current issues and concerns affecting the surveying profession · project / fund monitoring...

Presentation to GMIT March 2018

Current Issues and Concerns Affecting the Surveying Profession

6th March 2018


1. Introduction to Duke McCaffrey Consulting

2. RIAI 2017 Edition – Summary of Changes

3. Sectoral Employment Order 2017

4. Construction Contracts Act & Dispute Resolution Implications

5. Construction Cost/Tender Price Trends

6. Construction Insolvency – the Warning Signs

7. Residential Construction Costs

8. Q & A


Agenda


OUR VALUES

IndependentFlexible / Dynamic

Client Focused

Excellence in Delivery

Best in Class Service

Efficient & Value driven

“We are an independent firm of Construction Consultants committed to providing a range of relevant services to clients in the construction and property industry, with a level of service that enables them to deliver schemes successfully through exceeding their expectations and delivering an excellent service.”

Our Values

Independent, flexible and focussed

Introduction to Duke McCaffrey


Our Services

Project Management

Employer’s Rep / Employer’s Agent

Due Diligence Assessment and Reporting

Chartered Quantity Surveyors

Construction Cost Management

Specialist MEP Cost Management

Project / Fund Monitoring Services

Claims Assessment and Advice

Dispute Resolution and Expert Witness

“Our range of services is focused on delivering added value service to clients on their schemes and can adapt and flex to suit the particular needs and requirements of the client, the scheme, the project and/or the time available.”

DMC

Project Management

Cost Management

Consulting



Sectoral Experience

• Student Accommodation

• Residential

• Commercial – Offices, Mixed Use, etc.

• Hotel & Hospitality

• Retail

• Data Centres

• Education

• Health

• Hi-tech and Manufacturing

• Industrial

• Leisure and Entertainment

• Life Sciences and Pharma

• Transport – Road, Rail, Air



Previous and Current Clients


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1. Introduction to Duke McCaffrey




5. Construction Cost/Tender Price Levels



8. Q & A


Agenda


Main Changes

▪ Construction Contracts Act 2013 (CCA), which applies to construction contracts entered into after 25 July 2016.

▪ Payments – applications for payments are issued and payments themselves are discharged subject to timeframes consistent with the CCA.

▪ CCA Notices – treated differently to other contractual notices.

▪ RIAI Contracts – not fully in line with CCA. RIAI amended contracts provide that all disputes must go to conciliation before parties can avail of statutory adjudication or arbitration.

The RIAI forms of building contract, namely the yellow form (remeasurable) and blue form (fixed price) have been updated, incorporating edits into the RIAI 2012 editions.

RIAI 2017 Edition – Summary of Changes


Practice Note

▪ Explains the 2017 Edits – Edits 1, 2, 3, 5 & 6 and advises on good practice in respect of aspects of contract administration and contract management arising from same

▪ Edit 4 which applies to VAT postponed pending further liaison with applicable parties/authorities

▪ Edit 6 – gender neutral language used

▪ Edit 7 relating to updated text for Retention Bond is postponed but text available as loose-leaf insert

▪ Edits kept as simple as possible and reflect collective experience and changes in law and practice since 2012 Editions

RIAI 2017 Edition – Practice Note


Edit 1 – Identity of the Parties

▪ Provide clear definition of parties to Contract

▪ For CRO Registered Companies

▪ Company Number, and

▪ Registered Address

can be inserted

RIAI 2017 Edition


Edit 2 – Definition of “The Works”

▪ Provide recognition of three trends affecting design and construction

1. Increasing technical sophistication – i.e., increasing use of proprietary systems and products where system design is not by design team

2. Training in safe use and maintenance information – i.e., training of Employers staff at, or prior to, Practical Completion

3. Increasing regulatory control requirements – i.e., compliance with Building Regulations and Building Control Acts and provisions of Code of Practice for Inspecting and Certifying Buildings and Works 2016

RIAI 2017 Edition


Edit 3 – Avoiding & Resolving Disputes

▪ Wording of Clause 38 simplified

▪ “Avoiding & Resolving Disputes” used to reflect trend towards avoiding them and resolving through negotiation – support culture of negotiation to avoid escalation of differences/disputes

▪ Conciliation retained as primary method of resolution; reference included to RIAI Guidelines and Procedures document

▪ Adjudication provided for under Construction Contracts Act 2013 and referenced to as “statutory Adjudication”

▪ Arbitration provisions simplified to reflect Arbitration Act 2010, etc

RIAI 2017 Edition


Edit 5 – Construction Contracts Act 2013

▪ Provide consistent provisions in line with the requirements of CCA

▪ New Article 5 re agreement on manner for delivery of notices under CCA

▪ Clause 35 amended to provide:

▪ Mechanism for determining first payment date and subsequent periods

▪ Progress statement include CCA payment claim notice

▪ If difference occurs then Contractor entitled to detailed explanation

▪ Changes also included in Clause 1(d) re delivery of notices and Appendix to Contract in terms of email address for delivery of notices and Period for Interim Certificates – one calendar month

RIAI 2017 Edition


• Articles of Agreement incorporate a new fifth article regarding notice requirements, particularly regarding payment claims notices, under the Construction Contracts Act (2013).

• Clause 1 – ‘Definitions’ contains an additional definition of the “Works” in response to changes in the Building Control regulatory environment and clarification re periods for delivery of notices

• Clause 35 – Payments and Certificates, has been amended to align with the provisions of the Construction Contracts Act (2013).

• Clause 38 – Dispute Resolution, has been retitled ‘Avoiding and Resolving Disputes’ and has been redrafted.

• The text has been modified throughout in order to express gender neutral wording.

• The Appendix to the Contract now requires the Architect’s email address for the service of payment claims notices.

• Default Period for Interim Certificates now one month – previously 4 weeks; aligns with CCA payment provisions

Summary of Main changes to the Contracts are:

RIAI 2017 Edition – Summary of Changes









8. Q & A


Agenda


Main provisions

▪ Outlines definitions for sector and categorises workers

▪ Sets out new basic hourly rates of pay

▪ Provides for unsocial hours payments

▪ Sets terms for pension schemes

▪ Sets terms for sick pay schemes

▪ Outlines a dispute resolution procedure

▪ Further provisions in terms of travel time likely and a similar order for the Mechanical sector is anticipated after Labour Court recommendation in January 2018.

The Sectoral Employment Order (Construction Section) 2017 – SI Nr 455/2017 took effect from 19 October 2017. Replaces Registered Employment Agreements withdrawn in May 2013.

Sectoral Employment Order 2017


Construction industry employers must provide a pension and sick pay scheme for all specified

workers in the industry.


Pay Pension Sick Pay Death in Service

Tendering Process

• Onus is on construction companies to prove specified workers are covered under the legislation

• Letter of Compliance (LOC) can be provided by CWPS to enhance opportunities for winning contracts, both public and private

Employees

• Employer to ensure you are registered in CWPS

• Contributions to be paid by you as well as your employer

Employers

• Legally obliged to implement recommendations

• Register all workers for pension, Death in Service and Sick pay benefits


Rates of Pay

▪ Category 1 Worker €17.04/hr

▪ Category 2 Worker €18.36/hr

▪ Craft Worker €18.93/hr

▪ Apprentice Year 1 –33.33% of Craft

Year 2 – 50% Year 3 – 75% Year 4 – 90%

▪ New Entrant Worker €13.77/hr

▪ New Entrant over 18 €13.77/hr

Sets basic hourly rates of pay for workers – reinstates cuts in pay previously implemented with a pay increase to reflect pay movement generally; generally 8-10% increase in rates


Unsocial Hours Payments

▪ Monday to Friday

- Normal Finish to Midnight @ 1.5

- Midnight to Normal Start @ 2

▪ Saturday

- First 4 hours from Normal @ 1.5

- All subsequent hours @ 2

▪ Sunday

- All hours worked @ 2

▪ Public Holidays

- All hours worked @ 2 plus

additional days leave


Pension Scheme

▪ Occupational Pension Scheme

▪ Registered with and regulated by Pension Authority

▪ Multi- Employer Scheme

▪ Single Individual Pension Account –flexibility for movement in industry

▪ Aged between 20 & 65

▪ Employer contributions - €26.63/wk

▪ Employee contributions - €17.76/wk

▪ Retirement Age 65

▪ Death in Service Benefit also

SEO also makes it compulsory for Employers in Construction Industry to provide a pension and sick pay scheme for all categories of workers as defined in the order


Sick Pay Scheme

▪ Mandatory requirement

▪ Funded arrangement held in trust and independently managed and administered

▪ Scheme benefits transfer between employers

▪ In addition to any State benefits through social insurance system

▪ Employer contributions – €1.27/wk

▪ Employee contributions – €0.63/wk

▪ Minimum 10 weeks payments under scheme



Why is it of interest? Is there a possibility to recoup additional costs that will be incurred?

▪ RIAI Contracts

- Clause 4 Legislative Enactments

- Clause 36 Wage & Price Variations

▪ Bespoke Contracts – varies depending on drafting

▪ Public Works Contracts

- Letter of Acceptance - adjust

- PV1 and PV2 Provisions of Contract

- Notice of Claim under 10.3 within 20 working days









8. Q & A


Agenda


• Came in to effect 26th July 2016

• Introduction of mandatory payment provisions

• Formalisation of payment claims

• Timelines for payments

• ‘Pay when paid’ prohibited

• Statutory entitlement to suspend work for non-payment

• Fast track dispute resolution procedures

• Binding resolution immediate and up-front

• Referral to Arbitration or Courts does not undo or stop decision enactment

Cashflow improvement in industry (payments for sub-contractors)

Introduction of statutory dispute resolution mechanism

More rapid dispute mechanism on payments

Construction Contracts Act 2013

Construction Contracts Act & Dispute Resolution Implications


CCA does not apply to

▪ Domestic Dwellings less than 200m2 for owner occupier

▪ Building Contracts <€10,000 in value

▪ Contracts of Employment

▪ PPP Contracts

▪ Contracts for the supply and delivery to site of construction materials

Parties cannot contract out the provisions of CCA

Discrepancy between specific time limitations in main contract terms and requirement of CCA in terms of binding sub-contract time limitations.

The SCSI issued an Information Paper in March 2017 so that members have a succinct guide and provide clarity on some aspects of the administration and management of the payment process



Employer/Main Contractor timing

▪ Day 1 – Commencement Date

▪ Day 31 – Payment Claim Date

▪ Day 36 – Payment Claim Notice issued

▪ Day 52 – Response Notice must be issued

▪ Day 61 – Payment Date

▪ Day 62 – If no Payment Notice of Suspension issued giving 7 days notice and grounds for suspension

▪ Suspension ends when payment received or notice of intention to refer to adjudication served

CCA prohibits Pay when Paid provisions whereby payment being conditional on third party is not permissible; only exception is insolvency. Generally operates on a 30 day payment cycle


Main/Sub-Contractor timing

▪ Day 1 – Commencement Date

▪ Day 31 – Payment Claim Date

▪ Day 36 – Payment Claim Notice issued

▪ Day 52 – Response Notice must be issued

▪ Day 61 – Payment Date

▪ Day 62 – If no Payment Notice of Suspension issued giving 7 days notice and grounds for suspension

▪ Suspension ends when payment received or notice of intention to refer to adjudication served



Payment Claim Dates occur at the frequency established in the Contract and must include when the First & Final Payments are due

Payment – Main Contractor

Executing Party Delivers a Payment Claim Notice within the 5 Calendar Days from the Payment Claim Date

No Response from other party within 21 Calendar Days from the Payment Claim Date

Response from other party within 21 Calendar Days from the Payment Claim Date

Payment is due on the Payment Due Date agreed in the Contract

Failure to Pay in Full Amount Claimed

Failure to Pay in Full the Amount Notified in the Response

Executing Party may Issue Notice of Suspension at

any time after the Payment Due

Date (7 Days Notice Required)

Suspension Ceases on Payment in Full or the Matter being Referred

to Adjudication

Parties Endeavour to Resolve Difference Prior to Payment Claim Date

Payment is due on the Payment Due Date agreed in the Contract

Parties take no Action & Resolve

matter at the next Payment

Claim

Either Party may Serve Notice of

Intention to Refer Payment Dispute to Adjudication at any Time (Works must continue)

Payment of Full Amount Claimed

– No Action

Payment of Full Amount Notified in Response – No

Action


Adjudication Process

▪ Broadly follows UK 1996 model

▪ Relates to payment only in respect of contracts under CCA

▪ Optional

▪ Refer at any time

▪ Decision is binding in interim and payment must be made

▪ Each party responsible for own costs

▪ Adjudicator can direct how their fees are paid – if no direction then jointly liable

Delay in implementation of CCA arose due to requirement to set up Adjudication Panels by RIAI, SCSI, etc. SCSI for example have different panels depending on the value of the dispute


▪ Multiple disputes can be dealt with by same adjudicator; parties agree adjudicator from panel

▪ Provide adequate information for Adjudicator to understand issue within 7 days of appointment

▪ Decision within shortest time possible or 28 days (plus 14 day extension)

▪ Can be formal hearing – both parties

▪ Decision in writing – signed, dated and reasons for decision (unless agreed otherwise by parties)



Negotiation Mediation Expert Determination

Adjudication Arbitration Litigation

1. Favours pursuer

2. Finality Dependant on outcome of negotiation

Dependant on outcome of mediation

3. Decision maker’s knowledge of subject matter of dispute

N/AThere is no decision maker

N/AThere is no decision maker

Or

if purely legal dispute

4. Speed

5. Cost – High/Medium/ Low

Low Low/Medium Medium Medium Medium/High High

6. Flexibility of process

7. Confidentiality

8. Ability to bring in third parties

Depends on what contract says and the rules used

9. Ease of enforcementDependant on terms of settlement agreement

Dependant on terms of settlement agreement

Enforceable outside Europe



Main Contractors

▪ Reliance on Sub-Contractor Overdraft facilities removed

▪ Creates issues in terms of payment terms and payment cycles

- Larger capital base requirements

- Financing Costs increased

- Cashflow implications

▪ Final payment 30 days after final completion

▪ Should result in increased tender prices

Sub-Contractors

▪ Eliminates pay when paid

▪ Culture change in relationships with Main Contractor

▪ Certainty in payment cycle with associated positives in terms of cashflow and finance costs

▪ Dispute resolution process outside of court so quicker and cheaper to resolve

▪ Should result in stronger supply chain relationships

What are implications for Contractors and Sub-Contractors?









8. Q & A


Agenda


Construction Tender Price Index 1998 - 2018

Trend +6-7% pa

Construction Cost/Tender Price Levels


Tender Price Index v Construction Input Cost



What the contractors are saying ......

▪ Steelwork is difficult to resource/ limited capacity

▪ Short supply of Facade Suppliers

▪ Supply issues with Joinery

▪ Supply issues with Plastering and Partitions

▪ Supply issues with Blockwork/Brickwork

▪ Lack of Labour and Supervision resources are scarce/Skill Base Issue

▪ Short Supply of Professionals – Architects, Engineers and Quantity Surveyors – and Skills Base Issue

▪ Plant/Equipment Shortage – e.g. cranes

▪ Site Set Up Facilities Shortage – e.g. site huts, welfare facilities

▪ Scaffolding – contractors buying up scaffolding to corner the market

▪ Industrial Relations

▪ Brexit and FX implications



Procurement Issues

▪ Organisational Failure – historically most prevalent when market has turned

▪ Manley Construction

▪ Carrillion

▪ Lagan Construction

▪ Cashflow/Credit Lines

▪ Sub-Contract - certainty of supply

▪ Sub-Contract Rates – fixed price

▪ Contract payment terms v sub-contract terms

▪ Partnering/Frameworks

▪ Bonding Parameters / Limits

▪ Resistance to non-standard terms

▪ Risk adverse strategies being adopted

▪ Negotiation and Two Stage Tendering becoming more prevalent










8. Q & A


Agenda


Construction Insolvency – the warning signs

Leads to increased costs Project delaysThird parties losing benefit of

collateral warranties

Construction Insolvency

Risk of Contractor Insolvency – Practical Steps

• Closely monitor Contractor’s performance on site and check financial standing

• Ensure a performance bond and/or a parent company guarantee has been obtained

• Check all relevant third party warranties have been provided and any outstanding warranties are obtained without delay

• Check all insurances are in place under the building contract – note renewal dates and follow up

• Check insolvency provisions and consequences of terminating the contract in the event of insolvency

• Check provisions of building contract dealing with direct payments to sub-contractors and retention and payments in title to off-site materials

• Conduct a comprehensive audit of all on-site plant and materials

• Seek legal advice at the earliest opportunity and in any event before any right to terminate under the building contract is exercised


Some of the Warning Signs

▪ Inflated Applications

▪ Inflated variation claims

▪ Unfounded/optimistic delay, disruption or loss and expense claims

▪ Falling behind cashflow and not recovering same

▪ Claims for material deposits/off site materials

▪ Changes in sub-contractors

▪ Changes in suppliers

▪ Slow down in activity on site

▪ Slow down in material deliveries and level of materials on site

▪ Changes in site management and head office personnel

▪ Risk adverse strategies being adopted

Construction Insolvency – the warning signs









8. Q & A


Agenda


SCSI Reseach

▪ May 2016 – House Costs

▪ October 2017 –Apartment Costs

Both research papersconfirmed thatConstruction Costsaccount for 43-45% of costof development

Supply of New Residential stock running behind current and projected demand; while othersectors are ramping up to dampen demand why is residential development not charging ahead?

Residential Construction Costs


Housing

▪ House 37%

▪ Siteworks 3%

▪ Site Development 5%

▪ Fees 3%

▪ Levies 4%

▪ Land & Acquisition Costs 17%

▪ Marketing & Sales Costs 2%

▪ Finance Costs 6%

▪ Margin 11%

▪ VAT 12%

▪ TOTAL 100%

SCSI undertook detailed research of real cost of development in the current regulatory, statutory and market environment. Research found that:


Apartments

▪ Apartment 43%

▪ Contingency 3%

▪ Fees 4%

▪ Levies 3%

▪ Land & Acquisition Costs 16%

▪ Marketing & Sales Costs 2%

▪ Finance Costs 7%

▪ Margin 12%

▪ VAT 10%

▪ TOTAL 100%

Note: Apartment cost above includes carparking/site development costs


Q & A

Thank you for your interest

and attention

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