Advisory Report On Procurement Route And Contract Selection For A Construction Project, Essay.

This assessment is linked to the following learning outcomes:

1. identify and critically evaluate types and sources of law (e.g. statute, case law, contract terms) and key legal doctrines and concepts and their relevance to the contractual issues within the built environment

2. apply legal skills in identifying, researching, evaluating and managing the impact of law and legal processes upon construction projects in the built environment

3. Explain and critically examine how ethics, law and the management of liability affect the professional practice of built environment professionals in the UK

Procurement Route and Contract Selection for the Project

The construction industry greatly rests on the provisions of the construction law, which is a branch of law and is an amalgamation of various other laws like planning, employment, commercial and tort law (Bailey, 2014). The applicability of these related laws differ from country to country. In construction, the selection of procurement route and contract type is a very important aspect and must be chosen carefully (Kantorowicz, 2014). Sheffield City Council is currently looking forward to develop a Grade 2 listed building, which is currently abandoned, into 10 one room bedroom apartments and 5 two bedroom apartments along with retail on the ground floor. All permissions have been granted by the local council with a budget of 2 Million Euros and a contract period of 12 months. The following paragraphs will provide an advisory report on the procurement route and contract selection for the project. 

In the given scenario, it can be seen that one of the colleagues of the director of Sheffield City Council has given advice to the director to use the design and build procurement route, in connection to the property in the given scenario. The design and build procurement route is a modern approach and it differs from that of the traditional approach.  The build and design is procurement route refers to a project delivery system that is used in the construction system. In this method a construction project is delivered, in which the design and construction services are contracted by a single entity, known as the design-builder or the design-build contractor. This method relies on a single point responsibility contract, which reduces the risks for the project owner (Cooke & Williams, 2013). It is also used for reducing the delivery schedule by covering both the design phase and construction phase within the same timeframe. This method provides for the clearest contractual remedies for the clients as the Design-Build contractor will be responsible for the whole work of the project, irrespective of the nature of fault (Morledge & Smith, 2013). On the other hand, the traditional procurement route involves the appointment of a designer and a contractor separately. It further involves the appointment of a consultant team for determining the cost and for taking the control of the design. After the design has been completed, the contractor carries out the construction work through bidding. This is followed by the preparation of the tender documents by the contractor based on the drawings, specifications or the bill. The contract is then usually given to the lowest tender and the contractor becomes responsible for all the workmanship, materials and sub-contractors (Naoum & Egbu, 2015). The Design and build route provides one single organization for the designing and building and thus, it saves time. Moreover the cost in this procurement route is comparatively less than the other routes and establishes better communication between the client and the contractor. Furthermore, this route results in an integrated contractor contribution to both the design and project planning. Whereas the traditional procurement route has often been criticized for being unable to integrate the two separate functions of design and construction and for impossibility of the contractor to become sufficiently involved early in the procurement process and make significant contributions (Idiake et al., 2015). Hence, as a chattered surveyor, I would request the director of Sheffield City Council to stick to his colleague’s advice and use the design and build procurement route. 

Application of Ancillary Aspects of Construction Law

In the given scenario, it is also mentioned that the director’s colleague has given him   advice to use the design build procurement route along with the method of lump sum contracting. In case of the projects that follow the design build procurement route, the lump sum contract and the guaranteed maximum price (GMP) contracts are the two types of construction contracts which are usually used (Brook, 2016). In one hand, the lump sum contracts are those in which a fixed and agreed total price is paid to the contractor by the client. Moreover, the contractor can ask for higher prices for taking care of unforeseen contingencies. This type of contracts put the responsibility of job execution and all the construction activities on the contractor. The price to be paid under these contracts usually includes costs of materials, labor, contractors overhead and also his profit margins (Potts & Ankrah, 2014). However, this type of contract has certain disadvantages like it is of highest risk to the contractor, it requires the project to be designed completely before commencement, it can lead to longer construction process than other contracting alternatives, its allows the contractor to use his owns means and methods and it can also attract high contract prices, covering unforeseen conditions (Hughes, Champion & Murdoch, 2015). On the other hand, the GMP contracts are those that ensure reduction of risk. In the GMP contracts, the client needs to pay the contractor the cost of doing the job and along with such amount, another agreed sum of profit to the contractor, limited to a pre-determined maximum level. GMP contracts transfer the risks from the clients to the contractors. Moreover, in case of lump sum contract, savings from cost under runs are typically retained by the contractor and becomes an additional profit to the contractor, whereas, in case of GMP contracts such savings from cost under runs are returned to the owner (Tran et al., 2018). Hence, the use of GMP contract in the given case would be a better option than the lump sum contract, as the GMP contract is much precise, cheaper and risk-free contract, compared to the lump sum contract, where there is uncertain cost fluctuations and less flexibility. Therefore, as a chattered surveyor, I would advice for the use of the design build procurement route along with a GMP contract in the context of the given scenario.

The construction law is an amalgamation of various other laws like employment, planning, commercial, contracts and tort law. The applicability of these ancillary aspects of the construction law varies from country to country. As the given scenario is based on the construction industry of UK, the ancillary aspects of construction law like tort and contract law will come into play (Mason, 2016). A construction agreement between the client and contractor will attract the general principles of the contract law. Therefore, in a construction contract, certain legal rights and obligations are formed between the contractor and client. The contractor therefore, becomes legally obliged to perform his duty towards the client as per the agreement and in case of any breach of such duty, the client can legally claim damages from the contractor (Adriaanse, 2016). Moreover, the law of tort, which is highly applicable in UK, will be applicable in the given scenario. The contractor has a legal obligation to provide the construction work with care, so that it does not cause any damage or loss to the client. Any act of negligence, leading to the lack of duty with care, on the part of the contractor will attract the law of tort and the client will become entitled for any damages or losses under the law of tort as well (Boas, 2013). Therefore, in the given scenario, the design build procurement route and the GMP contract will also attract the provisions of the contract law and the law of tort as the given scenario is based on the construction industry of UK. 

Letters of Intent and Associated Risks

A letter of intent has no technical legal meaning. It is used for describing all sorts of contracts. Typically, the term is used to describe a letter from an employer to a contractor that indicates the employer’s intention to enter into a formal written contract for the work described in the letter and for asking the contractor to begin work before the execution of such formal contract (Bhadra et al., 2014). A letter of intent operates in three ways. Firstly, it operates as a non-binding statement dealing with the future intentions of the parties. Secondly, it operates as an interim contract, having its own terms, that will governs the relationship of the parties till the time the formal written contract is executed. Thirdly, it operates as a final contract, deemed to have incorporated the terms and conditions of the formal written contract, despite of no formal execution (Thomas & Wright, 2016).

In the given scenario,   Sheffield City Council wants to use letters of intent (LOI) for securing the successful contractor for commencing the work as soon as possible the City Council Solicitor’s Department often takes 3 to 4 months time for getting the contracts signed and the client suffers cash flow problems and late commencements on site which can lead to damage claims by the contractor. There are certain risks associated with the use of these letters (Beacom, 2016). 5 of such major risks are:

• Letters of intent transfers the negotiation risks in favor of the contractor, who is likely to construct the project and will play a tougher line in the negotiations on the detailed terms and conditions of the contract which will lead to more time commitment for finalizing the final contract.
• Under a LOI, the scope for the performance of a contractor is very limited and at the same time it needs to be totally mobilized under a full notice to proceed. It can also be possible that an LOI may be insufficient in relation to the scope of the work, contemplated by an employer and the contractor in advance of full contract documentation.
• LOI can lead to the administrative burden and can often lead to a two-step process. It is so because an employer would always want to take the advantage of any work under an LOI and will want protections in place like insurance cover, bonds, etc, whereas, a contractor may want to be reduced in scale prior to the   full contract stage.
• The LOI adds on to the negotiating process as it has many aspects, which requires negotiations independently of the full contract terms.
• The time taken for negotiating a full contract can often give rise to new issues, which the contractor may choose to resist under a LOI.

The following are the steps to resolve risks related to LOI (Gunnarsson, Linell & Nordberg, 2014). Inclusion of the following provisions in an LOI can resolve the risks related to the use of LOI:

• Summary of transaction- A proper summary of the purpose and general expectations of the work or deal can help in avoiding misunderstandings form the beginning and can also help in guiding the court for interpreting the matter.
• Key dates or timeline-A clearly mentioned closing date and expiry date of the negotiation period and any deadlines proposed for completing the work with due diligence will help the parties to be on track.
• Binding requirements-Terms which are intended to be binding and which are not must be indicated properly. An LOI which is non-binding does not make it entirely nonbinding (Schaufelberger & Holm, 2017). But it may ensure that certain unimportant terms are nonbinding. It is not possible to nullify the duty of good faith with a contractual provision, but a nonbinding provision can prevent terms from being taken literally.
• Procedure and scope of due diligence-The repositories and documents which are to be checked and the size of the “box” containing all the assets and liabilities of the things being purchased must be clearly specified and indentified in the LOI.
• Tax-The parties’ intentions to tax treatment should also be mentioned.
• Description of future requirements and decisions-The LOI must include the intentions which the LOI does not intend to cover along with the requirements of additional points, which can be raised in the future.
• Exclusivity-Any intention of the parties for negotiating exclusively, with good faith, until a deal is completed, must be mentioned in the LOI (Houtte, 2014). Any confidentiality or restrictions on announcements in relating to such exclusive negotiations must also be mentioned.
• Examples-In case of complicated transactions, including calculations, an example calculation must be provided in the LOI for avoiding awkward and disastrous misunderstandings at closing.

As a chattered surveyor, I would advice for the inclusion of the abovementioned provisions in a LOI for avoiding the risks associated with the use of it. 

References:

Adriaanse, M.J., (2016). Construction contract law. Palgrave Macmillan.

Bailey, J., (2014). Construction Law. Crc Press.

Beacom, J. F., Chen, S., Cheng, J., Doustimotlagh, S. N., Gao, Y., Ge, S. F., ... & Huang, X. (2016). Letter of intent: Jinping neutrino experiment. arXiv preprint arXiv:1602.01733.

Bhadra, S., Blondel, A., Bordoni, S., Bravar, A., Bronner, C., Caravaca-Rodriguez, J., ... & Haegel, L. (2014). Letter of Intent to Construct a nuPRISM Detector in the J-PARC Neutrino Beamline. arXiv preprint arXiv:1412.3086.

Boas, H.C., (2013). Cognitive construction grammar. In The Oxford handbook of construction grammar.

Brook, M., (2016). Estimating and tendering for construction work. Taylor & Francis.

Cooke, B. and Williams, P., (2013). Construction planning, programming and control. John Wiley & Sons.

Gunnarsson, B.L., Linell, P. and Nordberg, B., (2014). The construction of professional discourse. Routledge.

Hughes, W., Champion, R. and Murdoch, J., (2015). Construction contracts: law and management. Routledge.

Idiake, J. E., Shittu, A. A., Anunobi, A. I., & Akanmu, W. P. (2015). A comparative analysis of traditional and design & build methods of procurement in the Nigerian Construction Industry. International Journal of Construction Engineering and Management, 4(1), 1-12.

Kantorowicz, H. (2014). The definition of law. Cambridge University Press.

Mason, J. (2016). Construction law: From beginner to practitioner. Routledge.

Morledge, R. and Smith, A., (2013). Building procurement. John Wiley & Sons.

Naoum, S., & Egbu, C. (2015). Critical review of procurement method research in construction journals. Procedia Economics and Finance, 21, 6-13.

Potts, K. and Ankrah, N., (2014). Construction cost management: learning from case studies. Routledge.

Schaufelberger, J.E. and Holm, L., (2017). Management of construction projects: a constructor's perspective. Taylor & Francis.

Thomas, R.W. and Wright, M., (2016). Construction contract claims. Palgrave Macmillan.

Tran, D. Q., Brihac, A., Nguyen, L. D., & Hoon Kwak, Y. (2018). Project Cost Implications of Competitive Guaranteed Maximum Price Contracts. Journal of Management in Engineering, 34(2), 05018001.

van Houtte, H., (2014). Contract negotiations and the Unidroit Principles. Uniform Law Review, 19(4), pp.550-560.