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 Construction Knowledge

A. If the employer has paid for materials on site which are sub-
sequently stolen, who is liable?

B. If a contract is described as Guaranteed Maximum Price

(GMP), does it mean that is the most the contractor can receive,
no matter what changes there are in the project?

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 Construction Knowledge
If the employer has paid for materials on site which are sub-
sequently stolen, who is liable?

This question depends on the conditions of contract. SBC clause 2.24 (IC and ICD clause 2.17 is to similar effect)
puts the matter very clearly. It provides that if the architect has certified the value of materials on site and the em-
ployer has paid for them, the materials become the property of the employer, but the contractorremains responsible
for loss or damage to them. However, this pro-vision is made subject to insurance options B or C where they apply.
Therefore, if they do not apply, the contractor is responsiblefor replacing stolen materials at no additional cost to
the employer. Where option B (all risks insurance of the Works by the employer) or C (insurance of existing struc-
tures and Works in or extensions to such structures) applies, the employer is responsible for insurance of materials
on site. Therefore, the claimfor the cost of stolen materials is to be made against the employer’s insurance. It will
sometimes be argued that the contractor is liable, even if the employer is responsible for the insurance, because
there is a clause in the bills of quantities which states that the contractor is responsible for taking all available
measures to secure the site. Unfortunately, such a clause will not be effective to overrule clause 2.24 because clause
1.3 provides that nothing in the bills of quantities can override or modify anything in the printed contract form.
Therefore, it seems that even if the contractor is in breach of obligations to secure the site so that materials are sto-
len, the contractor will be liable for the cost of replacement only if it is insuring under option A.

(Source : Construction Contract Questions and Answers,

2nd Edition, David Chappel)

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 Construction Knowledge
If a contract is described as Guaranteed Maximum Price (GMP), does it mean that is the most the contractor can
receive, no matter what changes there are in the project?

Employers often believe that, under a guaranteed maximum price contract, the contractor is giving an absolute guarantee that
the maximum price stated in the contract will not be exceeded no matter what the circumstances. This impression is under-
standable, because the name and sometimes the way in which such contracts are marketed are misleading. Such contracts are
almost invariably entered into on a design and build basis, which place most responsibility on the contractor in any event.
However, it should be understood that, if the employer is responsible for extra costs, such as variations, the GMP will be ad-
justed accordingly and inevitably in an upwards direction.

The price under such contracts is neither guaranteed nor maximum. There is no standard GMP form of contract and most are

drafted as required. Some contractors have their own forms of contract for this purpose. The intention is to place all the risk
with the contractor except for instances where the employer requires variations, or if the employer carries out some act of
prevention which results in loss and/or expense. Contractors are sometimes required to take responsibility for all information
supplied, including its accuracy. The risk can be significant.33 Such contracts aim to secure greater certainty about the maxi-
mum final cost of the project for the employer and they are usually quite effective, but they must not be viewed as putting an
absolute limit on the construction cost. The contractor is expected to carry the risks associated with matters such as ground
condition, services, weather and changes in legislation.

(Source : Construction Contract Questions and Answers,

2nd Edition, David Chappel)

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