Importance of checking all parts of the contractor’s scope for inconsistencies

KEY POINTS

• NEC design and build contracts may include contractor’s design proposals which form part of the contract documents.
• Scope provided by the contractor for its design should be checked for inconsistencies before entering into contract.
• Instructed changes to the contractor’s scope to resolve an inconsistency is a contractor risk.

The use of design and build contracting is a common procurement strategy for many clients that want responsibility for both the design and construction of a project to rest with their main contractors. This approach is achieved when using the NEC4 Engineering and Construction Contract (ECC) by making appropriate statements in the client’s scope, as required by clause 20.1 and 21.1. Clients may also specify their desired outcomes by including performance criteria in the scope.

Design work may be undertaken by the contractor before the parties enter the construction contract. Two examples of how this may occur are: during a separate preconstruction contract between the parties using, for example, the NEC4 Professional Service Contract (PSC); and technical proposals developed by the contractor as part of its tender submission.

Making contractor’s design part of contract

However, the contractor’s design will not readily be treated as a contract document unless it is expressly stated as being so. Contract data part two, prepared by the contractor, makes provision for the documents comprising, ‘the scope provided by the contractor for its design,’ to be identified and therefore incorporated into the contract. If this approach is followed, the scope, as recognised by the contract, will consist of two parts: scope provided by the client – identified in contract data part one; and scope provided by the contractor for its design – identified in contract data part two.

Parties using the ECC with secondary option X22 on early contractor involvement should also be aware that design produced by the contractor during stage one is treated as scope provided by the contractor for its design (clause X22.3(7)).

Resolving ambiguities and inconsistencies

After the parties have entered into the contract, if the project manager or contractor becomes aware of an ambiguity or inconsistency in or between the contract documents, they must notify the other of the matter. The project manager is then required to give a statement setting out how the matter should be resolved (clause 17.1).
The project manager’s authority to instruct changes to the contract documents are limited to the scope and key dates (clause 14.3), and the bill of quantities (clause B/D 60.6). For all other changes that are needed to resolve an ambiguity or inconsistency, these need to be agreed in writing and signed by the parties (clause 12.3).
When there is ambiguity or inconsistency in the scope provided by the contractor for its design, the project manager may give an instruction to the contractor which changes the scope provided by the contractor (clause 14.3). Such instruction by the project manager is not one of the exceptions stated in clause 60.1(1) and is therefore treated as a compensation event (clause 61.1).

Assessing the compensation event

The project manager may decide the compensation event has no effect on defined cost or completion of the works, or that the event is due to a fault of the contractor and therefore not instruct a quotation (clause 61.2). Otherwise, the project manager is required to instruct the contractor to submit a quotation and the event is assessed in accordance with clause 63.10, which states: ‘A compensation event which is an instruction to change the Scope in order to resolve an ambiguity or inconsistency is assessed as if the Prices, the Completion Date and the Key Dates were for the interpretation most favourable to the Party which did not provide the Scope.’

Clause 63.10 follows the legal rule known as contra proferentem which, loosely translated, means, ‘against the party proffering them’. In other words, the scope is interpreted based on what is most favourable to the party that did not create the ambiguity or inconsistency. In the case of an ambiguity or inconsistency in the contractor’s scope provided for its design (as identified in contract data part two), the assessment would be made in the client’s favour.

Example scenario

Consider the following scenario where the client’s scope for the design and construction of a new office building states a requirement for lighting levels to be, ‘suitable for the specified tasks to be carried out in each area.’ The contractor’s scope provided for its design of the open-plan office areas shows an illuminance of 300 lux on the drawings and 500 lux in the specification. The difference in this information would represent an inconsistency within the contractor’s scope, the resolution of which the project could instruct a change to the drawings to 500 lux, matching that stated in the specification.

The assessment, being made most favourable to the client as stated in clause 63.10, would result in the contractor being obliged to provide lighting to the higher specification without any increase to the prices or change to the completion date. Further, even if the contractor could demonstrate it had priced for the lower lux level, it would be unlikely to be entitled to an increase to the prices.

A change to the scope is one of the limited circumstances under which prices can be reduced (clause 63.4). If the client in the above scenario had decided that 300 lux was suitable, and the project manager instructed a change to the specification to match the drawings, the assessment would still be made in the client’s favour and could therefore result in reduced prices.

Conclusions and recommendations

The scope is a very important contract document. For design and build contracts, it may comprise both the client’s scope and the contractor’s scope. Information in the contractor’s scope provided for its design may consist of separate parts which need to be consistent.

The project manager is empowered to instruct a change to the contractor’s scope to resolve an ambiguity or inconsistency, and such a change is at the contractor’s risk. Thorough checks of all parts of the contractor’s scope by both the contractor and client before contract can mitigate this risk.