Making sense of contracts
In the complicated world of contracts and sub-contracts, you may well come across the contractor’s designed portion. But what is it? And what should you beware of? Our industry expert explains all…
In my ongoing series of articles for CABLEtalk, I have endeavoured to focus on issues I continually see as an adjudicator which cause problems.
Just to reinforce some previous messages:
Read the sub-contract you are signing up to and take advice
Make sure there is a payment schedule in your contract, which sets up the date of your application for payment, due date, final date for payment, etc and stick to them rigidly
Make sure your application for payment is fully detailed and substantiated.
A very common problem area is the contractor’s designed portion (CDP). This is where the contractor or sub-contractor takes some responsibility for elements of the design. However, sometimes this is more than designing an element and in fact almost the whole design is carried out – so be wary.
There is no doubt that over the past 20 years or so the extent of CDP has increased dramatically. One of the reasons for this has been the fact that designers’ fees have been slashed to the point that, in many cases, a limited design is in place and the rest of the responsibility has been dumped onto contractors and their supply chain.
I was looking at contract documents recently in which there were more than 40 CDP packages in the tender. I was also involved in a situation advising a client, and 15 sub-contractors were involved in several communications all relating to the design of various CDP elements. Incredible!
The type of issues I see emerging in disputes include design development, extent of design responsibility, approval periods, extent of design necessary and interface issues. Of these, interface issues probably cause the biggest problem area. By that I mean how the specialist’s design integrates into the design of the rest of the building.
How to mitigate risk and exposure
Firstly, read the sub-contract and scope carefully to understand the extent of your design responsibility. Next, set that out clearly in your submissions and qualify for tender if necessary. Make sure there is engagement with the employer contractor and/or sub-contractor to discuss and iron out any qualifications/design issues. And finally, make sure you are fully aware of any interface issues. The main thing is constant communication.
There is a further issue emerging which relates to the increasing costs of professional indemnity insurance (PII) and these issues have been a big part of discussions within the Construction Industry Coronavirus (CICV) Forum.
“There is no doubt that over the past 20 years or so, the extent of CDP has increased dramatically”
Several contractors and consultants have seen very big increases in the cost of PII and, indeed, are having difficulty getting coverage. The impact of this is that contractors are being extremely cautious about taking on any design responsibility, due not only to the issues I have raised earlier but also in relation to increased costs.
However, I was encouraged recently by discussions with several Scottish local authorities who indicated that, due to the contractual and financial issues resulting from CDP, they were reducing the extent of these in tender documents and were considering paying designers additional fees in order that projects could be fully designed at tender stage. Very positive news for the industry!
So going back to my banner for this article – treat CDP with extreme caution, as you could be buying trouble for your business in the months ahead.
WATCH LEN’S CONTRACT VIDEOS
PROBLEM CLAUSES Len discusses the peril of the small print, including contract amends, retention issues and payment provisions and schedules. He also explains extensions of time and ‘termination for convenience’ and explores how to deal with omission of work with no consequences.
Watch now at bit.ly/STV-clauses
LOW-COST ADJUDICATIONS In this video, Len outlines the role of low-cost adjudications and summary procedures, how they can help you, and what steps you should take to ensure you are prepared, including keeping accurate and up-to-date records.
Watch now at bit.ly/STV-LCA
TOP TIPS FOR GETTING PAID The problem of late and withheld payments is all too common, so Len has provided some invaluable advice for Members, offering practical pointers including payment schedules, detailed applications and agreeing matters beforehand.
Watch now at bit.ly/STV-paid
CONFLICT AVOIDANCE PLEDGE Another exclusive video for SELECT Members, outlining the many benefits of signing the Pledge as part of the Conflict Avoidance Process (CAP), and how it is helping to save time and money for an increasing number of businesses across the UK.
Watch now at bit.ly/STV-CAP