Contract Practice / Contract Administration

Dharmendar Pardasani
MSc, FRICS, MCIOB, ACIArb
Contracts Manager - Parsons
Contract Practice Core Competency Level 3
Contract Administration - Optional Level 2
Date : 13 April 2012
Page 2
BEGINNING OF CONTRACTS
Page 3
Inception and Feasibility
Advise on implications on proposed project.
Establish priorities for quality, time and cost.
Advise on Pre-Qualification of Contractors / Consultants.
Prepare documents for inviting consultancy proposals.
Prepare Consultancy Agreements.
Review of Professional Indemnity / Insurances.
Preparation of initial budget requirements.
Contract Administrator Duties
Page 4
Contract Administrator Duties
Design Stage
Advise on cost proposals being developed by design team.
Advise on requirement of collateral warranties.
Advise on various procurement options.
Advise on use and/or amendment of standard form of Contracts in
association with legal advisors.
Participate in value Engineering Workshops.
Participate in Risk Analysis of Project.
Page 5
Contract Administrator Duties
Tender Documentation
Short listing of tenderers.
Assist in allocation of cost plan into work packages.
Review of tender documentation.
Review of compatibility of various Contract documentation and ensure removal of
ambiguities, errors, contradictions, etc.
To advise on provisions of liquidated damages / penalty.
To advise the management on specific provisions in respect of Time Extension,
variation, acceleration, claims provision, dispute resolution provisions.
Page 6
Contract Administrator Duties
Post Tender Stage
To review tender proposals.
Review Pricing strategy adopted by Contracts.
To review compliance with Contract requirement.
Advise on Tender Qualifications.
To advise on merits / demerits of each tender / award.
Page 7
Contract Administrator Duties
Post Contract Stage
Review periodic cost report.
Verify interim / final payments to Consultant / Contractor.
To attend regular commercial meetings on site to ensure that all
commercial and contractual matters are being identified and addressed in
good time.
To review the submitted claims / major variations.
To participate in dispute resolution process conciliation, mediation, expert
opinion, adjudication, arbitration, etc.
Overall
To ensure completion of the project in line with intended cost, quality, time
and maintaining good relations between the parties as far as possible by
being objective at all times.
Page 8
Contract Administration /Contract Practice
Contract
A Contract is a agreement formed between two or more parties that is intended to
be legally enforceable, should have following essential elements.
Offer
Acceptance
Intent
Legality
Capacity of Parties
Possibility of Performance
Certainty of Terms
Consideration (In case of English Law)
Page 9
Contract Administration / Contract Practice
Choice of Form of Contract
Risk Allocation
Involvement of Engineer
Value
Complexity
Design Responsibility
Need for Variation
Work Type
Page 10
Contract Administration /Contract Practice
Advantages of using a Standard Form of Contract against a Bespoke contract
Contractors aware of the risks, hence likely to be more competitive
There are many legal cases available for interpretation of the clauses. Hence post
contract disputes are likely to be less.
Each party is well aware of their risks and obligations and hence more chance of
the.
Changing the standard form of contract without good professional advice creates
many ambiguities in the contract.
e.g. If cost escalation clause is changed so as to disallow for any increase in
prices but no clarification is incorporated for the variations, then it would result is
many disputes.
If provisions are altered in a Bespoke form of contract to align the contract
completely in favor of the client, there is even a possibility that in case of any
dispute, the court may even reframe the contract to make it more equitable or in
worst case may even void the contract.
Page 11
Contract Administration /Contract Practice
Choice of Form of Contract
FIDIC 99 - Type
Construction Works - Red Book 1999
Short Form of Contract - Green Book 1999
Plant & Design Build - Yellow Book 1999
EPC Turn Key - Silver Book 1999
Employer Consultant - White Book 1999
FIDIC 87 / 95
Civil Engineering Work - Red Book 1987
Electrical & Mechanical Works - Yellow Book 1987
Design & Build Turn Key - Orange Book 1995
Page 12
Contract Administration /Contract Practice
Key differences between FIDIC 87 and FIDIC 99
The Engineer is specified to act for the Employer in FIDIC 99, not the impartial
role as envisaged in FIDIC 87.
Instead of Engineers Decision as in FIDIC 87, Dispute Adjudication Board is
included in the FIDIC 99.
Termination for convenience clause is added for the Employers.
Value Engineering Clause added in FIDIC 99
Interest on Late Payment to be on bank discount rate plus 3% specified in
FIDIC 99. In FIDIC 87, this is not specifically mentioned.
Provision for revising the rate if the quantities exceed by more than 10% in
FIDIC 99
Delay by authorities included as the grounds for EOT in FIDIC 99.
Variations permissible only until issuance of Taking Over Certificate in FIDIC
99.
Provision for Engineer to seek proposal for the variation in FIDIC 99.
Basis of cost fluctuation calculation provided in FIDIC 99
Page 13
Contract Administration Contract Practice
Other Form of Contracts
JCT
NEC
PPC 2000
ICE
Insurances
Contractors All Risk value of Contract + %age for professional fee /
demolition, etc.
Third Party example Dhs. 5.00 Million / occurrence
Contractors Equipment value of equipments brought on site
Workmen Compensation total wages of workforce
PI Cover for design errors example 5% of Contract value subject to
maximum of Dhs. 10.00 Million
Page 14
Contract Administration Contract Practice
Third Party Rights / Collateral Warranties
To give certain rights to Third Party Stakeholders
Employer Sub-Contractor
Investor / Landlord Contractor
Collateral Warranty is a concurrent Contract which is related to or dependent upon
another Contract. Warranty is to capture a promise from one party to another.
To resolve the issues of doctrine of privity of Contract.
Nominated Sub-Contractors
Nominated
Named
Domestic
Listed 2 or 3
Risks vary slightly in each case
Page 15
Contract Administration /Contract Practice
Key Features of a Partnering Contract
A partnering charter signed by all the parties involved highlighting the spirit of
team work.
Provision for KPIs to measure project progress
Non-adversarial nature of contract
Provision of early warning signs and the mechanism for review of problems and
resolution of same
Provision for Value Engineering
Provision for incentives for the proposals that helps in reducing the cost.
Page 16
Contract Administration /Contract Practice
UAE Legal System (Based on Civil Law)
Based on Civil Law
Civil Code Article 870-898. (Civil Law No.2)
Article 203-219 of Civil Procedure Law No.11 of 1992
UAE Commercial Transaction Law No.18 Article 1-95(1993)
Law no. 6 (1997) applicable for Govt. Contracts in Dubai
Abu Dhabi Emirates Construction Law No.4 of 1983
Some of main features of UAE Civil law are:
Provision for 10 years Decennial Liability
Court has the power to review the compensation stated in contract if it does not
commensurate with the damages likely to be suffered.
If prices not mentioned in the contract, a fair price to be paid
Contract to be performed in Good Faith
Termination of contract by performance / consent /court order
UAE Courts Hierarchy
Court of First Instance - Court of Appeal - Court of Cassation
Page 17
Contract Administration /Contract Practice
Provisional Sum & PC Sum
FIDIC has the term Provisional Sum.
If work instructed against this sum to be done by Main Contractor, then
evaluation under Clause 52.1.
If work against it to be done by nominated Sub-Contractor, then evaluation
Clause 59.4.
PC item term used in CESMM, etc. and some as Provisional Sum for work to
be done by nominated Sub-Contractor.
Material On / Off Site
Material Off Site Requirements
Vesting Certificate
Insurance
Bank Guarantee
Page 18
Contract Administration /Contract Practice
Claims
Extension of Time
Extension of Time
Time with Cost - Employers delays
Time Without Cost Neutral Delays or Concurrent Delays by Employer and
Contractor
Impact Analysis Techniques
Planned Impact
As-Built Collapsed
Window Analysis
Page 19
Contract Administration /Contract Practice
Cost Claimable
Site Overheads
HO Overheads
Finance charges
Disruption
Cost Escalation
Claim Preparation
Other Claims
Acceleration Claim
Hudson Formulae
Eichleys Formulae
Emden Formulae
Samaratunga Formulae
Instructed Acceleration
Constructive Acceleration
Hanklans Formulae
Page 20
Contract Administration/ Contract Practice
Disruption Claim
This is basically a delay claim but delay may or may not affect the project
completion.
Cost that are generally claimed are:
Reduced Productivity
Idle resources
Demobilization / Re-mobilization
Unproductive Overtime
Page 21
Contract Administration /Contract Practice
Suspension / Determination / Termination
Suspension (Under FIDIC)
Clause 40
Suspension 84 Days
After that 28 days for omission / termination
Termination (Under FIDIC)
Clause 63 - Termination by Employer
Clause 69 - Termination by Contractor
Clause 65 & 66 - Force Majeure
Page 22
Contract Administration /Contract Practice
Ending the Contract
By Performance
By Agreement As per UAE Law
By Operation of Law
Termination term generally applicable for repudiatory breach (Example Clause 63
or 69 of FIDIC 87) where parties commit a serious breach of their contractual
obligation, while Determination term generally used where contract performance is
frustrated as explained below:
Doctrine of Frustration
Performance of Contract becomes
Illegal
Impossible to perform
Radically different to what was initially envisaged
Page 23
Contract Practice /Contract Practice
Liquidated Damages vs. Penalty
Liquidated Damages - Ascertained and agreed prior to entering into Contract
Reflects actual losses to be suffered by Client due to delays.
Penalty - A sum inserted in the tender and not necessarily reflective of actual
losses.
Sectional Completion / Practical Completion
Clause 48.1 Whole of the Works
Clause 48.2 Part of the Works
Page 24
Contract Administration /Contract Practice
Definition of Practical Completion
It varies, but most acceptable definition is that when the works are substantially
completed so as to be fit for use for the intended purpose
Discharge
Final statement pursuant to Clause 60.6 upon issuance of Defects Liability
Certificate
Discharge by the Contractor that he has no further claims on the project
Page 25
Contract Administration /Contract Practice
Defects Liability Period
Period stated in the Contract starts after Taking-Over of Works. (Generally 1 year)
For Partial Completion Separate Defects Liability Period
However, Defects Liability Certificate is issued when last of Defects Liability Period
expires.
Letter of Intent
Does not create a contractual relationship
Unilateral assurance to enter into a Contract
Reimbursement of Work Legal doctrine of restitution which prevents unjust
enrichment
Quantum merit reimbursement
Limit of Liability
Page 26
Contract Administration /Contract Practice
Contra Proferentum Rule
An ambiguity in the document is construed in the way that it is least favorable to the
party who has drafted the document.
Concurrent Delays
Dominant Cause Theory
Devlin Approach Parties to bear their own loss
Apportionment Implication of each concurrent delay is allocated according to
relative efficacy of the delay.
Society of Construction Law Delay and Disruption Protocol favors grant of
Extension of Time but no cost in case of concurrent delays unless the Contractor
can separate out the cost related to his delays and the delays caused by the Client
Page 27
Contract Administration /Contract Practice
Causes of Delays
Excusable / Compensable Employers Delay
Excusable / Non-Compensable Neutral or (Employer + Contractor Delays)
Non-excusable / Non-compensable Culpable Delay of Contractor
Alternate Dispute Resolution
Mediation
Conciliation same as mediation, but a third party plays active role in putting
forward terms of settlement
Early Neutral Evaluation A preliminary assessment of facts / legal merits
Expert Determination A third party provides a binding decision
Facilitative
Evaluative
Page 28
Contract Administration /Contract Practice
Executive Tribunal / Mini Trial Panel of senior persons from each party and
a neutral person. Parties make submission of legal cases.
Private Trials / Judiciary Appraisals A judge is appointed to assess the
legal merits.
Dispute Review Boards Similar to Adjudication Board
Med Arbitration Initially appointed as a mediator, but later acts as Arbitration
if dispute persists.
Adjudication Similar to Arbitration but non-binding and with a shorter time
frame, wherein the parties normally do not engage the legal counsels. FIDIC 99
allows for this.
Page 29
Condition of the Parties if the Contract was not Managed Efficiently Condition of the Parties if the Contract was not Managed Efficiently
or the Risk were not Managed Effectively!! or the Risk were not Managed Effectively!!
Project Over Project Over--budget, poor quality, delays, safety issues, unsatisfied budget, poor quality, delays, safety issues, unsatisfied
client, disputes, litigation, loss of reputation, sore relations client, disputes, litigation, loss of reputation, sore relations
Page 30
Questions Questions
( (If your condition is not like as shown below!!) If your condition is not like as shown below!!)