issue: winter 2010

building blocks
hot topics www.mills-reeve.com
procurement pitstop

insolvency special

JCT DB 2005

RIBA

festive crossword

hello
welcome to the
winter 2010 edition
of Building Blocks
contents
03 Hot topics
The Local Democracy, Economic
Development and Construction Act,
the Equality Act, the Prompt Payment
Code, Liquidated damages and the
Engineering and Construction
Industry Training Board
04 Procurement pitstop
The second in a series of four articles
on EU Public Procurement
05 Insolvency special
A special pull out on insolvency
09 JCT DB 2005
The second in a series of articles
on Design and Build JCT 2005
10 RIBA
The 2010 RIBA Standard Conditions
11 Festive crossword
Something to keep you occupied over
the Christmas break. There is a prize.
12 Seminar information
The results of our recent
questionnaire
editor
Alison Garrett
01223 222207
alison.garrett@mills-reeve.com
editorial
There is plenty to read in this bumper
edition of Building Blocks which has
a special insolvency pull-out.
Whilst with Christmas approaching,
we do not want to put a dampener on
celebrations, there is no denying that
insolvencies in the construction industry
are continuing to happen with the
recent cases of Connaught and Rok
being good examples. When a party
becomes insolvent on a project it is
important to get to grips with insolvency
terminology and find out what your
position is. The aim of the special
insolvency pull-out is to give you a first
port of reference. For a more in depth
knowledge of insolvency we will be
running seminars on insolvency in the
New Year in our Cambridge and
London offices. You will find the dates
for these and all the other seminars we
will be running in Birmingham,
Cambridge, London and Norwich on
the leaflet enclosed in this edition. If you
are interested in attending any of the
seminars please contact Rachel Snow
(rachel.snow@mills-reeve.com,
telephone 01223 222377,
fax 01223 222221).
editorial team
xxxxxxxxxxxxx xxxxxxx
xxxxxxxxxxxxx xxxxxxx
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xxxxxxxxxxxxx xxxxxxx
In this edition of Building Blocks you will
also find the second in a series of
articles on both EU Procurement and
JCT 2005 Design and Build, as well as
an article on the RIBA 2010 Standard
Conditions.
Lastly, on a more light hearted note,
you will see that we have included
a crossword to keep you busy over the
festive period. You will find the answers
contained somewhere in the articles in
this edition. There will be a New Year
hamper for the first name pulled out of
a hat of all those that successfully
complete the crossword and find the
hidden word. Email the hidden word
and your contact details to Rachel
Snow at rachel.snow@mills-reeve.com
by the 7 January 2011. The successful
individual will be informed in the week
commencing the 10 January 2011.

author
Katherine Souter
01223 222580
katherine.souter@mills-reeve.com
hot topics
Changes to Adjudication and
Withholding Notices coming
into force
The Local Democracy, Economic
Development and Construction Act
2009 (which makes changes to both
adjudication and withholding notices)
may come into effect on the 1 April
2011. The Department for Business
Innovation and Skills is hoping that it
will take place on the 1 April 2011 if
everything is ready. If not, the next
possible date will be the 1 October 2011.
Equality Act 2010
The majority of the Equality Act 2010
came into force on 1 October 2010.
It mainly consolidates existing
discrimination law. It does however (as
of April 2011) extend the obligations
of public bodies to promote equality
of opportunity. The Act covers
discrimination on the grounds of the
following characteristics: age, disability,
gender reassignment, marriage and
civil partnership, pregnancy and
maternity, race, religion or belief, sex
and sexual orientation.
Prompt Payment Code
The Institute of Credit Managements
Prompt Payment Code is a voluntary
code which companies can sign up to.
According to the web site
author
Alison Garrett
01223 222207
alison.garrett@mills-reeve.com
(www.promptpaymentcode.org.uk) the
code encourages signatories to pay
suppliers on time, give clear guidance to
suppliers and encourage good practice.
While this is a voluntary code for the
time being, there is talk that this code
could become mandatory in all public
sector contracts. One to watch out for
Liquidated damages
As a result of the recent case (Azimut
Benetti SpA (Benetti Division) v Darrell
Machus Healey) a liquidated damages
clause which is not based on a genuine
pre-estimate of loss may not be a
penalty, and may therefore be
enforceable.
In that case a clause, which provided
for payment of 20 per cent of the
contract price on termination, was
upheld. The court held that the clause
was commercially justifiable and not
a deterrent to termination; and that in
commercial contracts what the parties
agree should usually be upheld.
Engineering Construction
Industry Training Board
The Engineering Construction Industry
Training Board is a statutory body
responsible for collecting training levies
from construction companies. The levy
rate varies depending on whether
03
author
Hollie Docherty
01603 693242
hollie.docherty@mills-reeve.com
an employee is classified as working
on-site or off-site. On-site employees
attract a higher rate.
The case of Online Design and
Engineering Board Ltd v Engineering
Construction Industry Training Board
(2010) decided that it is the Boards
obligation to determine if a worker was
on or off site, but this requires
information from the employer. The
Board should consider if a company is
a leviable establishment, if employees
were working on or off site, and then
whether the work fell under the types
of work listed in the statutory rules.
For further information see the
Engineering Construction Industry
Training Board website -
www.ecitb.org.uk
04
author
Katherine Souter
01223 222580
katherine.souter@mills-reeve.com
procurement pitstop
This is the second in a series of four articles on EU public procurement.
In the Autumn edition of Building Blocks
I wrote about European procurement
basics, legal terms and current financial
thresholds. Those definitions will tell you
whether your procurement exercise is
caught by the Regulations. So if you are
caught by the Regulations, what next?
Prior Information Notices,
the procedures and the
contract notice
If you know what you want far enough in
advance, issue a Prior Information Notice
(PIN). This gives potential suppliers more
time to prepare and allows the contracting
authority to take advantage of improved
time scales for the procurement exercise.
Failing a PIN, something that is often
used is the accelerated restricted
procedure which can shorten the
restricted procedure (see below) down
to as little as 30 days (however citing
the recession as justification for its use
is not likely to be a sufficient reason).
There are four procedures that
a contracting authority may follow in
awarding a public contract. They are
open, restricted, negotiated and
competitive dialogue. Which procedure
a contracting authority uses depends on
the nature, complexity, timescales and
spend proposed for the goods, services
or works in question. The most common
procedure for construction projects is the
restricted procedure. The open procedure
can be unwieldy which is why it is most
often used where there will only be
a small number of bidders. The
negotiated procedure is not often used.
The competitive dialogue procedure is
most commonly used on public/private
partnership projects which are vast and
complex.
Contract notices are placed in the
procurement supplement to the Official
Journal of the European Union (OJEU).
This can be done via the EUs official
online portal, SIMAP.
Technical specifications should be set
out in the ITT (see below). In the case of
a works contract, technical specifications
should include all technical conditions
which the contracting authority is in
a position to prescribe in relation to the
finished works.
Pre qualification questionnaire
(PQQ) and the Invitation to
tender (ITT)
When using the restricted procedure, the
PQQ should elicit whether an economic
operator is in a position to fulfil the
contract using certain selection criteria.
This is used to narrow down the number
of economic operators who will be
invited to tender. A contracting authority
can disqualify economic operators from
tendering based on minimum standards
of economic/financial standing and
technical or professional ability. The ITT
should then be issued to the reduced
number of economic operators. It must
set out the award criteria (and sub
criteria and sub sub criteria), marking
scheme and the weightings given to
each question.
The award criteria should either be
based on the lowest price tender or the
most economically advantageous tender
(also known as MEAT). It is important to
think about what you are looking for.
Contracting authorities sometimes chose
MEAT but then look to award a contract
based on the lowest price. If you have
chosen to award a contract on the MEAT
basis, the quality elements must also be
taken into account, which may mean
awarding the contract to a tenderer who
is not the cheapest.
Variant and abnormal bids
Variant bids are simply bids which offer
alternatives to the requirements specified
in the contract documents and may only
be accepted if the contracting authority
has stated in the OJEU notice that it will
accept variant bids. Failure to follow this
rule may result in a challenge. If you
have one bidder whose price is
substantially lower than all the others
and there is no apparent reason for it
you should investigate thoroughly. You
should only accept such a bid if you
have satisfied yourself that there is
a good reason for it or you may find
yourself either defending a procurement
challenge, facing substantially creeping
costs as the project progresses or
untangling the mess left by an insolvent
contractor.
The Mills & Reeve Procurement Portal
contains up to date information on public
procurement as well as a template
document toolkit, frequently asked
questions and decision tools. You can
also sign up to receive updates to our
procurement blog. See
www.procurementportal.com

author
Alexandra Price
01223 222513
alexandra.price@mills-reeve.com
JCT 2005: design
obligations
.
We continue our series
of articles on the
standard form JCT
Design and Build
Contract 2005 with a
look at design obligations.
Design responsibility
The employers design team provides
the initial design in the Employers
Requirements.
The contractor is required by clause
2.1 to complete the design, which is
presented to the employer in the
Contractors Proposals.
The contractor is not responsible for
the whole of the design. Clause 2.17.1
makes the contractor responsible for the
design of the contractors proposals
and any other design he carries out.
The contractor is not responsible for the
design in the Employers Requirements.
If it is intended that
the contractor will take
responsibility for the
whole of the design, the
standard form contract
must be amended.
Duty of care for design
In certain circumstances, a contractor
will be responsible for the fitness for
purpose of the works. This means that
the finished project has to satisfy the
employers intended purpose for the
author
Stuart Thompson
01223 222354
stuart.thompson@mills-reeve.com
works. This is a higher obligation than
is placed upon parties responsible only
for design.
To avoid a fitness for purpose obligation
in relation to its design, clause 2.17.1
limits the contractors liability to the
same level as a professional designer.
It states that the contractor has the like
liability [] as would an [] appropriate
professional designer holding himself
out as competent to take on work for
such design [] to be carried out and
completed by a building contractor
who is not the supplier of the design.
This wording limits the contractors
responsibility to the relatively low
standard of care required of
a consultant at common law. The
employer may wish to increase this
standard of care.
However, many professional indemnity
policies will not insure contractors
against fitness for purpose, so it may
not always be in the employers
interest to include a fitness for
purpose obligation.
Discrepancies
The contractor must give notice to the
employer of any discrepancies between
the design documents.
The parties share responsibility for
the cost and time implications of any
discrepancies found.
09
If the discrepancy is within the
Contractors Proposals, the contractor
bears the cost of changes required
as a result of the discrepancy.
If the discrepancy is in the Employers
Requirements and it is not dealt with
by the Contractors Proposals, then
the contractor will be entitled to claim
for any additional time or cost of
making the required changes.
Limitation on design liability
Clause 2.17.3 contains an optional
clause capping the contractors design
liability for loss of use, loss of profit or
other consequential loss. If the cap is to
apply, the level of the cap is inserted at
page 8 of the contract particulars.
Please note:
The wording of the cap means that
direct losses, such as the cost of
remedying any defects, do not fall
within the cap.
Any LADs claimed are stated not
to count towards the cap.
In the next edition, we will consider
partial possession and early use.
10
author
Stuart Thompson
01223 222354
stuart.thompson@mills-reeve.com
all change at RIBA:
RIBA 2010
In June the Royal Institute of British Architects (RIBA)
published its latest standard conditions.
Given that the previous conditions were
only published in 2007, you might
expect RIBA to have made a number
of substantive changes. Have they?
Structure
The 2010 conditions adopt a similar
structure to the 2007 conditions. For
example there are the same number
and type of appointments. The 2010
appointments, however, no longer use
the present tense to express the various
obligations. The legal profession prefers
this structure, but I suspect that clients
would see this as legal tinkering rather
than a substantive change!
Substantive changes
1. Set off
Under the 2007 conditions if the
architect was in breach of contract or
negligent, the client could not withhold
its costs from the architects fees.
Instead the client had to pay up and
then pursue a separate claim against
the architect. This provision also
appears in the 2010 conditions. The
2010 conditions, however, introduce an
additional clause relating to set off. The
new clause says that the client cannot
withhold any amount from the architects
fees unless the amount has been
agreed with the architect or decided by
a tribunal. As the architect is unlikely to
agree the amount, the client will have to
embark on a litigious course. This
places the architect in a strong position
as the costs of bringing a claim may client to a contractor. If an architect were
discourage clients, even where there to exercise this clause this may result in
is a genuine dispute. delay and disruption to the project and
could result in additional costs.
2. Cap on liability
The 2007 conditions allowed the parties The architect now has
to agree their own cap. Under the 2010
the right to terminate
conditions the architects cap is limited
to the amount of its professional
the appointment at will,
indemnity insurance (PII). This could provided it gives the
result in a series of sub-caps. For client reasonable notice.
example, it is common for architects
PII to include a separate, lower level Conclusion
of cover for certain claims such as toxic The RIBA appointments continue to
mould, asbestos and contamination favour the consultant. For example,
claims. In some cases the level of PII in addition to the issues set out in this
cover for those claims is nil. If clients article, the appointments also have
are prepared to accept this cap, they a net contribution clause. Therefore
will also have to review the level of PII from a clients perspective the 2010
cover when the appointment is signed appointments do not address the
and throughout the limitation period. problems with the 2007 appointments.
If the client agrees to use the relevant
Under the 2010 2010 standard appointment it should also
use a set of amendments to ensure that
conditions the architects
the appointment favours both parties.
cap is limited to the
amount of its professional
indemnity insurance (PII).
3. Termination
The architect now has the right to
terminate the appointment at will,
provided it gives the client reasonable
notice. As the architect can rely on this
clause at any time it creates a great
deal of uncertainty throughout a project,
particularly after a novation from the
 11

festive crossword
For your chance to win a New Year hamper just complete the crossword and
find the hidden Christmas-related word by rearranging the letters in the orange
squares. The answers to the crossword can all be found in the Building Blocks
articles. Email the hidden word and your contact details to Rachel Snow at
rachel.snow@mills-reeve.com by 7 January 2011.

Hidden word: _ _ _ _ _ _ _ _

Down
2. The means of raising income by the
1 2 3 4 Engineering Construction Industry Training
5 6 Board (4)
3. The form of contract used by the majority of
7 8 9 10
the industry (3).
4. Performance .. (4)
6. Dispute resolution introduced by the Housing
11 12
Grants Construction and Regeneration Act
13 1996 (12).
14 15
8. The transfer of the benefit and burden of
a contract (8)
16 17 18
9. Form of Contract favoured by the Office of
Government Commerce (3).
10. Mills & Reeve has a portal which has up to
19
date information on this (11).
20 11. This can be resolved by, among other things,
mediation (7).
13. A clause that can be invoked when one party
21 to a contract becomes insolvent (11)
22 15. This is often claimed if there is a breach
of contract (7)
23
17. Contractor noted for its social housing,
24 25 26 27 recently placed in administration (9)
18. One of the four procedures under the
Public Contracts Regulations 2006 (4)
28 19. Mills & Reeve run a series of these (8).
29 21. If this happens and the contractor is not
responsible he can apply for an extension
of time (5)
23. Used to select the successful bidder (3)
25. Professional body for architects (4)
27. Where contract notices are placed (4)
28. Another social housing contractor recently
placed in administration (3)
Across 20. Civil, mechanical or electrical? (11)
1. Responsibility if something goes wrong (9) 21. What an architect usually does (6)
5. An acronym for a form of corporate 22. The competitive. procedure (8)
insolvency (3) 24. The use of these types of bank accounts was
7. Something special in this edition (10) recommended in the Fair Payment Guide. The
10. An acronym found in the Procurement JCT published documents for such accounts
Pitstop article. (3) on 4 October 2010 (7)
12. The industry at which Building Blocks 26. Monies held by the Employer until the issue
is aimed (12) of the Certificate of Making Good Defects (7)
14. What the B stands for in JCT 2005 D&B (5) 29. A form of corporate insolvency which should
16. The amount paid for something (5) only last for a year (14)

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seminars
Mills & Reeve seminars
A big thank you to all of you who took
the time to fill in our recent
questionnaire asking you how we can
improve our seminar programmes.
We are pleased to report that overall the
length and times of the seminars suit
the majority of those who responded to
the questionnaire. We will therefore
continue to provide free 1-2 hour
seminars from 4pm onwards in our
London office, and from 8am in our
Birmingham and Cambridge offices. We
will be trialling an 8.30am start for
construction seminars in the Norwich
office over the next few months.
please contact Suzannah Armstrong on 01603 693459
or email suzannah.armstrong@mills-reeve.com
The articles featured in this publication have been
selected and prepared with a view to disseminating
key information.
individual concerns but the author would be pleased to
respond to specific queries. No liability can be
accepted in relation to particular cases. Before
taking action, you should seek specific legal advice.
Copyright in this publication belongs to Mills &
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December 2010
You will find a leaflet for our Spring 2011
seminars enclosed in this issue of
Building Blocks which indicates how
you can book a seminar place,
alternatively you can book your place
by visiting the stay informed section
of our website,
www.mills-reeve.com/stayinformed
As a result of the questionnaire, we will
in future send electronic copies of the
seminar notes to all attendees, after the
seminar.