Facilities development – a practical introduction to

procurement & letters of intent

Andrea GardnerMonday 25 March 2013

Workshop aims and objectives

• To discuss common issues and themes arising on construction projects for sports and welfare facilities

• To identify and explore problem areas and risks

• To minimise delay, disruption and cost to your project

Preliminary considerations and funding options

• Assess whether to extend / refurbish existing buildings or construct new facilities

• Explore all potential funding options. These may include:• self funding (charitable donations, fund raising

initiatives and membership contributions)• institutional funding (e.g. bank finance)• Local Authority funding (potentially tapping into

S.106 obligations)

Preliminary considerations and funding options (cont)

• joint venture (potentially with another organisation or club)

• grant funding (e.g. Sport England, Football Foundation or National Lottery); and

• charity bank funding

Site acquisition

• Check that you own all parts of the site you intend to build on

• Check that you own or have adequate rights over land that you intend to use e.g. access roads and utilities

• Carefully investigate title to check whether there is anything in the title that could stop or interfere with your building

The wider picture – third party consents

• You will need to balance the competing interests of funders, tenants purchasers and other end-users

• Funders are likely to have their own particular security requirements including: • collateral warranties• charges over land / property; and• personal guarantees or debentures

Appointing an architect

• An architect's role is integral to any successful development and often extends beyond plans and drawings

• Care should be taken to appoint the right architect using proper terms and conditions

• Do not simply accept your architect’s terms!

Appointing an architect (cont)

• It is crucial that any professional appointment includes the following:• a clear description of the consultant's services and

how they will be paid• clear standards of skill and care• a requirement to maintain appropriate

professional indemnity insurance• restrictions on the specification of inappropriate

or 'deleterious' materials

Appointing an architect (cont)

• a copyright licence enabling you to freely use the architect's drawings, plans and specifications; and

• an obligation to give collateral warranties to interested third parties (e.g. purchasers, tenants and funders)

Deciding on a procurement strategy

• Traditional procurement vs. Design and BuildTraditional procurement advantages:Time Money Risk

Greater certainty in the construction period once design is complete.

Greater certainty as traditional contracts are generally 'let' on fixed price terms.

Deciding on a procurement strategy (cont)

• Traditional procurement vs. Design and Build Traditional procurement disadvantages:Time Money Risk

Longer overall time frame. Detailed design needs completing before construction can start.

Can cost more as additional design fees are paid to the team of consultants.

Can place greater risk onto the client as design and construction responsibility is divided between the design team and the contractor. Emphasises the importance of having accurate technical drawings and plans.

Deciding on a procurement strategy (cont)

• Design and Build advantages:Time Money RiskMay be quicker because the client need only develop outline designs.

There is a potential VAT benefit to Charities who procure using a design and build route (VAT rates can be reduced using Relevant Charitable Purpose Relief) .

Can create a single point of responsibility for design and construction works.

Deciding on a procurement strategy (cont)

• Design and Build disadvantages:Time Money Risk

Contractors may inflate their price to take account of the additional design risk.

Quality may suffer as the contractor's profit rests on meeting the requirements of the contract at the lowest possible cost.

Clients may feel that they lose control of the design process once design consultants are 'novated' to the contractor (see below).

Other consultants

• It’s not just about the architect!• You may also need to appoint:

• project manager / employer’s agent• CDM co-ordinator• structural and mechanical engineer; and• specialist consultants e.g. landscape architect,

acoustic consultants and geo-technical consultants

Planning considerations

• You will need to apply for and obtain planning permission

• You should take account of the judicial review period before starting work on site

• Planning permission is often conditional. If so, it is important that you discharge all planning conditions

Appointing a contractor

• Once you have developed your design and achieved planning you will need to appoint a contractor

• In doing so you should consider:• your internal procurement rules and constitution;

and• European procurement law

Appointing a contractor (cont)

• You should be aware of wide ranging procurement rules such as the Public Contract Regulations 2006 (Regulations) (amended by the Public Contracts (Amendment) Regulations 2009)

• The Regulations impose additional requirements on "Contracting Authorities" looking to procure goods and services above certain values

Appointing a contractor (cont)

• “Contracting Authorities” include: • Government bodies• Local Authorities• Police and Fire Authorities; and• A wide range of community bodies, interest

groups and associations who are funded, supervised, controlled or appointed by a "Contracting Authority”

Appointing a contractor (cont)

• Current financial thresholds (net of VAT and subject to review / change on 1 January 2014)

Services Works

Government bodies, Local Authorities, Police and Fire Authorities

£113,057 £4,348,350

Other 'Contracting Authorities' £173,934 £4,348,350

Appointing a contractor (cont)

• What if the Regulations apply?• If the Regulations apply it will affect the way

you can procure building works. You will have to:• advertise the contract in the Official Journal of the

European Union (an "OJEU" notice) • follow one of a range of prescribed tender

procedures set out in the Regulations; and • avoid awarding the contract until the expiry of a

'standstill period’

Appointing a contractor (cont)

• What if I don’t comply?• The consequences of non-compliance are

harsh and could jeopardise your entire project. Remedies include:• an order to pay financial compensation to

unsuccessful contractors• an order to re-start the tender process from

scratch; and• the imposition of penalties and fines

Appointing a contractor (cont)

• Any formal legal challenge brings with it a 'moratorium' period. This means that you will have to stop work until the challenge is resolved

• This is a very complicated and rapidly changing area of law and you should always seek specialist legal advice

Choosing the right contractor

• Carry out financial checks into the standing and reputation of your preferred contractors

• Request additional forms of security e.g. parent company guarantees and bonds

• Ensure that your contractor maintains ‘all risks’, public liability, employer's liability and professional indemnity insurance

• Put a robust building contract in place as soon as possible

Building contracts – key terms

• Choosing the right building contract can be complicated but certain key terms should always be included:• a requirement to use appropriate levels of skill

and care in constructing and (if relevant) designing the works

• obligations to comply with all relevant laws and standards

• a clear completion date and procedures for agreeing or 'certifying' completion

Building contracts – key terms (cont)

• provisions dealing with failure to meet the completion date e.g. payment of liquidated damages

• an obligation to return to site after completion to rectify any defects

• clear payment obligations and insurance requirements

• a requirement to provide collateral warranties to third parties; and

• a dispute resolution clause (be aware of adjudication!)

Letters of intent – the pitfalls

• Despite the importance of a full building contract parties often enter into informal arrangements or “Letters of intent” (LoI)

• LoI are often used to allow materials to be ordered and works to commence before a full building contract is in place

• BUT LoI should not be used unthinkingly or as a substitute for a proper contract

Letters of intent – the pitfalls (cont)

• You should not be persuaded to use to an LoI unless:• the scope and price of the works are agreed or

there is a clear mechanism for agreement• the main contract terms are (or are very close to

being) agreed • where the programme, start and completion dates

are agreed; and• there are good reasons for commencing work

before the contract is in place

LoI – drafting tips

• Things to include:• a clear description of the works being carried out

and a financial limit on your liability • a statement that you will not be obliged to enter

into a formal contract; and• a clause confirming that the main contract will

retrospectively apply to all works under the LoI

LoI – drafting tips (cont)

• Things to avoid:• using a LoI as a substitute for a main contract• failing to enter into a main contract before the

expiry of the LoI; and• exceeding the financial limits or duration of the

LoI• Ampleforth Abbey Trust v Turner & Townsend

Project Management

Summary

• Development projects are complicated can overwhelm inexperienced employers

• They require careful planning and monitoring and do not just fall into place

• Problems and disputes do happen but they can be avoided by seeking early professional advice and guidance

Any Questions?

Workshop locations