BUILDING CONTRACT

CLAIMS AND DISPUTES

2nd edition
DENNIS F. TURNER B.A. (Hans), F.R.I.C.S., M.C.I.O.B.
AND ALAN TURNER J.P., DIP. ARB., F.R.I.C.S., F.C.I.ARB.
First published 1989 by Addison Wesley Longman Limited
Second impression 1990
This edition published 1999

Published 2013 by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA

Routledge is an imprint of the Taylor & Francis Group, an informa business

© Dennis F. Turner and Alan Turner 1999

© Dennis F. Turner 1989

The right of Dennis F. Turner and Alan Turner to be identified as authors of this Work has been
asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any
form or by any electronic, mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information storage or retrieval system,
without permission in writing from the publishers.

Notices
Knowledge and best practice in this field are constantly changing. As new research and ex-
perience broaden our understanding, changes in research methods, professional practices,
or medical treatment may become necessary.

Practitioners and researchers must always rely on their own experience and knowledge in
evaluating and using any information, methods, compounds, or experiments described
herein. In using such information or methods they should be mindful of their own safety
and the safety of others, including parties for whom they have a professional responsibility.

To the fullest extent of the law, neither the Publisher nor the authors, contributors, or edi-
tors, assume any liability for any injury and/or damage to persons or property as a matter of
products liability, negligence or otherwise, or from any use or operation of any methods,
products, instructions, or ideas contained in the material herein.

ISBN 13: 978-0-582-28511-8 (pbk)

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Typeset by 35 in lOll2pt Ehrhardt

CONTENTS

List of figures ix
List of tables x
Introduction xi
Acknowledgements XIV
Abbreviations and further reading xv

PART 1 Precontract activities 3

1 BACKGROUND TO CONTRACT DISPUTES 3

A complex process 3
Clients and the industry 4
Matters underlying disputes 5
Outline practical approaches 8

2 CONTRACT SOLUTIONS AND RISK DISTRIBUTION 13

More traditional contract bases 14
Assumptions underlying the more traditional bases 20
Less traditional contract bases 21

3 TENDERING : CONTRACTOR'S POLICY, EXAMINATION AND CONTRACT 27

Contractor's policy 27
Examination and acceptance of the tender 30
Offers, statements and representations 32
Resulting contract (or not) 35

PART 2 Contract administration: mainly related to JeT contracts 41

4 PHYSICAL AND TIME PROBLEMS 43

Programme and method statements 44
Site possession, access, ground and other conditions 51

5 INFORMATION, INSTRUCTIONS AND APPROVALS 60

Functions of the employer 60
Authorityof the architect 62

111
IV Contents

Issue of instructions by the architect 65

Mistakes in contract and other documents 71
Approval of the works 79

6 VARIATIONS, PROVISIONAL SUMS ETC: MAINLY IN icr 80 AND

IFC 84 CONTRACTS 84
Authority and instructions 85
Definitions 88
Procedures for valuation 89
Principles of valuation 94
Rules for valuation 96
Special provisions for valuation 101
Valuation provisions under various jeT contracts 104

7 SUBCONTRACTORS: APPOINTMENT AND CONTROL 112

Basic distinctions in subcontracting 112
Domestic subcontracts 115
Nominated subcontracts 119
Named subcontracts 128

8 CERTIFICATES AND PAYMENTS 132

Status of certificates 132
Dissatisfaction over certificates 134
The Housing Grants, Construction and Regeneration Act 1996 139
Deductions from certified amounts 142
Ownership of materials and goods 146
Off-site materials and goods 148

PART 3 Delay and disturbance: introductory considerations 149

9 REMEDIES FOR BREACH OF CONTRACT 151

Damages for breach of contract at common law 152
Standard provisions equivalent to damages in building contracts 158
Liquidated damages 159
Costs of preparing claims for extension of time and lossand expense 163

10 DELAY AND DISTURBANCE OF PROGRESS 166

Nature of delay and disturbance to programme and progress 166
Concurrence of causes of delay and disturbance to programme 169
Nature of disturbance 175
Somefactors related to disturbance 180
Patterns of disturbance 182
 Contents v

PART 4 Delay and disturbance: practical approaches 187

11 ASCERTAINMENT OF PRIMARY LOSS AND EXPENSE 189

Some basic considerations 189
Labour and plant 197
Materials 208
Site overheads 209

12 ASCERTAINMENT OF SECONDARY LOSS AND EXPENSE 213

Head office overheads 214
Loss of profit 226
Interest and Financing charges 229

13 CLAIMS AND MULTIPLE CONTRACTS 237

Scope of claims in multiple contracts 237
Broad nature and selective features of multiple-contract projects 238
Special aspects of claims in multiple-contract patterns 242

14 GLOBAL CLAIMS 244

Introduction 244
Developmentof case law on global claims 245

PART 5 Delay and disturbance: JCTcontract provisions 251

15 CAUSES JUSTIFYING EXTENSION OF TIMEAND /OR

REIMBURSEMENT OF LOSS AND EXPENSE 253
Some principles 253
Cause leadi ng to extension of time only 258
Causes leading to extension of time and/or loss and expense 265

16 DELAY AND EXTENSION OF TIME 276

Late completion 277
Procedures For extension of time 279

17 LOSS AND EXPENSE 290

Nature of and reasons for loss and expense 290
Action by contractor 293
Response by architect 296
Payment of amount ascertained 299
Other rights and remedies 299
Provisions in JCTclause only 300
Subcontract provisions 301

18 DAMAGE TO WOR KS AND DETERMINATION OF EM PLOYM ENT 304

Damage to works, and related insurance 304
Determination of contractual employment 310
VI Contents
PART 6 Delay and disturbance: alternative contract provisions 323

19 COMPARISON OF ALTERNATIVE CONTRACTAPPROACHES 325

Outline comparison of contracts 325
Outline comparison of key issues 327

20 GCjWORKSj1 WITH QUANTITIES CONTRACT 331

Contract basis and administration 331
Site and ground conditions 333
Programme and time 335
Instructions and payment 340

21 ICE MAJOR WORKS CONTRACT 350

Contract basis and administration 350
Site and ground conditions 351
Programme and time 353
Instructions and payment 357

22 THE NEW ENGINEERING CONTRACT 363

Contract basis and administration 363
Site and ground conditions 366
Programme and time 367
Instructions and payment (compensation events) 371
Settlement of disputes 376

23 JeT AGREEMENT FOR MINOR WORKS 378

Contract basis and administration 378
Site and ground conditions 378
Programme and time 378
Instructions and payment 379

24 DESIGN AND BUILD AND RELATED CONTRACTS AND PROVISIONS 381

Some design and build contract arrangements 381
Design 382
Ground conditions 385
Delay to and disturbance of programme 389

PART 7 Presentation and settlement of claims and disputes 391

25 EVIDENCE AND NEGOTIATION 393

~~~ 3~
Negotiat ion 405

26 PRESENTATION OF COMPREHENSIVE CLAIM DOCUMENT 4 10

Principles of presentation 41 1
Sample claim presentation 413
 Contents Vll

27 METHODS OF DISPUTE RESOLUTION 420

Definition of terms 423
Perceptions of dispute resolution 426
N~~~oo ~9
Litigation 430
Arbitration 433
Adjudication 440
Expertdetermination 444
Mediation and conciliation 446
Mini-trial 449

28 PROVISIONS FOR DISPUTE RESOLUTION IN STANDARD CONTRACTS 451

JCT Standard Form of Building Contract 1980 453
JCT Intermediate Form of Building Contract 1984 456
JCT Agreement for Minor Building Works 1980 458
GC/Works/1 Contract with quantities (1998) 459
ICE Major Works Contract 1991 462
New Engineering Contract 1994 464

PART 8 Case studies on claims 467

29 INTRODUCTION TO CASE STUDIES 469

30 MAJOR CASE STUDY: LABORATORY PROJECT, PART 1 472

Particulars of works 472
Main events and their results in outline 475
Extra payments in early stages 476
Extra payments in later stages 488
Some principles emerging over primary loss and expense 495

31 MAJOR CASE STUDY: LABORATORY PROJECT, PART 2 503·

Extension of time 503
Preliminaries adjustment due to scope of work 505
Loss and expense on site overheads 511
Inflation on fixed price contract 519
General drop in productivity of labour 522
Loss and expense on head office overheads 523
Some final comments 530

32 MINOR CASE STUDY: FACTORY PROJECT 532

Particulars of works 532
Main events and their results 535
Approach to settlement 537
VIll Contents

33 MINOR CASE STUDY: FLATS PROJECT 546

Particulars of work 546
Main events and their results 548
Comments on narrative 550

Table of cases 556

Index of contract clauses 571
Index of subiects 582
LIST OF FIGURES

Figure 1.1 Anticipated expenditure pattern 11

Figure 2 .1 Assessment of risks between the procurement routes 14
Figure 4.1 Excavation conditions and measurement 54
Figure 6 .1 Variation instructions and valuation procedures under clauses
13 and 13A of JeT form 91
Figure 10 .1 Interrelated delays 172
Figure 10 .2 Structure example 178
Figure 10 .3 Network example 179
Figure 10.4 Some patterns of prolongation and disruption resulting from
postponement and disturbance 184
Figure 11 .1 Prolongation of site overheads 211
Figure 12 .1 Rates of expenditure and overheads 222
Figure 13.1 Temporary site facilities for construction : interrelat ionships 241
Figure 18 .1 Patterns of contractor's default or insolvency and subsequent
activities under clause 27 of JCT form 313
Figure 18 .2 Financial results of a contract determined under clause
27 of JCT form 314
Figure 30.1 Laboratory project: general site layout 473
Figure 30.2 Laboratory project : summarised programme 474
Figure 30.3 Laboratory pro ject: original prog ramme, part 1 498
Figure 30.4 Laboratory project: original programme, part 2 499
Figure 30.5 Laboratory pro ject: achieved programme, part 1 500
Figure 30.6 Laboratory project : revised programme: part 2 50 1
Figure 30.7 Laboratory pro ject: achieved programme , part 2 502
Figure 31.1 Laboratory project : site overheads histogram 514
Figure 32 .1 Factory project: general site layout 533
Figure 32 .2 Factory project : summarised programme 534
Figure 33.1 Flats project: summarised programme 547

IX
LIST OF TABLES

Table 5.1 Major obligations and rights of employer 61

Table 5.2 Architect's instructions and certificates 63
Table 7.1 Comparison of main contract clauses dealing with nomination
and naming of subcontractors 113
Table 15.1 Comparison of relevant events and matters 254
Table 17.1 Comparison of the main provisions of JeT clauses 26.1 and IFC
clause 4.11 over loss and expense 291
Table 27.1 Actual experience of using dispute resolution techniques 427
Table 27.2 Perceptions of dispute resolution techniques 428
Table 27.3 Assessment of risks between methods of dispute resolution 429
Table 28.1 Dispute settlement provisions and options in the main standard
contract forms 453
Table 30.1 Laboratory project: analysis of contract bills 497
Table 31.1 Laboratory project: extra inflation due to delay 520
Table 31.2 Laboratory project: extra interest on retention due to delay 526

x
INTRODUCTION

In coming to a second edition of what was Building Contract Disputes, and renaming
it Building Contract Claims and Disputes, we are aware of the change of emphasis
which this implies. In fact, this change has come about, not by shiftin g ballast, but
by a considerable expansion of payload in the treatment of claims, backed up by
a substantial body of further legal cases. There has also been a change by taking
account in detail of a distinctly wider range of contracts and approaches than
before, as a perusal of the contents will reveal. This has been accompanied by a
restructuring of the chapters dealing with delay and loss and expense to develop
this and emphasise its thrust.
Although the previous edition deliberately stopped short of last-resort matters and
sought to major on prior resolution by consent, the trends towards adjudication
and other tribunals arising out of Latham and the I-lousing Grants, Construction
and Regeneration Act 1996 has made it desirable to deal with resolution methods
which have come more into prominence. Because these are seeking to promote by
persuasion or stronger means the earlier and more gradual solution of problems and
disputes, as the earlier edition of this book advocated, they are to be welcomed.
Quite an amount of space has thus been given to the contractual provisions and the
wider apparatus to which they relate. It is hoped that the resulting blend of good
practice procedures, contractual provisions, legal cases and resolution processes
together with explanation of good claims methods and the case stud ies will
contribute to awareness of where the rights and wrongs lie, not only of entitlements
and defences, but of balanced settlement.
The contents seek to meet the needs of various disciplines within construction,
so that at most points the treatment is not usually addressed explicitly to those
on one side only of disputed matters. The client, client' s adviser, contractor and
subcontractor alike should be able to read and interpret for his own purposes .
The general level has therefore been set with two types of reader in mind : those
who are seeking explanation of basic principles, and those who are looking for
more extended treatment of issues with which they are already acquainted. In more
precise term s, this dual approach is intended for those who are in the late stages of
qualifying in their disciplines and also those concerned with continuing professional
development - or simply pursued by the need to know more! It is hoped that a

Xl
xu Introduction
coherent approach has been achieved and that the types of subject-matter are
reasonably distinguishable by the divisions within as well as between chapters.
Extended use has been made of case studies in the latter stages of the book to
apply the more generalised discussion of earlier parts to concrete situations, and
occasionally to supplement previous discussion. It may be surmised that behind
some of the examples lie real life cases, from which extrapolations and adaptations
have been made for present didactic purposes. Some of the prototypes might have
difficulty in recognising themselves, which is probably just as well! The amount of
detail has been varied both within and between the studies to avoid impracticable
length and also to cover a representative selection of situations and resolutions. As
a result, the case studies are not worked examples which may be followed slavishly
(usually a dangerous policy, as actual conditions may vary so much), but illustrations
of what may be done, combined with discussion of the limitations that often attach
to specific solutions.
The aim in the case studies is to use an approach to financial settlements
based upon the obvious intention of the contracts that settlement should proceed
progressively, rather than occur entirely at the end in the form of a 'big bang'. As a
result, there is not the setting up of a target claim, subsequently to be shredded by
a series of missiles. In fact, generally the term 'claim' has largely been avoided, as
again not representing the intention of the contracts - within a contract framework
there are 'entitlements'. If this emphasis helps just a little to dispel the emotive side
of many disputes, it can but have succeeded. In recognition of the need on occasions
for an 'end of contract claim', some expanded guidelines on and an example of such
a document are given, so that other chapters may be turned to and applied to it
when necessary. To help with the problem of looking at disputes in something of a
vacuum, as is inevitable in a book, the studies given are each linked closely to a site
layout and programme to indicate more expressly how design delays and disturbances
affect progress and performance. In one study, an analysis of the contract bills of
quantities has been included to give 'scale' to what is happening.
No apology is made for considerable cross-referencing and a limited degree
of repetition of key ideas between chapters. It is realised that no authors are
sufficiently gripping in style or precise in structure or content as to compel every
reader to read such subject-matter hypnotically from beginning to end: many
will wish to dip. Given also that readers have differing needs, this is inevitable.
But dipping in and out carries the risk of missing some essential point covered
elsewhere. Repetition also allows the reader to start with either the more theoretical,
earlier chapters or the more practical, later ones, and then turn to the other set.
The order used in the book suggests what is thought to be best, but dictates of
time often lead to some compromise, and so there is, we repeat, some repetition.
Although the strict principles have been kept in view, discussion has recognised
the difficulties of staying exactly with theory all the time. It is hoped that the text
as it has emerged will not cause too much offence to either purist or pragmatist.
Reality is, after all, rather like that as well.
We have found this edition an interesting exercise in the logistics of working for
most of the time at more than arm's length, but for much more. In case any readers
 Introduction X111

should wonder, we do happen to be brothers, on which fraternal note we commit

you all to the text as it emerges.
Thanks are due to Michael Battye, partner of Masons solicitors, for allowing
access to their excellent reference library, to Roy Gordon, honorary secretary of the
Arbrix Club Construction Group, for an extended loan of a set of Building Law
Reports, to Nicholas Gould and Michael Cohen for bringing to our attention the
research they had carried out into alternative dispute resolution, to Rena Monks for
assistance in preparation of the law case table and case index, to Ken Bristow for an
introduction to the aid of document scanning and to our families for the usual
forbearance when such a minor task as a publisher's deadline replaces other
activities.

Dennis F. Turner
Alan Turner July 1998
ACKNOWLEDGEMENTS

Weare grateful to the following for permission to reproduce copyright material:

Sweet & Maxwell for Tables 27.1 and 27.2 from 'ADR: appropriate dispute
resolution in the UK construction industry', Civil Justice QJtarterly; and Macmillan
Press Ltd for a figure (figure 5.3) from Building Procurement (2e) by Alan Turner
(1997).

XIV
ABBREVIATIONS AND
FURTHER READING

ABBREVIATIONS USED IN TEXT

The following are the main abbreviations used in the text. The full names of
documents are not necessarily the precise titles, but are what might otherwise have
been used in the text. In the case of the JCT documents , several revisions have
been introduced. The latest considered are those of April 1998. Where the dating is
significant, it is indicated in the text.

JCT contracts and related documentation

JCT 80 contract/form JCT Standard Form of Building Contra ct, 1980 edition,
including amendments 1 to 18. This is published in
several variants. Unless qualified, a reference may be
read as being to any variant.
JCT 'clause' A clause of the foregoing contract.
IFC 84 contract/form JCT Intermediate Form of Building Contract, 1984
edition including amendments 1 to 12.
IFC 'clause' A clause of the foregoing contract.
NSC/W JCT Employer/Nominated Subcontractor Warranty,
1991 edition .
NSC/C JCT Nominated Subcontract, 1991 edition .
DOMII Domestic subcontract to JCT forms, 1998 revision.
Green Form Nominated subcontract relating to the JCT 1963
contract.
Blue Form Domestic subcontract relating to the JCT 1963 contract.

Government contract GC/Works/l

General Conditions of Contract GC/Worksll for Building and Civil Engineering

major works with quantities, as prepared for centr al government works, 1998
edition .

xv
xvi Abbreviations and further reading
Institution of CivilEngineers (ICE) Contract
ICE Conditions of Contract, Sixth Edition, 1991, with Corrigenda (August 1993),
Guidance Note (March 1995) and Amendments (Reference ICE/6th Edition/Tax/
February 1998), with amendment ICE/6th Edition/HGCR/March 1998.

New Engineering Contract{NEC}

The New Engineering Contract, 1994 edition with addendum NEC/ECC/Y /2/
April 1998 to take account of the HGCR Act.

Method of measurementSMM7
Standard Method of Measurement of Building Works, Seventh Edition.

Institutions and Associations

ACE Association of Consulting Engineers
BEF British Property Federation
CDM Construction (Design and Management) Regulations 1994
CIA Chartered Institute of Arbitrators
ICE Institution of Civil Engineers
JCT Joint Contracts Tribunal
RIBA Royal Institute of British Architects
RICS Royal Institution of Chartered Surveyors

Other abbreviations
ADR Alternative dispute resolution
PFI Private Finance Initia'tive
BOOT Build, own, operate and transfer

FURTHER READING

These works are mentioned as affording both expansions of topics covered within
the context of the present volume and extensions into surrounding areas. As such,
they are referred to when they have an immediate relevance; they may also be
consulted to obtain a more general view and a deeper treatment of their subject-
matter at the points concerned or beyond.

Building Contracts: A Practical Guide

By Dennis F. Turner

This book gives an extended survey of and commentary on well over forty of the
most widely used standard forms of contract in the United Kingdom construction
 Abbreviations and further reading XVll

industry. It provides a detailed examination of the private edition of JCT standard

form with quantities and a comparative treatment of the other JCT main contract
forms, including the intermediate and minor works forms, and those for design and
build work, prime cost and management contracting. It also deals with the related
subcontracts, tender forms and warranties, extending to those for domestic
subcontracts beyond the strict ambit of the JCT. It also covers the GC/Works/l
contract and the ICE main form.
In its approach the book considers all aspects of the contracts etc in a rounded
and detailed way that extends beyond the selective treatment of particular themes in
the present volume. It places special emphasis on the explanation of those aspects
which are of immediate relevance to those working with the documents, while backing
this up with comment on the legal aspects of the provisions and reference to a body
of decided cases. It runs to almost six hundred pages and is in its fifth edition.

Design and Build Contract Practice

By Dennis F. Turner

This book is a treatment of the principles of the design and build system of
producing construction work and examines its procurement and operation in detail.
It relates practical applications of design and financial methodology and contractual
aspects throughout the successive stages of projects, from conception to final
occupation and residual liabilities.
Throughout there is consideration of the terms of the JCT with contractor's
design form of contract, especially those which are particular to design and build.
Separate chapters extend this to cover similar and distinctive provisions of the JCT
design portion supplement, performance-specified work, supplementary provisions
related to the BPF system and nominated subcontracts. There are also chapters
on the BPF system, the GC/Works/l design and build contract and the ICE
design and construct contract. These aspects are related to one another to afford a
comprehensive survey of the field for clients, designers and other professionals in
the construction industry and other interested persons. The book is in its second
edition and is over three hundred pages long.

Building Procurement
By Alan Turner

This book explains the methods of building procurement commonly used in

construction. It is widely accepted that choosing the right method of procurement
is crucial to the success of any project. Seldom is there an automatic choice of how
to obtain construction works, and this book begins with first principles: Why does
a client want to build? What quality does he want? When is the project to be
finished? And how much does the client want to spend? Only after these minor
matters are settled will construction contracts be discussed and drawn up. If wrong
decisions are taken at the early stages of a project, then very often disappointment
and disputes will occur later on, as examined in the present volume.
XVIll Abbreviations and further reading
The book examines reasons for building, relationships of parties, their
contractors and designers, how to choose the right route in particular circumstances .
It discusses PFI and BOOT procurement and the recommendations of Latham.
Discussions of contracts for consultants and contractors is followed by fourteen case
studies that examine how and why clients made their procurement choices and how
successful they were. The book, now in its second edition at over two hundred
pages in length, is aimed to appeal to both students and practitioners.
(/) (/)
-w-
.. -
. I
.>
I-
U
«
I-
u
«
e:::::
I-
Z
o
u
w
e:::::
CL
Thispage intentionally left blank
 CHAPTER 1

BACKGROUND TO
CONTRACT DISPUTES
• A complex process
• Clients and the industry
• Matters underlying disputes
• Outline practical approaches

This book is about building contract claims and disputes in particular, rather than
about building disputes in general. This is a topic which has exercised the minds of
many within and beyond the industry for years and it conjures up a number of
discrete subtopics, numbers of which are explored in the detailed sections of this
book. Because of the proverbial relation between wood and trees, it is useful to
survey some principles which underlie much of the detail. To the initiated, they
may savour of nothing new, but it is hoped that any reader will find something of
value among them.

A COMPLEX PROCESS

It is perhaps surprising that more does not go wrong, even today, with the
production of buildings when the intrinsically complicated and hazardous nature of
the activity is reviewed. This is most obvious in terms of accidents and so forth
during construction, while problems of securing quality and ensuring that designs
do not fail come close behind. But the operational process is at least as subject to
problems, even if they are not so apparent to the outsider. What happens in this
process is the spawning-ground for the disputes that this book considers.
It has been said that factory production is a line of work going through people,
whereas site production is a line of people going through work. This difference
arises from the need to install the work on an individual and perhaps difficult site,
with all the problems of coordination and the added ingredient of the weather. The
work is usually also individual in content, even if it repeats the character of other
buildings. This is not new, and down the centuries problems of time and money
overrun have been found. Several of the old law cases testify to this, as also, for
example, do the records of the building of London churches two hundred years
ago. Although today's refined systems for controlling the process undoubtedly have
improved so many aspects, they also show up more starkly things that do go wrong.
This reflects the premium on the rapid completion of buildings which are often
inherently more complex, and can be much larger than in the past. What can be
done to improve affairs? This theme has occupied numerous top-level committees,

3
4 Precontract activities
as well as those in humbler positions in the industry. The findings of the Latham
Report, Constructing the Team, found largely the same problems existing in the
indu stry in 1994. In particular, Latham concluded that the number of disputes that
arose in the industry was a major factor which perpetuated poor relationships and
poor performance in the industry. It is not the claim of the present work to provide
the answers, rather it seeks to make some sticking-pl aster available for application
when an injury occurs. Even so, its basic propo sitions may be oversimplified as
follows:
(a) Avoid problem s whenever it is possible to do so without excessive expenditure
of resources.
(b) Accommodate problems in the most efficient way, when (a) is not possible,
acceptin g some disturbance as inevitable.
(c) Resolve any dispute s which arise out of the compromise of (b) as smoothly as
possible in the circumstances resulting.
This 'coun cil of imperfection' is suggested, not as something new, but as something
consciously to adopt . It is an approximation to what usually happens, but perhaps
by default rather than intent. It is not a call to be careless, bu t to weigh the options
and select the optimum and not strive for the unattainable.

CLIENTS AND THE INDUSTRY

Constru ction clients all want the right building, at the right time and for the right
price. They vary in how far they are equipped to achieve these objectives, even if
the structure of the industry and prevailing conditions give them the chance. The
reasons for buildin g and the priorities and differing objectives that different types
of clients and contractors may have is explored in Building Procurement. (Books
referred to are listed at the front of this book.)
The seeds of possible future conflict arc often sown in the early days of a project
and it is essential for a client and his advisers to establish their objectives from the
outset . If the appropriate procurement path is chosen it is more likely that futur e
conflict can be managed within the risks that the procurem ent method will contain.
No method is risk-free for client and contractor and some place most of the risks on
only one of the parties. If this is appreciated from the outset it may make dispute
and possible conflict more understandable, so that contingency in time and/ or
money has been allowed for by the parties.
The entirely 'lay' client , that is one unversed in the procurement process, faces a
number of special obstacles. He may not know very clearly what it is that he wants
to have produced. Even if he does, he may not know how to present a brief over
design or programme. He may well be puzzled by the split between design and
construction organisations, how they relate to him and to each other. He may be
tempted to opt for the 'cheap' or the 'quick' way to meet his need, without seeing
the pitfalls that there may be. In particular, he may be too optimistic about what
can be done within the money and time available. When things arc rolling forward ,
 Background to contract disputes 5

he may not realise the effects that his changes of mind will have, even those that
embody flashes of near-genius.
All clients face numbers of internal problems. Their budgets are restricted by
total limits, by when the money is available and by the return (in any way) that
the project must achieve. Time may be pressing to meet markets, to provide
social satisfaction or whatever is the target. Technological changes in requirements
may affect the solutions that are embodied in a building. These effects may be in
conflict, but they may not be foreseen until work is under way. They may be
compounded by the activity of building being on already occupied sites or,
worse, in occupied buildings. The individual nature of many buildings has
already been touched upon.
The response of the industry to clients as a whole shows first of all in a structure
that has evolved over the decades. In the order in which clients may become aware
of their existence, there are design consultants, cost consultants, contractors,
subcontractors and suppliers, leaving aside all the more peripheral personnel such
as inspectors. It is a tenet of systems theory that organisations tend to become rigid
according to the functions that they have been performing and not always to be
responsive to change. In addition the structure may make the flow of activities and
information more tortuous than a single operation might necessitate.
In the case of construction, the process of providing a building filters through
this structure, which largely facilitates it. But because typically there are several
organisations involved, the possibility of gaps in communication or coordination is
present. Indeed it may be said that most disputes, which are not essentially technical
or due to changes of mind, occur because of disjunction at interfaces. Some of these
are due to misinformation etc and some to misunderstanding of what is required.
Even when there is some form of integration of activities, as in design and build
arrangements, the same gaps are possible, although liability for them is shifted.
In more traditional patterns, the major contractual arrangements are set up on
the basis that the client and contractor hardly speak to each other, as the nexus
is to be found in the consultants for the project. It may then be argued that the
objectives of the latter are not entirely identical with those of the two parties to the
building contract, that is the client and the contractor. This is not to suggest lack of
professional concern, but simply that they are constrained by their own upbringing.
Thus an architect may not be primarily concerned with information flow, as against
aesthetics and function of the finished project, whereas a quantity surveyor may not
see clearly the importance of cash flow to a contractor, as against ultimate settlement
at an uncertain date. Some, but not all, of the newer patterns and contracts address
the communications issue (as it may partially be termed) and this is brought out on
occasions in this volume.

MATTERS UNDERLYING DISPUTES

At risk of some repetition of points just made, some of the more common, if not
always more obvious, causes leading to disputes of the types considered most often
6 Precontract activities
in this volume may be set out. Many of them are avoidable at some cost, which
mayor may not be justified. Sometimes a matter may best be left as a risk, and not
everything can be foreseen every time. The causes are present, whether they should
be pre-empted is a matter of policy, but the decision should be made consciously
when the cause and risk are known to exist.

Decision making and results

A number of early decision areas always exist. It is a fact of most adventures in life
that the early decisions are usually the most critical, because they condition those
that follow and because they are often irreversible without an unacceptable cost.
Fundamental is the care taken with the initial concept of the scheme (at whatever
quality level is sought) and the design brief into which it is transformed. Hard
behind comes the time allowed for both design (with accompanying planning
permission etc) and construction. Inseparable from quality and programme is the
product of the two, namely cost. A balance will need to be struck between the
competing trio of quality, programme and cost, and the constituents of each should
be examined critically at the earliest stages of a project. An optimum will arise and
it will seldom be possible to obtain a client's desired quality to the programme and
cost that he wants. The client's critical requirements must be matched with his
resource prOVISIOns.
There are also several basic conditions which may be unavoidable and so should
be evaluated closely. The site and existing buildings may constrain what can be
achieved, both as an end-product and also on the way in terms of phasing and so
on. The nature of the scheme may bring in particularly complex constructional or
organisational methods, because it is unusually integrated or innovative. External
constraints may be present, or archaeological interest may be anticipated.
Implementation of the concept divides into two areas: decisions and achievement.
Decisions are tied in with development of the brief, perhaps happening in part
post-contractually, and also with setting up the contract. It lays itself open to the
possibility of seeking to pinch pennies while introducing undue risk for the client,
for instance by making inadequate provision for elements in the programme
needing time or expenditure. An obvious area of doubt is in the legal provisions,
where ambiguities or gaps may be left over points of procedure. But conversely, the
attempt to be oversmart and cover every option may create fresh loopholes that
never existed before. Post-contractually, this type of approach may turn into lack of
tolerance that stirs up its own protective reaction. Special care is needed when
overlapping contractual arrangements are used, individually near-impeccable, but
together causing discrepancies.
Implementation, by activities to produce the work, follows on what has been
sketched in the last paragraph. Inadequate consideration of the management system
for the whole operation is a likely cause of weakness. Overcoming this does not
necessarily mean introducing something complicated, but rather ensuring there
is a logical, unambiguous allocation of responsibilities, with a clear decision path
through the whole programme and watertight procedures for communicating
 Background to contract disputes 7
decisions to those who need to know. It is often argued that people produce
information to suit their own perceptions of what is needed, not to give what others
need to use. Rationalisation of information to suit others might actually mean less
unneeded work carried out by the producers for themselves! Common problems
over information are that it is incomplete, unclear, error-ridden or just plain late in
arriving. The rise of some forms of contracting over recent years may be as much
due to the attempt to dispose of these failures as to secure any radical difference in
the way in which work is organised on the site and paid for by the client.
Even with the appropriate systems, there are still weaknesses that may creep into
their use. Changes of mind are not necessarily a sign of indecision: they may show a
willingness to reflect and not be blinkered, but they can spread havoc if they are not
controlled. They are another example of optimisation: at a certain level of cost, a
good idea ceases to be worth implementing. Furthermore, although the end results
may be similar, there are no proper excuses for putting off decisions until too late
or for indulging in panic action when a difficult situation does come to light. These
instances may look as though they are mainly to be laid at the doors of clients and
consultants, but may be the responsibility of contractors also, who can fail to foresee
problems or to organise their own activities. This may aggravate a loss situation, or
even lead to one which cannot be charged to the client.

Team interactions

The correct system may have the wrong team members. Consultants, it has been
suggested, may be bad organisers, even worse a minority are bad at designing. It is
not unknown for them to be unreasonable to a greater or lesser degree. Contractors
and subcontractors too may not be well organised, and they may be of the wrong
size (either way) for the work they undertake. They may lack expertise in particular
types of project - sometimes in any type, it appears! It may be their fault that they
accept the work, but it may be the precedent fault of others that they were ever
selected to tender. They may be commercially inept on particular contracts,
something that it may be difficult to foresee will happen. Tenders may be too low
for profitability, work may be performed uneconomically, or (with or without these
features) firms may be 'claims conscious'. Sometimes they just do not know how to
secure their normal entitlements in the final account.
This survey is cast in a deliberately gloomy vein, to make its point. But when all
this is said, many of those operating in the construction field are doing their level
best to perform the miraculous today and the impossible not long after. It is also
pertinent that authors who live in ivory towers should not drop bricks. There are
also a number of factors which arise from quarters other than clients and those with
whom they contract. There are the actions or inactions of local authorities and
others with powers of approval or who perform work under statutory powers, there
are unions and there is that special British institution, the weather. Not all of these
sources produce effects over which the client may be liable to meet the extra cost
arising, although he may be faced with the resulting delay to his building without
means of redress. Eventually clients pay for such hazards as an addition to tenders
8 Precontract activities
for jobs in general. It is a matter of policy which risks are borne by the single
contract and which are spread.

Position of the arch itect or other design team leader

Whoever leads the design effort for a project carr ies a particular responsibility, not
only for the design itself, but for numbers of the issues which have been outlined so
far. T his is true even if there is some other person who is acting as project manager
and who coordinates the total execution.
As a minimum, the architect (as he will usually be called hereafter) has three powers:
(a) T o inspect the works with a view to approving them and so perhaps to
disapp roving them.
(b) To issue instructions which change what the project costs both the client and
the contractor.
(c) To issue certificates about the contractor's performance, expressing appro val
over work and other matters, and also to enable the cont ractor to be paid.
These duties he performs under his contra ct with the client, so that he is prima
facie liable to the client for any breach of his contract. But he may also be liable to
the contractor in tor t for negligence in some circumstances. T he court s are tending
to enlarge the areas of tortious liability and it seems that architects are no more
immune than other mortals.

OUTLINE PRACTICAL APPROACHES

It is desirable to wind up this chapter on a fairly positive note, as something of a

corrective to the tone so far . The central message has been that it is realistic to seek
an optimum level of certainty in decision making and implementation, rather than some
perhaps elusive maximum, the cost of which in time or money may not be justified.
T his target must be set against the background of what it is practicable to
achieve, given the existing struc ture and working of the construction industry ,
and the difficulty of evading these constr aints at the level of the single project .
It is seldom possible to tie down a scheme to give absolute fixity before the contract
is placed, so that no change can deflect it from its planned path of serenity and
certainty . T his means there must be suitable ways of building in flexibility over the
physical works, the financial arrangements and the programme from concept to
completion. T here are the contractual mechanisms available to satisfy most needs,
and these in particular are surveyed in the next chapter. T he more common aims
may be outlined here.

Design freezing or development

Primary will be the degree of fixity in the scope and design of the works. In an ideal
world, design would be done once, in advance, and the works would be built as
 Background to contract disputes 9
designed. The reasons why this does not happen need not be rehearsed furth er.
As stated above, a balance will need to be struck between the often competing
criteria of cost certainty and programme, which may require that tenders are
sought when design is not complete. A client will then be committed to expenditure
when cost certainty may be relatively small. Early assessment of the degree of cost
predictabili ty and control required and achievable by a client for the type of project
concerned is unavoidable. This is explored in detail in Building Procurement.
The practicalities of life mean that ways of accommodating changes and of settling
the unsettled are needed. T oo often it is assumed that the simple availability of a
clause about variations gives adequate licence for anything, whereas it is intended to
cover only fairly limited changes, introduced into the programme of construc tion
work in an orderly manner and with plent y of warnin g to avoid disturbance of
production. If more drastic alteration or late establishing of intentions is expected,
a move to a cost reimbursement contract becomes desirable at the very least. Even
without drastic change of intention, such factors as delay in giving inform ation or
variations out of proper time need more than a variation clause to allow adequate
valuation to be made within the contract.
Four basic state-of-d esign situations may be isolated in relation to the time of
tendering, and so establishing the financial basis:
(a) Design complete and frozen at tender: This has the maximum advantage for price
keenness and a straight run at construction, avoiding extra costs then . It also
has the longest pre-tender time and, rigidly applied, excludes flexibility over
design development .
(b) Design complete but notfrozen at tender: This has the price advantage, but then
loses this during constru ction, according to how disturbing variations are to
progress, quite apart from their own direct costs. There may be both cost and
time overruns.
(c) Design incomplete at tender and declared to be so: This is indicated by a basis of
appro ximate quantities or prime cost. The pre-tender time is short er, because
less design is done and tendering documents are less precise. Pricin g is higher,
but an element of later uncertainty is discounted in this, although the contractor
is not obliged to accept dilatoriness from the client's side without recompense.
(d) Design incomplete at tender but not declared to be so: This is concealed by a basis
of film quant ities or (with more difficulty) by one of drawings and specification.
The concealment occurs because drawings in any detail are not issued for
quantity tendering, and the bills do not usually look any different when the
uncerta inty exists. T his may secure the maximum price advantage, unless
detected , and may be used to shorten the pre-tender time. It leads to problems
later, usually intensified to the extent that they were unexpected by the contractor.
There are situations in which clients need to rush into construction on site as
soon as possible, but the simple question of start ing on site does not always
mean an earlier completion. Even if it does (and clients may be very pressing on
their consultants), the cost of achieving it may outweigh the advantage gained. A
rudimentary approach to this problem is shown under 'Client' s risk analysis' below.
10 Precontract activities

Contract financial bases

Contract basis is developed in the next chapter and is fundamental to much of the
rest of this book, but is set in context here.
A contract basis usually contains three strands relevant to this issue. One is
certainty over the amount payable, so far as this is can be achieved, for reasons
already indicated. A second is some sort of a formula upon which payment is based.
This may range from 'this much for the whole works', through some form of
measured quantities and unit prices to payment by costs incurred. In the case of
both quantities and a cost basis, the formula awaits the insertion of detailed values
into its spaces to give the final amount due. The third contract strand is leeway to
negotiate over such elements of excess expenditure as are due to matters which can
be attributed to default of the client or his advisers. This is largely the burden of
this book. Somewhere between are the effects of uncertainties which are hardly
anyone's fault in many cases, such as ground conditions, the condition of existing
structures, market changes and technical development.
There are risks of a commercial nature in the market, mostly widely understood
and accepted and others of a less predictable nature, which mayor may not be
insurable. It is usually the client's advisers who set the pattern of who carries each
risk, and this should be properly assessed in any contract with peculiar features.
Otherwise, tenders will be loaded to cover excessive risks or clients will face higher
settlements to cover the risks which they have assumed. For most regular situations,
the standard contracts provide a sharing out of risks which the industry has become
accustomed to view as 'fair', but the position should be watched.
When all this has been done, there is a need for mutual tolerance between
those operating a building contract to avoid the onset of constant niggling over
small issues of departing from 'the book'. Given the will, much can be settled
by judicious give and take, while still reaching a sensible conclusion. Attitudes of
scoring points or splitting hairs over legalistic interpretation can harden into lack of
will to settle at all. Even in the matters considered in this book, where some of the
hairs must be split, there are often issues of no moment where common sense can
steer affairs through to a safe haven. It is sometimes said that most disputes are
settled at the right amount, even if for the wrong reasons. The thought is
comforting, although it may be suspected of providing doubtful reassurance for
those who do the settling!

Client's risk analysis

The risk of delaying design and the possibilities of serious revisions are not simple
matters to assess against the hope of saving time by an early start on-site. The
following model does not give a 'rule of thumb' for deciding, as there is not a
standard disturbance situation. It indicates some major factors which often enter
into the picture and which should be weighed in deciding whether a trade-off is
likely to be beneficial. When claims situations develop, it is time to consider
whether the risk paid off!
 Background to contract disputes 11

30,000
s
-'"
(l)
(l)

::: 20,000
G;
0.
e
::J
~ 10,000
c
(l)
0.
X
w

0 10 20 30 40 50
Weeks

Figure 1.1 Anticipated expenditure pattern

A project is assumed with the characteristics below. The term s and ideas used in
what follows arc developed in later chapters, so the model here may be left until
those chapters have been read , if the extra detail is needed first. Here is some data
to begin with:
(a) Contract value £1 ,000,000.
(b) Contract period 50 weeks, whether this is compressed or not is irrelevant.
(c) Work starts 10 weeks before design is completed, the financial basis being
unimportant within the broad-brush picture.
(d) Li quidated damages are £4,000 per week, and it is assumed that the benefit to
th e client of 10 weeks time-saving is therefore at least £40,000.
The rate of construction and pattern of expendi ture anticipated are shown in
F igure 1.1.
Present concern is limited to claims due to design not proceeding as intended
when informati on is not supplied on time or is inaccurate and needing correction.
Oth er matters leading to reimbursement are ignored, although what they are and
when they occur within the total pattern will affect payment. Often they increase it,
perh aps by compounding an effect. Occasionally, taken in combination, they
produce less effect than they would have done separately.
It is assumed that a disturbance effect occurs only in anyone of the five periods,
so the effects tabulated are alternatives, not parts of a cumulative series. The effects,
which are treated extensively throughout this book, are divided into two categories:
(a) Prolongation: Simple extension of the contra ct period of a nature qualifying for
extra payment .
(b) Disruption: Occurrence of uneconomical or abort ive work, whether or not the
programm e is extended.
It is also assumed th at a disturbance in anyone time period affects the next two
(if present) in both these ways, although at a redu ced rate, and that the results are
then overcome by corrective action, paid for in the figures shown. According to the
12 Precontract activities

expenditure rate in a given period and those following, the effects may be rated
descriptively as follows .

Per iod Immediate effect Kn ock-on effect

A low high
13 medium high
C high high
0 high medium
E low nil

These suggest that there is greater loss and expense during a period when work is
proceeding more rapidly and when there is a greater quantity to follow, as might be
expected. Subject to these considerations, there is also more risk of knock-on effects
when the initial impact occurs early, although the scope for recovery of time is also
greater, if the effect can be overcome. Much depends on how an effect can be
contained. If a disturbance occurs in a clean-cut way, there is more likelihood of
deferring work without much disruption, although prolongation will still take place.

Period Expenditure Immedi ate effect Knock-on effect Prolon gation Total
(£) (£) ' (£)b (£) (£)
I
A 100,000 5,000 (2% ) 10,000 (3 wks) 15,000 30,000
B 200,000 10,000 (2112%) 15,000 (5 wks) 25,000 50,000
C 300,000 15,000 (3% ) 12,000 (6 wks) 30,000 57,000
D 300,000 15,000 (3%) 3,000 (4 wks) 20,000 38,000
E 100,000 5,000 (2 wks) 10,000 15,000

a The figures in this column are 5% of the corresponding entr ies in the expenditure column.
b The percenta ges in parentheses are applied to the expenditure figures for the next two
periods, e.g. the 2% knock-on effect for period A is applied to the expenditures for periods
Band C to give 0.02 (£200,000 + £300,000) = £10,000.

The prolongation rate is given as including the loss of liquidated damages as well as
reimbursement of the contractor's prolongation costs, so each of the totals has to be
set against the £40,000 saving due to the initial overlap of design and construction
time by ten weeks. The occurrence of two sets of disturbance, or a slow dribbling
disturbance can have heavier effects, especially in prolongation . As the figures
stand, the isolated disturbances in Periods Band C each cost more than the value of
the project time they save the client.