Wednesday, December 15, 2010

After a Certificate of Practical Completion (CPC) is issued, can an Architect issue an Interim Certificate?(LAM Paper 2 Q2a)

CPC is a significant milestone as well as a moot point in construction contracts. PAM 06 allows CPC to be issued with minor outstanding works and/or defects (see clause 15.1(a)) with the following conditions:

1. Employer can have full use of the works for their intended purposes
2. The outstanding works are minor in nature
3. Contractor has given to the Architect written undertaking to complete/make good such works.

With that in mind, an interim certificate could be issued after CPC at any time before the final certificate, upon completion of these outstanding works/defects.

Another reason for issuance of interim certificate after CPC would be to revise or correct any previous payment certificate (see clause 30.3)

To further clarify the matter clause 30.1 expressly states:

“ ..After issuance of CPC, interim certificates shall be issued as and when further amounts are ascertained by the Architect and QS as payable to the Contractor by the Employer”

Tuesday, December 14, 2010

TNB Substation Woes

Delay in obtaining utility services upon completion of physical works is not an uncommon scenario in our construction industry. It may be due to several factors such as ambiguous scope of contract, change in authority requirements during construction or just plain bureaucracy.

In the absence of expressed provision in the contract for the Main Contractor to secure power supply, their obligation is limited to the completion of the TNB building provided that the Testing & Commissioning can be achieved using other means i.e. gen- set, etc.

If the Testing & Commissioning can only be properly achieved using a stable power supply via an energized TNB substation, the Main Contractor is obliged to have it completed within 'reasonable' time, i.e. 6 months or any period before completion as normally expected of the service provider. In such case, delay by the service provider beyond the 'reasonable' energizing period can be regarded as an act of prevention by the service provider and would make the MC eligible for EOT under clause 23.8q (PAM06).

Another prudent approach is to allow sectional completion for the TNB substation to ensure the substation is completed ahead of time, allowing reasonable time for the TNB to energise before the project completion.

This approach could also be applied to other services such as water supply and telecom to separate the contractor’s contractual obligation from the service provider’s time consuming procedures

Monday, December 13, 2010

Omission and Loss of Profit

Q: Where work is omitted and given to another contractor, is the employer liable to pay loss of profit?

A: Entitlement for loss of profit may depend on the wordings of the contract form. PAM98 cl 11.6 allow for valuation of direct loss and/or expense due to variation, however the word ‘loss’ is absent in PAM06 cl11.7.

However, cl 11.6(b) PAM06 provides that fair adjustment of rates to take into account when there is a significant change in quantity. It may be argued that fair valuation should include loss of profit in respect of work omitted.

From my observation, there is no clause in the standard form that prohibits the employer from omitting works to be carried out by others, although several case laws suggest that the employer may not omit work prescribed under Provisional Sum to be executed by 3rd party see Amec Building V Cadmus (1997). In Australian case Carr v JA Berriman (1995) it was held that works omitted would entitle the contractor to claim loss and expense

Thursday, December 9, 2010

Quantum Meruit Claim

Q: When do 'quantum meruit' claims arise and how should they be evaluated?

A: Quantum Meruit basically means ‘the amount he deserves’. Other similar terms being used includes ‘reasonable sum’, ‘fair market rates’, etc.
When you engage a contractor to do work without a contract or without a contract sum, he is entitled for a quantum meruit claim.

A quantum meruit claim may occur in a building contract due to the following:
•Changes were imposed without a variation clause
•Variation with significant change in quantity
•Variation involved works with items not similar character and/or condition to items in contract

Q: How are 'fair' rates defined?

A: PAM06 defines fair market rates to be determined by QS. In my opinion, it should be based on reasonable remuneration, not just cost. In fact PAM cl 11.6(d)ii allows for Cost + 15% profit.

Sunday, December 5, 2010

How far can an architect/engineer accept minor deviation at site?

Several case laws had indicated that employer may recover the cost of rectification if the work is defective. But if rectification is not a reasonable solution compare to the minimal benefit, rectification cost would not be awarded.
But it is important to note that the deviations must be aesthetically and technically acceptable. In other words, the employer can still benefit from the works without compromising structural and safety factors.

One of the controversial English cases was Ruxley -v- Forsyth which had shed some lights to such circumstances:

“The 1995 House of Lords decision in the case of Ruxley -v- Forsyth was widely reported since it added to the general understanding of how damages should be assessed for a contractor's failure to meet specified standards in a construction contract.

Forsyth had specified that a swimming pool being constructed for him by Ruxley should have a maximum depth of water of 7'6". Unfortunately the completed pool only had a maximum depth of 6'9" and the depth below the diving board was only 6'. Forsyth sued for the cost of a new pool.

The trial judge concluded that the pool constructed was perfectly safe to dive into and that there was no evidence that the shortfall in depth had decreased its value. The only practical method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of some £21,000. There was no evidence that Forsyth actually intended to build a new pool at such a cost.

The judge held that that cost would be wholly disproportionate to the disadvantage of retaining the pool as it had been built. Accordingly he concluded that, despite breach of contract on the part of Ruxley in building a pool which did not meet the required specification, the damages to be awarded was simply a figure to reflect a loss of amenity. This was assessed in the amount of £2,500.

Forsyth appealed the matter to the Court of Appeal and was successful. The Court of Appeal held that Forsyth had suffered a loss as he had a swimming pool less suited to diving than the one he had contracted for. The question to answer was what money would place Forsyth in the same situation as he would have been, had the contract been performed. The answer was the cost of replacement of the pool, otherwise a builder of swimming pools would never need to perform its contract. The Court of Appeal awarded Forsyth damages in the amount of £21,000, being the cost of a new pool.

No doubt Forsyth thought that he could now pocket the £21,000 and continue to swim happily in his 6'9" deep pool. However, the matter did not stop there, and the next port of call was to the House of Lords where the decision was once again reversed, reinstating the earlier decision of the trial judge. Their Lordships stated that to hold in a case of this kind that the measure of the building owner's loss was the cost of reinstatement, however unreasonable it would be to incur that cost, would seem to fly in the face of commonsense. Where the cost of remedying the defect was disproportionate to the end to be attained, the damages were to be measured by the value of the facility built in accordance with the contract, less its value as it stood. Thus Forsyth never saw his £21,000 but instead, no doubt, was faced with a considerably larger legal bill. “

The above case was indeed a controversial one as it went through several appeals and reversal in decisions. Perhaps it is an attempt to meet in between design based and performance based specification in providing the solution. I believe that no man-made law is perfect but perhaps this seems to be a fair solution for such predicament.

Building contract forms has developed over the years to tackle predicaments and eventualities guided by principles of laws and court decisions. The Set-Off Clause 30.4 is now introduced in PAM 06 which among others enable the client/architect to accept works with acceptable performance/aesthetic although not exactly in accordance with the contract.

A new provision in PAM06 i.e. clause 6.5 (e) was introduced to allow such diviation to be accepted subject to employer's consent and the set-off clause.

Under PAM98 contract form, set–off was not expressly an option to remedy works that are not in accordance to contract. In such case, one of the options is to adjust the contact sum as variation.

I certainly hope that the above British court decision is not misconstrued by contractors to take design specifications lightly. The issue of the case was to determine the measure of damages for breach of contract where the cost of reinstatement is disproportionate to the loss suffered. The application in reality shall not be applied vexatiously to compromise the aesthetic value, safety and performance of the works.

Thursday, December 2, 2010

Architect’s Liability on Supervision

The Architect's duty with regard to supervision has been a subject of a number of court cases. One of the closest to our context is a Singapore case: Sim and Associates v Alfred Tan (1997) where the architect was sued for, among others, certifying defective works.

The court held that an architect is only required to give reasonable supervision. That is the general rule in the absence of specific requirements in the conditions of appointment. The fact that the work is certified which turns out to be defective does not by itself mean that the architect has been negligent.

Failure to proof the consultant's negligence would render the contractor responsible for work not in accordance with the contract.

Design Liability

Q: Where a Contractor / NSC's drawings are " APPROVED " , " CHECKED " , " INSPECTED " etc, by the Architect or Engineer and subsequently an error is discovered, who will bears the cost? Contractor, NSC , Architect/Engineer or Employer?

A: In a performance specification (items to be designed by contractor/manufacturer), the architect must be clear in what he is doing, which is checking compliance with the performance requirements, not to undertake design. This must be reflected in the wording of the 'approval' or the 'checking'.

Clause 1.2 of PAM06 expressly provides that in such case contractor is fully responsible for the design irrespective of approval by Architect

Without proper performance spec. or contract provision, an architect may not delegate design to contractor. In Moresk v Thomas (1966), the Architect was held liable

Q: In the case where the Employer bears the cost, can he recover the sum involved from the Architect or Engineer?

A: Employer may recover cost from Architect in the following conditions:

1. When damage was due to Architect's design error, not contractor's workmanship or non-compliance to spec.
2. Employer must prove damage i.e. rectification cost, not necessarily the entire 'additional cost'
3. If both Architect & Contractor are liable, Employer may recover cost from Architect if contractor become insolvent