In December 2013, a review of the performance of the Public Works Contracts commenced and a report on the review was subsequently published by the Government Contracts Committee for Construction (the “GCCC”) in December 2014.
The Public Works Contracts were originally introduced in 2007 with the key aim of securing greater cost certainty and better value for money on public sector contracts, against a backdrop of significant cost over-runs on projects between the period 1994-2004.
It was expected that the average cost of contracts would increase by 10% after their introduction to reflect the increased risks being borne by the contractor. However, as the report identifies, the expected increase did not materialise, as soon after the introduction of the new suite of contracts the economic crisis hit and tender prices dropped significantly. The initial stages of the review found that the increased risk transfer was not being priced by tenderers and was then leading to increased claims during the dministration of the contracts.
A combination of factors appear to be at play, including the lack of proper project definition and identification of risks, the competitiveness of the tendering market leading
to abnormally low tenders and the lack of any informal dispute resolution mechanism leading to an adversarial rather than a co-operative relationship.
Whilst the GCCC have concluded that the Public Works Contracts have a significant role to play in the delivery of public sector projects, they have set out certain interim recommendations aimed at rebalancing the level of risk transferred to the contractor in recognition of the changed economic environment. They have also set out median term recommendations, which are to be further developed. The recommendations are to be introduced on a phased basis with continuing consultation with the industry and stakeholders.
Implementation of interim measures
In April 2015, details of the implementation of the interim recommendations to amend the Public Works Contracts were published.
These interim measures are as follows:
- reduce the level of risk being transferred by making the bill of quantities (the “BoQs”) the primary reference document for Employer-designed contracts;
- direct tendering of specialists where specialist works make up a significant proportion of the overall project value or where they have a significant impact on the long-term performance of the project. The purpose of this measure is to give the employer greater control of the quality and reduce the value of the contract for which the contractor has overall price responsibility;
- deter unsustainable pricing by developing a greater focus on quality criteria that are linked to the project at the tender stage; and
- include informal dispute resolution procedures to reduce the current volume of formal referrals under contracts.
Interim measure 1 – BoQs
Interim measure 1 will amend the existing situation where the Employer has the option to transfer the risk of quantities to the Contractor in PW-CF1, PW-CF3 and PW-CF5, by making the production of a BoQs mandatory for these contracts. The Employer will now retain the risk as the BoQs will be elevated to the level of the Works Requirements and will become the primary reference document in terms of pricing the contract at tender stage.
The proposed changes also mean that the Contractor will now be able to rely upon the BoQs to arrive at their tender sum and that the drawings and specification are to remain the primary reference documents for the purposes of delivering the finished project. The report notes that the all BoQs will be produced by a competent cost control
expert following the interrogation of the design. Given the elevated importance of the BoQs, it will be imperative that the appointment of the cost control expert is carefully
scrutinised to ensure that the Employer has sufficient contractual recourse to the expert in the event of the negligent provision of its services.
Interim measure 2 – Specialists
Interim measure 2 proposes an addition to the existing novation provision to allow for a separate tendering process by the Employer for specialists contractors who would then be nominated to the Main Contractor as project sub-contractors.
The tendered price for the specialist works will either:
- be included in the Pricing Document in advance of the Main Contract tender, if the specialist works tender is concluded prior to this tender; or
- by way of an adjustment to the Main Contractor’s tender sum in advance of setting the Contract Sum by means of substituting the specialist works tender sum in place of the pre-determined Prime Cost Sum.
Importantly, provisional or prime cost sums will only be permitted up to the point of the award of the Main Contract. Therefore the full cost of any nominated specialist must be determined in advance of the signing of the Main Contract. It is proposed that the standard CIF ‘Conditions of Sub-Contract (NN)’ will be the form of contract to be entered into between the Main Contractor and the specialists.
Interim measure 3 – Most economically advantageous tender
Interim measure 3, (expected to be implemented later than the other interim measures), proposes Most Economically Advantageous Tender (“MEAT”) award criteria with additional marks awarded for Works Items proposed in the Tender that exceed the minimum performance specification provided in the Employer’s Works Requirements. The report recognises that the most commonly used quality criteria often result in tenderers achieving very similar scores, with price then becoming the determining factor. This measure aims to overcome this issue by awarding marks for Works Items that are inextricably linked to Whole Lifecycle Cost of a project. The new measure will be mandatory on projects of €2m or greater.
Interim measure 4 – Dispute resolution
Interim measure 4 proposes to reform the existing dispute resolution procedures by introducing a process for engagement between the parties prior to the more formal
dispute resolution mechanisms. The current process, in particular the requirement for conciliation, has been criticised as being costly and time consuming. There are three amendments proposed:
- Amendment 1 (Applicable to PW-CF1 to PW-CF5 inclusive) proposes a contractual requirement for the parties to engage in an informal or ‘without prejudice’ process between upper level management prior to instigating the formal conciliation process. It will require parties to name individuals senior to the Employer’s representative and Contractor’s Representative to sit on a Project Board, which will be responsible for engaging in dispute resolution and will have the authority to reach settlements on behalf of the parties. The Project Board will meet every 25 working days to discuss disputes with the intent of resolving them.
- Amendment 2 proposes that for PW-CF1 – PW-CF4, with a contract value in excess of €10m, the Employer will, at tender stage, require the parties to appoint a standing conciliator called a Nominated Conciliator for the duration of the project prior to contract award. The Nominated Conciliator will attend at site to discuss
disputes referred by the Project Board and may make a recommendation to the parties prior to the referral of a dispute to the formal dispute resolution mechanisms.
- Amendment 3 proposes amendments to allow for the provision of adjudication in line with the Construction Contracts Act 2013.
The interim and median term measures are a step in the right direction for both the public and private sectors. The phased process for introduction and the level of
engagement with the industry and stakeholders is to be commended. This appears to reflect a more mature approach, which recognises the balance to be struck between achieving successful public sector projects and ensuring a sustainable construction industry.
Whilst we have focused on the interim measures in this note, the median term measures are more innovative and forward-looking, including, by way of example, the increased use of building information modelling and opportunities to take into account life cycle costs and environmental and social considerations. We will report further on these measures as the strategy for their implementation is developed.