Minor building works generally refer to simple, basic and low risk construction project that typically involve additions and alterations of existing building space or infrastructure. Although there is no universally accepted definition of what constitute ‘minor works’ there are a variety of standard conditions of contract that cater to such projects such as PSSCOC Lite, SIA Minor Works Contract, JCT Minor Works Building Contract etc. Therefore the contractual significance of such projects is clearly felt across the construction industry, quite contrary to its label of being ‘minor’. Although minor project on its own may be small in dollar value relative to conventional project, these projects are typically of recurring nature, potentially providing a stable source of construction revenue to those who specialise in this very niche market segment. This article is Part 2 of an article series examining minor construction projects and the associated contract form such as the PSSCOC Lite. These articles are meant to provide commercial insights for those involved in minor projects namely representatives of contractors, building owners or project consultants. An examination of the unique and peculiar characteristics of minor projects suggest that one may need to take a different approach as regards the relevant procurement and contract administration matters.

In general most minor works contract forms are not drafted from scratch but originated from its ‘parent’ form e.g. PSSCOC Lite is drafted based on omissions and simplifications of selected provisions from the PSSCOC. The scope of omissions and simplifications are therefore a reflection of the unique characteristics of minor projects relative to conventional projects. These unique features warrant a different contractual approach. By way of illustration minor works are usually carried out over relatively short construction period with simple scope of works. Therefore the likelihood of occurrence of significant variations with disruptive consequences is low. Consequently under PSSCOC Lite, provisions for valuation of variations that cater to such disruptive events such as the application of daywork rates are omitted. Likewise, the provision for revision of construction programme are omitted as well amongst others.

There may be further opportunities for streamlining of contractual provisions beyond the existing amendments e.g. dispute resolution clauses, administration of delaying events etc. Some of these considerations may stemmed from the typical choice of procurement pathways for minor works project. To this end, having a comprehensive understanding of the characteristics of minor works is of assistance in any efforts to streamline and enhance its contract administration. An understanding of these characteristics may be of help to contracting parties when negotiating contract terms when tendering for minor projects.

Types Of Contracts Used For Minor Works

As alluded to earlier, there are a variety of standard conditions of contract that are dedicated to minor projects. The choice of contract form is primarily dictated by source of funding for these projects, at least in the context of Singapore. Public sector initiated and funded minor projects that are estimated between the cost range of $90,000 to $1million are likely to adopt PSSCOC Lite whereas the SIA Minor Works Contract is meant for private sector minor projects. 

Beyond the above mentioned contract forms, it is quite common for minor projects to be executed under Integrated Facility Management (IFM) service agreement. IFM vendors are typically engaged to carry out a variety of services for real estate occupiers or owners including regular office cleaning, reception services, pest control, repair and maintenance of mechanical and electrical systems as well as occasional churn and restack works. Given IFM service provider’s familiarity with the operating environment as well as the existence of a pre-agreed set of unit rates for labour resources, minor works could be carried out by the incumbent IFM vendor. The ease of contracting under IFM service agreement that avoids the administrative burden of carrying out tender, negotiating and awarding of minor works on a project by project basis is one of the key motivations of utilising IFM service agreement. However, IFM service providers are usually not specialised in construction trades which often meant that the actual works are outsourced to third party contractors. The ‘profit and attendance’ payable to IFM vendors are essentially in exchange for avoidance of administrative hassle of tendering and contracting. The terms and conditions included in IFM service agreement are also not suitable for construction works. If and when construction disputes arise, the adverse consequences of relying on IFM service agreement is often the trade off for administrative ease in contracting.

Another common contracting practice in respect of minor works is the use of Purchase Order (PO). Under this methodology, the selected contractor issues a quotation to the Employer based oral briefing during certain organised site visit(s). This quotation includes the contractor’s understanding of the scope of works as well any of its qualifications and exclusions. The Employer’s issuance of PO typically represents its ‘acceptance’ of the contractor’s ‘offer’ which is in essence the said quotation. Occasionally, the PO may include conflicting or contradictory terms and conditions relative to the quotation. If and when construction disputes arise, one of the common source of problem pertains to ‘battle of forms’ where it is unclear which set of terms should be applicable in construing rights and obligations of the parties.

Although the use of construction contract forms for minor works may not be as administratively expedient as the use of PO or IFM services agreement, it offers a more comprehensive protection and contractual clarity to both the contracting parties. It is important to appreciate that what makes construction contract form appropriate to be used for minor works as opposed to generic contract templates is that construction projects are quite different from regular supply of goods or provision of services. Although parties at the inception may have certain expectations of what the minor works may entail, the actual scope of works may differ. This is because it is quite impossible to predict with absolute certainty of what the works may actually entail regardless of the size or scale of the construction project. By way of examples, there may be obstructions discovered when ceiling panels are removed to facilitate installation of internal partition or existing services that need to be re-routed to accommodate the proposed electrical or piping works. In this regard, what makes construction contract forms unique is that it caters to unforeseeable events through the manner in which risks are allocated between the parties. Construction contracts provides clarity on whether these unforeseeable events entitle contractors to additional payments and whether additional time will be granted to the contractor to deal with these unforeseeable circumstances. Such considerations are typically not relevant under the regular supply of goods or provision of services. Therefore generic contract templates are generally inappropriate for construction works. 

Types Of Procurement Pathways For Minor Works

Choice of procurement pathways are largely a refection of the agreed commercial arrangement based on the nature of the construction works. For projects that are likely to be confronted unforeseen circumstances or with unpredictable quantities of work, the procurement pathway of choice is usually remeasurement contract as opposed to lump sum contract. For projects where the Employer prefers to be in control of the design development with emphasis on check and balance, the procurement pathway of choice is traditional design-bid-build as opposed to design and build. These logic and train of thought that typically hold true for conventional project may not always be the case for minor works. 

Much like the consideration of expedience for minor works as pointed in the preceding section of this article, it is uncommon for the Employer to adopt a procurement pathway that may be commercially sensible, but is perceived as being disproportionately burdensome. By way of illustration although minor works may have certain aspects of work that are unforeseeable, it is unlikely for it to be administered under remeasurement contract. This is because the consultancy fee and effort that may be expended may not commensurate with the likely cost that is at stake. Assuming 10% of a $500,000 minor project is subject to element of uncertainty, this amounts to $50,000. The consultancy fee to administer a remeasurement contract may be close to this very amount.

Further, minor works unfortunately do not always attract attention and scrutiny from senior management than conventional project. It is often viewed as ‘necessary evil’ of occupying real estate premises. Consequently, the element of expedience may be the overriding consideration as regards procurement pathway. By way of illustration, a minor works contractor may be awarded a project under design and build not necessarily because of its extraordinary competence in design development but rather to avoid the hassle of undertaking multiple tender and contracting exercise of engaging consultant and contractor separately. Bundling the entire scope of works becomes an administratively convenient approach. Occasionally, the minor works contractor may be directed by the Employer to engage certain design consultant with knowledge of the premises and favoured by the Employer. The contractual risk and burden therefore reside with the contractor.

Given the practical considerations and realities illustrated above, contractors ought to be aware that low contract sum does not necessarily equate to low financial risks. If the proposed minor works involve interfacing with an existing building system e.g. upgrade of power supply infrastructure to an investment bank, any design or workmanship error in the power supply may disrupt the bank’s business operations. The repercussions may amount to tens of millions of dollars in business losses notwithstanding that the contract sum of minor works may be a mere $500,000. Therefore the concentration on legal and financial responsibilities on a single entity with fairly light and fragile balance sheet purely due to administrative expedience, can be a fatal error. Minor projects can therefore be particularly vulnerable where the procurement and contracting efforts may not be executed with the necessary rigour and scrutiny as compared to conventional projects. 

Variations Under Minor Works

As mentioned earlier, as minor works are likely to be simple construction works carried out over a brief period, the likelihood of having a significant and disruptive variation works instructed is considerably low. The valuation of variation provision under PSSCOC Lite is simplified accordingly. It is however noteworthy that under both PSSCOC Lite and SIA Minor Works Contract, the authority for contract administrator to instruct variations to permanent works is preserved. Therefore, parties ought to be alive to the prospect of works being varied under minor project including the contractual ramifications that may follow such as claims for additional payments, extensions of time etc. As minor works which are largely addition and alteration works by nature tend to be unpredictable, there may be a need to instruct additional works from time to time to cater to unforeseen circumstances. By way of example, when a proposed upgrade works to electrical infrastructure interfaces with existing system, it may come to light that certain ad hoc upgrade works are necessary to accommodate new electrical load. This may necessitate variation orders. 

One of the unique aspects of variations under minor works is the application of contract rates and prices for its valuations. In procurement of minor works, it is fair to say that price competitiveness is not the foremost consideration due to lack of economies of scale. Consequently, the unit rates and prices may not necessarily be scrutinised and negotiated unlike that of a conventional project. Further, the breakdown of contract sum may not be distributed in a manner that correspond with the actual cost of works. It is not uncommon for the minor works contractor to have completed all the works by the time it receives its first progress payment. Therefore pricing schedule are often viewed as part of the perfunctory submissions. Addition and alteration works are often a blend of construction trades, where each trade is considerably low in quantity, scale and value. By way of illustration, if a minor project relates to changing of an office layout, it generally involve moving of existing internal partitions, procuring new partitions, reconfiguration of ceiling panels to accommodate new layout, re-wiring of electrical cables based on new workstation orientation plan etc. If a schedule of rate is created based on these piecemeal and ad hoc construction trades, the unit rates are unlikely to commensurate with market rates given the limited volume of works. Very often, unit rates can only make meaningful commercial sense if it is predicated by a sizeable quantity. As a mathematical illustration, a plumber may charge its client $300 to replace a water tap, and the cost remains $300 even if the plumber were to now replace two water taps. This is because bulk of the charges are fixed cost to mobilise the plumber to the site rather than the actual direct works. Therefore the reliance on contract rates and prices for valuation of variation of minor works can be problematic. Blind reliance on unit rate may cause the Employer to pay unreasonably high cost in case of addition of works and the contractor may suffer unreasonably high omission of cost in case of omission of works. Therefore, parties may consider an alternative method of valuing variations by reimbursement of cost reasonably incurred.

Programme And Delay Under Minor Works

As the contract administrator’s authority to instruct variation to permanent works is preserved under most minor works contract form, the extension of time provision is consequently a contractual necessity. This is because the Employer’s right to liquidated damages is preserved when there are mechanisms to allow time for completion to be extended due to excusable delaying events, such as variation works. In the absence of extension of time clauses, time may be ‘at large’. The tricky aspect of delay under minor works is that the regular time extension mechanism assumes that projects are scheduled to be carried out continuously throughout a stipulated duration expressed in calendar days. It is quite common however for minor works which involve additions and alteration to be carried out in a building that is occupied and in operation. Therefore the contractor’s ability to carry out works are restricted to weekends or public holidays to avoid disturbance and disruption to neighbouring tenants or occupiers. In this regard, regular time extension via additional calendar days may not meaningfully compensate the contractor if the additional calendar days granted falls on regular weekdays where the contractor is prohibited from carrying out works. In this regard, the extension of time clause ought to be amended to replace calendar days with operable days. 

Another unique challenge for minor works as it relates to delay and programme management is that since the construction period is relatively brief, the condition precedents commonly found in extension of time clauses may not operate in congruence with its original purpose. Under most contract forms, the contractor is ordinarily required to notify the contract administrator in advance if it intends to make any application for extension of time. These notification could be as long as 60 days of the occurrence of the delaying event. There may be provisions requiring the contract administrator to seek further details of the delaying event within 14 days of such notification. Whilst these notifications and disclosures aim to facilitate any delay analysis, it may not be suitable for projects that are brief, where the time for completion is say 15 to 30 days. This is because the collective durations for various notification requirements and information disclosure may well exceed the original time for completion. Therefore, under certain foreseeable circumstances it may be more productive for parties to agree in advance of any time impact in case of anticipated occurrence of delaying event such as variation orders. 

Dispute Resolution Under Minor Works

The contract sum is never an accurate indication of the maximum financial exposure that a contractor may be liable for in case of dispute. Therefore a contractor should not be under a misconception that it will not be risking more than $500,000 for a project of $500,000 in contract sum. Even if parties agree to impose a maximum amount of liquidated damages to not exceed 10% of contract sum, it is entirely possible for total damages sought under legal action to far exceed $50,000. This is because delay damages are merely part of the total damages that an aggrieved party may pursue. By way of example a minor works contractor may cause physical damage to an existing electrical system of the entire building whilst carrying out certain refurbishment work to an isolated tenanted space. Such event could result in business disruptions to other adjacent tenants including the collective loss of business revenues etc. These consequential financial losses are beyond the scope of delay damages suffered by the Employer that engaged the minor contractor in issue. Therefore any cap in liquidated damages are inconsequential. Whilst the minor works contractor are typically expected to procure insurance policy for the works, the devil is in the detail. There may be certain deductibles, co-payment or exclusions in insurance coverage that the contractor may need to grapple with using its own balance sheet.

In view of the above, parties ought to be aware that legal disputes and claims arising from minor works may not necessarily be minor. Ironically parties undertaking minor projects might be under a false sense of security and do not usually scrutinise terms and conditions particularly those that are deemed more complex with various confusing legalese such as dispute resolution clauses. Most minor works contract forms ‘inherit’ its multi tier dispute resolution clauses from its parent contract forms that were designed for larger projects. Therefore, there may be certain legal requirements to refer differences or disputes firstly to the contract administrator within a defined duration before parties may commence legal action under arbitration. Failure to comply with such strict procedural requirements may adversely affect the jurisdiction of arbitral tribunal as well as the enforceability of the eventual arbitral award. These procedural oversights can be costly and serious which are beyond the traditional contract administration expertise of parties to minor works. On the other hand, due to the possibility of significant damages sought under these legal actions, the prospect of any successful mediation or negotiation settlement can be extremely challenging. In this regard, parties may consider reverting back to traditional litigation before state court. Party autonomy under arbitration are perhaps more suitable for commercially sophisticated entities that have access to adequate legal resources.

Conclusion

The characteristics of minor works highlighted in the preceding sections of this article are by no means exhaustive but it underscore the fact that there ought to be simpler contract forms to cater to its unique requirements. There is clearly no universal consensus on what should be the scope of simplifications to contract provisions in this regard. Indeed it is not simple to define what constitute simple scope of works. In any case, parties undertaking minor works particularly on a recurring basis should take the necessary effort to get familiar with the contract forms available. Simplifications of contract conditions should not be conflated with relaxation of contractual vigilance.   




Koon Tak Hong Consulting Private Limited