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issue: winter 2010

building blocks
hot topics www.mills-reeve.com
procurement pitstop

insolvency special

JCT DB 2005

RIBA

festive crossword
editor editorial team
xxxxxxxxxxxxx xxxxxxx
hello Alison Garrett
01223 222207
alison.garrett@mills-reeve.com
xxxxxxxxxxxxx xxxxxxx
welcome to the xxxxxxxxxxxxx xxxxxxx
winter 2010 edition xxxxxxxxxxxxx xxxxxxx
of Building Blocks

contents

03 Hot topics
editorial
The Local Democracy, Economic
Development and Construction Act,
the Equality Act, the Prompt Payment
Code, Liquidated damages and the
Engineering and Construction
Industry Training Board

04 Procurement pitstop

The second in a series of four articles


on EU Public Procurement
There is plenty to read in this bumper In this edition of Building Blocks you will
05 Insolvency special edition of Building Blocks which has also find the second in a series of
a special insolvency pull-out. articles on both EU Procurement and
A special pull out on insolvency JCT 2005 Design and Build, as well as
Whilst with Christmas approaching, an article on the RIBA 2010 Standard
09 JCT DB 2005 we do not want to put a dampener on Conditions.
celebrations, there is no denying that
The second in a series of articles insolvencies in the construction industry Lastly, on a more light hearted note,
on Design and Build JCT 2005 are continuing to happen with the you will see that we have included
recent cases of Connaught and Rok a crossword to keep you busy over the
10 RIBA being good examples. When a party festive period. You will find the answers
becomes insolvent on a project it is contained somewhere in the articles in
The 2010 RIBA Standard Conditions important to get to grips with insolvency this edition. There will be a New Year
terminology and find out what your hamper for the first name pulled out of
11 Festive crossword position is. The aim of the special a hat of all those that successfully
insolvency pull-out is to give you a first complete the crossword and find the
Something to keep you occupied over port of reference. For a more in depth hidden word. Email the hidden word
the Christmas break. There is a prize. knowledge of insolvency we will be and your contact details to Rachel
running seminars on insolvency in the Snow at rachel.snow@mills-reeve.com
12 Seminar information New Year in our Cambridge and by the 7 January 2011. The successful
London offices. You will find the dates individual will be informed in the week
The results of our recent for these and all the other seminars we commencing the 10 January 2011.
questionnaire will be running in Birmingham,
Cambridge, London and Norwich on
the leaflet enclosed in this edition. If you
are interested in attending any of the
seminars please contact Rachel Snow
(rachel.snow@mills-reeve.com,
telephone 01223 222377,
fax 01223 222221).
03
author author author
Katherine Souter Alison Garrett Hollie Docherty
01223 222580 01223 222207 01603 693242
katherine.souter@mills-reeve.com alison.garrett@mills-reeve.com hollie.docherty@mills-reeve.com

hot topics

Changes to Adjudication and (www.promptpaymentcode.org.uk) the an employee is classified as working


Withholding Notices coming code encourages signatories to pay on-site or off-site. On-site employees
into force suppliers on time, give clear guidance to attract a higher rate.
The Local Democracy, Economic suppliers and encourage good practice.
Development and Construction Act While this is a voluntary code for the The case of Online Design and
2009 (which makes changes to both time being, there is talk that this code Engineering Board Ltd v Engineering
adjudication and withholding notices) could become mandatory in all public Construction Industry Training Board
may come into effect on the 1 April sector contracts. One to watch out for (2010) decided that it is the Boards
2011. The Department for Business obligation to determine if a worker was
Innovation and Skills is hoping that it Liquidated damages on or off site, but this requires
will take place on the 1 April 2011 if As a result of the recent case (Azimut information from the employer. The
everything is ready. If not, the next Benetti SpA (Benetti Division) v Darrell Board should consider if a company is
possible date will be the 1 October 2011. Machus Healey) a liquidated damages a leviable establishment, if employees
clause which is not based on a genuine were working on or off site, and then
Equality Act 2010 pre-estimate of loss may not be a whether the work fell under the types
The majority of the Equality Act 2010 penalty, and may therefore be of work listed in the statutory rules.
came into force on 1 October 2010. enforceable.
It mainly consolidates existing For further information see the
discrimination law. It does however (as In that case a clause, which provided Engineering Construction Industry
of April 2011) extend the obligations for payment of 20 per cent of the Training Board website -
of public bodies to promote equality contract price on termination, was www.ecitb.org.uk
of opportunity. The Act covers upheld. The court held that the clause
discrimination on the grounds of the was commercially justifiable and not
following characteristics: age, disability, a deterrent to termination; and that in
gender reassignment, marriage and commercial contracts what the parties
civil partnership, pregnancy and agree should usually be upheld.
maternity, race, religion or belief, sex
and sexual orientation. Engineering Construction
Industry Training Board
Prompt Payment Code The Engineering Construction Industry
The Institute of Credit Managements Training Board is a statutory body
Prompt Payment Code is a voluntary responsible for collecting training levies
code which companies can sign up to. from construction companies. The levy
According to the web site rate varies depending on whether
04
author
Katherine Souter
01223 222580
katherine.souter@mills-reeve.com

procurement pitstop
This is the second in a series of four articles on EU public procurement.

In the Autumn edition of Building Blocks most commonly used on public/private most economically advantageous tender
I wrote about European procurement partnership projects which are vast and (also known as MEAT). It is important to
basics, legal terms and current financial complex. think about what you are looking for.
thresholds. Those definitions will tell you Contracting authorities sometimes chose
whether your procurement exercise is Contract notices are placed in the MEAT but then look to award a contract
caught by the Regulations. So if you are procurement supplement to the Official based on the lowest price. If you have
caught by the Regulations, what next? Journal of the European Union (OJEU). chosen to award a contract on the MEAT
This can be done via the EUs official basis, the quality elements must also be
Prior Information Notices, online portal, SIMAP. taken into account, which may mean
the procedures and the awarding the contract to a tenderer who
contract notice Technical specifications should be set is not the cheapest.
If you know what you want far enough in out in the ITT (see below). In the case of
advance, issue a Prior Information Notice a works contract, technical specifications Variant and abnormal bids
(PIN). This gives potential suppliers more should include all technical conditions Variant bids are simply bids which offer
time to prepare and allows the contracting which the contracting authority is in alternatives to the requirements specified
authority to take advantage of improved a position to prescribe in relation to the in the contract documents and may only
time scales for the procurement exercise. finished works. be accepted if the contracting authority
Failing a PIN, something that is often has stated in the OJEU notice that it will
used is the accelerated restricted Pre qualification questionnaire accept variant bids. Failure to follow this
procedure which can shorten the (PQQ) and the Invitation to rule may result in a challenge. If you
restricted procedure (see below) down tender (ITT) have one bidder whose price is
to as little as 30 days (however citing When using the restricted procedure, the substantially lower than all the others
the recession as justification for its use PQQ should elicit whether an economic and there is no apparent reason for it
is not likely to be a sufficient reason). operator is in a position to fulfil the you should investigate thoroughly. You
contract using certain selection criteria. should only accept such a bid if you
There are four procedures that This is used to narrow down the number have satisfied yourself that there is
a contracting authority may follow in of economic operators who will be a good reason for it or you may find
awarding a public contract. They are invited to tender. A contracting authority yourself either defending a procurement
open, restricted, negotiated and can disqualify economic operators from challenge, facing substantially creeping
competitive dialogue. Which procedure tendering based on minimum standards costs as the project progresses or
a contracting authority uses depends on of economic/financial standing and untangling the mess left by an insolvent
the nature, complexity, timescales and technical or professional ability. The ITT contractor.
spend proposed for the goods, services should then be issued to the reduced
or works in question. The most common number of economic operators. It must The Mills & Reeve Procurement Portal
procedure for construction projects is the set out the award criteria (and sub contains up to date information on public
restricted procedure. The open procedure criteria and sub sub criteria), marking procurement as well as a template
can be unwieldy which is why it is most scheme and the weightings given to document toolkit, frequently asked
often used where there will only be each question. questions and decision tools. You can
a small number of bidders. The also sign up to receive updates to our
negotiated procedure is not often used. The award criteria should either be procurement blog. See
The competitive dialogue procedure is based on the lowest price tender or the www.procurementportal.com
09
author author
Alexandra Price Stuart Thompson
01223 222513 01223 222354
alexandra.price@mills-reeve.com stuart.thompson@mills-reeve.com

JCT 2005: design


obligations
.
We continue our series works. This is a higher obligation than If the discrepancy is within the
is placed upon parties responsible only Contractors Proposals, the contractor
of articles on the
for design. bears the cost of changes required
standard form JCT
as a result of the discrepancy.
Design and Build To avoid a fitness for purpose obligation If the discrepancy is in the Employers
Contract 2005 with a in relation to its design, clause 2.17.1 Requirements and it is not dealt with
look at design obligations. limits the contractors liability to the by the Contractors Proposals, then
same level as a professional designer. the contractor will be entitled to claim
Design responsibility It states that the contractor has the like for any additional time or cost of
The employers design team provides liability [] as would an [] appropriate making the required changes.
the initial design in the Employers professional designer holding himself
Requirements. out as competent to take on work for Limitation on design liability
such design [] to be carried out and Clause 2.17.3 contains an optional
The contractor is required by clause completed by a building contractor clause capping the contractors design
2.1 to complete the design, which is who is not the supplier of the design. liability for loss of use, loss of profit or
presented to the employer in the other consequential loss. If the cap is to
Contractors Proposals. This wording limits the contractors apply, the level of the cap is inserted at
responsibility to the relatively low page 8 of the contract particulars.
The contractor is not responsible for standard of care required of
the whole of the design. Clause 2.17.1 a consultant at common law. The Please note:
makes the contractor responsible for the employer may wish to increase this
design of the contractors proposals standard of care. The wording of the cap means that
and any other design he carries out. direct losses, such as the cost of
The contractor is not responsible for the However, many professional indemnity remedying any defects, do not fall
design in the Employers Requirements. policies will not insure contractors within the cap.
against fitness for purpose, so it may Any LADs claimed are stated not
not always be in the employers to count towards the cap.
If it is intended that
interest to include a fitness for
the contractor will take purpose obligation. In the next edition, we will consider
responsibility for the partial possession and early use.
whole of the design, the Discrepancies
standard form contract The contractor must give notice to the
employer of any discrepancies between
must be amended.
the design documents.

Duty of care for design


The parties share responsibility for
In certain circumstances, a contractor
the cost and time implications of any
will be responsible for the fitness for
discrepancies found.
purpose of the works. This means that
the finished project has to satisfy the
employers intended purpose for the
10
author
Stuart Thompson
01223 222354
stuart.thompson@mills-reeve.com

all change at RIBA:


RIBA 2010
In June the Royal Institute of British Architects (RIBA)
published its latest standard conditions.

Given that the previous conditions were as the costs of bringing a claim may client to a contractor. If an architect were
only published in 2007, you might discourage clients, even where there to exercise this clause this may result in
expect RIBA to have made a number is a genuine dispute. delay and disruption to the project and
of substantive changes. Have they? could result in additional costs.
2. Cap on liability
Structure The 2007 conditions allowed the parties The architect now has
The 2010 conditions adopt a similar to agree their own cap. Under the 2010
the right to terminate
structure to the 2007 conditions. For conditions the architects cap is limited
example there are the same number to the amount of its professional
the appointment at will,
and type of appointments. The 2010 indemnity insurance (PII). This could provided it gives the
appointments, however, no longer use result in a series of sub-caps. For client reasonable notice.
the present tense to express the various example, it is common for architects
obligations. The legal profession prefers PII to include a separate, lower level Conclusion
this structure, but I suspect that clients of cover for certain claims such as toxic The RIBA appointments continue to
would see this as legal tinkering rather mould, asbestos and contamination favour the consultant. For example,
than a substantive change! claims. In some cases the level of PII in addition to the issues set out in this
cover for those claims is nil. If clients article, the appointments also have
Substantive changes are prepared to accept this cap, they a net contribution clause. Therefore
1. Set off will also have to review the level of PII from a clients perspective the 2010
Under the 2007 conditions if the cover when the appointment is signed appointments do not address the
architect was in breach of contract or and throughout the limitation period. problems with the 2007 appointments.
negligent, the client could not withhold If the client agrees to use the relevant
its costs from the architects fees. Under the 2010 2010 standard appointment it should also
Instead the client had to pay up and use a set of amendments to ensure that
conditions the architects
then pursue a separate claim against the appointment favours both parties.
the architect. This provision also
cap is limited to the
appears in the 2010 conditions. The amount of its professional
2010 conditions, however, introduce an indemnity insurance (PII).
additional clause relating to set off. The
new clause says that the client cannot 3. Termination
withhold any amount from the architects The architect now has the right to
fees unless the amount has been terminate the appointment at will,
agreed with the architect or decided by provided it gives the client reasonable
a tribunal. As the architect is unlikely to notice. As the architect can rely on this
agree the amount, the client will have to clause at any time it creates a great
embark on a litigious course. This deal of uncertainty throughout a project,
places the architect in a strong position particularly after a novation from the
11

festive crossword
For your chance to win a New Year hamper just complete the crossword and
find the hidden Christmas-related word by rearranging the letters in the orange
squares. The answers to the crossword can all be found in the Building Blocks
articles. Email the hidden word and your contact details to Rachel Snow at
rachel.snow@mills-reeve.com by 7 January 2011.

Hidden word: _ _ _ _ _ _ _ _

Down
2. The means of raising income by the
1 2 3 4 Engineering Construction Industry Training
5 6 Board (4)
3. The form of contract used by the majority of
7 8 9 10
the industry (3).
4. Performance .. (4)
6. Dispute resolution introduced by the Housing
11 12
Grants Construction and Regeneration Act
13 1996 (12).
14 15
8. The transfer of the benefit and burden of
a contract (8)
16 17 18
9. Form of Contract favoured by the Office of
Government Commerce (3).
10. Mills & Reeve has a portal which has up to
19
date information on this (11).
20 11. This can be resolved by, among other things,
mediation (7).
13. A clause that can be invoked when one party
21 to a contract becomes insolvent (11)
22 15. This is often claimed if there is a breach
of contract (7)
23
17. Contractor noted for its social housing,
24 25 26 27 recently placed in administration (9)
18. One of the four procedures under the
Public Contracts Regulations 2006 (4)
28 19. Mills & Reeve run a series of these (8).
29 21. If this happens and the contractor is not
responsible he can apply for an extension
of time (5)
23. Used to select the successful bidder (3)
25. Professional body for architects (4)
27. Where contract notices are placed (4)
28. Another social housing contractor recently
placed in administration (3)
Across 20. Civil, mechanical or electrical? (11)
1. Responsibility if something goes wrong (9) 21. What an architect usually does (6)
5. An acronym for a form of corporate 22. The competitive. procedure (8)
insolvency (3) 24. The use of these types of bank accounts was
7. Something special in this edition (10) recommended in the Fair Payment Guide. The
10. An acronym found in the Procurement JCT published documents for such accounts
Pitstop article. (3) on 4 October 2010 (7)
12. The industry at which Building Blocks 26. Monies held by the Employer until the issue
is aimed (12) of the Certificate of Making Good Defects (7)
14. What the B stands for in JCT 2005 D&B (5) 29. A form of corporate insolvency which should
16. The amount paid for something (5) only last for a year (14)
Mills & Reeve LLP is a limited liability partnership please contact Suzannah Armstrong on 01603 693459
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registered in England and Wales with registered
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Tel: 0844 561 0011 Fountain House, 130 Fenchurch Street, London, selected and prepared with a view to disseminating
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December 2010

seminars

Mills & Reeve seminars You will find a leaflet for our Spring 2011
A big thank you to all of you who took seminars enclosed in this issue of
the time to fill in our recent Building Blocks which indicates how
questionnaire asking you how we can you can book a seminar place,
improve our seminar programmes. alternatively you can book your place
by visiting the stay informed section
We are pleased to report that overall the of our website,
length and times of the seminars suit www.mills-reeve.com/stayinformed
the majority of those who responded to
the questionnaire. We will therefore As a result of the questionnaire, we will
continue to provide free 1-2 hour in future send electronic copies of the
seminars from 4pm onwards in our seminar notes to all attendees, after the
London office, and from 8am in our seminar.
Birmingham and Cambridge offices. We
will be trialling an 8.30am start for
construction seminars in the Norwich
office over the next few months.