Professional Service

CONTRACTSby COMPARISON

Meggyn Visser

Senior Risk Advisor

PROCSA CIDB FIDIC NEC

1. Introduction

2. Obligations

3. Limit of Liability

4. Indemnity

5. Copyright & Intellectual Property

6. Dispute Resolution

7. Payment

8. Conclusion

Introduction

Purpose of Standard Forms

Copyright

Amendments - Schedules / Contract Data /

Particular Conditions / Z Clauses

Law of Contract – Offer & Acceptance

Nature - Adversarial

PROCSAClient/Consultant Professional Services Agreement

Latest edition: Edition 2.0, August 2009

Recommended by: CESA; AAQS; ACPM; ASAQS;

SABTACO; SAIA; SAPOA

Agreement - Terms & Conditions

Annexure A - Schedule

Annexure B - Scope of Services

(specific for each discipline)

CIDBStandard Professional Services Contract

Latest Edition: 2nd Edition, September 2005

Used by: Public Sector Procurement

General Conditions of Contract

Personnel Schedule

Contract Data

Form of Offer and Acceptance

3.11 Penalty clause

3.12.2 Insuring Clients equipment

FIDICClient/Consultant Model Services Agreement

Latest Edition: 4th Edition, 2006

Recommended by: FIDIC

Agreement

Particular Conditions

General Conditions

NEC3Professional Services Contract

Latest Edition: June 2005

Recommended by: eg. Eskom, Telkom, Amplats, Transnet, DPW, Sasol

9 Core Clauses - general conditions

4 Main Option Clauses – remuneration basis

Secondary Option Clauses – pick and choose

Contract Data

Adjudicator’s contract

Penalty clause

Obligations PROCSA (2nd Edition, August 2009)

- execute services,

- Duty of Care - exercise reasonable skill, care and diligence;

- exercise quasi-arbitrator function if requested;

- only make alterations/additions if client consents;

- co-operate with other consultants

CIDB (2nd Edition, September 2005)

- exercise of authority

- provide insurance

- need client’s approval to appoint sub-consultants and Key persons

- co-operation with others

- notice of changes

Obligations FIDIC (4th Edition, 2006)

- Duty of Care - exercise reasonable skill, care and diligence;

- exercise of authority;

NEC3 (June 2005)

- Provide services in scope

- Duty of Care - exercise reasonable skill, care and diligence;

Limit of Liability PROCSA (2nd Edition, August 2009)

Limit of Compensation / Quantum - Select one of these options in the schedule:

1. limit of indemnity (avoid this option)

2. fixed amount

3. twice fee

If none selected, default is twice fee

Duration of Liability - 5 years from the earlier of Practical Completion of the Works; Completion of

Consultant’s Services; Suspension or Cancellation of the Agreement .

CIDB (2nd Edition, September 2005)

Limit of Compensation / Quantum – Sum insured for insurable events; sum stated in contract

data/twice fee if non-insurable event

Duration of Liability – period stated in Contract Data, if no period stated 3 years from termination or

completion of the Contract

Limit of Liability

FIDIC (4th Edition, 2006)

Limit of Compensation / Quantum – Fixed amount, sum stated in Particular Conditions

Duration of Liability – Determined by Parties and inserted into the Particular Conditions

NEC3 (June 2005)Limit of Compensation / Quantum – Amount stated in the Contract Data (also in NEC2)

Duration of Liability – Amount stated but only if selecting Secondary Option Clause X18

(not in NEC2)

OFS High Court Decision

Issue at hand - was the validity of SAACE Standard FoA Liability

Limitation clauses, where the agreement is included by reference to it in

a letter.

Standard Form of Agreement introduced by the Client, NOT by the

Consultant:

“The proposed terms of your employment are set out below for your

acceptance. Once agreed, they will be recorded on the standard

memorandum of agreement as produced by your institute amended to

reflect the contents of this letter, and submitted to the client for

signature”

B&B EIENDOMME (PTY) LTD

V

MOSTERT, VAN DER BERG & DE LEEUW

A dispute arose between the parties

Client adhered to Dispute Resolution Clause in SAACE FoA

During the Trial, Client argued that limitation provisions were

not binding as neither they nor the consultant were aware of

them

Court dismissed this argument – Aware of dispute resolution

clauses, but not of the limitation clauses?

Court held limitation clauses to be valid and binding

THE FACTS

Even though each case is decided on its own merits, this remains a strong

precedent.

The more information you can give to your client, the better. An open and

honest contracting relationship is always best.

Limiting your liability is no longer an option it is a MUST!

Decision has NB implications for Standard form agreements

Distinction is that in the normal course of events, the Consultant will refer to the

SAACE FoA - NB that reference to the FoA be correctly worded to make it

applicable and binding

CONCLUSIONS

Recommended wording for a paragraph in your letter of acceptance (at the

very least):

“All services provided by ourselves on this project will be subject to

the latest version of the PROCSA Client/Consultant Professional

Services Agreement, subject to the schedule. Should you not be

familiar with the contents of the agreement, inform us in writing and

we shall be pleased to furnish you with a copy thereof. Your

attention is specifically drawn to the provisions of the agreement

dealing with the limitation of liability between the parties in respect

of the services to be rendered.”

OUR ADVICE

Indemnity

“The client hereby indemnifies the consultant against all claims by third

parties which arise out of or in connection with the services which

exceed the maximum amount of compensation and for the full amount

of any such claims after the liability period stated”

PROCSA (2nd Edition, August 2009)

CIDB (2nd Edition, September 2005)

FIDIC (4th Edition, 2006)

NEC3 (June 2005)

Copyright & IP

Consultant retains copyright of all docs prepared by him

Client may use for sole purpose of the project

Entitled to all data and factual information collected only if paid for!

I suggest including if IP is transferred to the Client:

“The Client hereby indemnifies the Consultant against any claim which

may be made against him by any party arising from the use of such

documentation for other purposes.”

PROCSA (2nd Edition, August 2009)

CIDB (2nd Edition, September 2005)

FIDIC (4th Edition, 2006)

NEC3 (June 2005) - Silent on subject

Dispute Resolution

PROCSA CIDB FIDIC NEC

Alt.

Dispute

Resolution

Settlement

Mediation

Arbitration

Settlement

Mediation/

Adjudication

Arbitration

Settlement

Mediation

Arbitration

Adjudication

Payment PROCSA (2nd Edition, August 2009)

30 days from invoice - interest rate +2% - non-payment grounds for termination of contract –30 days notice

CIDB (2nd Edition, September 2005)

30 days from invoice - interest rate +2% - non-payment grounds for termination of contract –45 days notice

FIDIC (4th Edition, 2006)

28 days from invoice - define interest in Particular conditions compounded daily - non-payment grounds for termination of contract – 14 days to remedy, 42 days notice

NEC3 (June 2005)

3 weeks from invoice - interest rate +2% compounded annually - non-payment grounds for termination of contract – 45 days notice

!!!SET OFF CLAUSES!!!

Individuals liability!

• Include in your definition of Consultant:

“employee, agents and sub-consultant…”

• Include in the specific provisions at the end:

“The Client waives any right of action of whatsoever nature

it may have against any employee, agent or sub-contractor

of the Consulting Engineer, in respect of any loss or

damage it may suffer as a result of or in connection with

the rendition of the services.”

All four of the agreements dealt with are fairly comprehensive.

PROCSA is most suited to local work and has more default clauses

and is therefore easier to incorporate by reference. Also endorsed

across built environment

CIDB has some onerous clauses, penalties are included and the

limitation of liability is not ideal.

FIDIC is most suitable for international work but can be used locally

and also provides a suite of documents including JV and Sub-

Consulting

NEC gives more unilateral powers to the Client through X clauses.

Conclusions

Where to obtain documents:

PROCSA - JBCC www.jbcc.co.za

CIDB - CIDB downloadable from www.cidb.org.za

FIDIC - CESA 011 463-2022

NEC - ECS 011 803-3008

NUMBER OF CLAIM NOTIFICATIONS

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

109

115

80 77

88

69

90

124

63

20

CLAIMS SPLIT BY DISCIPLINES 2001 -2010 ( 835 NOTIFICATIONS)

Structural/50%Civil/30%

Mechanical/3%

Electrical/5%

Project Management/5%

Fee Recovery/4% Other/3%

Structural

Civil

Mechanical

Electrical

Project Management

Fee Recovery

Other

CLAIMS INCURRED BY DISCIPLINES 2001 – 2010 TOTAL INCURRED R209,000,000

Structural/35%

Civil/55%

Mechanical/2%

Electrical/3%

Project Management/3%Fee Recovery/1% Other/1%

Structural Civil Mechanical Electrical Project Management Fee Recovery Other

66%

22%

12%

Civil & Structural Mechanical & Electrical Other

Contribution to Premium Pool by Disciplines

ACCUMULATED PREMIUM AGAINST CLAIMS INCURRED

0

50

100

150

200

250

300

350

400

20012002

20032004

20052006

20072008

20092010

Net Premium Claims Incurred

Mil

CESA PI SCHEME FOUR LARGEST CLAIMS (2005 -2008)

Incurred Paid

2008

Inadequate design of roof structure R 649 687 R 578 392

Design error in tailings dam R 315 745 R 315 745

Cost overrun R 2 233 247 R 218 019

Electrical installation R 121 913 R 121 913

2007

Inadequate design of slab R 5 286 796 R 5 286 796

Design error in block paving R 1 623 755 R 1 623 755

Error in design of floor panels R 810 612 R 757 361

Defective design of floor R 2 879 038 R 363 091

2006

Inadequate design of block paving R 6 684 695 R 6 010 633

Inadequate design of a slab R 2 801 717 R 2 801 717

Inadequate design of slab R 1 916 389 R 1 916 389

Incorrect Geotech. report R 1 781 288 R 1 781 288

2005

Inadequate block paving design R 5 123 560 R 5 123 560

Stress cracking of newly cast reinforcing R 1 271 151 R 1 271 151

Design servcies on mine R 5 541 045 R 1 144 014

Inadequate design R 1 483 639 R 732 305

NOTIFICATIONS BY STAGE OF PROJECT

Design Stage 50%

Construction Stage 25%

Establishment of Site 16%

Incomplete Brief / Definition of

Services 4%

Others 5%

CLAIMS BY METHOD OF RESOLUTION

Negotiated Settlements 85%

Judgements 8%

Expert Determination 2%

Mediation 5%

- No rate increases with nominal rate reductions on profitable risks.

- Member firms with adverse loss ratios – either a nominal rate increase or a higher minimum deductible imposed.

- Legal liability wording to replace errors and omissions wording.

- Extension relating to liability arIsing from appointments as Health & Safety agents.

- QMS compliant member firms looked upon more favourably.

- 25% discount on deductible for QMS adherence continued to be offered.

- 50% discount on deductible for claims were liability has been capped in contract to a multiple of the fee earned or a fixed amount.

2011 Scheme Structure

- Public Liability cover – Max R5m with additional premium levied for higher limits. PL cover above the maximum primary available at an additional premium at R1,000 per million.

- Loss of documents cover increased to R1,500,000.

- Fee recovery extension limit increased to R1,500,000.

- Deductibles payable will only be applicable against damages.

- Criminal and Statutory defence costs will now enjoy the same limit as the limit of indemnity.

- A Design & Construct / contractor / specialist contractor extension to be included as standard on all CESA member firms PI policies.

2011 Scheme Structure (cont.)

Participation on following:

i. Representation on the Quality and Risk Management Committeeii. Representation on the Supply Chain Management Committeeiii. Representation on the Construction Regulations Task Teamiv. Representation on the FIDIC Risk and Liability Committeev. CESA Legal Forumvi. Redraft CESA Short Form Agreementvii. Draft revision of New CESA Sub-Consultant Agreementviii. Risk Management to Individual Firmsix. Quarterly reporting on claims experiencex. Collaboration with the school of Consulting Engineersxi. Participate and advise on the Business Integrity Task Team (BITT)xii. Case Studiesxiii. Assisting CESA with the revision of advisory notes.xiv. Sponsorship of the Excellence Awards xv. Place and pay for the sole practitioners run-off policy

2011 scheme structure (cont.)

Limits of Indemnity - CESA (354 Firms)

R2mil Cover , 9%

R2.5mil to R5mil Cover , 39%R5.5mil to R10mil

Cover , 33%

R10.5mil to R25mil Cover , 11%

Above R25mil Cover , 8%

R2mil Cover

R2.5mil to R5mil Cover

R5.5mil to R10mil Cover

R10.5mil to R25mil Cover

Above R25mil Cover

CESA PI SCHEME LEGAL RISK MANAGEMENT

• Contractual queries have increased to 512 contracts reviewed

Appointments Joint venture

Sub-consultancy agreements Duty of care to client’s financiers

Appointment as OHS Agents

• Drafting of the new CESA Sub-consultant Agreement and Updating of the CESA Short Form Agreement

• Drafting of Advisory notes on various key topics in 2010

• Suite of CPD Accredited presentations to individual firms , as well as annual seminars in each of the major centres around the country.

• Case studies books published.

- PI Engineering claims

- Project Managers, QS & Architects

Thank you