Ministry of Transport Ethiopian Roads Authority 1 URRAP-Training of Trainers for Contractors and Coordinators Contract Management and Administration Tsegaye Borse(ERA) (BSc. CoTM) DAY 4- Tuesday August 06, 2013 2 Outline of the Presentation A. Introduction – – B. Contract and its Legal Framework – – – C. Results of Neglected Contract Management Learning Objectives Definition of Contract and its nature Primary Ingredients of Contract So why do we need a written contract?? Project Delivery System, Contract Types and Construction Risk – – Types of Project Delivery System Contract Types Outline of the Presentation….cont’d 3 – D. Types of Risk in Construction Contracting Contract Management and Administration – – – – – – What do you mean by Contract Management and Administration Main tasks of Contract Management What effective contract Management accomplishes?? Primary Roles and obligations of the Parties to the Construction Contract Types of Standard Conditions of Contract Communications Outline of the Presentation….cont’d 4 E. F. Claims Management and Dispute Resolution – Typical Claims Against the Owner – Typical Claims Against the Contractor – Likely source of construction Delay and Disruption – Claims Analysis – Claims Prevention Suggestions – Dispute Resolution Mechanisms Discussion Points and Feedbacks – Selected Contractual Issues A.Introduction 5 – Results of Neglected Contract Management – Learning Objectives Introduction…..cont’d 6 Results of Neglected Contract Management – – – – – End user frustration because of poor contract performance in timeliness & quality Lack of contractor accountability Implementing Agency acceptance of poor quality Increased costs; and Under or overpayment to a contractor Keep the End in Mind at the Beginning!!! Introduction…..cont’d 7 Learning O bjectives – – – – – – Understand about Contract and contract management Understand roles and responsibilities of parties under General Conditions of Contract Role, Relationships, expectations and communications between the owner, design, contractor and supplier teams Understand Contract types and Delivery systems Construction Risk Brain storming about claims and Dispute 8 B. Contract and its Legal Framework ─ Definition of Contract and its nature ─ Primary Ingredients of Contract ─ So why do we need written contract?? 9 Contract and its Legal Framework…cont’d Definition of Contract and its nature – A contract is a legally binding agreement between the parties(t w o or more) identified in the agreement to fulfil all the terms and conditions outlined in the agreement. – All construction is done within a contract except that is done by a person for himself. A contract determines the actions of the parties in their dealings with each other. The parties to a contract are bound to each other for a certain period of time by a unique and exclusive relationship (pri vity of contract) they have created for their mutual benefit. – 10 Contract and its Legal Framework…cont’d – This contractual relationship persists until the contract is discharged or terminated (because of impossibility, agreement, bankruptcy, or breach of contract). – It is important that the construction contract, whatever form it may take, accurately documents a “meeting of the minds”; states clearly the roles and responsibilities of the parties without overlaps or voids; and aims squarely at achieving a quality project. 11 Contract and its Legal Framework…cont’d Primary Ingredients of Contract – – – – – – Mutual Agreement and Genuine Intention Offer and Acceptance Capacity to Contract Consideration in a Contract Lawful Object of a Contract Contract Time Contract and its Legal Framework…cont’d 12 Mutual Agreement and Genuine Intention – – – Mutual agreement is the fundamental and mutual consent which is normally expressed by the parties to a contract in the offer originally made by one, which then is accepted by other. Sometimes the acceptance of an offer may be unspoken and indicated or accepted by an action, rather than by actual words. A contract may be defined as a promise enforcea ble by la w, and there must be genuine intention on the parties to take on obligations agreed in the contract. Contract and its Legal Framework…cont’d 13 Offer and Acceptance – Offer and acceptance of the offer are natural expressions of mutual agreement. As such, both the offer and the acceptance must be identical to their sub stance. – When an offer is made it should be accepted without qualification. No change to an offer should be made in the acceptance, and what is offered should be accepted as it is offered. Otherwise, the offer should be refused, and, if required, notice may then be given that a different kind of offer is sought. Contract and its Legal Framework…cont’d 14 – An offer may be withdrawn at any time prior to its acceptance. – Mutual agreement must be based on free assent without duress or undue influence, so that there is a real meeting of the minds of the parties. Anything less than this may result in an invalid contract. – Once an offer is accepted, however, the offer cannot be withdrawn because it has been changed by its acceptance into a contract. The primary purpose of a bid bond/security is to guarantee the owner that the bidder whose bid he accepts will enter into and perform the contract. – Contract and its Legal Framework…cont’d 15 Capacity to Contract – Capacity refers to the competency to make valid and enforcea b le contracts. A citizen who is Not under the age of majority – Sane, and not a drunkard – Not under legal restraint – Not restricted by his or her occupation or profession has the greatest possible freedom to enter into and make contracts – Contract and its Legal Framework…cont’d 16 Considerations in a Contract – – – – Consideration is something of value given by one party in a contract to the second party in exchange for something else. A contract is an agreement with consideration. In contract law, consideration can be anything of value and the law usually is not concerned with the amount of value. Its sufficiency is a matter for the parties to bar gain over and agree to. Consideration can be a promise not to do something such that the result will be of value to the other party. Contract and its Legal Framework…cont’d 17 Lawful object of a Contract – – The object of a contract must be lawful, for the law will not enforce a contract for an illicit purpose. It is more probable to see illegal work done under a contract’s change order, because changes are not always subjected to the same official scrutiny as the work originally proposed and shown in the contract documents, and it is possible that a change could be made to do construction work that would be illegal (e.g. increase room’s seating capacity beyond its legal limit). Contract and its Legal Framework…cont’d 18 Contract Time – Time is the scarcest of all construction resources (capital, labor, material, equipment, etc.). – Contract time affects contract sum since most costs depend on time (e.g. costs of labor, equipment use, and overhead costs). Contract and its Legal Framework…cont’d 19 So why do we need a written contract?? – – – – – – – Basic lack of trust Clearly establishes the risks and obligations of each party Provides means by which performance can be assessed and measured Provides means by which breaches can be identified Provides means by which default can be established Establishes the owner’s means of control Establishes the contractor’s scope of work 20 Contract and its Legal Framework…cont’d Discharge of a Contract: – Contracts are said to be discharged when the contracting parties are released form their contractual obligations. – Once the contract is discharged, the parties are no longer bounded by its terms although the discharge itself may result in enforceable rights. – In general, there are four ways in which a contract may be discharged: Contract and its Legal Framework…cont’d 21 1. 2. Performance – parties have performed all their respective obligations, as for example, when the contractor has carried out the work fully in accordance with the contract and when the employer has paid all amounts due to the contractor. Frustration – where the parties are unable to perform their obligations owing to events outside their control, force majeure; but contracts are not frustrated if there become too difficult or too expensive to perform. Contract and its Legal Framework…cont’d 22 3. 4. Breach – where one party fails to perform his contractual obligations. Agreement – where both parties agree to terminate the contract before complete performance. 23 C. Project Delivery System, Contract Types and Risk – Types of Project Delivery System – Contract Types – Types of Risk in Construction Contracting Project Delivery System, Contract Types and Risk….Cont’d 24 Types of Project Delivery System – – – – – – Owner-provided delivery Traditional Design Bid-Build Construction Management Design-Build Design-Build variations Fast Tracking Project Delivery System, Contract Types and Risk….Cont’d 25 – – Owners, designers, and contractors make the decisions, provide the services, and perform the work to deliver constructed projects. These activities are known collectively as project delivery. The generic term “project delivery system” describes how the participants are organized to interact, transforming the owner’s project goals and objectives into a finished facility. 26 Project Delivery System, Contract Types and Risk….Cont’d Types of Project Delivery System Owner-provided delivery/Force Account – Mostly applicable to projects where the scope of the work is within the owner’s range of skills, experience, and resources. – Owners perform some or all of the design services and construction work themselves. – E.g. simple modifications to an existing facility, projects with limited cost or complexity, repetitive projects. 27 Project Delivery System, Contract Types and Risk….Cont’d Traditional Design Bid Build – – For many years, DBB has been the most common method of project delivery for public projects, and for many private projects as well. Design Bid-Build is effective on projects – where the owner needs both professional design services and construction services where the designer does not require detailed knowledge of the means and methods of construction. DBB provides the owner with a high degree of control and the most preferred project delivery system. 28 Project Delivery System, Contract Types and Risk….Cont’d Construction Management – – Many owners engage construction managers (CMs) to assist in developing bid documents and overseeing project construction. CM: Is a professional or a firm trained in the management of construction processes. Is generally interposed between the owner and some or all of the other participants. 29 Project Delivery System, Contract Types and Risk….Cont’d Design Build – – – Design-build provides the owner with a single point of contact for project responsibilities, eliminating the need to assist in resolving designer-contractor disputes. With the contractor playing a major role in design, costs are typically defined and maintained to a greater degree, and the coordination of fast-track management to achieve early completion is greatly simplified. The design-builder makes many decisions that owner would make under DBB, due to delegation of greatly increased authority 30 Project Delivery System, Contract Types and Risk….Cont’d Design Build variations – – – – Funding Option variations Turnkey Developer Financed Projects Turnkey V ariations 31 Project Delivery System, Contract Types and Risk….Cont’d Funding Option variations – Private capital and developer participation offer private owners several variations on design-build. – Lease-develop-operate arrangement: The owner gives a private operator a long-term lease to use, operate, and expand an existing facility. – Public-private partnership or wrap around: Ownership of or fiduciary responsibility for a project is assigned to a private party. That party designs, builds, and may even own, operate and maintain the new facility. 32 Project Delivery System, Contract Types and Risk….Cont’d Turnkey – Turnkey adds to the design-builder’s responsibilities the operation and/or maintenance of the completed project. – Turnkey delivery has the potential for bringing a new project on line more quickly. – Three forms of turnkey project delivery: Design-build-operate-transfer Design-build-operate-maintain Design-build-own-operate-transfer Project Delivery System, Contract Types and Risk….Cont’d 33 Developer Financed Projects – For highly specialized projects and circumstances, financing from a private or public developer or other third parties can offer additional variations on designbuild and turnkey project delivery, each with new roles for owners, designers, and contractors. Project Delivery System, Contract Types and Risk….Cont’d 34 Turnkey V ariations – V ariations on turnkey add financing as a key component. While financing arrangements are unique for each project, developer financed projects generally resemble one of the turnkey delivery methods: FDBT (Finance, design, build, transfer) FDBOT (Finance, design, build, operate, transfer) FDBOOT (Finance, design, build ,own, operate, transfer) In each case, the transfer of the project occurs only after the developer’s interests and financial obligations have been satisfied. 35 Project Delivery System, Contract Types and Risk….Cont’d Fast Tracking – – – – Fast-track approach compresses the schedule by se quencing the start of construction on underlying project elements (e.g. foundation, basic supporting structures) before final design is complete for interior or adjacent elements. Fast-tracking is not a method of delivery, rather, it’s a management strategy within delivery methods. While often successful in achieving schedule reductions, problems on fast-track contracts can create a domino effect on follow-on contracts for the project. Fast-track is more successful on projects that are straightforward and have a high level of predictability 36 Project Delivery System, Contract Types and Risk….Cont’d The owner usually considers the following factors to decide how project resources are to be organized: − Past practices, traditions, and experience; − The advice of consultants; − Funding sources and constraints; − The effective use of staff and working capital; − The interests of other project stakeholders. 37 Project Delivery System, Contract Types and Risk….Cont’d Contract Types − Competitive Bidding(Lump Sum, Unit Price) − Negotiated Cost-Plus(Various Types) − Combination(CM administered) 38 Project Delivery System, Contract Types and Risk….Cont’d 39 Project Delivery System, Contract Types and Risk….Cont’d Lump-sum − − − − − − − − − One price for the whole contract Lump sum includes costs plus overheads and profits Higher risk to contractor Price quoted is a guaranteed price as per contract documents. Payment based on a scheduled percentage scheme (monthly progress claims) The contractor is free to use means and methods to complete the work and responsible for proper performance Work must be well defined at bid time. Low risk on the owner, Higher risk to the contractor Cost known at outset Project Delivery System, Contract Types and Risk….Cont’d 40 Unit Price − − − − − − − Quote Rates / Prices by units No total final price Re-negotiate for rates if the quantity or work considerably exceeds the initial target Payment to contractor is based on the measure. Unbalanced bids Higher risk to owner Ideal for work where quantities can not be accurately established before construction starts 41 Project Delivery System, Contract Types and Risk….Cont’d − − − − Require sufficient design definition to estimate quantities of units Contractors bid based on units of works Time & cost risk (shared) Owner : at risk for total quantities Contractor : at risk for fixed unit price. Large quantities changes (>15-25%) can lead to increase or decrease of unit price. 42 Project Delivery System, Contract Types and Risk….Cont’d Cost plus − − − − Actual cost plus a negotiated reimbursement to cover overheads and profit. Compromise : guaranteed maximum price (GMP) reduces risk to owner while maintain advantage of cost plus contract. By using this type of contract the contractor can start work without a clearly defined project scope, since all costs will be reimbursed and a profit guaranteed. In this type of contract the contractor is reimbursed at cost with an agreed-upon fee up to the GMP, which is essentially a cap; beyond this point the contractor is responsible for covering any additional costs within the original project scope 43 Project Delivery System, Contract Types and Risk….Cont’d Types of Construction Risks − Legal Risk − Associated with drafting of the construction contract and documentation − Dispute Risk − Without a detailed understanding of the terms and conditions of contract − Design Risk − Defective and deficient drawing and specifications. − Design risk is proportional to the time which is made available to produce the design documentation and sufficient time to establish the client need 44 Project Delivery System, Contract Types and Risk….Cont’d − Buildability Risk − Ease of convertibility of specification into a built form − Procurement risk Biddability risk − Related with the project delivery system chosen − The risk associated with bidders misinterpreting what is often directly related to the quality of the tender documentation and the time which has been made available to prepare it. − Were there are omissions from the specifications and drawings there is likely to be higher degree of uncertainty as to the quality and quantity of work to be undertaken, the bidder needs to make suitable allowance in his contract price − the drawings and 45 Project Delivery System, Contract Types and Risk….Cont’d Primary source of risk − By those who have construction obligations − By circumstances outside the control of controlling parties − By compliance with statutory obligations 46 D.Contract Management and Administration – What do you mean by Contract Management and Administration – Main tasks of Contract Management – What effective contract Management accomplishes?? – Primary Roles and obligations of the Parties to the Construction Contract – Types of Standard Conditions of Contract(Emphasis on MoWUD 1994) 47 Contract Management and Administration….cont’d What do you mean by Contract Management and Administration Contract Management : The art and science of managing a contractual agreement throughout the contracting process. − All activity that occurs in the contracting process − Using procurement tools in the contract formation process to develop specifications a contract that effectively addresses the established contract objectives − Within contract management there are two key; components (Contract administration &Contract compliance) − 48 Contract Management and Administration….cont’d Contract Administration − Manages the contractual relationship with the contractor in accordance with the contract specifications, scope of work and performance requirements. − The management of all actions, after the award of a contract, that must be taken to assure compliance with contract 49 Contract Management and Administration….cont’d Main tasks of Contract Management − − − − − − − − − − − Obtains commitments from subcontractors Establishes a contract administration plan Plans and conducts a pre performance conference Monitors, measure and reports progress Read and analyze the contract Evaluate organization’s ability to comply Function as focal point for internal support/team-members Protect the financial interests of the organization Manages contract changes Resolves disputes Ensures timely delivery 50 Contract Management and Administration….cont’d − − − Manages the invoice and payment process Documents decisions and events Closes out or terminates the contract What effective contract Management accomplishes?? − − − − Serves customers by providing them with a controlled effective job and good communications Establishes clear expectations of both parties Anticipates and handles disputes as they arise Ensures compensation for the deliverables achieved. 51 Contract Management and Administration….cont’d Primary Roles and obligations of the Parties to the Construction Contract STAKEHOLDER Employer/Client/Owner Contractor Engineer/Designer/Supervisor MAJOR ROLES/OBLIGATIONS − Make Payment − Give Possession of Site − Ensure Construction information is available timely − Perform Work in a workable manner − Deliver the Work on time − Abide by the Contract Conditions − Responsible for the project design − administers the contract and supervises the works 52 Contract Management and Administration….cont’d General Rule Contractor is Not Liable for: Design Contractor is Liable for: Workmanship Ensuring that works are fit for the Ensuring that materials are fit for purpose for which they were purpose and free of defects intended Ensuring that specifications, Ensuring that all materials and fulfill the instructions and design are workmanship appropriate for the purpose for specification, instructions and design which the works are intended 53 Contract Management and Administration….cont’d Types of Standard Conditions of Contract(Emphasis on MoWUD 1994) Widely used general conditions of the contracts include: − FIDIC, General Conditions of the Contract for Construction − Institute Of Civil Engineers (ICE), General Conditions of the Contract for Construction − American Institute of Architects (AIA), A201- General Conditions of the Contract for Construction. − The Engineers Joint Contract Documents Committee (EJCDC), C700 - Standard General Conditions of the Construction Contract. − NEC − PPPAA for domestic contracts- 2006 − MoWUD 1994 54 Contract Management and Administration….cont’d Ministry of Works and Urban Development (MoWUD) DECEMBER 1994 55 Contract Management and Administration….cont’d MoWUD GCC – Categorizations − − − − − − − − − Definitions and Interpretations [Clause 1] Engineer and Engineer’s Representative [Cl 2] Assignment and Subletting [Cl 3-4] Contract Documents [Cl 5-7] General Obligations [Cl 8-33] Labour [Cl 34-35] Materials and Workmanship and Tests [Cl 36-40] Commencement Time and Delays [Cl 41-48] Maintenance and Defects [Cl 49-50] 56 Contract Management and Administration….cont’d − − − − − − − − − − − Alterations, Additions, and Omissions [Cl 51-54] Measurement [Cl 55-57] Provisional Sums [Cl 58] Nominated Subcontractor [Cl 59] Certificates and Payments [Cl 60-62] Remedies and Powers [Cl 63-64] Special Risks [Cl 65] Frustration [Cl 66] Settlement of Disputes [Cl 67] Notices [Cl 68] Default of Employer [Cl 69] 57 Contract Management and Administration….cont’d − − Changes in Costs and Legislation [Cl 70] Other Matters [Cl 71-75] 58 Contract Management and Administration….cont’d CoPA, Sub-Clause 5 – Priority of Contract Document − − − − − − − The Contract Agreement Appendix to contract and Addendum (if any) Condition of particular Application part II Standard condition of contract for construction of Civil Works projects. (MoWUD Dec, 1994 part) Technical Specification special provision The standard specification (if any) Other documents, as listed in the Appendix to contract. 59 Contract Management and Administration….cont’d Sub-Clause 8 – Contractor General Obligations − − − Contractor to execute and maintain the Works and provide all labour (including the supervision), materials, Plant/machineries, etc … subject to the provision of the contract … the necessity of which is specified in the contract or reasonably inferred from the contract (c25) Full Responsibility for the adequacy, stability, and safety of all site operations and methods of construction Contractor Shall inform the employer/engineer of any error, omission, fault, & other defects in the design of or specification which are discovered when reviewing the contract documents or in the process of execution of the Works 60 Contract Management and Administration….cont’d Sub-Clause 10 – Performance Bond − − − − Letter of acceptance within 30 days performance bond in the sum of 10% of CP Reduced to 5% at the completion of works for the due & proper performance of the contract and observance of all provisions, conditions, & stipulations Bond shall not be released until the employer has given a certificate in writing that all outstanding matters in dispute b/n the employer & the contractor have been settled CoPA: Without limitation to the provisions of the preceding paragraph, whenever the Engineer determines an addition to the Contract Price as a result of a change in cost and /or legislation or as a result of a variation amounting to not more than 25 percent of the portion of the Contract Price payable, the Contractor, at the Engineer's written request, shall promptly increase the value of the performance security by an equal percentage 61 Contract Management and Administration….cont’d Sub-Clause 11 – Site Inspection − Contractor deemed to inspected & examined the site & its surroundings & to have satisfied himself as to all − matters necessary for the due performance of the contract including, risks, contingencies, & all other circumstances which may influence his tender − Form & nature of the site − Geological, hydrological subsurface & climatic conditions − Details, locations & levels of all existing & projected utilities & services / above and below ground/ − Nature & carrying capacities of existing & projected roads − The extent & nature of the work, materials, labour, and all things necessary for the completion of the works, etc 62 Contract Management and Administration….cont’d CoPA: Whenever an Opinion is made available to the Contractor in respect of any data provided to the Contractor by Employer, the Contractor shall be solely responsible for ascertaining the correctness of such Opinion and the Employer shall in no manner be liable in this regard. − In particular and without limiting the generality of the aforesaid, the Contractor shall not rely upon such opinion or interpretation for any claim with respect to additional time or cost under the Contract 63 Contract Management and Administration….cont’d Sub-Clause 12 – Sufficiency of Tender − Contractor deemed to have satisfied himself as to: − the correctness & sufficiency of his tenders for the works, of the rates & prices stated in the priced BoQ … − Rates & prices shall cover all the obligations under the contract, all matters and things necessary for the proper execution & maintenance of the works − but if the contractor encounters, − Physical conditions other than climatic conditions − Artificial obstructions − which conditions and obstructions could not have been reasonably foreseen by an experienced contractor (in the opinion of the eng) 64 Contract Management and Administration….cont’d Engineer to certify and employer to pay: the additional cost to which the contractor incurred by the reason of such conditions including the proper & reasonable cost of complying with any instruction of the engineer proper & reasonable measures to be taken Sub-Clause 13 – Work to be to the satisfaction of the Engineer − “save in so far as it is legally & physically impossible” − Contractor to execute & maintain the works in strict accordance with the contract – to the satisfaction of the engineer − Contractor to take instructions only from the engineer (channels of communication) Core of contract management − 65 Contract Management and Administration….cont’d − Contractor to comply with & adhere strictly to the engineer’s instructions & directions on any matters whether mentioned in the contract or not, touching or concerning the works Sub-Clause 14 – Program to be Furnished Within 15 days of letter of acceptance − To be revised at intervals of three months clause 46, engineer to notify the contractor if rate of progress is to slow to ensure timely completion of the works i.e. to expedite progress so as to complete the works − 66 Contract Management and Administration….cont’d Sub-Clause 20 – Care of the Works − Contractor responsibility for care of works – from commencement of works till completion of works − Responsibility passed to the employer – from completion of works till issue of maintenance certificate − “save and except the EXEMPTED Risks defined” − Any damage/loss or injury from excepted risks cont may repair & make good at the expense of the employer − Exempted risks – war, hostilities, invasion, act of foreign enemies, rebellion, revolution, military power, civil war, riot, disorder (not contractors), use or occupation by the employer, cause due to engineer’s design, ionizing radiations, pressure waves --- or other forces of nature which an experienced cont could not foresee 67 Contract Management and Administration….cont’d Sub-Clause 40 – Suspension of works − − − − − Instruction to suspend any work/part of it contractor to suspend the progress of the work Such suspension will be contractor’s risk if: provided in the contract or by the default of the contractor for the proper execution of the works/ safety reasons (not arisen from any act/default of the Eng/Emp – not exempted risks) Suspension lasting >90 days (no order to resume works) & if not contractor’s risk contractor to require permission within 28days 68 Contract Management and Administration….cont’d − − − no permission contractor may treat the suspension as Omission of the work – variation as per clause 51 abandonment of the contract by employer – if it affects the whole of the works (clause 69) 28 days notice mandatory 69 Contract Management and Administration….cont’d Sub-Clause 44 – Extension of Time for Completion a. (amount of) extra or additional work of any kind b. any cause of delay referred to in the conditions c. exceptional adverse climatic conditions d. other special circumstances of any kind whatsoever which may occur other than through a default of the contractor fairly entitle cont an EOT for completion of works NB: (a) and (d) require notification within 28 days or as soon as practicable – plus full & detailed particulars − any cause of delay “if contractor suffers delay and/or incurs cost ...” Ex: Sub clause 6(4) – delays of drawings, 42(1) – possession of the site, etc 70 Contract Management and Administration….cont’d CoPA 44: "Neither rains falling within the rainy seasons as occurs in the country, nor floods caused by such rains shall be deemed exceptional weather conditions such as may fairly entitle the Contractor to an extension of time for the completion of the Work. − Similarly in respect of the provision of Clause 12 of these Conditions, neither such rains nor such floods shall be deemed to be adverse physical conditions;" 71 Contract Management and Administration….cont’d Sub-Clause 48 – Certification of Completion of Works − Substantially completed project (passing satisfactory tests) notice by Contractor to Engineer (accompanied by an undertaking to finish any outstanding works) Engineer to issue the certificate or to give instructions specifying works to be done (within 21 days) − If Engineer fails to certify within 21 days, default of the Employer sub clause 69(1)b Employer refusing any required approval to issue any such certificate 72 Contract Management and Administration….cont’d Sub-Clause 51 – Alterations, additions and omission of works a. Increase/ decrease in qty of any work included in the contract b. Omissions of any such work c. Changes in the character/quantity/kind of any such work d. Change the levels, positions, lines & dimensions of any part of the works e. Execution of additional works of any kind necessary for the completion of works − No such variations shall invalidate/vitiate the contract − Value of variations to be taken into account in ascertaining the amount of the contract price − Order to be in writing; if verbally, to be confirmed in writing 73 Contract Management and Administration….cont’d Art. 3031 of the Civil Code – Alterations required by Client. - 1. Rights of client − The client may demand that alterations be made in the work as originally planned where such alternations can technically be made and are not such as to impair the solidity of the work. Art. 3032. – 2. Effect − The client may require a reduction in the price as originally agreed where the alterations required by him reduce the expenses of the contractor. − The contractor may require an increase in the price and his remuneration as originally agreed, where the alterations required by the client increase his expenses, work or liability. 74 Contract Management and Administration….cont’d Art. 3033. – 3. Contractor refusing alteration − − − The contractor may refuse the alterations required by the client where such alterations affect plans, schemes or other documents on which the parties had agreed. The contractor may also refuse the alterations where they are of such a nature or importance that they constitute a work absolutely different to the agreed work. The work shall be deemed to be absolutely different to the agreed work where it implies an alteration exceeding by twenty per cent of the value at which the original work was or could have been estimated. 75 Contract Management and Administration….cont’d Sub-Clause 52 – Valuation of variation − Rates & prices contained in the contract to be used − if not appropriate, new rate to be agreed upon b/n the cont and the eng failing to agree, by the eng (reasonable & proper rates/prices having regard to circumstances) − notice to be delivered ASAP by cont to claim extra payment or a varied rate/price otherwise no inc/dec or adjustment be − notice of intention to vary a rate/price by the eng … 76 Contract Management and Administration….cont’d Intention by the engineer of the variation <30days Cont to give a varied rate to the engineer <15days Engineer to give his comments on the varied rate Engineer may forward the rate for approval by MoWUD CoPA…Employer 77 Contract Management and Administration….cont’d Sub-Clause 52(3) &(5) – CP Adjustment/Claims Variations exceeding 10% of CP − On certified completion of the whole of the works if the reduction/increase of the CP is greater that 10% of CP the amount of the CP shall be adjusted considering all material & related factors including the contractor’s site/general overhead cost of the contract!! Arising from the aggregate effect of all variation orders & all adjustments upon remeasurement of estimated quantities Claims − − Contractor to submit all claims for additional payment & of all extra/additional order once every month; with particulars Engineer to authorize payments notwithstanding the cont’s failure to comply with condition. 78 Contract Management and Administration….cont’d Sub-Clause 60– Monthly Payment − Every month to be submitted, comprising of: − quantities & value of executed permanent works − value of materials on site intended to form part of the permanent work together with supporting invoices − value of temporary works (if included in the BoQ) − amounts reflecting any changes in cost (pursuant to clause 70) − amounts approved in respect of day works − Employer to pay within 30 days of the date of eng certificate Subject to 10% (5%) retention – to all the above payments 79 Contract Management and Administration….cont’d − Eng may correct/modify/withhold any approved payments from latter PCs – for mistakes made on PCs, works not carried out to “his satisfaction”, damages on materials/plants etc 80 Contract Management and Administration….cont’d Sub-Clause 63– Default of the Contractor − If the contractor becomes bankrupt, assigns the contract without the consent of the employer, goes into liquidation, etc OR − If the engineer certifies to the employer that the cont (in his opinion): Abandoned the contract Failed to commence works without reasonable excuse or suspended the progress of works for 28 days (after notice) Failed to remove condemned materials for 28 days (after notice) Is not executing the works in accordance with the contract or is persistently & flagrantly neglecting to carryout his obligations under the contract 1. 81 Contract Management and Administration….cont’d Has sublet any part of the contract – to the detriment of good workmanship or in defiance of the engineer’s instruction default of the contractor breach of the contract…………..SEE PORCEDUR FOR DECLARING DEFAULT 82 Contract Management and Administration….cont’d enter upon the site & works – Employer to give 14 days written notice Employer – expels contractor from site – may himself complete or employ other cont – may use temporary works, plants to complete May sell any of materials, plants, temporary – works applying proceedings of sale, to the – Eng to fix, determine & certify: – – satisfaction of any such sums due to him – Amounts reasonably earned or accrue to the cont – – value of unused or partially used materials, plants, or temporary works – Eng to ascertain & certify payment: – cost of execution & maintenance – Damage for delay in completion – – all expenses incurred by the employer If the amount exceeds the sum payable – to the cont cont to pay to the employer or – a debt by the cont to the employer & shall be – recoverable accordingly!! – If not contractor entitled for the balance!! – 83 Contract Management and Administration….cont’d − Employer entry & expulsion contractor not entitled/employer not liable to payment (any Money) on account of the contract, until the expiration of the period of Maintenance!! withholding the money due to the con if any! 84 Contract Management and Administration….cont’d Sub-Clause 69– Default of the Employer − Contractor entitled to terminate his employment under the contract in the events of the employer (giving 30 days prior notice) − Fails to pay the contractor the amount due under any certificate of the engineer within 30 days after the same shall have become due. − Interferes with or obstructing or refuses any required approval to issue payment certificate, completion certificate, work certificate, maintenance certificate − Becomes bankrupt or goes in to liquidation … − Gives a formal notice to the contractor that for unforeseen reasons due to economic dislocation, it is impossible to continue to meet his contractual obligations and for convenience??? 85 Contract Management and Administration….cont’d Sub-Clause 71– Warranties in Respect of Defects − Unless otherwise provided, the Contractor shall be LIABLE to the Employer for any defects of the construction of the works DURING TEN YEARS FROM THE DAY ON WHICH THE EMPLOYER HAS ENTERED INTO THE POSSESSION OF THE WORKS 86 Contract Management and Administration….cont’d Communications(Meetings in Construction) − − − − − − − − − − Pre-construction Meetings: Procedural Meeting: Site Mobilization Meeting Utility Coordination Meeting: Authorities Having Jurisdiction (AHJs): Progress Meetings Contractor/Subcontractor Meetings: Pre installation Meetings: SAFETY Meetings: Other Meetings: 87 Contract Management and Administration….cont’d − − Closeout Meeting: Pre default meeting Preconstruction meetings are important for:− − Introducing the project team, Establishing the ground rules for communication, and explaining the administrative process. In many cases, a single meeting is all that is required; however, large, complex, or multiprime contractor projects may require more than one meeting. A procedural meeting: − may cover administrative procedures, such as communication, submittals, testing, and inspection. A second mobilization meeting may address use of the site 88 Contract Management and Administration….cont’d Site Mobilization Meeting − Access to the site, such as construction entrance and egress locations, including access roads, parking restrictions, and security. − Environmental controls such as silt fences, biobags, inlet protection, temporary seeding and mulching, and oil booms and containment systems when working over or near water. − Use of site and existing facilities by contractor and owner, including access to buildings or areas, use of elevators, and maintenance of fire exits. For public infrastructure projects, this might involve traffic control, detours, and barriers. 89 Contract Management and Administration….cont’d − − − Identification of benchmarks and data, including survey and layout of work. Occupancy and use by owner, tenants, and public during the construction stage, including partial use and occupancy of completed work, and the related coordination of insurance requirements Site mobilization meeting is a tool for laying effective management of site by addressing pre construction activities required by participants of the project. Typically held at the site, this meeting concerns issues about site use. 90 Contract Management and Administration….cont’d Utility Coordination Meeting − On a projects where significant utility relocation work is required, it is prudent to have a utility coordination meeting. − This meeting is usually held shortly after the preconstruction meeting. Participants may include representatives from the utility providers serving the project. − Identifying the best time for each utility provider to perform their work − Identifying the interface with other utility providers for work that must occur concurrently − Establishing how long each utility provider’s work will take 91 Contract Management and Administration….cont’d − − − − − − Identifying the primary contact person Establishing how much notification (lead time) each utility provider will require to mobilize Identifying whether there are related costs that have not been identified Determining or confirming who will do the locating work for each utility provider Identifying special inspection requirements. Regardless of the project extent, a utility coordination meeting might be required by utility providers as a precondition of future connection to utilities. 92 Contract Management and Administration….cont’d Pre-installation Meeting − Ascertain access to the work − Review conditions of proper installation and environmental conditions − Identify conditions detrimental to the installation − Review preparation procedures, including protection of adjacent work − Review coordination with other work such as substrates, connections, transitions, and existing and surrounding conditions − Evaluate delivery schedule and progress schedule 93 Contract Management and Administration….cont’d Safety Meeting − Several different types of safety meetings may occur on a project. Contractors hold weekly safety meetings, at which the supervisors and workers gather before start of shift and discuss a selected safety topic. − Sometimes a contractor invites OSHA Consultative Services to visit the project and do a safety consultation. 94 Contract Management and Administration….cont’d Closeout Meeting − The closeout meeting is used to review requirements for the completion of the contract and to obtain submittal of the necessary final documents. Separate meetings may be required for substantial completion, final completion, and warranty reviews. − Many of the closeout documents are prepared during construction, even though their submission is not required until the project is nearing completion. These documents might include record documents, O&M data, manufacturer certification of installations, and interim inspections and testing. 95 Contract Management and Administration….cont’d − − − − − − − − Completion time for correcting defective work Inspections by AHJs Certificate of use or occupancy and transfer of insurance responsibilities Partial release of retainage Final cleaning Preparation for final inspection Closeout submittals Record documents 96 Contract Management and Administration….cont’d Pre-default Meeting − The performance bond provides the most important protection for the owner by guaranteeing that if the contractor defaults, the surety will either complete the contract in accordance with its terms or provide sufficient funds, up to the penal amount of the bond, to fund such completion. 97 E. Claims Management and Dispute Resolution — Typical Claims Against the Owner — Typical Claims Against the Contractor — Likely source of construction Delay and Disruption — Claims Analysis — Claims Prevention Suggestions — Dispute Resolution Mechanisms 98 Claims and Dispute Resolution….cont’d Typical Claims Against the Owner − − − − − − − − Poor project planning Scope changes Constructive change orders Errors and omissions Contract accelerations and stoppages Site access or availability Other construction interference and delays Strikes and acts of God 99 Claims and Dispute Resolution….cont’d Typical Claims Against the Contractor − − − − Late completion - liquidated damages Out of specification materials Defective work Property damage 100 Claims and Dispute Resolution….cont’d Likely Sources of Construction Delay and Disruption Excusable/Neutral Delay Non-Excusable Delay Delay or deferment in granting Possession of Site Late Mobilization & Commencement Unforeseeable ground conditions Shortage of Resources Instructions (e.g. additional work, opening up for inspection and testing) Delayed Contractor ‘s design (e.g. temporary works) Variations or changes to work scope Poor site co-ordination Increase in Quantities Price Fluctuation Inaccurate quantities in contract BOQ Delayed Geo-technical investigation by the Contractor 101 Claims and Dispute Resolution….cont’d Excusable/Neutral Delay Non-Excusable Delay Late/Poor design information by the Engineer Re-work and maintenance works Suspension of Works by the Engineer/Employer Provision of Engineer’s Facilities Delay caused by statutory bodies & stakeholders Improper Mgt. of Statutory obligations – Traffic & Safety Mgt Exceptionally adverse weather conditions Lack of Early Warning for delaying events Delay caused by Employer or his representatives Re-work and maintenance works Civil commotion & Industrial action(e.g. lock outs) 102 Claims and Dispute Resolution….cont’d Claims Analysis − − − − − Brief of the case Owner’s position Contractor’s position Analysis and evaluation Recommendations 103 Claims and Dispute Resolution….cont’d Claims Prevention Suggestions − − − Carefully analyze and consider exactly what you are building and precisely how it will be built so the contractor does not have to assume or guess about any aspect of the job. Complete the project design before the contract is bid, and if some parts of the project cannot be completely designed at bid stage, clearly identify them and its possible impact. Conduct a thorough review of the design prior to the bid stage to identify and correct any design errors or inadequacies. 104 Claims and Dispute Resolution….cont’d − − − − Give bidders sufficient time to carry out a complete review of the bid package and an investigation of the construction site. Allow enough construction time, remember in this context, time is not money. Do not assume that bidders will simply increase their bids to cover a short schedule. Identify with enough anticipation what type of contract will best suite the project. Think about every sentence included in the contract, why it is there and whether it is necessary. 105 Claims and Dispute Resolution….cont’d − − − − Draft for clarity, not confusion. Use standard list of definitions, and always use the same defined word consistently. Clearly identify who will be responsible for material delays. Analyze all potential bidders before preparing a bid slate. Examine contractors’ prior contracting experience, claims history, management capabilities and financial ability. Carefully analyze contractors’ technical proposal paying particular attention to the proposed method of construction and the planned number of manhours claimed necessary to execute the job. 106 Claims and Dispute Resolution….cont’d − − − Appreciate the contractors’ right to perform the contract in any fashion he deems appropriate, as long as the methods and results conform to contractually specified standards. Keep in mind that the owner has the obligation to provide: a suitable construction site, accurate plans and specifications, well-defined scope of work, and inspection without interference. Understand how many factors can affect a contract and delay and disrupt the work. Cooperate to establish an atmosphere of understanding and mutual respect. 107 Claims and Dispute Resolution….cont’d − − − − Seriously question the contractors’ excessively low bid. If you are forced to accept a low-ball contractor, anticipate a claim and work on it from the beginning. Be reasonable when analyzing the contractors’ complaints about changes and omissions. Negotiate settlement as soon as possible and keep in mind that the older the issue, the more difficult it will be to settle. Keep strict control of: progress reports, daily meetings, schedule revisions, cost estimates, change orders and their justifications, correspondence. 108 Claims and Dispute Resolution….cont’d Dispute Resolution Mechanisms − − − − − Negotiation Mediation Dispute Review Boards Arbitration Litigation 109 Claims and Dispute Resolution….cont’d Negotiation − − − − Dispute resolution between the parties involving only the parties Casual(Conversations, emails, texts, phone calls) Formal (Meetings, documentation, presentations) Resolution (Regardless of how you got there: Put it in writing) 110 Claims and Dispute Resolution….cont’d Mediation: − − − − Bringing in a respected, neutral, uninvolved person to help everyone reach a mutually acceptable resolution The mediator DOES NOT decide Mediation may not resolve a dispute-The Parties decide NOT binding until all parties accept 111 Claims and Dispute Resolution….cont’d Dispute Review Boards − − − − − − − − A contractually defined process 1 or 3 members – all are neutral: Contractor nominated, Owner nominated Those two appoint the 3rd neutral But can be established any time the parties agree to do so Regular site visits Conducts hearings Dispute Review Board Decisions are binding until reverted by arbitration 112 Claims and Dispute Resolution….cont’d Arbitration − − − Arbitration is the submission of a dispute to one or more impartial persons for a final and binding decision, known as an "award." Awards are made in writing and are generally final and binding on the parties in the case. The Final Decision is Final Litigation − − − Public proceedings Adjudicated by a judge Difficulty in enforcing foreign judgments 113 Claims and Dispute Resolution….cont’d 1. So now would you read the contract before signing?? and what do you think is the benefit to do so??. 2. As URRAP projects are supposed to be undertaken by labour as stipulated under item 5 of the particular instruction of the project except for certain activities. However, most contractor are using equipment for all activities which is a change of methodology. 3. What kind of project delivery system do you think is URRAP revealed?? What is the pros and cons of design procedures in URRAP?? 114 Claims and Dispute Resolution….cont’d 4. What kind of project delivery system do you think is URRAP revealed?? What is the pros and cons of design procedure in URRAP?? 5. The BOQ in URRAP is rate only?? What difficulty did u encounter so far?? Was the route selection by the consultant have contribution?? Quantities for the work items shall be determined on the working site (project) of the mentioned Ana by the Engineer. 6. If there is no quantity in the BOQ, was the rate revision provision applicable?? If yes, what is the cut-off quantity? 115 End of Contract Management and Administration End of the presentation Thank you, for your attention!