When the Employer arrange for issuance of instructions to the main contractor to carry out additional works after its project achieves practical completion, it seems baffling to most people. Why carry out additional construction works when the project is completed? Is this permissible under the construction contract? In reality most construction practitioners would find that this is quite commonly practised particularly if the project involves major additions and alterations to a building that is in operation throughout construction period. This article deals with various aspects of this unique phenomena by first understanding the rationale behind this practice.

Why Instruct Additional Works After Practical Completion?

Commercial buildings such as shopping centres, hotels, airport, office towers are upgraded and rejuvenated regularly through additions and alterations initiatives. This is done as part of active asset management efforts in order to improve its operational efficiency, keep up with evolving needs and to refresh its image. Additions and alterations are usually executed in phases where construction works are carried out in different geographical locations of the building at different point in time. The remaining parts of the building are kept in operation to generate rental revenue. Therefore the construction works are carried out simultaneously whilst the building is in partial operation. 

Buildings are in constant need of maintenance to keep the building in operation. These maintenance activities ranges from the most miscellaneous activity like changing of directional signage to the more significant ones such as replacing electrical power infrastructures. As a matter of organisational structure, the maintenance team is usually separate and distinct from the construction team, of which the latter manages additions and alterations works. As and when maintenance works arise, there is a natural inclination to have the additions and alterations contractor to execute those maintenance works which usually involve certain degree of construction activities. This natural inclination stemmed from the fact that the maintenance team can do away with procurement and tender process of engaging a separate contractor after its maintenance budget is approved. The justification for ‘leveraging’ on the additions and alterations contractor or the main contractor is the avoidance of having too many contractors working simultaneously on site that may result in clashes, conflicts and the need for coordinations. Further, the maintenance team usually takes advantage of the fact that the main contractor had been vetted by the construction team prior to carrying out the works in the building concerned and would now have acquired sufficient experience and knowledge specific to the building’s operations. The avoidance of carrying out tender and orientation of a new contractor should in theory be beneficial in saving time for the maintenance team. 

After the budget for the maintenance works is transferred from maintenance team to construction team, the latter will then arrange for instructions to be issued to the main contractor for additional works. In terms of timing, such instructions are generally issued towards the tail end of the construction works or even after practical completion. The reason for such timing is because this is usually the period when construction team will arrange for handover of completed works to the maintenance team. During these handover inspections, the realisation of the need for maintenance works on interfacing systems arises. Further the main contractor would usually have more bandwidth and resources available to carry out additional maintenance works when significant portion of its additions and alterations are completed. There is also profit incentive for the main contractor to carry out such additional works. In other words, there is a meeting of minds between all parties, at least commercially for such unique practice to prevail.

So why the maintenance works are not planned in advance and bundled under the additions and alteration works construction contract to begin with? It would appear that any advance planning is more sensible. It allows the Employer to take advantage of economies of scale by aggregating works together and also the ability to programme the works holistically.  There are many reasons for the lack of advance planning. Firstly, maintenance works are usually planned in a calendar cycle based on structure of financial year. These maintenance planning cycle may not coincide with the construction schedule. Secondly, certain maintenance works can be reactive rather than proactive where certain building systems malfunction incidentally. This could also explain why the need for an expedited procurement approach by sole sourcing the works to the existing main contractor.

Is This “Allowed” Under Standard Forms of Contract e.g. SIA Contract / PSSCOC?

Whether the practice of instructing additional works after practical completion is provided for under the contract is a debatable matter. Whilst there is no express provision on instructing additional works in this manner, one may interpret the contract based on other  general provisions that may be relevant. These provisions include the certifier’s power to instruct additional works through variation order, the definition of practical completion, the period for the main contractor to vacate the site during certification of completion etc. It should also be pointed out that parties are free to contract. Therefore, if there is meeting of minds between the parties on the need to carry out additional works albeit belatedly, the contract should reflect the intentions of the parties. This section of the article however deals with the question of whether the general conditions in unamended standard forms of contract are capable of accommodating such arrangement or is there a need for parties to enter into a supplemental agreement. In this regard, two commonly used standard forms of contract are referred to namely the Singapore Institute of Architect (SIA) Building Contract 2016 and the Public Sector Standard Conditions of Contract (PSSCOC) Eight Edition July 2020.

It appears that there are two competing arguments on this matter. Firstly the interpretations of certain conditions do supports the argument that instructing additional works after practical completion is contractually provided for under the said standard forms. Clause 19.2 of the PSSCOC which deals with the superintending officer’s power to order variation, states amongst others that he may at any time issue an instruction in writing requiring a variation. The phrase ‘at any time’ does not appear to be circumscribed by the expiry of contract completion date. Similarly Clause 12 (1)(a) of the SIA contract states amongst others that the Architect shall have power ‘at any time’ to give directions or instructions requiring a variation. The definition of variations under both standard forms appear to be wide enough to include works that may be a departure from the nature of the original scope of works. This should include maintenance works beyond the original additions and alterations works. Clause 22 of the SIA contract deals with the certification of completion. Clauses 22(3) and 22(4) in particular expressly state that apart from stipulating the date on which the works appear to be completed, the Architect shall separately specify the date on which the contractor shall vacate the site and the date on which the Employer shall take over the works. It appears that the SIA contract makes express distinction between date of completion, date to vacate the site and date for the Employer to take over the works. This implies that there is potentially a time gap between the contract completion date and the date on which the works are officially taken over and be under the responsibility of the Employer. This time gap when interpreted in conjunction with the Architect’s authority to order variation works ‘at any time’ opens up the possibility of instructing additional works after practical completion. If the date of taking over of works coincides with contract completion date, it would have quashed any possibility of instruction of additional works post completion. Similarly under Clause 17.2 of the PSSCOC, although the contractor’s license to occupy the site is terminated upon date of substantial completion, the contractor is allowed to re-enter the site not just to carry out defects rectification works but also carry out ‘any outstanding works’. 

On the other hand, the wordings in other general provisions appear to limit the power of the certifier to instruct variations after contract completion date. Even if one disagrees that these provisions give rise to such limitation effect, these provisions should caution one from instructing additional works belatedly. These provisions which include insurance clauses, liquidated damages clauses, valuation of variation clauses etc will be expanded further in subsequent sections of this article.  

Insurance Implications

The insurance provision is one of the more critical obligations on the part of the main contractor, where it is required to procure the necessary insurance policy coverage prior to commencement of any works on site. Such obligation is so critical that apart from producing a copy of the policy, the main contractor is also required to produce a copy of the receipts to prove that payment is made in respect of the premiums for such policy. Under Clause 28.1(1) of the PSSCOC, the main contractor shall maintain insurance of the construction works until 14 days after the date of substantial completion. Such insurance coverage shall also be maintained during defects liability period but only limited to losses arising from a cause occurring prior to the commencement of defects liability period. Clearly, the scope of coverage is reduced during defects liability period to insure defects related risk rather than any new works instructed after practical completion. Similarly under Clause 20(1)(c) of the SIA form, the main contractor shall maintain the insurance coverage for the construction works until completion. 

Given that the insurance for the construction works shall only be maintained until completion, one can reasonably take the view that the standard forms of contract do not anticipate instruction of additional works after completion. If such instruction is anticipated, the insurance provisions would have made allowance for the maintenance of such policies either until the expiry of defects liability period or completion of any and all works on site. In fact the requirement to procure insurance is so strict that it had to be done prior to commencement of any works on site. Therefore, the protection from insurance is so critical that it would be illogical to construe that the requirements are somehow scaled down by allowing works on site without the insurance coverage after completion. After practical completion with the completed works in place, the need for such insurance protection would arguably be higher. As mentioned earlier, some of the belatedly instructed works may be significant in scale and risk such as replacement or improvement of electrical infrastructure of the existing building. If such works are instructed on the purported benefit of time savings as a result of a simplified procurement process, this may well be penny wise pound foolish. 

Liquidated Damages Implications

One of the more effective deterrent against the main contractor for delaying completion of works beyond contract completion date is liquidated damages. Most standard forms of contract would have provisions to allow the Employer to recover liquidated damages if the construction works remain incomplete beyond the stipulated completion date. What happens if there is delay to works instructed after practical completion? The Employer is likely to lose its rights to liquidated damages for such delay and also the deterrent effect associated with such provision. Under Clause 16.1(1) of the PSSCOC, the main contractor shall pay liquidated damages only if works are not substantially completed within the time for completion i.e. before the contract completion date. Likewise under Clause 24(2)(a) of the SIA contract, the Employer shall be entitled to recover liquidated damages from the main contractor upon receipt of a delay certificate, which in turn is issued when the works remain incomplete after the date of completion. 

The practice of instructing additional works after practical completion involves a wide variety of works, including certain maintenance works. Whilst admittedly not all works are time sensitive, the deterrent of late completion is still necessary especially if works are carried out in an operational building. This is why under Clause 22(5)(b) of the SIA contract, the Completion Certificate may include a list of outstanding works with corresponding deadlines for such works to be completed. The main contractor shall provide a written undertaking to comply with those deadlines stipulated by the Architect. It is unlikely however for the Employer to be in the position to impose any liquidated damages if any of those deadlines are breached. 

It is also unlikely that the Architect is authorised to stipulate any supplemental liquidated damages for these belatedly instructed works. It is however interesting to note that under Clause 3(6) of the SIA contract, the word ‘completion’ shall include completion of any outstanding works notified by the Architect pursuant to Clause 22(5) as included in the Completion Certificate. It is important to note that the SIA contract is unique in that the issuance of Delay Certificate is a condition precedent to the recovery of liquidated damages. It is debatable whether the Architect is authorised to issue any Delay Certificate after the issuance of Completion Certificate for the very same works. 

Valuation of Additional Works Instructed Post Completion

As the practice of instructing additional works post completion is debatable, valuation of such works can be a subject of considerable complexity as well.  Is the valuation of variation mechanism commonly found in standard forms of contract applicable to such works? To answer this question, one has to have a basic understanding of this valuation mechanism. Whilst different forms of contract prescribes mechanism with slight differences, the basic principles remain unchanged. In general, the mechanism is structured on a tiered basis where the choice of unit rates and prices used to value such works is dependent on amongst others, the timing when the variation works are instructed. If the main contractor is instructed to carry out additional works in a manner where it is out of sync with its construction programme resulting abortive works and the need for additional resources, such additional works can be more costly. The reverse is true, where the unit rates and prices which were previously subject to competition can be used as the basis of valuation if the additional works are instructed to be carried out under similar conditions to the main contractor’s prevailing programme. The logic to this mechanism is quite straightforward. It is always commercially advantageous to utilise unit rates that were agreed upon during tender where the prices are more competitive. 

Whilst valuation of variation works is more of an art than science with considerable scope of debate, there is still merit in having such provisions included in the contract. This is because once the construction agreement is formed, most if not all of the variation works will by default be carried out by the main contractor. The Employer would have very limited latitude to appoint other contractor to carry out any additional works, which means the Employer’s bargaining power on the costs of those variation works will be de minimis. Therefore having an agreed valuation mechanism provides the necessary structure and balance in assessing variation costs.  

Intuitively, if works are instructed post practical completion, the contract unit rates would not be applicable since most if not all of the significant construction works would have been completed. In other words, any additional works should entail remobilisation of plant, equipment and machinery on site to the extent that it is required. These entail additional costs. If post completion additional works are required, the conventional arrangement will be for the main contractor to provide a quotation in advance prior to issuance of the instruction. This quotation will usually be negotiated and agreed if possible. 

So how does the Employer go about negotiating such quotation? For most construction projects, there are usually a long list of variation works instructed during the construction period that are pending valuation as part of the process to finalise the accounts. The Employer could consider using these variation works as the basis of negotiating any aforementioned quotations. Under the valuation of variation mechanism, there is a method of valuation using daywork rates. This method is adopted when the variation works is completely out of sync with the construction programme. Under this method, the main contractor is essentially compensated based on actual resources utilised on site based on recorded daywork sheets. This method of valuation could be used as a starting basis of negotiating the amounts proposed in the main contractor’s quotation. In essence, the amounts included in the quotation should not be much higher than the amount derived through daywork rates. The Employer could also use any records of actual productivity during construction period as an estimate for the level of resources and period of works required for the post completion works to be carried out.


What is the Actual Completion Date?

Instructing additional works post completion involves an additional layer of complexity when the actual completion date is not often immediately clear until weeks later. Under most standard forms of contract there are procedures in place for the main contractor to issue a notice to the certifier for a joint site inspection for the purposes of completion certification and very often the completion date is not certified on the very day of completion. The certification of completion could take even longer if the certifier is required to assess various extensions of time applications made by the main contractor due to the voluminous contemporaneous records that had to be examined. In view of the above, it is not uncommon for the main contractor receiving such instruction for additional works to be unclear whether to make application for extensions of time especially when the certification of completion is pending. If the instruction is received after the certificate of completion is obtained, it will be safe to say that the main contractor is not required to make any extensions of time application. 

Should the main contractor decide to err on the side of caution by making extensions of time application upon receipt of instruction, the quotation for such additional works may also include any loss and expense claims to the extent that such claims is contractually provided for. This would obviously inflate the costs for any additional works. Therefore from the Employer’s perspective, it is advisable to arrange for the issuance of such instruction in a wise and timely manner to avoid these unnecessary complexities.


Conclusion

Assuming one is of the view that the general standard forms do accommodate instructing additional works post completion, it would be wise to still do so in a cautious manner. Having a convenient process to procure contractor for certain ad hoc works should not be on the expense of the smooth and clear administration of a construction contract. In other words, whilst it may be permissible, it is not a wise move.




Koon Tak Hong Consulting Private Limited