Types of Contract 2013 Hand Outs PDF

THE INSTITUTION OF CIVIL ENGINEERS
West Midlands Region

COURSE ON CIVIL ENGINEERING LAW AND CONTRACT PROCEDURE
2012/13
held in in lecture room MB108, on the first floor,
Aston University, Main Building, Aston Triangle, Birmingham

LECTURE 2
TYPES OF CONTRACT

Contents

1.0 Basis of a Contract under English Law

2.0 Employers Objectives

3.0 Risk Transfer

4.0 Standard Forms of Contract

5.0 Principal Risks

6.0 Basic Types of Construction Contract

7.0 ICE Conditions of Contract

8.0 CECA Form of Sub-Contract

9.0 NEC Engineering and Construction Contracts
(Covered in detail in lectures 4&5)

10.0 Other Standard Forms of Contract

11.0 Typical Exam Questions

Lecturer - Carl Morris
January 2013
CIVIL ENGINEERING LAW AND CONTRACT PROCEDURE 2012/2013
TYPES OF CONTRACT

The Institution of Civil Engineers West Midlands Region
1
1.0 Preliminary review on the basis of a Contract under English Law
1.1 In English Law, subject to certain conditions a contract is created when a verbal
or written offer is accepted by a second party. The second party may make a
counter offer which would have to be accepted by the first party for the contract
to be established.
1.2 In civil engineering contracts the Contractors tender may constitute the offer, but
it is also possible for the Employer to make an offer, which is accepted by the
Contractor. With the possibility of offer and counter offer, it is important to be
clear which is the offer and who has accepted it.
1.3 Note: In most standard Forms of Contract the promoter of the project is called
the Employer. In some Forms the term Purchaser or Authority is used
instead of Employer. These notes follow the example of the ICE Conditions of
Contract and use the term Employer throughout.
1.4 There are certain other requirements that have to be satisfied before a legal
contract exists. These include:
The intention of the parties to create a legal relationship.
There must be genuine consent of the parties.
The parties must be legally capable of entering into a contract.
The contract must be for a legal purpose and not illegal.
There must be a consideration; something of value must change
hands after the successful outcome.
2.0 EMPLOYER'S OBJECTIVES
2.1 Where an Employer seeks to engage a Contractor to carry out construction work,
he must be clear about his objectives. These objectives will be embodied in the
Contract, which is entered into by the Employer and the Contractor.
2.2 There are very many standard Forms of Contract in use in the Construction
Industry. The Employer is at liberty to use whatever form of contract it wishes,
but the use of a standard form has the advantage of familiarity to the parties and it
will have been tested in use.
2.3 Whether the design is carried out by a Consultant working for the Employer or by
the Contractor (or a mixture of the two), it is important that the Employer defines
the purpose of the construction work. The works must then be designed to be
suitable for that purpose (Fitness for purpose is a precise term, which is
discussed elsewhere).
2.4 Responsibility for design and arrangements for the transfer of information to the
Contractor will be set out in the Contract.
2.5 To fulfil the Employers objectives, the Contract will have to address a wide
range of issues.
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2.6 These include the following:
The balance between time, quality and cost in relation to the
construction work
The transfer of risk from the Employer to the Contractor
The allocation of responsibilities between the parties
Not only must the Employer exercise great care in the selection of a suitable
Contractor; he must also select a Form of Contract, which is appropriate for his
purpose.
2.7 This Lecture will consider the question of risk transfer, the principal risks that
may arise and the basic types of construction contract available. It will refer to
the various Standard Forms of Contract that an Employer may use and introduce
the ICE Conditions of Contract 7
th
Edition. The ICE New Engineering Contracts
and the Engineering and Construction Contract in particular will be the subject of
later Lectures.
3.0 RISK TRANSFER
3.1 Risks in the execution of construction work can be transferred by the Employer
to the Contractor by means of the Contract. This is Risk Transfer. The various
Standard Conditions of Contract define the transfer of risk for different types of
application and to suit different Employers and different circumstances.
3.2 The initial inclination of an Employer may be to transfer the maximum amount of
risk to others. If the Employer seeks to protect himself against every conceivable
construction risk, this will inevitably lead to higher tender prices. Moreover, the
more responsible Contractors may not be competitive and may not even wish to
compete.
3.3 Contracts that are one-sided in favour of the Employer, with the Contractor left
unprotected, are likely to become adversarial and lead to disputes. Excessively
onerous conditions may have the opposite effect to that intended by the
Employer. Indeed, in extreme cases, some clauses may be deemed to be
unfair.
3.4 Furthermore, the very clauses that place heavy obligations on the Contractor also
place similar obligations on the Employer to fulfil its own duties. For example, a
Contract may state that in relation to the works programme time is of the
essence. It follows that the same obligation of urgency applies to the Employer
and it is even more imperative that he ensures that he does not delay the
Contractor by issuing information late or by issuing instructions to vary the
works.
3.5 A sensible sharing of risk between Contractor and Employer is likely to give the
best outcome for the Employer, with the avoidance of serious disputes on site.
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3
4.0 STANDARD FORMS OF CONTRACT
4.1 Although there is nothing to stop Employers from writing their own Contracts,
over the years bodies representing the interests of various sides of the industry
have drawn up standard conditions, which are widely accepted. There are many
standard forms to suit different types of Employer and different circumstances.
4.2 For example these are some of the Standard Conditions of Contract:
Civil Engineering contracts ICE Conditions of Contract
NEC Contracts
Water Industry contracts Institution of Chemical Engineers
Conditions
Building contracts Joint Contract Tribunal (JCT)
Forms of Contract
Government contracts GC/Works/ Contracts
International contracts FIDIC
There are many more. Most of these have versions to deal with different
applications.
In civil engineering the principal contract has been:
4.2.1 Institution of Civil Engineers (ICE) Conditions of Contract.
4.2.1.1 This is published under the auspices of the Institution of Civil Engineers, the
Association of Consulting Engineers and the Civil Engineering Contractors
Association. It was first published in 1945 and the current edition is the 7
th

Edition, Measurement Version (which was published in 1999).
4.2.1.2 There are other versions of the ICE Conditions covering; Design and construct
ICE Design and Construct 2
nd
Edition (2001); Smaller, less complex contracts
ICE Minor Works Contract 3
rd
Edition (2001) and Term Contracts ICE
Conditions of Contract Term Version 1
st
Edition
4.2.1.3 Although the ICE Conditions have stood the test of time and have produced a
considerable amount of case law to help to define their meaning, there is always
room for fresh thinking. Accordingly in the 1990s the Institution brought out a
new suite of contracts under the title:
4.2.1.4 New Engineering Contracts. (NEC/ECC)
4.2.1.5 The principal contract is known as The Engineering and Construction Contract.
4.2.1.6 The NEC Contracts are now in regular use and have to a large extent replaced the
ICE Conditions over a wide range of civil engineering and construction work.
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4
4.2.1.7 The object of all these standard forms of contract is to apportion risk between the
parties to the contract in a fair and reasonable manner. From time to time these
standard conditions have been revised and refined in the light of experience and
to keep abreast of current legislation. This development process continues to this
day.
4.2.1.8 Some Employers adopt and modify standard conditions to suit their own
perceived purposes particularly in an attempt to reduce their risk. This can be
unwise. This sort of amendment may have an effect on the inter-relationship of
clauses and destroy the integrity of the Contract as a whole.
4.2.1.9 The ECC is modular in nature and has six major options, one of which must be
chosen. These are:
Option A Priced contract with activity schedule
Option B Priced contract with bill of quantities
Option C Target contract with activity schedule
Option D Target contract with bill of quantities
Option E Cost reimbursable contract
Option F Management contract
5.0 PRINCIPAL RISKS
5.1 We can consider the more obvious areas of risk and how they are dealt with in
the different Standard Forms.
5.2 Payment
5.2.1 Ultimately the Employer will pay for the work carried out (the consideration in
the Contract). This will normally be by monthly payments. The Contractor
carries the risk of work in progress until payment is made. This is a real risk and
cost to the Contractor that is not always recognised by the Employer or his
representative.
5.2.2 Monthly or interim payments may be by remeasurement of work carried out in
the period, or they may be paid in a series of lump sums as portions of the work
(activities) are completed (see below).
5.2.3 In the ICE Conditions, payments are made on a monthly basis (ICE 7
th
Clause
60). Following receipt of a statement of the contract value from the Contractor,
the Engineer must within 25 days certify the amount due to the Contractor.
Payment by the Employer to the Contractor becomes due on certification with the
final date for payment being 28 days after the Contractors statement was
delivered.
5.2.4 In certain circumstances the Employer may not have funds available until a later
date and the Contract would have to be drafted to allow for this. In effect the
Employer incurs a debt, which is repaid over an extended period with interest.
The most obvious examples of this are in the Private Finance Initiative (PFI) or
Design Build Finance Operate (DBFO) schemes that may be financed by the
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5
Contractor by means of equity and long-term debt. The debt is repaid as part of a
payment for a service provided over a 25 or 30-year Concession Period. These
sorts of contracts are bespoke for specific schemes.
5.3 Land
5.3.1 The provision of land is usually a risk carried by the Employer. Most standard
forms have clauses covering possession of the site giving the Contractor right of
access.
5.3.2 The contract will set out the responsibilities of both the Employer and the
Contractor in respect of site possession and access and also the consequences of
failure by the Employer to provide the appropriate possession and access in
accordance with the contract. In the ICE Conditions, this subject is covered in
ICE 7
th
Clause 42.
5.4 Planning Consent
5.4.1 Responsibility for Planning Consent and Public Inquiries usually rests with the
Employer (e.g. ICE Conditions)
5.4.2 There are exceptions where the planning risk is transferred to the Contractor with
its attendant cost.
5.5 Design
5.5.1 The design process is fundamental to any construction project.
5.5.2 Should the Employer retain responsibility for the Design himself, or pass it on to
the Contractor? There are different versions of the Standard Forms of Contract to
cover various options and the Employer must decide what is best, taking all the
circumstances into account.
5.5.3 Advantages of the Employers Consultant or the Engineer being responsible for
Design:
Design can be completed before the Contract is let
Likely to be the cheapest tender price (but not necessarily the
cheapest outturn price)

Full dialogue with Employer
Where applicable it allows Public Inquiry and Statutory Processes
to proceed in advance of contractor selection

Full documentation/Bill of Quantities can be available prior to
Tender makes changes easier to control and value

Employer may perceive he has more control of the Contract when
his own Consultant or the Engineer does the design and supervision

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6
5.5.4 Advantages of Design and Construct:
Better appreciation of outturn cost
Less likely to produce adversarial relations and disputes
No divided responsibility between Designer and Contractor
Contractor can exercise skills of buildability and knowledge of cost
of construction

Simple interim payments
Quality control by Contractor should give saving in supervision
costs

Long term responsibility for design with Contractor
Overall faster programme
5.5.5 An unwelcome use of design and construct contracts, particularly in the building
sector, is where the design is completed almost in its entirety by the Employers
Designer. The designers are then novated to the Contractor, who takes over full
responsibility for the design. Few of the real benefits of a Design and Construct
Contract apply, other than to remove the divided responsibility between Designer
and Contractor (e.g. late issue of information, mistakes by the Designers, etc). It
is seen as a claim limitation device.
5.5.6 In the ICE 7
th
Conditions the Contractor is not responsible for the design or
specification of the Permanent Works or any part thereof except where it is
expressly provided in the Contract, (see ICE 7
th
Clause 8.2).
5.5.7 It is normal practice in the Insurance Industry for responsibility for fitness for
purpose to be excluded from designers Professional Indemnity Insurance. The
insurers liability is limited to the designer exercising all reasonable skill care and
diligence in the execution of the design. As a consequence, the same limitation
of design risk is followed in the principal Forms of Contract, (see ICE 7
th
Clause
8.2).
5.5.8 In some major Turnkey Contracts the Employer demands fitness for purpose.
Some P.F.I. Contracts also include fitness for purpose clauses. This is usually
a bone of contention, since without insurance cover the financial consequences
can be severe.
5.6 Quantities
5.6.1 Where the Employers Consultant essentially completes the design before the
Contractor is appointed, it has been normal practice for a Bill of Quantities to be
prepared. This Bill of Quantities would be prepared in accordance with a
standard Method of Measurement (e.g. CESMM in civil engineering contracts).
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7
5.6.2 In his Tender, the Contractor fills in rates for each item and extends the item by
multiplying the quantity by the rate. The sum of all these priced items, including
any Provisional Sums, PC Sums, percentages etc, is the Tender Price. This
process is called admeasurement and is in effect the apportioning of the Contract
sum to the various items in the Bill. On completion of the work the quantities are
remeasured and the process repeated to reach a new Contract Sum. In this case
the Employer carries the risk for any changes in the quantities. I.C.E. 7
h
Edition
(Measurement Version) is an example of this principle. This admeasure system
is also used for interim payments by taking the quantities achieved each month.
5.6.3 It is important to understand that in this sort of admeasurement contract the
tender total is only an approximate and probably low guide to the final value.
The Employer should be made aware of this through his adviser e.g. the
Engineer.
5.6.4 Another type of contract is where the Employer provides the quantities, which
are fixed without remeasure. This is one version of a Lump Sum Contract, since
the quantities can only be varied by the Employer issuing a Variation Order
within the terms of the Contract. (An example is JCT98 with Quantities).
5.6.5 A second version of a Lump Sum Contract is where only the drawings and
specification are issued to the Contractor and the Contractor is asked to submit a
Lump Sum price for the job. This is sometimes called Plan and Spec. In this
case the Contractor may take off quantities for his own use, but they do not form
part of the Contract. In Lump Sum Contracts the Contractor is at risk for
quantities.
5.6.6 There is a growing trend away from the use of full bills of quantities due in part
to the risk falling on the Employer and in part to the amount of work involved
particularly with regard to interim measurements.
5.7 Activity Schedules
5.7.1 In other types of Contract (such as the NEC Engineering and Construction
Contract), the Contractor prepares a list of activities to encompass all of the
work. He then prices each activity and the total of all of the lump sums for each
activity is the Contractors price for the works.
5.7.2 Again, changes can only be ordered by means of a change order (in the case of
NEC contracts called a Compensation Event).
5.7.3 Risk in assessing the work content and the quantities in each of the scheduled
activities rests with the Contractor. For example if the Contractor fails to price
an activity then he does not get paid for that activity.
5.8 Time
5.8.1 Whether the Employer specifies the time period for the construction work or asks
the Contractor to make a proposal, the Contract will invariably fix the Start Date
and the Completion Date. Almost all forms of Contract also require the
Contractor to produce a Contract Programme. Responsibility for time and
adherence to this Contract Programme becomes very much the Contractors
responsibility and risk, although all forms of contract have some basis for the
TYPES OF CONTRACT

8
granting of an extension of the Contract period where the delay is the
responsibility of the Employer.
5.8.2 In the ICE Conditions, ICE 7
th
Clause 14 requires the Contractor to submit a
programme and method statement within 21 days of award of the Contract and
the Engineer to accept or reject it within 21 days.
5.8.3 Generally, overrun of the programme (taking due account of permitted
extensions) would leave the Contractor open to action by the Employer to recover
his losses. Most commonly this is by way of the levy of Liquidated Damages,
which are predetermined at the outset of the Contract.
5.8.4 In some Contracts Liquidated Damages are not stated and the potential risk to the
Contractor could be greater since the Employer is at liberty to sue for his actual
losses.
5.9 Inflation
5.9.1 Contracts are either Fixed Price where the Contractor is fully responsible for any
increase in his costs due to inflation, or Fluctuating (Variable), where rising
prices (or falling prices) are compensated for in some way. In the present market
most Government Contracts of up to two years duration are Fixed Price.
Contracts lasting over two years may be Fluctuating.
5.9.2 The effects of inflation in Fluctuating Price Contracts are usually dealt with by
means of standard indices (for Government Contracts, a list of these indices is
published on a monthly basis). The Contractor carries any residual risk.
5.9.3 In the ICE Conditions fluctuating price is dealt with by a special condition (ICE
7
th
Clause 72 onwards) under the heading Contract Price Fluctuations Civil
Engineering Work.
5.10 Weather
5.10.1 Most standard Forms of Contract leave weather as a risk to be borne by the
Contractor, except that extensions of time may be claimed for exceptional
adverse weather conditions (ICE 7
th
Clause 44). This is deemed to mean
significantly worse than normal. Even this protection is sometimes omitted from
Contracts. An award under Clause 44 would be for additional time but not for
additional costs.
5.11 Ground Conditions
5.11.1 Difficult ground conditions can have a significant financial effect on a Contract.
Most of the standard Forms of Contract incorporate clauses, which have the
effect of sharing this risk between Employer and Contractor. For example, the
I.C.E. 7
th
Edition (Clause 12) permits claims from the Contractor when he
encounters physical conditions or artificial obstructions, which could not
reasonably have been foreseen by an experienced Contractor. Claims made
under ICE 7
th
Clause 12 have to follow a set procedure.
5.11.2 The Site Investigation is usually a material factor in deciding whether the
Contractor could have foreseen the adverse physical conditions.
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9
5.11.3 Certain forms of Design and Construct Contract, including DBFO Contracts,
leave ground condition risk entirely with the Contractor.
5.12 Labour and Materials
5.12.1 The Contractor is invariably responsible for the construction of the works and for
the provision of labour and materials. The problem of a contractor not being able
to obtain labour and materials at rates in line with his tender is clearly a risk
which most Employers would wish to have transferred to the Contractor (ICE 7
th

Clause 8 see later).
5.13 Safety
5.13.1 All parties to a construction contract have statutory duties to meet in relation to
safety. These include the Employer, the Engineer, the Designer and the
Contractor. These statutory duties are generally set out in the Health & Safety at
Work Act (1974) and the Construction (Design and Management) Regulations
(1997), generally known as the CDM Regulations.
5.13.2 All standard forms of contract have clauses relating to safety. In the ICE 7
th
Conditions, Clauses 8, 19 and 20 define the responsibilities placed upon the
Contractor for Safety and Care of the Works. These clauses also define where
these responsibilities remain with the Employer. ICE 7
th
Clause 71 deals
specifically with CDM Regulations.
5.13.3 Health and Safety is dealt with in detail in a later Lecture
6 BASIC TYPES OF CONSRUCTION CONTRACT
6.1 Simple Agreement
6.1.1 A simple offer, acceptance and consideration. This is often in the form of a
letter.
6.2 Professional Services Agreement
6.2.1 A Contract to provide a professional service such as design.
6.3 Lump Sum Contracts
Either,
a) Where drawings and specification are provided and the Contractor is
responsible for taking off his own quantities
or,
b) Where the Employer provides quantities but there is no
remeasurement on completion (variations excepted).
6.4 Admeasurement Contracts
6.4.1 These are contracts where the Employers Designer/Quantity Surveyor provides a
full Bill of Quantities, but the quantities are only approximate and are remeasured
on completion.
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10
6.5 Contracts with a Priced Activity Schedule
6.5.1 A type of lump sum contract where the work is divided into activities that are
selected and priced by the Contractor.
6.6 Schedule of Rates Contracts
6.6.1 Rates are priced for a variety of work items without quantities. There is usually
an understanding (if not a contractual agreement) that a certain volume of work
will be generated. Profit and overheads are usually quoted as a percentage or as a
fixed fee.
6.6.2 The Contractor may be called upon to do any or all of the items of the work.
6.7 Term Contracts
6.7.1 Similar to a Schedule of Rates
6.7.2 The Contractor undertakes to carry out all of a particular type of work (e.g. repair
and maintenance) over a fixed period.
6.8 Serial Contracts
6.8.1 The Contractor undertakes similar work, probably in different locations, on a
rolling programme, using similar rates and conditions.
6.9 Design and Construct
6.9.1 The Contractor can be responsible for all or part of the design. A number of
Forms of Contract are written solely for Design and Construct (e.g. I.C.E. D & C
Conditions of Contract and J.C.T. 98 with Contractors Design).
6.9.2 Other forms can accommodate varying parts of the works being designed by the
Contractor (e.g. NEC Contracts). In the ICE Conditions (ICE 7
th
Clause 8.2) the
Contractor may carry out parts of the permanent works design (e.g. piling).
6.9.3 The advantages and disadvantages of design and construct are discussed above
under Design.
6.10 Target Cost Contracts
6.10.1 These contracts provide an incentive for the Contractor to keep costs down for
both himself and the Employer.
6.10.2 The Target Price is the Contractors tendered estimate of Actual cost. The
Employer pays for the Actual Outturn Cost plus a fee (generally a percentage). If
the Actual Outturn Cost (subject to Compensation Events etc) is less than the
Target Price, the Contractor receives an agreed percentage of the saving. If it is
higher, he pays a percentage of the additional cost.
6.11 Cost Reimbursable Contracts
6.11.1 This type of contract is used when it is not possible to define the works
accurately or where extensive variations are anticipated.
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11
6.11.2 The Contractors direct costs are reimbursed plus a fee. The fee may be a
percentage, or a fixed sum
6.12 Management
6.12.1 In Management-type Contracts the Management Contractor or Construction
Manager manages the contract but does not generally carry out the work himself.
This is done by Works or Package Contractors. The Works Packages are
designed so as to leave no gaps at the interface between the Works Contracts.
6.12.2 The Management Contractor should be appointed as a member of the Project
Team at a very early stage, and certainly before the design is carried out. He will
be involved in the selection of other members of the team.
6.12.3 The philosophy of management contracting is that the Management Contractor
has a low commercial risk and hence can manage the project solely for the
benefit of the Employer.
Management Contracting
All of the Works Contractors are subcontractors to the Management
Contractor. The Employer pays for the total cost of the work and this
payment is passed on to the Works Contractors. In addition, the Management
Contractor receives a percentage fee to cover profit and overheads, plus an
agreed cost of the services he provides (staff and site office overheads, etc)
Since the Works Contractors are in contract with the Management Contractor
their contractual responsibility (and hence perceived financial return) is to the
Management Contractor. This allows the Management Contractor to exert
greater control. The Management Contractor also benefits from the cash flow
through his books.
Construction Management
A similar arrangement, except that the Works Contractors are in direct
contract with the Employer.
This is a fee-earning type of contract and the Construction Manager must
have low overheads. Since the Works Contractors are not in contract with the
Construction Manager their contractual responsibility is to the Employer but
they receive instructions from the Construction Manager. This can present
problems.
Design and Manage
Similar to Management Contracting but design is included. Payment for the
designers is similar to that of a Works Contractor.
Project Management
Can have many definitions, but generally describes the function of setting up
a Contract from the inception to final completion.
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12
Project Managers come from many backgrounds including professional
specialists, quantity surveyors, consultants and contractors. Employers
frequently carry out this function themselves.
Generally Project Management would include the management of land
acquisition, obtaining Planning Consent, appointing designers, quantity
surveyors, contractors and overall financial control.
Typically there would only be a small management resource with the process
being carried out by others
6.13 Turnkey
6.13.1 This is an all-in Contract in which the Contractor/Supplier provides a total
service. The Employer may only state his requirements in terms of the final
product (e.g. a power station producing a defined amount of power) and the
works are then fully designed, constructed and commissioned so that a future
operator can take over a functioning facility on completion.
6.14 PFI Contracts
6.15 Design Build Finance Operate (DBFO) / Public Private Partnership (PPP)
etc.
6.15.1 These usually involve a complex Concession Agreement with a wide
hierarchy of supporting agreements. They are bespoke for specific
projects.
6.15.2 The Highways Agency has its own form of contract.
7 ICE CONDITIONS OF CONTRACT
7.1 Introduction
7.1.1 As has been stated the ICE Conditions have been in use for very many years.
The following versions may be encountered:
I.C.E. 6
th
Edition (1991)
I.C.E. 7
th
Edition, Measurement Version (1999)
I.C.E. Design and Construct 2
nd
Edition (2001)
I.C.E. Minor Works 3
rd
Edition
I.C.E Term Version 1
st
Edition
7.2 I.C.E. 7
th
Edition, Measurement Version (1999)
7.2.1 General
7.2.1.1 The Conditions set out in a carefully structured form the various obligations and
rights of the Employer and Contractor that become the basis of their contractual
TYPES OF CONTRACT

13
arrangement. They also identify and describe the role of the Engineer and the
Engineers Representative.
7.2.2 The Form of Tender
7.2.2.1 This is a preformed statement whereby the tenderer offers to enter into a contract
to undertake work in accordance with the stated documents and it is signed by the
tenderer (Ref. Specimen included with the ICE Conditions of Contract). The
offer when accepted without qualification forms the binding contract. At this
stage the contract is in simple form. It is generally intended that subsequently the
contract will be executed formally as a deed for which purpose the Form of
Agreement is used.
7.2.2.2 If a tender is only accepted conditionally, this amounts to a counter-offer and the
contract is not formed until it in turn is accepted.
7.2.2.3 The Form of Tender is generally accompanied by an Appendix, which is a
vehicle for setting out salient facts required by the Conditions of Contract (Ref.
Specimen included with the ICE Conditions of Contract). Part 1 is completed by
the Engineer prior to invitation of tenders, whilst Part 2 is to be completed by the
contractors when tendering.
7.2.3 The Form of Agreement
7.2.3.1 This document is a restatement of the contract, which has usually been entered
into at an earlier stage by the offer and acceptance procedure. It is used to
complete the contract as a deed. Within this agreement are stated the various
contract documents and care should be taken to ensure that they are entirely
complete and without ambiguity.
7.2.4 The Engineer
7.2.4.1 There are only two parties to the Contract, the Employer and the Contractor and
they may sign the Form of Agreement as a Deed. Nevertheless, the role of the
Engineer is fundamental to the ICE Conditions.
7.2.4.2 The Engineer (see Clause 2) who has to be a named Chartered Engineer is
required to act impartially. The duties of the Engineer are set out in the
Conditions and in effect he administers the contract. In many cases the firm that
is appointed to take the Engineers role will also have carried out the design.
7.2.4.3 The Engineers duties and responsibilities fall into two parts:
a) He acts independently in respect of issuing certificates and making
decisions under Clause 66 (Disputes).
b) He acts as the Employers agent when ordering variations or supplying
information.
7.2.5 Contractors General Responsibilities
7.2.5.1 Clause 8 sets out the Contractors general responsibilities, which in effect are to
be responsible for labour, materials and workmanship, but not the design. E.g.:
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14
Clause 8 (1) The Contractor shall subject to the provisions of the
contract
a) Construct and complete the Works and
b) Provide all labour materials Contractors Equipment
Temporary Works transport ... and everything whether of
a temporary or permanent nature required in and for such
construction and completion so far as the necessity for
providing the same is specified in or reasonably to be
inferred from the contract.
(Note this latter wording is an important qualification and an
example of balance in the contract)
Clause 8 (2) The Contractor shall not be responsible for the design or
specification of the Permanent Works etc.
Clause 11 covers the provision of information and the sufficiency of the Tender.
Clause 11 (1) (revised in the 7
th
Edition)
Requires the Contractor to be responsible for the
interpretation of information provided by the Employer
before the Tender, in respect of ground conditions and pipes
and cables. Information obtained on behalf of the Employer
but not provided to the Contractor at the tender stage can no
longer be taken into account (as was the permitted with the
6
th
Edition).
Clause 11(2) This is an all embracing clause stating that the Contractor
shall be deemed to have inspected and examined the Site and
information connected therewith and have satisfied himself
in respect of ground conditions, the extent and nature of the
work and access (etc.) and in general to have obtained for
himself all necessary information as to the risks
contingencies and all other circumstances which may
influence or affect his tender.
Clause 11 (3) The contractor is deemed to have based his tender on the
aforesaid inspection and examination and satisfied himself as
to the correctness and sufficiency of the rates and prices in
the Bill of Quantities, which shall (unless otherwise
provided in the Contract) cover all his obligations under the
contract.
7.2.5.2 Although these clauses sometimes lead people to believe that the Contractor
should be deemed to have allowed for everything in his prices there are many
clauses, which give the Contractor entitlement to additional payment.
7.3 I.C.E. Design and Construct 2
nd
Edition (2001)
7.3.1 Overall Concept
7.3.1.1 Guidelines Clause 2.1
TYPES OF CONTRACT

15
The basis of these Conditions is that of an Employer who sets out in the
Employers Requirements the design brief and other matters relating to design
and construction .. and that of a Contractor who then develops these
Employers Requirements and designs and constructs the Works.
7.3.2 Design
Clause 8 General Obligations
- Design, and construct and complete replaces construct and complete
- it now requires provision of all design services as well as all labour
and materials (Clause 8 (1) )
7.3.3 Employers Representative
Clause 1
- Employers Representative is a new defined term.
Clause 2
- The Employers Representative replaces the role of the Engineer under
the ICE 7
th
. Hence the title Engineer does not exist in ICE D&C
Conditions.
- The Employers Representative carries out the duties etc that were
previously carried out by the Engineer and can issue instructions, inspect
the works, certify payments, etc but the Employers Representative
cannot amend the Contract.
- Throughout the document there are many clauses, which are very similar
to ICE 7th, but with the words Engineer replaced by Employers
Representative.
- The Employers Representative can issue instructions and he has the
power to alter the Employers Requirements (Clause 51).
- It is acknowledged that the Employers Representative is acting as the
agent of the Employer (see Guidance Notes). (This is also the case with
the Engineer).
- The Employers Representative does not now have to be an engineer. (It
is a requirement of ICE 7
th
that the Engineer is a Chartered Engineer).
- The independent role of the Engineer has been eroded over the years.
The change in title to Employers Representative recognises this shift
of emphasis although the related clauses have very similar wording.
- In practice the change is fundamental because under ICE D&C the
Contractor is responsible for ensuring the work carried out is acceptable
under the Contract (N.B. in ICE 7
th
, it has to be acceptable to the
Engineer)

TYPES OF CONTRACT

16
7.3.4 Employers Requirements
Clause 1 - Employers Requirements is a new defined term
Form of Tender - The Employers Requirements are set out in a document of
that name issued to Tenderers. Their scope may vary from
a statement of the overall requirement to a far more detailed
description including outline design, specification,
standards of performance, appearance and other matters.
The Employers Requirements may also set out:
- Requirements for a quality assurance scheme
- safety issues relating to adjacent structures
- the length of the Defects Liability Period, etc
Clause 5 - If there are any ambiguities or discrepancies between the
Employers Requirements and the Contractors Submission
the Employers Requirements shall prevail.
Clause 51 - The Employers Representative has the power to alter the
Employers Requirements after consultation with the
Contractor.
7.3.5 Contractors Submission
Clause 1
- Contractors Submission is a defined term meaning the tender and all the
documents forming part of the Contractors offer together with ----
modifications and additions ----- etc
Guidance Notes
- It is envisaged that there is a period of negotiation during which the
Employers Requirements and the Contractors Submission are amended so
that they set out an agreed scheme and specification for the Works. This is
not a normal procedure under ICE 7
th
.
7.3.6 Contractors Representative
Clause 1 - Contractors Representative is a new defined term.
Clause 15 - The Contractor is required to provide a named person who will
provide overall superintendence of the Works. (called the
Contractors Representative)
TYPES OF CONTRACT

17
- The Contractors Representative is required to have authority to
act and commit the Contractor as if he were the Contractor for
the purposes of the Contract.
7.3.7 Checking of design and workmanship by the Contractor
Responsibility for ensuring that the work is acceptable under the Contract is entirely
with the Contractor. [This is a change from the principle of the Engineer checking work
in ICE 7
th
]
Clause 36 (1) and (2)
- .. requires the Works to be designed constructed and completed
in accordance with the Contract etc.
- All materials and workmanship to be of the respective kinds
described in the Contract or to be appropriate in all the
circumstances.

7.3.8 Alterations and Additional Payments
Clause 51 - The Employers Representative has the power after Consultation
with the Contractors Representative to alter the Employers
Requirements.
Clause 52 - When requested by the Employers Representative the
Contractor is required to submit a quotation and an estimate of
delay. Wherever possible the value and delay should be agreed
before work starts.
7.3.9 Payment
Clause 1 - Contract price is a defined term and means the sum to be
ascertained and paid for the design, construction and completion
of the Works.
Clause 55 - Unlike ICE 7
th
there is no specific requirement for a Bill of
Quantities although in particular cases it may be called for.
Clause 56 - In ICE 7
th
the principle of admeasurement (measure and value)
is used (Clause 56 (1)) and the Engineer has to ascertain and
determine the value.
- ICE D&C departs radically from this principle. The Form of
Tender provides for payment on a lump sum basis although
TYPES OF CONTRACT

18
other forms of payment may be used.
7.4 ICE Conditions of Contract for Minor Works, 2
nd
Edition (1995)
7.4.1 This standard form is designed for smaller and simpler contracts for which the
main ICE 7
th
Edition Conditions would be considered over complex.
7.4.2 Its intended use is for those contracts which:
i. Are relatively low cost and straightforward,
ii. Exclude Contractors design liability for permanent works,
iii. Exclude nominated subcontractors,
iv. Have design completed before invitation of tenders.
7.4.3 The Minor Works form follows the main 7th Edition in broad principle but the
following differences should be noted.
i. It is not specifically drafted as a remeasurement contract; other bases of
evaluation may be used.
ii. There are no measurement clauses,
iii. There is no procedural clause governing submission of claims,
iv. Nominated subcontracting is not provided for,
v. Insurance of the Works is at the option of the Employer,
vi. Liquidated Damages will have a maximum limit,
vii. There are no rules governing determination
8.0 CECA Form of Subcontract (Blue Form)
8.1 This Form of subcontract agreement is designed for use with the ICE Conditions
of Contract.
8.2 A Sub-contract is a contract between two parties, usually the main contractor and
the sub-contractor. It is a contract in its own right and all the usual provisions of
contract law apply.
8.3 The only distinguishing feature between a sub-contract and any other contract is
that it is an element of a larger contract into which the main contractor has
entered with another party - the employer. To facilitate this relationship there are
links between the main contract and sub-contracts, of which there may be several
in any one scheme, whereby the sub-contractor is expected to recognise the main
contractor's obligations and assume similar responsibilities.
8.4 Whilst it is clear that a sub-contractor will have obligations towards the employer
flowing through the contractual link via the main contractor, there is privity of
contract between the sub-contractor and main contractor and separately between
TYPES OF CONTRACT

19
the main contractor and employer i.e. there is no direct link between the
employer and sub-contractor and therefore no contractual liability one to the
other.

Employer

Contractor

1 2 3 Etc.

Sub-contractors
8.5 In certain circumstances, arising from representations made by a sub-contractor to
an employer upon which the employer relies, a collateral contract can be created..
Shanklin Pier Ltd -v- Detel Products Ltd (1951). A similar principle has recently
been introduced in the Contracts (Rights of Third Parties) Act 1999, which came
into force for contracts formed from 11
th
May 2000 onwards. The Act allows
parties to exclude its provisions by incorporation of specific wording in contract
terms and conditions, eg. Clause 3(2) of the CECA Form of Sub-contract.
8.6 Where there is no legally enforceable connection between employer and sub-
contractor, the employer's only course of action in the event of a breach of contract,
even if it is the sub-contractor's fault, is against the main contractor, who in turn can
take action against the sub-contractor. This immediately breaks down if the chain is
broken, i.e. the main contractor is no longer there, as there is no direct contractual
link between the employer and sub-contractor. Faced with this predicament,
employers have attempted actions in tort against sub-contractors, with limited
success. e.g. Junior Books -v- Veitchi Co. Ltd (1983).
8.7 This case marked the high point of success of such actions and the law seems to
have settled on the principle that an injured party can successfully pursue an action
for negligence against another but only to the extent of compensation for physical
damage or injury: this does not extend to economic loss.
8.8 It is as a result of the exposure suffered by employers caused by this lack of direct
contractual liability that there has been such an upsurge in the requirement for
collateral warranties. These are agreements entered into by parties involved in
construction contracts but who, in the normal contractual structure, have no
contractual liabilities. A common example is the collateral warranty between
employer and sub-contractor, which is a separate agreement between them creating
legally enforceable rights to each other. For many years there has been a standard
form of warranty for building contracts, currently referred to as Agreement NSC/W,
being part of the JCT Standard Forms for Building Contracts, but there is no
standard form for civil engineering works. NSC/W provides amongst other matters,
warranties from the sub-contractor in respect of suitability of design, materials and
compliance with any performance specification, whilst confirming the sub-
contractor's right to direct payment by the employer in the event that the main
contractor fails to make such payment.
8.9 Collateral warranties may also be encountered between funding authorities and main
contractor and sub-contractors; between building owners (if different from the
developers) and main contractor and sub-contractors; between tenants and main
TYPES OF CONTRACT

20
contractor and sub-contractors. All such agreements have to be executed either as a
deed or with nominal consideration, otherwise they are not binding.
8.10 If the provisions of the Contracts (Rights of Third Parties) Act are not written out of
contracts, then it is hoped that the need for collateral warranties will largely
disappear.

8.11 Different types of sub-contractor.

a) Nominated sub-contractor

- A sub-contractor who is chosen by the Employer, often before the
Contractor is selected, and notified to the Contractor. There are
specific provisions within Clauses 58 and 59 of the Main Contract
governing the appointment of nominated sub-contractors and only if
those procedures are followed, can a sub-contractor be correctly
described as nominated.

- The term `sub-contractor' in this instance includes suppliers only of
goods as well as suppliers and installers.

- Depending upon individual circumstances it may be prudent for an
Employer/Sub-contractor warranty to be concluded.

b) Domestic sub-contractor

- A sub-contractor who is entirely the Contractor's choice. The
Employer and Engineer will have little interest in such arrangements
other than the over-riding consideration of ensuring the work is
satisfactory. Clause 4 of the Main Contract gives power to the
Engineer to take action in the event of a sub-contractor's unsatisfactory
performance.

c) Specified sub-contractor

- A sub-contractor named by the Employer to whom the Contractor has
no right of objection. In such situations the requirement is for the
Contractor to employ the sub-contractor on the same basis as a
domestic sub-contractor i.e. the Contractor has to take all the risks
without any of the safeguards provided by the nomination procedure. It
is a system which is frowned upon by the industry generally but
nevertheless is still used.

Provided the sub-contractor fulfils his obligations satisfactorily then
there is no problem. The difficulties arise when the opposite happens:
the Contractor has an obligation to use the specified sub-contractor but
has no solution if he fails to perform. Incorporation of a specified sub-
contractor into the main contract is usually accomplished by
information, including the name of the sub-contractor, being available
to the Contractor before the main contract is formed. It would be
impossible to impose such a sub-contractor at a later stage without the
Contractors agreement, although there could be difficulties if the main
contract included provision for the Employer or Engineer to specify
sub-contractors of their choice during the course of the contract.
TYPES OF CONTRACT

21

d) Labour only sub-contractors

(8) Although referred to in Clause 4(3) of the Main Contract and in the
C.E.C.A. Daywork Schedules, there is no clear definition of this type
of sub-contractor. Taken literally it would mean provision purely of
labour services to the Contractor in an alternative manner to his own
employees. In practice many sub-contractors, referred to loosely as
labour only, also provide their own plant and sometimes make minor
contributions of materials.

Labour only sub-contractors are entirely a matter for the Contractors
own choice and the form of sub-contract between them is often
expressed in only the simplest of terms, if at all.

8.12 Main Contract Provisions

8.12.1 Clause 4. Sub-contracting generally.

(9) The Contractor may sub-contract the whole of the Works but only with the
prior written consent of the Employer.

- Unless the Contract forbids it, the Contractor can sub-contract any part
of the Works or their design. The Contractor must notify the Engineer
in writing the name and address of the sub-contractor a minimum of 14
days before entry upon the Site or, in the case of design, upon
appointment. The Engineer has 7 days in which to object to the
proposed sub-contractor, giving reasons in writing.

This requirement does not apply to labour only sub-contractors.

- The Contractor is responsible for all activities of the sub-contractor.

- Any sub-contractor who fails to perform his duties satisfactorily, may
be dismissed by instruction from the Engineer to the Contractor after
written warning from the Engineer.

8.12.2 Clauses 58 and 59. Nominated Sub-contractors.

- There are only two ways in which a Nominated Sub-contractor may be
appointed: either via a Provisional Sum or a Prime Cost Item.
Definitions of both are to be found in Clause 1(1) with further
explanation in CESMM, Section 5.

- A Provisional Sum is included within the contract for works, which at
tender stage are uncertain. After the Contract is formed the Engineer
may instruct expenditure of Provisional Sums either by employment of
the Contractor or a Nominated Sub-contractor or not at all.

- A Prime Cost Item is included in the contract for specific works,
usually of a specialist nature, for which it is envisaged a Nominated
Sub-contractor will be employed, although the Engineer still has the
choice whether to ask the Contractor or a Nominated Sub-contractor.
TYPES OF CONTRACT

22
However in this case the Contractor can choose whether or not he
wishes to take on the work.

- If expenditure of a Provisional Sum or Prime Cost Item is intended to
include design obligations, then that must be stated in the contract
documents, otherwise the Contractor will not carry this liability, even
though the sub-contractor may shoulder the task.

- A series of provisions are stated in Clause 59 for the regulation of
Nominated Sub-contract arrangements. They may be summarised as
follows.

(1) The Contractor can object to entering into the Sub-contract if the Sub-
contractor is not prepared to accept similar obligations to those imposed
on the Contractor under the Main Contract or indemnify the Contractor
in the case of default by the Sub-contractor.

(2) When a sub-contract is not successfully concluded or if it is validly
terminated, the Engineer is required to decide on an alternative course
of action which may be:

(a) nominate an alternative sub-contractor,
(b) vary the works,
I omit the work so that it is dealt with separately by the
Employer; the Contractor is still entitled to his charges and
profit;
(d) instruct the Contractor to obtain a price from an alternative
sub-contractor of the Contractors choice,
(e) ask the Contractor to do the work.

(3) The Contractor carries full responsibility for the sub-contract works to
the same extent as if he had done them himself.

(4) If the Contractor believes he has valid grounds for terminating the Sub-
contractors employment, he must notify the Engineer in writing with
reasons. Only if the Engineer agrees in writing with this course of
action, is the Contractor allowed to proceed with the termination.

Whatever additional costs the termination may have caused to the
Contractor and Employer, the Contractor is to take all practical steps to
recover them from the defaulting Sub-contractor or bondsman, if there
is one. To the extent that such costs are not recoverable, they are to be
reimbursed to the Contractor by the Employer.

(5) The Contractor will be paid in respect of sub-contract work, the net
value except discounts for prompt payment, plus the values identified in
the Bill of Quantities for labours, other charges and profit.

(6) The Engineer is to be provided by the Contractor with all quotes and
payment papers relating to the Sub-contract when requested.

(7) The Employer may make payment direct to the Sub-contractor the
value of any payment which the Contractor has failed to pass on. The
Engineers certificate is required for this to happen but before taking
TYPES OF CONTRACT

23
this step, the Contractor is to be allowed to give written explanation to
both the Engineer and the Sub-contractor.

8.13 The C.E.C.A. Standard Form of Sub-contract (July 1998).

8.13.1 The Form of Sub-contract (often referred to as the Blue Form) has been produced by
the Federation of Civil Engineering Contractors, now replaced by the Civil
Engineering Contractors Association, for use in conjunction with the I.C.E.
Conditions of Contract. However, it is not obligatory to use this Form and it is not
referred to within the I.C.E. Contract.

8.13.2 The Sub-contract Form is equally capable of use whether for domestic or nominated
sub-contracts. Its links to the I.C.E. Contract (the Main Contract) are created by
specific reference as follows.

(1) The introductory wording of the Agreement declares that the Sub-
contractor has had an opportunity to read and note the provisions of the
Main Contract with the exception of the Contractors prices.

(2) Clause 3(1). The Sub-contractor is deemed to have full knowledge of
the provisions of the Main Contract. The Contractor is required to
provide a fully copy of the Main Contract, except for prices, to the Sub-
contractor, if requested and at the Sub-contractors cost. No charge is
made if it is just a copy of the Appendix to the Form of Tender of the
Main Contract and any contract conditions which differ from the
standard I.C.E. Conditions, but the Sub-contractor is still required to
make the request.

(3) Clause 3(2). The Sub-contractor is to comply with all the obligations of
the Main Contract insofar as they apply to the Sub-contract works.

(4) Clause 3(4). Breaches of the Sub-contract by the Sub-contractor are
likely in turn to cause the Contractor to be in breach of the Main
Contract and other contracts and this is to be within the contemplation
of the parties. When linked with Clause 3(3) the Sub-contractor takes
full liability for the costs of breaches which he causes. (Victoria
Laundry (Windsor) Ltd v- Newman Industries Ltd (1949)).

(5) In various other places throughout the Sub-contract Clauses, there are
references to the Engineer and the Employer having influence over the
Sub-contractors works and activities.
8.13.3 The Sub-contract is not restricted to one method of pricing like the Main Contract
but may be either a lump sum or a measure and value contract - Clause 1(1)(e).
8.13.4 To ensure that the Sub-contract is clearly identified, in particular its links with the
Main Contract, there are five Schedules which are required to be completed giving
specific information pertaining to the Sub-contract. They are accompanied by Notes
for Guidance on their completion.
8.13.5 First Schedule. Particulars of the Main Contract.
Date when Main Contract formed.
TYPES OF CONTRACT

24
Names of Employer and Contractor.
A list of documents comprising the Main Contract.
Brief description of Main Contract Works.
Dates when the Contractor will be submitting his valuation
statements to the Engineer. This is termed the `Specified Date'
which governs the time table for submission of the Sub-
contractor's valuation statements - Clause 15.
The minimum amount of interim certificates.
8.13.6 Second Schedule. Sub-contract general details.
A full list of Sub-contract Documents. Note that standard printed
conditions attached to other documents are automatically
excluded unless specifically included by reference here -Clause
1(1)(b).
A description of the Sub-contract Works.
Price fluctuation provisions, if any.
The Main Contract Arbitration Procedure.
8.13.7 Third Schedule. Sub-contract valuation and completion information.
Provision for indication that the Sub-contract is lump sum or
measure and value.
Note that where a bill of quantities is included within the Sub-
contract Documents, it is not intended to define the limit of the
work unless expressly stated - Clause 9(4).
Percentage of retention held from the value of works and
materials.
Limit of retention, if any.
Period for completion. Note that there are no provisions for
liquidated damages. Any damages would be actual, as
established by circumstances.
Minimum value of work before payment is triggered.
Note that the Contractor has discretion whether or not to apply
this sanction.
8.13.8 Fourth Schedule. Contractor's facilities provided for the Sub-contractor.
Part I, Common Facilities - Clause 4(2). Divided into two parts,
Contractor's equipment and other facilities. This part of the
Schedule is to be completed identifying such items which the
Contractor is prepared to make available for the use of the Sub-
TYPES OF CONTRACT

25
contractor and any other contractors, e.g. water, lighting, lifting
equipment, etc. Any conditions of use and charges are to be
identified.
Part II, Exclusive Facilities - Clause 4(3). Also divided into two
parts, Contractor's equipment and other facilities but in this
instance the Sub-contractor has exclusive use of these items.
Again conditions of use and charges are to be stated.
8.13.9 Fifth Schedule. Insurances - Clause 14
Part I, Sub-contractor's insurances. The particular liabilities to be
insured are to be stated e.g. third party similar to Clause 23 of the
Main Contract.
Part II, Contractor's insurance. If the Contractor's insurance
cover for the Works is to extend to cover the Sub-contractor's
liability then details are to be given. If the cover does not extend
to the Sub-contractor then this Part of the Schedule should be
marked `not applicable'.
In both Parts care is to be taken to avoid duplication of insurance
cover.
8.13.10 The Standard Form concludes with space for signature by the parties either as a
simple contract or a contract as a deed.
8.13.11 Examination of Important Provisions.
1. Issuing Instructions
(a) The Sub-contractor is to comply with instructions and decisions given
by the Engineer or the Engineer's Representative provided the
Contractor issues them in writing - Clause 7(1).
(b) The Contractor and Sub-contractor have the same powers and rights to
issue instructions and receive decisions as the Engineer and Contractor
enjoy under the Main Contract - Clause 7(2). The Main Contract
Clause governing these provisions is 2(6), which includes confirmation
of oral instructions.
(c) All variations are to be instructed by the Contractor in writing. The
Sub-contractor is to ignore any variation which is not in writing -
Clause 8(1), (2) and (3).
2. Time for Completion
(a) Sub-contract operations are to start on site within 10 days (unless
otherwise agreed) of the Contractor's written instruction - Clause
6(1).
(b) Works are to proceed with diligence and without delay, unless
sanctioned or ordered by the Contractor or beyond the control of the
Sub-contractor - Clause 6(1). (West Faulkener Associates -v- London
Borough of Newham (1992)).
TYPES OF CONTRACT

26
(c) Sub-contract works should be completed within the Period for
Completion stated in the Third Schedule - Clause 6(1).
(d) The Sub-contractor is entitled to an extension of the Period for
Completion if any delay occurs which:
(i) entitles the Contractor to an extension of time under the Main
Contract (other than resulting from the Sub-contractor's
default);
(ii) is as a result of a variation to the Sub-contract Works;
(iii) is a breach of the Sub-contract by the Contractor.
- Clause 6(2).
(e) The Sub-contract Works may be divided into parts with separate
Periods of Completion. To be detailed in the Third Schedule - Clause
6(3).
(f) The Sub-contractor is to be notified by the Contractor of all extensions
of time which are granted under the Main Contract and which relate to
the Sub-contract.
(g) There is no clause referring to preparation of a programme for the Sub-
contract Works but as it is an obligation under the Main Contract
(Clause 14), it could also be required under the Sub-contract - Clause
3(2).
3. Payment Provisions
(a) Schedule 1 identifies the `Specified Date' for submission of the
Contractor's valuation statements to the Engineer. The Sub-contractor
is required to submit his statement to the Contractor at least 7 days
before that date - Clause 15(1)(a).
(b) The value of work done, materials on and off site up to the date of the
statement is to be included in it in the form and detail required by the
Contractor and at the rates contained in the Sub-contract - Clause
15(1)(a).
(c) The Contractor is required to pursue payment by the Employer of
certified values including those on behalf of the Sub-contractor - Clause
15(2)(b).
(d) Payment falls due to the Sub-contractor within 35 days of the Specified
Date and the Contractor is to determine the amount within the same 35
days. The Contractor then has a further 3 days in which to make
payment. - Clause 15(3)(a).
(e) The Contractor may with-hold payment in whole or in part, if:
(i) Contra-charges are levied as provided under the Sub-contract.
(ii) Sums are set off in accordance with Common Law.
TYPES OF CONTRACT

27
(iii) The value does not reach the minimum payment amount under
the Sub-contract or the minimum certificate value is not
reached under the Main Contract.
(iv) The value is reduced, disputed or otherwise not certified by the
Engineer or is not paid through the Employers insolvency.
(v) The value is disputed by the Contractor or Employer.
- Clause 15(3)(b).
(f) Different time scales apply where the Sub-contractors valuation
statement becomes incorporated into the Contractors final account. In
this case the Contractor notifies the Sub-contractor in writing of the
amount which the Engineer certifies relative to the Sub-contract works,
within 28 days of certification. Payment is made 7 days later unless the
Employer is insolvent. - Clause 15(3)(d). .
(g) Interest is payable upon any sums incorrectly with-held at the same rate
as provided in the Main Contract. - Clause 15(e) and (f).
(h) First half of retention is released to the Sub-contractor within 35 days of
it's inclusion in the Engineer's certificate, unless the Employer is
insolvent.
Second half of retention is released within 28 days of the issue of the
Defects Correction Certificate, with payment being made 7 days after
the Contractors notification to the Sub-contractor.
- Clause 15(5)(a) and (b).
(i) No later than 3 months after completion of defects (Clause 13) or 14
days after the Contractor receives payment from the Employer,
whichever is sooner, the Contractor is to notify the Sub-contractor of
the final Sub-contract value. Payment occurs 7 days later.
This is dependant upon expiration of 1 month after the Sub-contractor's
submission of his valid statement of final account' to the Contractor -
Clause 15(6).
(j) The Sub-contractor must put in writing to the Contractor all his claims
for payment prior to issue of the Defects Correction Certificate under
the Main Contract, otherwise he loses all entitlement - Clause 15(7).
(k) All notifications of payment from the Contractor must state the amount
and basis of calculation. - Clause 15(8).
(l) If the Contractor intends to with-hold any payment after the date when
payment is to be made then he must notify the Sub-contractor not less
than 1 day earlier. The notice must explain how much and why. -
Clause 15(9).
(m) Variations are valued at or based upon prices contained in the Sub-
contract or, if not applicable, then at fair and reasonable rates - Clause
9(2).
TYPES OF CONTRACT

28
(n) Variations valued on a daywork basis are to follow the rules contained
in the Main Contract using rates in the Sub-contract or, if there are
none, in accordance with the F.C.E.C. Daywork Schedule - Clause
9(5).
(o) Claims for adverse physical conditions or artificial obstructions. The
Sub-contractor is to give written notice to the Contractor in sufficient
time to enable the Contractor to comply with his obligations under the
Main Contract. Provided this is done, then the Sub-contractor is
entitled to the same benefits in both time and expense as the Contractor
is entitled under the Main Contract, but no more. - Clause 10(2)
9 NEC Engineering and Construction Contract (3
rd
Edition)
9.1 One of the principal aims of the NEC was greater clarity and simplicity compared
with more traditional conditions of contract.
9.2 Chronology of the development from the NEC to the ECC.
9.2.1 It was March 1993 when the first edition was launched with a number of major
companies
1
adopting this type of contract as their preferred procurement route.
9.2.2 During 1994 the first editions of the Adjudicators Contract and the Professional
Services Contract (PSC) were published.
9.2.3 The PSC was designed to be used for design, project or construction management
services or site supervision both when using the NEC as the construction
contract.
9.2.4 In November 1995 the second edition of the NEC was published and renamed the
NEC Engineering and Construction Contract (ECC).
9.2.5 In April 1998 amendments to the payment and adjudication clauses of the ECC
were published as an addendum in order to comply with the Housing Grants
Construction and Regeneration Act 1996, Part II.
9.2.6 Shortly after the above amendments an in or around June 1998 the second
editions of the Adjudicators and Professional Services Contracts were published.
9.2.7 During 1999 the Engineering Construction Short Contract was published.
9.3 The ECC tries to describe a generic process for the management of problems
which inevitably arise during a construction or engineering project. In doing this
it attempts to tread a fine line between sufficient tightness, so that contract
participants follow the procedures and sufficient looseness so that it can be
interpreted in a way appropriate to the situation encountered. However, this
stimulus of good Project Management is dependant upon all parties singing from
the same hymn sheet and being committed to a common goal, i.e. embracing the
full philosophy of partnering.
9.4 In June 2005 the third edition of the NEC was published. The NEC 3 family of
contracts comprises of;

1
One off larger companies being BAA
TYPES OF CONTRACT

29
the NEC 3 Engineering and Construction Contract
the NEC 3 Engineering and Construction Sub-Contract
the NEC 3 Professional Services Contract
the NEC 3 Short Contract
the NEC 3 Short Sub-Contract
the NEC 3 Adjudicators Contract
the NEC 3 Term Services Contract
the NEC 3 Framework Contract
9.5 The NEC 3 Contracts are supported by officially published guidance notes, flow
charts and an advisory document entitled NEC 3 Procurement and Contract
Strategies. The Engineering and Construction Contract has six main procurement
options. Whilst the Black Book covers all six options, each option has been
published separately. In all, the complete set of NEC 3 documents (as at June
2005) comprised twenty three volumes.
9.6 The amount of change from ECC 2 to NEC 3 is quite small in volume terms -
perhaps no more than 5% or so of the text. However, that belies the importance of
the changes. There are new provisions of considerable potential impact and
changes which significantly affect the operation of the contract. And as with
changes generally to contracts and other formal documents, a change in one clause,
however small, can have effects not immediately apparent on other clauses. For these
reasons and because there has been quite an amount of re-arrangement and re-
numbering, NEC 3 is best treated as a new contract rather than an update of ECC 2
9.7 Significant new features
key dates - these are dates set by the employer by which
the contractor has to bring a stated part of the
works to a specified condition.
risk register - a register maintained by the project manager
and intended to include all risks stated in the
contract data or subsequently identified by the
project manager and the contractor.
key performance indicators - aspects of performance for which targets are
set in an incentive schedule.
prevention provisions - new clauses by which the employer carries
the time and cost risks of events similar to,
but potentially wider than, force majeure.
entire agreement clause - statement that the contract is the entire
agreement between the parties.
quotations treated - right to submit quotations for comp-events
as having been accepted
TYPES OF CONTRACT

30
limitation of liability - new option clause limiting the contractor's
liability to the employer for indirect or
consequential loss.
delay damages - proportioning down clause included for parts
of the works taken over before completion.
9.8 Significant Changes
cost schedules - increased use of shorter schedule of cost
components to simplify assessment of
compensation events.
rates and lump sums - by agreement rates and lump sums can be
used to assess compensation events.
fee percentages - separate fee percentages for subcontracted
work and direct work.
conditions precedent - revised and clarified provisions on notices
and timing restrictions for the submission of
compensation events.
Interest - revised and clarified provisions on
entitlements to interest.
dispute resolution - choice to be made between alternative sets
of provisions.
9.9 The full details of the NEC 3 Suite of Contracts will be discussed in lectures 4 &
5 and therefore they are not repeated herein.
10 OTHER STANDARD FORMS OF CONTRACT
10.1 Institution of Chemical Engineers
2. Institution of Chemical Engineers
Model Form for Process Plants, 3
rd
Edition (Red Book)
Suitable for lump sum contracts
3. Institution of Chemical Engineers
Model Form for Process Plants (Green Book)
Suitable for cost reimbursement contracts
4. Model Form of Subcontract (Yellow Book)
For use in conjunction with the Institution of Chemical Engineers
Forms of contract
These forms of contract have been widely used in the water industry.

TYPES OF CONTRACT

31
10.2 Joint Contract Tribunal
JCT 98 Standard Forms of Building Contracts
- Private With Quantities
- Private Without Quantities
- Local Authority With Quantities
- Local Authority Without Quantities
- Private With Approximate Quantities
- Local Authority With Approximate Quantities
- Contractors Design Portion Supplement
JCT 98 with Contractors Design
JCT 98 Intermediate Form
JCT 98 Management Contracting
JCT 98 Measured Term
JCT 98 Minor works
JCT 98 Prime Cost
JCT 98 Works Contract
These are the most frequently used contracts in the building industry.
10.3 Government Contracts
GC/Works/I (1998) (replaces GC/Works/1 Edit 3)
- With Bill of Quantities
- Without Bill of Quantities
- Design / Build
GC/Works/2 (1998) Minor Works (replaces GC/Works/2 (1990) and C1010)
GC/Works/3 (1998) (replaces C1020 and C1030)
Mechanical/Electrical
GC/Works/4 (1998)
Mechanical / Electrical Small Works (replaces C1001)
Used on a wide range of Government contracts.
TYPES OF CONTRACT

32
11.0 Typical Exam Questions (2004)
Question 5
Boring Workers Limited is employed to construct a 5km motorway extension by Wiltshire
County Council. The form of Contract is the ICE 7th Edition.
Part of the Works consisted of the construction of a 150 metres single bore tunnel. Shortly
after the tunnel had driven approximately 25 metres the rate of tunnelling production slowed
significantly. Boring Workers informed the Engineers Representative that tunnelling
conditions had deteriorated due to the presence of rock which, Boring Workers maintain,
was not foreseen. Boring Workers have informed the Engineers Representative that they
would be making a claim under the Contract for both additional payment and extensions of
time
a. Outline the steps which Boring Workers has to take, by reference to the
conditions of contract, to establish an entitlement to:
i) additional payment; and [7 marks]
ii) extension of time [7 marks]

b. Describe the nature of the information which Boring Workers should provide to the
Engineer to enable him to make a decision [11 marks]

Question 6
You are the Engineer's Representative to whom full authority under the ICE 7th has been
delegated by the Engineer.
a. i) Describe what powers you have under the contract to effect the removal of
defective work from Site. [5 marks]
ii) Identify what powers you have under the contract to oblige the
contractor to open up works and alternatively to search for defects.
Additionally
explain who is responsible for the cost of opening or searching in the event
that
no defects are found. [8 marks]
The Contractor gives you 5 days notice of his intention to carry out a concrete pour to a
section of a retaining wall. Due to reasons beyond your control you are unable to inspect the
Contractor's work. The Contractor waits several hours for you to turn up and eventually
proceeds with the pour without having his work inspected.
b. Was the Contractor right to proceed with the pour in the absence of an inspection from
you? [5 marks]
TYPES OF CONTRACT

33
Part of the retaining wall is subsequently found to be defective. The Contractor claims
additional costs and an extension of time on the basis that had you inspected the work prior
to the pour the defective work would have been discovered.
c. By reference to the contract conditions explain the approach you would take to
determine the Contractor's claims. [7 marks]
Question 8
By reference to the ICE 7th Edition
a. In what circumstances can the Engineer order variations to the Works?
b. Explain the procedure to be followed by the Engineer in ascertain the value of
variations ordered by him, outlining the factors which the Engineer has to consider in
reaching a fair valuation.
c. The contractor maintains that due to variations instructed by the Engineer the rates
and prices for various elements of work are no longer applicable.
Does the contractor have a remedy under the contract to have these rates and prices
adjusted?
What obligations are placed on the Engineer to consider and adjust such rates and
prices?

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THE INSTITUTION OF CIVIL ENGINEERS

West Midlands Region

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