘job-site’ dispute adjudication process, typically comprising three

independent and impartial persons selected by the contracting parties, usually at the beginning
of the project with a mandate for the duration thereof.

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 Dispute Resolution | 113

GCC
When one of the party submitted a claim under the contract and it cannot be resolved between
the parties a dispute arise. GCC provides for resolution procedures. A Dispute Notice must be
delivered to the other party within 28 days of the event giving rise to the dispute. The parties
may at any time agree to settle any claim or dispute amicably with the help of an impartial
third party. If this is unsuccessful the dispute is referred to either an ad-hoc or a standing
Adjudication Board.

If a party is unhappy with the Adjudication Board’s decision the dispute can be referred to
arbitration

Dispute Notice (Clause 10.3):

Parties may deliver written notice, referred to as a Dispute Notice, of any dispute arising our of
the Contract provided that:
`` Dispute arises from an unresolved claim;
`` Reference to this Clause in Dispute Notice;
`` Copy to Engineer;
`` State clearly nature of dispute and extent of the redress sought;
`` Must be delivered within 28 days of the event giving rise to the dispute. Failing parties
shall have not further right to dispute the matter!!

Amicable settlement (Clause 10.4):

`` Parties may at any time without prejudice agree to settle any claim or any dispute amicably
with the help of an impartial third party;
`` If other party rejects invitation to amicable settlement in writing or does not respond in
writing to invitation within 14 days, or amicable settlement fails, referral to adjudication
follow immediately;
`` Amicable settlement shall become final and binding on parties to the extent that it is
correctly recorded as being agreed by the parties;
`` No reference of amicable settlement outcome, except if agreed to be final and binding,
shall be made in subsequent adjudication, arbitration or court proceedings.

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Adjudication (Clause 10.5):

If standing Adjudication Board applies, the Employer and Contractor shall within 56 days of
Commencement Date appoint member or members of Adjudication Board.

If not standing Adjudication Board, dispute shall be referred to ad-hoc adjudication.

Number of members in Adjudication Board must be stated in Contract Data.

Parties shall implement Adjudication Board’s decision without delay whether or not the dispute
is to be referred to arbitration or court proceedings.

Disagreement with Adjudication Board’s decision (Clause 10.6):

Either party may disagree with decision and refer matter to arbitration or court proceedings,
whichever is applicable provided that:
`` Decision shall be binding on both parties unless and until it is revised by an arbitration
award or court judgement;
`` Party shall not dispute validity or correctness of decision before 28 days or after 56 days
from receipt of the decision.

If Adjudication Board’s decision is not disputed and party fails to comply, other party may refer
failure to arbitration or court proceedings.

If Adjudication Board fails to give decision within time stated in the rules, either party may
submit dispute to arbitration or court proceedings, by giving notice to other party within 28 days
after the decision should have been given. If either party fails to give such notice, the Engineer’s
ruling or any agreed settlement shall be final and binding.

Arbitration (Clause 10.7):

ƒƒ If Contract Data provides for determination of disputes by arbitration, matter shall be
referred to a single arbitrator;
ƒƒ Rules for the Conduct of Arbitrations issued by the Association of Arbitrators (Southern
Africa) shall apply unless other agreed.

Court proceedings (Clause 10.8):

ƒƒ If Contract Data does not provide for settlement of disputes by arbitration, the dispute
shall be determined by court proceedings.

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 NEC3 JBCC FIDIC GCC
Either party may refer to Employer, PA or Contractor may Either party can refer Dispute to To constitute a dispute a claim
Adjudication in 2 to 4 weeks. give notice of disagreement. DAB. must be rejected.

Adjudication Table provides If not resolved in 10 days, dispute No period stipulated between 28 Days from event to deliver
procedure for notification based referred to Adjudication or dispute arising and referral to Dispute Notice.
on nature of dispute. Arbitration. Adjudication.
If times in contract not kept, Parties can resolve dispute by DAB can be one or three members Dispute can be referred to
neither party may refer to Mediation any time. appointed jointly. Amicable Settlement, then
Adjudication or Tribunal. Adjudication.

Guide clauses for Adjudicator’s Adjudication per JBCC rules. Guide clauses for failure to agree Parties may attempt Amicable
procedure within 4 weeks from on DAB and procedures for Settlement any time.
receiving information. Adjudication, 84 days for decision.

Decision final & binding unless State contract disputes proceed Notice of Dissatisfaction within
notice of dissatisfaction and straight to court. 28 days of Decision & 56 days
referred to Tribunal within 4 provided for Amicable Resolution.
weeks.
Tribunal: Arbitration or Litigation. Settlement, if agreed by parties, is Arbitration Disagree with Adjudication Board’s
final and binding. decision, either referred to
Arbitration/Court in 28/56 days.
Dispute Resolution |

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115
116 | Dispute Resolution

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 Dispute Resolution
xx | 117

Case Studies

Case Study Number 1: Parties To The Contract

Question

In the GCC contract, who is allowed to amend the terms and conditions of the contract?
`` The Project Manager
`` The Engineer
`` The Employer
`` The Principal Agent

Question

A road is being built in Zambia under the FIDIC Red Book Conditions of Contract.

The Contractor absconds from the site and disappears into a neighbouring country.

The Engineer issues a notice of termination and gets a security company to lock the offices and
take possession of the Contractors Plant and equipment.

Is the Engineer allowed to do this?

1. Yes , as he is the Employers Agent

2. No

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118 | Case Studies

Case Study 2: Variations

The Parties Contract to build a new hotel in Cape Town.

During the course of construction, the Architect has an epiphany and decides to alter the front
entrance dramatically.

The new entrance comprises of a small pond with ducks and koi fish, a suspended walkway and
is a dramatic change to what was originally in the Contract

The Principal Agent issues the Contractor with a Variation Order detailing the new work to be
done.

The value of the work is approximately 30% of the original Contract Sum-almost R25 million

Question

Does the PA have the authority to make such a drastic change, and should the Contractor
comply
ƒƒ Yes he has the authority and yes, the Contractor must carry out his instruction
ƒƒ Yes he has the authority but the Contractor does not have to carry out the instruction
until he agrees the price for the additional work
ƒƒ No he does not have the authority and the Contractor does not need to execute the
work

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 Case Studies | 119

Case Study 3: Variations under the NEC 3 Contract

The Parties contract to build a new casino under the NEC 3 Contract.

The parties agree that the fee percentage applicable to any Compensation Events shall be 18%
on cost.

The Project Manager issues a drawing which depicts an additional parking area, a smoking area
with additional slot machines and upgraded facilities for disabled persons.

The Contractor has a profit of 10% on costs in his rates.

The costs for the new work is as follows:

`` New Parking area: $ 200 000
`` Smoking area: $50 000
`` Upgraded Facilities : $ 30 000

The Contractor submits his quotation for the new work and indicates he requires to be paid his
costs plus profit plus the agreed fee percentage.

He argues he will be due $ 363 440.

The Project Manager disagrees and says he can only be paid his costs plus profit, an amount in
this case of $308 000.

Question

Who is correct?
1. The Contractor
2. The Project Manager
3. Neither

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120 | Case Studies

Case Study 4: Termination for Convenience

The owners of a diamond mine in Lesotho are considering embarking on an expansion
programme but are unsure of which form of contract ton use.

As the works will be predominantly civil works, they are advised not to consider the JBCC.

They are also advised that since the site is in Lesotho, the GCC 2015, which is essentially a
South African contract, perhaps it would be appropriate if they considered the 2 internationally
recognized forms of contract , namely the NEC 3 and the FIDIC Red Book [1999]

The Owners are concerned that they may have to terminate the contract prematurely due to
a lack of funding, but still wish to “do what we can with the available money” and are unsure
which form of contract to finally decide upon.

Question

Which Contract would protect the Employer better in the event of a Termination for
Convenience
1.
2.
3. NEC 3

Assume a Contract is concluded and the Contract Sum is R 200 Million.

After 13 months the Employer sees that the price of diamonds has dropped over the last year
and he cannot finish the project-his worst fears have been realized.

The Value of work certified to date is R100M

Ignoring the contractors costs associated with termination, which would be paid in any way,
under either contract how much would the Contractor be entitled to:
1. Under FIDIC
2. Under NEC 3 assuming an agreed Fee Percentage of 15%

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 Case Studies | 121

Case Study Number 1.1: Answer

None of these. The Employer may only alter the Contract if agreed to by the Contractor, and
may not do so unilaterally.

The Project Manager appears in NEC

The Engineer is not named in GCC 2015

The Employer may not do so unilaterally

The Principal Agent is the Employer’s Agent in JBCC

Case Study Number 1.2: Answer

2. The Engineer is not a Party to the Contract therefor he has no authority to terminate the
Contract. Only a Party to the Contract may terminate the contract

Case Study 2: Answer

(3) The Principal Agent “ may issue contract instructions to the contractor regarding alteration
to design, quality or quantity of the works provided that such contract instructions shall not
substantially change the scope of the works”

In this case the changes are such that they would be considered to be a change to the scope of
the works

Case Study 3: Answer

Neither. The Contractor will be entitled to his actual costs plus the agreed fee percentage.
In other words he would be due $280 000 plus 18% 0f $280 000 =$330 400

Case Study 4: Answer

`` 1 Under FIDIC the Employer is liable for the Contractors costs associated with termination
such as personnel costs, demobilization costs, plant costs and so on. Under NEC the
Contractor is entitled to the costs mentioned above plus the Fee Percentage on the balance
of the Works
`` Under FIDIC he would get R100Million + costs associated with Termination
`` Under NEC he would be entitled to R100m + costs + fee percentage on balance , which
means he would get an additional R15 Million under NEC!!!

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