Public Works Contracts

Legal Opinion Deirdre Hennessy

– Return of the Bill of Quantities / Pricing document & Implications for Tendering

Deirdre Hennessy is a Senior Associate in one of Ireland’s leading law firms ByrneWallace and specialises in advising on the dispute resolution side of construction law. Here, she writes on a significant aspect of Public Works Contracts

 

Public Works Contracts have been around now for in excess of eight years and have been the subject of much discussion in part due to their onerous risk allocation onto the contractor in the case of the Employer Designed contracts.

The ideal situation for a contractor tendering for a project is where it has all the design information in front of it and can set rates applicable to the works which will not need to change.

The Contractor can then apply a reasonable profit rate and if the project goes to plan all should work out for both parties.

This set of circumstances is what was envisaged when the standard form public works contracts were first introduced. However the reality transpired to be very different.

There has been much concern in relation to low cost tendering for public projects and, in recent years, there have been many protracted disputes on construction projects which arose largely because the design information was not complete at tender stage, leading to tight pricing with numerous claims then made throughout the project as the design developed.

Long and costly disputes emerged with parties fighting over not only what constituted an addition to the works but also the basis on which the costs should be calculated – with contractors arguing that the tender rates were not applicable.

This has all led to more costly and delayed projects.

Government Review

In 2014 the Government carried out a review of the performance of the contracts and the results were published in the Report on the Review of the Performance of the Public Works Contract, Office of Government Procurement, December 2014.

As a result, it was decided that key amendments should be made to enhance the effectiveness of the contracts and three interim measures have now been introduced in an effort to redress the risk balance and to enhance the performance of the contracts, namely changes to the status of the Bill of Quantities/Pricing Document (“BOQ”), Direct Appointment of Specialists and changes to the Dispute Resolution procedures but we are only concerned here with the changes in relation to the BOQ.

Interim Changes – Bill of Quantities/Pricing Document

These changes were due to come into effect from April 2016 but contracting authorities (“CAs”) are allowed use the previous versions of the contracts up until 8 January 2017 where the design team was appointed before April 2016 or the deadline for receipt of tenders was before April 2016 and the scope of service for the design team does not extend to the new requirements (in relation to preparation of the BOQ etc.).

It is expected that most CAs will wait until January 2017 before using the amended contracts.

Prior to the recent changes the financial risk of a difference between the BOQ and the Works Requirements (“WR”) fell on the contractor.

Contractors were required to build to the drawings not the BOQ but many placed significant reliance on the BOQ to work out their tender price and as a result sustained considerable losses on various projects where the Employer’s team had not ensured that the BOQ matched the drawings.

The BOQ will now be the primary reference document for the tender sum and the Employer’s team will be responsible for its preparation.

The WR are to fully describe the scope of the works with the BOQ defining the scope of the price (see Guidance note 1.5)[1].

The design team’s scope of services must include the requirement to produce the necessary documents to make up the WR to a sufficient standard to enable the BOQ to be produced in accordance with the appropriate method of measurement.

The BOQ must be prepared by a cost consultant.

The design team must ensure the design is suitable for the BOQ to be produced by a cost consultant who must interrogate the design themselves and where any omissions are spotted, seek clarification from the designers.

The most crucial change from the contractor’s point of view is that where any discrepancies arise between the items in the BOQ and the WR resulting in a cost in excess of €500 this will be a compensation event and Schedule Part 1 K (17) of the Tender and Schedule for the Employer Designed Contracts will be amended to insert "yes” under the relevant column.

In the case of discrepancies, the contractor can be compensated for the differences in value.

The way this will work is set out in the Guidance note 1.5:

  1. Where a works item is in the WR but has not been included in the BOQ:
    • If the employer requires the contractor to carry out the works, the contractor shall be entitled to an adjustment to the contract sum.
    • If the employer decides not to proceed with those works there will be no adjustment to the contract sum.
  2. Where a works item is described in the BOQ but has not been included in the WR:
    • If the employer requires the contractor to complete those works, the contractor will have no entitlement to an adjustment in the contract sum.
    • If the employer decides not to complete the works item, the employer shall be entitled to a credit for that amount.
  3. Where both the BOQ and the WR have a work item but there is a difference between the quantities in each document:
    • If the employer decides that the quantity in the WR must be completed, the contract sum will be adjusted.

(b)         If, the employer directs the quantity in the BOQ is the one to be completed, the sum                remains the same.

The contractor must pay particular attention to the BOQ submitted with the tender documents and must price its tender based on those quantities and work descriptions as opposed to the WR.

Bear in mind that risks which will not be compensated under Schedule Part 1 K shall override the Schedule Part 1 K 17 entitlement. For example, unforeseeable ground conditions – Schedule Part 1 K (19) – is deemed not to be a compensation event.

If a discrepancy arises between the BOQ and the WR, in relation to unforeseeable ground conditions, then K 19 shall overrule K17 and no compensation shall arise.

So for any risk items in Schedule Part 1 K which are not compensation events, the contractor must analyse same and consider how they are dealt with in the BOQ when assessing the tender price to submit.

The overriding criteria for the contract will continue to be the lowest price/most economically advantageous tender[2] but the BOQ will be used as the document to evaluate those tender submissions.

Once the lowest price/most economically advantageous tender has been identified by the employer, they must then assess the BOQ to ensure that the employer’s risks/interests are covered and that the prices submitted match the quality for the work items required.

The BOQ will become the base document for evaluating any additions throughout the project, but also for evaluating works completed in relation to the interim payment applications/Payment Claim Notices.

Points for the contractor
  1. Check that the BOQ has been prepared by a cost consultant. Is it prepared correctly and in accordance with the specified rules of measurement? If not this matter should be raised with the employer and a properly measured bill should be obtained before any tender is submitted.
  2. Has the BOQ been prepared with complete design information? The contractor should analyse the WR versus the description for the items in the BOQ to ensure that full information has been provided. If there are any anomalies or discrepancies at this point they should be raised and responded to before the contractor submits a price.

The guidance note for CAs is very specific about the Employer’s obligations in relation to the preparation of the information required in order to input into the pricing document and, therefore, if this task is not properly carried out by the design team it may lead to an avenue for the contractor to claim fordiscrepancies against the employer at a later date.

If a contractor calls for a check on the quantities during the contract and it transpires there is no error/discrepancy then they will have to cover the Employer’s costs of carrying out the check.

Contractors should engage a qualified quantity surveyor to assess the tender documents and assist with the tender price to be submitted.

These amendments are unlikely to come into effect until January 2017 and it remains to be seen as to whether the design team will step up to the task of providing a complete set of designed out contract documents at tender stage.

It is however, an important move on the part of the Government and perhaps a sign of an intention to redress the unfairness in these contracts and maybe to restore some proper risk allocation for construction projects in the future.

For further information on the Bill of Quantities / Pricing document or for any other general legal queries, contact Deirdre at dhennessy@byrnewallace.com or on +353 1 6915478. Please visit www.byrnewallace.com

 

[1] http://constructionprocurement.gov.ie/wp-content/uploads/GN_1.5.doc

[2] Under the new EU Procurement Directives above threshold contracts can no longer be awarded on the basis of lowest price only

 

Click Here to read in September issue of CIF Construction magazine

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