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Update on Public Works Contracts


Monday, June 22, 2015

The Office of Government Procurement has announced four areas where the Public Works Contracts will be amended. The background to these amendments was a review of the Public Works Contracts started in December 2013. Following various submissions in December 2014, a report was published proposing four interim measures. Details have now been released as to how the interim measures will be implemented in amendments to the contracts; new contracts are to be released in July of this year. A series of information sessions to discuss the new drafting will be held nationwide.

The four changes are as follows:

  1. The bill of quantities (BoQ) will be the primary reference document for tender purposes on employer-designed contracts. Currently the Employer has the option to transfer the risk of quantities to the Contractor in employer-designed contracts and the Pricing Document ranks below the Works Requirement; where there are inconsistencies the Works Requirements rank higher than the Pricing Document.
    The change proposed is to elevate the BoQ to the same level as the Works Requirements. If the BoQ contains errors or contradicts information on the drawings or the specification, then vital information is missing. Under the Public Works Contract, it has become the norm to neutralise that risk by reducing the BoQ to secondary importance with respect to the drawings and specifications so that it is really only serving to provide a Schedule of Rates for evaluating progress payments or claims, rather than being a fully priced list of the building elements.
  2. Nomination of Specialist Sub-Contractors. The current situation is that where an Employer awards a Public Works Contract to a Specialist then that Specialist is novated to the main Contractor.
    One criticism is that in using the Public Works Contracts this does not suit the nature of sub-contract works.
    This change allows for nomination of that Specialist after the Employer has carried out the tender and identified the successful Specialist. The Contractor would then enter into a contract with the identified Specialist using an industry agreed sub-contract without amendments (it is proposed to adopt the conditions of sub-contract published by the Construction Industry Federation and conditions of “sub-contractors”). Collateral warranties are required between the Specialist and Employer but no direct contract (and accordingly no novation would occur).
    Nomination will not entirely replace novation; novation will continue where there is early engagement of Specialists. In that situation (as currently) the Specialist will be novated and require a collateral warranty.
    The cost of the nominated Specialist Works must be established in advance of signing the main contract and become part of the Contract Sum. In very limited circumstances, with prior approval of the GCCC, a PC or provisional sum can be included.
    There are only limited grounds on which the main Contractor can object to the appointment of the nominated Specialists, such as inability to provide the bond required, inability to provide insurances or not meeting standards upon which they are pre-qualified.
  3. Change to the Award Criteria to allow additional marking for Works Items proposed by the tenderer which exceeds a minimum form and specification.
    Commonly used quality criteria such as methodology and approach do not easily allow for separation of tenders and because of similar scores, price becomes the determining factor. While price must still have a majority weighting, this new measure means quality of project elements can be an effective MEAT (most economically advantageous tender) criteria on projects with an anticipated Contract Sum of €2,000,000 or greater.
    Essentially this means that the tendering authority, in addition to using methodology, approach and programme can also select specific work items to be considered in making the award. In a new section to the Schedule, Part 2, tenders will be required to name the product/material they propose to use and supporting evidence of its performance; there may also be performance sub-criteria prescribed such as a parts warranty, after sales support etc.
    This inclusion is mandatory for projects over €2,000,000 but optional for projects under this amount.
    The Contracting authority can only list elements for MEAT evaluation which have a significant cost impact during the service life, they may not draft performance criteria to close the specification to a single supplier/product and they cannot name a product/supplier by way of setting numerous performance criteria. Price must still have the majority weighting.
    This welcome change should contribute to ensuring a more sustainable price is achieved, which accounts for the product lifespan.
  4. ADR. Currently parties are required to proceed to conciliation. The Conciliator has 42 days to bring about an agreement failing which that Conciliator must issue a recommendation.
    Parties have 42 days to issue a notice of dissatisfaction and in the absence of that the recommendation becomes binding. If the notice of dissatisfaction issues, the parties proceed to arbitration.
    The problem with the form of dispute resolution is that conciliation has become the norm rather than the exception. Conciliations are becoming arbitral with large volumes of paper and accordingly new approaches to dispute resolution are introduced.
    The amendment to the contract provides an earlier without prejudice dispute resolution process before conciliation, involving upper management.
    This is called a Management Escalation Process. It requires the parties to name individuals in the contract who will sit on a project board and have responsibility for engaging in dispute resolution. If this Project Board fails to resolve the dispute then the matter proceeds to conciliation as we have become used to pursuant to Clause 13.
    Obligations to notify under Clause 10 remain. The Project Board only discusses claims or disputes which have satisfied these obligations. The Project Board is to meet every 25 working days to discuss disputes although there is a facility for longer periods where there are minimal disputes.
    Another amendment for contracts in excess of €10,000,000 contract value is that the Employer at tender requires the parties to appoint a standing conciliator (the Nominated Conciliator) who will sit for the duration of the project.
    The cost of this appointment is shared equally. Recommendations issued by the Nominated Conciliator are reasoned recommendations.

 

Conclusion
These changes are welcome. The original aim of the Public Works Contracts was after all to provide for cost certainty and indeed the State was willing to pay for this, whereas on many projects what has actually happened in relation to cost certainty is that it is not actually being bought, rather simply deferred to the dispute resolution phase, with claims becoming unwieldy. The review of the triggers to dispute resolution will be welcome if it can stop claims absorbing disproportionately high resources.


Author

Clare Cashin

PARTNER


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