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NEC3 - Limited Options?

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Driver Trett Spring Seminar

April 2013

What we do
Our dispute and advisory team, delivering high-level commercial and claims support, procurement advice, contractual and strategic advice, and the full range of planning and programming services. Our project controls team, delivering commercial management, quantity surveying, and planning services throughout the project lifecycle. Provision of a range of specialised services based around investigative and forensic skills. Working with clients within the financial sector including banks, funders, investors, accountants, and lawyers Provision of project management alongside transaction advisory services to clients for the delivery of concession projects using PFI, PPP and DBFO procurement options..

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GROUP OVERVIEW

Global construction consultancy, providing construction and engineering focused services since 1978 Stock exchange listed plc. AIM (2005) Market leader in expert witness, planning, commercial and disputes. 170 highly trained and qualified UK consultants Over 300 global staff Network of offices across Europe, Africa, Americas, Asia pacific, and the Middle East Global reach with projects undertaken worldwide

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

DRIVER GLOBAL PRESENCE

AGENDA

1. Introduction 2. Defects Before Completion 3. Labour Productivity 4. Cash Flow and Activity Schedules 5. Post Completion Works 6. Termination

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

Spring 2003 Limited Options

1. Introduction

1. INTRODUCTION
RETURN TO FAIR ISLE POWER STATION The government has decided that it needs to increase the UKs Power output capacity, and as a result has made funds available to overhaul and extend the capacity of existing plants. The Employer, Ever Ready Power PLC has a budget of 300M for the additional boilers, generators and replacement cooling towers. The work must be completed in 24 months, to ensure that they will qualify for government subsidies in the future.

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

1. INTRODUCTION
THE CONTRACT A contract in the NEC3 form has been let to the Contractor, under Option C Target Cost. The Target is 300M, and has been let on the basis of 50/50 gain share below the Target, and 100% pain share to the Contractor above the Target. The Target cost is now a Guaranteed Maximum Price, So Ever Ready now have no worries about the project.

1. INTRODUCTION
THE CONTRACTORS BID The Contractor, Springfield Civil Engineering PLC have won the project, based on their significant profile in the Power Sector, and have built their price up in the following way, so they also have no worries

Risk OH&P (the Fee)

Tendered Total of the Prices 300M

Defined Cost (Schedule of Cost Components)

Defined Cost (Sub-Contractors)

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Driver Trett Spring Seminar

April 2013

1. INTRODUCTION
What does that mean in practice?
Total Paid by Employer 50:50 Contractors share of Under /over spend

CONTRACTOR : EMPLOYER SHARE RATIO 100:0

100% Target 50% 50%


Employers share of Underspend

Defined Cost
Note: Option D Bill risk = Employer

1. INTRODUCTION

SCENARIO Work is well under way, and approximately half way through the 2 year programme. The Contractor has submitted interim applications 1 to 12 inclusive and been paid his defined cost to date.

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

SPRING 2003 LIMITED OPTIONS

2. Defects Before Completion

2. DEFECTS BEFORE COMPLETION


SITUATION During a routine inspection of the works the Supervisor has identified a serious defect: There is evidence of cracking in the concrete in areas where the reinforcing bars are close to the surface, the defect is widespread and affects the new cooling towers extensively. The cause is not known. It could be materials, workmanship, design or a combination of each.

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


SITUATION The Supervisor notifies the Contractor of the results of his inspection: CONTRACT CLAUSES: 40.3 The Contractor and the Supervisor each notifies the other of each of his tests and inspections before it starts and afterwards notifies the other of its results. The Contractor notifies the Supervisor in time for a test or inspection to be arranged and done before doing work which would obstruct the test or inspection. The Supervisor may watch any test done by the Contractor. CONTRACT CLAUSES: 43.1 The Contractor corrects a Defect whether or not the Supervisor notifies him of it.

2. DEFECTS BEFORE COMPLETION


CONTRACTOR We have inspected the defect and identified a specialist concrete repair company that have done this type of work before. They will grind out the affected sections of concrete and replace with an epoxy repair product, grind back and re-finish, and provide an insurance backed 20 year warranty. The method of repair has been submitted to the PM, and he has issued PMI 310, accepting the methodology of the repair. The repair work is well under way and nearing completion.

NEC3 Limited Options?

Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


CONTRACTOR Interim App. No. 13 submitted. Request is made for Gross Sum of 250.7M, made up of all Defined Costs incurred to date, plus the fee. Sum paid to date is 240M, leaving a balance of 10.7M this month, less retention and excluding VAT.
Target 300M

Risk Fee)

App 13 250M

Defined Cost

2. DEFECTS BEFORE COMPLETION


EMPLOYER Interim App. No 13 received. The Contractors records are inspected and show that 2.5M appears to have been paid to the specialist subcontractor undertaking the repairs to the concrete. This is wrong!

Why should we pay for their mistakes? These costs are Disallowed!
Target 300M App 13 250M

Fee

Paid 247.5 M

Defined Cost

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Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


EMPLOYER We are going to deduct 2.5M as this is disallowed cost under Clause 11.2(25)

11.2(23) Defined Cost is The amount of payments due to Subcontractors for work which is subcontracted without taking account of amounts deducted for Retention, Payment to the Employer as a result of the Subcontractor failing to meet a Key Date, The correction of defects after completion, Payments to Others and The supply of equipment, supplies and services included in the charge for overhead cost within the Working Areas in this contract And The cost of components in the Schedule of Cost Components for other work Less Disallowed Cost

2. DEFECTS BEFORE COMPLETION


CONTRACTOR Not disallowed cost as does not fall within the scope of Clause 11.2(25). The defect was identified, and the work carried out before Completion; Notices were properly served; The PM accepted the methodology. We should therefore recover all of the costs submitted in Interim App. No. 13.

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Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


WHAT DOES THE CONTRACT SAY? Clause 11.2(25):
Disallowed Cost is cost which the Project Manager decides: is not justified by the Contractors accounts and records, should not have been paid to a Subcontractor or supplier in accordance with his contract, was incurred only because the contractor did not follow an acceptance or procurement procedure stated in the Works Information or give an early warning which this contract required him to give

Clause 11.2(25): continued


and the cost of correcting Defects after Completion, correcting Defects caused by the Contractor not complying with a constraint on how he is to Provide the Works stated in the Works Information Plant and Materials not used to Provide the Works (after allowing for reasonable wastage) unless resulting from a change to the Works Information, resources not used to Provide the Works (after allowing for reasonable availability and utilisation) or not taken away from the Working Areas when the Project Manager requested and preparation for and conduct of an adjudication or proceedings of the tribunal

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Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


CONCLUSIONS Is the correction of defects BEFORE Completion a disallowed cost? The cause of the Defect is not known here, it may be workmanship or materials, it may be design, and hence not a defect. Or a combination of all 3. If its a combination, should we apportion the costs? What if the same subcontractor who did the concrete, did the repair himself? Should the Contractor have deducted the repair costs from the concrete subcontractor if this is possible?

2. DEFECTS BEFORE COMPLETION


CONCLUSIONS Contract does not provide clear answers unless the cause is clear We have not been told whether the contractor used a method of construction different to that specified by the PM. If he used a different method to save costs, it could be argued as disallowed cost. If not, the Contractor may well be entitled to additional cost as a result of his own workmanship. If an Employer wants a Contractor to take responsibility for costs associated with correcting defects before completion, a Z clause could be inserted.

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Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


OTHER FORMS NEC 3 Option D & E Provisions are the same as Option C, so the same result will apply. NEC 3 Option A & B Risk associated with defect correction is with the contractor. Contractor gets paid sums included in the Activity Schedule. Unless the repairs are a CE No payment. FIDIC - Does not have a pre-drafted target cost option. However in all books (red, yellow and silver), the contractor would be responsible for remedying defective work at its own cost.

2. DEFECTS BEFORE COMPLETION


OTHER FORMS IChemE Burgundy Book Target Cost Contract The PM decides whether something is a defect or not. PM notifies the Contractor makes good the defect, if required submitting proposals first. The Contractors Cost of making good a Defect shall form part of the Actual Cost, except where: A Defect occurs in an item of the Plant supplied by a Subcontractor and the Defect is made good by the Subcontractor without further cost to the Contractor, or the cost of making good the Defect is paid by the Subcontractor to the Contractor; or

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Driver Trett Spring Seminar

April 2013

2. DEFECTS BEFORE COMPLETION


OTHER FORMS IChemE Burgundy Book Target Cost Contract (continued) A Defect is due to the failure of the Contractor to exercise the degree of skill and care which would ordinarily be exercised by properly qualified and competent persons engaged in the same or a similar business to that of the Contractor On the basis of the above, the cost associated with Defects arising BEFORE completion are disallowable in the case of Contractor negligence.

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Driver Trett Spring Seminar

April 2013

SPRING 2003 LIMITED OPTIONS

3. Labour Productivity

3. LABOUR PRODUCTIVITY
SITUATION The contractor installed a clocking-in machine for his operatives at the entrance to the complex. Operatives are paid based on the time worked as recorded on this clocking-in machine. The Employer has installed a Safety Gate turnstile at the entrance to the construction site. Operatives use a swipe card to gain access through the turnstile.

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Driver Trett Spring Seminar

April 2013

3. LABOUR PRODUCTIVITY

3. LABOUR PRODUCTIVITY
SITUATION The distance between the Contractors clocking-in machine and the Employers safety turnstile is a 30 minute walk. The Contractors village, cafeteria and toilets are located outside of the complex. Approximately 3 hours in a typical 9 hour day are spent walking between the entrance to the complex and the site boundary. The contract does not state which machine is to be used to record time.

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Driver Trett Spring Seminar

April 2013

3. LABOUR PRODUCTIVITY
CONTRACTOR
Time is recorded from the clocking-in machine at the entrance to the complex and these are the hours billed as Defined Cost, and have been for a year.

Defined Cost under Clause 11.2(23) is:


The amount of payments due to Subcontractors for work which is subcontracted without taking account of amounts deducted for retention, payment to the Employer as a result of the Subcontractor failing to meet a Key Date, the correction of Defects after Completion, payments to Others and the supply of equipment, supplies and services included in the charge for overhead cost within the Working Areas in this contract and the cost of components in the Schedule of Cost Components for other work less Disallowed Cost.

3. LABOUR PRODUCTIVITY
CONTRACTOR I claim my labour costs using the Schedule of Cost Components, correctly under the contract. This includes the time walking between the complex entrance and the construction site. Also, the clocking-in machine was within the Working Area as defined at Clause 11.2(18)

The Working Areas are those parts of the working areas which are: necessary for Providing the Works and used only for work in this contract

unless later changed in accordance with this contract.

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Driver Trett Spring Seminar

April 2013

3. LABOUR PRODUCTIVITY
CONTRACTOR The schedule of Cost Components sets out that People costs to be included in Defined Cost are for:
People who are directly employed by the Contractor and whose normal place of working is within the Working Area. People who are directly employed by the Contractor and whose normal place of working is not within the Working Area but who are working in the Working Area.

All time incurred once the operatives have clocked-in is reimbursable by the Employer.

3. LABOUR PRODUCTIVITY
EMPLOYER This is nonsense. Walking time through the complex is clearly a disallowed cost. Clause 11.2(25). While the operatives are walking through the complex they are resources not used to Provide the Works Disallowed Cost is intended to prevent the Contractor using his resources inefficiently. In this case, the operatives were lazy and walked too slow. They seemed to walk at a fast pace when there was food available, but ambled slowly back to the workface. The Contractor made no attempt to hurry them along and insist on efficient working.

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Driver Trett Spring Seminar

April 2013

3. LABOUR PRODUCTIVITY
EMPLOYER The Contractors clocking-in records, used under Clause 52.2 to help substantiate Defined Cost show an additional 3 hours per day on average to the records from the safety turnstile. This is Disallowed cost and I am not liable to pay any more than those hours recorded in my own records.

3. LABOUR PRODUCTIVITY
CONCLUSIONS There is no clear answer to who is right and who is wrong. If there is a clocking-in procedure, this would be best set out in the WI The Site and Working Area in Contract Data Part 2 need to be defined properly. If not the Contractor could pay for the consequences Disallowed cost is designed to motivate the Contractor to use resources efficiently. If not, the appropriate cost can be disallowed by the Project Manager. Schedule of Cost Components: 11 Wages, salaries and amounts paid by the Contractor for people paid according to the time worked while they are within the Working Areas. The Contractor needs to understand the gain / pain share mechanism. Gain is worth 50p, pain is worth 1.

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Driver Trett Spring Seminar

April 2013

3. LABOUR PRODUCTIVITY
OTHER OPTIONS Options D & E are the same situation. Under options A & B of NEC 3, the risk of downtime is borne by the Contractor, unless a CE can be identified which caused the downtime. Under MF1 this was tested in Strachan Henshaw v Stein Industrie (UK) Ltd 1996. The Contractor failed, as the re-located welfare site, was not a variation. This was a fixed price contract, so not applicable as a principle. FIDIC - In all books (red, yellow and silver), the imposition of a safety gate by the employer that was not specified in the contract could be a Variation. Contractor would then be entitled to recovery. An alternative possibility is that this changes the contractors right of access to the Site. If so, it would be a claim under Clause 2.1.

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Driver Trett Spring Seminar

April 2013

SPRING 2003 LIMITED OPTIONS

4. Cash Flow and Activity Schedules

4. CASH FLOW AND THE ACTIVITY SCHEDULE


SITUATION The Subcontract between the Contractor and the Electrical Subcontractor is NEC 3 Option A (Activity Schedule). The subcontract works comprised of the electrical and control works to the station control building, including all control work necessary for the operation of the power station.

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Driver Trett Spring Seminar

April 2013

4. CASH FLOW AND THE ACTIVITY SCHEDULE


SITUATION The Activity Schedule included 3M, which is sub-divided into 3 activities: 1st fix 1M 2nd fix 1M Final fix 1M The subcontractor claimed a percentage of each sum on a monthly basis but the Contractor has refused to certify the amounts claimed.

4. CASH FLOW AND THE ACTIVITY SCHEDULE


Indicated on the programme, and in the activity schedule are just three long activities, stretching over months of the project. Each is complex and must be fully completed.

Electrical work Electrical 1st Fix Electrical 2nd Fix Electrical Final Fix

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Driver Trett Spring Seminar

April 2013

4. CASH FLOW AND THE ACTIVITY SCHEDULE


SUBCONTRACTOR The Activity Schedule set out three activities and sub-divided the total sum. I have claimed a percentage of the sum due taking into account the percentage of work completed at the time of the interim application. I have provided the Contractor with programmes updated for progress and all records to substantiate the sums claimed under the contract. The Contractor is refusing to certify the amounts claimed on the basis that we have not yet provided the O&M Manuals and As-Built drawings. This is ridiculous as our works are almost complete.

4. CASH FLOW AND THE ACTIVITY SCHEDULE


SUBCONTRACTOR We had overlooked the fact that the final operation of the station Control Building was linked to the completion of other aspects of the power station such as the cooling towers and Water Treatment Facility. Until these parts are complete we cant fully complete the control works in the Station Control Building. We are being deprived of essential cash-flow and under Clause 10.1, the Contractor should pay us.
Cl. 10.1 The Contractor, and the Subcontractor shall act as stated in this contract and in a spirit of mutual trust and co-operation.

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Driver Trett Spring Seminar

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4. CASH FLOW AND THE ACTIVITY SCHEDULE


CONTRACTOR The Subcontractor is not entitled to any more money at this time. Under NEC 3 Option A, the Subcontractor must have completed the work before he is paid. The Subcontractors cash flow is therefore linked to the completion of the activity in the activity schedule, not the percentage completed. We acknowledge that the works are almost complete but as the O&M Manuals and As-Built Drawings are not handed over, we do not have to pay. It is the Subcontractors own fault that he had not taken account of the links between the control installation and the cooling tower works within the Activity Schedule. It is true that he cannot complete the control works until other aspects of work have been completed. I will not make any further payment for the control building works until all aspects of the work are fully completed. According to the current programme, this will be in approximately 12 months.

4. CASH FLOW AND THE ACTIVITY SCHEDULE

CONTRACTOR

The Main Contract Programme

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Driver Trett Spring Seminar

April 2013

4. CASH FLOW AND THE ACTIVITY SCHEDULE


CONCLUSIONS The Contractor is within his rights to withhold payment until all works associated with the activity are complete. The Works Information defines what completion is. The Activity Schedule (AS) is linked to the programme. A Contractor must ensure that the AS is broken down into sufficient detail to assist with cash flow. Always aim to ensure the AS is broken down into activities that can be completed within 1 month to ensure the cash in each monthly assessment is maximised.

4. CASH FLOW AND THE ACTIVITY SCHEDULE


CONCLUSIONS Payment should have been split into smaller activities, that are of max 4 weeks duration, and are defined so as to allow simple identification of completion status.

Electrical 1st Fix Zone 1 Elec: H/L cable trays Zone 1 Elec: Conduit drops Zone 1 Elec: Conduit Zone 1 Elec: Submains Distribution Elec:Fixing Control panels

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Driver Trett Spring Seminar

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4. CASH FLOW AND THE ACTIVITY SCHEDULE


CONCLUSIONS It is the Subcontractors Activity Schedule and if too restrictive or contains errors, the Subcontractor usually takes the pain, not the Contractor. Often the supply chain will have to be paid for commercial reasons, leaving the Contractor at a cash disadvantage. It is essential for the Works Information to define exactly what the finished state of an activity is. The QS must liaise with the planner at tender stage to ensure the schedule replicates the intended programme.

4. CASH FLOW AND THE ACTIVITY SCHEDULE


OTHER FORMS NEC 3 Option B (Bills of Quantities) the problem does not exist. On Options C, D & E (Target & Cost) reimbursable, defined cost is used monthly. The traditional approach of using bills of quantities means a contractor is paid as the works proceed. The requirement to fully complete an activity before payment is due does not apply under Option B. FIDIC All books (red, yellow and silver) deal with the main contract relationship and if subcontractors are stated to be used in the contract, they are domestic subcontractors of the main contractor. FIDIC principles are to allow interim payments for work undertaken i.e. on account payments are foreseen. IChemE Yellow book s.18 & s.19 refers.

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Driver Trett Spring Seminar

April 2013

Spring 2003 Limited Options

5. Post Completion Works

5. POST COMPLETION WORKS


SITUATION An agreement was reached between the Project Manager and the Contractor that some of the non critical works not needed for handover were to be deferred until after Completion. A certificate of Completion was issued to ensure the Employer complied with Govt. Targets. Works included access roads and non critical facilities. There was also a defect in the external concrete to the water treatment plant which required rectification. This Defect was notified. The Contractor has claimed for site based labour incurred after Completion, including steel fixers and concrete workers. The Project Manager has deducted 500k for costs incurred after Completion.

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Driver Trett Spring Seminar

April 2013

5. POST COMPLETION WORKS


EMPLOYER We are entitled to deduct the sums incurred for works carried out post Completion. Under Clause 11.2(25), correcting defects after Completion is a Disallowed Cost. A Completion Certificate was issued and the corrective works were carried out post completion. The only reason they were still on site, was because they were late and had defects to rectify. We are not paying them for work done for that period. We cannot keep incurring costs month on month, the certificate of completion has turned off the tap.

5. POST COMPLETION WORKS


CONTRACTOR We accept that the cost incurred in rectifying the defective concrete is a disallowed cost, but the Project Manager has disallowed ALL the costs for ALL post Completion work. The work scope that was agreed to be carried out post Completion is not a disallowed cost. The cost of delivering the Works post Completion within the Working Areas forms part of the Defined Cost and Price for Works Done to Date.

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Driver Trett Spring Seminar

April 2013

5. POST COMPLETION WORKS


CONTRACTOR The Schedule of Cost Components allows for recovery of defined cost for the following: Cost Cost Cost Cost associated associated associated associated with with with with the employment of labour (People 1) the equipment (Equipment 2) materials purchased (Plant & Materials 3) subcontractors engaged (Clause 26)

None of these items distinguish pre or post completion. The contract, including the Schedule of Cost Components makes no distinction between pre and post Completion works. I am entitled to recover defined cost for all post completion works excluding the defective concrete.

5. POST COMPLETION WORKS


CONCLUSIONS The commercial position:
Target 300M App 23 298M

Fee

Paid 285 M

Defined Cost

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Driver Trett Spring Seminar

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5. POST COMPLETION WORKS


CONCLUSIONS Any change of sequence or timing, is a compensation event. The works agreed to be carried out later could simply be omitted by issue of a CE, and then dealt with under a separate agreement. The costs for rectification of the concrete are however disallowed costs under clause 11.2(25). The costs of the remaining Works carried out post Certificate of Completion are recoverable. The access road and non critical facilities are Works contained within the Works Information and within the Working Area.

5. POST COMPLETION WORKS


CONCLUSIONS The assessment of Defined Cost and the Price for the Works Done to Date does not distinguish between Works carried out prior to and post Completion. Consider LADs Clause 50.1 assessments continue until 4 weeks after the Defects Certificate is issued.

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Driver Trett Spring Seminar

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5. POST COMPLETION WORKS

OTHER FORMS Under Options A & B, payment is also made for the activities completed and the work carried out month on month. There is no provision to stop these processes when completion has been certified. FIDIC - In all books (red, yellow and silver), contractor would be responsible for remedying defective work and / or completing works post handover (i.e. issue of Taking Over certificate) at its own cost unless subject to an instructed Variation to change sequence / timing, which is not the case here IChemE Schedule 19 will define, after takeover, usually monthly

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Driver Trett Spring Seminar

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Spring 2003 Limited Options

6. Termination

6. TERMINATION
SITUATION Following a number of protracted disputes about payment, the Contractor decided to suspend the works, and refused to carry out further post completion activities. The subcontractor has not been paid the for significant sums that relate to incomplete activities. Work ground to a complete halt, and the Employer has decided to utilise other contractors to finish the remaining scope and to clear any remaining Defects. The Employer has employed the Subcontractor directly, to complete the works.

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6. TERMINATION
CONTRACTOR The works were completed, you certified it as such. Constantly withholding our money is not acceptable, we have had enough, we are off and not coming back until you pay! Your PM instructed us to defer works to post completion, 4 months ago, but has not yet formally instructed us to go back . The Contractor decides to terminate and uses reason R19: Clause 91.6 If the Project Manager has instructed the Contractor to stop or not to start any substantial work or all work and an instruction allowing the work to re-start or start has not been given within 13 weeks. The Contractor may terminate if the instruction was due to a default by the Employer(R19) and Either party may terminate if the instruction was due to any other reason.

6. TERMINATION

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6. TERMINATION
EMPLOYER The works were not completed, I am fed up with you lot, you are fired! No further payments will be made, and I will finish the job myself. The Employer has checked back through his paperwork, and realised that no acceptance was ever issued for the Electrical Subcontractor. A 4 week notification of this matter was raised 5 weeks ago, and the Contractor simply ignored the letter as the subcontractor had been working and being paid through the contract for over 6 months.

6. TERMINATION
EMPLOYER The Employer gives notice to terminate under Clause.91.2
The Employer may terminate if the Project Manager has notified that the Contractor has defaulted in one of the following ways and not put the default right within 4 weeks of the notification

Appointed a Subcontractor for substantial work before the Project Manager has accepted the Subcontractor (R13).

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6. TERMINATION

6. TERMINATION
NOTICES The Contractor gives notice of termination by email on 18 April. Simultaneously: The Employer gives a notice by email on 18 April that crosses in cyberspace

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6. TERMINATION
TERMINATION TABLE
TerminatingParty TheEmployer Reason AreasonotherthanR1 R21 Procedure P1andP2 AmountDue A1,A2andA4

R1R15orR18 R17orR20 R21 TheContractor R1R10,R16orR19 R17orR20

P1,P2andP3 P1andP3 P1andP4 P1andP4 P1andP4

A1andA3 A1andA2 A1andA2 A1,A2andA4 A1andA2

6. TERMINATION
CONTRACTOR
TerminatingParty TheContractor Reason R1R10,R16orR19 Procedure P1andP4 AmountDue A1,A2andA4

Procedures P1 & P4 apply: P1 The Employer may complete the works and may use any plant and materials to which he has title. P4 The Contractor leaves the working areas and removes the equipment Amount Due: A1 Includes; amount due for normal payments, defined cost of plant & Material, other defined costs reasonably incurred, amounts retained by the Employer A2 The forecast defined cost of removing the equipment A4 The Direct fee percentage applied to any excess of the total of the prices at the contract date over the PWDD. Clause 93.4 The Contractors share

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6. TERMINATION
EMPLOYER
TerminatingParty TheEmployer Reason R1R15orR18 Procedure P1,P2andP3 AmountDue A1andA3

Procedures P1, P2 & P3 apply: P1 P2 P3 The Employer may complete the works and may use any plant and materials to which he has title. The Employer can instruct the Contractor to leave site, remove any plant or materials and assign any subcontracts to the Employer The Employer can use any of the Contractors equipment to finish and the Contractor must collect it when requested.

Amount Due: A1 A3 Includes; amount due for normal payments, defined cost of plant & Material, other defined costs reasonably incurred, amounts retained by the Employer A deduction of the forecast of the additional cost to the Employer of completing the whole of the works

Clause 93.4 The Contractors share

6. TERMINATION
SCENARIO The Contractors termination options are limited, as Reasons 1 to 10 are all insolvency related. Non payment is R16, both parties released from performance by law is R17 and R19 relates to on-going suspension of the works due to an Employer default, as does R20 relates to stopping work for more than 13 weeks for any other reason. The Employers options are much more varied. Including defaults such as failing to provide a bond. Although the PM notifies such matters as defaults, after 4 weeks, the final termination notice can be issued.

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6. TERMINATION
SCENARIO Both parties have now commenced the procedure to terminate the contract, each blaming the other, and on these facts, both arguments may well have merit. The delta between the parties will run into tens of millions. Dispute resolution procedures will apply, even though the contract is terminated. In this case they will certainly be needed.

6. TERMINATION
SCENARIO The Project Manager must now certify that termination has occurred: Clause 90.1 If either Party wishes to terminate the Contractors obligation to Provide the Works, he notifies the Project Manager and the other Party giving details of his reason for terminating. The Project Manager issues a termination certificate to both parties promptly if the reason complies with this contract. How will he choose, if he considers both are valid?

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6. TERMINATION
The Project Managers Inbox:

6. TERMINATION
OTHER OPTIONS The procedure under Options C & D also requires an assessment of any pain share or gain share that the Contractor will be entitled to Clause 93.6 Under A, B, E & F this does not apply Key difference in most other forms of contract, a two strikes rule applies. There is usually a first termination notice, followed by a second, confirming final termination. In NEC3, if the Project Managers default notice for many issues goes unchallenged or without remedy, the Employer may terminate on one notice.

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