Episode 63:

Hello and Welcome to the Part3 with me podcast, 

The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week is Part 1 of the Design & Build Contract. Todays episode meets PC5 of the Part 3 Criteria.

This will also probably be split into two parts just so I can cover as much of the form as possible to give you a better understanding of the overall form its use and set out. So I briefly covered Design & Build in a previous episode but I wanted to expand on it further. 

Similarly with the SBC Contract I wanted to make sure I covered the whole form to give you a better understanding of its composition so I will be slitting it into two part. Today we will be covering the Contract Documents, Obligations of the Contractor, and Possession and Completion. Next week I will expand on  Control of the works, Sums properly due, Payment, Indemnity & Insurance, Default & Termination and Dispute Resolution. Make sure to listen to both episodes to get the overall understanding of the form and how it operates.

Before I dive into the D&B Contract form, I wanted to just give you a quick overview of how D&B differs from SBC:

In terms of similarities:

• They both have provisions for a date for possession and completion 
• Carrying out the work in sections
• Provisions for partial possession, practical completion and a rectification period 
• Both have provisions for deducting retention from payments
• Providing for fluctuations, insurance, termination and dispute resolution 
• Allowance for purchaser/tenant and funder rights from the contractor either through the use of third party rights or collateral warranties 
• Provision for withholding payment 

Now in terms of their differences: 

• Under D&B the contractor is responsible for completing the design and no further information provided
• There are no provisions for ‘listed sub-contractors’ as required in SBC
• There are optional provisions for names sub-contractors
• There is no contract administrator under D&B, extension of time decisions are taken by either the employer or contractor
• There is no provision for a person to be named as employers agent
• Payment can be made at monthly intervals or at the end of agreed stages unlike SBC where its to be done on the same date each month and as per the interim certificate valuation so under D&B there is no certificate of payment - under D&B the contractor makes an application and the employer decides how much to pay

So lets start looking into a brief overview of the Design & Build Contract and its use:

The Design and Build Contract is intended to be used on building projects where the Employer wishes to appoint a Contractor for a lump sum given the Contractor will be responsible for the completion of the design and the production of all further design and/or production information required. D&B is therefore suitable for projects where the contractor is undertaking a large part of the design. 

The Contract form is published in one version only and can be used for both private and public sector clients. The form itself includes a number of supplemental provisions under Schedule 2 allowing it to be tailored to suit the parties requirements, including the use of named sub-contractors, contractors estimates of the value of changes, acceleration and so on. 

Design and build differs from traditional procurement in that with traditional procurement the contractor will take on little or no design responsibility and the contractor comes on board at tender stage. Whereas in design and build, the contractor can be involved from an earlier stage depending on the project requirements. The main benefits with design and build for the employer is that it provides a single point of responsibility for both design and construction, there is typically a fixed price which covers design and construction and the overall programme is normally shorter than with traditional procurement. The down side is that the employer has little control over the details of the developing design and, typically under most contracts, any changes to the Employers Requirements will result in great additional costs to the employer. So the employer does not provide any further information to the contractor after the contract is entered into, the quality and quantity of work to be carried out is detailed in the employer’s requirements and the contractors proposal. 

The contractor will therefore, be responsible for constructing the works as described in the contract and for completing the design as necessary to meet the employers requirements and statutory requirements. Under D&B no person exercises the role of the contract administrator so the role typically undertaken by the contract administrator may be taken on by either the employer or contractor under D&B. The form allows for the employer to appoint an agent as their representative, which can in some cases be undertaken by an architect, in any case whoever takes on this role will be taking on the authority of the employer allowing them to take decisions and actions assigned to the employer under the contract. It should be noted that this role shouldn’t be confused with that of a Contract Administrator as the agent under D&B has no obligation to act impartially as the CA does.  

Design and build often involves a two stage tender process meaning the tender is split into two stages when insufficient information is available before the first period.  So the first stage will involve the submission of a tender sum and limited information when it comes to the design and is based on preliminaries. Then the second stage will normally involve negotiations when it comes to the tender and the submission of more detailed design proposals assisting to reach an agreed contract sum. A key thing to note is that by the second stage the contractor is already employed and is not in competition with other contractors. 

There is of course the option to go down a single stage tender process, whereby all information regarding the design proposals and the pricing breakdown will need to be submitted with the tender, unlike the limited information with the two stage approach, and a lump sum figure will be tendered and the contractor will then be appointed from the tender returns. 

Now lets have a closer look at the form itself and the Contract Documents:

So the Contract Documents under D&B are considered the agreement and conditions, the Employers Requirements, the Contractor’s Proposals and the Contract Sum Analysis.

The Employers Requirements should be considered as a brief which will typically include a full set of information including a detailed specification, potentially schedules of finishes, fittings and services requirements and so on. Descriptive or performance specifications should be as accurate as possible avoiding phrases like ‘to the employers approval’ or ‘to be approved’. If the Supplemental Provisions under Schedule 2 are included then the requirements could also include bills to be priced. The requirements should also state any planning consents obtained and any remaining conditions to be discharged and who will take responsibility for those. The requirements should also include information on any covenants or easements relating to the site and if there are any constraints to be imposed on the use of the site or its facilities. One of the most important inclusions is to state exactly in what form the contractors proposals should be submitted and what they should include alongside any drawings and other design information to be submitted by the contractor following acceptance of tender together with a programme for their submission. Another item that will also be beneficial to state within the Employers Requirements is the information to be submitted at practical completion, such as ‘final construction’ drawings otherwise the obligation may be to provide information ‘as the Employer may reasonably require’. The Employers Requirements should also make reference to the required format for the Contract Sum analysis.

Now if the parties to the contract wish to amend any of the conditions within the contract form, this can be done by amending the clauses or by inserting an additional article referring to the special terms and be placed in the appendices. Expert advice should be sought when making any amendments to the form. 

Now what happens if a discrepancy is found within the contract documents by the contractor. They are expected to inform the employer of such an instance so they can rectify it before the documents are finalised and signed. If a discrepancy is discovered before the contract documents are executed and the employer is prepared to accept the contractors proposal, the Employers Requirements should then be amended accordingly. Then the Employers Requirements, Contractors proposals and Contract Sum Analysis will remain with the employer with a copy given to the contractor immediately after the execution of the contract. 

The D&B Contract Form also makes allowance for assignment and third party rights. Under assignment, the employer may wish to assign the right of a purchaser to bring an action against the builder of their property. In such an instance the employer will require written consent from the contractor to be able to provide assignment contractual rights to another party. Assignment without consent can be grounds for termination. Now when it comes to Third Party Rights, D&B offers two options for granting rights to bring a claim to persons who are not party to the contract, either through ‘third party rights’ provisions included within the contract form or through separate warranties. Under Schedule 5 of the contract form, sets out Third Party Rights for Purchasers and Tenants and Third Party Rights for a Funder. These two provisions allow a purchaser/tenant and funder to bring an action in respect of breaches of contract by the contractor. In the case of the purchaser and tenant, the contractors liability extends to the reasonable costs of repair, renewal or reinstatement but doesn’t include other losses meaning the liability will be limited to a stated maximum amount. In the case of a funder, except for the inclusion of a net contribution clause, no limit is placed on the extent of the contractor liability. 

Under the collateral warranties process, the contractor must actually enter into a warranty separately with each beneficiary.

So where third party rights are to be used, the relevant section of the contract particulars will need to be completed, similar with collateral warranties. And then the third party rights will take effect from the date of receipt of the notice from the employer to the contractor. With collateral warranties, the contractor must execute them within 14 days of the equivalent notice from the employer.    

That covers in a brief overview the Contract Documents, now lets move onto the Obligations of the Contractor:

The key obligation of the contractor is to complete the design for the Works and carry out and complete the construction of the Work. 

So under D&B, the contractor has a design obligation to complete the design in accordance with the Employers Requirements and must also comply with any changes to the requirements instructed by the employer. A key item to note is that the contractor is not responsible for the contents of the employers requirements or for verifying the adequacy of any design contained within them and there is a specific clause within the form to enforce this. 

So some of the contractors key obligations include:

• Completing the design
• Carrying out the work as per the contract standards and statutory requirements 
• Complete the works on time
• Provide a person in charge of the works
• Organise the work as they like
• Object to unreasonable changes in the design sought by the employer
• They are also allowed to seek payment for disturbance and changes 
• And seek consent from the employer to subcontract parts of the works
• To comply with all statutory requirements 
• Comply with the employers instructions
• Provide the employer with samples as stated within the Employers Requirements
• Begin the works once give possession of the site and process regularly and diligently to complete the works by the completion date 
• Notify insurers on occupation of the site by the employer
• Permit execution of work by persons engaged directly by the employer
• Give written notice specifying divergence, if found, between the employers requirements and defined site boundary 
• Give notice if works are delayed
• Give consent to partial possession of the works and issue written statement 
• Make applications for interim payments
• Submit final statement 
• Inform employer of insolvency event 

That’s just a very brief list of the contractors obligations, the list consists of many more.

In terms of liability, the contractor has the equivalent liability to that of an architect or other appropriate professional designer to use reasonable skill and care. If the employer wishes to impose a higher level of liability, this would require the form to be amended and outlined in the Employers Requirements, the employer should seek legal advice if considering to make such amendments. The contractor is also required to hold PI insurance to cover their liability and to be in line with the amount stated in the contract particulars. 

The contractor is also required to provide specific materials, goods or workmanship as stated within the Employers Requirements. If the contractor wishes to substitute any materials or goods to those specified, they must obtain permission from the employer in writing. If the material is of the same standard and value then the employer would have no reason to reject it, but if the substituted material is of less value, then the employer would need to see a reduction in the amount to be paid, now if the material was originally specified in the employer requirements, the employer could issue an instruction requiring a change. Now if some materials can’t be obtained, the contract form states that the materials should be provided ‘so far as procurable’ meaning the contractor wouldn’t be in breach of contract if the item is genuinely unavailable, in such instance the contractor can put forward an alternative to the employer for their approval and any adjustments to be made to the contract sum as required.

Now when it comes to workmanship, specifically done by sub-contractors, the contractor will have the responsibility for their standard of workmanship, materials and goods, this obligation also extends to any sub-let design work and is the same whether or not the sub-contractor was named in the Employers Requirements. 

The contractor is also to comply with all statutory legislation relevant to the carrying out of the works. D&B introduces a contractual duty in addition to the statutory duty giving the employer additional protection if the contractor fails to comply with statute it will be subject to a breach of contract. The contractors obligation extends to obtaining the relevant statutory permissions, unless the Employers Requirements state that they comply, this obligation includes complying with Building Regulations and therefore the contractor should make sufficient allowance in its tender to cover all permissions, testing, commissioning and certification required. All consents obtained must be passed to the employer.    

Now lets move onto the next section Possession and Completion:

Under the D&B Contract, it requires the setting for a ‘Date of Possession’ and a ‘Date for Completion’ to be inserted into the contract particulars. D&B also offers the options for the works to be carried out in phases, if this approach is utilised, then the work must be split into clear identified sections and a separate date of possession and date for completion to be entered for each section. If the contractor fails to complete by the date for completion may give rise to the employer claiming liquidated damages. There are of course provisions for deferring the date of possession and extending the completion date. Dates under D&B are typically subject to negotiation and should be finalised before the contract is entered into and before the contractor commences work. 

If the employer fails to give the contractor possession of the site on the agreed date this would be subject to breach of contract and will give the contractor the right to claim an extension of time. If full or clear possession of the site is not intended, this should set out in the tender document listing the restriction in detail and the contract must be amended accordingly. The employer can possibly defer possession of the site without the agreement of the contractor but for up to six weeks and should be stated in the tender documents and inserted in the contract particulars, any delay beyond that will result in a breach of contract. 

So following successful possession of the site by the contractor and execution of the works, when it comes to the completion date the contractor is obliged to complete the works by the completion date. The key reason for stating an exact completion date in the building contract is to provide a fixed point from which damages may be payable in the event of non-completion, these are typically fixed at a rate per week of overrun. Under D&B, the contractor accepts the risk of all events that might prevent completion by this date, the contractor may be relieved of this obligation if the employer causes delays or prevent completion. In such cases, the contract form offers the possibility to adjust the completion date.

Now when it comes to extensions of time, the employer operates these under D&B which the contractor would be entitled to if the employer causes the delay. The contractor is also entitled to an extension of time under certain neutral events, such as exceptionally adverse weather and under such instance the contractor may accept the risk of these neutral events and pay losses to the employer should the contractor fail to adjust the programme to compensate for these risks. Taking on such a risk, however, will increase the price of the tender which in some instances employers are prepared to accept but this would require adjusting the contract form and should be undertaken with a legal advisor.  

If delay seems likely, the contractor should give written notice to the employer irrespective if completion will be effected and irrespective of the cause, failure to provide such a notice won’t constitute for an extension of time. The notice should set out length and cause of the delay and the contractor should establish whether or not the cause is a ‘Relevant Event’. On receipt of the note, the employer must assess the delay caused and make a decision on an appropriate extension of time and the decision must be notified to the contractor within 12 weeks of receipt of the notice, if the completion date is less than 12 weeks away, the employer shall endeavour to reach a decision prior to the completion date. The extension can only be given in relation to a delay caused by the events listed in the D&B Contract form. The events cover a wide range to circumstances beyond the control of the contractor, including default of the employer and neutral events. 

With regards to relevant events, it should be noted: 

• That the contractor will be entitled to an extension following any exercise of their right of suspension due to non-payment of amounts due by the employer.  
• When it comes to situations of exceptional and adverse weather, it should be assessed at the time the work is actually carried out and if it did constitute for an extension of time
• Specified perils can include events caused by the contractors own negligence
• Delay due to changes in statutory requirements sine the base date is also considered a relevant event 
• Delay in receiving statutory consents or approvals are also considered to be relevant events 
• The contractor can’t claim extension of time for delays caused by a named sub-contractor 
• Shortage of labour, goods or materials is not a relevant event.

Following the first extension of time, the employer can fix an earlier completion date if the change results in the omission of any work or obligation or restriction and the employer can do so without a notice from the contractor. A key thing to note though is that the employer may not fix an earlier completion date than the original completion date stated in the contract. Now if over one delaying events occur at the same time and one of the is a relevant event, then the contractor should be given an extension of time fore the full length of delay caused by the relevant event, irrespective of them also causing delay at the same time. 

If partial possession is applicable, the employer may take possession of the completed parts of the works ahead of practical completion and the contractor must issue a written statement to the employer identifying the extent of the ‘Relevant Part’ to be completed and the date of possession, known as the ‘Relevant Date’, and the employer will be required to issue a separate notice for that part when defects have been made good. However, the relevant part remains part of the work and is still to be included under the statement of practical completion. As a result of possession of the relevant part, liquidated damages will be reduced by the proportion of the value of the possessed part of the works to the contract sum.  

If the employer wishes to use or occupy the site or part of it before practical completion, they must receive written consent from the contractor enabling them to use the area and it would be wise to notify the insurers of such intent. So once practical completion is achieved, which is deemed as the completion of all works required under the contract, and therefore, the employer is obliged to issue the contractor with a written statement meaning the employer accept the work. This then gives way:

• For half of the retention to be released 
• The rectification period begins
• The responsibility then shifts to the employer to notify the contractor of all necessary outstanding work 
• For possession of the site to pass to the employer and the contractor will no longer cover the insurance of the works 
• The contractors liability for liquidated damaged ends 
• The employer will be the ‘occupier’ for the purposes of the Occupiers Liability Act 
• And the contractor may wish to arrange a ‘handover’ meeting, although this is not contractually required under D&B. 

In the event of failure to complete the works by the completion date, the employer is required to notify the contractor and issue a Non-Completion Notice and liquidated damages can start to be deducted. If sectional completion is used, a separate notice will be needed for each incomplete section. The liquidated damages to be paid will be at the agreed rate entered into the contract particulars. This is typically expressed as a specific sum per week of delay to be allowed by the contractor in the event of failure to complete by the completion date. In order for liquidated damages to be claimed, the contractor must have failed to complete the works by the completion date, the employer must have issued a non-completion notice to the contractor, the employer must have fulfilled all duties with respect to the award of an extension of time and the employer must have notified the contractor of their intention to require payment of, or withhold, liquidated damages before the due date for the final payment. So the employer must give two notices, the first is a general notice of intention and then a notice at the time a payment is required or a deduction is to be made. The second notice must state whether the employer requires the contractor to pay the sum to the employer, or if they intent to deduct liquidated damages. The employer is entitled to deduct liquidated damages for the period between the completion date and the date of practical completion. 

In the case where an extension of time is given following a notice of non-completion, then this cancels that notice. A new non-completion notice must be issued by the employer if the contractor fails to complete by the revised completion date and if necessary, the employer must repay any liquidated damages recovered for the period up to the new completion date. This will be expanded in next week Payment section, but when it comes to payment, the contractor is paid either at the end of agreed stages or at monthly intervals following applications made by the contractor. The payment will reflect the amount of work that has been properly completed as per the agreed terms of the contract up to the point of payment plus the amount of design work that has been carried out.

So to sum up what I discussed today:

• Under D&B the contractor is responsible for the completion of the design and carry out and complete the construction works 
• D&B is a lump sum contract and comes in only one version
• D&B is suitable for project where the contractor is undertaking a large part of the design 
• There is no CA under D&B so the employer can appoint an agent as their representative 
• D&B can be undertaken either as a single stage or two stage tender process - Under single stage all the information regarding the design proposal and pricing breakdown will need to be submitted with the tender. Whereas under the two-stage approach a tender is submitted with limited information when it comes to design and costs and then at the second stage negotiations take place with the submission of a more detailed design proposal assisting to reach an agreed contract sum. 
• The Contract Documents consist of the agreement & conditions, Employer Requirements, the Contractors Proposals and the Contract Sum Analysis 
• Under D&B there is a Date of Possession and Date for Completion 
• Extensions of time can be granted given the delay has been caused by a Relevant Event 
• And once practical completion is achieved, the employer is obliged to issue the contractor with a written statement meaning the employer accept the work.