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19 December 2011
More than four years after the introduction of the Public Works Contracts, parties are now familiar with their provisions. But are they aware of the various amendments that are made to these contracts(1) on a regular basis?
Several versions of the contracts have been issued since their first publication, incorporating a range of amendments to their provisions. However, many of these changes are not fully advertised and people may not be aware of the extent of some of the changes made.
This update considers some of the changes published by the Department of Finance on the Construction Procurement Reform website on July 28 2011. This most recent version of the contracts was accompanied by a note summarising the changes, describing them as "minor". No point of reference was provided as to where the listed changes actually appear in the contracts and their description as "minor" should be viewed with a degree of caution. It may also be unwise to assume that no further changes have been made to the contracts other than those highlighted in the summary note of the changes.
A new clause has been inserted at Clause 1.10 of the contracts entitled "Background Information". The clause is broad in scope and seeks to absolve the employer from any responsibility for the newly defined background information which may be provided to the contractor. As defined, 'background information' will include information made available to the contractor before, on or after the contract date and includes any information "stated to be Background Information". The definition makes clear that it is intended to deal only with information which is not included in the contract. Thus, information included within the works requirements is dealt with elsewhere in the contract. Site surveys provided at tender will now be described as background information and cannot be relied on, even in circumstances where there is no opportunity for the contractor to carry out its own testing. While this is not a dramatic shift in the usual allocation of risk, it does make clear beyond any doubt that no claim will lie against the employer if such information transpires to be incorrect or misleading.
Failure to make Clause 10 determination
A significant change now introduced is that where an employer's representative simply fails to take any action within the prescribed time limits in determining a claim submitted by the contractor under Clause 10.3 or in respect of a contractor proposal pursuant to Clause 10.4, the employer's representative will be deemed to have made a determination of no adjustment to the contract sum or programme.
The newly inserted Subclause 10.5.4 goes one step further and provides that all the employer's representative's determinations (made either expressly or by default) will be final and binding unless the contractor or the employer disputes the determination and refers it to conciliation within 28 days of the date when the determination was made or was taken to have been made. Thus, a contractor will need to ensure that, following submission of a claim, it has assessed the date by which a determination is to be made by the employer's representative and that, where no such determination is made within the prescribed time, it refers the 'deemed' determination of no adjustment to the contract sum or programme onto conciliation within 28 days. Failure to do so will result in the contractor's entitlement to pursue its claim being lost.
This could result in an inefficient situation whereby several mini conciliations are commenced and underway simultaneously during the course of a project by reason of disputed employer's representatives' determinations or possibly due solely to an employer's representative's failure to take any action in determining a claim. The contractor, as is true in respect of any conciliation, would be responsible for 50% of the costs of any such conciliation, even if the sole reason for initiating the conciliation proceedings is due to the employer's representative's inaction in failing to issue a determination within the prescribed time limits and even if such a default determination is ultimately overturned.
Contractor's final statement
Clause 11, already quite an onerous provision of the contracts which prescribes that all items must be included within the contractor's final statement in order to be assessed, has been amended to impose a further obligation on the contractor. Newly inserted Clause 11.5.1 now provides a cut-off point for the delivery by the contractor of its final account, including particulars of all claims for any adjustment to the contract sum, after which the employer will be released from any further liability to the contractor. If the contractor has not submitted its final statement within two months of substantial completion, the contracts now provide that the employer will have no further liability to the contractor whatsoever. In effect, non-compliance with this timeframe will deny the contractor access to its final payment under the contracts, including in respect of any claims.
Arbitration costs – who is responsible?
Section 21(1) of the Arbitration Act 2010 allows for parties to make such provision as to the costs of the arbitration as they see fit. In September 2011 the Government Construction Contracts Committee inserted a new costs undertaking in the Standard Form of Tender for use with the contracts. The new costs undertaking prescribes that each party must bear its own costs of any arbitration entered into (relevant to that contract), except where a sealed offer is made and the contractor does not beat it, in which case the contractor will be liable for both parties' costs. However, the provision does not allow for the reverse situation whereby the contractor beats the sealed offer and would ordinarily be entitled to recoup its reasonable costs. On the contrary, it seems that in such circumstances, the contractor is still responsible for its own costs of the arbitration. The insertion of such a provision will clearly impact on contractors when tendering as it may be viewed as an impediment to a contractor taking a claim forward to arbitration. Anyone involved in arbitration knows that the costs can be significant, and the imposition of a requirement that each party bear their own costs, no matter what the outcome and no matter whether a sealed offer is made, will render arbitration inaccessible to many, notwithstanding the merits which a contractor's claim may have.
It is difficult to reconcile the revised Standard Form of Tender with the Arbitration Rules 2008 applicable to the contracts (and also published on the Construction Procurement Reform website). The rules have yet to be updated to reflect the Arbitration Act 2010 and still maintain references to the Arbitration Acts 1954 to 1998 throughout. Specifically, in relation to costs, the rules provide that the arbitrator will be responsible for fixing the costs of the arbitration and that the costs should in principle "follow the event" – namely, the successful party recoups its costs. This is quite clearly out of sync with what is now prescribed in the form of tender.
Far from minor, the changes discussed here will have a fundamental impact on tenderers, employer's representatives and contractors alike, particularly as regards the tendering and administration of the contracts and the pursuit of contractual entitlements thereunder.
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