Uncategorised – Elemental Consultants

Launch of Society of Chartered Surveyors Adjudication Panel

The Society of Chartered Surveyors Ireland have formed a new panel of qualified Adjudicators to act in disputed referred under the Construction Contracts Act 2013.

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Under the Act the dispute referred must be a “payment dispute” and therefore there is no professional body best suited to address the assessment of valuations, loss & expense, contra charges or any quantum matter than a Chartered Quantity Surveyor. Following a stringent application and interview process the Society have chosen 12 suitable professionals that may act in the role of adjudicator. The Act provides that the parties may agree an adjudicator by mutual consent, alternatively they may agree to seek a nomination from a suitable professional body and the SCSI will act as such for a reasonable fee.

Elemental are proud that our Director, Jarlath Kearney, has been named on the panel. If you would like to appoint Jarlath as an adjudicator in your disputes please contact the office directly at any time.

More information on the SCSI panel can be found following this link: https://www.scsi.ie/dispute_resolution/panel_scsi_adjudicators

NEC3 – Guide to Tendering and Contract Data

The third edition of the New Engineering and Construction Contract, known as NEC3 is now in common usage throughout engineering and construction projects. Since August 2011 it has become the only form of contract to be published by the Institution of Civil Engineers. Experience has shown that use of the NEC3 form of contracts has led to fewer disputes which have reached the courts, although that said, there is also evidence to suggest that there have been a large number of adjudications, one of the main causes of these disputes is the general uncertainty experienced by contractors at tender stage. This short article attempts to identify some principles for good practice for NEC3 tendering and to bring a degree of clarity to some of the terminology.

tendering-and-contract-data

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Fee Percentages

The fee percentages are the changes which the Contractor adds to his own direct cost and subcontract cost. It forms part of the Defined Cost, the key concept for payment in options C-F and used for assessment of compensation events in options A and B. The fee percentages are to cover all those costs for which there are not cost components in the schedule of costs components; such as; profit, overheads, insurance, bonds, guarantees and corporation tax. Compared to NEC2, NEC3 has two fee percentages; the direct fee, which is applied to the defined costs of the Contractors direct resources and the subcontracted fee percentage, which is applied to the defined costs of subcontracted work.

Key People

The Key People are to be identified and then under clause 24 the Contractor is under an obligation to employ those people to work on the project or employ a suitable replacement which has been accepted by the Project Manager. The Contractor should be aware that the Employer may well wish to secure certain people to work on the project and may even award the contract on that basis. It is therefore advisable that the key people identified within the Contract Data are indeed the people who will be employed on that particular project.

The Working Areas

The working areas can be stipulated by the Contractor, but under clause 11.2(18) the working areas will be only those parts of the working areas necessary for providing the works and used only for work in the contract, that said it is critical that the Contractor defines the working areas to include not only the actual site but all of the areas where work is to be performed in connection with the contract. Defining the working areas fully is of paramount importance as, with the exception of manufacture, fabrication and design, only the costs of resources working within the working areas qualify as defined cost for payment

Risk Register

The Contractor should proceed with a degree of caution in relation to the risk register, as the risk register unless expressly incorporated via an additional Z clause is not a contract document, as such the listing of individual risks on the register has no bearing on either party in relation to that individual risk. Clause 80 lists all the Employers risks and makes reference to any additional Employers risks stated in the Contract Data. Clause 81.1 states “From the starting date until the Defects Certificate has been issued, the risks which are not carried by the Employer are carried by the Contractor.” So; unless there are additional Employers risks listed in the Contract Data the Contractor will carry the burden of all risks, other than those listed within clause 80 regardless of any risk allocation identified on the risk register.

The Works Information

The Works Information specifies the works and any constraints on the way it is provided, where in a project where the Contractor has an element of design responsibility he must ensure that he identifies the documents in which the works information for his design is to be found, it is important in doing so that the Contractor produces as comprehensive of works information as possible as any amendments or additions will not qualify as a compensation event.

Programme

Within the NEC contract the programme is a prominent feature. A programme should be produced and submitted along with the Contractors tender and is particularly important when options A and C are used as clause 31.4 states “The Contractor provides information which shows how each activity on the Activity Schedule relates to the operations on each programme which he submits for acceptance.” This relationship can be shown by adding a column to the activity schedule which details the corresponding reference for that activity in relation to the programme. To further emphasize the importance of having a programme clause 50.3 provides that if no programme is identified within the Contract data one quarter of the price for work done to date is retained until such time as the Contractor submits a first programme to the Project Manager for acceptance.

Activity Schedule

There are two Activity Schedule options within NEC3 which are A and C; under option A the Activity Schedule relates directly to payment whereby the Contractor is paid the lump sum price for each activity upon completion of that activity. The fact that payment is only made on completion of an activity cannot be stressed enough. A savvy Contractor should be looking at his cash flow, programme and activity schedule during the tender period to ensure they have a comprehensive list of activities, the more activities listed with a price, the more often activities will be completed and therefore paid and of course not to fall into the trap of having a single activity such as enabling works running for an extended period as such activity will not be paid until it has been fully completed. Under option C the Activity Schedule does not relate directly to payment and therefore there is no real need for the list of activities to be as comprehensive as that under option A

Percentage for Working Areas overheads

This is in relation to the schedule of cost components and is to cover the cost of items associated with employing people, the items are listed under item 44 of the schedule, this percentage is to be applied to the defined cost of people, it is worth noting that accommodation is not included as part of this percentage but is recoverable as Equipment. The way of establishing this percentage is a simple matter of calculating the cost of providing the items detailed at item 44 of the schedule, calculating the total cost of people and expressing this as a percentage, for example if the cost of providing the items detailed at item 44 is £15,000 for the project duration and the cost for people is £150,000 then the Percentage for Working Area overheads recorded in the Contract Data would be 10%

Percentage for People overheads

This has the same purpose as the Percentage for Working Area overheads but is only used when the Shorter Schedule of Cost Components is used with options A and B for assessing compensation events and by agreement only for assessing compensation events under options C, D and E. In addition to recovering these overhead costs the Contractor can also include percentages to recover overheads in relation to Manufacture and fabrication outside the working areas and design outside the working areas.

If you require further information or guidance on your NEC3 contract or indeed any form of construction contract Elemental Contract Consultants can provide accurate and tailored advice in relation to any aspect of your project.

Working in Republic of Ireland? Are you ready for the changes?

The construction industry in Ireland is about to go under its biggest change in this generation. Is your business ready for these changes and are your staff equipped to manage these changes? If not the consequences could be dire!

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What is happening?

On the 25^th July 2016 The Construction Contracts Act 2013 came into force across Ireland and it will bring significant changes to how you apply for payment and resolve disputes. The impact of the new legislation cannot be understated. This Act will apply to the vast majority of construction contracts regardless of whether they are in writing or not and you cannot contract out of the Statutory Provisions Act.

What changes?

No pay when paid – Pay when paid is no longer permissible. For example payment owing to a subcontractor cannot be made on the condition that the main contractor receives payment from the employer.

New payment mechanism – Construction contracts must contain “adequate mechanisms” for determining how much is due and determining when that amount is due. The Act also imposes maximum periods of payment for subcontractors which are set at 30 days.

Payment Claim Notice – whatever procedures both contractors and subcontracts are using for applying for payment currently should be replaced with a Payment Claim Notice. The legislation provides that a valid Payment Claim Notice must contain;

Details of the amount being sought;
The period, stage or activity to which the payment relates;
The subject matter of the claim; and
The basis upon which the amount sought has been calculated.

For this notice to be valid the Payment Claim Notice must be issued within 5 days after the payment claim date.

Withholding Notice – the payer must decide within 21 days whether or not it is going to pay the full amount claimed, if not the payer must issue a withholding notice in accordance with the information detailed within the Act. If this notice is not issued in accordance with the Act the party seeking payment will be entitled to the full amount detailed on the Payment Claim Notice without any right to set-off or abatement.

Dispute Resolution – a party to a construction contract, as defined under the Act, will have a new right to refer a payment dispute relating to payment to adjudication at any time, this is regardless of any other dispute resolution mechanism detailed within the contract. The decision of the adjudicator will be binding on the parties until an arbitrator or a court determine otherwise.

What do you need to do?

Provide training to key staff on the payment provisions of the Act in order that they fully understand the new regime.
Provide training to key staff to gain a better understanding of the adjudication process
Amend terms and conditions to ensure compliance with the Act
Prepare pro forma compliant Payment Claim Notice
Prepare pro forma compliant withholding notices and set up processes and procedures to ensure they are issued when required
Implement an early warning system for disputes

Contact Elemental to arrange a FREE Consultation on the potential impact on your business.

Telephone: 1800 938833

Mediation Process [Continued]

AN INTRODUCTION TO MEDIATION – GETTING IT OVER THE LINE

Picking up from where we left off last time, the parties have agreed to enter willingly into the process and a mediator has been appointed or agreed, this short overview will look at the process on the day and dealing with settlement.

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WHAT HAPPENS ON THE DAY?

Before the mediation

Once the parties have agreed to mediate they will enter into a mediation agreement which sets out the minimum procedural framework for the process, including: when, where, who attends (with authority to settle), confidentiality and costs.

The parties will usually exchange short position papers 7-14 days before the mediation, setting out their cases. It is also usual for the parties to agree a core bundle of documents for use at the mediation.

The mediator will generally wish to speak to the parties (or at least their advisers) before the mediation day. The purpose of the discussion will be to ensure that the mediator has a sufficient understanding of the case and the main points of contention that need to be resolved.

At the mediation

Mediations may last anything from a few hours to several days in complex multiparty disputes. Most commercial mediations last one or two days. The process is entirely flexible.

It is normal for each of the parties to have a private room for confidential consultations on their own and with the mediator during the mediation. There should also be a further room large enough for all parties to meet with the mediator jointly.

The mediator will chair and take responsibility for determining the procedure at the mediation, in consultation with the parties.

The likely procedure will comprise:

preliminary meetings with each of the parties when they arrive at the venue;
a joint meeting of all attending the mediation, at which each of the parties will normally be invited to make an oral presentation;
a mix of further private meetings and joint meetings (which may involve all or some of each party’s team), as proposed by the mediator and agreed by the parties.

Professional advisers, particularly lawyers, can and usually do attend the mediation. Such advisers play an important role on a number of fronts, including: in the exchange of information and opinion on fact, evidence and law; in supporting their clients (particularly individuals) in the negotiations; in advising clients on the implications of settlement; and in drawing up the settlement agreement and any consent order. Formal courtroom advocacy is rarely effective – this is an occasion for commercial reality and business negotiation.

No verbatim recording or transcript should be made of the mediation by the parties or the mediator in any form, and any such notes should be destroyed at the conclusion of the process and may not be disclosed or relied upon in any subsequent action.

Mediations can last beyond a normal working day and it is important that the key people attending for each of the parties remain present or, at worst, available by telephone for so long as the mediation continues. Any time constraints should be reported to the mediator as soon as known, as any unexpected departure can be detrimental to the progress of the mediation and perceived as disrespectful by other parties.

PRIVATE MEETINGS (OR CAUCUSES)

The mediator will often conduct a series of private meetings (sometimes called caucuses) with each party, seeking to learn more about each party’s expectations and to test the parties as to the strengths and weaknesses of their case. It is critical to note that nothing said in these meetings is passed to the other party without specific authority for the mediator to do this.

It is likely that the mediator’s first private session(s) with each party will be ‘exploratory’ in nature, seeking to get a better understanding of the issues that separate the parties and their underlying interests (commercial, reputational, emotional, etc).

In the course of the day the mediator will facilitate discussions between the parties but may be more proactive if the circumstances are correct. The mediator may focus on the key decision makers and encourage the parties to move towards making offers and counter-offers, the approach will be informed by what has been learned during the day and, depending on the case, there may be scope to explore non-monetary traded solutions as well as a financial restitution.

CONFIDENTIALITY IN RELATION TO THE MEDIATION

The standard mediation agreement provides that what happens at the mediation is to be treated as confidential by the parties and the mediator, including the facts and terms of settlement.

SETTLEMENT

If a settlement is reached, the lawyers present will draw up a settlement agreement. If no lawyers are present, the mediator generally helps with the drafting.

The agreement only becomes a binding document once it is signed by all the parties.

NO SETTLEMENT

If no binding settlement is achieved, the parties retain the ability to pursue their rights either through litigation or arbitration as appropriate.

However, the mediator may be asked to reconvene a further meeting at a later date, as settlement can be achieved in the following weeks or even months.

THIS OVERVIEW IS PROVIDED AS A SIMPLE GUIDE AND EACH INDIVIDUAL MEDIATION MAY ADOPT A NUMBER OF VARIABLES TO ASSIST THE PARTIES IN ACHIEVING SETTLEMENT. THE BENEFIT OF MEDIATION IS THE LACK OF RIGIDITY.

IF YOU HAVE ANY QUERIES ON ADVANCING YOUR DISPUTE TO SETTLEMENT THROUGH MEDIATION PLEASE CONTACT OUR OFFICES DIRECTLY.

Mediation Process

AN INTRODUCTION TO MEDIATION

Elemental regularly act as advisors when contractual disputes arise and the clients want to find a cost effective way in getting to its money. There are many options available: adjudication; arbitration; or litigation. However, where the circumstances allow it is often best to consider mediation. This process allows the parties to retain control of the outcome and find a settlement that suits its business and maintain a business relationship with the other party.

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I am going to briefly set out this procedure for those not familiar with mediation and look at the benefits of the resolution process.

WHAT IT IS AND HOW IT WORKS

This guide provides a useful introduction to the operations during a mediation, by far the most commonly used ADR process. It will outline the mediation procedures common to commercial referrals and the approach to the process by those required to participate in it.

WHAT IS MEDIATION?

Mediation is a confidential process in which an independent and neutral third party (the mediator) is appointed by the parties to help them reach a negotiated settlement of their dispute, principally through structured settlement discussions. The process can be conducted before the commencement of formal legal or arbitration proceedings or alongside such proceedings.

The mediator does not act as a judge and has no power to make binding decisions. Rather, he or she will explore options for settlement with the parties and attempt to broker a deal between them.

The key goal of mediation is to reach a settlement that brings the dispute to an end on terms that are acceptable to both parties – not to determine the parties’ legal rights or arrive at the ‘correct‘ legal position.

WHAT ARE THE MAIN ADVANTAGES COMPARED TO LITIGATION OR ARBITRATION?

The most obvious benefits are:

speed – most mediations last one day and can be set up within weeks
flexibility and informality – the extent to which lawyers are involved (if at all) is largely subject to the will and confidence of the parties. In fact, it is often the case that the more direct communication between the clients at the mediation, the more effective the mediation
cost savings resulting from the above – in both legal expenses and management time
confidentiality – anything said or done or any documents created for the purpose of the mediation are ‘Without prejudice. and, except in very limited circumstances, cannot be relied upon in subsequent litigation or arbitration
better chances of preserving business relationships due to the conciliatory mature of the process
the range of potential outcomes – mediation can result in any terms that suit the parties, unlike court orders which are limited to particular legal remedies

WHAT IS THE MEDIATOR’S ROLE?

The mediator controls the process and encourages open and honest communication between the parties. However, he or she has no power to make an order for the production of documents or to make a final determination. As such the parties remain in charge of the outcome and they must reach an agreement themselves and sign a written settlement agreement in order to be bound. Until such agreement is reached the parties are free to walk from the mediation.

The style of mediators can vary from pure ‘facilitators’ (who assist the parties in their negotiations) to ‘evaluators’ (who encourage settlement by expressing views on the merits and likely outcomes).

AT WHAT STAGE IN A DISPUTE CAN YOU USE MEDIATION?

In very simple terms, if you feel in a position to negotiate a dispute then you can mediate it. The ‘right’ time to mediate will depend on the circumstances of the case – and getting the timing right requires careful judgment.

The key is having sufficient information to make sensible decisions about possible settlement options. In many cases, this will be after the exchange of initial correspondence and documents about the dispute. For some larger cases, it may tactically be better to hold off until there has been more substantial disclosure of documents.

Generally speaking, the earlier you mediate, the greater the likely savings in legal costs and management time.

HOW IS A MEDIATOR APPOINTED?

If a proposal to mediate is accepted, the parties must then agree the appointment of a neutral to act as a mediator.

In most jurisdictions this can be done either:

through an ADR/mediation service provider, more information on these appointment services can be found on websites such as www.PrimeDispute.com; www.theMII.ie; www.CEDR.com ; or
through the parties agreeing to appoint and instruct an independent mediator, you can contact the offices of Elemental to discuss the availability of Jarlath Kearney, a Certified Mediator, to act in such a role, or contact him directly at JPK@ElementalConsultants.com.

Mediator fees vary but in large commercial disputes mediation costs are usually insignificant compared to the parties’ other costs and the sums in dispute.

In our next blog we will look at the process on the day and the pursuit of settlement.

For advice on this procedure or any contractual issue please contact our offices for a free initial consultation.

IF YOU HAVE ANY QUERIES ON ADVANCING YOUR DISPUTE TO SETTLEMENT THROUGH MEDIATION PLEASE CONTACT OUR OFFICES DIRECTLY.

+44 (0) 28 9043 4884

JPK@ElementalConsultants.com

NEC3 – Who is at Risk?

The risk register is a prominent feature of the NEC third edition, and is intended to reinforce the pro-active approach to the management of risk which the contract seeks to encourage. The Contractor should proceed with a degree of caution in relation to the risk register, as the risk register unless expressly incorporated via an additional Z clause is not a contract document, as such the listing of individual risks on the register has no bearing on either party in relation to that individual risk.

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The term risk has numerous meanings depending on which context it is being used, in the terms of the NEC a risk is an uncertainty – “an event or a class of events which might happen”. Uncertainties in a project are things, which if they occur might make the project more difficult or might make the project fail in its objectives such as additional costs or a failure to meet completion. Each risk is carried by one organisation in the supply chain for the project. “Carrying” a risk means that, if the event identified as a risk was to occur, the organisation carrying that risk would be responsible for all costs associated with that risk and would also be responsible for dealing with the consequences of any resulting delay. This sounds good in theory, however Clause 80 lists all the Employers risks and makes reference to any additional Employers risks stated in the Contract Data. Clause 81.1 states “From the starting date until the Defects Certificate has been issued, the risks which are not carried by the Employer are carried by the Contractor”. So, unless there are additional Employers risks listed in the Contract Data, the Contractor will carry the burden of all risks, other than those listed within clause 80 regardless of any risk allocation identified on the risk register.

As such the Contractor will be responsible for the costs and the consequence of any delay if the risk is not carried by the Employer under clause 80 or is not listed within the Contract Data Part 1 as an additional risk, regardless of whether or not he is the carrier of that risk on the risk register.

It is important to remember that the risk register does not replace the Early Warning system for the early identification of risks. Other than at clause 16 there is no specific provisions elsewhere in the contract in relation to the risk register and no particular contractual consequences flow from a risk being identified in the risk register or indeed the absence of a particular risk in the risk register. As such the risk register is intended to be a practical aid to the parties in managing risks as they arise during the course of the project and is maintained and amended, following agreement by the Project Manager.

Statutory Payment & Adjudication procedures in 2016?

Are you aware of the Statutory Payment & Adjudication procedures due in 2016?

Construction Contracts Act

Given the benefits that the Northern Ireland construction industry has gained from the Construction Act 1996, it does not come as a surprise that the Republic of Ireland would want and indeed require a similar piece of legislation; this is where the Construction Contracts Act 2013 comes into play. Dr Nael Bunni has been appointed as the Chair to the Minister’s Appointments Panel and some 30 adjudicators from Ireland and the UK have taken the posts in the first panel. Parties to a contract may stipulate the use of an alternative nominating body such as SCS or CIArb who have their own panels. The final draft of the Code of Practice is imminent and once this is in place the Commencement Order will give effect to the legislation.
As a company that has addressed payment issues within the construction industry for a considerable period we believe that although these statutory provisions are not perfect, this legislation should be embraced and will make a difference.

contruction payment law changes 2016

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Knowledge is power! We would advise all stakeholders in the construction industry to gain some knowledge of how the changes will affect their business and what additional entitlements and/or obligations they will have under the new Act. The Act is mandatory and therefore parties to a relevant construction contract cannot opt out of these procedures. Set out below are a few of the headline changes that the industry must become accustomed to and have proper awareness of. The Act defines those construction contracts and construction operations before going on to set out the payment regime, right to suspend for non-payment and adjudication.

Construction Contracts and Construction Operations

Although the definition of a Construction Contract and Construction Operation is relatively wide, the two most significant issues that may fall outside the Act are;

A financial minimum: contracts valued at less than €10,000 will not be a construction contract for the purposes of the Construction Contracts Act 2013.
Owner-occupied dwellings: the Construction Contracts Act 2013 will not apply where the contract relates to a dwelling and the floor area of the dwelling is not greater than 200 m2 and the employer does or intends to occupy the property.

It is entirely unclear why the legislators decided to deprive those parties whose contract is worth less than €10,000 of its right to a mandatory and structured payment mechanism and right to adjudication. In addition, there may be instances where the financial threshold for defining a construction contract is called into question, for example, if as a result of variations and or loss and expense the final account value exceeds this €10,000 threshold that was originally tendered?

Payment

The Act requires that all construction contracts; subject to them fulfilling the requirements both in terms of a construction contract and construction operations as mentioned above, include an adequate payment mechanism. The re-drafting of many standard and government contracts is well underway to capture the changes under this Act. However, where the contract is silent, or in the case of subcontracts, includes longer payment periods than those set out in the Schedule to the Act, then the minimum terms included will be deemed to form part of the contract. This is highly significant and we must stress you should all review your subcontract terms and ensure adequate and compliant payment periods.

From a personal point of view, I note and welcome that the legislation closes the dreaded “pay-when-paid” defence but have failed to address the “pay-when-certified” loophole. This caused many issues in the UK and was addressed as part of recent amendments to its Act.

Adjudication

The headline grabber of the new Act is undoubtedly the introduction of a fast-track dispute resolution procedure through a statutory entitlement to refer disputes relating to payment to adjudication.

Adjudication provides a speedy and cost-effective means of dispute resolution, with the decision of the adjudicator becoming binding unless and until it is overturned either by the courts or by an arbitrator, depending on the agreed dispute resolution procedure within the particular construction contract. This means that where an adjudicator decides that payment is due, such payment must be made up-front despite a referral to arbitration or the initiation of court proceedings. If the Irish courts follow the approach taken by UK courts, the enforceability of adjudicators’ decisions will be strictly upheld, subject to very limited exceptions.

The Act gives a party to a construction contract the right to refer any payment dispute to adjudication ‘at any time’. This entitlement cannot be restricted to post practical completion or by having to complete other steps under the contract beforehand. Once a dispute has crystallised, either party may (but is not bound to) refer the dispute to adjudication.
Most adjudications are likely to be over in a matter of weeks, in comparison to the existing situation in which a binding award or decision – whether through arbitration or the courts – can take anywhere between six months to three years or longer.

We could discuss the benefits of this resolution process at length and have recently developed a handy guide for the process, we will seek to keep you informed at some level but must stress that you should seek competent advice before commencing any action under the new Act. Some commentators on the Act speak of ways to frustrate the process or a lack of preparedness of our courts, I believe that such tactics and talk will only result in those representatives not acting in the best interest of their client in seeking a fast and effective resolution.