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Clause for concern

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Electrical estimators must beware of detrimental clauses in tender documents. Brian Seymour highlights the risks.

Electrical contracting can be a bit of a gamble, in that a tender is submitted and the hope is that the project runs to schedule.

Contractors risk their solvency on a multitude of factors, many of them unpredictable. The weather, adequate design drawings, timely delivery of materials and the builder’s efficiency play a large part. Nowhere is this risk better demonstrated than during the competitive tendering process.

The soundness of a construction estimate is contingent on the amount of information available at tendering time. Interpretation of scope, accuracy of quantities, quality of materials and assumptions of productivity all combine to produce a cost – exclusive of overhead and profit – for completing the project.

Most estimators use similar take-off methods, and the material pricing and labour units allocated by various estimating programs can often result in close tender figures. However, most variance arises in the figures attributed to company experience with the contract type, labour-saving methods, and overhead and profit.

The primary job of estimators is to produce accurate costings, but they also have a responsibility to protect their employers and themselves from risk. Irrespective of company size, someone has to assess and deal with the risks related to signing a contract and performing the work.

The days are gone when the electrical estimator only had to complete a take-off, price the material, allocate labour, add sub-contractor quotes, establish a realistic mark-up and submit the tender.

These days it is more complex. Almost everything we do in the business world involves a risk of some kind – customer habits change, new competitors appear, factors outside your control cause delays.

 

Risky business


Before deciding to tender on a project, you must evaluate the risk factors.

The following are some of the risks that should be identified, assessed for likelihood and appraised for possible effects:

  • Liquidated damages – especially if the head contractor has a reputation for late completion.
  • Project duration – a drawn-out program may have a disastrous effect on cash flow.
  • Liability for worker injury – an unsafe working environment must be avoided.
  • Onerous conditions restricting rights to a fair contract – this may put you in an iniquitous situation.
  • Procedure for arbitration – to ensure important facts are recorded and contract conditions met.
  • Variation clause – ensure there is an approval clause before installation.
  • Payment clauses – clarity and certainty as to payment.

 

Timing matters

Tony Lim (Doyles Construction Lawyers, Australia) has covered an important topic in the UTS ePress article Essence of Time in Construction Contracts.

Abstract: The building industry has in recent years seen huge costs incurred due to disputes arising on notice requirement clauses. These claims could have been averted if the parties had been diligent in providing the necessary notices. This article sets out to explore the law briefly as interpreted by the courts in common law and equity and to discuss the possibility of defence under the principle of promissory estoppel.

More important, it also shares the author’s view on how such pitfalls could have been prevented by giving the proper notices within the timeline required by the contract conditions.

Numerous contractors have suffered losses due to the head contractor’s mismanagement of the project, including delay, disruption, acceleration, out-of-sequence work, stacked trades and interference between trades.

This is a difficult issue for many estimators, and before signing a contract it is wise to have a qualified person review it. It is good practice to do this before starting an estimate, including allowances for uncertain language used or contract clauses that contain illegal requirements – and to be careful about clauses that make it impossible to profit from variations.

At common law, there is no automatic right to delay damages. As with all damages claims, delay damages can be recovered only if they can be proved to be damages resulting from a breach of contract.

As regards a construction project, the contractor must show that the loss suffered arose naturally from the principal’s breach, or may ‘reasonably be supposed to have been in the contemplation of both parties’ at the time the contract was entered into. Delay damages can be recovered automatically only when a contract specifically allows.

Clause 34.9 of AS 4000-1997 and AS 4902-2000 provide that, where an extension of time has been granted, the contractor is entitled to ‘delay damages’ for every day falling within an extension of time for a ‘compensable cause’.

In the recent case of Adapt Constructions Pty Ltd v Whittaker [2015] ACTSC 188, the ACT Supreme Court found that a construction contract based on a standard form, which left blank the amount for liquidated damages to be paid for delays to completion, did not prevent the principal to the contract from recovering unliquidated damages at common law for that delay.

It is difficult to prove damages. To calculate labour losses from start-and-stop work, double-handling of materials and shifting of labour, such losses are commonly categorised as loss of efficiency, but in many ways this heading is misleading.

It is not so much that the electricians are inefficient while they are working, it is that they cannot get to the work. Time is lost waiting, being reassigned to other areas, gaining access to work areas, and other mobilisation and demobilisation cycles. Also, there are real costs associated with a loss of ‘learning curve’ and morale.

There are many factors to consider in the selection of labour units to be used in a competitive tender.  Understanding the effects of a particular project or installation, and adjusting the labour units, will determine whether you win or lose the tender. Once you win the tender, it will also determine whether you will be profitable.

Consider the different elements of the project to be sure you have selected the best labour units for the material and application to enter in the estimate. Do not use the same level of units for every estimate: different parts of a project may require different labour unit levels.

For instance, if you are installing runs of 25mm conduit in a concrete pour and also in a false ceiling, this would require different labour units for the same material.

You also have to look at repetitiveness. Installing one run of 25mm conduit in the concrete pour will take longer per 100m than four parallel runs of the same conduit. The same labour discounts apply when installing two 600 x 600 flush lighting fixtures in one room versus 300 of them in an open office. You gain productivity.

Issues to consider when applying labour units:

  • Higher ceilings increase labour.
  • Increased quantities increase productivity and decrease labour units.
  • More parallel runs will decrease the labour unit per 100m.
  • Equipment choices can affect labour units – scissor lift, scaffold, cherry pickers, etc.
  • Multiple floors of a building will increase the labour for that installation.
  • The further the material storage is from the workface, the more walking time must be allowed.

Other considerations include the following:

What is the condition of the worksite, and will there be clear access to installation areas? Is it likely that mechanical services, materials and equipment, or stacked ceiling tiles will inhibit access?

How good is the head contractor at keeping the project clean and tidy? Will there be stacked trades at the workface? This is why it is important to know the head contractor you are tendering to.

How good is a particular head contractor at keeping the project on schedule? A project that stays on schedule usually results in lower labour cost.

Weather has an effect on the project. Extreme temperatures can have a demoralising effect on productivity. When is the site or slab work scheduled on the project? Is it in the exhausting heat of summer or the extreme cold of winter? The project location will be the guide.

As one can see from the above, the application of labour to any project cannot be merely entered straight from the labour units without intelligent consideration of the contract conditions, project conditions, and labour and material availability.

About Brian Seymour

Brian Seymour

Brian Seymour MBE, industry consultant and author of 'Electrical Estimator's Labour Unit Manual' and 'Starting Out', conducts regular industry training programs throughout Australia on behalf of the electrical and air conditioning industries.

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