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5.1.4 The site

In document Construction Conflict & Resolution (Page 97-104)

School of Architecture & Building Engineering, University of Liverpool, England

5.1.4 The site

Some ten years earlier a large estate of high density low rise housing had been commenced on the site. For a variety of reasons, two main contractors abandoned the site whilst a third went bankrupt. This resulted in there being several hundred derelict, partially completed houses on the site. A decision was made by the development corporation to demolish them but to leave the roads and sewers in place. The site, part of which had not been built on, was subsequently taken

over by a speculative house builder, who built and sold small, conventional semi detached and terraced houses and small blocks of four one and two bedroom flats.

An initial approach to the builder’s regional office ascertained their interest in providing a vicarage. The novelty appealed to the regional director and a location adjoining an existing road identified. There was neither surface evidence nor recollection that housing had previously stood there. The firm offered to cost a design proposed by the Church and, subject to agreement on cost, to build the vicarage.

5.1.5

Risk identification and avoidance

The church council voted to support the provision of the vicarage and authorised the author to act on its behalf. While supporting the scheme, the author realised that not only was he taking on a voluntary undertaking requiring a considerable commitment of his limited ‘spare time’ but that he was also potentially exposing himself to claims for negligence if anything went wrong! Without professional indemnity insurance for risks that as vice chairman are hard to define at the very least refuting any alleged negligence could be both time consuming and expensive. Though professionally qualified as a chartered builder his competence as a designer could be challenged for he does not possess a design qualification.

Similarly the question of supervision of the works on site and authorisation of stage payments to the contractor arose. For attendance at site to inspect work at major stages such as trench bottoms before concreting, or to attend in order to value work completed to comply with contract requirements for stage payment might be difficult.

The duty of care owed to the church council and indirectly to the Diocesan Board of Finance could be onerous should one of either party chose, in the event of mishap with the project, to claim that such a duty existed. Hedley Byrne v Heller (1963) suggests that a duty of care cannot be avoided by the use of phrases such as ‘without responsibility’ and Uff [Uff (1991)] when discussing the case suggests.

‘Thus persons such as engineers and architects must be on their guard when making statements to their clients even concerning matters in which they are not directly instructed And a duty of care may equally arise when giving gratuitous advice to strangers if the circumstances are such that there is an implied undertaking of responsibility.’ (authors’

emphasis)

Although the decision as to whether or not negligence has occurred is ultimately the responsibility of a judge in the particular circumstances of a case the author had no desire to be cited in legal text books!

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5.1.6

Development of the design

Neither the speculative builder, the author or the vicar had previously been involved in building a vicarage. Two Saturdays were spent looking at a recently completed vicarage in the North West and at the large detached houses built by the builder on more prestigious sites. These generally sold for £100,000 to £150, 000. A booklet on design criteria for parsonage houses [Church Commissioners (1982)] was obtained and the vicar and author set to work with squared paper.

The design criteria specify aspects of the design which enable vicarages to be used both as a residence and a work place.

By adapting a standard detached house layout the basis of a design was created. Access to the study was from the family hall rather than by separate entrance and access to the dining room through the kitchen. Both these variations to the standard design criteria were acceptable to the Church Commissioners in this particular case. In fact in dimension, only the staircase remained as a standard house type but the proposed design was carefully developed to the same vertical dimensions and same range of horizontal dimensions found in the company’s other houses to facilitate use of standard components such as roof trusses and partitioning. The design was developed with the practicability of economic construction and minimising circulation space as prime criteria. It was intended to blend with other properties, appear totally conventional, and avoid ostentation.

5.1.7

Responsibility for the design

A schedule of requirements, cross referenced to both those of the Church Commissioners and the National House Building Council was prepared. This also required the builder to obtain all legal and planning approvals and agreements for supply of electricity, gas, water, drainage, telephone and communal aerial T.V. A ‘U’ value of 0.6 W/sq m.K was sought for walls, roof and ground floor (these being of a higher standard than required by building regulations at that time).

The sketch plans for a 160 square metre house were approved by the Church Council and the Parsonages Committee. The Parsonages Committee included among its membership an architect in private practice who served in a voluntary capacity. The sketch plans were costed by the builder and the offer price found to be within the Committee’s budget.

Sketch plans were developed by the builder’s architect into a design for detailed planning permission at 1:100 and 1:20. The design used the same components, windows, doors, roof tiles, bricks, bathroom and kitchen fittings as elsewhere on the site. It complied with NHBC requirements and carried their warranty. The builder’s architect assumed that the site had not previously been

built on for all the foundations being dug adjoining the proposed vicarage site were into undisturbed soil.

5.1.8

Inspecting work and authorising payments

The suggestion was made to the secretary of the Parsonages Committee that the consultant architect, who served as a member of the board, be invited to act on behalf of the board (and church council) in supervising the works. This was accepted by the committee and the architect appointed as supervising officer.

The contractor was informed by letter from the vicar of the Dioceses’ intention to purchase the vicarage and he signed the standard house purchaser’s agreement and an additional agreement to make a 10% deposit payable at the time of execution of the agreement and stage payments when the property reached slab level and when watertight. The Church Commissioners undertook the legal work associated with the conveyance of the property.

As the project developed the builders tried to introduce methods of construction which did not satisfy the initial schedule of requirements. The supervising architect ensured adherence to both the preliminary schedule of requirements and to the builder’s own drawings. As the working drawings were not prepared until after the price had been offered and accepted, the supervising architect also ensured that the working drawings complied with the initial specification. The supervising architect issued snagging lists and authorised payment of the builders final account.

With hindsight a risk that was not identified was that the contractor might have accepted a higher offer from another purchaser before payment of the initial deposit was made and accepted.

5.1.9

The construction phase

The enthusiasm of the site foreman for the rather unusual nature of the project contributed to the success of the scheme. He enjoyed the idea of building a vicarage and the workers were made well aware of the prestige nature of the project.

During excavation for foundations a small tree trunk and main branches about 6 metres long was encountered horizontal about 1.5 metres below the surface. It was not as assumed a virgin site but the ground had been made up when the road had been constructed 10 or so years earlier. This necessitated taking foundations to some 2 to 2.5 metres deep, sides of trenches were battered to avoid the need for planking and structuring and a considerable area within the curtiledge excavated to 2 metres to remove all the branches. The extra costs of excavation, backfill with hardcore, concrete and brickwork in footings was borne by the

84 AVOIDING CONFLICT BY RISK MANAGEMENT

building contractor. Under the usual system for procuring vicarages a variation would have been claimed and extra expense incurred.

Otherwise, the work proceeded well with only minor variations. Oh completion a good sized family home with many features such as coloured bathroom suite and close boarded private garden was provided at a price of some 55% of the normal construction cost of vicarages, excluding provision of the site.

5.1.10 Observations

Unconventional contractual solutions can work satisfactorily when there is goodwill by all participants to the procurement process and the client states their requirements in an unambiguous way at the beginning. This is particularly helped when the ‘lay’ participant recognises the risks involved. The fixed priced contract benefitted the client. The builder accepted responsibility for the design decisions of his consultant architect whose failure to undertake a site investigation for the plot led to extra expense being incurred.

The responsibilities of the consultant architect appointed by the Parsonages Committee were clearly identified and limited to general advice, inspection of works and authorising completion. No Quantity Surveyors fees were incurred.

A hidden factor in the project may have been any loss that the builder may have been prepared to carry in order to enhance sales of adjoining properties. A detached house and vicar as neighbour would not detract from the estate. This, if present, is an element never present under regular contractual arrangements for vicarages.

It is doubtful that the builder knew how much vicarages normally cost. Once the builder was committed to the low fixed price all financial risk was carried by him.

5.2

A retail development

5.2.1 Introduction

This case study concerns the speculative development of a large, multi-tenant retail complex by a commercial development company (‘the Developer’). The work was to be carried out under a Development Agreement with the local Development Corporation who would be providing the land and constructing a new interchange and access road on the adjacent dual carriageway ‘A’ road. The development, whose original estimated construction cost was £20,000,000, was

to take place on a green field site on the outskirts of a large town in Northern England.

The project principally comprised twenty four retail units, providing some 40, 000 square metres of retail space, and associated external and infrastructure works. In addition, one area of the site was to be cleared, levelled and provided with roads and services for direct sale to a retailer who would construct a 7,500 square metre food store. The Developer employed consultants to produce a sketch design for the retail park, sufficient to obtain outline planning permission and to provide the basis for competitive tendering.

The form of construction proposed for the retail units was single-storey, steel portal frame with half height external cavity walls and coated, lined and insulated steel cladding panels for the upper walls and roof. Because of the soft, alluvial sub-soil on the site, all of the portal frames had piled foundations. In addition, it was considered necessary to pile the ground floor slabs in half of the units.

Tenders were sought on a two stage basis for a design and build contract with an established ‘guaranteed maximum cost’, savings below the maximum cost to be split equally between client and contractor. In stage one of the tendering process a number of contractors submitted details of preliminaries, overheads and profit. On the basis of these costs one contractor was selected to proceed to stage two. In the second stage the Contractor was required to develop

‘contractors proposals’ and to obtain competitive quotes for the work packages necessary to complete the project. These quotes and the stage one costs were used as a basis for the negotiation of the maximum cost figure with the Developer’s Quantity Surveyor. In parallel with this activity, the Developer, by means of letters of intent, had authorised various enabling works to be carried out by the Contractor and principal sub-contractors prior to the contract being let.

During this second stage the Developer was acquired by a competitor. One of the first actions of the new owners (hereafter referred to as ‘the Client’) was to suspend all work and negotiations on the project and to employ a firm of consultant project managers (‘the Project Manager’) to review the status of the job, to assist in the decision on whether to continue with the project or not and to develop a strategy for completion if the decision was in the affirmative. The selection of the Project Manager was made on the basis of a successful working relationship on a number of previous projects.

The compilation of the report on the status of the project, which consisted mainly of a factual review, proved to be straightforward. However, the decision to proceed and the development of a plan for completion were seen to require much careful consideration. The identification and analysis (albeit qualitative) of the principal risks faced by the Client were an important source of input to the above decision and the development of a strategy for continuing the project was, in essence, an exercise in risk response.

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5.2.2

Risk identification—financial viability

The decision on whether or not to proceed with the project was based primarily on an assessment of the financial viability of the project. Based on the initial information presented to the Client it seemed that the project would not be financially viable. In such circumstances, the Client would have been willing to accept the loss arising from the aborted enabling works and professional fees etc., amounting to some £300,000, and withdraw. However, the appraisal and analysis carried out by the Project Manager indicated a number of areas in which the viability might be improved and that the project merited further investigation.

Clearly, the financial viability of an individual project directly influences the overall profitability of a development company. Other issues must also be considered. In the event of resuming the project, the Client would wish to obtain the majority of the finance by means of a bank loan. In order to obtain such a loan, a bank would also need to be convinced of the viability of the project.

Furthermore, it would be unlikely that the Client would wish to retain the completed development. A successful sale of the development, to a pension fund or property company, would also depend on an adequate demonstration of its viability.

A number of factors and their associated risks were identified by the Client and Project Manager as important influences on the viability: the amount and timing of construction costs; the level and timing of rental and sale income; the value and saleability of the completed project; payments to be made to the Development Corporation on signing the Development Agreement and potential damages payments which could be claimed by the Development Corporation in the event of late completion of the project. The risks identified often affected a number of the above factors and covered financial, contractual and technical aspects of the project.

Under the maximum cost/incentive scheme previously proposed, the final construction cost was uncertain and accordingly, the assessment of viability would need to be based on the guaranteed maximum cost. Since the higher the maximum cost, the greater the payment to the Contractor, there was no incentive for the Contractor to obtain keen prices for the work packages during the second stage of the tendering process. The maximum cost might therefore be unnecessarily high and would certainly be higher than could be obtained through a more conventional fixed price approach. The maximum cost approach would put at risk the ability to demonstrate the viability of the project both within the Client’s own organisation and to external institutions.

The Project Manager was also able to identify a further factor causing increases in construction cost. The Development Corporation where using the project as a ‘flagship’ development and had required the original developer to provide various enhancements to the design. These enhancements, which mainly

affected the external appearance of the buildings and grounds, resulted in a design which was to a higher standard and more expensive than would normally be provided in such a commercial retail development and therefore further prejudiced the financial viability of the project.

One risk which all speculative developers face is the possibility that they will not be able to find tenants to fill the development. This project was no different, clearly the higher the rental levels obtainable and the sooner this income started to come in, the more financially viable would be the project. At the time of the takeover, no tenants had signed Agreements to Lease. The number and prestige the agreed tenants would strongly influence potential financiers and potential purchasers of the completed development. Clearly, this risk would have a vital effect on the success of the project.

In addition, Project Manager also identified some aspects of the design which might further put at risk the acquisition of tenants, the procurement of interim funding and the long-term sale of the development. These aspects concerned mainly the external cladding and rainwater drainage system, and would have the effect of making maintenance of these items both difficult and expensive.

The consideration of all of these (and other) issues and the formulation of a strategy for addressing them could not be carried out at leisure, there were significant time pressures. Even if work proceeded, the Client would be liable for some £200,000 additional costs arising from delays in proceeding with the works and in connection with the enabling works previously instructed. Since a large part of these costs were due to interest and storage charges, they were increasing as the delay in restarting work increased. More importantly, the Development Agreement, which though not yet signed was substantially agreed, included a obligation on the Client to complete the Development by a given date. The longer the delay in recommencing works, the shorter the construction period available and the greater the risk of the client defaulting.

5.2.3

In document Construction Conflict & Resolution (Page 97-104)