ºÃÉ«ÏÈÉúTV

Developers often pick Design & Build contracts for major projects despite the wide choice of alternative procurement routes.

Why? It’s because developers feel comfortable handing design and construction responsibility over to the contractor; but at the same time they value the contribution contractors can make to the design process. The drawback is that most standard forms do not cater for any services prior to the execution of the building contract and construction – but this is where the pre-construction services agreement (PCSA) comes into play.

Many developers opt for the two stage procurement approach. In stage one the developer sends out outline information to potential contractors for them to price profit, overheads and preliminaries and to work out how they intend to execute the project. The developer selects the best proposal and moves to the second stage – the pre-construction phase.

At this point a contractor might be asked to provide assistance to the project team to finalise the design, method of construction, programme and price before the employer commits to the Design & Build contract. At this stage there is a need for a legal framework – hence the PCSA.

What the PCSA does

The aim of the PCSA is to clarify the relationship between the parties and to document the services which the contractor is to carry out prior to entering into a Design & Build contract.

From an employer’s perspective, one of the most important issues is to ensure the document does not commit the employer to enter into a building contract before it is ready. Its drafting should also clarify that in the event that the employer does not appoint the contractor he will have no liability for any loss of profit, contract and/or any other opportunity.

Most PCSAs will contain payment obligations similar to that found within a building contract, with a fee payable to the contractor throughout the pre-construction period. However some will provide that the contractor will only receive payment for the pre-construction services either as part of the first interim payment under the building contract or if the employer chooses not to appoint the contractor for the remainder of the scheme.

Better design and efficiency

The drawback with Design & Build is that it does not cater for services prior to the execution of the building contract

This is all fine from an employer’s perspective but what’s in it for the contractor? Apart from the benefit of early payment and the ability to get involved in a scheme much earlier than a traditional approach, the main plus is they effectively become part of the employer’s consultant team.

During the pre-construction period, a contractor will provide valuable advice and assistance to the other team members so that the employer, hopefully, ends up with a scheme that is both better designed and more efficient. In addition, due to the contractor’s early input, the chance of disputes arising during construction is less likely as many of the potential buildability problems will have been discussed and resolved. The contractor will also be required to go to the sub-contract market to procure work packages and assist the employer and QS to achieve price certainty and transparency at an early stage.

From a contractor’s perspective, the benefit is that the employer will be reluctant to appoint another contractor for the remainder of the project. Relationships have formed within the project team and the contractor now understands the employer’s requirements. Unless external factors, such as failure to obtain funding and/or planning arise or the contractor has performed particularly poorly, the employer is unlikely to drop the contractor.

Bargaining power

The downside from an employer’s perspective is that the contractor will be aware of its increased bargaining position as pre-construction progresses. As the design develops, the contractor may choose to increase its price considerably, knowing the employer is unlikely to select another contractor.

The other benefit of PCSAs is the ability to include the proposed terms and conditions of the main contract and to agree these at an early stage. Depending on how negotiations have progressed beforehand, the employer may seek the contractor’s agreement to the terms and conditions of the proposed form of contract as part of the conditions of entering into the PCSA. Even if this is not possible the employer can still seek the agreement of the contractor to the terms and conditions in principle, subject to minor alterations during negotiations. Doing this at such an early stage will save time in the future.

It’s odd that while PCSAs are now common in the private commercial development market, one of the few standard forms of contract to recognise the need for pre-construction contractor services is the ACA PPC 2000 Project Partnering Contract – a contract more commonly used by local authorities and housing associations. Maybe now is the time for the JCT and the NEC to include the drafting of a standard PCSA on the agenda for their next committee meetings.

Michael Chilton is a solicitor in Nabarro Nathanson’s construction & engineering department