Episode 75:

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 Intermediate Contract. Todays episode meets PC5 of the Part 3 Criteria.

This will be split into two parts to ensure the whole contract form is covered to give you a better understanding of the overall form its use and set out. 

Today we will be covering the Contract Documents, Obligations of the Contractor, Possession and Completion & Control of the works. Next week I will expand on Sums properly due, Certification, Indemnity & Insurance, Termination and Dispute Resolution. Make sure to listen to both episodes to get the overall understanding of the form and how it operates.

So lets start looking into a brief overview of the Intermediate Contract and its use:

The Intermediate Contract is primarily intended to be used where the proposed building works are of simple content involving the normal, recognised basic trades and skills of the industry, without building services installations of a complex nature and where the works are designed by or on behalf of the Employer with detailed contract provisions providing the contractor with drawings, bills of quantities, a specification or work schedule in order to define the quality and quantity of the work.

Its published in two versions, the Intermediate Form of Contract and the Intermediate Form of Contract with Contractors Design. Except for the design provisions, both versions are identical. 

The Intermediate Contract is intended to be used under traditional procurement where the contractor is required to carry out work as described and shown in the contract documents required to carry out the work described briefly in the first recital and shown in the contract documents for the contract sum stated and to complete the work by the date or dates entered in the contract particulars. This contract form also states the role and duties of the Architect/Contract Administrator and also makes provisions for varying the work, adjusting the contract sum and date for completion. The contract allows for a variety of combinations of contract documents, including drawings, bills of quantities, specifications, schedules of work and schedules of rates. At tender stage, the contractor prices either a bill of quantities or specification or schedule of works or submits contract sum analysis or schedule of rate. 

The Intermediate Contract with Contractors Design version, makes provision for the contractor to be required to design an identified part or parts of the works. In addition to the items mentioned in the standard Intermediate Contractor form, with this form, the contractor will have been sent the employers requirements for the project at the time of tender and will have submitted their proposal for the design at tender stage. The employers requirements and contractors proposals will form part of the contract documents. Key item to note is that the Intermediate Contract is unlike the Design and Build Contract in that the majority of the project will be designed by the employers consultants.

Both contract versions are lump sum contracts, meaning the work shown in the contract documents must be carried out for the contract sum. Payments are to be made to the contractor monthly following the issue of the Contract Administrators Certificates which will reflect the amount of work that has been properly completed up to the point of valuation in accordance with the contract. All requirements of the Housing Grants, Construction and Regeneration Act regarding payment and notices are incorporated in the Intermediate Contract. 

Additionally, under both versions of the Intermediate Contract, the contractor can be required to sub-contract to a specific contractor or supplier, who may be named in the tender documents or after the contract is let in an instruction for the expenditure of a provisional sum. This allows the client great flexibility and control over who carries out the work, it also allows flexibility for named sub-contractors to carry out design. If this is a requirement in the contract, a direct warranty should be arranged between the employer and sub-contractor because under the Intermediate Contract the contractor has no liability for the design by named sub-contractors, unlike other Contract Forms. 

The only difference with the Intermediate Contract with Contractors Design, is that if the named sub-contractor has design responsibilities, the naming procedure should only be used for discrete parts of the works and for works not forming part of the contractors design responsibility to avoid any overlap of liability conflict. A named sub-contractor can be required to carry out work designed by the contractor but not take on any design liability themselves. 

Compared the Standard Building Contract, The Intermediate Contract is less detailed than the Standard Building Contract but more detailed than the Minor Works Building Contract, and therefore, it is suitable for Intermediate complexity level projects.Essentially the Intermediate Contract is a cut down version of the JCT Standard Building Contract that is generally used to deliver contracts where the value reaches approximately £1million.

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

So the Contract Documents under the Intermediate Contract are considered the articles, conditions, and the schedules, including forms of bonds and fluctuations provisions. The recitals refer to drawings, bills of quantities, specification, works schedules, named subcontractors, a contract sum analysis, a schedule of rates, a priced activity schedule and an information release schedule. Under the Intermediate Contract with Contractors Design it also refers to the employers requirements and contractors proposals. 

There are two pricing options under the contract, Option A provides the contractor with the document to be priced (including specification, bills or schedules) which become a contract document, whereas under Option B the contractor just states a sum and provides a breakdown in the form of a contract sum analysis or provides a schedule of rates. Both options require an activity schedule which is prepared and priced by the contractor and provide before the contract is executed. So under the schedule each activity is priced and the sum of this prices must equal the contract sum, but excluding provisional and prime cost sums, contractors profit, and the value of work which includes approximate quantities. The purpose of the activity schedule is to assist determining the value of work properly executed during construction informing the interim certificates but the Contractor Administrator should make it clear if they will be using it to this extent to ensure the prices reflected are as intended to avoid issues on site. In any case, even if the activity schedule is used by the CA, the priced document will remain the basis for the valuation of variations. 

Interesting fact, under the Intermediate Contract there is no reference to the party responsible for preparing the drawings and it requires that the parties sign all the drawings.

Now under the Intermediated Contract with Contractors Design, this contract form also includes for Employers Requirements that will set out the contractors designed portion of the works. Its important for the Employers Requirements to stipulate exactly what form the proposals should be submitted and what they should include enabling the client to make a clear assessment of the submitted tenders. Of course the amount and level of detail of the information will depend on the scale of the designed portion and its relationship with the rest of the design. Therefore, the requirements need to specify the drawings and other information to be submitted by the contractor following acceptance of tender and a programme of their submission. So the contractor would submit their proposals with the tender and they should raise any matters relating to the contract data where decisions are outstanding from the client and they proposals should clearly indicate areas of conflict in the requirements. The contract doesn’t allow for the inclusion of provisional sums in the proposals, only in the requirements, so if the contractor seeks to cover any part of the proposals with a provisional sum they should inform the client so the the requirements can be amended. 

Under the Contract Documents, there is an optional provision for the use of an Information Release Schedule which, if used, is prepared by the CA and sent out with the tender documents. The benefits of using the information release schedule is that it gives the CA some guidance in preparing a realistic programme of drawing production so if used carefully it can be a very effective management tool to meet deadlines and stick to the programme dates. But it would be beneficial to make an allowance within the tender documents to enable updates to be made to the schedule as needed in case of extensions of time and so on.

The Intermediate Contract also makes reference to two bonds, and advance payment bond and a bond in respect of payment for off-site materials and/or goods. Both bonds are optional and if required, the contractor should make provisions for them and it should be stated at tender stage if either will be required. 

Now when it comes to the named subcontractors, the contract makes provision for three forms to be used alongside the main contract which includes the:

If named sub-contractors are to used, they should be named in the bills, specification or schedules of work, in which case details of the named sub-contractor is sent to the contractor at tender stage. 

All contract documents are to remain with the employer and must be made available for inspection by the contractor at all times and the CA should retain a copy for reference throughout the life of the contract. The contractor should be given one certified copy of the contract and tow further copies of the contract drawings and bills/specification /work schedules. Unlike the SBC, the IC does not require the contractor to keep a set of contract documents on site. 

When it comes to Third Party Rights and Warranties, these can’t be assigned without the written consent of the other and typically parties agree that the contract will not be subject to third party rights. The contract does make provision for the employer to arrange for collateral warranties which will run alongside the main contract and create a contractual relationship between one of the parties to the main contract and a third party. The IC makes reference to five forms of collateral warranty:

Under the collateral warranty system, the contractor or sub-contractor must enter into a warranty separately with each beneficiary. Under the first form, the contractor liability only extents to reasonable costs of repair,  renewal or reinstatement and does not include other losses unless stated otherwise and their liability is limited by a net contribution clause. Where the contractor has a designed portion they must provide evidence of their professional indemnity insurance to any person possessing rights under the Third Party Rights Schedule. In case of a funder, no limit is placed on the extent of the contractors liability but it still includes for a net contribution clause. But it should be generally noted that there no requirement for the contractor to obtain the warranties there is simply a requirement to comply with the contract conditions. 

2. 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 carry out and complete the Works in compliance with the contract documents including the design of the Contractors Design Portion.

Some of their other obligations also include:

Under the standard Intermediate Contract, there is no provision for the contractor to carry out design, the only mechanism under the contract where some design responsibility can be allocated is through the use of named sub-contractors and the contractor will not be liable for their design errors. This design liability will of course need to be approved by the employer before named subcontractors are approached and before the CA appointment is agreed with the employer, otherwise the CA will be fully responsible for all aspects of that design. 

Now under the Intermediate Contract with Contractors Design, this does incorporate provisions for the contractor design alongside that from the named subcontractors. The contractors design responsibility must be agree with the employer and the contractors liability will be limited to the use of reasonable skill and care and their design requirements will have to be set out in the employers requirements and sent out with the tender documents. The employer can generally make changers to the employers requirements, which may result in changes to the contract sum and completion date, but otherwise there is no power to order changes to the contractors proposals provided they comply with the requirements. In terms of the contractors liability, in order to be able to claim against them, the employer would need to prove that the contractor had acted negligently and failed to use the skill and care expected. 

In terms of the contractors design liability, contracts for construction work are usually for ‘work and materials’ and as such fall under the Supply of Goods and Services Act meaning the contractor would normally be liable for providing materials fit for their intended purposes, but if the employer or consultant specify particular materials, then the contractor is relieved of their liability. The obligation to supply goods or materials fir for their intended purpose would extend to a product or structure which a contractor had agreed to design and construct. So the contractor would be liable if the good, elements or structure is not fit for its intended use, irrespective of whether the contractor has exercised reasonable skill and care in carrying out the design.  

Where the contractor is carrying out works in connection with a dwelling including design work, this would be subject to the Defective Premises Act meaning the contractors liability extends beyond the amount stated in the contract particulars when it comes to a dwelling. 

And then when it comes to sub contracted work, there are two methods subcontracting under the IC, the first is sub-letting to a domestic sub contractor selected by the contractor and with written consent of the CA and the second is sub-letting to a named subcontractor, in both cases the contractor will have ultimate responsibility for the standard of workmanship, materials and goods provided by the subcontractors. But when it comes to the named subcontractors, the contractor is not responsible for their design or selection of materials and goods for those works. It would be wise for the employer to enter into a warranty with the named subcontractor. 

3. Now lets move onto the next section Possession and Completion:

Under IC, the Date of Possession and a Date for Completion are required to be inserted in the contract particulars, IC also offers the flexibility for work to be carried out in phases. If this is required it should be split and clearly identify the Sections and separate Date of Possession and Date for Completion entered for each section. The contractor is required to take possession on the date for possession and complete by the date for completion and if they fail to do so they may be liable to pay liquidated damages. There is provision within the IC to defer the date of possession and extending the completion date. If for any reason the work starts without proper agreement over dates, the contract will then be subject to the Supply of Goods and Services Act which states that the work should be completed within a reasonable time.

When it comes to the possession of the site, failure to give the contractor possession is a serious breach by the employer and can amount to repudiation giving the contractor the right to treat the contract as at an end. And the site must be given in full possession to the contractor up until practical completion. If the employer wishes to use any part of the works for any purpose during the time that the contractor has possession, this should be made clear in the tender documents otherwise it can only be with the agreement of the contractor. 

There is no requirements under IC for the contractor to produce a master programme, although it could be introduced through the bill of quantities or specification but it should be made clear that its not a contract document and not contractually binding, it should be remembered that even if it shows the intention complete early there is no implied duty in the employer to enable the contractor to achieve this programme.

Now when it comes to the completion date, there are some instances where failure to achieve completion by a particular date would mean that the result is worthless, this is often referred to as ‘time is of the essence’, breach of such a term is considered a fundamental breach and give the employer the right to terminate performance of the contract and treat all their own obligations as at an end. The date for completion is entered in the contract particulars at the time of entering into the contract and the IC also provides for the granting of extensions of time. 

The process for granting extensions of time under IC involves the contractor having to give written notice to the CA when it appears progress is likely to be delayed. The notice must be given whether or not completion is likely to be delayed and it is not required for the contractor to identify whether the cause is a ‘Relevant Event’. So following notification, the CA must then assess the delay caused and issue and extension of time if applicable. An extension can only be given in relation to a ‘relevant event’.

Some relevant events include:

There’s no time limit on when the decision regarding an extension of time should be made, but the clause states ‘as soon as liable’ and failure to grant an extension properly due could result in time being ‘at large’. The clause doesn’t require the CA to notify the contractor if the decision is not to grant the extension of time and there is also no obligation to explain why an extension of time has been awarded. The CA can also award further extension of time in respect of certain events that occur after the date for completion or any extended date due to delays by the contractor for example, and in such instances the CA must award the extension irrespective of whether a notice has been issued by the contractor. Then the extension is added onto the date that has passed, referred to as the ‘net’ method of extension.

Now in the case where a number of delaying events occur, under the contract it is customary to grant an extension of time in respect of the dominant reason for the relevant event. In the case where one delaying event is a relevant event and the other isn’t, the logical approach would be to grant the contractor an extension of time caused by the relevant event only. It is unwise to split the overlap period and only grant half of the extension to the contractor could result in the contractor being subject to liquidated damages for the delay caused by the employer. 

Now when it comes to Partial Possession, to bring it into operation, the CA must issue a written statement to the contractor identifying the exact extents of the ‘relevant part’ and date of possession. In terms of practical completion is deemed to have occurred for the relevant part of the works and the rectification period for that part is deemed to have commenced on the relevant date and the certificate of making good has to be issued for that part separately. Liquidated damages are also reduced by the portion of the value of the relevant part of the works to the contract sum and half of the retention is released for that portion of the works. But as it is included under the overall works it is still to be included under the certificate of practical completion. If the client needs to occupy part of the works without prior agreement, although there is nothing in the contract to allow for this, the client may proceed with it given they agree not to claim liquidated damages during the period of occupation, practical completion can’t be certified and there is no release of retention money until it is. Given this is a situation outside the contract terms, a properly drafted agreement should be put together for such an instance and signed by both parties. 

In terms of practical completion, it is suggested under IC that is when all works are complete under the contract and by subsequent instruction and it is certified by the CA. There is no obligation to issue the certificate when the project is ‘substantially’ complete or even when it is capable of occupation if there are items still outstanding. Upon is of the Certificate of Practical Completion:

Failure to complete by the completion date, the CA is required to issue a Non-completion certificate which starts the liquidated damages period whereby the employer can deduct the damaged from the next interim certificate. It the works are divided into sections, each section will require a separate certificate.  

Liquidated damages is expressed as a specific sum per week of delay to be allowed by the contractor and they can be claimed in the event of the contractors failure to complete by the completion date, the CA has issued the certificate of non-completion, the CA has granted an award to an extension of time and the employer has given the contractor written notice of their intention before the date of final certificate.  

4. That covers the Possession and Completion section, now lets move onto the next section Control of the works:

Various roles and duties are assigned to different individuals during the works:

Under the IC, the CA has various duties, including supplying the necessary information and to issue certificates or statements. In some matters the CA will act as agent of the employer and at others as an independent decision maker. Failure of the CA to comply with any obligation may result in the contractor suffering losses. 

Then you have the Person-in-charge which is a person the contractor is required to keep on site at all reasonable times. 

From their side, the employer is also entitled to employ an independent clerk of works to act solely as inspector on behalf of the Employer under the CA’s direction. 

Now in terms of information, the IC refers to three instances the CA has an obligation to provide information, including setting out information, information referred to in the Information Release Schedule and Further drawings or details as are reasonable necessary to explain and amplify the Contract Drawings. If any of the information introduced changes or additions to the works, it should be covered by a CA’s instructing requiring a variation. Failure to provide the information caused delay and an event for extension of time and may also give rise to a direct loss and/or expense claim. It may also be grounds for termination if the event led to the suspension of the carrying out of the whole of the works for a continuous period. 

Under IC, there is no provision for other consultants to issue information direct to the contractor, this should be done through the CA and delay in providing the consultants information to the contractor would result in a delay on the part of the CA. 

Under ICD whereby the contractor is to provide the Contractors Design Documents, failure to supply this information does not entitle the contractor to an extension of time including failure to comply with a written request from the CA specifying a date by which the information should be provided. 

When it comes to subcontractor information, if it is a named subcontractor they will have an obligation to provide information to the CA in accordance to their subcontractor contract form. The subcontractor will be directly liable to the employer for any breach of the obligation to provide information and the employer will be able to bring a claim against them for any losses suffered. 

Now when it comes to instruction, only the CA has the power to issue instructions, if the employer gives an instruction other than through the CA this wouldn’t be effective under the contract and the contractor would be under no obligation to comply. But if the contractor did comply with the instruction, then under court law it may be decided that there was either an agreed amendment to the contract or that the instructed work is not part of the contract but a separate agreement between the contractor and employer, but these are of course very difficult to resolve so it is advised to avoid such instances. Now if the CA acts outside their authority, then again the contractor is under no obligation to comply but id the instruction provided is within the terms of the contract then the contractor must comply.

If an instruction is provided by the CA requiring a variation it must be provided in writing. Generally the contractor must comply with every instruction provided that its valid and comply as soon as is reasonably possible. There are, however, two exceptions to this, in cases where the contractor makes reasonable objection against the instruction by challenging the CA to specify the provision of the contract under which the instruction is given in writing and they also don’t need to comply if they believe that the instruction significantly effects the contractors design. If deliberately, however, the contractor does not comply with a written instruction, then the employer may employ and pay other to carry out the work and the employer is entitled to recover any additional costs from the contractor. 

Now lets look at variations, so often CA’s instructions require some variation to the works and only the CA has the power to order specific variations. All variations may result in an adjustment of the contract sum and give rise to a claim for an extension of time or for direct loss and/or expense. The CA may vary the works, add to or omit work or substitute one type of work for another or remove work already carried out. The CA may also issue an instruction to postpone work which may also give rise to a claim for an extension of time or direct loss and/or expense, if the suspension result in the work being suspended for a longer period than that stated in the contract particulars, then the contractor would have ground for terminating their employment.

Under ICD, instructions for a variation in respect of the contractors designed portion, will only be for an alteration or modification of the Employers Requirements, meaning the CA can’t make changed to the proposals after the contract has been entered into. If the contractor feels that an instruction effects the efficacy of their design, they have the right object and will not need to proceed with the work until they receive confirmation from the CA. 

Under IC, the CA may also instruct the contractor to open up completed work for inspection or arrange for testing of any work or materials, fixed or unfixed. The CA would of course typically do this if there are reasonable grounds for suspecting defective work or materials. The cost of carrying out tests will be added to the contract sum unless it was already provided for in the bills of quantities under a provisional sum unless the work is proven to be defective. Also the CA has the power to instruct for the removal of work, materials or goods from the site if they are defective. If the work is not defective, the contractor may be entitled to an extension of time and loss and/or expense. 

Now when it comes to work not forming part of the contract, the employer may engage others directly to carry out work that doesn’t form part of the contract while the main contractor is still in possession. If the contract has included for this requirements, then the contractor must permit the employer to execute such work or alternatively the employer will require the contractors consent to carry out such works. The employer will also have to make sure that they have the necessary insurance cover in respect of any act or neglect of the persons employed and any delay caused to the contractors work can lead to a claim for an extension of time.       

Now in terms of defects, following the rectification period the contractor is required to make good any defects which appear and are notified by the CA and the defects are limited to those that result from the works not having been carried out in accordance with the contract. Its important to note that the obligation to make good is limited to the defects notified by the CA, so the CA is expected to prepare a comprehensive schedule. If the CA, with the agreement of the employer, decides to accept any defective work then this should be confirmed by means of an instruction and an amount deducted from the contract sum. So once the CA is satisfied that all defects have been made good, they should issue a certificate to that effect as its a precondition requirement to issuing the final certificate. The contractors liability for defective works doesn’t end with the final certificate and they are still liable for losses suffered, but no longer have the right to return to site to correct the defects, this is where the rectification period is beneficial in providing the opportunity to remedy problems at a reasonable cost decided between the parties without having for either party to seek legal action. If the CA fails to notify the contractor of patent defects, then the employer may be looking to the CA for compensation for any losses. 

Comparison with SBC Contract:

So to sum up what I discussed today: