Construction Law Update: Amendments to the Irish Public Works Contracts
16 March 2016
Changes have been made to the Public Works Contracts. With effect from the 4th April, subject to a small number of exceptions, the amended forms of contract must be used on all building projects.
The amendments arise out of the Review of the Public Works Contracts conducted over the last 18 months. We discuss the key changes involved.
The Irish Public Works Contracts were introduced in 2007. The aim was to reduce cost over runs and introduce price certainty. The idea was that risk would be transferred to the Contractor who would be paid a premium for assuming the extra risk. The introduction of the new contracts coincided with one of the worst recessions ever experienced in Ireland. Contractors competed for projects on price but found themselves assuming all the risk without adequate compensation. Inevitably claims escalated as contractors tried to recoup their losses. The inflexibility of the contracts together with the confidential dispute resolution procedure made it very difficult to manage and deal with claims. The amendments aim to deal with some of those issues.
1. Mandatory Bill of Quantities
The Pricing Document will now be a compensation event meaning that the Employer will assume the risk for any errors or inconsistencies between the Pricing Document and the Works Requirements. The pricing document must be a Bill of Quantities prepared in compliance with a method of measurement approved for use with the Public Works Contracts. There will be a much greater onus on members of the design team, which will include a Cost Consultant, to liase with each other at design stage to ensure there are no inconsistencies between the Pricing Document and the Works Requirements.
2. Direct Tendering of Specialists
Direct Tendering of Specialists will be permitted in circumstances where: a) the specialist works exceed 15% of the value of the overall works; b) where certain elements of the works cannot be adequately defined; c) where early engagement is necessary; d) the specialist works have a significant bearing on the outcome of the project; or e) the Employer requires oversight of the appointment of specialists. This will not be nomination in the traditional sense. There will be Named Specialists who will become either Novated Specialists or Reserved Specialists depending on whether they are novated to or appointed by the Main Contractor. In all cases the tender for the Specialist will take place prior to the award of the main contract. The Main Contractor will still be responsible for the performance of the Specialist and will be responsible for appointing a replacement in the event the contract with the Specialist is terminated. The Employer will not make direct payment to the Specialist.
3. Changes to the Disputes procedure: Introduction of the Dispute Management Procedure and a Standing Conciliator
A Disputes Management Procedure will be introduced which will involve the appointment of a Project Board consisting of senior management representatives from both the Employer and the Contractor at the beginning of the project. All disputes arising out of Employers Representative Determinations will be referred in the first instance to the Project Board. If the dispute is not resolved at this stage it can be referred to conciliation as before. For projects with a value in excess of €10 million a Standing Conciliator will be appointed at the start of the project and all disputes arising out of the project will be referred to the Standing Conciliator.
The aim of the Review of the Public Works Contracts was to reduce the cost of disputes. By tackling two of the sources identified as leading to most disputes, i.e. inconsistencies in the Works Requirements and a lack of control for the Employer over the various elements of the works, it is hoped to reduce the level of disputes. It remains to be seen if this will be the case. However, the fact that the claims will now be escalated to senior management early on together with the fact that disputes will be dealt with by somebody already familiar with the project, the parties and the issues leading to the dispute, this should reduce the cost of disputes.
For more information, please contact a member of our Construction team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.