Presentation by Ciaran McGovern - Operations Director, TOBIN to Engineers Ireland (Thomond / West Region) 8th March, 2011 Presentation title: GCCC Contracts Experience to date: A review of the operation of the GCCC Contracts on Civil Engineering projects

1. Presentation to Engineers Ireland (Thomond / West Region)
8th March, 2011
March, 0
GCCC Contracts – Experience to date:
A review of the operation of the GCCC
Contracts on Civil Engineering projects
Ciaran McGovern
TOBIN Consulting Engineers

2. Topics
• Background
• Risk Management
• Works Requirements
W k R i
• VAT Issues
• Suitability Assessment Questionnaires
Suitability Assessment Questionnaires
• Delegation of duties to ER’s Site Representative
• Construction Issues
• Delay & Compensation Events
• Employer Claims
• Client Communications

3. Background (1)
• Personal greatest exposure to date primarily with
Conditions of Contract for Civil Engineering Works designed
by the Employer (Aug 2007)
by the Employer (Aug 2007)
• Documents downloaded from
http://www.constructionprocurement.gov.ie/
• No change log for updates
• Difficult to keep current when documents are constantly
changing
• Suggest an RSS feed is prepared for the site which would
alert of changes?

4. Background (2)
• Guiding Principles: (DEHLG training material)
– “To ensure as far as practicable that the accepted tender
prices and the final outturn costs are the same
prices and the final outturn costs are the same”
– “To allocate risk so there is optimal transfer to the
Contractor”
• Launch date was February 2007, we are now four years in!

5. Risk Management (1)
• Fundamental concept is that risk can be managed,
minimised shared or accepted. It cannot be ignored.
• Structured approach / early engagement yields dividends
Structured approach / early engagement yields dividends
– Focuses the Consultant / LA to look at the difficult decisions up front e.g.
“do we divert the ESB cables or dig around them?”
– Think about the issues likely to threaten the success of the project and
Think about the issues likely to threaten the success of the project and
address them. Engagement with third parties, decide what is needed
and provide for them in the Contract in a clear way e.g. accommodation
works, traffic requirements, what are the particular constraints being
placed on the Contractor.
– Can the risks be eliminated entirely – worth considering advance works
contracts. Does the programme support this?
– Heretofore, risks managed in part through the use of Provisional / PC
f k d h h h f l/
Sums / Dayworks. No longer an option in New Works Contracts

6. Risk Management (2)
• Risk Treatment Options in a workshop environment
– Should the risks be accepted by the Employer or transferred to
the Contractor
the Contractor
– The need to have comprehensive information e.g. type of Site
Investigation works, uncovering works in buildings, Ground
Penetrating Radar, Utilities mapping
Penetrating Radar Utilities mapping

7. Risk Management (3)
• Risk allocated to whichever party is best placed to manage
them.
– Optimal risk transfer is not the same as maximum risk transfer
risk transfer is not the same as maximum risk transfer
– Circulars from DEHLG / NRA on what default position is for standard
Contract types – schedule Part 1K default positions for Delay &
compensation events
compensation events
– The temptation may be to transfer all risk, but this needs to
supported by analysis of the optimal position.
– Risk transfer consideration may influence Contract type selection
Risk transfer consideration may influence Contract type selection

8. Risk Management (4)
• Contract Selection –
– Guidance note 1.4 ‐ Capital Works Management Framework Guidance
Note: Procurement and Contract Strategy for Public Works Contracts”.
gy f
– Section 2 of that document states: “On projects valued below €5 million,
it is more usual to use the Minor Works Contract (PW‐CF5). However, in
certain exceptional circumstances the Employer may deem the project
sufficiently complex to warrant the use of one of the major works
ffi i tl l t t th f f th j k
contracts (PW‐CF1 or PW‐CF3)”.
– Is the use of a monetary threshold the most important arbiter in
determining the default position for use of Minor / Major forms of
determining the default position for use of Minor / Major forms of
Contract
– What are the exceptional circumstances, what makes the project
sufficiently complex?
– Risk transfer considerations lead into this selection process

9. Risk Management (5)
• Consideration of particular types of Complex Projects.
– Construction of Engineered Landfill Cells
– Major Civil Engineering Works but typically rolled out in works
Major Civil Engineering Works, but typically rolled out in works
packages less than €5M
– Civil Engineering Works designed by the Employer, but placing
particular design related to Bentonite Enhanced soils with the
particular design related to Bentonite Enhanced soils with the
Contractor
– Contractor has to source all materials and retain Specialist to
batch / mix
batch / mix
– Risk on remeasurement considered to be optimal if passed to the
Contractor
– First review suggests Minor Works Form but optimal risk transfer
First review suggests Minor Works Form, but optimal risk transfer
suggests Major Forms

10. Risk Management (6)
• Watermains / Trenchless Technology – Water Services
– Very often tendered as open cut trench using Minor Works Form
of Contract
of Contract
– Contractor wishes to propose trenchless technology
– No Value Engineering Clause in Minor Works Forms (clause 4.8)
– G
Ground risk optimally managed by contractor if proposal accepted
d i k ti ll db t t if l t d
– Minor works Forms pre‐selects allocation of Ground Risk as being
an Employer retained
– Optimal risk transfer suggests Ground Risk should be retained by
f
the Contractor for such technologies as he is best placed to
manage it.

11. Works Requirements (1)
• Should they include….
– Digital design models in 3D
– If risk K17 (remeasurement) is not a Compensation event is the
If risk K17 (remeasurement) is not a Compensation event, is the
contractor then obliged to undertake a detailed analysis of the quantum.
– Does a 3D model assist with such an exercise.
– Would such a proposal be of equal benefit to both small and large
p p q g
Contractors
– If such information was provided, should it be included within the
“Relevant Background Information” or part of the Works Requirements
– If it is part of the Works Requirements, can the contractor then rely
upon it
– Would this undermine the original intent of transferring the risk related
to remeasurement i.e. Risk K5 – F t l E
t t i Ri k K5 Factual Error about the site
b t th it

12. Works Requirements (2)
• Is a Bill of Quantities needed?
– In Water Service Projects, the default position is that a detailed
Bill of Quantities using CESMM should be prepared
Bill of Quantities using CESMM should be prepared
– Similarly Roads projects use MMRB
– In the absence of guidance from Specific Government Sections,
what do the Department of Finance Guidance Notes say
what do the Department of Finance Guidance Notes say

13. Works Requirements (3)
• Guidance Note 1.5 as available from the Government
Construction Procurement website
http://www.constructionprocurement.gov.ie/, prescribes
http://www constructionprocurement gov ie/ prescribes
details of the format of the BOQ

14. Works Requirements (4)
• Referring specifically to “Section 2.6.3 ‐ Prescribing the Content
of the Pricing Document” and specifically to the guidance on
“Compiling the Pricing Document”, it states:
p g g ,
“The primary pricing document may be one of the following:
– A comprehensive and fully measured list of quantities and
specifications drawn up in a formal Bill of Quantities; tenderers
can then insert their rates against the categories specified by the
Employer (this is appropriate for Employer‐designed contracts
only); or.
– A multiple‐page tender cost analysis detailing how the tender
price is to be broken down – the Employer should follow best
practice in specifying the headings under which price details are
to be presented.”

15. Works Requirements (5)
• Factors influencing the decision to prepare a detailed BOQ
or to specify the headings under which the Contractor
prepares his tender
prepares his tender
– If risk K17 (remeasurement) is not a compensation event the
Contractor is obliged to undertake a detailed analysis of all
the quantities / inputs
the quantities / inputs
– If the Quantities that the Contractor determines are the
inputs into the Works Requirements are different to those
quantities within the Bill; what happens
titi ithi th Bill h t h

16. Works Requirements (6)
• In the case where a detailed BOQ is prepared by the ER
– The quantities set down within the BOQ cannot be altered. If the
q ,
Contractors quantities are not the same, but are derived from his
commercial judgement, then the amount inserted against each
item must be deemed to be fully inclusive
q y
– If the quantity entered does not match the contractors
assessment, then the rate entered will not be a “true rate”
– Example: Quantity Unit Rate Amount (€)
– Tender BOQ 79 m³
– Contractor take off 55 m³ €0.60 €33.00
– Final BOQ 79 m³ €0.42 €33.00

17. Works Requirements (7)
– How are Change Orders valued later; Clause 10.6.1 requires
that a determination “shall be valued”….”using those rates”.
– In the example the Contractor would only be recovering
In the example, the Contractor would only be recovering
€0.42 per m³ for any ordered additional works rather than
the true cost of €0.60 per m³ (assuming 55m³ was correct!)
– If the Contractor determines that quantities are different at
If the Contractor determines that quantities are different at
tender stage than those declared within the BOQ, should he
raise a tender clarification asking for the quantity to be
changed based upon his commercial judgement.
changed based upon his commercial judgement
– Is a Contractor who doesn’t declare his own assessment of
the quantities deemed to have accepted those transparently
declared within the BOQ
d l d ithi th BOQ

18. Works Requirements (8)
• Alternative position is not to prepare a detailed BOQ
– I thi
In this case, the tenderer provides an overall summary of the
th t d id ll f th
BOQ under the headings specified prior to tender.
– A detailed breakdown of the tender is supplied prior to
Contract signing

19. Works Requirements (9)
• Programme contingency
– Clause 9 4 defines that “The Contractor has included in the initial
Clause 9.4 defines that The Contractor has included in the initial
Contract Sum and shall include in its programme a contingency for
delays to the date for Substantial completion of the Works caused by
compensation Events”
– The programme contingency therefore includes both time and
money
– The Time element is defined in Schedule Part 1K prior to going to
tender for traditional Employer Designed Contracts (Thresholds T1
and T2)
– The Contractor determines the financial provision within his tender
sum
– What is this financial provision deemed to include?

20. Works Requirements (10)
• Adjustments to the Contract Sum – Clause 10.6
– Additional works shall be valued using the mechanisms
Additional works shall be valued using the mechanisms
described in 10.6.1 to 4
– Schedule part 2E does not include rates other than for those
prescribed
ib d
– Rates for Contractors site management etc. can be deemed
to be included within the Programme Contingency up to the
date for completion.
– Rates for Contractors personnel other than those defined in
Part 2E, deemed to be included within the Daily Cost defined
Part 2E, deemed to be included within the Daily Cost defined
within Clause 10.7

21. VAT Issues (1)
• There are strict rules that govern how VAT is accounted for
in construction. Feedback from Revenue is:
– Important to note VAT is continually under review – rules and rates
change
– A “Principal Contractor” is generally that entity at the top of the supply
chain
– Where the Employer is a Local Authority (or any body to whom
Relevant Contracts Tax applies), that Employer becomes the “Principal
pp ), p y p
Contractor”
– In construction, where the VAT reverse charge rule applies (see below),
VAT is paid directly to Revenue by the Principal Contractor , rather
VAT is paid directly to Revenue by the “Principal Contractor”, rather
than to the construction service supplier.

22. VAT Issues (2)
• Feedback from Revenue (contd):
– The Contract Fixed Price Lump Sum (FPLS) can vary
depending on whether the Employer is a “Principal
Contractor” or not
– Where the Employer is a “Principal Contractor” (e g Local
Where the Employer is a Principal Contractor (e.g. Local
Authority), the FPLS should normally include any 21% VAT
(where applicable) but not the 13.5% VAT – The Employer as
“Principal Contractor” pays the 13.5% VAT directly to
Revenue, and the 21% VAT down the line in the usual way.

23. VAT Issues (3)
– Where the Employer is not a “Principal Contractor”, the FPLS should
include any 21% VAT (where applicable) and the 13.5% VAT – The
Employer pays all VAT down the line in the usual way. An example of
Employer pays all VAT down the line in the usual way. An example of
where 21% VAT would apply in construction is the supply and
installation of fittings that are removable (not permanent fixtures)
– The special case of Geotechnical Investigations is considered
The special case of Geotechnical Investigations is considered
essential to the construction process and thus subject to the VAT
Reverse Charge rule and thus paid directly by the Principal Contractor
to the Revenue. Revenue decided that, in the special case of
to the Revenue Revenue decided that in the special case of
Geotechnical Investigation, both the 13.5% (e.g. fieldwork) and the
21% (e.g. report) would both be paid directly by the Principal
Contractor to the Revenue.
C t t t th R

24. VAT Issues (4)
– Based on above, where the Employer is a “Principal Contractor” (e.g.
Local Authority), the FPLS for a Geotechnical Contract should not
include any VAT
include any VAT
– Archaeology is not considered essential to the construction process
and does not fall under VAT Reverse Charge rule, so VAT is paid
down the line in the usual way.
down the line in the usual way
– Lots to consider when looking at advance Contracts i.e. Roads
advance Contracts for Geotechnical works and Archaeological works
are treated differently for VAT.

25. Suitability assessment questionnaires (1)
• Large changes in this area in recent years
– Self Certification
– The only mechanism for meeting minimum criteria is
The only mechanism for meeting minimum criteria is
essentially experience
– Workload for tenderers reduced with self certification
– Financial information in the current climate needs to be up
to date
– Standardisation of template broadly welcomed
Standardisation of template broadly welcomed

26. Suitability assessment questionnaires (2)
• Suitability Assessment
– Recommendation from DEHLG is that all qualified applicants
are invited to tender to ensure greater SME participation
are invited to tender to ensure greater SME participation
(Circular 10/10, Circular L3/11 on Water Conservation
reiterates SME participation)
– Separation of the Assessment process from the tender
Separation of the Assessment process from the tender
assessment
– Procedures required to allow this to happen (two envelope
system) are generally understood at this stage.
) ll d d h
– Omission of declarations are deemed grounds for rejection
– Advice is that ER can clarify information rather than seek
Advice is that ER can clarify information rather than seek
submission of new information originally omitted

27. Resident Engineering Staff (1)
• Employers Representative defined in Clause 4.3 of the Contract.
Clause 4.3.3 of the Contract gives the ER the power to delegate
p
to named representatives
– “4.3.3. The Employer’s Representative may delegate in writing to
named representatives any functions or powers under the
y g pp f
Contract and revoke any delegation. The appointment of such a
representative shall not prevent the Employer’s Representative
from exercising directly any functions or powers. The Employer’s
Representative shall notify the Contractor and the Employer of any
delegation, and the names of representatives, and of any
d l i d h f i d f
subsequent changes, within 5 working days after the event in each
case.”
– C t t
Contractors do ask for notification of the powers delegated to the
d kf tifi ti f th d l t d t th
ER named representative

28. Resident Engineering Staff (2)
• Typically, notices sent to the ER remaining with the Consultant
and copied to the ER.
and copied to the ER
– The ER’s representative on‐site is traditionally defined as the
Resident Engineer / Clerk of Works
– ER’s Site Representative needs to be given clear direction on their
ER s Site Representative needs to be given clear direction on their
day to day functions from both a contractual and site
administration point of view

29. Resident Engineering Staff (3)
• What functions or powers might be delegated to the ER’s
on‐site representative?
– Power to issue instructions which are directions in
accordance with the Contract
– Power to sign off on the materials, labour and plant content
of Change Orders for record purposes only
– Power to inspect the works under clause 8 3 and witness on
Power to inspect the works under clause 8.3 and witness on
site tests
– Power to schedule regular meetings under clause 4.15.1 and
to issue site meeting minutes un Clause 4.15.2
to iss e site meeting min tes n Cla se 4 15 2

30. Resident Engineering Staff (4)
• What functions or powers might be delegated to the ER’s
on‐site representative (contd.)?
– Power to accept and check details of any Contractors Things
removed from site under Clause 4.17
– Power to carry out checks on quality requirements under the
Power to carry out checks on quality requirements under the
Works Requirements or Works Proposals
– Power to initiate searches for defects
– St t
Statements of account for Interim Valuation should be
t f t f I t i V l ti h ld b
submitted both to Tobin offices and copied to the Resident
Engineer
– RE to assess % completion on all works if not a
remeasurement contract

31. Construction Issues (1)
• Clause 4.9 Programme
– The programme is no longer just a time based MS Project
Chart, The programme shall be of a quality that will permit
Chart “The programme shall be of a quality that will permit
the effective monitoring of the works”
– Nine separate inclusions defined within Clause 4.9.1
– It is now a significant undertaking to prepare all of this
f k ll f h
before the starting date
– Progress Report requirements are defined
g p q
– Employer now has the power to withhold 15% of any
payment if a revised programme is not submitted within 15
working days. Employers are exercising this right.
working days. Employers are exercising this right.

32. Construction Issues (2)
• Time for Completion & Extension of time
– First and second thresholds not generally being exhausted
– Only those delay events deemed to cause a delay to
Only those delay events deemed to cause a delay to
substantial completion of the works are considered against
the programme contingency
– Critical path analysis part of the consideration in determining
l h l f h
if change orders affect the time for completion
– Liquidated damages are being kept low as a genuine pre‐
q g g p g p
tender estimate of the Financial loss. Employers are
exercising LDs.

33. Construction Issues (3)
• Compensation Events
– Timelines as specified under Clause 10.3 are not always being met
(Contractor has no rights if the ER does not stick to the stated
timelines)
– ERs have no options other than to reject submissions not made
strictly in accordance with timelines
– Apparent lack of understanding at present that claims submitted as
“delay, disruption, loss of productivity or knock‐on effect” cannot be
considered by the ER (Clause 10.7.4)
– There is no ready contractual mechanism after an ERs determination
h i d l h i f d i i
to refer a decision on a Compensation event to Clause 13 ‐ Dispute
– Clause 4 – Management permits “without prejudice” discussions
– Projects work more effectively when the lines of communication are
k ff l h h l f
held open throughout the lifespan of the project

34. Construction Issues (4)
• Disputes
– Formal notification requirements prescribed in Clause 13
– Compensation events can be referred individually or collectively
Compensation events can be referred individually or collectively
– Early resolution may benefit both parties
– Concern on availability of Conciliators on short notice if project is
moving on quickly
i i kl

35. Delay & Compensation events (1)
• Good housekeeping essential
– Incoming correspondence register should record all salient data

36. Delay & Compensation events (2)
• Register
– Automatically calculates relevant dates of responses / notifications

37. Delay & Compensation events (3)
• Register of changes to the Contract Sum
– Revised Contract Sum and any disputed amounts clearly understood

38. Valuation of Omissions (Employer Claims)
• Mechanism for the Employer to adjust the Contract Sum
– Change Order required to omit part of the works
– In an inflationary market Contractors will put in place
In an inflationary market, Contractors will put in place
purchase agreements with suppliers at the outset of the
Contract to manage PVC risks
– Employer may have to take possession of such materials if
l h k f h l f
they form part of the works being omitted
– Clause 10.9 defines the protocol to be followed by the ER
p y

39. Valuation of Omissions (Employer Claims)
• Mechanism for the Employer to adjust the Contract Sum
(contd.)
– The calculation of the proposed adjustment to the Contract
The calculation of the proposed adjustment to the Contract
Sum must be transparent and the Contractor is given an
opportunity to respond to the proposal
– Cl
Clause 10.6 in reverse: are Bill rates appropriate for valuing
10 6 i Bill t i t f l i
the works omitted. It’s a fair starting point but likely to be
challenged in the Contractor’s response
– Employer claims can be raised as a dispute under Clause 13
also
– Changes of this nature during construction stage will
g g g
typically represent poor value for money

40. Client Communications – ER’s determinations
• Requirement specified in Clause 4.8.3 to notify the
Employer of a Value engineering proposal submitted by the
Contractor
“(2) notify the Contractor and the Employer that the
Contractor’s proposals are agreed and make any resulting
’ l d d k l
adjustments to the Contract Sum, use of the programme
contingency referred to in sub‐clause 9.4 or extension to the
Date for Substantial Completion of the Works and any affected
f b l l f h k d ff d
Section”

41. Client Communications – ER’s determinations
– This assumes that the value of the determination is less than the
p g g
limits allowed as specified in Schedule Part 1 for a single Change
Order or for the aggregated value over a 3 month period.
– If the value of the determination required is greater than the limits
specified, the Employer must be consulted in making the
determination.
– The contractor will not have any visibility of communications
between the ER and the Employer in this respect and the timelines
within which responses must be made still hold valid
– Client needs to have an internal point of contact available to
discuss such issues, who is empowered to liaise with the ER within
the timelines specified.

42. Client Communications – Value Engineering
• Requirement specified in Clause 4.8.3 to notify the
Employer of a Value engineering proposal submitted by the
Contractor
“4.8.3. The Employer’s Representative shall, as soon as practicable, notify the
4.8.3. The Employer s Representative shall, as soon as practicable, notify the
Contractor whether the Employer agrees to or rejects the proposal. If the
Employer agrees to the proposal, the Employer’s Representative shall, if
agreed, determine a reduction to the Contract Sum and an adjustment to the
agreed, determine a reduction to the Contract Sum and an adjustment to the
Date for Substantial Completion of the Works and any affected Section in
accordance with the agreed proposal and the Contractor shall implement the
agreed proposal. If the proposal is rejected, this shall be conclusive.”
g p p f p p j ,

43. Client Communications – Value Engineering
– It is the Employer’s sole responsibility to accept or reject a
Value Engineering proposal.
– Typically the format of such arrangements are:
Typically the format of such arrangements are:
– To notify the Employer initially that a Value Engineering
proposal has been submitted
– To carry out an assessment of the merits of the proposal
– To recommend acceptance or rejection of the proposal
– To notify the Contractor of the Employer’s decision
To notify the Contractor of the Employer s decision

44. Presentation to Engineers Ireland (Thomond / West Region)
8th March 2011
March, 2011
End of Presentation
mcgovern@tobin.ie
@cmcgovernceng
http://www.linkedin.com/in/cmcgoverntobin