Contents

T016 CONTRACT ADMINISTRATION AND T017 CONTRACT PRACTICE.....................................................2

PRINCIPLES OF CONTRACT LAW............................................................................................................... 2

1. Contract.................................................................................................................................................. 2

2. Contract Documents in FIDIC................................................................................................................ 3

3. Contra Proferentem Rule....................................................................................................................... 3

4. Quantum Meruit...................................................................................................................................... 4

FORM OF CONTRACT................................................................................................................................... 4

1. Standard Form of Construction Contracts...........................................................................................4

FACTORS AFFECTING SELECTION OF CONTRACT..................................................................................7

1. Procurement Route............................................................................................................................... 7

2. Type of Work and Sector...................................................................................................................... 7

3. Size, Value and Complexity of the Project............................................................................................7

4. The employer and their level of sophistication and familiarity with construction....................................7

5. Balance of risk/risk allocation................................................................................................................ 7

6. Design responsibility............................................................................................................................. 7

7. Basis of the contract sum and payment................................................................................................7

8. Control over sub-contractors................................................................................................................. 7

T062 PROCUREMENT AND TENDERING.........................................................................................................8

DEFINITION.................................................................................................................................................... 8

1. Procurement........................................................................................................................................... 8

2. Tendering................................................................................................................................................ 8

TYPES OF PROCUREMENT.......................................................................................................................... 8

1. Procurement Types................................................................................................................................ 8

2. Traditional Procurement Route............................................................................................................. 9

2. Design and Build Procurement Route................................................................................................10

3. Construction Management Procurement Route................................................................................10

4. Management Contracting Procurement Route..................................................................................10

5. Partnering............................................................................................................................................. 10
 6. Public Private Partnership................................................................................................................... 11

7. Alternative forms of Construction Procurement and Payment Mechanisms..................................11

T016 CONTRACT ADMINISTRATION AND T017 CONTRACT PRACTICE

PRINCIPLES OF CONTRACT LAW

1. Contract

(Key: Legally Enforceable, Agreement, R&O, 2 or more Parties

A contract is a legally enforceable agreement between two or more parties which gives rise to various rights
and obligations for the parties to the contract. Must have: Offer, Acceptance, Consideration, Capacity, Intention
to Create Legal Relations, Legality of Object, Certainty of Terms
 a. Offer - an expression of willingness to contract on certain terms made with the intention that shall
become binding as soon as it is accepted by the person to whom it is addressed (i.e., Tender Returns)
b. Acceptance - final unqualified expression of acceptance to all the terms of an offer (i.e. Notification of
Contract Award / Letter of Acceptance / Letter of Award)
c. Consideration - some right, interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other. In a construction contract
the consideration to the client is the new building being sought; to the contractor it is the contract sum,
i.e., the money
d. Capacity - in order for the contract to be legally binding in law, the parties to the contract must have the
capacity to enter into it
e. Intention to Create Legal Relations - for an agreement to be legally enforceable there must be an
intention to create legal relations
f. Legality of Object - Also referred to as freedom from legality or no vitiating factors; it is not possible to
enter into a contract to do something illegal
g. Certainty of Terms - For a binding contract to exist, and to be enforced, the terms must be certain.
Parties must ensure that their agreement is complete (i.e. not lacking in some essential term) and that
their agreement is not otherwise uncertain (e.g. vague or ambiguous). If an agreement is incomplete or
otherwise uncertain, a court may not be able to enforce it. (i.e., scope of works, time and performance,
contract sum.

2. Contract Documents in FIDIC

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

3. Contra Proferentem Rule

(Key: Legal Doctrine, Clause, Ambiguity, Interpreted, Party who made it)
"The contra proferentem rule is a legal doctrine in contract law which states that any clause considered to be
ambiguous should be interpreted against the interests of the party that created, introduced, or requested that a
clause be included.

Contra proferentem is a rule of construction applying to written documents or deeds. The rule provides that if
the wording of an agreement is ambiguous or uncertain, but not otherwise, the contract should be construed
more strongly against the person whose words they are rather than the other party.

An ambiguity in the document is construed in the way that it is least favourable to the party who has drafted the
document.

4. Quantum Meruit

The expression ' quantum meruit' means 'the amount he deserves' or 'what the job is worth' and in most
instances denotes a claim for a reasonable sum. Payment on a quantum meruit basis will normally arise in
circumstances where a benefit has been conferred which justice requires should result in reimbursement being
made. It does not usually arise if there is an existing contract between tire parties to pay an agreed sum.

A quantum meruit claim in the following circumstances:

a. An express agreement to pay a 'reasonable sum'.

b. No price fixed - If the contractor does work under a contract, express or implied, and no price is fixed by the
contract, he is entitled to be paid a reasonable sum for his labour and the materials supplied.
c. A quasi-contract - This may occur where, for instance, there are failed negotiations. If work is earned out
while negotiations as to the terms of the contract are proceeding but agreement is never reached upon
essential terms, the contractor is entitled to be paid a reasonable sum for the work carried out
d. Work outside a contract - Where there is a contract for specified work but the contractor does work outside
the contract at the employer's request the contractor is entitled to be paid a reasonable sum for the work
outside the contract on the basis of an implied contract.

FORM OF CONTRACT

1. Standard Form of Construction Contracts

Key: Drafted, Construction Industry Associations, Standardised T&C

These are construction contracts that are typically drafted by construction industry bodies or trade
associations, with the intention of providing a set of standardised terms and conditions for employers and
contractors to contract upon.
Advantages: Save time and money, Practice of Fairness between parties, Familiar

JCT – Joint Contracts Tribunal

1. Standard Building Contracts – used for Traditional Procurement
- SBC/Q (fixed price lump sum contract)
- SBC/XQ (fixed price lump sum contract)
- SBC/AQ (remeasurement contracts)
2. Intermediate Building Contract – used for Traditional Procurement with contract cost between £100k
to £1m
- IC (fixed price lump sum contract)
- ICD (with Contractor design portion)
3. Minor Works Contract – used for Traditional Procurement with contract cost below £100k
- MW (fixed price lump sum contract)
- MWD (with Contractor design portion)
4. Design and Build Contract – used for D&B
- DB
5. Major Project Construction Contract – used for large scale D&B Projects
- MP
6. Management Building Contract – used for Management Contracting procurement route
- MC
7. Construction Management Contract – used for Construction Management procurement route
- CM
8. Measured Term Contract – used for Maintenance, minor works and improvements (contract
between public sector and contractor)
- MTC
9. Framework Agreement – used for multiple contractual agreements over a period of time between
public sector and contractor to carry out new work
- FA
10. Prime Cost Building Contract – procured in traditional procurement but paid in cost reimbursement +
profit
- PCC
11. Repair and Maintenance Contract – repair and maintenance works (not suitable to periodic repair
and maintenance – where Measured term contract is recommended)
- RM
12. Home Owners Contract - for people looking for the benefits and protection of a contract when
appointing consultants or contractors to carry out their building work.
NEC – New Engineering Contract
1. Engineering and Construction Contract (ECC)
- Option A - Priced contract with activity schedule
- Option B - Priced contract with bills of quantities
- Option C - Target contract with activity schedule
- Option D - Target contract with bills of quantities
- Option E - Cost reimbursable contract
- Option F - Management contract

ICE – Institution of Civil Engineers – used for Infrastructure Projects

1. Measurement Version - is for use on a traditionally procured project where the contractor carries out the
construction of the works in accordance with a design provided by or on behalf of the employer.
Valuation of the contractor’s works is by measurement.
2. Design and Construct Version - is for use where the design and build procurement route has been
chosen. Therefore, the contractor is responsible for all aspects of design and construction, including
any design originally provided by or on behalf of the employer unless otherwise stated. Payment to the
contractor is on a lump sum basis but other forms of payment may be used.
3. Minor Works Version - This is a traditional procurement contract (i.e. employer designed) for minor civil
engineering works.
4. Target Cost Version - This contract allows the employer, usually with the assistance of the contractor, to
set a clear target for the cost of the civil engineering works to be carried out, in order to avoid projects
overrunning on cost and deadline. The contract also includes a painshare/gainshare mechanism so that
the employer and contractor can share any cost savings or overspend.
5. Ground Investigation Version - this contract is intended for the situation where the employer wishes to
develop a site and has geotechnical specialists to advise him, and who will carry out any initial desk
study, identify the geotechnical requirements of the project and design a ground investigation to suit
those requirements.
6. Archeological Investigation Version - This is a specialist contract relating to archaeological
investigations. It can be used whenever there is a need to procure an archaeological investigation, e.g.
as part of the planning process or as part of an Environmental Impact Assessment.
7. Partnering Addendum - aims to deliver an effective and flexible mechanism for multi-party partnering
using Infrastructure Conditions of Contract, ACE Agreements 2009 and CECA Forms of Subcontract’.
The document governs the implementation of the partnering arrangement and the relationship between
the partners

FIDIC - is an abbreviation of ‘Fédération Internationale des Ingénieurs – Conseils’ (International Federation of

Consulting Engineers), an international federation of associations of consulting engineers representing the
profession in their respective countries. It was formed in 1913 and is best known for its range of standard
conditions of contract for the construction, plant and design industries
1. The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed
by the Employer - Designed for Traditional Procurement Route, as Remeasurement Contract (can be
amended as Fixed Price Lump Sum Contract)
2. The Yellow Book: Conditions of Contract for Plant and Design-Build – Designed for D&B Procurement
Route, as Fixed Price Lump Sum Contract
3. The Silver Book: Conditions of Contract for EPC/Turnkey Projects - for EPC (Engineering, Procurement
and Construction) arrangements. Under an EPC contract, the contractor is responsible for all the
processes and design required to provide a fully equipped facility to the employer that is ready for
operation at the ‘turn of a key’, i.e. a ‘turnkey’ arrangement. Under the Silver Book, the contractor
assumes time and cost risks that are greater than it would otherwise assume under a Yellow Book.
4. The Green Book: Conditions of Short Form of Contract - is designed for use on projects with a relatively
small value, short construction time or involving simple or repetitive work. Under the Green Book, It
does not matter whether the design is provided by the employer (or his engineer/architect if he has one)
or by the contractor. It also does not matter whether the project involves construction, electrical,
mechanical, or other engineering work.
5. The Blue Book: Contract for Dredging and Reclamation Works - The Blue Book is designed to be used
for all types of dredging and reclamation work and ancillary construction, with a variety of administrative
arrangements. Under the Blue Book, it is the employer who designs the project, but this could be
modified to provide for some or all of the works to be designed by the contractor
6. The Pink Book: Conditions of Contract for Construction for Building and Engineering Works Designed
by the Employer (for bank-financed projects only) - It is to be used on projects funded by participating
Multilateral Development Banks (MDB), such as the World Bank. Designed for Traditional Procurement
Route, as Remeasurement Contract (can be amended as Fixed Price Lump Sum Contract)
7. The White Book: Client/Consultant Model Services Agreement - is a consultancy contract for the
appointment of a professional consultant (e.g. an architect or engineer).
8. The Gold Book: FIDIC Design, Build and Operate Projects - combines design, construction, operation
and maintenance of a plant in a single contract, and is drafted to be used in Design, Build and Operate
(DBO) scenarios

FACTORS AFFECTING SELECTION OF CONTRACT

1. Procurement Route
2. Type of Work and Sector
3. Size, Value and Complexity of the Project
4. The employer and their level of sophistication and familiarity with construction
5. Balance of risk/risk allocation
 6. Design responsibility
7. Basis of the contract sum and payment
8. Control over sub-contractors

T062 PROCUREMENT AND TENDERING

DEFINITION

1. Procurement

(Key: Process, Obtain, Goods and Services, External Source, Acquire, Review (TCQD + RISK))
Procurement is the overall process of obtaining goods and services from external sources (e.g. a contractor).
This includes deciding the strategy on how those goods and services are to be acquired by reviewing the
employer’s requirements (e.g. relating to time, cost, quality and responsibility for design) and their attitude to
risk. The choice of an appropriate construction contract will flow from this analysis of the employer’s
requirements and the chosen procurement route

2. Tendering

(Key: Bidding, Actual Process, Appoint, Contractor)

Tendering is an important phase in the overall procurement strategy. Tendering is the bidding process and the
actual process of appointing a contractor.

TYPES OF PROCUREMENT

1. Procurement Types
Subject Traditional Design and Build Construction Management Management Contracting
1. Design Responsibility Client appointed design team Contractor Client appointed design team Client appointed design team
2. Construction Contractor Contractor Trade Contractors Subcontractors
Responsibility
3. Design and Client via design team Contractor Client via design team Client via design team
Performance Risk
4. Construction Contractor Contractor Trade Contractors Subcontractors
Financial Risk
5. Contract 1. Project Manager (NEC) 1. Project Manager (NEC) 1. Project Manager (NEC) 1. Project Manager (NEC)
Administrator 2. Contract Administrator / 2. Employer’s Agent (JCT) 2. Construction Manager (JCT) 2. Management Contractor (JCT)
Architect (JCT) 3. Engineer (FIDIC) 3. Engineer (FIDIC) 3. Engineer (FIDIC)
3. Engineer (FIDIC)
6. Type of Contract 1. Remeasurement or Measure 1. Fixed Price Lump Sum 1. Fee for Construction Manager 1. Prime Cost Sum/Lump Sum +
and Value 2. Remeasurement or 2. Arrange with Trade Management Fee
2. Fixed Price Lump Sum Measure and Value Contractors
3. Other 3. Other
7. Pricing Document 1. Bill of Quantities (Fixed Price 1. Contract Sum Analysis 1. Arrange with Trade 1. Arrange with Subcontractors
Lump Sum) (Fixed Price Lump Sum) Contractors
2. Priced Activity Schedule 2. Bill of Quantities
(NEC) 3. Priced Activity Schedule
3. Schedule of Rates (NEC)
(Remeasurement) 4. Schedule of Rates
(Remeasurement)
8. Tendering 1. One Stage 1. One Stage 1. One Stage 1. One Stage
2. Two Stage 2. Two Stage 2. Two Stage 2. Two Stage
3. Open 3. Open 3. Open 3. Open
4. Negotiated 4. Negotiated 4. Negotiated 4. Negotiated

9. Contractual Link Client – Design Team Client – Contractor Client – Trade Contractors Client – Management Contractor
Client - Contractor Client – Design Team Client – Design Team Client – Design Team
(Concept Design) Client – Construction Manager Management Contractor –
Contractor – Design Team Subcontractor
(and Client Design Team if
Novated)
10. Cost Certainty Yes (Fixed Price Lump Sum) Yes (Fixed Price Lump Sum) No No
No (Remeasurement) No (Remeasurement)
11. Obtaining Price Yes Yes No No
Early
12. Whole Life Cost Yes Costly Yes Yes
(Value)
13. Speed Least speed Yes Yes Yes
14. Time Certainty Yes No No No
15. Function, Design Yes No Yes Yes
and Quality
16. Client Attitude to Yes Yes No No
Risk
17. Risk Transfer Minimal Yes No No
2. Traditional Procurement Route

Traditional procurement route is characterised by a separation of responsibility for the design and the
production/construction of the project. The employer appoints the contractor via the construction contract and
also separately appoints the team of professional consultants (e.g. the architect, structural engineer, building
services engineer and quantity surveyor). The contractor assumes the responsibility and financial risk for
constructing the project in accordance with the design produced by the employer’s team of professional
consultants, for the agreed contract sum and within the agreed contract period.

2. Design and Build Procurement Route

Design and Build Procurement Route is characterised by the contractor taking responsibility for both the design
and the production/construction of a project. One of the main reasons employers often choose this form of
procurement route is the desire to have one party (the contractor) as the single point of responsibility for the
design and production/construction of a project.

3. Construction Management Procurement Route

Key: Client is contractually linked to Trade Contractors

Construction Management Procurement Route is a type of procurement route where the employer does not
allocate risk and responsibility to a single main contractor. Instead, the employer employs the design team (e.g.
the architect, structural engineer and building services engineer) and a separate construction manager is
engaged as a fee-earning professional to manage, programme and co-ordinate the design and construction
activities and to facilitate collaboration.

4. Management Contracting Procurement Route

Key: Client is not contractually linked to SubContractors

Management Contracting Procurement Route is a type of procurement route where he employer engages a
management contractor to participate in the project at an early stage, contribute construction expertise to the
design, and manage the construction of the project. The management contractor does not carry out any
construction work, but manages the project for a fee, which is paid on top of the construction costs incurred by
the management contractor. The management contractor then employs and pays works contractors to carry
out the actual construction works.
5. Partnering

Key: Can be one project or multiple projects; binding or non-binding partnering agreement
Partnering is not, of itself, a procurement route. Instead, it is a concept that can be applied to many
procurement routes. Partnering denotes a cooperative relationship between business partners formed in order
to improve performance in the delivery of projects. It is a set of collaborative processes, attitudes and
behaviours which emphasise the importance of common goals and the desire to move away from
confrontational attitudes or behaviour intended to take inappropriate commercial or legal advantage of the
other party.

6. Public Private Partnership

The term Public Private Partnership (or PPP) is an umbrella term that covers a diverse range of business
structures and partnerships involving the public and private sectors. Typically, private sector companies will
enter into some kind of partnership with the public sector for supporting or providing a public service.

- PFI (Private Finance Initiative) - a PFI project involves a long term contractual arrangement (often
25–30 years) between the public and private sector. The private sector agrees to finance, design, build
and operate a particular asset (e.g. a hospital, school, road or prison) that the public sector is able to
use. The private sector is also obliged to provide long term lifecycle investment and routine
maintenance; sometimes together with ‘soft services’ (e.g. catering, cleaning, rent collection). In return,
once the particular asset is built, the public sector pays a regular service charge (Unitary payment) to
the private sector consortium for the duration of the contractual term for the operation of the particular
asset. Payment of that service charge is reduced in the event of poor service delivery or performance
by the private sector. At the end of the contractual term, the asset is then returned to the public sector.
- PF2 (Project Finance 2) – involves a complex web of contractual relationships. A PF2 project is
typically delivered through the creation by the private sector of a consortium (known as a Special
Purpose Vehicle or SPV). The SPV will be financed by its parent companies and also by loans from
banks. The SPV will enter into the concession agreement with the public sector and will also enter into
agreements with those contractors who will be carrying out the actual construction and maintenance
services. Only once the asset is constructed will the public sector start paying the service charge to the
SPV, although the construction contractor is paid for his works by the SPV throughout the construction
period.

7. Alternative forms of Construction Procurement and Payment Mechanisms

a. Lump sum contracts - where a fixed price (subject to contractual variations) is tendered and agreed
for a contracting organisation to deliver a project. The fixed price is usually arrived at through the
computation of a bill of quantities (BoQ) or activity schedule.
b. Remeasurement contracts - where work cannot be adequately quantified at the time of tender, then a
schedule of rates (SoR), or estimated, approximate or provisional quantity arrangements, can be
entered into. The contracting organisation is paid for the actual quantities of work undertaken. It should
be noted that lump sum and target sum contracts (see above and below) can also include provisions for
remeasurement if elements of the work cannot be accurately or fairly measured at the time of tender
c. Target sum contracts - The target will usually be built up in a similar way to the calculation of a fixed
price in a lump sum contract. The final target (including contractual variations) will then be compared
with the actual costs incurred by the contracting organisation. The difference (both overspend and
savings, usually known as ‘pain and gain’) will be split between the client and contracting organisation,
using calculations and proportions agreed in the contract.
d. Guaranteed maximum price (GMP) contracts - these are sometimes very similar to target sum
contracts, but with a contractual guaranteed maximum price agreed in the contract. However, GMP can
also exist as a variant to a lump sum arrangement, with limited opportunities for the lump sum to be
increased for change. The contractor will not be entitled to any additional money should the GMP be
exceeded, unless this is due to a contractual variation, the opportunities for which will often be much
lower than for any of the alternatives above.
e. Cost plus/cost reimbursable/prime cost contracts - where the contracting organisation is paid the
actual costs (prime cost) incurred in delivering the contract, plus an agreed (usually tendered) profit fee
f. Term contracts – (Key: Maintenance Works) enable employers and contractors to enter into long term
arrangements where there is likely to be a regular flow of work for the contractor. Term contracts are
particularly useful where an employer requires a contractor to carry out regular maintenance or some
other kind of minor works to an existing asset for a specific period. The term contract will contain a
mechanism that enables the employer to issue instructions (often known as ‘call-off orders’) to the
contractor which will detail the exact nature of the works required. Term contracts are a form of
measurement contract, so the contractor’s work is measured and valued after completion on the basis
of an agreed schedule of rates
g. Framework agreements – Key (New work) - As with term contracts, framework agreements enable
employers and contractors to enter into long term arrangements where there is likely to be a regular
flow of work for the contractor. However, in contrast to term contracts, framework agreements are often
used to procure the construction of a new asset, as opposed to term contracts which generally cover
the maintenance of an existing asset. Instructions to carry out works are also issued by way of a call-off
order to the contractor but, depending on how the framework agreement is drafted the call-off order
may itself constitute a separate contract that is distinct from the overarching framework agreement.
h. Alliancing - This form of procurement wraps together some of the key concepts of partnering and
target cost contracting to produce a highly sophisticated form of contract that has so far mainly been
 used by large employers on major projects in the utilities, rail, and oil and gas sectors. An alliancing
contract is typically a multi-party contract under which an alliance (comprising the various contractors
and the employer as ‘owner/participant’) contracts with the employer to deliver a particular project.
Alliancing necessitates a radically different mindset (from all parties) when compared with other forms
of contracting. For example, an alliancing charter will be a key document in the contract and core
themes include ‘everybody wins or everybody loses’, decisions on a ‘best for project’ basis, participants
having an equal say, payment is on a target cost painshare/gainshare basis, and there is a ‘no claim/no
blame’ culture allied with only minimal grounds for parties to bring formal proceedings against each
other.
i. EPC contracts - Engineering, procurement and construction (EPC) contracts are a common form of
contract used by the private sector on large scale or complex construction and engineering projects. For
example, EPC contracts may be used in the energy sector to procure a new power station or offshore
wind farm. EPC contracts are aimed at delivering engineering, procurement and construction projects
that have single point responsibility (for engineering design, procurement and construction), a fixed
programme with a set date for delivery, a fixed price, and guaranteed performance and reliability levels.
As such, they can be considered as a variant of design and build contracting