The following is a synopsis of key issues that likely arise during the construction phase.
For large and/or complex projects, particularly where facilities will remain occupied by the Principal during the construction period, the Principal should appoint a ‘Client Liaison Officer’. This person will be a principal point of contact for the builder and superintendent and assist in programming, scheduling, access issues, commissioning, and furniture and equipment selection.
It is essential that the relevant parties take out insurance for most building aspects during the construction process. In most cases it is the Department that takes out ‘Principal Controlled’ insurance. The standard form of contract AS 2124 - 1992 provides the option for the Principal to take out such insurance. Insurance generally covers contract works, and public liability.
However coverage does not extend to areas not designated in the Principal Controlled Insurance such as vehicles, major demolition, asbestos removal, tools etc.
Refer to the Construction Insurance Guideline for further details.
The final cost of a construction contract may include provisional sums and quantities. A provisional sum is a nominated amount of money, usually nominated by a Quantity Surveyor, where the exact cost of work cannot be determined at the start of the contract. It is used for work, which may be carried out, by subcontractors or materials and components to be provided by suppliers or schedule of rates where an agreed price rate has been reached (e.g. $30/sqm for plastering existing damaged walls). These items are included where no firm price can be obtained or the full extent of the work cannot be determined at the time the main building contract is let.
The final adjusted contract sum will vary from the original contract sum when the expenditure against these items differs from that nominated in the contract document. Provisional sums and quantities should be kept to a minimum.
To minimise risk to the Principal, the Department recommends that all subcontracts, including mechanical and electrical, be tendered as a component of the main contract. Consideration will only be given to the inclusion of recommended subcontractors/suppliers if a recommendation by the Principal/Superintendent to the Department can clearly demonstrate that the project will benefit greatly by utilising this method of subcontracting and will generally be considered only if:
If approved by the Department, the Superintendent may propose that a particular subcontractors or suppliers whose work/products should be incorporated in the building; however, the Government supply requirements must always be considered. The Contractor places the orders with all subcontractors/suppliers for their work, materials and fittings.
The Superintendent, or the Contractor may call tenders or obtain quotations for subcontracts and supplies. The Superintendent makes recommendations to the Project Control Group (PCG) for approval of the recommended subcontractor/supplier who also has to be acceptable to the Contractor. This is because the contract is signed with the Contractor and not with the Principal.
There are two main options for engaging and appointing subcontractors/suppliers.
The Department preference for engagement of selected subcontractors/suppliers is option two above. Refer to Section 10 of AS 2124 - 1992 for details on Nominated and Selected Contractors/Suppliers.
It is the Contractor's responsibility and obligation to undertake the construction of a project in accordance with contract documents. The contractor must ensure that the construction meets all time, cost, quality and statutory requirements. This includes the supervision of all subcontractors and day labour.
For smaller projects, the Contractor’s foreman generally exercises co ordination and supervision duties. On larger projects, supervision and co ordination is exercised through the Contractor's team including project manager, general foreman and trades foremen.
The Superintendent, or the Superintendent Representative (SR), is responsible for overseeing that the construction works conform to the requirements of the contract and for giving the Contractor any necessary instructions or clarification/interpretations of the contract documents being used to construct the facility.
It is the Contractor’s responsibility to arrange for the necessary inspections (by relevant authorities and sub-consultants) and to ensure all OH&S requirements are maintained on the site during construction.
Meetings should be held at the construction site (site meetings) at least fortnightly. These meetings should be attended by the Contractor, Superintendent, SR, consultants as required and a Principal’s representative (the client). They should ideally be chaired and minuted by the Superintendent. Minutes are normally distributed within four working days of the meeting. They should record points discussed, outcomes, action to be taken, and by whom, and summary of variations. The minutes are a good way of keeping track of the progress of the project.
Under the Contract requirements of AS 2124 - 1992 the Principal (Health Service/Agency) agrees to pay the Contractor a stated amount or lump sum for completion of the works, subject to the provisions of the contract. This lump sum is known as the 'Contract Sum'.
Extras to the Contract Sum may result from requests for change, called variations, by the Health Service/Agency for additions or alterations during the course of construction or required adjustments to the contract documents. It is critical for the Health Service/Agency to control and restrict these changes to an absolute minimum in order to effectively manage the project within the approved budget and program.
The Contractor is paid progressively as the work proceeds. The Superintendent who issues progress certificates bases this on assessed work value. A certificate states that a certain amount of work has been completed and therefore the work should be paid for. For larger projects a Quantity Surveyor is responsible for assessing the status of the project’s progress.
Contract conditions such as AS2124-1992, stipulate a specified period (28 days) for the payment of the Progress Certificate payment. This period should not be amended and should be strictly adhered to.
Security of Payment legislation has been enacted to ensure that contractors and subcontractors receive payments in a timely manner and reference to the Act should be made to ensure the time and procedural requirements are complied with. Recent changes proposed to the legislation are to be checked by the Superintendent to ensure compliance with the most recent provisions of the Security of Payment Act.
Progress payments are based on a progress claim prepared by the Contractor on a monthly basis. This outlines the breakdown of the trade work and percentage of work completed against each trade. The certificate also shows approved contract variations. The Superintendent and/or Quantity Surveyor will then verify the amount claimed and, if appropriate, recommend that the Principal make a payment. In some instances the amount claimed may be more than the value of works completed. The Superintendent will adjust progress payments accordingly. In making any adjustment, the Superintendent should be aware of GST requirements.
To obtain a reimbursement from the Government for the progress payment the Health Service/Agency must complete the approved departmental claim form (copy attached) and forward, together with a copy of certified progress claim, to the Capital Management Branch (CMB) of the Department of Human Services (DHS).
A variation can best be defined as "The change or modification of the design, quality or quantity of the works or the addition or omission or substitution of any work, materials or goods".
Variations can only be implemented if the Superintendent issues an instruction. Variations may occur because of:
Some variations entail cost and/or time adjustments. Such variations should be priced by the Contractor and accepted by the Superintendent prior to being implemented.
The extent to which a variation to the works is reflected in an adjustment to the Contract Sum is determined by the "valuation" of the variation. After a variation has been valued and agreed, an adjustment can be made to the Contract Sum.
It is recommended that the PCG nominate a monetary limit up to which the Superintendent can issue monetary variations. Any variation above that limit will require PCG approval prior to being implemented. This limit will vary depending on the value of the project.
A Contract Sum adjustment is a monetary adjustment to the initial Contract Sum, during the course of the contract.
The final Contract Sum, after Contract Sum adjustment, may be of a higher or lower figure depending on the nature of the adjustment.
Some Contract Sum adjustments may occur as a result of:
A contingency amount of 3% to 6% should be allowed in the budget, for new and refurbishment works respectively. The amount should never be stated in the tender or contract documents nor should this information be provided to the Contractor. This sum is available to cover the cost of unforseen matters that may arise and adjustments for minor discrepancies in the documents. The amount is not available for increases in the scope of the project.
The project budget includes contingencies that are to be managed by the Project Control Group. The PCG should assess the need to use the contingencies based on a recommendation from the Superintendent.
For a variety of reasons Contractors may be unable to complete their contracts by the stipulated date. The delays may be of the Contractor's making or attributable to circumstances beyond the Contractor's control. When the latter occurs the Contractor is entitled to an extension of time to the contract period, as justified against the construction program.
There are two types of extensions of time. Those:
Generally extensions of time would not lead to an increased cost. Where the delay is due to the actions of the Principal (clients) which therefore affects the programmed critical activities, then costs for delay may be given.
Causes of delay, which may justify an extension of time, are:
The contract provides that, on a stated date, the building works should be “Practically Complete”, which is the time when the finalised works are handed over to the Health Service/Agency with necessary documentation including a certificate of occupancy, warranties etc.
The term 'Practical Completion' describes the time when the work has been completed, all equipment installed, tested and found to be in running order, and when the project is deemed reasonably safe and fit for occupation to the satisfaction of the Superintendent.
The date of Practical Completion is important in its own right and for its contractual implications.
Other contractual effects, which occur at the time Practical Completion is reached are the:
Where a project contains “Separable Portions”, apply the Practical Completion individually to each of the separable portions under clause 35.3. of AS2124-1992.
The Principal has no contractual right to occupy any part of the premises before practical completion without the consent of the Contractor. CMB (the Department) requires that occupation occur only following the issue of a Certificate of Occupancy.
Under most contracts, if the works are occupied before the issue of the notice of Practical Completion then they are considered to be practically completed on the date of occupation and/or use. There are possible implications regarding insurance and liability.
A full inspection prior to issue of practical completion certificate is necessary.
A defects list is to be prepared by the Superintendent and should only comprise of minor omissions/defects. A Certificate of Practical Completion can be issued that allows the building to be deemed suitable for occupation.
Under the contract, if the Contractor fails to bring the works to a stage of practical completion by the due date, (i.e. the date stated in the contract adjusted for any agreed extensions of time) then the Principal is entitled to liquidated damages.
Losses, costs due to delay and liquidated damages can be claimed at the rate stated in the contract by the Health Service Agency, providing the correct steps have been followed. The nominated amounts should be realistic and reflect actual costs and can be substantiated accordingly. As a minimum, they can be based on the capital investment at the long-term bond rate.
The Health Service/Agency is notified of the liquidated damages that are to be deducted by the Superintendent.
In the standard contract form that governs the usual ‘lump sum’ building contract the builder’s/contractor’s are at risk in many matters. However, delays and costs may result from the Principal’s (clients) instructions to delay or vary the work. This includes if there is a delay in getting decisions or information to the Contractor in sufficient detail to enable the work to proceed or from excessive requests for variations and changes to be made.
The Contractor may be entitled to claim compensation for idle equipment e.g. scaffolding; hiring costs such as plant, cranes, foreman’s time, offices and sheds; disruptions of the program and arrangements; storage and other costs. The Superintendent should immediately notify the Project Control Group if such an issue arises due to the major cost implications involved. CMB (the Department) approval is required of all prolongation cost requests prior to their implementation.
To ensure that the Contractor performs in accordance with the Contract, the Principal should request appropriate forms of guarantees from the Contractor.
The most common forms of guarantees are:
The defects liability period is the period stated in the Contract that provides for the rectification of minor faults and/or omissions or items that fail to perform suitably that may be outstanding or occur after Practical Completion has been reached and the Contractor has handed the building over for occupation. The Principal and Contractor still have obligations and rights during this period. There may also be particular items of equipment, finishes and services under particular warranties/guarantees (e.g. roofing), which exceed the Defects Liability Period. These guarantees require Contractor sign off and continual inspection until their expiry date.
Care is to be taken by the Principal, not to void the warranties or contractor’s responsibility, e.g. by using another subcontractor to undertake repair works on works or equipment associated with the completed main contract during the defects or warranty period.
For smaller projects a Defects Liability period of 6 months is appropriate while for larger projects a period of 12 months is recommended. The Principal should check with the Superintendent to determine the most suitable period of time, and to arrange a process for the recording and referral of issues for action by the Contractor.
Upon completion of the Defects Liability period the Superintendent issues a Final Certificate on the basis that the Contractor has rectified all minor omissions/defects according to the contract. This usually involves a final inspection by all parties.
The balance of security must be released on the issue of the Final Certificate.