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A New Construction Contract for the 21st Century: Cost Management, Valuation and Payment

SERIES ARTICLE

By Keith Pickavance 

London, UK
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Cost management requires several connected issues to be considered. First, whether the contract price can be relied upon as a prediction of the out-turn cost is a fundamental issue.  Second, for both parties there is the question of how and when change and the effects of any disruption and prolongation are valued. Third, there is mutual interest in the accuracy of interim valuations and, ultimately, the risk of whether the stated value will be paid in full, on time, or at all. In addition there is an inherent tension between, on the one hand, the “transparency” of contractual payment provisions, and on the other, the demands of confidentiality in the Contractor’s pricing method. In this article I consider how CPC2013 addresses these issues.

Transparency and Confidentiality

The Contractor is required to price the Working Schedule so that the values indicated in the Contractor’s Pricing Document (and those of any appointed subcontractors) are fairly represented, on an activity by activity basis.  The Working Schedule is to be published electronically, in native file format with the intention that, unless protected by appropriate access restrictions, all the data contained in it will be available to anyone who is permitted access to it. However, under the terms of CPC2013 the Employer is also to keep confidential the Contractor’s rates and prices and other records identified in the Contractor’s Pricing Document.

In order to fulfil its duty of confidentiality, the Employer is required to employ a named Data Security Manager. The Data Security Manager is to manage data access either through a Common Data Environment or by a File Transfer Protocol and to make sure that only those who have a contractual need for access to such data are able to see it.

The Dynamic Cost Model

CPC2013 differs from all other currently available standard forms in using the dynamic Time Model for the project not only for managing time, but also as a tool to manage cost.

Every activity at low, medium and high density is to be allocated a value consistent with the Contractor’s Pricing Document and the time-related costs such as preliminaries (or site-related costs or “field costs” as they are sometimes called) and Overheads and Profit, are to be priced in levels of effort, logically linked to the activities to which they relate.  The aggregate value of all the planned activities, levels of effort, mobilisation, repayment of mobilisation and release of retention identified in the accepted Working Schedule must equal the predicted cost as it changes in time.

When it comes to revising the Working Schedule for high density (where the resources and productivity are to be used to calculate the activity durations), there is always the possibility that the Contractor may find that, in the light of the resources then planned to be used, what the Contractor priced for is not what it will actually cost to produce. Whether that difference is more or less than the tender or bid price, the Contract requires the difference to be represented as a Contractor’s risk activity. This ensures that the Working Schedule is truly representative of the cost of the Project and can be relied upon for valuation purposes.

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Editor’s note: This article is one in a series by Keith Pickavance about the CIOB’s new contract for complex construction projects. For information about the new contract, visit http://www.ciob.org.uk/CPC.  The full article includes footnotes for quotations and section references.

About the Author

flag-ukkeith-pickavanceKeith Pickavance

Keith Pickavance first qualified as an architect in 1972 and then in 1978 obtained a law degree. After 20 years as an architect in private practice the last 10 years of which also involved construction management, dispute resolution and expert witness services, in 1993 he joined an American company specialising in forensic services and delay analysis. In 1996 he set up on his own again specialising in delay analysis and time management in London and Hong Kong. That practice was acquired by Hill International in 2006, an international construction management and claims consultancy with which he is now appointed an Executive Consultant.  He is a Past President of the Chartered Institute of Building and has led the CIOB’s time management initiative since its inception in 2007.  Keith is the author of Delay and Disruption in Construction Contracts (4th ed., 2010, Sweet and Maxwell) and numerous other books and articles on delay related issues.   Contact [email protected]