Pre-Construction Services Agreements (PCSAs) are increasingly being implemented in large or complex construction contracts in conjunction with two-stage tendering. When it comes to drafting pre-construction service agreements in construction projects, various legal factors must be taken into consideration.
What is a Pre-Construction Service Agreement?
PCSAs are used to appoint design and build subcontractors to perform services prior to entering into a contract and are typically used as part of a strategy to remove risk.
They are generally advantageous because early involvement of ‘specialists’ can lead to value engineering opportunities since they contribute their expertise to influence the design as well as provide advice on buildability and sequencing.
PCSAs significantly reduce the risk for both parties and the subcontractors; early involvement is a significant value-add.
Benefits of Pre-Construction Service Agreement
1.Influencing The Design
Design and Build Contracts were formed to provide contractors the same level of responsibility as the architect. While this is true contractually, too often, the ‘power’ remains with the architect when it comes to design, leading to the subcontractor’s expertise going to waste.
PCSAs are useful in extracting this knowledge and can result in significant value engineering opportunities. Let’s look at an example of the construction of Façade Works:
The project is a unique design, and the building’s shape is non-standard. If a cladding contractor is involved early in the project. In that case, they can influence the design so that, while the non-standard concept design is maintained, the detailed design results in better-optimized panel sizes, reducing design, production, transportation costs, and potentially installation costs.
All parties are satisfied: the concept design is maintained, and the practical side of the project is more buildable and cost-effective.
PCSAs increase the chances of catching and delivering positive change during the design phase, which can mean big things for the project.
2.Defining the Contract and Milestones
Construction contracts are highly complex, with a variety of different risks. A well-managed PCSA can reduce risks while also providing greater definition and understanding of key issues. The early involvement of project-focused professionals, such as Project Managers and Quantity Surveyors, is critical in ensuring realistic programs and detailed scopes of work are drafted.
The PCSA and early involvement are great for the project as a whole. It is also especially good for the subcontractor because, in general, the program, scope, and price negotiated during a PCSA will be better understood than those negotiated during a traditional tender stage.
3.Developing a Partnership with the Client
Moreover, if the PCSA is well-managed, the subcontractor’s leverage in a PCSA is inevitably greater than in a typical tender period. A focused, professional, and personable team will naturally get embedded in the project, making it difficult for the employer to imagine it without them and their expertise.
Choosing the right team for the PCSA is essential, and building rapport should result in improved contract terms, a better work program, and even a better price.
4.Leverage the Contractor’s Experience
If done correctly, a PCSA is the best advice a client will receive from the contractor. The service agreement allows the client to take the contractor’s design development and construction planning advice before making major decisions. The intention of this agreement is to use the contractor’s expertise and make the contractor a part of the project team. All of which help the project’s accuracy in planning and pricing.
5.Recognize Potential Issues
A PCSA eliminates unknown variables in a project and reduces risks for the owner. Project managers and clients may identify possible issues early in the planning process and prepare the best plans to avoid issues. It is much easier to make adjustments throughout the planning phase because it only requires erasing a line instead of tearing down a wall. Additionally, analyzing risk can save time and money in the long run.
A large portion of any PCSA adds up construction expenses, ensuring that the total estimate is workable with the overall budget and can be maintained throughout the project’s life. This is also the time to decide which payment approach will work best for the project, contractors, and client.
Payment methods are not the same for every construction project. Whether the project team decides on a lump sum fee or weekly rates, this discussion must be addressed early on. A PCSA can help you with that.
Considerations and risks to consider when signing a PCSA
It is essential that any design you complete for the project vests in your ownership, regardless of whether you get the contract in the long term or not. This is also extremely powerful leverage in contract negotiations.
The JCT Pre-Construction Service Agreement specifically says that unless and until the parties enter into a formal subcontract, the subcontractor does not have design responsibility. Given the nature of the PCSA and the circumstances under which it is usually used (i.e., before the design is fully developed and the subcontractor can offer advice and assistance in this regard), subcontractors are best placed to ensure that this clause is not amended.
The PCSA must clearly distinguish between the matters that have already been agreed upon (payment, PCSA sum, etc.) and those that will be clarified during writing up the PCSA. The document must have a clear purpose: it must state precisely the intention of the works as well as the agreements that must be made regarding the Scope of Works (SoW), the program, and the contract.
JCT Pre-Construction Services Agreement
In 2008, the JCT Pre-Construction Services Agreement was introduced. A new edition was issued in 2011 to incorporate changes made to the Housing Grants, Construction and Regeneration Act 1996 by the Local Democracy, Economic Development, and Construction Act 2009. The most recent version was published in 2017 (labeled as the 2016 edition as it forms part of the 2016 JCT suite). This Practice Note compares the 2011 and 2016 editions, which are fairly similar in terms.
There are two forms of the JCT Pre-Construction Services Agreement:
- The Pre-Construction Services Agreement (General Contractor) (PCSA)—entered into by the ‘Employer’ and ‘Contractor.’
- The Pre-Construction Services Agreement (Specialist) (PCSA/SP)—entered into by the ‘Purchaser’ and ‘Specialist.’
This Practice Note focuses mostly on the PCSA, but the terms of the PCSA/SP are broadly similar. The terms of both forms are generally similar to those found in a consultant’s appointment.
Working under the PCSAs is not always possible, and the decision to do so is made by the client. However, if during early tender stage discussions, value engineering opportunities and reducing the risk options could be clearly identified, it is logical that the client would lean towards this type of agreement.