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CONTRACTS

Several contracts are available to Kelham Island Developments (KID), including the JCT Standard Building Contract (SBC) and NEC 4 Engineering Construction Contract (ECC). Due to KID’s requirements, each form of contract will provide a variety of benefits to the client. These benefits vary from cost certainty, strict time management and high-quality control depending on the form of contract chosen. 

NEC 4 Engineering Construction Contract

  • Under NEC ECC Option C the client’s contractual arrangements are to provide the main contractor with an employer’s brief to allow them to start developing a design which meets this brief in anyway they see fit. During the second tender stage the client and preferred tenderer will have to collaborate to increase the clarity of the employers’ requirements and to come to a target cost. This target cost has to be agreed upon due to the nature of NEC ECC Option C being based upon using the pain and gain mechanism. The target cost will be the sum of each activity within the activity schedule, this also requires collaboration between both KID and the preferred tenderer. These contractual arrangements have to be agreed upon before the contract can be created and construction can start. 
     

  • The client and contractor must agree upon the schedule of cost components to produce the defined and disallowed costs. This allows the clients project manager to price the works done to date for every interim valuation.  

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  • The main contractors’ contractual arrangements range from carrying out all the design work as well as completing the works in the agreed upon time within the target cost. Due to the procurement route chosen all the design risk is put onto the main contractor. This gives the main contractor design freedom as long as they meet the employers’ requirements. 

JCT SBC

  • JCT SBC suite contracts provide a variety of choices for clients to use to utilise and manage their construction project. For KID’s proposed development a JCT SBC with Quantities (JCT SBC/Q) will be discussed in terms of its applicability to the project. 

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  • JCT SBC/Q aims to provide the client with the ability to maintain cost certainty and enhance quality provision. Time is less of a priority using this standard form of contract due to the inclusion of a bill of quantities taking time to be produced pre-tender. 

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  • A JCT SBC/Q form of contract is suited to complex projects due to the high degree of detail in which the bill of quantities provides the main contractor. As the proposed development to KID for Kelham Island is planning on being a simple mixed-use property the need for specificity within the brief given to the main contractor won’t need to meet the level of detail a bill of quantities provides. However, it should be noted that KID should provide an in-depth brief to the main contractor if they proceed with a design and build procurement route to receive the quality in which they desire. 

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  • Cost certainty is a major priority for KID, a JCT SBC/Q provides great cost certainty due to the specificity of items the client can get priced by the main contractor during the tender stage. This will provide KID with cost certainty before the project has begun compared to other forms of contract. Although, other standard forms of contract provide the main contractor incentives to decrease their construction costs whilst still adhering to the client’s brief. For example, NEC 4 ECC Option C includes a pain and gain share of any increases or decreases of the final cost respectively. This encourages the main contractor to complete the project under the target cost so both the client and main contractor share the savings. 

Considering the risk transferred to the main contractor through the use of a Design & Build procurement route, please see the following advisable secondary clauses to increase fairness within the contract;


•    X-Clause 7 Delay Damages – KID should include X 7.1 and X 7.2. This is to protect KID for delays caused by the main contractor and the value of these will be based upon the loss of income caused by this delay. However, X 7.2 increases fairness to the main contractor for the client to reimburse the main contractor for the damages they pay before the date for completion was altered. 


•    X-Clause 14 Advance payment to contractor – if requested the main contractor should have access to an advance payment to assist their cash flow.


•    X-Clause 15 The contractors design – as the main contractor is taking on higher amounts of risk due to the Design & Build procurement route, offering provisions for a reduction in design risk may result in lower tender costs. For example, including X-Clause 15.3 and 15.5.


•    X-Clause 16 Retention – this should be included to protect the client from poor quality provided by the main contractor. 


•    X-Clause 20 Key performance indicators – to offset the prioritisation of cost and time over quality, the inclusion of key performance indicators (KPI’s) must be utilised to manage the main contractor and ensure a certain level of quality is ascertained. 

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