POST CONTRACT MANAGEMENTTable of Contents Introduction................................................................................................................ 2 Task 01: Contract Documents..................................................................................... 3 Identifying Contract Documents in Construction Contracts.....................................4 Various type of Standard form of contracts used in construction works..................5 JCT Standard Form of Contract................................................................................8 ICTAD Standard Form of Contract............................................................................9 Differentiating standard form of contract documents based on various types of contracts............................................................................................................... 10 Usefulness of proper execution of the contract.....................................................13 Task 02: Cost Management....................................................................................... 15 Method of Payment for permanent works and preliminaries.................................16 Interim payment.................................................................................................... 17 Stage Payment...................................................................................................... 18 Items to be included in an interim valuation.........................................................19 Items to be included in a Final Account.................................................................21 Task 03 : Lump Sum................................................................................................. 22 Reasons for inclusions of Prime Cost Sums in a contract......................................23 Reasons for inclusions of Provisional Sums in a contract......................................24 Examples for Prime Cost....................................................................................... 25 Examples for Provisional Sum............................................................................... 26 Task 04 : Claims........................................................................................................ 27 Definition for variations as stipulated on FIDIC condition of Contract...................28 Identifying entitlements for claims........................................................................31 Task 05 : Dispute Resolution..................................................................................33 Potential causes for disputes during construction.................................................34 Eliminating or minimizing causes for dispute........................................................37 Methods of Alternative dispute resolution.............................................................38 Conclusion................................................................................................................ 39 Reference................................................................................................................. 40 1 | Page POST CONTRACT MANAGEMENT Introduction The contact document is a vital factor in the construction industry. It is the document that binds the contractor and the client legally and it is a must to have a proper knowledge on how to choose and how to execute work according to the contract document such as claiming for damages from the client or the contractor also the methods how works are done according o the contract document. Another important factor is finding resolutions for disputes any disputes can occur when constructing, it can occur in various way but its highly disadvantageous if you go for litigation there for its important that every Quantity Surveyor to know about the Alternative dispute resolutions. Thank you 2 | Page POST CONTRACT MANAGEMENT Task 01: Contract Documents 3 | Page POST CONTRACT MANAGEMENT Identifying Contract Documents in Construction Contracts According to the Oxford English Dictionary the definition of a contract is “a written or spoken agreement, especially one concerning employment, sales, or tenancy, which is intended to be enforceable by law”. In construction industry the two main parties are known as the contractor and the Client. The client provides his financial resources and his requirements to the contractor and the contractor builds the structure according to the client’s requirements with the financial resources the client provides. In the definition of contract it says “which is intended to be enforceable by law” .If the client and the contractor is not bonded legally, the contractor can change the structure, neglect the requirements of the client, obtain money from the client and not constructing the structure etc. the contractor can do any change or any unethical works also the client may also neglect his responsibilities such as doing payments to the contractor but both parties will not be able to take any action or to retrieve any remedy because they are not legally bonded. Therefore having a contract agreement is a vital factor in any industry, both parties will be legally bonded and if one or both parties are breaching the contract the other party will have the privilege to claim the loss or the damages caused due to the breaching of the contract and the other party cannot neglect or escape after breaching the contract because they can be enforced by law. The main purpose of having a contract is to encourage the parties to hold on to their responsibilities. Even the both parties are enforced by law there need to be a proper form of contract document because if the both parties are preparing the contract document it will cause more time and many disputes between the parties therefore “Standard Contract Documents” were published by certain well recognized bodies locally and internationally. There are many contract documents published by local authorities according to the local requirements and also there are contracts documents can be used internationally which are published by international authorities. There are many differences between these contract documents according the type of work or the method of construction etc. 4 | Page FIDIC Condition of contract for construction (Red Book) FIDIC Condition of contract for Plant and Design-Build (Yellow Book) FIDIC Condition of contract for Shot form of contract (Green Book) FIDIC Condition of contract for EPC/Turnkey projects (Silver Book) FIDIC Condition of contract for construction (Red Book) 5 | Page . The publication of the FIDIC is as follows. There are several publications by the FIDIC to use according the type of the project and the willingness of the both parties. The founding members of FIDIC are Belgium. this is an internationally recognized standard contract. France and Switzerland and it has evolved through the years and most of the countries in the world has obtained the membership of the organized and FIDC standard form of contract is being used all over the world.POST CONTRACT MANAGEMENT Various type of Standard form of contracts used in construction works FIDIC Standard form of contract FIDIC standard form of contract is published by the International Federation of Consultant Engineers. FIDIC Condition of contract for Plant and Design Build (Yellow Book) Condition of contract for Plant and Design Build or generally known as “FIDIC Yellow Book”. electrical or other related construction work. This Standard contract is used specially in electrical or mechanical plant work but is used in building construction also. Generally under the circumstances within this standard form of contract the contractor carries on the construction work according to the Design provided by the client but there can some level of involvement of the contractor in the design regarding civil. mechanical. mechanical. The work may vary from civil. FIDIC Condition of contract for EPC/Turnkey Projects (Silver Book) 6 | Page .POST CONTRACT MANAGEMENT FIDIC Condition of contract for construction or which is commonly known as the “FIDIC Red Book” is commonly used for Building or Civil Engineering work where the designs are done by the client or by a representative of his or the Engineer of the client. The designing is usually done by the contractor by himself according to the requirements of the client. electrical or from general construction work. Under the normal circumstances the construction work is carried on according to the design provided by the client or by the representative of the client but it is also can be used for projects designed by the contractor. power plants or a similar facility and when there is a higher certainty on the final price and time needed to complete the project. It is used relatively for simpler and for repetitive work of short duration time. Generally this type of contract is used when building a factory.POST CONTRACT MANAGEMENT FIDIC Silver Book or Condition of contract for EPC/Turnkey projects as the name implies the standard form of contract is used for EPC or Turnkey projects where. Procurement and the construction work (EPC). the contractor holds the full responsibility for the design the execution of the work also the contractor carries out all the Engineering. FIDIC Condition of contract for Short Form of Contract (Green Book) The FIDIC Green book or FIDIC Condition of contract for Short Form of Contract is used for projects with less capital value. The client has only very little involvement in the project and because of the process is based on “turnkey method” the client will receive a fully equipped facility ready to operation. 7 | Page Figure 1 : Guide to choose appropriate form of FIDIC contract . the Royal Institution of Chartered Surveyors and the Scottish Building Contract Committee. the British Property Federation. There are several publications by the JCT but following are the commonly used. the current operational structure comprises 8 members who approve and authorize publications. the National Specialist Contractors Council. They are the Association of Consulting Engineers. the Royal Institute of British Architects. also known as the JCT. JCT has expanded the number of contributing organizations. o o o o o JCT Standard Form Building Contract JCT Intermediate Form of Building Contract JCT Minor Works JCT Standard Form of Contractors Design JCT Build and Design Contract 8 | Page . guidance notes and other standard documentation for use in the construction industry.POST CONTRACT MANAGEMENT JCT Standard Form of Contract The Joint Contracts Tribunal. JCT is majorly used in European countries and most other countries are unfamiliar with JCT contracts. the Local Government Association. produces standard forms of contract for construction. Following recommendations in the 1994 Latham Report. the Construction Confederation. From its establishment in 1931. 100 million (Major contracts). 10 million to 100 million of works ICTAD SBD 02 – contracts value between over Rs.construction related plant 9 | Page . etc. ICTAD SBD 01 – contracts value between Rs. They are as follows. Work Force.contracts value up to 100 millions ICTAD SBD 07 . ICTAD has established itself as a recognized and important constituent of the Construction Industry. 10 million. ICTAD SBD 03 – contracts up-to Rs.( Minor contracts) ICTAD SBD 04 – contracts where the contractor is responsible for Design & Construction of the works (Design and build) ICTAD SBD 05 .POST CONTRACT MANAGEMENT ICTAD Standard Form of Contract The Institute for Construction Training and Development (ICTAD) is an organization set up by the Government of Sri Lanka to develop and promote the domestic Construction Industry. Professionals. There are several contract documents published by ICTAD. Contractors. Plant and design build” The involvement of the client is higher than other FIDIC documents. Because of the less Involvement of the Client the capacity for variations might be higher than other contracts FIDIC Contract documents are easy to follow and easily understandabl e for either parties there for FIDIC is popular among many construction companies. Speed Design and Management FIDIC Client Involvement Differentiating standard form of contract documents based on various types of contracts Because of the less complexity of the documentation works and the designing is done by the client the process can flow faster but again with the less involvement of the client overall the speed of the project can be average 10 | P a g e . Designing is mostly done by the client or by a design team appointed by the client. but in “FIDIC Yellow book. but in “FIDIC Silver book – EPC & Turn Key or FIDIC Yellow Book – Design and bill” The main contractor plays a main role in managing of the project. It doesn’t imply that there is no client involvement in other FIDIC contract documents.POST CONTRACT MANAGEMENT Capacity for variations Complexity The involvement of the client is relatively low in FIDIC contracts when comparing with the other contract documents. they require less attention of the client to the projects when following other FIDIC Contract documents. There for most of the highly managerial decisions are taken by the clients. In FIDIC documents they narrowed down all constructions for four main contract documents but in JCT there are many minor and major contract documents which can be relatively an advantage also because of the many number of documents it makes the Speed Design and Management JCT Client Involvement POST CONTRACT MANAGEMENT Because of the complexity of the documentation work and due to the less involvement of the client the overall speed of work can be slow comparing to other contracts. 11 | P a g e .Capacity for variations Complexity As in FIDIC in generally the involvement of the client in JCT contract documents are comparatively low and the client has a low er risk Designing is mostly done by a 3rd party or by a team appointed by the client however there are some contracts which allows the main contractor to carry on the designing of the project Because of the less Involvement of the Client the capacity for variations might be higher than other contracts JCT contracts are much more complicated comparing to other contracts maybe it can be one of the reasons that it’s only used in Europe countries. POST CONTRACT MANAGEMENT Capacity for variations Complexity ICTAD is only used in Sri Lanka and it is much similar to the FIDIC publications. In Sri Lanka if it’s a normal construction such as a building or a housing project the involvement of the client is relatively low due to the lack of knowledge in construction but however some tends to appoint a consulting team but in generally involvement of the client is really low therefore the contract document is favoring less involvement of the client As in JCT and FIDIC the client has the freedom to choose the contract type. if he is capable of managing the designs he has to choose a separate contract document or if he wishes to let the contractor or a 3rd party to do the designing and management there is a separate contract document the client should follow therefore designing and managing depends according to the will of the client Because of the less Involvement of the Client the capacity for variations might be higher than other contracts ICTAD Contract documents are easy to follow and easily understandabl e for either parties there for ICTAD is popular among many construction companies another advantage is because of it’s a Sri Lankan publication it is published in the native language therefore it is highly used among Sri Lankan companies but it cannot be used outside of the country Speed Design and Management ICTAD’’ ’’’’’’’’’’’ Client Involvement contract process more complicated Because of the less complexity of the documentation works and the designing is done by the client the process can flow faster but again with the less involvement of the client overall the speed of the project can be average 12 | P a g e . The contract document is the valid document that binds the parties legally and the document that explains what parties are liable for. The following are the factors affects and the usefulness of execution a proper contract. therefore by using the suitable form of contract it will ensure that employer’s money will get into proper use. the FIDIC red book is generally used for projects that exceed its value over $500. For an example if the client wishes to build a certain mechanical plant and if the client don’t have the knowledge to design he will have to let the contractor or his consultant team do the works for him therefore according to the work load and the complexity of the work the contractor should be liable for any mistake or damage or any issue occurs . the obligations differs from one another therefore the parties can choose an appropriate contract document according to his or her needs or according to the type of the project and keep a flexible relationship with possible obligation to one another. Value of the Project The parties have the freedom to choose the appropriate contract document according to the value of the project. Type of contract The type of the contract is also an important factor should be because the appropriate contract document should be used according to the complexity of the project. By using the proper contract document considering the value of the project it lowers the risk for the employer because when the value of the project gets higher the risk of employers cash gets misused or get wasted will be high. Such as in FIDIC publications. the purpose of having a contract is to make sure that neither party will neglect his or her obligations. 13 | P a g e .it’s important to have a such special contract document because then the contractor knows his losses and responsibilities also what claims he is entitled to.POST CONTRACT MANAGEMENT Usefulness of proper execution of the contract When two parties enter an agreement or sign a contract.000. According to the type of the contract document the employer and the contractor agrees on.000 and the FIDIC green book is used for projects values less than $500. It is an important factor to be considered to keep the work flowing within the possible time frames to do that it is a must to choose the most suitable contract document. for an example the procedure on FIDIC red book is different from the FIDIC yellow book because the FIDIC yellow book is for contracts where the contractor does all the designing and the construction therefore the contractor may need more time for the pre contract and the post contract stages but in the FIDIC red book its commonly used when the contractor’s responsibility is only the construction work.JCT and ICTAD but there are some restrictions when using these contracts. Claims If the contractor or the client breaches the contract or fail to work according to the contract the other party can claim the damage he/she suffers because of the opposite party but the entitlements for claims are different from contract document to contract document. 14 | P a g e . If the client or contractor has no knowledge about the contract documents the opposite party can choose a contract favoring him and the contractor or the client might be unable to claim for the damages also they might have to pay for damaged that they are not responsible for. Therefore in FIDIC red book it has dedicated less time for pre and post contract stage than the yellow book. Depending on the type of the project. Restrictions There are many organizations publish contract documents such as FIDIC. for an example ICTAD publications can be only be used within Sri Lanka it is created according to the Sri Lankan standards also The JCT is most suitable for Europe countries if someone uses JCT contract in Sri Lanka and ICTAD contracts in Europe countries they will face many problems regarding everything because Sri Lankan standards are not accepted by Europeans and Europeans standards are not accepted my Sri Lankans. The contract document should be selected according to the standards of the country the construction is going on.POST CONTRACT MANAGEMENT Procedure There is a procedure to follow before starting the construction works and till the client releases the contractor this procedure has to be followed. Therefore it’s important to choose the appropriate contract for the appropriate project. POST CONTRACT MANAGEMENT Task 02: Cost Management 15 | P a g e . For these work the contractor will have bear an additional cost other than the construction work therefore therefore the cost for these works are billed as preliminary Items. Also as in for construction of these items each month there will be an additional cost for maintenance. yards to store aggregates or sand etc. food and lodging for labours as well as for engineers and the staff etc.POST CONTRACT MANAGEMENT Method of Payment for permanent works and preliminaries The work contractor is responsible to execute under the contract is known as permanent works. labour huts. electricity. store rooms. as in an example in a building project construction of the building is the permanent work the works that’s come under the contract that client is entitled to use after the construction works are completed. In every construction there should be some work done before the work starts on the construction such as building the site offices. these items are also billed under the preliminary bill but the cost for these items are included to the preliminary bill monthly. However for both preliminary and permanent works the method of payment is done through a Interim payment or by a lump sum payment it depends on the contract the employer wished to follow. 16 | P a g e . if it is a smaller project and the scope of work is comparatively low the contractor can apply for the interim payment once in 3 months or once a month but if it is a large project the contractor can apply for the interim payment once in 10 or 15 days because the value of the work done is high. The deduction of amounts certified in all previous payments certificates. dispute and arbitration etc. The method of payment differs from contract document to contract document. calculated by applying the percentage of retention stated in appendix to tender to the total of the above amounts. there is one method of payment mentioned in FIDIC publications and there is another method mentioned in the ICTAD publications but relatively they are similar there are only some slight differences. they are added to every interim payment additional to the permanent works. According to the FIDIC publications the contractor should submit a statement to the Engineer with including the following items. until the amount so retained by the employer reaches the limit of Retention money stated in the appendix to tender Any amounts to be added and deducted for the advance payment and repayments.POST CONTRACT MANAGEMENT Interim payment Interim payment is done for a period of time as agreed on the contract. site office stores are included in first interim payment or 1st. food. sanitary etc. water. The estimated contract value of the works executed and the contractor’s documents produced up to the end of the interim payment period (including variations) Any items to be added and deducted for changes in legislation and changes in cost Any amount to be deducted for retention. claims. 17 | P a g e . The payment for preliminary items such as labour huts. 2nd and 3rd interim payments depending on the performance of the contractor and for items such as electricity. Any amounts to be added and deducted for plants and materials Any other additions or deductions which may have become due under the contract or otherwise including them under extra works. lodging. The Employer is entitled to pay the contractor within 56 days after receiving the statement and the supporting documents submitted by the contractor. Up to the first floor structural works. If it’s a building project the stages can be divided as follows Sub structure up to foundation level. The interim payment certificate which is the amount that is fairly determined by the Employer’s engineer should be handed over to the Employer after 28days after receiving the statement and the supporting documents from the contractor. The payments should be done to a bank account nominated by the contractor from the currency that is mentioned in the contract.POST CONTRACT MANAGEMENT The contractor should submit six (06) copies of the statements containing above mentioned items with the supporting documents showing in detail the amount the contractor consider himself to be entitled. Stage Payment In stage payment the payments are done according to the stages the project is divided. Up to 2nd floor structural works. The project is divided for several stages and the contractor can obtain his payment once he has complete the stage. 18 | P a g e . Roof level and All external and internal works The method of payment is similar to the Interim method the items included are also the same only the time period may differ according the work scopes on certain stages. Up to top of 2nd floor whole works. Up to first floor. POST CONTRACT MANAGEMENT Items to be included in an interim valuation The estimated contract value of the works executed and the contractor’s documents produced up to the end of the interim payment period (including variations) The contractor should submit the value of the work done within the interim payment period with evidence. the agreed percentage for deduction of the retention should 19 | P a g e . reinforcement weight. if the client is responsible for clearance and maintenance of access roads but due to weather changes or other events if the contractor has to bear extra costs to transport materials to site the cost will be changed there for it should be added as an extra cost to the interim bill. change in taxes or adding of new taxes by the government can cost the contractor more than the agreed rates on the agreement. Any amount to be deducted for retention. until the amount so retained by the employer reaches the limit of Retention money stated in the appendix to tender After calculating the total work done for the interim period including the variations. Also the costs can be increased due to unforeseeable events or because of client’s ignorance such as. form area etc. For an example if the contractor has completed constructing a certain structure the measurement sheets for the structure should be attached together with the interim bill including the quantities of concrete volume. For each structure separate supporting documents should be submitted as evidence and to justify the value of work done within the interim period. calculated by applying the percentage of retention stated in appendix to tender to the total of the above amounts. day works and the extra works. The total cost for preliminaries or for mobilization and overheads are also added to the interim bill Any items to be added and deducted for changes in legislation and changes in cost Price fluctuations. It can occur due to the fault of the contractor or due to faults of the client. Any amounts to be added and deducted for plants and materials If the client is providing materials or plants to the contractor. Any amounts to be added and deducted for the advance payment and repayments. the cost for plants and materials are deducted from the interim bill also if the contractor has to bear additional cost for any special materials or special plants it is added to the interim bill. The deduction for retention can be reduced from the interim bill only till it reaches the agreed amount by the client and the contractor. The recovery of the advanced payment is also done to an agreed percentage to be deducted from each interim bill. this advance payment is deducted from each interim bill. Variation in the structure can occur in any construction project.POST CONTRACT MANAGEMENT be deducted from the total value of the work done. claims. dispute and arbitration etc. Also if the contractor is entitled to any other payments regarding the project the contractor has the ability to add that amount to the interim bills. The contractor receives an advance payment from the client before starting the work on the project. The contractor can calculate the extra costs with supporting documents and obtain the additions through the interim bill. also there can be extra works claims for losses of the contractor . 20 | P a g e . Any other additions or deductions which may have become due under the contract or otherwise including them under extra works. It is possible for the final certificate to show that money is owed to the client.POST CONTRACT MANAGEMENT Items to be included in a Final Account Preparing the final account is the process of calculating and agreeing any adjustments to the contract sum (the amount originally set out in the contract to be paid to the contractor for completion of the works) so that the amount of the final payment can be determined. Statutory fees. Payments to nominated sub-contractors or nominated suppliers. Fluctuations Prime cost sums. Provisional sums. The amount of the final payment is then set out in the final certificate (or final statement). 21 | P a g e . rather than due to the contractor. Variations. Important Items that’s needed to be included in the final account. Contract claims imposed as a result of the contractor's operations (such as a thirdparty claim resulting from contractor negligence or contractual breach. 22 | P a g e . The release of any remaining retention. Liquidated and ascertained damages. for example.POST CONTRACT MANAGEMENT Payments relating to the opening-up and testing of the works. Loss and expense. flooding a neighbor’s property). POST CONTRACT MANAGEMENT Task 03 : Lump Sum 23 | P a g e . For example. Where the client directly orders a preferred piece of equipment on which design is to be based.POST CONTRACT MANAGEMENT Reasons for inclusions of Prime Cost Sums in a contract A prime cost sum (sometimes called a PC sum) is an allowance usually calculated by the cost consultant for the supply of work or materials to be provided by a contractor or supplier that will be nominated by the client. The allowance is exclusive of any profit mark up or attendance (such as material handling. laboratory fumes cupboards or bottling plant. 24 | P a g e . Where specialist design input was required in the early stages of design development.) by the main contractor. switchgear or refrigeration plant. For example. for a cladding system. an MRI scanner. scaffolding and rubbish clearance etc. lifts. The reasons for inclusion of prime cost sums are. For long delivery items where design and manufacturing times could not wait for the appointment of a main contractor. For example. 25 | P a g e . they should not be an 'easy' fall-back position for consultants when designs are incomplete or information is difficult to obtain. Undefined provisional sums are not accounted for in the the contractor's price and program. or below an existing structure. In effect the contractor is taking the risk that their estimate will be sufficient. allows tenderers to apply mark up and attendance costs within their overall tender price and make allowance for this element of work in the contract program. together with a brief description. The risks are significant enough that the NEC Engineering and Construction Contract does not have any allowance for provisional sums. They should only be used as a last resort. An example of a situation where a provisional sum might be appropriate is where work is required underground. where the conditions cannot be determined until the work begins and the existing structure demolished or the ground opened up. as this can burden the client with considerable unnecessary risk and uncertainty. Provisional sums can be 'defined' or 'undefined': Defined provisional sums are considered to have been accounted for within the contractor's price and program.POST CONTRACT MANAGEMENT Reasons for inclusions of Provisional Sums in a contract A provisional sum is an allowance usually estimated by the cost consultant and inserted into tender documents for a specific element of works not yet defined in enough detail for contractors to price. This. This means that the client is bearing the risk for the works and the contractor may be entitled to an extension of time and additional payments. after consulting the client the cost engineer will calculate a reasonable for the item and add it as a Prime Cost Sum. 26 | P a g e . Elevators Tiling Installation of machinery etc. Examples include white-goods tap-ware Light fittings. After the work has been executed if the item costs less than the estimated cost the contract will settle the remaining value of the prime cost for that particular item to the client and if the item costs more than the estimated cost the client will pay the contractor for the additional cost occurred.POST CONTRACT MANAGEMENT Examples for Prime Cost Prime Cost Items are items that either have not been selected or whose price is not known at the time the contract is entered into. and for which the cost of supply and delivery the builder has made allowance for in the contract price. Valuation of prime cost sum The cost for certain item is mentioned as Prime Cost when the cost engineer finds something that is not specified by the client. for the work. in accordance with the Engineer’s instructions. in whole or in part. as the Engineer shall have instructed. and the Contract Price shall be adjusted accordingly. This normally involves a specialist subcontractor or a specialized work that is difficult to measure or unforeseeable works and for services required such as. 27 | P a g e . The work requires a provisional sum will be thoroughly evaluated by the Engineer and the valuation is done according to the information the Engineer provides therefore when valuing a provisional sum the Engineer of the client plays a major role. labour and associated work.” Therefore according to the FIDIC publication the valuation of the provisional sums are done by the client’s Engineer or the cost Engineer.POST CONTRACT MANAGEMENT Examples for Provisional Sum Provisional Sums are estimated allowances for work that involves both supply of material.5 [Provisional Sums] of the 1999 FIDIC Red Book provides that “Each Provisional Sum shall only be used. Excavation works Constructing beneath an existing structure Rock Excavation Piling work Demolition of a structure And places where the condition cannot be determined until the work is being executed Obtaining Permits Temporary Telephone/ Internet lines Accommodation Valuation for provisional sums In clause 13. The total sum paid to the Contractor shall include only such amounts. supplies or services to which the Provisional Sum relates. POST CONTRACT MANAGEMENT Task 04 : Claims 28 | P a g e . In other words. which enable the contractor or the employer under certain construction contracts. quantity or timing of free issue equipment or materials Changes to the time of execution of the work required by the agreed program 29 | P a g e . Usually there is some benchmark against which to measure the extent or impact of the variation or change which operates together with these change management mechanisms. Variation or change usually follows from the occurrence of one or more of the following circumstances: Additions to the work described Omissions from the work described Changes in material or methods to be used Changes in construction sequence Restrictions in working hours Corrections to rectify discrepancies in the contract documents Corrections to the descriptions in the bills of quantities Corrections to the quantities in the bills of quantities Changes to the kind. quantity or timing of work to be performed by others Changes to the quality. there are generally contractual mechanisms. the 1999 First Edition of the FIDIC contract to claim additional payment or extensions of time when variation or change takes place.POST CONTRACT MANAGEMENT Definition for variations as stipulated on FIDIC condition of Contract Variation and change fall under the same definition. and mechanisms for managing the impact of the variation or change are usually expressly provided for in terms of the contract . POST CONTRACT MANAGEMENT Changes resulting from unexpected natural events and physical conditions. 30 | P a g e . POST CONTRACT MANAGEMENT Figure 2 : Circumstances for variations 31 | P a g e Figure 3 : FIDIC Variations . POST CONTRACT MANAGEMENT 32 | P a g e . 7 – Setting out Sub Clause 4. Delays and Suspension Sub Clause 8.4 – Extension of time for completion Sub Clause 8.4 – Failure to pass tests on completion Clause 10 – Employers taking over Sub Clause 10.Fossils Clause 7 – Plants.6 – Rate of Progress Sub Clause 8.4 .3 – Interference with test on completion Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Employer’s Entitlement Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Employer’s Entitlement Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Employer’s Entitlement Employer’s Entitlement Contractor’s Entitlement Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement 33 | P a g e . Material and Workmanship Sub Clause 7.POST CONTRACT MANAGEMENT Identifying entitlements for claims Clause/ Sub Clause Number Entitlement Client (Employer) Contractor Clause 1 – General Provisions Sub Clause 1.7 – Delay Damages Sub Clause 8.5 – Delays caused by authorities Sub Clause 8.2 – Taking over of parts of the work Sub Clause 10.12 – Unforeseeable physical conditions Sub Clause 4.9 – Consequences of suspension Clause 9 – Tests and completion Sub Clause 9. Water and Gas Sub Clause 4.6 – Remedial Work Clause 8 – Commencement.20 – Employer’s Equipment and Free-Issue Material Sub Clause 4.5 – Rejection Sub Clause 7.5 – Employer’s claims Contractor’s Entitlement Clause 4 – The Contractor Sub Clause 4.9 – Delayed Drawings or Instruction Contractor’s Entitlement Clause 2 – The Employer Sub Clause 2.1 – Right of Access to the site Sub Clause 2.Testing Sub Clause 7.19 – Electricity.24 . 4 .1 – General Requirements for Insurances Clause 18.3 – Extension of Defect Notification period Sub Clause 11.3 – Variation Procedure Sub Clause 13.8 – Delayed payment Clause 15 – Termination by the Employer Sub Clause 15.4 – Payment after Termination Contractor’s Entitlement Employer’s Entitlement Clause 16 – Suspension and Termination by the contractor Sub Clause 16.4 – Payment on Termination Clause 17 – Risk and Responsibility Sub Clause 17.4 – Consequences of Employer’s Risks Clause 18 – Insurance Clause 18.4 – Consequences of Force Majeure Contractor’s Entitlement Contractor’s Entitlement Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Employer’s Entitlement Contractor’s Entitlement Contractor’s Entitlement 34 | P a g e .2 – Value Engineering Sub Clause 13.POST CONTRACT MANAGEMENT Clause/ Sub Clause Number Clause 11 – Completion of Outstanding Work and Remedying Defects Sub Clause 11.8 – Contractor to search Entitlement Client (Employer) Contractor Employer’s Entitlement Employer’s Entitlement Contractor’s Entitlement Clause 12 – Measurement and Evaluation Sub Clause 12.2 – Insurance for Works and Contractor’s Equipment Clause 19 – Force Majeure Sub Clause 19.7 – Adjustments for changes in Legislation Contractor’s Entitlement Contractor’s Entitlement Contractor’s Entitlement Clause 14 – Contract Price and payment Sub Clause 14.4 – Failure to Remedy Defects Sub Clause 11.1 – Contractors Entitlement to suspend work Sub Clause 16.Omissions Contractor’s Entitlement Clause 13 – Variations and Adjustments Sub Clause 13.1 – Indemnities Sub Clause 17. POST CONTRACT MANAGEMENT Task 05 : Dispute Resolution 35 | P a g e . one party may simply deny responsibility in an attempt to avoid liability. Co-ordination In complex projects involving many specialist trades. wherever problems arise either party may have an interest in gaining as much as they can from the other. rather than a proactive approach to resolve the problems once they become apparent. This inevitably leads to conflict during installation which is often costly and timeconsuming to resolve. usually measured in time or to a budget. Alternatively. 1973). Behavior Since contracts cannot cater for every eventuality. affecting their ability to reach agreement.POST CONTRACT MANAGEMENT Potential causes for disputes during construction Uncertainty Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task. with each party blaming the other for the problems that have arisen. At least one of the parties may have unrealistic expectations. 36 | P a g e . The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed. and the need to meet key opening dates or tenant occupation in an office development. Acceleration It is not uncommon for commercial property owners to insist upon acceleration of a construction project. The amount of information required depends on the task complexity and the performance requirements. Contractual problems Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. co-ordination is key. Equally. yet conflict often arises because work is not properly coordinated. the parties may have a different perception of the facts. Such examples might include the completion of a major retail scheme. particularly mechanical and electrical installations. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty. Ineffective management control may result in a reactive defense to problems that arise. Quality and workmanship In traditional construction contracts. Each of these firms may have their own commitments and goals. construct. Equally. which may not be compatible with each other and could result in disputes. disputes often arise as to whether or not the completed work is in accordance with the specifications. yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract. Often no planning or sequencing is given to the release of design information. Engineer and Employer’s Representative The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes. manage. initiate. design. innocently assuming the risk for any subsequent design failures. Most construction contracts make provision for extending the time for completion. supervise. administer. The specification may be vague on the subject of 37 | P a g e . From the owner’s point of view. plan. when an overrun looked likely. leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays. and. the design team sometimes abrogate their responsibilities for the design. supply materials and plant. in doing so. this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement. commission and correct defects throughout the span of a large construction contract is substantial. which then impacts on construction. Design Errors in design can lead to delays and additional costs that become the subject of disputes. Delays Disputes frequently arise in respect of delays and who should bear the responsibility for them. including those engaged as suppliers and manufacturers.POST CONTRACT MANAGEMENT Culture The personnel required to visualize. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. Such personnel may come from different social classes or ethnic backgrounds. Differing goals Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms. The new Parliament building in Edinburgh is such an example. disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions. 38 | P a g e . the Employer may be liable to the contractor for the consequences. Even if the Employer. and each party to the contract may have a different view on whether the quality and workmanship is acceptable Site conditions If the contract inadequately describes which party is to take the risk for the site conditions.POST CONTRACT MANAGEMENT the dispute in question. but these are not the only benchmarks. The building was planned to house 329 people. Value engineering This term often lacks definition in construction contracts and can lead to disputes. or the variations impact on partially completed work or are issued as work is nearing completion. Variations Variations are a prime cause of construction disputes. Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree. but through variations the building increased in size and complexity to house 1200 people. provides detailed information on the site conditions to the contractor. if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to their detriment. particularly where there are a substantial number. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. in good faith. and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change. It was perhaps not surprising that the total cost of construction exceeded £500 million. almost ten times more than the original budget. particularly where the saving is to be shared between the contractor and the owner. or a consultant. issue resolution. It will include a framework for formal. 39 | P a g e . and take into account the characteristics of the site on which it is to be constructed. including adequate geotechnical analysis. This should include the time within which the asset is required. Responsibility for managing each risk is clearly allocated to the organization or person best able to manage it. including monitoring the quality of project team relationships.POST CONTRACT MANAGEMENT Eliminating or minimizing causes for dispute Project team selection Designers and other advisers are selected based on their ability to work well together as a team. as well as their technical skills and track record. greater certainty of cost and constructability is achieved when the client engages a head contractor and key subcontractors to work with engineers. architects and other advisers on option development and early design and planning work. cost and functionality. Scope of work The scope of the work and the functionality or performance characteristics to be delivered by the asset should be clearly documented. and escalation of issues that cannot be resolved by agreement at site level. Client’s project management The client’s most senior representative charged with making decisions under the head contract is given a clear brief to act in the best interests of the project. to the lowest possible level of off-site negotiation and resolution. Risk management A thorough risk register. and strategies to mitigate those risks. Particularly with more complex projects. is shared with designers and contractors. and that organization or person is paid to assume the risk. That representative may be an employee of the client. alternative. identifying possible risks to achieving required time. focused on rapid identification of issues. Communication protocols The head contract will require communication protocols that encourage open communication and the solving of problems or issues as quickly as possible. In construction industry regarding the cost and the time it is not practical to go for litigation therefore alternative dispute resolutions are the most effective and the reliable way to solve disputes in construction industry. 1. 8. court powers Time frame is limited Independence and impartibility Regulated by the Arbitration Act Comparatively Expensive 10. 9. Arbitration Party Autonomy Legally Enforceable Private and Confidential Encouraged By every Legal system Power to grant order. the time and the arbitrator 12.POST CONTRACT MANAGEMENT Methods of Alternative dispute resolution Alternative Dispute Resolution provides a voluntary alternative for litigation. 3. 5. Shorter procedures and faster decisions 11. 2. 6. Arbitrators decision can legally appoint as the final decision The parties has the freedom to choose the place. Adjudication Party Autonomy Not Legally Enforceable Private and Confidential Mediation Party Autonomy Not Legally Enforceable Private and Confidential No power to grant orders No power to grant orders No limitations No Guarantee on Independence or impartibility No limitations No Guarantee on Independence or impartibility Comparatively inexpensive Procedure may take longer and decisions might take longer relatively Final decision is not certain Comparatively inexpensive Procedure may take longer and decisions might take longer relatively Final decision is not certain The Adjudication board decides The Mediator decides 40 | P a g e . 4. 7. I hope I’ve done the assignment according to the proper criteria & I Thank you for spending your valuable time to take a look at this assignment… 41 | P a g e . Most of my conclusions on the topics are mentioned in the assignment.POST CONTRACT MANAGEMENT Conclusion This is the final page of the assignment & it was really difficult to find information on some topics even on the internet so I referred the tutorials I was given regarding this subject. [ONLINE] Available at: http://books. 2013.google.John Murdoch. 2013. 42 | P a g e .pdf.hk/theses/abt/engd-bc-b23751083a. Construction Contracts: Law and Management .cityu.POST CONTRACT MANAGEMENT Reference http://www. .net/WEB7/ks-constr.uk/mgConvert2PDF. [ONLINE] Available at: http://www. http://scholarship.Google Books.Google Books.hilldickinson.gov.lk/books? id=QbhWUGXkEy0C&pg=PR31&lpg=PR31&dq=introduction+to+construction+law&source=bl&o ts=0EA7Z6fV8u&sig=TVSaSL4YGyn0F72SxUNYaSPaBxY&hl=en&sa=X&ei=8igoUaX1G8bPrQ eYpoDYCw&ved=0CCsQ6AEwAA#v=onepage&q=introduction%20to%20construction %20law&f=false. [Accessed 10 February 2013]. . http://lbms03.Google Books. A Practitioner's Guide to Construction Law .com/pdf/A %20Comparison%20between%20Mediation%20and%20Arbitration. Will Hughes . CONSTRUCTION CONTRACTS.John Murdoch.google. [Accessed 12 February 2013].cgi?article=3691&context=lcp Construction Contracts: Law and Management . http://democracy. Jr.aspx?ID=15663 [Accessed 19 February 2013].htm. Will Hughes . A Practitioner's Guide to Construction Law .pdf [Accessed 12 February 2013]. [ONLINE] Available at: http://www. [ONLINE] Available at: http://books. Cameron.John G. .duke.Google Books.com/documents/contracts/IMCA-RiskGuideline.scarborough. . [Accessed 23 February 2013]. CONSTRUCTION CONTRACTS.imca-int.lexinter.John G. Introduction to ADR. Jr.law.edu/cgi/viewcontent.lk/books? id=r8okNWl1zN4C&printsec=frontcover#v=onepage&q&f=false.edu.pdf [Accessed 02 February 2013]. Cameron. [Accessed 12 February 2013]. 2013. designingbuildings.net.uk/wiki/Final_account [Accessed 19 February 2013]._contract/03_variations/page_009.POST CONTRACT MANAGEMENT http://www.au/demosites/series10/10_01/content/bcgbc4005a/01_apply [Accessed 20 February 2013].flexiblelearning.co.html 43 | P a g e . http://toolboxes.