Letters of intent are rubbish!

In the RICS Construction Journal legal helpline page 27 June-July 2010 is stated that a letter of intent 'should only be used where there are good reasons to start work in advance of concluding the formal contract'. Whilst such circumstances dictate that an urgent agreement between the parties is required, I personally deplore the use of letters of intent and would never advise of their use! Further, I would consider the use of them often to be negligent.

How do I arrive at this opinion? Well, some of those I have seen are devoid of essential terms in any contract such as insurance, change management, (jurisdiction compliant) payment procedures and dispute particulars. They often state what works can be progressed and what the cap is in terms of payment, but that is it. I also struggle to see how a client can ask for a scope of works to be delivered but places a cap on the amount they will pay - what is that all about? What if it genuinely costs more to deliver than is permitted in the cap?

We have at our disposal in the industry cost reimbursable contracts such as the NEC3 Engineering and Construction Contract (ECC), main option E. This contains all the essential terms a contract should contain. Why would you want a half baked letter of intent, or pay for the creation of a bespoke 'adequate' form? What an uncertain and wasteful process that serves only to benefit those that generate an income from it.

A letter of intent was never intended to say 'go' it was merely a letter to state there is an intention to place a contract with the preferred seller. So, it is the combination of insufficient terms and the fact there are standard industry forms available (such as ECC), that form my view that all too often, the use of letters of intent is negligent and actually quite unnecessary.

Focus on agreeing the terms as soon as possible if that is the stumbling block. Lock yourselves in a room until agreement is reached. If the seller commences work without all the terms agreed, even with a letter of intent in place, then the bargaining position is compromised. If emergency works occur, use ECC option E, and focus quickly on the detail of the work scope itself.

I've never advised the use of a letter of intent and never will. I loathe the flippancy of advice clients get to use them. Don't do it. Be professional, advise the use of properly thought out standard cost reimbursable contracts such as ECC Option E if you absolutely have to award today for a part of the scope to be delivered.

That's got that off my chest, any thoughts?!

Rob

Competent NEC3 ECC Project Manager (PM) Part II

What makes a competent NEC3 ECC Project Manager (PM) ?

My previous post on this I talked about the PM's duty to notify compensation events that arise from PM instructions to change the Works Information.

The essence of the compensation event process is to agree change in real time, not to park the change management process until some point in the future, which was historically the typical outcome. If change is parked, exactly what is the benefit to the parties to the contract? All it brings is uncertainly for the period it remains not agreed and can likely benefit only those who derive an income from disputes, which is not the parties themselves.

So what measures does the ECC include to force the PM to play their part in the process? Well, this is dealt with in the compensation event process and, in basic terms, forces the PM to press on with the process to reach conclusion even where the Contractor does not play their part. If the PM does not do what they should be doing eg does not assess a compensation event under clause 64.1 then the Contractor can force the issue by notification of the PM's default which may lead to a deemed accepted quotation. More about deemed acceptance another time. The issue I wanted to concentrate on was default by the Contractor in the compensation event process.

Clause 61.3 offers a time bar to those compensation events notifed by the Contractor more than eight weeks of the Contractor becoming aware of the event. The exception here is those compensation events which the PM should have notified to the Contractor but did not. So, assuming we have a notified compensation event which the PM decides is not one of the 4 matters stated in clause 61.4 then the PM should notify the Contractor the event is a compensation event and instructs the Contractor to submit a quotation.

The first hurdle to get over here is the Contractor (clause 62.3) submitting a quotation within three weeks of the PM instruction to do so. If the Contractor does not submit a quotation then it falls to the PM to assess the compensation event - see first bullet of clause 64.1. The show goes on!

If the Contractor does submit a quotation within the three weeks then within two weeks of the submission the PM replies to say 'yes, accepted', 'no not accepted and please submit a revised quotation' or 'no not accepted and I will be making my own assessment'. Assuming the last outcome, then this must happen if one of the last three bullets of clause 64.1 apply - not assessed correctly, no programme/alterations submitted or latest programme not submitted.

So, assuming a compensation event is not time barred under clause 61.3, the compensation event process forces the PM to keep the process going even where the Contractor does not play their part in eg submitting quotations on time, to the detail required or not at all. The PM cannot wait for these things to happen, the PM makes these things happen with or without the assistance of the Contractor. A lesson to the Contractor therefore is for goodness sake positively play your part in the process.

Is this a sound, sensible process, or are parties better off leaving the process of assessing compensation events until some point in the future - what do you think?

Rob

NEC Student Research

Dear all,

More student research so please fill in the survey as soon as you can.

Thank you,
Rob

http://www.esurveyspro.com/Survey.aspx?id=2bba3745-d8cb-48e7-ad63-0459fef5547a

Student NEC Research

More student research & another dissertation the student would appreciate your time in answering his questionnaire.

Thank you,
Rob


http://www.kwiksurveys.com/online-survey.php?surveyID=KJOEKM_68d8b747

Student NEC Research

Dear all,

Another student who would be very grateful for your time in completing an online questionnaire.
Thank you in advance,

Rob

http://www.zoomerang.com/Survey/WEB22ACXGQPYGW

Competent NEC3 ECC Project Manager (PM) Part I

What makes a competent NEC3 ECC Project Manager (PM)?

Doing what the contract tells them to is about the best answer I can give. I cannot see anywhere in the contract (assume NEC3 Engineering and Construction Contract (ECC)) that tells any PM to be tardy, subjective (but for a few limited circumstances), waive or change any terms (of a contract they are NOT party to), do what they want, when they want, sit back and wait for things to happen etc.

The clue is in the title, the person(s) acting as PM is/are doing exactly that, acting as project manager. ECC is not about sitting back, waiting for things to happen and being reactive. It's about being proactive, using foresight and making timely decisions.

There are a whole host of responsibilities to properly get your head around when acting as PM on an ECC contract. Let's look at one, which is very different to many contracts I have seen, and that is the positive duty to notify certain compensation events to the Contractor. Most other standard contracts have a 'light the touch paper and stand back' approach ie instigate the change, wait for the Contractor to spot the change then, at some point in the future, the Contractor asks for more time and/or money as a result of this change. So properly keeping the Employer informed of the time/cost effect of such change becomes extremely difficult as you have no idea of what the Contractor may or may not ask for until such time that he actually does. Multiply this many times for many different changes and the task becomes practically impossible.

In the ECC the PM has the right to change the Works Information and this basically becomes a compensation event. Clause 61.1 then obliges the PM to postively inform the Contractor of this compensation event and instructs the Contractor to submit a quotation (which is to be all-inclusive of both time and cost). The contract even tells the PM to separate the instruction to change the Works Information from the notification that it is a compensation event - this is to make the change quite obvious, there being no surprises and kick start the ongoing final account process for each and every compensation event as soon as possible.

In turn this has to be a business benefit for both Employer and Contractor and must be a better process than parking change until some time after the end of the job then being surprised at the amount claimed.

Do you agree?

Rob

Student NEC research

2 students would be very grateful for users to spend a few minutes answering their surveys to help them with their NEC dissertations.

Many thanks in advance.

Rob

http://www.surveymonkey.com/s/L5FDFRR

http://www.survey.ljmu.ac.uk/spearson/