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Two Stage Tendering

Two-stage tending is becoming increasingly popular in the construction industry.  It can be particularly useful for large scale and complex projects.  Two-stage tendering involves an employer instructing a contractor to carry out pre-construction work.  The contractor is engaged in two stages: in stage 1, the employer tenders a project based on an incomplete design, price and programme.  The successful contractor and employer enter into a pre-construction services agreement (“PCSA”) or pre-construction agreement (“PCA”).  The PCSA (or PCA) governs stage 2 during which the contractor advises the employer on design, a final cost estimate and provides other pre-construction services.

Usually, the contractor involved in the pre-construction phase will subsequently be employed to carry out the construction, but this is not always the case.

In the case of Almacantar (Centre Point) Limited –v- Sir Robert McAlpine Limited, the Technology and Construct Court gave some guidance on termination and deferred payment provisions in PCSA’s.

Almacantar (the employer) and Sir Robert McAlpine (the contractor) entered into a PCSA on 17 September 2017 in respect of a proposed development at and around Centre Point Tower in London.   There was no obligation on the parties to enter into a building contract after the pre-construction phase or for the employer to proceed at all.  The PCSA was terminated by agreement in September 2014.  Almacanter later appointed Brookfield Multiplex Construction Europe Limited under a replacement PCSA and then to carry out the construction under a building contract.

After termination, Sir Robert McAlpine raised an invoice to Almacantar for the sum of £948,072.35 plus VAT representing 50% of its fee.

Almacantar refused to make payment on the basis that the termination provisions in the PCSA only allowed for a fair and reasonable proportion of Sir Robert McAlpine’s next instalment to be paid. Sir Robert McAlpline argued that the PCSA provided that the remaining 50% of its fee would be payable after the “first valuation subsequent to commencement on site under the main contract” and therefore, as Almacantar entered into a building contract with Brookfield, it was entitled to this sum.  Alternatively, the 50% balance represented a fair and reasonable proportion of the final instalment.

The Court ruled in Almacantar’s favour.  It found that the termination provisions were engaged and that a “fair and reasonable” instalment post-termination correlated to a payment application at the end of the month and not an application for the remaining 50% of the fee many months later.  The Court did not agree that by entering into a building contract with Brookfield, Sir John McAlpine was entitled to payment.  It commented that reference to the “main contract” could sensibly only mean a building contract with Sir John McAlpline.

Conclusion

Whilst two-stage tendering can be risky and complex it can be useful (and cost effective) for a contractor to be involved early on in a project.  By entering in a PCSA, an employer can avoid buildability issues which might develop later on.  Two-stage tendering can also reduce a contractor’s potential explore to risk and the time and costs associated with going through a tender process.

Parties need to be sure that PCSA’s are properly and clearly drafted to record what has been agreed between them.  In particular, if payment is dependent upon the parties entering into a building contract after the pre-construction phase.

If you would like advice on a contract or if you have any other commercial or litigation enquiries, please contact us on 01228 552600 or 01524 548494.

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