Veale Wasborough Solicitors Ltd
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1 Welcome to the Masterclass 4 : Preparing the Contract Alastair Greenan Doug Locke Gerald Orman Presenters : Committee member, C&P SIG and BP Partner, Veale Wasborough Solicitors Ltd Honorary Secretary, C&P SIG Agenda Housekeeping Intro to the C&P SIG The main event. 1
2 Housekeeping Fire procedures Toilets Focus : mobiles off etc. Temperature control One of the first SIGs Flourished and then declined. A conference some 4 ½ years ago : members wanted the basics of contracts & procurement. We run a combination of basic training events called seminars (always booked up well in advance) & more leading edge events. 2
3 Aim of the C&P SIG : The Contracts & Procurement Specific Interest Group : Exists to promote and disseminate knowledge, understanding and best practice of contracts and procurement in a project environment. Aims is to become a lively and constructive debating forum which takes existing best practice and helps make it better. Wants to be disseminating this knowledge, understanding and better than best practice through a variety of accessible means. Has a long term aspiration to become recognised as an international forum at the leading edge of excellence in contracts & procurement for projects Contracts & Procurement SIG Structure The Bulls Eye : Committee members & those who want to initiate projects & pro-actively contribute. Copied in on most s wrt SIG initiatives. Bi-monthly web / tele-conference meetings. The Inner Circle Circle : Those who are willing to contribute when asked e.g. Talks, contributing & reviewing documents. Limited direct s. The Middle Circle : Those on the C&P web mailing list. The Outer Circle (& beyond) : Receive Information via general APM publicity. 3
4 The Main Event : The Masterclass 4 : Preparing the Contract Introduction However good a contract strategy is, it can be completely undermined by a poorly drafted conditions of contract and / or technical requirement documents which: o do not reflect the contract strategy o contain ambiguities and inconsistencies, both in the individual documents which make up the contract and between the documents o contain errors or omissions, whether in terms of scope, constraints or the starting point o are generally unclear and hard to navigate Effective contract preparation is actually a project within a project 4
5 Briefing the Professional Team Alastair Greenan CEng FIMechE FIRM FAPM Introduction However good a contract strategy is, it can be completely undermined by a poorly drafted conditions of contract and / or technical requirement documents which: o do not reflect the contract strategy o contain ambiguities and inconsistencies, both in the individual documents which make up the contract and between the documents o contain errors or omissions, whether in terms of scope, constraints or the starting point o are generally unclear and hard to navigate Effective contract preparation is actually a project within a project 5
6 Masterclass? Mastery of anything (including contract preparation) only requires you to do basic things well and consistently Effective contract preparation is not rocket science As individuals we easily enter, use, manage and exit contracts all the time Effective contract preparation is possible: o 69 Contracts negotiated in parallel o 200+ legacy issues o 7 different existing contract forms o Completed in under 12 months The Good News: What it Requires Proper planning, and adequate, well briefed resources Clear definition of Benefits the contract must deliver Leadership, project management skills, and a clear understanding of Who, needs to do What, by When Management of multiple stakeholders to bring together a coherent whole within an agreed timeframe Identification and active management of risks and issues associated with the contract (with both content and creation) Getting it right is well within a Project Manager s skill set 6
7 Things to Consider before you Start: Consider Contract Structure it will decide how and when you engage your professional team and define their scope of work Consider use of Main Body versus Annexes: o Main Body for the overall agreement you re putting in place and the rights and obligations you want to exist for the duration of the agreement o Order of Precedence o Annexes for information to be modified or updated over time o Annexes work well for contracts with multiple contributors o Often easier changing an annexe than the whole Things to Consider before you Start: Consider how you will run the Project What can you afford? Against your budget, decide what you will outsource versus do internally With external resources obtain an indication of rates and budget quotes for specific scopes of work Best use of resource - against unit cost, decide how you can best leverage the skills of the team whilst minimising spend so that you maximise the value added Decide who you want to write or lead which element 7
8 Things to Consider before you Start: Understand interdependencies and who needs to be consulted in preparation of each component (RACI useful) Understand the steps to bring it together in a coherent whole with a minimum of recycling (complete rough draft early is key) Decide how you want the team to work together (virtual or face to face, control of masters, information sharing) Allow sufficient time for internal review and compilation as well as external review and comment by the other Party Operate change control, so you don t incur escalating professional fees Briefing the Professional Team: Hold a kick off meeting Explain wider context and steps that preceded contract preparation (where you are now) Explain what you want the contract to deliver: o The benefits you want from it o The risks and issues it must address o The unknowns and how they will be handled o How you intend to operate the contract once in place o What your risk appetite is 8
9 Briefing the Professional Team: Discuss how you plan to operate the contract and what your requirements are for: Uncertainty (now and at contract signing) Change/Flexibility and Change Management Operation of the contract performance management, meeting your obligations Exit/Reversion planned and unplanned Future business considerations (is this one of many) Briefing the Professional Team: Explain anticipated team roles and how they will be involved over time Review/confirm the deliverables required and how they will fit in the overall contract structure Discuss and confirm the interdependencies between the team/deliverables Decide how the team will work together Explain the timeline and sequence of steps for creation of individual deliverables and compilation (1 st Drafts & Finals) 9
10 General reminders for Professional Team: The team will have different ways of working and writing Require them to say it once, in one place, and then refer duplication will lead to contradiction Ensure that everyone understands the importance of the language being consistent and tight ( 150,000 per word) Be specific and explicit in scope and obligations, but balance that with creating gaps in scope (including but not limited to..) Sanity check the reasonableness of the provisions your team make and enforce a consistent risk appetite you ll have to negotiate it with the other Party Mandate a Clarification/Issues log and be relentless in its use The Professional Team: Benefits Using any professional or professional team has benefits and limitations. Benefits include: They know their subject They understand the risks and issues associated with their scope and will bring experience and lessons learned you will not have They provide a cold eyes review of where you re at They re great for a sanity check if you can t brief them well enough for them to make an effective start you re probably not yet ready to put a meaningful contract together! 10
11 The Professional Team: Issues Most are fee driven and may be happy to work as mandate (even if its not the most effective use of their time) Some may seek through the process to increase their scope/ contribution and therefore their fees The quality of their work is largely dependent on quality of briefing and how well their contribution is project managed (rubbish in = rubbish out) They will never have as much skin in the game as you (limited liability) and will manage their liability as much as yours They will often have conflicting drivers and views They typically will not know as much as you, or be as invested Briefing The Professional Team: Summary Plan the process properly before engaging them Be specific on the scope they are to deliver Have a quote against scope/deliverables including allowances for briefings, meetings etc. Have a clear plan up front to integrate the component parts and get a complete rough draft as soon as possible (providing one is a good way to go, using the professionals to edit) Have a plan to engage the other contract party s professionals Don t accept anything you can t operate Don t accept anything you don t understand 11
12 Q&A s What needs to be in a contract for the successful delivery of a project? Doug Locke Partner, Veale Wasborough Solicitors Ltd 12
13 What makes a good contract from a Provider s perspective? Gerald Orman Honorary Secretary, C&P SIG HOW A PROVIDER EVALUATES AN INVITATION TO TENDER (ITT) 13
14 THE OWNER'S OBJECTIVES To obtain offers of high performance and quality at competitive prices. The conditions of contract must also be challenging but fair, so as not to deter the best contractors. WHAT CONTRACTORS LIKE A realistic specification Time to prepare tenders A familiar standard form contract Fair disputes resolution process A known and respected Resident Engineer (contract administrator / manager) or equivalent Reasonable tender securities A positive contract cash flow Capped Liquidated Damages (LD s) No performance bond 14
15 This image cannot currently be displayed. CONTRACTORS DON'T LIKE High 'on demand' bonds or guarantees or uncapped LD s, tender bonds etc.. Unknown Resident Engineer (or equivalent) Subjective or unrealistic approvals or taking-over criteria Unnecessary restrictions on working Payments terms giving negative cash flow Restrictions on letting sub-contracts Performance milestones that are hard to demonstrate THE RANGE OF CONTRACTS 15
16 CONTRACT COVERAGE (1) 1. Documents and Definitions 2. Basis of Price 3. Contractor s Deliverables 4. Manner of Execution 5. Employer's Rights and Duties 6. Engineer's Status and Duties 7. Subcontracting 8. Project Management 9. Site Administration 10. Pre-construction services and submittals 11. Approvals and Tests procedures CONTRACT COVERAGE (2) 12. Claims and Variations 13. Payments and Certificates 14. Sub contractors 15. Risks and Insurance 16. Defects Liability 17. Ongoing Maintenance 18. Emergencies and Termination 19. Disputes Resolution 20. Securities and sanctions 21. Legal and Interpretation 22. International 16
17 CONTRASTING INTERPRETATIONS IN DISPUTES ON SITE: a) contract conditions only, b) considers only relevant clauses taken at face value c) ignores precedents. IN COURT: By the complete content of contract documentation and precedents. ORDER OF PRECEDENCE THE ICE 5TH CONTRACT 1. The Agreement 2. Conditions of Contract 3. Employer's Requirements (1.1.e) 4. Contractor's Submission, and written acceptance of it, including etc. 5. Listed documents 6. Form of Performance Bond. INTERPRETATION MUTUALLY EXPLANATORY 17
18 INTERPRETING THE CONTRACT 1. Find all references in the contract conditions and other contract documents. 2. Is interpretation of contract by order of precedence or 'mutually explanatory'? 3. Any other possibly relevant clauses in the contract? 4. Establish their relative importance in case of conflict. 5. Decide their meaning read as a whole as a court would decide. TO SUMMARISE 'Understanding' of a contract means: Its derivation bespoke or standard form Its contents particularly the 'Conditions' Its documentary order of precedence 18
19 A FINAL ANECDOTE From the Docklands Light Railway DNRR bridge hinged on main contract Splitting the sleepers would have hinged on the joint venture agreement. 19
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