Civil Engineering Project Management (4th Edition)

The development of construction procedures 7
The Act came into force on 1 May 1998 and, where a contract did not include
provisions required by the Act, The Scheme for Construction Contracts (England
and Wales) Regulations 1998 applied. This detailed an ajudicator’s powers and
duties; and the payment conditions required by the 1996 Act.
Most standard conditions of contract used by promoters to employ contractors
already complied with the 1996 Act, but the Act also applied to contracts
between a contractor and his subcontractors. The Act does not, however, apply
to works for extraction of minerals, oil or gas; works for an occupier of a
dwelling, or any works estimated to be completed within 45 days.
In 1995 the ICE produced a revised edition of the former ‘New Engineering
Contract’ re-naming it the Engineering and Construction Contract (ECC), details
of which are given in Section 4.2(f). Use of the ECC has increased steadily and
now matches the traditional ICE forms. Both forms, when well managed, are
capable of producing successful works with minimal disputes if the documents
are carefully drawn up and the contract terms fairly applied.
1.7 Introduction of ‘Private Finance Initiative’
In 1992 the UK government announced the introduction of the PFI for the
procurement of infrastructure projects, such as roads, bridges, railways, hospitals,
prisons, etc. Under PFI the whole cost of a project is met from private
investment funds and the lenders of those funds look to the stream of cash
flows from the earnings of the project for a repayment of (or a return on) their
investments. The sponsors of a PFI project are usually a consortium of contractors
and their funding banks who set up a company to undertake the project.
The company receives loans from the sponsors (and often other banks)
and may also raise equity capital, i.e. shares. It designs, constructs, finances,
maintains and operates the project for a term of years under a concessionary
agreement granted by the promoter who may be a government department,
local authority or other public body.
An outstanding example of PFI was the Channel Tunnel. The initiators of
the idea were two groups of banks and contractors – one British, the other
French. After the English and French Governments agreed to support the project,
the banks became the sponsors of it and set up the company Eurotunnel
to fund, own and operate the tunnel under a 55-year concession from the two
Governments. The contractors then joined together to form Transmanche Link
to design and construct the tunnel. Transmanche Link was a holding company
for two other executive companies, one an alliance of five British contractors
to drive the tunnel from the English side, the other an alliance of five French
contractors to work from the French side. Eurotunnel was, in effect ‘the client’
or promoter for whom Transmanche Link worked.
A PFI project takes much time and money to set up because of the long term
of the contract and the many risks which have to identified and allocated to
one or other of the parties. The contractor has also to negotiate with banks and