Download - Cesa

Professional Service
CONTRACTS
by 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

PROCSA
Client/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
(specific for each discipline)
- Scope of Services

CIDB
Standard Professional Services Contract
• Latest Edition: 2 nd 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

FIDIC
Client/Consultant Model Services Agreement
• Latest Edition: 4 th Edition, 2006
• Recommended by: FIDIC
Agreement
Particular Conditions
General Conditions

• Latest Edition: June 2005
NEC3
Professional Services Contract
• 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 (2 nd 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 (2 nd 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 (4 th 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 (2 nd 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 (2 nd 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 (4 th 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)

B&B EIENDOMME (PTY) LTD
V
MOSTERT, VAN DER BERG & DE LEEUW
• 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”

THE FACTS
• 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

CONCLUSIONS
• 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

OUR ADVICE
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.”

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 (2 nd Edition, August 2009)
• CIDB (2 nd Edition, September 2005)
• FIDIC (4 th 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 (2 nd Edition, August 2009)
• CIDB (2 nd Edition, September 2005)
• FIDIC (4 th 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 (2 nd Edition, August 2009)
30 days from invoice - interest rate +2% - non-payment grounds for termination of contract –
30 days notice
• CIDB (2 nd Edition, September 2005)
30 days from invoice - interest rate +2% - non-payment grounds for termination of contract –
45 days notice
• FIDIC (4 th Edition, 2006)
28 days from invoice - define interest in Particular conditions compounded daily - nonpayment
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.”

Conclusions
• 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.

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
140
124
120
115
109
100
88
90
80
80 77
69
63
60
40
20
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

CLAIMS SPLIT BY DISCIPLINES 2001 -2010 ( 835 NOTIFICATIONS)
Project Management/5%
Electrical/5%
Mechanical/3%
Fee Recovery/4%
Other/3%
Structural
Civil
Mechanical
Civil/30%
Structural/50%
Electrical
Project
Management
Fee Recovery
Other

CLAIMS INCURRED BY DISCIPLINES 2001 – 2010
TOTAL INCURRED R209,000,000
Project Management/3%
Fee Recovery/1%
Other/1%
Electrical/3%
Mechanical/2%
Structural/35%
Civil/55%
Structural Civil Mechanical Electrical Project Management Fee Recovery Other

Contribution to Premium Pool by Disciplines
12%
22%
66%
Civil & Structural Mechanical & Electrical Other

ACCUMULATED PREMIUM AGAINST CLAIMS INCURRED
Mil
400
350
300
250
200
150
100
50
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Net Premium
Claims Incurred

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%

2011 Scheme Structure
- 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 (cont.)
- 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 Committee
ii. Representation on the Supply Chain Management Committee
iii. Representation on the Construction Regulations Task Team
iv. Representation on the FIDIC Risk and Liability Committee
v. CESA Legal Forum
vi. Redraft CESA Short Form Agreement
vii. Draft revision of New CESA Sub-Consultant Agreement
viii. Risk Management to Individual Firms
ix. Quarterly reporting on claims experience
x. Collaboration with the school of Consulting Engineers
xi. Participate and advise on the Business Integrity Task Team (BITT)
xii. Case Studies
xiii. 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

Limits of Indemnity - CESA (354 Firms)
Above R25mil Cover ,
8%
R10.5mil to R25mil
Cover , 11%
R2mil
Cover , 9%
R2mil Cover
R2.5mil to R5mil Cover
R5.5mil to R10mil
Cover , 33%
R2.5mil to R5mil
Cover , 39%
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
Sub-consultancy agreements
Appointment as OHS Agents
Joint venture
Duty of care to client’s financiers
• 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