The Merry Month : The allocation of risk
Robert Merry is an independent stone consultant and project manager who ran his own company for 17 years. He also acts as an expert witness. Here he presents his view of the stone industry now.
To ‘represent a balanced allocation of risk between the parties’. According to the Joint Contracts Tribunal (JCT) that is the aim when draughting contracts.
But I would argue the allocation of risk starts before the contract, at the tender stage when you are preparing your quotation.
When contracts started becoming more formalised, clients required tenders to be quantified so that bidders were pricing for the same labour and materials.
Contracts became known as ‘with quantities’, based on a measurement of labour and materials – Bills of Quantities (BQs) as they became known. These were formulated by a quantity surveyor (QS).
If there were any changes in the quantities during the build process, these could be claimed as variations. Quantity surveying developed its own rules and codes and evolved a ‘standard method of measurement’.
The QS became king – and king maker in terms cash, either managing the flow of cash from the client to the contractor as the PQS (project quantity surveyor) or managing the cash from the contractor to the subcontractor as the contractor’s QS.
Payments were based on the measurement of the work, prepared by the quantity surveyor. JCT still publishes a Standard Building Contract ‘with quantities’.
But it is more likely today that a contract will be let without quantities, the tenders and contract being based on drawings and specification only.
The sub-contractor then has to perform his own ‘take-off’ (measure) from the drawings and check this against the specification. The risk of the quantities and the cost of preparing a bill upon which to quote for that risk is then transferred to the sub-contractor.
Contractors will send out tenders with bills of quantities they have prepared to ensure comparable bids are returned, but they will usually add the caveat that the bill of quantity is a guide and ‘tenderers should satisfy themselves that the quantities are correct’.
You may elect (as most do) to prepare your own bill of quantities in the form of a quotation with reference to the specification and drawings.
The design is almost never complete at the time of tendering – nor, indeed, when construction starts. This is an industry wide problem unlikely to go away soon. You should be prepared for endless gaps between the three tendering documents.
My advice is that a ‘without quantities’ tender should be based on the specification first and the drawings second, with the contractor’s BQ limping in a poor third. Please add appropriate qualifications to your tender, pointing out discrepancies and what you have actually priced for.
There are other ‘contract documents’ that will influence your final decision to tender and also your final price, or ‘tender offer’. ‘Contract documents’ is a special term used in construction to describe those documents that are legally binding. Most standard forms of contract identify articles of agreement, conditions of contract, drawings and bills as the key documents. They can also include project-specific data, schedules, specifications, certificates, programmes and (within the articles of agreement) recitals, articles and contract particulars.
A decision to return a tender should also take into consideration the amount of risk you are being exposed to by the contract – or, to be more specific, the risk you are exposed to by non-performance of the contract (because the contract stays in the draw if all is going well). These risks can be identified in the contract documents.
It is not my intention that any of us should approach a contract as lawyers and spend too much time and money dissecting the document. But forewarned is forearmed, so we have half a chance of understanding the risks involved.
Therefore, next month I will deal with the contract documents in detail and explain what to look for before you decide to submit your tender or estimate (and the law does recognise a difference between the two). We will also need the consider the ‘battle of the forms’, acceptance by conduct and letters of intent.
In the meantime, if you have any burning contractual issues you need to discuss urgently, please give me (Robert) a call on 0207 502 6353 or 07771 997621.