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EGB482 (Week 6)
Construction Contract models and tendering
| Question | Answer |
|---|---|
| Various contracting models for construction projects - Traditional/adversarial contracting | 1Construct-only 2Design & construct 3Managing contractor 4Construction management 5Design, Build, Operate (DBO) 6Design, Build, Operate, Maintain (DBOM) 7Build, Own, Operate (BOO) 8Build, Own, Operate, Transfer (BOOT) 9Public Private Partnerships (PPP) |
| Various contracting models for construction projects - Fast-track contracting | - Engineer, Procure, Construct (EPC) - Engineer, Procure, Construction - Management (EPCM)Cost Plus - Early Contractor Involvement (ECI) |
| Various contracting models for construction projects - Relationship contracting | - Partnering - Alliance contracting - Collaborative contracting |
| What is the difference between the contracting models? | - What work or services is the contractor being asked to perform? - How will the contractor get paid for doing the work or services? - What risks will the contractor be expected to carry? |
| Traditional contracting - Construct-only contract - Building to a design supplied by the principal - Using materials specified by the principal or its design consultant | - Choosing subcontractors - Appointing subcontractors - Often fixed price - Responsible for construction to meet principal’s design and specification |
| Traditional contracting - Design & construct contract | - Detailed design and engineering - Specifying materials - Building - Choosing subcontractors - Appointing subcontractors - Often fixed price - Responsible for design and construction to meet principal’s project requirements |
| Fast-track contracting - Engineer, procure & construct contract (EPC) | - Detailed design and engineering - Specifying and procuring materials - Choosing and appointing subcontractors - Often fixed price - Full turnkey responsibility |
| Fast-track contracting - Engineer, procure and construction management (EPCM) (1) | - Detailed design and engineering - Specifying materials - Managing tender process for procuring materials and work package contractors / trade contractors (on behalf of principal) - Project management and administration of work package contracts |
| Fast-track contracting - Engineer, procure and construction management (EPCM) (2) | - Usually paid on cost-reimbursable basis - Responsible for the work it directly carries out, including managing work package contractors, but not responsible for their work or for the project meeting schedule or budget |
| Fast-track contracting for energy & resources major projects | Feasibility study => Front end engineering design (FEED) => EPCM /EPC |
| Relationship contracting - Partnering | - Overarching agreement between principal and contractor to work together on a collaborative basis - May have a variety of individual contracts between them |
| Relationship contracting - Alliancing | Contractual for a project sets out shared approach to risks |
| Relationship contracting - Collaborative contracting | Various approaches – may include more traditional contracts with a collaborative overlay |
| The organisation Standards Australia produces a variety of documents, including standard specifications and procedures - Example: | AS5100.1:2017 – Bridge design, Part 1: Scope and general principles |
| Example: AS5100.1:2017 – Bridge design, Part 1: Scope and general principles - The Standards Australia website says: • On their own, standards are voluntary. There is no requirement for the public to comply with standards. However, State... | and Commonwealth governments often refer to Australian Standards® (AS) or joint Australian/New Zealand Standards (AS/NZS) in their legislation. • When this happens, these standards can become mandatory |
| Standards Australia also publishes standard forms of contract - Example: | AS4902-2000 – General conditions of contract for design and construct |
| Standards Australia also publishes standard forms of contract - These are voluntary – a person who needs to choose a form of contract to use for a project can... | choose to use the most suitable Australian Standard contract, or a completely different standard form of contract, or write one specifically for the project |
| Popular Australian Standards Contracts - AS4000-1997 •For major works, for construct-only delivery | •Suitable for a wide range of electrical, civil and mechanical engineering, as well as building, contracts, where a ‘superintendent’ is engaged to administer the contract •Updates AS2124, but some prefer to use the old version |
| Commonly used international standard forms of contract for civil and process engineering - International Federation of Consulting Engineers (FIDIC) forms “rainbow suite” | • FIDIC 2017 Red Book – Construction contract • FIDIC 2017 Yellow Book – Plant & Design-Build contract • FIDIC 2017 Silver Book – EPC/Turnkey Contract • FIDIC 2019 Emerald Book – Conditions of contract for underground works |
| Commonly used international standard forms of contract for civil and process engineering - New Engineering Contract (NEC4 2017) | A series of contracts designed to manage a project, particularly a civil engineering project, from start to finish, with the aim of preventing costly disputes |
| Role of the contract administrator | The contract administrator plays a central role in the administration of the construction contract |
| The contract administrator may be referred to as: | • Superintendent • Engineer • Architect |
| The more detailed wording in clause 23 of AS 2124 helps us to interpret what is meant by... | “reasonably and in good faith” in clause 20 of AS 4000 and AS 4902 |
| AS 2124 – 1992 - The Principal shall ensure that at all times there is a Superintendent, and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent: | acts honestly and fairly; Acts within the time prescribed under the Contract or where there is no time prescribed within a reasonable time; and Arrives at a reasonable measure or value of work, quantities or time (cl 23) |
| AS 4000 – 1997 & AS 4902 - 2000 | The Principal shall ensure that at all times there is a Superintendent, and that the Superintendent fulfils all aspects of the role and functions reasonably and in good faith (cl 20) |
| Contract administrator wears two hats - Contract administrator may carry out two distinct sets of duties – | those as principal’s agent and those as a certifier |
| Contract administrator wears two hats - At common law: • When carrying out duties as principal’s agent, the contract administrator is permitted to act in the interests of the principal | • When carrying out duties as a certifier, common law has shown that the contract administrator has a duty to act “fairly and justly and with skill to both parties to the contract” (Pernini Corp v Commonwealth of Australia [1969]) |
| Contract administrator wears two hats - Some standard forms require the contract administrator to act... | impartially when carrying out all duties under the contract (AS4000 & AS4902, clause 20) |
| Contract administrator’s two hats - Principal’s agent | - Direction to clarify discrepancies in contract documents - Direction to rectify defective work - Direction to suspend carrying out the work under the contract - Direction to vary the work under the contract |
| Contract administrator’s two hats - Certifier | - Assessing payment claims and issuing payment certificates - Assessing and directing extensions of time - Valuing or pricing variations - Deciding when to issue certificates of practical completion and final completion |
| Contract administrator’s balancing act | - The contract administrator owes legal liability to the principal in his or her contract (contract of appointment) - Does the superintendent owe legal liability to the contractor? |
| Independent certifier | - Duty to act impartially - Duty of care? |
| Agent of the Principal | - Paid by Principal - Expectations from Principal - Representing Principal's interests? |
| The tender process is the most common method of... | procurement for construction projects, particularly large or government projects |
| Some private organisations may award work on a sole source basis, but even private companies generally want... | to get the lowest price possible, and that is hard to verify without getting prices from a number of contractors |
| Local Government Regulation 2012, Chapter 6 – Contracting - Default approach - Obtain written quotes for medium-sized contractual arrangement | contract value more than $15,000 but less than $200,000 in financial year or over proposed term |
| Local Government Regulation 2012, Chapter 6 – Contracting - Default approach - Invite written tenders for large-sized contractual arrangements • contract value $200,000 or more in financial year or over proposed term | • but various exceptions apply • can issue invitation to tender or start with invitation for expressions of interest, create shortlist and then invite written tenders from shortlist |
| State government procurement - Qld government uses several methods for procurement of goods and services, including (1) | • Ad-hoc purchasing • Open tender (all interested suppliers may submit an offer) • Selective tender (suppliers meeting pre-established criteria are invited to offer) |
| State government procurement - Qld government uses several methods for procurement of goods and services, including (2) | • Limited tender (agency invites suppliers of its choice to offer) • Lists of preferred suppliers • Supplier procurement arrangements (standing offer arrangements) |
| State government procurement - Each department or agency will generally have its own... | policies guiding when it will use each method of procurement |
| Commonwealth Procurement Rules 2024 Division One: Rules for all procurements Section 9.1: | Australian Government procurement is conducted by open tender or limited tender |
| Principal releases Invitation to Tender | Invitation to treat for contract to carry out work |
| Tenderers submit Tenders | Offer |
| Principal evaluates Tenders | Offer remains open for acceptance during this period |
| Principal accepts a Tender Evaluation and tender process concluded | Acceptance = Contract formed for carrying out the work |
| Requests for suppliers or contractors to submit tenders are an... | invitation to people to submit tenders |
| An offer is made by a tenderer when... | submitting a tender |
| Person calling for tenders can choose to accept or... | reject the offer |
| Generally, requests of invitations to tender will be an... | invitation to treat |
| But, it depends on the terms of the request for tenders – | sometimes it can be more than that |
| Principal releases Invitation to Tender for a package of work | - Invitation to treat for contract to carry out work - The tender documents may also be an Offer to conduct a tender process on specified terms and conditions |
| Tenderers submit Tenders to carry out that package of work | - Offer to carry out the package of work - If the tender documents are an offer to conduct a tender process, the tender is the Acceptance of the offer to conduct a tender process |
| Principal evaluates Tenders | - Offer remains open for acceptance during this period - If there is a tender process contract, the parties perform their obligations under the tender process contract |
| Principal accepts a Tender - Evaluation and tender process concluded | - Acceptance = Contract formed for carrying out the work - If there was a tender process contract, it has come to an end – all obligations have been performed |
| How should a tender process be conducted? (1) | - Set out a fair process in the tender documents and follow the process in the evaluation stage - Only make a firm commitment to a particular process if that process will definitely be followed |
| How should a tender process be conducted? (2) | - Do not bind yourself to doing something you may not wish to do, and do not prohibit yourself from doing something you may wish to do |
| How should a tender process be conducted? (3) | - Even if a tender process contract exists, the principal can still conduct a proper tender evaluation provided it complies with the process |
| Codes of tendering - Australian Standard AS 4120-1994 Code of Tendering - Based on a number of ethical principles, including (1) | Tendering at all levels in the construction industry shall be conducted honestly and in a manner that is fair to all parties involved |
| Codes of tendering - Australian Standard AS 4120-1994 Code of Tendering - Based on a number of ethical principles, including (2) | Parties shall not engage in practices such as collusion on tenders, inflation of prices to compensate unsuccessful tenderers, secret commissions, or any other such improper arrangements |
| Codes of tendering - Australian Standard AS 4120-1994 Code of Tendering | Sets out obligations of principal and obligations of tenderers |
| Part IV Competition and Consumer Act 2010 (Cth) – restrictive trade practices • Applies to corporations • Prohibits cartel conduct, including: | Price fixing Bid rigging |
| Part IV Competition and Consumer Act 2010 (Cth) – restrictive trade practices - Prohibits ‘contracts, arrangements or understandings’ between competitors which would have the effect of... | substantially lessening competition |
Created by:
Asher - S