Design & Build contracts - key points for a main contractor with technology also providing the O&M.

1. DESIGN AND BUILD
CONTRACTS
KEY POINTS TO CONSIDER FOR D&B CONTRACTOR & THEN PLANT
OPERATOR FOR E.G. MUNICIPAL/INDUSTRIAL CUSTOMERS

2. 1. Liability for Design
• Employer’s Liability
• Scope:
• Amendments;
• Defective scope/design;
• Meetings to resolve defects.
• Contractor’s Liability
• Design & Build liability – with the Contractor (“DBC”), as DBC’s scope is Design +
Build (and may include the O&M phase too, e.g. availability/other obligations in a
related O&M contract);
• Defects identification and rectification measures – identification, agree with
Employer’s Representative, rectification process;
• Defect rectification certification – notifications from relevant parties - records;
• Sub-contractor’s liability – flow-down of main D&B contract provisions to sub-
contractors (duty of care deeds/collateral warranties/third party deeds).

3. 2. Variations – Contractor-led (“CL”) versus
Employer-led (“EL”). Contractor (“C”);
Employer “E”).
• Alteration/modification of design – CL / EL:
A. Quality/quantity of work – C generally informing E if variation from originally contracted design suite requiring
additional spend according to contracted scope to increase/decrease spend according to build;
B. Imposition/alteration affecting access to works/time/method of work/order of work;
• Contractor’s right to reasonably object arising in B-instances if outwith originally agreed works-schedules appending
to original contracts, thus requiring a formal deed of variation agreeing scope of additional works, time + cost.
• Variations –
• if from E, no delays, no delay-damages: Time + Cost to be agreed;
• if due to C’s original design incomplete/fault not due to E, then delay + damages (overall program delay) + time + C
and E costs to consider (any sub-C/consultant costs) – {Scope for C to argue E’s original brief was incomplete may be
limited if 2-stage D&B, and if 1-stage D&B, incumbent on C’s design team to hold as many design briefings as
possible to get the scope precisely agreed down to as granular level as possible};
• if relevant teams on DBC project 1 expected on DBC project 2 or 3 at certain time, then this may be factored into
consideration as consequential loss/loss of anticipated future business or loss due to delay in start-up on DBC
project 2 or 3 due to E related-delay on DBC project 1 – N.B. delay in start-up insurance possible however, the excess
on any claim negotiable point re: payment by E if they are responsible for variation not C (DBC) although there
lawyers may seek to exclude this as consequential loss it is worth considering if a real possibility for DBC given
experience and examples capable of being evidenced.

4. 3. Payment (1/2).
• Forms of award for DBC can include:
• Agreed lump-sum (one payment)/
• target-cost (share the pain or gain) with or without bill of quantities/
• cost reimbursable (actual costs of works plus additional fee)/
• measurement contracts (design can be ascertained but quantities unknown/uncertain without
further analysis): can be 2 stage D&B to allow DBC to be appointed, then second stage prior Works
Commencement, further analysis to fix price.
• Pay less/withholding payment notices under the Housing Grants Construction and Regeneration etc.
Act 1996 (as amended) (“Construction Act”).
• Pay when paid no longer competent as “outlawed” by the Construction Act.
• Dispute resolution processes for payment disagreements (e.g. negotiation by Chief Representatives ->
negotiation -> Expert Determination -> Adjudication -> Arbitration (/Technology and Construction
Court litigation).
• Advance payment from Es to DBC backed by an advance payment bond/not, reimbursable advanced
payment/not.

5. 3. Payment (2/2).
• Interim payments.
• Security mechanisms – {“££” - relatively more expensive to put in place; “£” – a cost but less than ££}
• Retention amount withheld on payments from Es to DBC per invoice (flow-down mechanism into DBC-Subcontractor
sub-contracts) - £ (can be drip-repayment e.g. post date of PC, repaid in %-amounts of an agreed overall larger
retention sum withheld on Completion Date);
• retention bonds - ££;
• (performance-related) Liquidated and Ascertained Damages (must be a genuine pre-estimate of loss so formula for
calculation to show some method to calculate LADs in the contract, usual) – [£];
• performance on-demand bonds (call on the terms of the bond relating to failed performance under the relevant
contract/security backed by suitably well credit-rated bank/insurance company) - ££;
• parent company guarantee – if Parent-Co for DBC happy to grant this from a group-company that is ring-fenced
contractually and if the scope of the PCG limited to set amounts, could be a good option – low (time and resource to
produce)/no £, but, if group-policy not to provide PCGs, then a form .
• Collateral warranties between E and any DBC sub-contractor, and DBC with any sub-contractor-sub-
contractor/consultant (ACE/RIBA consultant appointments/MF Suite Appointments/FIDIC)
• Construction Industry Scheme tax rules – any sub-contractor’s must register under these rules with Her
Majesty’s Revenue and Customs (if in the UK/check local jurisdiction for any equivalent scheme) to have 20%
deducted from payments by DBC to them (unless DBC Accounts can verify with HMRC that a relevant sub-
contractor is not registered, whereupon 30% may be deducted from a relevant payment under the CIS
rules). This applies to businesses averaging a spend of £1m/more per year.

6. 4. Practical Completion
• Practical Completion
• Independent Technical Assessment for DBC (“ITA”);
• Employer’s Agent monitoring works for DBC and providing ITA;
• Certifying works as complete (commissioning & performance testing ->
acceptance & final certificate);
• Snag List – i.e. items that are less than a sum of money e.g. £1000 to
complete but not more than £15,000-£20,000 that can be rectified in e.g. 6
weeks;
• Warranty Period insurance;
• Handover list of documents, HSA file, designs, drawings, O&M user manual,
training for O&M staff for DBC sub-contractor group-co (if not the same
company as provided the D&B works).

7. 5. DBC Patent/intellectual property
• Restricted non-assignable licensing of certain DBC-IP conveyed with
the built plant to ultimate-Employer/customer (“Purchaser”).
• Breaches/infringement of DBC-IP to be sanctioned heavily in relevant
clauses on DBC-IP.
• DBC-IP to be informed of any IP-infringement claim and to be able to
manage any such claim with relevant Purchaser’s in-house legal
team/external counsel.
• Purchaser to pay for fees, royalties or other charges under the term of
operation and use of any built plant/DBC-works: insofar as not
already included in the overall Contract Price.

8. 6. Ways to Limit DBC-liability
• Health & Safety:
• HSA co-ordinator, manual and monitoring throughout DBO.
• Spot inspections/audits from DBC base-staff on relevant projects.
• Construction Design Management regulations:
• CDM Co-ordinator to be appointed and to manage CDM construction and design obligations with staff during D&B phase, and to hand over manual and documents to
O&M on date of final acceptance of plant/date of practical completion of civil works.
• Limitation of liability clause: e.g. for consequential losses. N.B. cannot limit liability under English law for death or personal injury caused by negligence (test for professional
negligence claim (“PNC”) in law: existence in law of a duty of care; behaviour that falls below the standard of care imposed by law; causal connection between the defendant’s
conduct and the damage; and, damage falling within the scope of the duty; PNC in tort: (a) foreseeability: was it reasonably foreseeable that the claimant would suffer the kind
of damage which occurred; (2) proximity: was there sufficient proximity between the parties; (3) was it was just and reasonable that the defendant should owe a duty of care of
the scope alleged), or for fraudulent misrepresentation (there must be a representation, which is false, the defendant knew that the representation was false or was reckless as
to whether it was true, the defendant intended that the claimant act in reliance on the representation, and the claimant relied on the representation to its detriment).
• Insurances:
• up to date, comprehensive, regularly checked (in main contractor-co, in sub-contractors and any consultants, and with Employer/purchaser).
• Termination due to Employer’s fault/Contractor’s fault:
• to be tightly drafted, e.g. for material breach, direct/indirect change of ownership, or for a insolvency-related event.
• Suspension for non-payment: if E late in paying against a key performance indicator/milestone date, then DBC should have the ability to suspend works without liability for delay
damages/non-performance liquidated and ascertained damages.
• Set-off: DBC able to set off any damages claims for delay/performance if E responsible in any objectively verifiable and capable of being evidenced way – best to get independent
assessment report.
• Site conditions: full due diligence (e.g. geotechnical surveys) to be carried out prior to works-commencement and to be either at E or C risk (if at C risk, then prior to entering into
contract, thorough analysis recommended, and cost to rectify site e.g. asbestosised waste etc. to be factored into pricing).
• Employment: ensure that if any employees to be engaged that relevant employment law considerations factored into consideration, including EU Working Time Directive, TUPE,
or other contract/legislative requirements in collaboration with DBC-HR.
• Change Control provisions: if third party investors, and if any “step-in” provisions drafted into a relevant contract, ensure that work completed by DBC up to any Change-Over
Date, if a relevant change-control trigger-event arises, that is capable of being certified as complete, is paid for up to and including the Change-Over Date.

9. ANY QUESTIONS? SEND AN EMAIL.
Produced by:
Bhalindra Bath
Email: bhalindra.bath@mybusinesscounsel.com
Date: 26 March, 2015