ETHEREAL ASSOCIATES LIMITED

21/06/2019

GROUP A

PRESENTATION

FORMS OF CONTRACT, SIMILARITIES AND DIFFERENCES

LIQUIDATED DAMAGES AND UNLIQUIDATED DAMAGES

EXTENSION OF TIME

ASSESSEMENT OF VARIATIONS

PERFORMANCE SECURITY
FORMS OF CONTRACT
There are various form of contracts used in the construction industry but some included;

PPDA

This form of contract is exclusively used by the government of the Republic of Uganda,
government owned parastatal, local authorities and statutory bodies. This done to ensure that
procurement and disposal system is transparent, accountable and efficient. This form of contract
is guided by the rules governing public procurement and disposal of public assets Act of Uganda.

This form of contract provides for the Adjudication (clause 24-Disputes under 24.1) under the
PPDA ACT and Arbitration (clause 25-Procedure for Disputes under 25.3 and 25.4) in the event
that either party does not accept the decision of the Adjucator.

It is a requirement that the Adjucator is named in the contract so that resolution of disputes is not
delayed by the process of appointing the Adjucator when a dispute arises. Replacement of the
Adjucator is dealt with under clause 26-Replacement of Adjucator.

FIDIC

FIDIC is a French language acronym for federation Internatinale Des Ignenieurs-Conseils, which
means the international federation of consulting engineers. It was started in1913 by the trio of
France, Belgium and Switzerland. The United Kingdom joined the federation in 1949. FIDIC is
headquartered in Switzerland and now boasts of membership from over 60 different countries.

Over the years, FIDIC has become famous for its secondary activity of producing standard form
contracts for the construction and engineering industry. These forms of contracts are recommended
for works whose value exceeds US$10,000,000 (United States Dollars Ten Million).

FIDIC contract forms.

Over the years FIDIC has consistently improved on its contracts. The organization has added new
forms of contract, replaced previous ones and updated important terms. The table below gives a
brief overview of FIDIC contracts to date.
Table 1: A brief overview of FIDIC contracts to date.

FIDIC
CONTRACT YEAR RELEASED NOTES
first published in 1957, the fourth
and final edition was published in These contracts were aimed at the civil
The (old)Red 1987, with a supplement added in engineering sector, as differentiated from the
book 1996 mechanical/electrical engineering sector.
The
(old)Yellow First published in 1967 with the These contracts aimed at the
book third and last edition in 1987 mechanical/electrical engineering sector.
The orange The first and only edition of this This was the first design and build contract
book contract was released in 1995 released by FIDIC
The (new) The Red book is suitable for contracts that the
Red book Released in 1999 majority of the design rests with the employer
The Yellow book is suitable for contracts that
The (new) the contractor has the majority of the design
Yellow book Released in 1999 responsibility.
The Silver book is for turkey projects. This
contract places significant risks on the
The Silver contractor. The contractor is also responsible
book Released in 1999 for the majority of the design
First published in 2005-an amended This an adaption of The Red Book created to fit
The Pink version was published in 2006, with the purposes of Multilateral Development
book a further edition in June 2010 Banks.

FIDIC is usually divided into two parts: Part I consisting of the general conditions and part II
concerning the conditions of particular application (including guidelines for the preparation of part
II clause).

Part I contains the general terms of the contract, such issues as rights and obligations of each party,
procedure for payment, variation, certification and dispute resolution. The clause that deals with
Disputes is clause GCC 20, Claims, Disputes and Arbitration. Under this, Contractor Adjudication
and Arbitration are provided for.

Part II of the contract is the conditions of particular application and is to be used to introduce
project specific clauses, such as language of the contract, choice of law, the name of the person or
firm appointed to act as Engineer or Employers representative for the project among other terms.

In most FIDIC forms there is a default hierarchy for the documents forming the contract. The order
of priority is as stated below and in the event of inconsistency the first on the list takes precedence:

The Contract Agreement

The Letter of Acceptance (this is the formal acceptance of the contractor’s tender and marks the
information of the contract)

The Letter of Tender

Part II-the conditions of particular application

Part I-general conditions of contract

The specification and Drawings (Red Book), The Employer’s Requirements (Yellow Book), The
Schedules (Red and Yellow Books)

Further documents (if any), listed in the Contract Agreement or in the letter of Acceptance.

The parties are allowed to rearrange the priority of documents or stipulate that no priority or order
of hierarchy will apply to the contract and this can be done in Part II of the contract.

EAST AFRICAN INSTITUTE OF ARCHITECTS FORM OF CONTRACT (EAIA)

This form of contract is widely used in Uganda and East Africa as a whole and it provides for
Arbitration only. It is mostly used on projects funded by private bodies and the contract forms are
produced by the EAIA. It is alienated in two categories namely;

Contracts with quantities: Here the quotations for a contract sum are based on Bills of Quantities
which provide a more accurate basis for cost estimation. It is normally suitable for large projects.
Contracts without quantities: An estimate from past similar works are used to obtain a quotation
of the contract sum basing on drawings and specifications.

In EAIA contracts the architect has the right to be the overall supervisor unlike in the PPDA form
of contract where the project manager is the overall supervisor.

AFRICAN DEVELOPMENT BANK (ADB)

This is a form of contract which is used on projects which are funded partly or fully by the African
development bank.

NEC.

The NEC’s Engineering and Construction Contract comes with a set of standard clauses common
to building projects as well as extra clauses, which allow it to be adapted to the specific
circumstances in hand. It’s also written in “plain English” so it’s user-friendly, easy to understand
and intended to be used by all partners on a building project, particularly where a team approach
is encouraged. NEC is a family of contracts that facilitates the implementation of sound project
management principles and practices as well as defining legal relationships.It is suitable for
procuring a diverse range of works, services and supply, spanning major framework projects
through to minor works and purchasing of supplies and goods. NEC was first published in 1993
as the New Engineering Contract. It is a suite of construction contracts intended to promote
partnering and collaboration between the contractor and client. It was developed as a reaction to
more traditional forms of construction contract which were seen by some as adversarial. The third
edition, NEC3 was published in 2005. NEC is a division of Thomas Telford, the commercial arm
of ICE.

ICE.

The ICE Conditions of Contract (CoC) were published by Thomas Telford on behalf of the
Institution of Civil Engineers (ICE), the Association of Consulting Engineers (ACE) and the Civil
Engineering Contractors Association (CECA). The first edition was published in 1945 and the
seventh and final edition was published in 2001. During this time it was the dominant form of
contract for civil engineering.
The key characteristics of the contract were:

 Valuation by measurement.
 Engineering responsibility for design.
 Engineer as the impartial certifier and valuer.
 Engineer's decision as the first stage of dispute resolution.

The ICE Conditions of Contract is suitable for both public or private scenarios where a major civil
engineering project is undertaken. In this contract the engineer’s position is comparable with that
of the architect. Under the contract the engineer has extensive powers of direction and control.

SIMILARITIES BETWEEN DIFFERENT FORMS OF CONTRACT

1. For all the forms of contract, an agreement must be reached between the involving parties
in the contract.
2. All the forms of contract has an provisional appendix where agreed conditions in a contract
can be fed to suit s specific contract like the date of completion, retention amount among
others
3. The Contractor shall be liable for, and shall indemnify the Employer against, any expenses,
liability, loss, claim or proceedings whatsoever arising under any statute or at common law
in respect of personal injury to or the death of any person whomsoever arising out of or in
the course of or caused by the carrying out of the Works, unless due to any act or neglect
of the Employer or of any person for whom the Employer is responsible.
4. Termination; in all the forms of contract, termination is due to most of the following
if he without reasonable cause wholly suspends the carrying out of the Works before completion
thereof, or,
 if he fails to proceed regularly and diligently with the Works,
  if he refuses or persistently neglects to comply with a written notice from the Architect
requiring him to remove defective work or improper materials or goods and by such
refusal or neglect the Works are materially affected, or
 if he fails to comply with the provisions

5. In all the forms, the contractor is entitled to be paid within 14 days after presenting the
interim cetificate to the employer
6. Both contracts allow for damages to be included for late completion by the contractor.
7. All forms of contract attempt to allocate risks fairly and reasonably between the employer
and the contractor

DIFFERENCES BETWEEN THE FORMS OF CONTRACT

Payment and certificate.

Under East Africa Institute of Architects form of contract, the payments are made upon written
application by the Contractor, at intervals of not less than 4 weeks whereas for the case of a JBC
form of contract, the intervals for payments in not limited in the conditons to any days or weeks
but rather agreed upon by the parties

Basis
FIDIC bform of contract is UK based, EAIA form of contract is by East African Publishers, JBC
form of contract is published by the joint building council of Kenya

Dispute resolution mechanism allowed

In JCT 2011 is by mediation, adjudication, arbitration and adjudication, in NEC 3 it is by
adjudication and tribunal, in FIDIC it isadjudication by the Dispute adjudication Board, amicable
settlement and arbitration, in EAIA and JBC it is by arbitration
With NEC, there is an obligation on both contractor and supervisor to notify each another of
defects as soon as they are aware of them, providing a more open process for highlighting and
dealing with defects. This same obligation is not found in FIDIC.

LIQUIDATED DAMAGES

This term applies to a predetermined sum which becomes payable by a party to a contract if certain
specified breaches occur. Where it exists, this type of entitlement replaces the normal right to claim
damages measured by the amount of loss actually suffered.

Nature and purpose of liquidated damages

A claim for ‘liquidated damages’ can only succeed where the contract makes express provision
for it. Most building contracts contain such a clause. In particular, most building contracts provide
that a contractor who is guilty of failure to complete the works by the contractual completion date
(as extended where appropriate) shall pay or allow a certain amount of liquidated damages for
every day or week of delay. Such clauses are found in JCT 98 (clause 24, entitled ‘Damages for
Non-completion’); IFC 98 clauses 2.6 and 2.7; and ICE 7 clause 47.

Liquidated damages provisions are in principle perfectly acceptable. Indeed, they are to be
encouraged as they enable the parties to know from the start as much as possible about the risks
they bear. They also save time and money on arbitration or litigation. However, the law recognizes
that they are capable of operating rather harshly in cases where the amount to be paid or forfeited
is greatly in excess of the loss caused by the breach of contract. Because of this, the courts have
traditionally treated such clauses with a fair degree of suspicion. For example, the courts have
always insisted that any contractual procedures are strictly adhered to and, in most cases, have
interpreted any ambiguities against the employer.

It seems, however, that this strict traditional approach may be changing. In the case of Philips
Hong Kong Ltd v Attorney-General of Hong Kong, the Privy Council emphasized the desirability
of upholding freedom of contract, at least between contracting parties of equal bargaining strength.
It thus appears that, unless consumers are involved or mere is evidence of economic duress, the
courts will henceforth lean in favour of enforcing liquidated damages provisions, and will not seek
technical grounds on which to strike them down.

QUANTUM MERUIT CLAIMS

A quantum meruit claim is one in which the contractor seeks payment of the reasonable value of
work done for the employer. Such a claim may arise in a variety of situations, not all of which
involve a breach of contract by the employer. The common thread linking these situations is that
there is either no contractual entitlement to payment or no contractual assessment of the amount
due.
The situations in which a quantum meruit claim is most likely to arise in the construction context
are as follows:

1. Where there is an express undertaking by the employer to pay a reasonable sum in return for
services rendered.

2. Where professional or trade services are requested by the employer (e.g. under a letter of intent),
but no price is agreed. Here it is implied that a reasonable sum will be payable.

3. Where a price fixing clause in a contract fails to operate.

4. Where extra work is ordered which falls outside the scope of a variation’s clause.

5. Where an apparent contract under which work is done is in fact void.

The question of how exactly a quantum meruit is to be assessed was considered in the case of
Laser bore Ltd v Morrison Biggs Wall Ltd. That case concerned an informal sub-contract for
micro-tunneling work, under which the defendants undertook to reimburse the claimants’ ... fair
and reasonable payment. The defendants argued that this should be assessed on a ‘cost plus’ basis,
but the judge ruled that the correct approach was to ask: What would be a fair commercial rate for
the services provided?

A similar approach was adopted in Costain Civil Engineering Ltd v Zanen Dredging and
Contracting Co Ltd, where it was acknowledged that, in appropriate circumstances, a contractor
might be entitled in effect to share in the profit generated by the work for which a quantum meruit
was to be awarded.
One area of difficulty, which has generated considerable debate, concerns the use of a quantum
meruit claim against an employer who is guilty of a repudiatory breach of contract. The crucial
question is whether the contractor in such circumstances can simply ignore the contract and instead
claim a reasonable sum for all the work done, even if this means that the contractor recovers more
than would have been recovered under the contract. There is some authority to support the view
that the contractor can indeed adopt this approach. However, there is a strong counter-argument
that the contractor should not be allowed to use this remedy to escape from a loss-making contract
(Keating 1991), and this seems the better view.

UNLIQUIDATED DAMAGES

Unliquidated damages are sum of money that cannot be foreseen or assessed by a fixed formula.
It is established by a judge or jury. Damages may be categorized as unliquidated when the amount
of damages is unidentifiable or subject to an unforeseen event that makes the amount not
calculatable. A liquidated damages clause is a provision in a contract that fixes the sum payable
as damages for a party’s breach. In comparison, unliquidated damages are damages for a party’s
breach which have not been pre estimated

In the construction and engineering industries, people are usually concerned with liquidated
damages but unliquidated damages are seldom mentioned. Unliquidated damages refer to damages
that are claimed for an unforeseen loss. They apply to any breach of contract that does not contain
a liquidated damages clause. Such damages are the most common form of relief awarded for breach
of contract. Nonetheless, since the amount is “unliquidated,” it can be difficult to know how much
compensation the plaintiff can claim for a breach.

When it comes to awarding unliquidated damages for a contract breach, the court uses a
compensatory approach. It attempts to:

 Restore the loss sustained by the plaintiff

 Return the plaintiff to the position it had before the breach
 Avoid penalizing the defendant
 Avoid improving the plaintiff's position beyond where it would have been if the breach did
not occur
To determine the amount to be awarded, the court will take into consideration the proven losses of
the plaintiff, including loss of profit. However, such losses must have been a natural consequence
of the contract breach.

Additionally, the type of loss and the extent of it must have been foreseeable before the parties
signed the contract. While it is not necessary for the loss to be foreseen, it must be foreseeable. If
one party has contemplated a specific or unusual loss before entering into an agreement, it should
mention it in the contract to avoid a dispute and increase the chances of recovery.

The plaintiff is also responsible for mitigating the losses it can potentially sustain as a result of a
contract breach. It cannot just sit back and let the losses accrue if they can be reduced or prevented
by an ordinary person or party's reasonable efforts. In the event that the plaintiff did not take
measures to mitigate the losses even though they are available, the court will award compensation
that will be commensurate with what it should have been if the measures were taken.

EXTENSIONS OF TIME

Most building contracts contain express provisions under which the period allowed for the
contractor to undertake and complete the works can be extended. These provisions cater for delays
that are neither the fault nor the responsibility of the contractor. Such provisions obviously benefit
the contractor, who will not be liable to pay damages for delay during the period for which time is
validly extended. In addition, and less obviously, the power to extend time is also for the
employer’s benefit, for the following reason.

At common law, the contractor’s obligation to complete the works by the specified date is removed
if the employer delays the contractor in the execution of the works. Thus if the contract
administrator issues an instruction which increases the amount of work to be done, or is late in
giving the contractor necessary instructions, the specified completion date no longer applies. In
this situation, time is said to be ‘at large’, and the contractor’s obligation is merely to complete the
works within a reasonable time. In order to fix what is ‘reasonable’, all the circumstances of the
particular project must be taken into account, but in many cases it will simply mean that the amount
of delay for which the employer is responsible will be added to the old completion date.

The importance of losing the fixed date is that a contractor who has caused part of the delay is still
liable to pay general damages for delay, but is not liable for liquidated damages. Even where the
delay caused by the employer is a very small part of the overall delay, the employer cannot simply
discount this and claim liquidated damages for the remainder. The liquidated damages provision
fails altogether, and the employer can claim only for those losses resulting from the delay which
can actually be proved. Such proof is sometimes difficult, and in any event the amount recovered
may be less than what was fixed as liquidated damages. An employer who has caused delay
therefore has a very strong interest in being able to extend time for this, so as to retain the
entitlement to liquidated damages from the revised completion date.

Grounds for extensions of time

A fundamental point is that the time for completion can only be extended where the contract
permits, and strictly in accordance with the contract provisions. If delay is caused by some event
which the contract does not cover, then the contractor cannot claim an extension, nor can the
employer insist on giving one (in order to keep alive a claim for liquidated damages). For example,
it was held that a power to extend time for delays caused by the ordering of extra work only applied
where the extra work was properly ordered, and not where the architect gave the relevant
instructions orally instead of in writing, as the contract required.

It is thus important that the likely causes of delay are covered by an extension of time clause, but
the courts have made things more difficult by ruling that general words such as other unavoidable
circumstances do not cover delay due to the fault of the employer. Oddly, although this ruling is
well known, many contracts continue to use general phrases of this kind. ICE 7

A further point that needs to be made is that there is often argument as to what is the actual cause
of a particular delay. Suppose, for example, that the employer on a contract for refurbishment work
is one week late in giving the contractor access to a particular part of the building, but that the
contractor could not have started work anyway, as the necessary materials had not been ordered!
Which of them has ‘caused’ the delay? And what if, during the week in question, the entire area
was several feet deep in snow and work would have been impossible? The answers to such
questions are not at all clear, since the only guidance from the courts is that it is not correct to
identify one cause as ‘dominant’ and hold that cause entirely responsible. It may be that since, in
theory at least, it is always the contractor who claims an extension of time, the onus is on the
contractor to prove that delay has been caused by an event for which an extension can be granted.
Thus, if another sufficient ‘cause’ also exists, the contractor will fail.

‘Relevant events’ under JCT 98

As a good example of the kind of grounds on which time for completion can be extended in
building contracts, we can take the list of ‘relevant events’ which is found in clause 25.4 of JCT
98. These are as follows:

Force majeure

The phrase ‘force majeure’ derives from French law where it is used to describe situations where
an unforeseeable event makes execution of the contract wholly impossible and is of such import
that it cannot be overcome. This is a narrower and stricter definition than the English doctrine of
frustration. Its inclusion as a ground for extending the contract period is odd for two reasons. First,
many of the events that might conceivably come within the definition are already specifically
covered under JCT 98 by other grounds. Second, any event which made execution of the contract
wholly impossible might be a worthy candidate for determining the contract, but it is difficult to
see how extending the contract duration could be of any assistance unless the event merely delayed
completion, in which case, execution of the contract is not wholly impossible but merely
temporarily impossible.

Exceptionally adverse weather conditions

Exceptionally adverse weather is not restricted to bad weather. Since excessively hot and dry
weather can also cause problems with progress of the works, this phrase was introduced in JCT 98
to include all exceptional weather conditions, rather than merely cold and wet weather.
Interestingly, while ICE 7 clause 44(1) uses the same phrase as JCT 98, GC/Works/1 does not
recognize any kind of weather conditions as grounds for extensions of time. This means that, under
GC/Works/1, the entire ‘weather risk’ is borne by the contractor (who will presumably

price the tender accordingly). Under the other forms of contract, the risk is shared.
In a temperate
and varied climate like that of the UK it can be difficult to establish exactly what constitutes
‘exceptionally adverse weather’. An examination of local weather records should establish what
is normal for the locality. This will provide a definition of what is ‘usually adverse’ weather and
thus help to identify ‘exceptionally adverse’ weather. However, since the exact nature of the
weather is critical in deciding the validity of a claim, Meteorological Office records may be
inadequate. It is wise to keep detailed site weather records because weather can vary greatly over
short distances, especially where there are hills nearby. The construction of the Humber Bridge
provides an interesting example of this problem. It involved a complex in-situ cable spinning
process to construct the main suspension cables between the towers of the bridge. Since work
could only take place on these cables when the wind speed was low, weather records at the nearby
Meteorological Office weather station were examined in detail before work commenced.
Unfortunately, the site was a few miles from the weather station, and the effect of the hills
channelling the wind up the estuary resulted in higher wind speeds than expected and led to
considerable delays. However, these higher wind speeds were normal at the location of the bridge
and therefore no extension of time was granted. In considering weather problems, it must always
be borne in mind that there can be no extension of time unless the whole project is actually or
potentially delayed. If, for example, exceptionally adverse weather occurs at a time when most of
the work is indoors, this is not a ground for an extension. It is also important to note that it is the
actual effect of weather on the work which is relevant – thus what matters is the weather at the
time when a particular part of the work was in fact carried out, not necessarily at the time when it
was programmed to be carried out.

Loss or damage occasioned by the Specified Perils

The ‘Specified Perils’ are listed in clause 1.3 of JCT 98 and include such matters as fire, lightning,
explosion, storm, tempest, flood, bursting or overflowing of water tanks, apparatus or pipes etc,
riot and civil commotion. Clause 25.4.3 allows for an extension of the contract period if loss or
damage caused by these things delays the contractor.

These perils are the subject of the insurance provisions in clause 22. Even if the loss or damage is
brought about by omission or default of the contractor (or those for whom the contractor is
responsible), it appears that clause 25.4.3 still applies. Perhaps because of this result (enabling
contractors to benefit from their own default), the courts tend to interpret the specified perils rather
strictly. In one case, for example, a sub-contractor dropped a purlin on to a high pressure water
pipe. The pipe broke and the resulting high-pressure jet of water caused severe damage to the
claimant’s goods. Although the ‘bursting of pipes’ is a Specified Peril, so that the risk of damage
is firmly with the employer, the judge in this case considered that what had happened did not fit
into this category. A burst was held to be a disruption from within the pipe, and the cause of
damage here was in fact the negligent dropping of a purlin. Thus the sub- contractors were found
liable for the damage done.

Civil commotion, strike, lock-out etc

This applies to delays caused by industrial action taken by any group of people who are employed
on the works, are manufacturing items for inclusion in the works or are involved in transportation
of goods to the works. It seems, however, that the wording of this clause would not cover a strike
or industrial dispute affecting, for example, the supply of fuel to the transporters. Clearly, it makes
no difference whether the strike is official or unofficial. Although a ‘go-slow’ or a ‘work-to-rule’
does not constitute a strike, it would presumably be covered by the phrase ‘any combination of
workmen’.

Compliance with the contract administrator’s instructions

JCT 98 gives the contract administrator wide powers to issue instructions to the contractor during
the progress of the works. In relation to some, though not all, of these, clause 25.4.5.1 provides
that any delay resulting from the contractor’s compliance will carry an entitlement to an extension
of time. Instructions on the following matters fall into this category:

• Discrepancy in or divergence between contract documents (clause 2.3).

• Variations (clause 13.2).

• The expenditure of provisional sums (clause 13.3).

• The postponement of any work to be executed under the contract (clause 23.2).
• Any action to be taken concerning fossils, antiquities and other objects of interest or value
(clause 34).

• Nominated sub-contractors (clause 35, which itself contains a further list of matters about

which instructions can be issued).

• Nominated suppliers (clause 36). It is important to appreciate that, under JCT 98 clause 4.1, the
contractor must ‘forthwith comply’ with all instructions which the contract empowers the
contract administrator to issue. If the contractor fails to do so, the employer may employ
others to do part of the works. In these circumstances the contractor would not be entitled
to claim an extension of time. 


Opening up and inspection of defective work

Clause 25.4.5.2 covers a further issue which may result from an instruction by the contract
administrator, namely, the opening up and testing of work which has been covered up. Delay
resulting from this will entitle the contractor to an extension of time, unless the inspection shows
the work to be defective.

Delay in the supply of information

It is expected that the contract administrator will keep the contractor supplied with the information
needed to carry out the work. Failure to supply drawings or details (clause 5.4) or information on
levels (clause 7) at the right time will be a breach of contract for which the contractor will be
entitled to recover damages. Moreover, the contractor’s claim for damages does not depend upon
previous specific requests for the information; it is the contract administrator’s responsibility to
know when information is going to be required and to ensure that it is ready.

Clause 25.4.6 means that, as well as leading to an action for damages, delay in supplying necessary
information may in certain circumstances be a ground on which the contractor is entitled to an
extension of time. For this purpose, ‘information’ is defined as ‘necessary instructions, drawings,
details or levels’, and the ‘instructions’ referred to cover only those matters about which the
contract gives the contract administrator power to issue instructions.

Unlike the claim for damages, above, in order for a contractor to claim an extension of time (or to
determine the employment under clause 27) on the grounds of late supply of information, the
information must have previously been requested by the contractor in writing, at a time neither
unreasonably distant from nor unreasonably close to the time when it is required. Although it might
be argued that the submission of the contractor’s original programme to the contract administrator
comes at a date too early to constitute a proper request for all the information which will be
necessary, it has been held in one case that the programme is all that is required. In any event, the
insertion of due dates for information, and the regular revision and re-issue of such a programme,
will certainly fulfil the requirements of this clause.

Delay on the part of nominated sub-contractors/ suppliers

Before we look at the way in which the courts have interpreted this clause, it is worthwhile
considering its practical implications. If the main contractor is entitled to an extension of time
when delayed by a nominated sub-contractor, there is no liability on the part of the employer for
liquidated damages. This in turn means that, although the contractor may claim damages from the
nominated sub-contractor for loss caused by disturbance of the progress of the works, these
damages will not include the amount of the liquidated damages, because the contractor will not
have paid these. As a result, unless the employer has a direct claim against the nominated sub-
contractor for the delay (e.g. under NSC/W, the JCT standard-form employer/ nominated sub-
contractor agreement), the employer will simply lose out and the nominated sub-contractor will
evade responsibility!

The apparent strangeness and unfairness of this result may help to explain why the courts have
interpreted clause 25.4.7 in what seems to be an artificially narrow way. It was held by the House
of Lords in the case of Wesminster CC v Jarvis that delay on the part of is not the same as delay
caused by. This phrase does not refer to any lack of diligence by the sub-contractor, but only to
the sub-contractor’s failure to achieve completion by the due date, which results in the main
contractor being unable to achieve the overall completion date. Thus, in the Jarvis case, although
the nominated sub-contractor’s work was later found to be defective, so that the sub- contractor
had to come back to the site to put it right, completion had apparently been achieved on the due
date. It was accordingly held that there had been no delay on the part of the nominated sub-
contractor. As a result, the main contractor was liable to the employer and the sub-contractor was
in turn liable to the main contractor.

The contractor should closely monitor the progress of nominated sub-contractors to ensure that
they remain on programme, and so that the contractor can warn the contract administrator in plenty
of time of the likelihood of a nominated sub-contractor delaying the works. Similarly, supplies of
goods and materials from nominated suppliers should be closely checked. Contractors who fail in
this may lose their right to an extension of time, either because they have not taken all practicable
steps to avoid or reduce the delay (clause 25.4.7) or, more generally, because they have not
constantly used their best endeavors to prevent delay (clause 25.3.4.1).

It is important to note that, if a nominated sub-contractor ceases work altogether (for example
because of insolvency), this is not in itself grounds for the main contractor to claim an extension
of time. The position is that the contract administrator has a duty to renominate another sub-
contractor within a reasonable time, and that it is only delay in doing so that will entitle the main
contractor to extra time.

The execution of work not forming part of the contract

Clause 29 allows the employer to undertake parts of the works, either directly or through another
contractor, where this is stated in the contract bills. Such work will not form part of the contract,
but because of this clause a delay in that part of the work will give the contractor grounds for
extension of time.

The supply of materials by the employer

As with the previous clause, the employer may choose to supply some of the materials or goods
for incorporation in the works. Once again, however, this must be clearly stated in the bills since
if this is not done, it is the contractor’s obligation, and right, to do the entire work set out in the
contract documents.

Where the employer is to supply materials, the contractor must make sure that the employer is
fully aware of the dates upon which they will be required. If this is not done, the contractor will
lose the right to claim an extension of time for any resulting delay.

The exercise by the government of any power which directly affects the works
An example of the kind of exercise of government power which would be relevant here is the
three-day week which resulted from the miners’ strike in 1974. In an effort to break the miners’
strike, the government decreed that people could only have electricity for three days per week,
with a view to preserving coal stocks for as long as possible.

In order for this clause to be used as a reason for claiming an extension of time, the contractor
must have had no knowledge of the matter at the date of tender.

Contractor’s inability to secure labour, goods or materials

It must be very difficult to establish the extent to which shortages of materials exist – particularly
if paying a higher price than the market rate would secure them. Clearly, the price paid must bear
some relationship to what was envisaged at the time of tender, but if the contractor waits for the
shortage to finish, the price may never drop. In order to be able to claim an extension of time under
this provision, it must be demonstrable that the contractor could not have reasonably foreseen such
difficulties at the date of tender.

Carrying out of work by statutory power

This ground for extension of time refers only to the carrying out of work by a local authority or
statutory undertaking in pursuance of its statutory powers. It does not cover the situation where a
statutory undertaking is used as a sub-contractor. According to SMM 7, any work to be undertaken
by a statutory undertaking should be included in the bills as a provisional sum.

Failure by the employer to give access over employer’s land

This ground only applies when land or buildings adjacent to the site are in the employer’s
possession and control, and the employer has undertaken to give the contractor access to the site
through that land. It does not refer to the employer’s obligation to give the contractor possession
of the site itself; nor does it apply to any failure by the employer to obtain way leaves over other
people’s property.
ASSESSMENT OF VARIATIONS
A variation sometimes referred to as a variation instruction, variation order or change order is an
alteration to the scope of works in a construction contract in the form of addition, substitution or
omission from the original scope of works.

Almost all construction projects vary from the original design, scope and definition. Whether small
or large, construction projects will inevitably depart from the original tender design, specifications
and drawings prepared by the design team.

This can be because of technological advancement, statutory changes or enforcement, change in

conditions, unavailability of specified materials or simply because of the continued development
of the design after the contract has been awarded.

Variations may include

 Alterations to the design

 Alterations to quantities
 Alterations to quality
 Alterations to working conditions
 Alterations to the sequence of work

Standard forms of contract generally make express provisions for the contract administrator to
instruct variations, such provisions enable the smooth administration of the works without the need
of another contract.

Valuing of variations

Variations may give rise to additions or deductions from the contract sum. The valuation of
variations may include not just the work which the variation instruction describes but other
expenses that may result from the variation such as the impact on other aspects of the works.
Variations may also (but not necessarily) require adjustment of the completion date.

Variations may be valued by;

 Agreement between the contractor and the client

 The cost consultant
 A variation quotation prepared by the contractor and accepted by the client
Valuation of variations are often based on the rates and prices provided by the contractor in their
tender, provided the work is of similar nature and carried out in similar conditions. This is true
even if it becomes apparent that the rates provided by the contractor were higher or lower than
otherwise available commercial rates.

If similar types of works to those instructed by a variation cannot be found in the drawings,
specifications or bills of quantities then fair valuation of the contractor’s direct costs, overheads
and profit is necessary.

Variations are often sources of dispute, either in valuing the variation or agreeing whether part of
the works constitute a variation at all, and cost a lot of time and money during the course of the
contract. While some variations are unavoidable, it is wise to minimize potential variations and
subsequent claims by ensuring that uncertainties are eliminated before awarding the contract.

This can be done by;

a) Undertaking thorough site investigations and condition surveys

b) Ensuring that the project brief is comprehensive and supported by the stake holders
c) Ensuring the risks are properly defined
d) Ensuring designs are properly coordinated before tender
e) Ensuring the contractor’ s rates are clear
f) Preparing concise drawings, bills of quantities and specifications, providing for all
situations which are reasonably unforeseeable

PERFORMANCE BOND
Performance bonds are provided by a third party for up to a stated amount, payable in the event
that the beneficiary incurs loss as a result of the contract party's breach.

There are two main forms of performance bonds: a 'default' bond and an 'on demand' bond. A
'default' bond imposes a secondary obligation on the grantor. Similar to a guarantee, the beneficiary
must prove that the contract party has breached the contract and caused damage in order to cash
the bond. The issuer of the bond can object to payment if there is doubt over the primary breach
or the amount of damages claimed.
In contrast, an 'on demand' bond creates a primary obligation on the issuer to pay the stated amount
on demand, irrespective of any objections raised by the contract party. The bond is not conditional
on the creditor proving the contract party's default and the beneficiary has a primary right of action
against the issuer in the event of non-payment.

Generally speaking, performance bonds are limited for a specific duration and up to a maximum
cap. Performance bonds will usually expire after a specified time, such as practical completion or
after the defect’s liability period. In addition, a performance bond will rarely guarantee the
performance of all of the contract party's obligations; rather it provides the recovery of financial
loss up to the stated amount, often framed as a percentage of the contract price. This can be
problematic where multiple issues or insolvency quickly exhaust the level of cover provided.

The cost of obtaining an 'on demand' bond is generally much higher than the cost of obtaining a
'default' bond. In some market’s 'default' bonds have become more common for this reason, but in
the Asia Pacific region, 'on demand' bonds and letters of credit remain the norm.
REFERENCES

Hughes, J. M. (2001). construction contracts law and management 3rd edition. Taylor &
Francis
e-Library.