Much Obliged

Utility Week - 12/09/2008

Like many industries, the competitive multi-utility connections market (CMUCM) is facing a challenging time. The market itself is becoming ever more competitive and the current economic climate is leading to a downturn in work from the housing sector.

Regardless of this, it is still common practice for multi-utility contractors to trade exclusively on their own standard terms and conditions. These contracts are often weighted in the contractor’s favour, typically excluding common law rights and remedy clauses. With the conditions generally limiting a contractor’s liability to actions of negligence and consequential losses, the need for clarity throughout the multi-utility connections market is vital.

Multi-utility contractors generally provide a quotation for works that is based on required capacities and a site layout. Standard methods of measurement are not widely used in pricing the programme of works as these are usually based on the individual contractor’s own rates, which in turn are often related to a framework agreement with their sub-contractors. This means that a quotation breakdown is typically no more than a lump sum price split into contestable works, non-contestable charges and asset values. Unlike other sectors of the construction industry, bills of quantities or schedules of rates are not commonplace. Even more startling is the fact that the timescales for completion of the works are often ‘silent’, with no start date, duration period or completion date.

The ramifications of contracting on this basis are significant. Disputes range from valuation of variations, and pricing of outstanding works once any original quote has expired, to alleged delays in progress and consequential losses.

Where the contract is silent in terms of the commencement, duration and the completion of the works, it is implied by law that the multi-utility contractor has a ‘reasonable time’ to complete. However the definition of ‘reasonable time’ not only depends on the specific works, but in the case of a dispute it will also be at the discretion of the courts, the result of which often differs significantly from the contractor’s expectations.

Pricing can also be an issue as the multi-utility contractor typically prices for executing all of the works in one visit, whereas the reality is that a client such as a house builder will require the work to be executed in phases. These issues are undefined at contract formation and it is not unheard of for large housing estates to be built over a period of five to ten years. The result of this is often considerable additional costs for the contractor associated with phasing of the works, loss of productive working, mobilisation or demobilisation and prolongation costs.

In the current economic climate, there is a growing tendency for clients to claim for consequential losses if the multi-utility contractor fails to achieve the required ‘power on’ date. If you think you are covered by limiting liability - think again. Such claims can include significant damages for loss of reputation, loss of profit on cancelled sales, prolongation costs associated with extended generator hire and running costs.

Even where the contract specifically excludes the right to recover consequential losses, the client is likely to propose such arguments to avoid paying the full contract sum. The multi-utility contractor is then faced with a dilemma to either offer an ex gratia settlement to maintain the relationship or risk losing future contracts.

There is also often an implied term in any construction contract that the client will provide unimpeded access and possession of the site and will not prevent the contractor from completing the works. However it is not uncommon for services to be aborted due to incorrect construction detailing, scaffolding or material obstructions, missing ducts and other contractors causing obstructions. It is therefore imperative that the contract is administered correctly and the client notified and kept informed of events as they occur, with contemporary records kept of additional time expended and costs incurred.

Communication is vital for effective contract management, especially in an industry where the process involves an interaction between asset owners, clients, consultants, councils, contractors and sub-contractors. The inter-relationships between these organisations are often misunderstood by the client which in turn leads to delays and disputes. For example one common cause of delay to power on is failure by the client to complete their legal documents in time (sub-station acquisition, way leaves and easements), which ultimately prevents the asset owner from commissioning the sub-station. Whilst the client may technically be in breach, the usual response is ‘why didn’t you tell me they were outstanding?’

It is also important that the client fully understands and appreciates their own obligations in the contract that must be observed in order to permit completion of the works. One possible way of conveying the process is via a client process flowchart. This should clearly show the connections leading times, mains and service call off processes (together with timeframes), and the completion of the asset owners legal documents prior to energisation.

Due to the many complications and difficulties associated with their contracts there is a growing trend amongst larger contractors to favour standard form contracts such as JCT and ICE. Standard form contracts such as these provide a more balanced distribution of risk, however they do place specific obligations on the contractor to start and complete on prescribed dates. Contractors should also be aware that there are express obligations to provide notices for delay, additional costs, and requests for extensions of time. The penalty for failure to complete in time comes in the form of liquidated damages, and it is therefore important that the contractor gets its contracts in order and administer them correctly.

With increasing competition in the market and growing demands from clients, there is speculation that it is only a matter of time until standard form contracts become the industry norm. But standard form or not, the ability to effectively manage and monitor contracts is fundamental to the successful operations of any competitive multi-utility contractor. By minimising disputes, delays and time in court, both programmes of work and subsequent profits can be maximised.

Jonathan Stonesis a Senior Consultant at commercial and contract management consultancy Blake Newport.

More News and Media