Abstract
Delivery techniques involving conventional and non-conventional contracting methods in North America (NA) and Europe are presented for the construction of bored pile (drilled shaft) foundations. For the purpose of this paper, NA and European Specialty Foundation Contractors (SFCs) were polled through the Deep Foundations Institute (DFI) to determine common practices, issues, views and experiences facing the SFC during the installation of deep foundations. Additional information was compiled from research on the subject matter. Comparisons are provided pertaining to: contracting methods, document forms, payment, contracting provisions, regional influences and cultural differences involving language barriers and currency. In addition, the authors have considered and summarised the common aspects, trends and how the evolution of these methods has impacted or altered the North American/European SFC's business model. It should be noted that the authors' reference to NA refers to the United States, while Europe refers to members of the European Union, with emphasis on the United Kingdom and Germany.
Introduction
Standard contracting forms in North American include those maintained by the American Institute of Architects (AIA), The Associated General Contractors of America (AGC; common for General Contractors and Subcontractors) and Associated Owners and Developers (AOD). These forms are commonly used in the United States for a variety of construction projects. It is pertinent to note that much of the polling data as provided by the Specialty Foundation Contractors (SFCs) indicated that subcontract agreements typically involve a variation or a hybrid version of the standard forms.
Standard forms for construction contracts in Europe involve a much broader spectrum of contracting options. These forms include those supplied by the International Federation of Consulting Engineers (FIDIC; mostly used in Eastern and South Eastern Europe), Institute of Civil Engineers (ICE; via the New Engineering Contract (NEC)), German Construction Contract Procedures (VOB), and the Joint Contracts Tribunal (JCT). The variety of standard forms is largely due to cultural and language differences between countries; however, this situation has lessened with the formation of the European Union (EU) and with the establishment of common market rules. Each EU member country, through national legislation, is required to comply with EU directives for standardised contracting methods and procedures. These standardised practices are currently being implemented for larger, more complicated projects.
A comparison of tendering and contracting differences for the United States, Europe, United Kingdom and Germany are provided in . The general overview for North America (NA) and Europe is provided for comparative purposes and is not intended to be inclusive or descriptive of the benefits of one standard contracting form over the other. Furthermore, the authors have focused on the more prominent associations and the standard forms they offer because these forms are generally accepted by the building industry and have been tested by the courts. Lastly, while the documents generally have the objective of fairness to all parties while promoting the project, the standard forms tend to favour the party or the interests of the association providing the documents. The key question to ask when selecting the optimal contract for a specific project should be ‘Will the document serve the purpose of guiding the project from start to completion, and will it mitigate the potential for cost overruns, schedule delays, and disputes? (Building Advisor.Com Citation2015)’.
Table 1 Tendering and contracting comparisons (public works) (Ohno and Harada 2006)
Contract documents – standard forms
Practice in NA
American Institute of Architects
The primary source for contract agreements and administrative forms has been the American Institute of Architects (AIA), and its standard documents are used throughout the construction industry providing uniform contract terms and standardised general conditions (AIA American Institute of Architects Citation2014). AIA contracting documents are designed to achieve a fair balance among the contracting parties, and, as such, the documents are intended for nationwide use and are not influenced by regional differences or state laws. AIA documents and contract provisions have been tested in court and are enforceable under the existing laws of the various states. Currently, there are approximately 200 agreements and administrative forms available, which address a variety of construction projects and have been used by owners for both public and private contracts. With regard to SFC works, AIA contract forms are often used in construction management (CM) agreements, where the SFC is acting as a prime contractor employed by the owner. AIA contract agreements reflect the traditional Design-Bid-Build (DBB) method of contracting, and are generally successful at equitably serving the interests of both contracting parties; however, as one would expect the contracts are slightly more protective of the owner's interests. The documents are grouped by family and series to ease the selection of appropriate documents for the intended purpose. The AIA forms are most commonly used when the architect designs the project, administers the contract, supervises construction, and provides a waiver of consequential damages for the owner and contractor.
Associated General Contractors of America
Associated General Contractors of America (AGC) publishes a number of standardised contract agreements, which currently number in excess of 100. The AGC is considered a trade organisation, representing more than 26 000 firms including general contractors, specialty-contracting firms, and service providers and suppliers. Regional chapters throughout the United States are located in most major construction markets. Based on the SFC polling results, the AGC subcontract form or a hybrid variation thereof was one of the more common agreements used for contracting SFC services. This is primarily because most general contractors are awarded a substantial amount of their work through DBB contracts, and then award the deep foundation requirement to the SFC. AGC contract agreements have been developed through a collaborative effort involving industry experts – general contractors, owners, specialty contractors, construction attorneys and others – to provide an equitable balance of risks and responsibilities for the contracting parties' legal relationship, and include a waiver of consequential damages for the owner and contractor. Common contract terms and general conditions are presented in a single document format, and the document can be modified to meet the specific needs of a project through separate attachments, such as amendments or exhibits.
Associated Owners and Developers
AOD agreements are primarily between owners and contractors for lump sum (LS) agreements that promote the project and preserve the interest of the owner (Webb and Cahalan Citation2002). The standard form is referred to as the AOD 2002. Given that this is a relatively new form of construction contract (2002), there is limited information on its use and application with SFCs. The AOD contract agreements are characterised as fair to both parties and as having a focus on the success of the project, with sufficient flexibility to be able to customise a menu system to reflect the specific contract needs of the contracting parties. The single document includes common contract terms, general conditions and provisions for consequential damages.
Europe – standard forms
International Federation of Consulting Engineers
International Federation of Consulting Engineers (FIDIC) contracts are often referred to as the international standard. To ‘harmonize’ different contract languages, the International Federation of Consulting Engineers produced standard contract forms for civil engineering construction projects, which are used throughout the world. The most recent versions of the ‘color forms’ are based on the 1999 edition, commonly referred to as the 1999 suites by most European construction and engineering professionals. The colour suites consist of the following (FIDIc website n.d.):
The Red Book – conditions of contract for construction for building and engineering works designed by the owner or its representative, the engineer.
The Yellow Book – conditions of contract for construction for plant and Design-Build (DB) are recommended for construction of electrical, mechanical, building and engineering work designed by the contractor to the owner's specifications and requirements.
The Silver Book – conditions of contract for turnkey projects are recommended where one entity takes total responsibility for the design and execution of the engineering project.
The Green Book – conditions of contract are recommended for short form of contract on projects of small capital value involving engineering and building construction.
The FIDIC suites are characterised by a broad range of contract forms for specific types of construction and contracting methods, and provide a standard form for international construction involving civil engineering projects with the goal of ‘harmonizing’ different contract languages. Contract forms typically include general conditions, project-specific conditions and contract procedures; and the forms provide a variety of contracting methods commonly used in international construction contracts involving unit price, LS, cost plus and guaranteed maximum price (GMP).
Institution of Civil Engineers
Institution of Civil Engineers (ICE) is an independent engineering institution consisting of civil engineers with principal membership in the United Kingdom, but also represents civil engineers worldwide. ICE developed the NEC, which is a formalised system that guides the drafting of civil engineering and construction contract documents for public and private projects. The contracts consist of two parts: Part One is concerned with data provided by the owner, while Part Two is concerned with data provided by the contractors. ICE contracts contain standard provisions along with provisions to address project-specific contract requirements, and were introduced to minimise adversarial situations between contracting parties. The ICE contracts are suitable for large and small projects, civil engineering projects, construction projects, and DB projects, and these contracts represent a target price contract, especially in form of the NEC3 – target price model, which are commonly used for infrastructure works.
The Joint Contracts Tribunal
The JCT is primarily used for building construction and, less so, for civil engineering contracts. Several standard forms are available that address the variety of contracting methods and construction projects. The JCT contract forms are adaptable for use on major/minor construction projects, and can be implemented on projects where phasing is required, incentive payment provisions are considered, acceleration is needed, value engineering is used, and mediation for dispute resolution (DR) is anticipated.
German Construction Contract Procedures (VOB)
The VOB is the standard reference work for the construction industry in Germany. The VOB governs the award of construction contracts (Part A), sets out conditions of contracts related to the execution of construction work (Part B), and describes good building practice (Part C). The VOB documents are the result of collaboration between government agencies and the private sector to develop rules and regulations for public contracts.
Contract documents – types of contracts
There are various types of contracts used in conjunction with major construction projects in the North American and European markets. A brief summary of those most commonly used in each market is provided in the subsections below (AIA-AGC Project Delivery Second Edition Citation2011).
Contract types used in NA
LS – one of most common agreements between a supplier of services and an owner/client. The contractor agrees to provide specified services for an agreed to price.
Unit price – a pre-determined, fixed value is provided for each specified unit of work to be performed. For each item or work unit, the total price is determined by multiplying the unit price by the actual measured quantity of work performed. This contract type is amenable to account for significant variation between expected and actual quantities.
Time and material (T&M) – generally used when quantities cannot be determined, project requirements change, or in cases when the contracting parties cannot agree on a price. The contractor is reimbursed for labour, equipment and material costs along with an agreed-to overhead and profit percentage.
DBB – consists of three parties: owner, designer, contractor. Typically involves two contracts; owner-designer, owner-contractor. The entirety of the design is completed before the bidding phase. The award is most often based on low bid or best value: total cost.
DB – design and construction services are contracted by a single entity. The contracting entity can be managed by the architect or the contractor. These projects are commonly used to minimise risks for the client and to reduce the delivery schedule by providing an overlapping of design and build requirement. This contracting method is embraced by owners as the performance risk is shifted to the contracting team.
Cost plus – consists of a fixed amount of profit for the contractor. If construction costs are lower than the estimate, the savings are returned to the owner. If costs are higher than the estimate, then the owner must pay the additional amount.
GMP – contractor provides an estimate for cost, similar to lumped sum agreements, except the profit is limited to a specified amount. Construction savings are returned to the owner, and cost overruns are credited to the contractors account.
CM agency – owner/manager relationship where a CM firm will administer and oversee the design and construction of a project, but, generally speaking, will not perform the construction duties. The owner typically enters into individual contracts with each of the specialty contractors. Specific responsibilities of the CM include site management, liaise between specialty contractors and owner, administration of project schedule, QA/QC and cost control.
CM at-risk – construction manager assumes risk for building the project consisting of design, management, and construction. This contract type is often associated with GMP. The CM at-risk agreement can take one of two forms: performance risk for construction or a cost guarantee, as with a GMP provision.
Engineering, procurement and construction – consists of a contract arrangement between the contractor and the owner, where the contractor designs the project, procures materials, and builds the project. Price is commonly negotiated based on a defined scope and specification, as provided by the owner.
Integrated project delivery (IPD) – a collaborative arrangement involving the project build team. With a focus on the project outcome, the team consists of the owner, the architect, and the contractor. Typical characteristics of an IPD approach include shared risk, collaboration by the team on project planning and scheduling, overlapping of design and build, and shared risk and reward.
Public–private partnership (PPP) – involves a contract between a public agency and a private party. The agreement often includes design, construction, finance and maintenance for a certain period of time of a project for a fee. PPP can also be considered a form of procurement because of the financing requirement. Typical PPP models currently being used in NA have been adopted from Europe, as they have been used on numerous public transportation projects.
Contract types used in Europe
LS – one LS contract is used for the entire contracted work; however, sometimes numerous partial LSs for specified parts of the work are used (e.g. NEC3 Main option A). Risk of quantity changes lie with the contractor.
Unit price – the work is performed for a pre-determined, fixed amount for each specified unit of work performed. The total price is determined by multiplying the unit price by the actual measured quantity of work performed for each specified unit; capable of accounting for significant changes between expected and actual quantities.
DB – shares the conventional characteristics of the U.S. model, with the exception that there is wider acceptance in the use of DB for public contracts in Europe.
Cost plus – similar to NA, a contract between owner and prime contractor to perform work on an actual-cost basis, plus a percentage or fixed fee which is applied to actual costs.
Stipulated price sub-subcontract – standard subcontract form between subcontractor and sub-subcontractor, where payment is based on a stipulated or fixed price.
Stipulated price contract – standard prime contract between owner and prime contractor to perform the required work for a single, pre-determined fixed price or LS, regardless of contractor's actual costs.
Target price – quantity per unit value or LS price agreed to as a target, but the Contractor is initially to be paid on cost+fee basis; there is a claim procedure for target adjustment in case of variations or delays. Contract contains a bonus/penalty provision in case cost+fee payments are higher or lower than target. Typically, there is a very high administrative effort and cost due to parallel administration of two remuneration methods.
GMP – LS price agreed as a price cap; contractor to be paid on cost+fee basis up to the cap. In case the cost+fee remains below the cap, the savings are shared; a version of the target price model with more risk shifted to contractor.
PPP – the PPP is funded and operates through a partnership of government and one or more private companies. The private entity provides a public service or project assuming substantial financial, technical, and operational risk in the project. The government entity can provide a capital subsidy in form of a one-time grant or put, at disposal, revenues including tax breaks or by removing guaranteed annual revenues for a fixed amount of time.
Early contractor involvement (ECI) – ECI is providing an efficient approach with regard to design and performance of infrastructure projects. Conceptually similar to DB contracts, ECI contracts are considered a new approach to procurement. Contractors are the professionals and they bring their field of expertise, as well as their technical knowledge to the client at an early stage of the project. ECI is cost effective, more efficient, and risk is minimised through management, direction, and control. It can be considered as a fully accountable and measurable system resulting in a less adversarial environment.
Contract procurement – delivery methods
The traditional model of contract procurement is DBB, and is widely used in NA, where contracts are most often awarded based on a low bid basis for both public and private projects. Conversely, Europe is moving away from the DBB model, and is employing alternative contract procurement methods in its place (FHWA Citation2015). The DBB approach consists of three major parties for project delivery, which typically includes the owner, architect, and contractor. European contracting tendencies are more defined by a selection process involving ‘Best Value’. This typically involves contract techniques that include a partnering relationship (collaboration) or trust between the contracting parties, involving criteria for contract awards other than lowest price for both public and private owners. Similarities between Europe and NA unmask similar shortfalls with the traditional DBB approach, and, consequently, fuel the transition to ‘Best Value’. A number of common concerns expressed by owners and contractors regarding DBB approach include: price driven (lowest bid does not guarantee best value), time and cost overruns, claims and litigations, bidders being required to bid plans and specification to avoid being non-compliant with the request for proposal or bid, the minimisation of innovation, and unqualified contractors being awarded work resulting in performance issues.
Europe, via the EU Directive (Crown Commercial Service Citation2015), allows negotiation and ‘Best Value’ or ‘Most Economically Advantageous Tender’. Contract awards can and often are based on the use of a set of criteria that is evaluated in conjunction with the low-bid. Examples of some of the more standard selection criteria include past experience and performance: i.e. prequalification requirements for bidders; technical expertise; quality of the technical proposal including post-award value engineering; balance of price, technical proposal, and proposed schedule; and maintenance cost / project life.
Based on recent contract awards involving several major bridge construction projects in the United States with contract values in excess of one billion dollars each, there is evidence that DB is gaining favour with various state departments of transportation and with the U.S. Federal Highway Administration (FHWA). Procurement is based on a combination of price and technical score involving a point scoring system, which is value-weighted to add or deduct cost to a contractors bid to determine ‘Best Value’. The price proposal and technical proposal are typically evaluated independently of the other by two teams to determine the successful bid. The EU has had much success with the concept of ‘Best Value’ and ‘Most Economical Advantageous Tender’ in public sector contracting. Conversely, practice in NA is just coming to understand how to use effectively these alternative contracting and procurement methods to provide economy, value, innovation, and successful project delivery. As to what the future holds with regard to embracing these methods in NA will depend largely on the success of the projects currently being constructed.
Payment – remuneration models
With the advent of non-traditional contracts and contracting methods, such as PPP, ECI, DB and concessions, payment methodology and remuneration models have had to keep similar pace of advancement. The traditional payment methods, such as unit pricing for items of work completed, did not fit the needs of the contractors performing the work or the clients' need for the product and its intended use. More efficient and fair remuneration payment models have been established to address this partnership idea as these new types of contracts have become more widely accepted and as a stronger relationship and trust developed between designer, owner and contractor.
The common payment models currently used in both NA and Europe include the methods briefly summarised below.
Unit price – established contract quantities and unit prices for each item of work constructed. The owner pays the contractor for actual quantities provided or installed on the project. A unit price agreement provides benefits to both owners and contractors; that is, the owner will only pay for actual quantities installed, and the contractor is paid for the actual quantities installed. Most often used on public projects, specifically on transportation projects in the U.S. In Europe, the trend is shifting to performance and to delivery of services or products.
LS – used in civil engineering construction contracts to reduce design and contract administration costs. The contractor is required to submit a total (stipulated or fixed) and global price, in lieu of bidding on individual items. The owner in a LS contract assigns all the risk to the contractor, which, in turn, could be expected to demand a higher mark-up in order to compensate for the risk for unforeseen conditions. The contractor will be responsible for the proper execution and will provide its own means and methods to complete the work. This type of contract is developed by estimating labour/equipment, material, and adding an agreed amount for overhead and profit. This model is not common in Europe.
Time and material – this approach is used when contract amounts cannot be agreed to by the contracting parties, when the scope of work is not clearly defined, and on projects where the risks cannot be quantified.
Some of the payment models that have evolved because of the newer contracting methods discussed hereinafter are briefly summarised below.
Milestone progress payments – common in both NA and Europe. Often used in DB contracts where the design concepts or design requirements are provided, but the final design and contract award have not occurred. Closely linked to performance type contracts. Payment is made upon completion of a work item, which is tied to a schedule of values generally agreed to by the DB team and the client.
GMP – a cost-plus fee contract variation; basically, the GMP is a cost-plus agreement with a cap on the owner's total liability for the costs of project construction. The owner is obligated to pay the contractor for the actual costs of construction up to a certain sum; if construction costs exceed the agreed upon construction sum, then the contractor is liable for the cost overruns. Owners and contractors should ensure the terms of GMP are clearly defined, as there are advantages in using such a type of contract, but there are accompanying risks as well.
PPP – in addition to being a type of contract, the PPP agreement offers a turnkey approach involving design, build, finance, and maintenance between a government entity and a private business venture.
Contract provisions – common concerns in bored pile construction
As much as 75–100% of deep foundation work is performed using the traditional DBB contracting model. These percentages will vary as a function of the size of the contracting company, specialty, locale and country of origin. The research and polling of European SFCs suggest that the traditional DBB model is being used less, and the value for money (VFM) or best value procurement methods are gaining favour. The contract delivery section of this paper highlighted a number of concerns and difficulties when projects are awarded solely on lowest bid. In NA and in the EU, the SFC is concerned about risk, the assignment of risk, and, most importantly, who pays for the risk. On most public contracts, recovery is often limited to the change of condition provisions. In NA, historically speaking, these provisions look good on paper, but are fraught with difficulties and processes involving notice requirements, dispute resolution boards (DRB), nonpayment, the idea that a changed condition is a ‘dispute’, and that work must continue as a lengthy process of ‘wait’ occurs.
The SFC typically funds the work, and is left with few options short of costly litigation or the threat of such to recover its expenses or cost. It is for these reasons that the collaborative approaches of the DB, IPD, CM, and other hybrid contracting methods offer some optimism to the SFC. Risk issues can be discussed during the design or during contract negotiations establishing protocols that address performance, payment and other concerns for progress of the work. SFCs have to be prepared to participate in this process. The alternative contracting methods offer hope, but, at the same time, the SFC must accept that much of its work will still be performed using the traditional DBB contracting models. Therefore, the SFC will have to deal with all of the general considerations and pitfalls associated with the risks associated with internal and external environmental forces.
A brief summary of the concerns shared by both North American and European SFCs is provided below.
Soil risk – change of conditions in principle, for EU contracts, the contract price is deemed to include all risks (including the soil risk). Contract conditions require the owner to provide all information during the tender process that is available to them; a distinct difference is to be made between ‘factual information’ and ‘interpretations’. However, in NA, the contractor does not bear the total soil risk if the actual conditions vary from what was provided in the bid documents. The geotechnical report should clearly describe the site conditions and any site particulars. Written notification to the owner of any physical conditions, which are encountered by the contractor and considered to have been unforeseeable, should be made; a change order or a change directive has to be issued for work to proceed. In the U.S., the Code of Federal Regulations (CFR) 635.109 requires that all Federal-Aid highway contracts must include a stated differing site conditions (DSC) provision.
Variations – change order vs. change directive changes to the contract are made by change order or change directive; any change performed by the contractor without a change order or change directive is done so at the contractor's risk. This contract provision is common in both the EU and NA.
Change order – written amendment to the contract signed by both the owner and the contractor to proceed with a change; agreement by the contractor is required. It is paid according to the agreement reached between the parties. Extension to the contract time should also be agreed upon as part of the change order.
Change directive – a unilateral, written instruction from the owner to proceed with a change; no agreement by the contractor is required. It is typically paid on a ‘cost + fee’ basis; ‘fee’ should be provided on a contract basis until and unless otherwise agreed. Extension to the contract time should be agreed to by the parties while performing the change directive. In case of disagreement on a time extension request, a DR process is available to the contracting parties.
European and most North American contract agreements allow for changes (i.e. variations) to the scope of work by the owner. Changes can be ordered unilaterally by the owner and can be up to the time the owner has accepted and taken over the work. However, in some regions or countries, the owner's right to vary the scope of work is limited. In Germany, unilateral variations are limited to ‘changes necessary to finish the works,’ whereas in England, there are usually wide variations, limited only by ‘nature of the work’. In NA, similar to England, the owner generally can add or delete work from the scope before the work starting or even during the work progress.
There are rules that apply when determining changes in remuneration in the case of variations, and some of the rules are summarised below.
Germany – a new price can be determined based on the prices in the contractor’s final offer; the contractor's original estimate is used to provide more details, if necessary. The main concept is for price levels to be the same for the original scope of the work and for the variation in the work.
England – it is typical to choose a ‘reasonable cost + reasonable profit’ approach to determine the price of the variation in the work. In such a case, there is no immediate link between the original price and price for the variation of the work.
NA – the unit price adjustment is based on an adjustment in actual quantities, but is restricted to an increase or decrease of 20–25% from the original quantity listed in the contract.
DR process in case of a dispute, the contract should provide instructions for the proper performance of the works to which the contractor is bound. The contractor is required to provide a written notice to the owner of the nature of the dispute. The time in which to do so should be in accordance with the contract terms, and failure to do so will or could release the owner from any financial responsibility. Both parties (owner and contractor) could request a project mediator or could refer the dispute to an arbitrator (for binding or non-binding arbitration). In general, DRBs offer non-binding determinations.
Claims – time extension and costs compensation an action or omission by the owner or anyone employed or engaged by the owner contradicting to the provisions of the contract will entitle the contractor to a time extension and cost compensation. The same occurs in case a stop work order is issued by a court or other public authority, not due to action by the contractor. Common ‘Force Majeure’ events – labour disputes, strikes, abnormally adverse weather conditions, etc. – will entitle the contractor to a time extension but not to cost compensation.
Delay damages even if a delay damages clause is not provided in the contract, it does not mean that the contractor has no liability in case of delay to the project. Conversely, the contractor is liable for the actual damages incurred by the owner as result of the delay. The same is applicable if the owner delays or interferes with the contractor and its operation.
Bonds – surety vs. guarantee under contract stipulations, the contractor is asked to maintain the financial security required at the time of bidding or as mutually agreed upon before the signing of the contract, until satisfactory fulfilment of the contract. A guarantee is independent from the contract; it is an unconditional instrument, and should be released at the first demand given proof of non-performance by the contractor. The amount of the guarantee is typically limited to 5–10% of the contract price, and not the full contract value. A surety is independent from the contract, as well, and the issuer has the same defences as the owner, and may choose one of three remedies: (i) complete the contract, (ii) remedy the default or (iii) issue tenders to identify a contractor who will complete the project in accordance with the contract requirements. A surety could back-charge the contractor for the cost of the remedy. In the EU, the cost to the contractor could reach up to 50% of the contract price. In the US, however, there is no limit, as the contractor is held to the contract terms.
Holdbacks – retentions to secure the obligations under the contract, the basic holdback represents 5–10% of the contract price. Payment of the basic holdback is per the contract agreement, but it considers the date of publication of substantial completion of the work, the date of completion of the contract, and the termination of the contract.
Warranty – the general rule with contract types where the contractor has no design responsibility is that the works have to conform to what has been agreed upon in the contract between contractor and owner; however, the parties are deemed to have agreed upon works conforming with all applicable technical standards and industry practice, unless explicitly agreed upon otherwise, unless the owner was aware that the scope of work does not conform with applicable technical standards and industry practice, or unless the parties are deemed to have agreed upon the works to be executed for purpose, provided the contractor has been informed about the intended purpose. In NA, the work is inspected by an independent party contracted by the owner, hence, there is no typical warranty requirement, save for conformance to the applicable specifications, standards, and QA/QC provisions specified (e.g. CSL to verify concrete quality). In general, the same principles apply in DB contracts; however, the scope of work is described, typically, in a more or less functional way. For this reason, in DB contracts, having to execute the works ‘as agreed in the contract’ carries a lot greater risk for the contractor as it is almost, by definition, a fit for purpose requirement.
Indemnities – each party has general obligations to indemnify each other for losses, cost, damages, claims, etc. that are incurred by the other or any third party, which were caused by a negligent act(s) and/or negligent omission(s) of a party, failure to fulfil the terms and conditions of the contract or failure to perform, and exposure to consequential damages. Damages can be direct damages (those arising naturally and in the normal course of the breach) and indirect/consequential damages (those that do not arise naturally; i.e. according to the usual course of the things: obstructions, equipment breakdowns, etc.).
Insurance – before commencement of the contract work, the contractor must provide confirmation for the following insurances: (i) general liability insurance – in the name of the contractor with respect to liability arising out of the operations of the contractor with regard to the contract work. The duration is specific to the contract but can be required for up to 1 year from the date of substantial performance of the work, and (ii) contractor equipment insurance – in the name of the contractor. The duration of the equipment insurance is specific to the contract, but can be required for up to 1 year from the date of substantial performance of the work. Deductibles are shared between parties according to their liabilities in the occurrence of the loss. In many cases, the contracts include language that attempts to transfer all liability to the contractor, regardless if it is owned by the owner or general contractor.
Owner's right to terminate the contract – if, in the owner's opinion, the contractor fails to perform the contract work properly, the owner may provide notice in writing of default to the contractor. The contractor must then cure the alleged breach within the contractual specifications. If the contractor fails to correct the default, the owner may correct the default and deduct the associated costs from future payments to the contractor, or the owner can terminate the contract in whole or in part. If the owner terminates the contract in whole or in part, the owner could take possession of the work, and could use the material and construction equipment at the jobsite to finish the work, could withhold further payment, or could charge the contractor a reasonable amount for all of the required corrective work.
Contractor's right to terminate the contract – the contractor may terminate the contract in case of bankruptcy of the owner, work stoppage for an indefinite time due to reasons independent of the contractor, or if the owner fails to pay after being provided with proper written notice. If the contractor terminates the contract under the aforementioned conditions, the contractor is entitled to payment for all works performed, as well as, for loss of reasonable profit.
Conclusions
There are a multitude of contracting options available to contractors and owners for construction services. This in itself can seem overwhelming or certainly confusing when choosing a contract or when signing one as a contractor/subcontractor who is performing the work. Many organisations provide standard forms that typically favour their client's interests. Compounding the situation, many of the standard contract forms have been altered by the contracting party or, in some cases, compromised all in an effort to protect the contracting parties' specific interest or knowledge of the work. This can be troubling for the SFC when bidding or performing work using the traditional DBB model (relationship based), whereas the SFC is typically working as a subcontractor, not privy to the contractor–owner agreement, to build a specific component of the prime contract work. This relationship can be problematic, as the SFC has no relationship with the owner and, therefore, no recourse but with the prime contractor directly and only.
The nature of deep foundation work in itself is difficult and un-predictable due to possible differing ground conditions, which may lead to many revisions and change orders even within the same site. The combined effect of the relationship between the owner and the prime contractor, along with DSC, can and often does create problems for SFCs, which can lead to subsequent disputes and even litigation between the parties. For this reason alone, it is of interest and concern that specialty contractors have a seat at the table and participate as much as possible in the development of forms and types of contract agreements utilised for this specialised type of work.
As evidenced by the utilisation of other contracting forms, such as DB, the deep foundation industry is realising the benefit of the team approach involving the owner, designer, contractor and specialty contractor, which can provide the best project on time and within budget. This approach provides for innovation and, more importantly, a reduction of risk or, at least, a belief that there is risk sharing among the parties.
While these conclusions are significant and important, other concerns and conclusions determined by the authors' collaborative efforts to represent their respective countries are listed below.
Shared concerns – liability, health/safety, environmental impacts, union/labour agreements, visa and work permits, laws and regulations, QA/QC, and payment terms and conditions.
Opportunity for innovation in contracting agreements and methods, as evidenced by the increased use of DB projects currently under way.
Europe is moving away from the traditional DBB model for construction contracts at a faster pace than NA. This is largely due to a desire to reduce risk, avoid contingency pricing, and improve the construction schedule. European contractors are more accustomed to using the ‘Best Value’ method.
DB/best value /CM models provide the specialty subcontractor an opportunity to participate in the contract development for such items as contract terms and conditions, payment, construction risks associated with change of conditions, and opportunity to be innovative.
The general principles of geotechnical works are consistent throughout the world as well as the legal and contractual challenges connected to them.
On major projects in the EU, contract types vary only slightly in the country-specific details due to the EU Directive for standardised practice and procedures.
Warranty in the EU is defined by a 10-year period, whereas the warranty period in NA is not explicitly defined. The warranty period is less of a concern to the North American SFC as the foundation elements are inspected by the owners and the requirements of the QA/QC programme confirm that the construction was performed in accordance with the design and specification requirements.
References
- AIA American Institute of Architects. 2014. Contract documents. www.aia.org.
- AIA-AGC Project Delivery Second Edition. 2011. Primer on project delivery, pp. 1–13.
- Building Advisor.Com. 2015. Industry standard construction contracts, pp. 1–4.
- Crown Commercial Service. 2015. A brief guide to EU public contracts directive (2014), p. 16.
- Demblin, A. and Morth, C. 2013. FIDIC Bau – und Anlagenbauvertrage, Wien.
- FHWA. 2015. FHWA Chapter 3 – Contract Administration: Technology and Practice in Europe/Office of International Programs – FHWA. http://international.fhwa.dot.gov/contractadmin/03.cfm.
- FIDIc website. http://www1.fidic.org/resources/contracts.
- Ohno, T. and Harada, Y. 2006. A comparison of testing and contracting systems for public works between Japan, the United States and EU Countries. pp. 49–71. Government Auditing Review, Volume 13, March 2006.
- Webb, D. and Cahalan, S. 2002. Move over AIA: There’s a new standard form construction contract for owners and developers, pp. 1–6.