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Institute of Construction Management

Univ.-Prof. Dr.-Ing. Fritz Berner


University of Stuttgart

MASTER THESIS

Towards Adopting the Framework Alliance Contract


(FAC-1) in UAE’s Construction Industry –
A Comparative Analysis of the Pros and Cons

Jamil A. Kanafani
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Declaration

I hereby assure that I have authored the present master thesis independently and did not use any
sources other than those specified, as well as all literal or meaning citations in the work. The work
has not yet been submitted in the same or similar form as an examination paper.

Stuttgart, 04.16.2018

Jamil A. Kanafani
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Acknowledgements

My MBE journey hasn’t been an easy venture especially with the demanding responsibilities of
family and work. However, reaching this final stage of the journey wouldn’t have been made
possible without the help of Allah the Almighty.

I would like to express my gratitude to Dr Wolfgang Breyer for his constructive comments and
continuous support throughout. I would also like to thank Mr Sebastian Scharpf for his invaluable
advice and logistic efforts that enabled distance students to interact actively with the class.

I dedicate this master’s degree to the soul of my father who always encouraged me not to stop
pursuing knowledge. I would like to thank my Mother for her prayers. I would also like to thank
my wife Nadine for her continuous support. Finally, to my boys Karim and Firas I say never
stop learning.
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Table of Contents

List of Figures........................................................................................................................... 8

List of Tables ............................................................................................................................ 9

List of Abbreviations .............................................................................................................. 10

1 Introduction ..................................................................................................................... 11
1.1 Thesis Objectives ............................................................................................................. 11
1.2 Contribution to Theoretical and Practical Knowledge ........................................................ 11

2 Overview of UAE’s Construction Industry .................................................................... 13


2.1 Economic Overview .......................................................................................................... 13
2.2 Past, Current and Future Challenges ................................................................................ 14
2.2.1 Productivity ............................................................................................................ 15
2.2.2 Project Delay ......................................................................................................... 15
2.2.3 Value Creation ....................................................................................................... 16
2.2.4 Claim Culture ......................................................................................................... 17

3 UAE Legal System .......................................................................................................... 18


3.1 Sources of UAE Laws ....................................................................................................... 18
3.2 UAE Courts System .......................................................................................................... 18
3.2.1 Federal Court ......................................................................................................... 19
3.2.2 Local Courts .......................................................................................................... 19
3.2.3 DIFC Courts........................................................................................................... 20
3.3 UAE Construction Law...................................................................................................... 20
3.3.1 Muqawala .............................................................................................................. 21
3.3.2 DIFC Laws & Regulations ...................................................................................... 21

4 Traditional Project Delivery Methods ............................................................................ 22


4.1 Project Organisation ......................................................................................................... 23
4.2 Operating System ............................................................................................................. 24
4.3 Commercial Terms ........................................................................................................... 25

5 FIDIC’s Key Controversial Clauses ............................................................................... 27


5.1 Chapter 1 – General Provisions ........................................................................................ 28
5.2 Chapter 2 – The Employer ................................................................................................ 29
5.3 Chapter 3 – The Engineer................................................................................................. 30
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5.4 Chapter 4 – The Contractor .............................................................................................. 30


5.5 Chapter 5 – Nominated Subcontractors ............................................................................ 32
5.6 Chapter 7 – Plant, Materials and Workmanship ................................................................ 32
5.7 Chapter 8 – Commencement, Delays and Suspension ..................................................... 32
5.8 Chapter 9 – Tests on Completion ..................................................................................... 34
5.9 Chapter 10 – Employer’s Taking Over .............................................................................. 35
5.10 Chapter 11 – Defects Liability ........................................................................................... 35
5.11 Chapter 12 – Measurement and Evaluation ...................................................................... 36
5.12 Chapter 13 – Variations and Adjustments ......................................................................... 36
5.13 Chapter 14 – Contract Price and Payment ........................................................................ 37
5.14 Chapter 15 – Termination by Employer............................................................................. 38
5.15 Chapter 16 – Suspension and Termination by Contractor ................................................. 39
5.16 Chapter 19 – Force Majeure ............................................................................................. 39
5.17 Chapter 20 – Claims, Disputes and Arbitration ................................................................. 40

6 Relational Contracting.................................................................................................... 41

7 Project Alliance: an Alternative Project Delivery Method ............................................ 43


7.1 Selection of Alliance Members .......................................................................................... 44
7.2 Project Alliance Structure.................................................................................................. 45
7.2.1 Alliance Leadership Team ..................................................................................... 45
7.2.2 Alliance Manager ................................................................................................... 46
7.2.3 Alliance Management Team .................................................................................. 46
7.2.4 Alliance Project Team ............................................................................................ 47
7.3 Risk/Reward Compensation Model ................................................................................... 47
7.4 VfM Opportunities in Project Alliances .............................................................................. 47
7.4.1 Selection of NOPs ................................................................................................. 48
7.4.2 Early Involvement of Contractor and Specialist Suppliers ...................................... 49
7.4.3 No-Claim/No-Blame Culture................................................................................... 49
7.4.4 Risk Management and Risk Sharing ...................................................................... 49
7.5 Pitfalls and Weaknesses of Project Alliancing ................................................................... 50
7.5.1 No Accountability for Individual Non-performers .................................................... 50
7.5.2 Misperception of Cost Underrun ............................................................................ 50
7.5.3 Risks of Deadlocks ................................................................................................ 50
7.5.4 Exclusion of Supply Chain from the Alliance .......................................................... 51
7.5.5 Cost and Time Uncertainties .................................................................................. 51
7.5.6 Bankability Issues with Alliance Contracts ............................................................. 51
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8 The FAC-1 Framework Alliance Contract ...................................................................... 52


8.1 FAC-1 Structure ................................................................................................................ 52
8.2 Proposed Benefits of FAC-1 ............................................................................................. 53
8.2.1 Savings in the Procurement of Works .................................................................... 53
8.2.2 Risk Management .................................................................................................. 54
8.2.3 Improved Value...................................................................................................... 54
8.3 Observations on FAC-1 .................................................................................................... 55
8.4 FAC-1’s Approach to Problematic FIDIC Clauses ............................................................. 56
8.4.1 Clause 1.8 – Early Warning ................................................................................... 56
8.4.2 Clause 4 – Agreed Prices ...................................................................................... 56
8.4.3 Clause 8 – Payment .............................................................................................. 57
8.4.4 Clause 9 – Change and Risk Management ............................................................ 57
8.4.5 Clause 14 – Duration and Termination ................................................................... 57
8.5 Barriers to the Adoption of FAC-1 in the UAE ................................................................... 58
8.5.1 Nonbinding Arrangement ....................................................................................... 58
8.5.2 Lack of Commitment .............................................................................................. 58
8.5.3 Opportunistic Behaviours ....................................................................................... 59
8.5.4 Cyclical Nature of the Construction Industry .......................................................... 59
8.5.5 Resistance to Change............................................................................................ 59
8.6 Measures for Overcoming Barriers to FAC-1 .................................................................... 60

9 Discussion and Conclusions ......................................................................................... 61


9.1 Summary .......................................................................................................................... 61
9.2 Directions for Future Research ......................................................................................... 64

List of References .................................................................................................................. 65

Internet References ................................................................................................................ 72

Laws, Norms and Directives .................................................................................................. 74


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List of Figures

Fig. 1: Domains of a project delivery system................................................................. 22


Fig. 2: Typical project alliance process and relevant activities ...................................... 44
Fig. 3: Typical project alliance structure ........................................................................ 46
Fig. 4: Typical alliance compensation model................................................................. 48
Fig. 5: Typical FAC-1 structure ..................................................................................... 53
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List of Tables

Table 1: Construction waste categories in UAE ............................................................... 14


Table 2: Ten most significant causes of delays in the UAE construction industry ............ 16
Table 3: Traditional project delivery system ..................................................................... 23
Table 4: Characteristics of transactional contracts ........................................................... 26
Table 5: Rainbow Suite of FIDIC Contracts ..................................................................... 28
Table 6: Characteristics of relational contracts ................................................................ 42
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List of Abbreviations

ALT Alliance Leadership Team

AOC Actual Outturn Cost

APT Alliance Project Team

AM Alliance Manager

AMT Alliance Management Team

DAB Dispute Adjudication Board

DAAB Dispute Avoidance/Adjudication Board

DIFC Dubai International Financial Centre

DNP Defects Notification Period

EBRD European Bank for Reconstruction and Development

ECI Early Contractor Involvement

EPC Engineering, Procurement, and Construction

FAC Framework Alliance Contract

FIDIC Fédération Internationale Des Ingénieurs-Conseils

GCC Gulf Cooperation Council

GDP Gross Domestic Product

KRA Key Result Area

MDB Multilateral Development Bank

n. p. no publisher

PAA Project Alliance Agreement

s. n. sine nominee

TOC Target Outturn Cost

UAE United Arab Emirates

VfM Value for Money


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1 Introduction

1.1 Thesis Objectives

A review of the numerous reports and findings from the construction field reveals that traditional
practices have been and still are impeding the continuous improvement of the construction
industry. The construction industry in the United Arab Emirates (UAE) is no exception and has
been suffering from the inefficiency, low profitability and adversarial environment also being
experienced in most construction industries around the globe. The reason for this is the traditional
project procurement and management methodologies being implemented in the delivery of
construction works. Moreover, the adoption of transactional contracts in the dealings between
construction project participants remains a key element of these traditional models.

As a result, relational procurement models, which range from partnering to alliance contracts,
have been proposed to substitute transactional contracts. Advocates of project alliancing have
emphasized on a myriad of benefits such as commitment and collaboration between project
partners, early contractor involvement, promotion of a non-adversarial culture, improved supply
chain, cost and time underruns, enhanced performance, improved value and quality, shared risk,
proper dispute resolution procedures, etc.

In view of the proposed benefits of alliancing in construction, the main objective of this thesis is
to discuss the notion of adopting the Framework Alliance Contract (FAC-1) in conjunction with the
FIDIC standard form widely used in UAE’s construction industry. In order to reach this objective,
the following topics will be explored:
 Overview of UAE’s construction industry and legal system, the FIDIC standard form,
project alliancing, and the FAC-1 form
 Pros and cons of alliancing in comparison with the traditional procurement models
 Value for Money opportunities in project alliances
 Analysis of the key controversial clauses in FIDIC contracts and approaches proposed by
the FAC-1 to address them
 Analysis of the potential barriers to the adoption of framework alliance contracts in the
UAE and the necessary measures for overcoming these barriers

1.2 Contribution to Theoretical and Practical Knowledge

The decision to research this topic came as a result of an extensive review of the literature on
project alliances. The review revealed that there is a lack of prior explicit reports or findings in
relation to the adoption of a framework alliance contract or some sort of alliancing in UAE’s
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construction industry. However, before proposing the adoption of such a framework in conjunction
with the FIDIC standard form as a substitute to the traditional transactional contract, it is also
important to study what are the potential barriers that may hinder the implementation process as
well as the possible measures for overcoming these barriers. Therefore, this paper will streamline
existing literature on the barriers related to the elements of project alliances in an attempt to
establish a link between these barriers and the adoption of framework alliance contracts.

This thesis will help direct the attention of industry practitioners in UAE to the alternative
procurement models which can be adopted rather than the traditional models that are currently
being used in the award and delivery of construction works. Further, it will assert on the important
cooperative roles of Clients, Consultants, Contractors, and other project participants in achieving
project success. It will also emphasize on the requisite shift in organizational cultures and in
project participants’ mindset towards more collaboration in order to attain win-win situations for
all parties. Moreover, this paper will contribute to the literature by encouraging academics to
conduct future research on the subject matter so as to analyse the successes or failures of project
alliances in UAE as well as to examine the impact of recorded and/or detected barriers on the
implementation process.
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2 Overview of UAE’s Construction Industry

2.1 Economic Overview

Since its inception in 1971, the United Arab Emirates has relentlessly strived to boost its economy
until it grew 36 times larger in the year 2002 hence becoming one of the fastest developing
economies and one of the largest GDPs per capita in the world.1 Government efforts to diversify
the economy and reduce dependence on oil has resulted in a massive growth in non-oil sector
GDP reaching US$127.4 billion in 2007 and comprising around 64% of the country’s US$198.7
billion total GDP2 with the construction industry’s contribution to the total GDP and non-oil sector
GDP recording 8% and 12% respectively.3 The 2008 global financial crisis and the huge slump in
oil prices severely impacted the world economy and particularly the construction sector, thus
forcing the UAE to proceed even more aggressively with diversifying the economy and seeking
sustainable growth opportunities. As a result and despite the global recession, the total GDP in
2008 recorded US$253.1 billion amounting to a 27.4% growth compared to the total GDP in
2007.4 The Government’s strategic plans for diversification resulted in a notable economic growth
that recorded in 2017 a GDP of US$379 billion accounting for 26% of the total GDP of all GCC
countries combined.5 UAE economy is also anticipating a positive GDP growth outlook of 3.2%
on average for the years 2018-2021.6 This growth is also expected in the construction sector
which recorded a GDP of US$37.5 billion in 2017 and is anticipated to achieve US$43.2 billion in
2019.7

Dubai, the commercial capital of the UAE, enacted the ‘Dubai Urban Area Strategic Plan: 1993-
2012’, a long-term strategic initiative directed at elevating the emirate’s economic performance
by increasing dependence on non-oil sectors such as construction.8 In 2008, Dubai’s total GDP
recorded US$82.2 billion with a 97.9% contribution by the non-oil sector.9 As Dubai continues
with its mega construction projects and especially with the preparations to host Expo2020, the
construction and real estate sector GDP is forecasted to grow at 3.8% and 3.9% in 2018 and
2019 respectively.10 It is worth mentioning that US$132.5 billion worth of projects are currently

1
cf. Strong / Himber (2009)
2
cf. Kumar et al (2010)
3
cf. Oryx ME (2011)
4
cf. Kumar u.a. (2010)
5
cf. Dubai Chamber (2017)
6
cf. Dubai Chamber (2017)
7
cf. Dubai Chamber (2017)
8
cf. Pacione (2005)
9
cf. Kumar et al (2010)
10
cf. Saadi, D. (20/01/2018), Internet source
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under construction in Dubai and expected to be completed by 2023, while another US$105.2
billion worth of projects are upcoming in the pipeline till 2030.1

2.2 Past, Current and Future Challenges

The construction sector in the UAE has evolved considerably in the last decades in view of the
Government’s efforts to lessen reliance on the oil sector; nevertheless, it has been experiencing
extreme levels of construction wastes. Construction wastes are defined as “any inefficiency that
results in the use of equipment, materials, labour, or capital in larger quantities … that generate
direct or indirect costs but do not add any value to the product from the point of view of the client.”2
In traditional project procurement and management settings, such construction wastes are
unavoidable and become the basis for disputes and claims between project participants. The
seven waste categories identified in the UAE construction sector are described in Table 1.

Table 1: Construction waste categories in UAE3

A study done on the frequency of occurrence of wastes in construction projects in UAE revealed
that correction of defects, over-processing and works delay represented 72.5% of all construction
waste categories.4 A further in-depth analysis of the findings shows that 47% of the identified
wastes are attributed to contractors, 38% are attributed to employers/designers, whereas the
remaining 15% of the construction wastes are shared between the employer, designer and

1
cf. Dubai Chamber (2017)
2
Formoso u.a. (1999), pg. 328
3
Al-Aomar (2012), pg. 110
4
cf. Al-Aomar (2012)
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contractor. These observations were seconded by a more recent research that targeted a larger
sample size from employer, consultancy and contractor firms in the UAE. The survey revealed
that 52% of the wastes are attributed to contractors, 36% are attributed to employers/designers,
whereas the remaining 11% of the construction wastes are shared between the employer,
designer and contractor.1 These findings confirm that traditional construction procurement and
management methodologies are no longer effective and should be eliminated in favour of
productivity and quality based methodologies that reduce wastes while continuously enhancing
value.

Despite the construction industry’s evident contribution to the economic growth in UAE, the sector
has been and still is facing major challenges that are obstructing the sector’s continuous
improvement. Challenges such as project delay, productivity, cost overrun, change orders, value
creation, and design responsibilities continue to create immense disputes among project
participants. Some of these challenges will be discussed further below.

2.2.1 Productivity

In the construction industry context, productivity is generally defined as the ratio of effective work
produced to the man-hours consumed. It is also a fact that “productivity rates of construction
trades are the basis for accurately estimating time and costs required to complete a project.”2 This
is the reason why the loss of productivity, which follows from producing a certain amount of work
with more man-hours than budgeted to complete such work, is considered one of the major
deterrents to the success of any construction project. Achieving improved productivity levels is
only possible “through the elimination of activities and actions deemed as being wastage in the
construction process.”3 Several organisational factors, such as policies and procedures,
management involvement, transparency and accountability, inadequate tender, availability of
materials/tools, incomplete and complex designs, construction work complexity, interruptions of
work, and level of communication, have been identified as the main causes affecting productivity
and project performance in the UAE construction industry.4

2.2.2 Project Delay

Delay in a construction project is defined as “the time over-run either beyond completion date
specified in a contract or beyond the date that the parties agreed upon for delivery of a project.”5

1
cf. Kanafani (2015)
2
Ailabouni et al (2009), pg. 555
3
Abdullah et al (2009), pg. 2
4
cf. Ailabouni et al (2009)
5
Assaf / Al-Hejji (2006), pg. 349
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Late completion is one of the main causes of project failure in terms of the impact on the triple
constraint i.e. quality, time and cost; hence, becoming a global problem that characterises the
whole construction sector. A study conducted in UAE revealed that half of the construction
projects suffer from delays.1 The study also identified the ten most significant causes of delays in
UAE’s construction industry as shown in Table 2. A more recent study investigating the causes
of delay in UAE construction projects revealed that more significance was given by research
participants to other factors such as change orders, lack of client’s experience in construction,
incompetent project team, inaccurate cost estimates, and client’s financial difficulties.2

Causes of Delay Rank

Preparation and approval of drawings 1


Inadequate early planning of the project 2
Slow decision-making process by the owner 3
Shortage of manpower 4
Poor supervision and poor site management 5
Productivity of manpower 6
Skill of manpower 7
Non-availability of materials on time 8
Obtaining permits from different government authorities 9
Financing by contractor during construction 10

Table 2: Ten most significant causes of delays in the UAE construction industry3

2.2.3 Value Creation

The real focus in the construction process is on cost reduction rather than on value generation
which should be the primary target of all project participants.4 All construction wastes identified in
Table 1 tend to become major sources of non-value adding activities to the construction process
if not eliminated or at the least properly managed. It is, therefore, a direct consequence that the
construction project will be suffering from reduced value generation throughout the construction
phase as currently being experienced in the UAE construction industry. Similarly, the client and
end-user will not be receiving the same value product in terms of quality, time or cost as previously
envisaged at the project outset.

1
cf. Faridi / El-Sayegh (2006)
2
cf. Motaleb / Kishk (2013)
3
Faridi / El-Sayegh (2006), pg. 1172
4
cf. Bertelsen (2002)
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2.2.4 Claim Culture

All the above challenges create a confrontational relationship that would force the owner or the
contractor to resort to claims in order to recover any losses incurred due to cost and/or time
overruns. In a competitive sector, some contractors would submit low bids that allow them to win
the tender while being determined in advance that they would rely on “claims to maximise
recovery on projects.”1 The six main types of claims in construction projects in UAE are related to
variations, extra-work, delays, different site conditions, accelerations, and contract ambiguity. 2
However, records show that “on average, only 16% of claim amounts requested by contractors
are awarded by owners.”3 This would lead to an escalation in the level of disputes that would
eventually be resolved according to the UAE Civil Procedure’s Code by either negotiation,
mediation, arbitration, or litigation.4

1
Osborne Clarke (21/12/2017), Internet source
2
cf. Zaneldin (2006)
3
Zaneldin (2006), pg. 457
4
cf. Zaneldin (2006)
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3 UAE Legal System

Measures by the UAE Government to bolster the non-oil sectors including construction had to be
preceded by major efforts to endorse legislation that would develop the legal system into
regularising different legal aspects such as contract law, foreign investment, dispute resolution,
and freehold ownership by foreigners that would otherwise hold back any such advancements.

3.1 Sources of UAE Laws

The UAE, which is an independent, sovereign, federal state consisting of the Emirates of Abu
Dhabi, Dubai, Sharjah, Ajman, Umm al Quwain, Ras al Khaimah and Fujairah, adopts a judicial
system based on the Constitution that provides under Article 7 that “Islamic Shari’a is a main
source of legislation in the UAE.”1 However, it is understood that Shari’a is not the exclusive
source of legislation.2 This is being the case, the Civil Transactions Law (Civil Code) was enacted
under Federal Law No. (5) of 1985 to govern all civil transactions in the State.3 The UAE legal
system is a civil law system which “is based on the Egyptian law system, which in turn is French-
based.”4 Another source of UAE laws is the local laws and regulations that are enacted by the
individual emirates. UAE courts are also bound to recognise in their rulings any foreign law chosen
by the parties in their contract provided the provisions of this law are not in conflict with Shari’a
Law or matters of public policy.5

3.2 UAE Courts System

The Civil Procedures Code, which was enacted under Federal Law No. (11) of 1992 and amended
by Federal Law No. (10) of 2014, is adopted by UAE courts in the civil and commercial
proceedings brought before them.6 The Code regulates court proceedings in matters related but
not limited to jurisdiction, choice-of-law, submission of statements of claims, service of the notice,
the appearance of the defendant, provisional attachments, enforcement of foreign judgments, and
execution.7 The Code also divides the legal structure in the UAE into two systems: “The Federal
Judiciary and the local judiciary departments at the local government level … The Emirates of
Sharjah, Ajman, Fujairah and Umm Al Quwain follow the federal judicial system. However, at the
local level, Abu Dhabi Judicial Department in Abu Dhabi, Dubai Courts in Dubai and RAK Courts

1
Article 7 [UAE Constitution]
2
cf. Grose / Shlah (2015)
3
cf. Hall (1987)
4
Cerimagic (2010), pg. 41
5
cf. Kanakri, C. / Kotb, S. (10/01/2018), Internet source
6
cf. Federal Law No. (10) of 2014 [UAE Civil Procedures Law]
7
cf. Al-Safar, T. / El-Mahdy, M. (28/01/2018), Internet source
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in Ras Al Khaimah maintain their own independent judicial departments, with jurisdiction in
matters that were not assigned to the Federal Judiciary in accordance with the Constitution.”1

3.2.1 Federal Court

Under the federal law, three court levels are assumed by the UAE federal court in litigations to
which the federation is a party: The Courts of First Instance, Courts of Appeal, and the Federal
Supreme Court.

At the first level of litigation, “it is the job of the Courts of First Instance to deal with matters such
as; criminal, commercial, civil and personal disputes.”2 The Court of Appeal “is the second degree
of litigation which entitles the litigant affected by the Court of First Instance to appeal his/her case
before a higher court in accordance with the provisions of the civil and criminal procedural laws
effective in the UAE.”3 The Federal Supreme Court, which is comprised of a President and up to
five judges, is the third level of litigation and “only occasionally deals with commercial cases, this
court deals with very serious crimes against the UAE federation, constitutional matters and
disputes that may arise in the emirate and federal governments.”4

3.2.2 Local Courts

The local courts in the Emirates of Abu Dhabi, Dubai and Ras Al Khaimah also adopt three court
levels in litigations: The Court of First Instance, Court of Appeal, and Court of Cassation.

The Court of First Instance “has the general jurisdiction over all judiciary system, because of its
broad and comprehensive jurisdiction overlooking into cases, authentications and all urgent
matters related to disputes among the people as well as to safeguard their rights by justice,
security and safety.”5 The Court of Appeal, the second level of litigation, is “competent in looking
into contest to verdicts and judgments of First Instance Court … whether these verdicts are
Criminal or Civil or minor or major cases issued by First Instance Courts of Personal Status, Civil,
Commercial, Real-estate or Labour.”6 Cassation Court is the third and superior level of litigation
where the “circuit of the Court is formed by minimum one Superior and four judges, and these
circuits would look the challenges on criminal, personal and civil rights verdicts and suits.”7

1
Government.ae (20/12/2017), Internet source
2
Cerimagic (2010), pg. 41
3
Government.ae (20/12/2017), Internet source
4
Cerimagic (2010), pg. 41
5
Dubai Courts (20/12/2017), Internet source
6
Dubai Courts (20/12/2017), Internet source
7
Dubai Courts (20/12/2017), Internet source
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3.2.3 DIFC Courts

Dubai’s ambition to compete with international financial centres such as London, New York and
Hong Kong, has led the emirate in 2002 to lay down the foundations for Dubai International
Financial Centre (DIFC) the first global financial hub in the Middle East and the region.1 The aim
of creating such a financial free zone is to reach a state of economic freedom which positively
correlates with increased per capita GDP and economic growth rates.2 Accordingly, DIFC courts
were established as an independent British common law judiciary having exclusive jurisdiction,
by way of the Court of First Instance followed by the Court of Appeal, over:
“a. Civil or commercial claims and actions to which the DIFC or any DIFC
Body, DIFC Establishment or Licensed DIFC Establishment is a party;
b. Civil or commercial claims and actions arising out of or relating to a
contract or promised contract, whether partly or wholly concluded,
finalised or performed within DIFC or will be performed or is supposed to
be performed within DIFC pursuant to express or implied terms stipulated
in the contract;
c. Civil or commercial claims and actions arising out of or relating to any
incident or transaction which has been wholly or partly performed within
DIFC and is related to DIFC activities.
d. Appeals against decisions or procedures made by the DIFC Bodies where
DIFC Laws and DIFC Regulations permit such appeals.
e. Any claim or action over which the Courts have jurisdiction in accordance
with DIFC Laws and DIFC Regulations.”3

3.3 UAE Construction Law

Construction projects are unique and complex ventures involving several stakeholders with
different and sometimes opposing interests. This uniqueness and complexity are demonstrated
by the on-site production, one-of-a-kind projects, temporary multi-organisations, and regulatory
intervention.4 This mandates high levels of technical and managerial expertise aimed at delivering
the project within the stipulated time, budget, and required quality. Nevertheless, most projects
inevitably end up with disputes between project participants on issues related mainly to conditions
of contract, parties’ responsibilities, project delay, cost overrun, or poor quality. It is, therefore,

1
cf. Strong / Himber (2009)
2
cf. Strong / Himber (2009)
3
Article 5 pg. 3 Dubai Law No. (16) of 2011 [Dubai Law]
4
cf. Salem et al (2006)
- 21 -

crucial to have legal provisions “that are applicable to construction contracts and that have the
capacity to determine the rights and obligations of project participants.”1

3.3.1 Muqawala

The UAE Civil Code incorporates a complete chapter on Contracts of Work governing Muqawala
which is defined as “a contract whereby one of the parties thereto undertakes to make a thing or
to perform work in consideration which the other party undertakes to provide.”2 In this section on
muqawala, the code also includes provisions on the scope of the construction contract, obligations
of the contractor, obligations of the employer, subcontracting, and termination of the contract.3

3.3.2 DIFC Laws & Regulations

All construction related disputes that fall under the jurisdiction of DIFC Courts are governed by
the laws and regulations of DIFC. The laws of particular interest to construction are the Contract
Law, the Implied Terms in Contracts and Unfair Terms Law, the Law of Obligations, the Law of
Damages and Remedies, and the Arbitration Law and are mostly derived from the common law.4
DIFC Courts have also launched the Technology and Construction Division that has specific
procedural rules for assisting in the resolution of technically complex disputes relevant to the
construction industry.5

1
Grose (2016), pg. 13
2
Article 872 [UAE Civil Code]
3
cf. Articles 873 to 896 [UAE Civil Code]
4
cf. Grose (2016)
5
cf. Writer, S. (20/12/2017), Internet source
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4 Traditional Project Delivery Methods

The construction sector is a key driver and contributor to the economic growth of any country. A
strong and developing sector also adds momentum to other equally important sectors such as
banking, transportation, trade and manufacturing. However, over the past decades, the
construction sector has been experiencing a state of inefficiency, loss of productivity, low
profitability, less innovation and decreased value in a business environment that can be described
as uncertain and turbulent. What added to this detrimental state was the 2008 global financial
crisis which caused many construction companies to lose their competitive advantage over their
rivals. Construction companies are more inclined to embrace traditional management concepts
rather than productivity and quality management concepts when they are somehow confident that
projects are within the established budget and time for completion.1 However, this tendency
doesn’t zero out the fact that such traditional methodologies have plenty of negative
consequences that have been and still are impacting the overall performance of the construction
industry as will be discussed further.

Accordingly, to restore their competitive advantage in a cyclical industry such as construction


where revenues are highly dependent on economic prosperity and downturn2, companies should
focus on adopting alternative methods that stimulate continuous improvement instead of the
traditional procurement and project management methodologies being implemented in the award
and delivery of construction works. It is to be realised, however, that alternate methods must be
sustainable at all times especially that “the cyclical nature of the industry prevents companies
from effectively devising business strategies”3 on a regular basis.

Fig. 1: Domains of a project delivery system4

1
cf. Abdullah et al (2009)
2
cf. Bennett (2005)
3
Cicmil / Nicholson (1998), pg. 96
4
Mossman et al (2010), pg. 10
- 23 -

It is widely known that “all project delivery systems have three basic domains within which they
operate: the project organization, the project’s operating system, and the commercial terms
binding the project participants”1 as portrayed in Figure 1. These domains should be structured in
such a way that ensures full alignment with project objectives; however, this alignment does not
always exist in many projects governed by traditional delivery systems thus leading to end results
which are disappointing to all project participants as shown in Table 3. It is unfortunate to note
that the “traditional activity-centred management coupled with command-and-control
organizations and transactional contracts now form a coherent approach supported by industry,
trade and academic education, industry associations, and law. This approach forms the current
common sense, a widely-held understanding in the community.”2

Domain Traditional Projects

Command and control; low team identification with project


Organisation Model
objectives

Operating System Activity centred - CPM based; management by results

Transactional; selection of lowest bidder; payment of fixed


Commercial Terms
price for fixed scope; major risks shifted to contractor

Late, over-budget, team turnover, no collaboration,


Project Status
transactional contract

Table 3: Traditional project delivery system3

Each of these domains, as currently being practised in the traditional project delivery systems,
will be discussed further below with their impact on project outcome.

4.1 Project Organisation

Although a construction project involves several stakeholders who influence the project outcome;
however, the main players are the Employer, Designer, Engineer, and Contractor. In a traditional
project delivery scenario, each party acts separately most of the time by prioritizing its own
interests which may diverge from or converge with the interests of the other parties depending on
the situation and the stage at which the project is. Such conduct often leads to the formation of

1
Thomsen et al (2009), pg. 11
2
Howell et al (2011), pg. 742
3
cf. Sayer / Anderson (2012); Ballard et al (2016)
- 24 -

“siloed structures with fairly rigid hierarchies.”1 A key reason for this situation is the fact that in the
traditional practices of organizing construction projects, the involvement of each party in the
project is determined only when they are required to commence and complete their respective
scope of work.2 For example, the Designer initially comes into the picture at the pre-tendering
stage for preparing the design based on Employer’s requirements and may be referred to for
design issues during the construction stage. Then, the Engineer becomes involved at the
tendering stage for arranging the tender documents and participating in the selection process of
the Contractor and is then retained during the construction stage for the purpose of administering
the contract. Finally, the Contractor gets actively involved in the construction activities after the
tendering and award stages have been completed and only when considerable and sufficient
design information become available. As such, the role of the project organization develops into
a sequential process characterised by its command-and-control nature and low team identification
with project objectives which altogether tend to limit collaborative and innovative solutions hence
reducing the value of the product eventually delivered to the Employer.3 With this traditional
organisation arrangement, the Designer does not receive any feedback about the constructability
of the design until after the Contractor is on board and particularly when the workshop drawings
are in the development phase. Moreover, the Contractor’s uncertainty about the design is
translated into additional contingencies in the tender price to cover any resulting risks that the
Contractor may become exposed to. Constructability issues with the design will also trigger the
Contractor’s appetite for variation orders and design deficiency claims. However, the Contractor
will always be haunted by the fitness for purpose obligation to which he contracted. In this tense
setup, the Engineer, though appointed by the Employer, should always try to exercise impartiality
in his administration of the contract. It is therefore clear that such a traditional organisation
arrangement will “result in waste, increased cost and time, and more adversarial relationships” 4
hence creating more disputes.

4.2 Operating System

Traditional project management approaches to planning and control are based on the principle of
breaking down construction processes into detailed tasks and activities. These practices “rest on
the assumption that careful development of a project schedule, managing the critical path, and
maximizing productivity within each activity will optimize project delivery in terms of cost and
duration.”5 However, non-value adding activities in the planning and control processes are caused

1
Thomsen et al (2009), pg. 11
2
cf. Ballard et al (2016)
3
cf. Ballard et al (2016)
4
Thomsen et al (2009), pg. 11
5
Howell et al (2011), pg. 740
- 25 -

by the frequent use of the activity-based critical path method.1 The main issues with this approach
are that “it ignores the effects of workflow variation on performance; it optimizes ‘performance’ at
the activity level to increase productivity or point speed; it is based on tracking deviations; it is
defensive, managing with the expectation of future claims and disputes.” 2 Therefore, this
approach reflects a simplistic way of presenting the project schedule as a sequence of
construction activities to be executed and has no regards to the changing circumstances, within
or external to the project organisation, that may impact performance and the execution of activities
as originally planned. Moreover, the control process in traditional project management, which is
intended to monitor and provide corrective actions, “is exclusively reactive, and excludes
proactive control.”3

4.3 Commercial Terms

Commercial terms form the contracts that govern a construction project and bind participating
organisations into specific techno-commercial arrangements, thus having a strong and a direct
impact on project status. These agreements define the selection process, criteria for contract
award, scope, remuneration, and risk allocation.4 Traditional commercial terms “depend on a fixed
relationship between work scope and compensation. As projects become more complex and
uncertain, that fixed relationship is increasingly difficult to maintain, and eventually becomes an
obstacle to project success because it discourages the cross-discipline/cross-trade innovations
needed to meet the challenges of complex and uncertain projects.” 5 Construction projects in
traditional delivery setups are managed by multiple two-party transactional contracts such as the
contracts between the Employer and the Engineer, between the Employer and the Contractor,
and between the Contractor and each Subcontractor. These types of contracts “create a vertical
chain of relationships that flow back to the owner, but do not interconnect project participants
across contractual lines. Because of this contract structure, each participant operates under
commercial terms that provide an economic incentive for it to maximize its own interests
regardless of whether its actions would hurt other project players or benefit the project as a
whole.”6 The characteristics of transactional contracts are presented in Table 4.

1
cf. Johansen / Walter (2007)
2
Thomsen et al (2009), pp. 15-16
3
Ballard et al (2016), pg. 8
4
cf. Alarcón et al (2013)
5
Ballard et al (2016), pg. 6
6
Thomsen et al (2009), pg. 32
- 26 -

Transactional Contracts

Communication is limited and formal


Everything is measured in monetary terms
The beginning and end of the contract relationship are clearly defined
Initial planning is complete and specific - only remote contingencies are not covered

There is little or no barganing as the contract proceeds


The contract agreement binds the partners totally
Almost no cooperation is required after the start of the contract
Each particular benefit and burden is specifically assigned to one party
Specific rules and rights are applicable, based on agreement. These are usually
measured in monetary terms
No altruistic behaviour is expected or occurs
Problems in performance or among the participants are not expected, except those
planned for. If they occur, they are expected to be governed by specific rights

Table 4: Characteristics of transactional contracts1

1
Darwin et al (2000), pg. 41
- 27 -

5 FIDIC’s Key Controversial Clauses

As discussed earlier, construction projects are unique and complex ventures involving several
stakeholders with different and sometimes opposing interests. The uniqueness and complexity
are usually reflected in bespoke contracts that add even more complications to the
interrelationship between the contracting parties. This has encouraged professional and
knowledgeable bodies in the construction industry to develop standard forms of contract that offer
valuable guidance to the contracting parties. The aim is to regulate different construction contracts
into standardised instruments with provisions that become familiar to the contracting parties and
that cover issues such as parties’ rights and obligations, the performance of the works,
compensation, remedies for breach of contract, and tiered dispute resolution. The main reasons
why standard forms of contract are beneficial in practice are: “First, they provide a consensus as
to allocating risks and responsibilities, remedies, and administrative practices. Second, they make
the negotiation process more efficient and less costly. Finally, they can provide useful connectors
between the different entities that must act together to accomplish the objectives of the parties to
a construction project.”1

Different international standard forms have been established by various professional bodies such
as the ‘Fédération Internationale Des Ingénieurs Conseils’ (FIDIC). The FIDIC forms remain the
most widely used international standard form of the construction contract in UAE and the Middle
East region since the 1970s.2 However, Employers continuously draft Particular Conditions that
amend FIDIC’s General Conditions to become more project specific, on the face of it, but in fact
with the intention of “transferring the risk from the Employer to the Contractor and allowing the
Employer to retain control over the contract administration.”3 Government bodies in the UAE have
also issued various standard forms of contract to be used for public works, yet some ministries
adopt modified licensed versions of the FIDIC forms intended to suit their specific requirements. 4
The selection of a specific FIDIC form depends on the scope of work to be carried out i.e. whether
it is a consultancy service, construct-only, design-build, EPC, or a Sub-contract. Multilateral
Development Banks (MDBs), such as the World Bank, also require borrowers to adopt a
harmonised version of the construct-only form for the procurement of public works financed by
these banks. The most common forms of FIDIC contracts are described in Table 5. Although the
long-awaited 2017 FIDIC Suite of Contracts has recently been launched incorporating changes

1
Sweet (1989), pg. 823
2
cf. Rached et al (2014)
3
Joshi, C. (16/02/2018), Internet source
4
cf. Rizvi, Z. (16/02/2018), Internet source
- 28 -

to the Red, Yellow, and Silver Books; however, discussions in this paper shall deal with the 1999
publication of the Red Book due to the frequent use of this standard form and the familiarity with
its provisions in the UAE. Moreover, the construction sector will need some time to process the
changes in the new edition of the Red Book and start adopting it.

Colloquial Year of
Full Name Scope
Name Publication

Conditions of Contract for Construction for Building Construction


Red Book 1999
and Engineering Works designed by the Employer Contract

Conditions of Contract for Plant and Design Build for


Plant and Design-
Yellow Book 1999 Electrical and Mechanical Plant, and for Building and
Build Contract
Engineering Works, designed by the Contractor

EPC/Turnkey
Silver Book 1999 Conditions of Contract for EPC/Turnkey Projects
Contract

Table 5: Rainbow Suite of FIDIC Contracts1

Although it is widely used in the UAE and the region; however, FIDIC has received lots of criticism
due to the several controversial clauses that tend to create ambiguity and disputes between the
contracting parties.2 As described above, the FIDIC Red Book is proposed to provide contract
conditions that allow the Contractor to construct works designed by, or on behalf of, the Employer.
This type of contract totally exemplifies the traditional approach for the procurement and delivery
of construction works. The reason is that The FIDIC Red Book is a two-party contract with three
parties involved in administering it. Moreover, it “is transactional and rigid when compared to other
relational-type contracts ... it does not provide collaboration tools that enhance teamwork …
furthermore, the contractor is lowly involved in decisions related to design and construction
techniques.”3 The next sections will explore certain chapters and sub-clauses from the FIDIC Red
Book which are looked at as being controversial and problematic, which promote adversarial
relationship, and which eventually create disputes among project participants. Practical
experiences from UAE’s construction sector will also be discussed in conjunction with the FIDIC
clauses and the UAE Civil Code.

5.1 Chapter 1 – General Provisions

Almost all contracts using FIDIC forms retain Sub-Clause 1.5 [Priority of Documents] for the
purpose of ruling out any possible inconsistency between the various contract documents. What

1
cf. Allen (2015)
2
cf. Webster (2009)
3
Rached et al (2014), pg. 297
- 29 -

if the Employer decides not to prescribe any hierarchy of the contract documents in the Particular
Conditions, or if inconsistencies do exist within the same document? Obviously, disagreements
will emerge with regards to each party’s interpretation of any ambiguities or discrepancies. In such
an event, Sub-Clause 1.5 assigns to the Engineer the role of issuing “any necessary clarification
or instruction.”1 The fairness and objectivity of the Engineer in giving such a clarification or
instruction are dubious and may result in a dispute since the Engineer is appointed by the
Employer and acts for, or on behalf of, the Employer.

It is not uncommon that the Engineer issues late drawings and/or instructions that are necessary
for the Contractor to progress the work. As per Sub-Clause 1.9 [Delayed Drawings or
Instructions], the Contractor, subject to providing the proper notices, has the right to demand for
an extension of time for this delay, and at the same time for a compensation for any incurred costs
that may result plus a reasonable profit.2 Also here the fairness of the Engineer comes into the
picture because he is required to “proceed in accordance with Sub-Clause 3.5 [Determinations]
to agree or determine these matters”3 which were caused either by the Employer or by the
Engineer himself.

5.2 Chapter 2 – The Employer

The Employer may cause the Contractor to suffer a delay in commencing the works and to incur
costs because of preventing him access to the job site. As per Sub-Clause 2.1 [Right of Access
to the Site], if the Contractor has already fulfilled his obligations by providing the Performance
Security or any other document on time and error-free, then the Contractor, subject to providing
the proper notices, has the right to demand for an extension of time for this delay and for a
compensation for any incurred costs that may result plus a reasonable profit. 4

Sub-Clause 2.4 [Employer’s Financial Arrangements] is an important provision for the security of
payments because it “seeks to provide the Contractor reassurance of the Employer’s ability to
comply with its payment obligations”5 of the Contract Price. However, this clause might be ignored
in practice or even deleted from the Particular Conditions due to the Employer’s bargaining power
during contract preparation. If this provision forms a part of the contract and in the event of the
Employer’s failure to provide the required evidence, then the Contractor may seek to suspend the

1
FIDIC (1999), Sub-Clause 1.5, pg. 6
2
cf. FIDIC (1999), Sub-Clause 1.9
3
FIDIC (1999), Sub-Clause 1.9, pg. 7
4
cf. Baker et al (2009)
5
Baker et al (2009), pg. 206
- 30 -

works or even terminate the contract as per Sub-Clauses 16.1 [Contractor’s Entitlement to
Suspend Work] and 16.2(a) [Termination by Contractor] respectively.1

Under Sub-Clause 2.5 [Employer’s Claims], the Employer can bring “claims for delay damages,
other claims specifically provided for under the contract, … claims for breach of contract by the
contractor … and/or the extension (if any) of the Defects Notification Period.” 2 Contrary to the
Contractor’s claims process, there’s no time-bar for bringing forward any such notice of claim and
particulars by the Employer or the Engineer except that “the notice shall be given as soon as
practicable.”3 This gives more flexibility to the Employer as the term ‘as soon as practicable’ is
open for interpretation and thus relieves him from being bound to any time-bar for the submission
of his claim. Agreeing to or determining the claim and particulars at hand is then left to the
Engineer to decide on in accordance with Sub-Clause 3.5 [Determinations].4

5.3 Chapter 3 – The Engineer

Sub-Clause 3.1 [Engineer’s Duties and Authority] “only contains general provisions relating to the
contract administrator’s role and does not define the particular scope of this role.” 5 However, this
sub-clause makes it clear that the Engineer is appointed by the Employer and “shall be deemed
to act for the Employer … whenever carrying out duties or exercising authority, specified in or
implied by the Contract.”6 This puts a big question mark on the Engineer’s objectivity and fairness
in determining any matter that is brought to his attention. Determinations by the Engineer are
dealt with under the provisions of Sub-Clause 3.5 which requires that the Engineer demonstrates
fairness while exercising this duty. This is very critical as it limits or aggravates the adversarial
relationship between the parties who “shall give effect to each agreement or determination unless
and until revised under Clause 20 [Claims, Disputes and Arbitration].”7 Contrary to the 1987
edition, the 1999 FIDIC Red Book does “not contain any express requirement for the Engineer …
to act impartially”8 which creates mistrust between the parties and often leads to disputes.

5.4 Chapter 4 – The Contractor

An issue that always attracts misperception and may result in disputes is the extent of the
Contractor’s design responsibilities and fitness for purpose obligation under construct-only

1
cf. Baker et al (2009)
2
Bunni (2005), pg. 521
3
FIDIC (1999), Sub-Clause 2.5, pg. 9
4
cf. FIDIC (1999), Sub-Clause 2.5
5
Baker et al (2009), pg. 279
6
FIDIC (1999), Sub-Clause 3.1, pg. 10
7
FIDIC (1999), Sub-Clause 3.5, pg. 11
8
Baker et al (2009), pg. 286
- 31 -

contracts such as the FIDIC Red Book. The Contractor has a limited fitness for purpose obligation
as prescribed under Sub-Clause 4.1(c) and “arises only if the Contract specifies that the
Contractor is to design any part of the Permanent Works.”1 However, this has not prevented the
Employer from imposing on the Contractor additional fitness for purpose obligations for designs
furnished by the Engineer.

Pursuant to Sub-Clause 4.2 [Performance Security] the Contractor is required, within 28 days
from the receipt of Letter of Acceptance, to furnish the Employer with a Performance Security the
purpose of which is “to secure the due performance of the Contractor’s obligation under the
Contract.”2 The type of Performance Security can either be an on-demand guarantee or a surety
bond3; however, the former is the only type currently being accepted by Employers in the UAE.
This sub-clause specifies that “the employer is not permitted to make a claim under the
performance security except for amounts to which he is entitled in specified events.”4 However, it
is very frequent that Employers in the UAE do abuse this tool by calling for the full amount of the
security under any circumstance and even during the Defects Notification Period. Avoiding
payment of the Performance Security by the issuing bank is strictly prohibited by the UAE Central
Bank; however, “the principal recourse in the event of a wrongful call on the Performance Security
pending a claim under the indemnity is, therefore, to the domestic courts. Pursuant to the UAE
Code of Commercial Practice, Article 417(2), the domestic courts may, in exceptional cases,
impose an attachment, analogous to an injunction in some jurisdictions, on the Performance
Security preventing the issuing bank from making payment.”5 It is also common that the
Contractor struggles to receive a copy of the Performance Certificate which marks the Employer’s
obligation to return the Performance Security back to the Contractor. Such abuse of the terms
relating to the call for the Performance Security by some Employers has left Contractors reluctant
to bid for works with these Employers; nevertheless, the rising competition forces some
Contractors to close eyes on past experiences for the purpose of winning future awards and
staying in business.

Unforeseeable Physical Conditions, prescribed under Sub-Clause 4.12, put forward another
possibility for a claim by the Contractor for extension of time for delays caused and for
compensation for any incurred costs that may result.6 However, “the loose definition of

1
Baker et al (2009), pg. 99
2
Baker et al (2009), pg. 387
3
cf. FIDIC (1999), Sub-Clause 4.2
4
Bunni (2005), pg. 527
5
Grose (2016), pg. 309
6
cf. FIDIC (1999), Sub-Clause 4.12
- 32 -

‘Unforeseeable’ introduces a significant element of discretion into an assessment of a claim


pursuant to this Sub-Clause … The element of practicality which forms part of the determination
of what is required by way of inspection or examination adds a further layer of subjectivity to the
application of this Sub-Clause.”1

5.5 Chapter 5 – Nominated Subcontractors

Sub-Clause 5.2 [Objection to Nomination] is clear with regards to the Contractor’s right not to
engage with a nominated subcontractor subject to providing reasonable objection except where
the Employer “agrees to indemnify the Contractor against and from the consequences of the
matter.”2 In the UAE, “domestic courts have, on occasion, declined to impose liability on a
contractor pursuant to the UAE Civil Code, Article 890(2), in the event of delays or defects
attributable to a nominated Subcontractor.”3 However, with the bargaining power Employers have
at the award stage, Contractors are compelled to contract with nominated Subcontractors who
then become their domestic Subcontractors. As such the Contractor remains liable towards the
Employer for the default of the nominated Subcontractor.

5.6 Chapter 7 – Plant, Materials and Workmanship

The Contractor, by the virtue of Sub-Clause 7.1 [Manner of Execution], has an obligation to
perform the Works “in a proper workmanlike and careful manner, in accordance with recognised
good practice.”4 Such an obligation is protected by Article 877 of the UAE Civil Code which
stipulates that if it becomes evident that the Contractor “is carrying out what he has undertaken
to do in a defective manner or in a manner in breach of the agreed conditions, the employer may
require that the contract be terminated immediately if it is impossible to make good the work.” 5
This also triggers disagreements on whether Works have indeed been executed in such a
defective manner.

5.7 Chapter 8 – Commencement, Delays and Suspension

Sub-Clause 8.1 [Commencement of Works] sets out a clear timeframe for the Engineer to issue
the notice to commence with the Works to the Contractor, yet it is a common practice that such a
notice is received late by the Contractor. However, “there is no need for an extension of the Time
for Completion if the notice is late but the Contractor may seek compensation for any costs or
losses incurred for the duration of the delay relying on a breach of the obligation to trigger the

1
Grose (2016), pg. 313
2
FIDIC (1999), Sub-Clause 5.2, pg. 21
3
Grose (2016), pg. 314
4
FIDIC (1999), Sub-Clause 7.1, pg. 24
5
Article 877 [UAE Civil Code]
- 33 -

Commencement Date pursuant to Sub-Clause 8.1.”1 It is often the case in the UAE that the
advance payment is unrightfully linked to the notice to commence with the Works. For example,
within 7 days of the Engineer’s instruction to commence the Contract Works, the Contractor shall
submit to the Engineer an advance payment application in the amount specified in the Conditions
of Particular Application, and to the Employer an advance payment bond for the amount of the
advance payment. Then the Contractor is paid within 14 days from receiving the Engineer’s
Interim Payment Certificate.

Sub-Clause 8.2 [Time for Completion] specifies the terms requisite for completing the whole of
the Works within the duration for completion defined in the Contract. However, the Time for
Completion is often exceeded due to reasons attributed to all project participants, thus resulting
in disputes and cost overrun.

The Contractor is under an obligation to submit for the Engineer’s review, his Programme for the
Works pursuant to Sub-Clause 8.3 [Programme].2 However, almost always, the Contractor fails
to submit the Programme within the stipulated time, thus initiating the first occasion for
disagreement with the Engineer who may withhold any payment certificate for completed works.
Moreover, “the absence of an agreed programme will, in practice, hinder the Engineer’s ability to
operate Sub-Clause 8.6 [Rate of Progress] and may create difficulties for any other contractors
with whom the Contractor is required to share the Site.”3

Sub-Clause 8.4 [Extension of Time for Completion] sets out the circumstances that entitle the
Contractor, subject to providing the proper notices, for an Extension of Time in the event that
completion of the works is already delayed or will be delayed beyond the time stipulated in the
Contract.4 This is considered one of the major disputable clauses as the Employer attempts to
deny any such entitlement and instead tries to force the Contractor to mitigate the delays and
complete the Works within the original time if it hasn’t already lapsed. This is, however, not
possible in UAE because “in the absence of any stock of implied terms or a recognised duty of
mitigation under the UAE Civil Code no such duty arises at law … with the exception of delay as
a result of Force Majeure for which there is an explicit duty to mitigate delay imposed by Sub-
Clause 19.3 [Duty to Minimise Delay].”5 It is also common that if the Employer is able to
demonstrate concurrent delays do exist, then an agreement can be reached between the

1
Grose (2016), pg. 322
2
cf. FIDIC (1999), Sub-Clause 8.3
3
Grose (2016), pg. 323
4
cf. FIDIC (1999), Sub-Clause 8.4
5
Grose (2016), pg. 322
- 34 -

Employer and the Contractor whereby the Employer settles to award an extension of time without
any prolongation cost provided that the Employer doesn’t levy any delay damages against the
Contractor. Problems arise when the Contractor considers himself capable of proving that the
causes of delay are only attributable to the Employer. Accordingly, the Contractor should proceed
with his entitlement to an extension of time plus prolongation cost thru the claim procedure
stipulated under Sub-Clause 20.1 [Contractor’s Claim].1

If Time for Completion is at risk of being exceeded, then the Contractor has an obligation under
Sub-Clause 8.6 [Rate of Progress] to submit a revised programme, when instructed by the
Engineer to do so, in order to demonstrate what methods will be adopted to ensure completion
within the defined Time for Completion.2 However, a dispute may arise “if the Engineer issues an
instruction requiring the Contractor to submit a revised programme but the Contractor declines to
do so on the grounds that the delay is attributable to any of the causes listed in Sub-Clause 8.4.”3

The Contractor’s failure to adhere to the Time for Completion due to his own shortcomings
exposes him pursuant to Sub-Clause 8.7 [Delay Damages] to the payment of delay damages
which are capped at an agreed fixed sum specified in the Appendix to Tender. 4 However, the
UAE Civil Code stipulates under Article 390(2) that “the judge may in all cases, upon the
application of either of the parties, vary such agreement so as to make the compensation equal
to the loss, and any agreement to the contrary shall be void.”5

5.8 Chapter 9 – Tests on Completion

Tests on Completion may be excessively or unjustifiably delayed by the Employer and/or the
Contractor. Sub-Clause 9.2 [Delayed Tests] prescribes that in the event such delay is caused by
the Employer, then the Contractor, by the virtue of Sub-Clause 7.4 [Testing] and subject to
providing the proper notices, has the right to demand for an extension of time for this delay and
for a compensation for any incurred costs that may result plus a reasonable profit. 6 Equally, the
Engineer may notify the Contractor to carry out the Tests within a certain period, failing to do so
may force the Employer to carry out the Tests at the Contractor’s risk and expense.7

1
cf. FIDIC (1999), Sub-Clause 8.4
2
cf. FIDIC (1999), Sub-Clause 8.6
3
Grose (2016), pg. 327
4
cf. FIDIC (1999), Sub-Clause 8.7
5
Article 390(2) [UAE Civil Code]
6
cf. FIDIC (1999), Sub-Clause 9.2
7
cf. FIDIC (1999), Sub-Clause 9.2
- 35 -

5.9 Chapter 10 – Employer’s Taking Over

Sub-Clause 10.1 [Taking Over of the Works and Sections] mandates that “if the Engineer rejects
the Contractor’s application for the Taking Over Certificate the Engineer must provide the reasons
and a list of the work to be completed to enable the Taking Over Certificate to be issued” 1;
otherwise, the Taking Over Certificate would be deemed to have been issued after the expiry of
a 28 days period. This is equally supported by the UAE Civil Code which stipulates under Article
884 that “the employer shall be bound to take delivery of the work done when the contractor has
completed it and placed it at his disposal.”2

Pursuant to Sub-Clause 10.2 [Taking Over of Parts of the Works], the Employer is not entitled to
occupy nor benefit from any parts of the Works “unless and until the Engineer has issued a
Taking-Over Certificate for this part.”3 However, “if in breach of Sub-Clause 10.2, the Employer
uses any part of the Works prior to the Taking Over Certificate being issued such part is deemed
to be taken over”4 from the date of first use. In such a case, the Contractor’s liability to care for
that part of the Work stops and, subject to providing the proper notices, has the right to demand
a compensation for any incurred costs that may result plus a reasonable profit. 5 The Contractor’s
right is also protected by the UAE Civil Code which stipulates under Article 879(1) that “if the work
of the contractor produces a beneficial effect on the property in question, he may retain it until the
consideration due is paid.”6 In addition to being a breach of Contract, such an action by the
Employer contradicts with the mandatory obligation of good faith required under Article 246(1) the
UAE Civil Code.

5.10 Chapter 11 – Defects Liability

In the event of the Contractor’s failure to remedy defects of his own shortcomings during the
Defects Notification Period, then the Employer, subject to providing the proper notices pursuant
to Sub-Clause 11.4 [Failure to Remedy Defects], has the right to recover from the Contractor any
incurred cost as a result of remedying the defective works on his behalf or even terminate the
Contract if such defects deny the Employer any benefit of the Works. 7

1
Grose (2016), pg. 331
2
Article 884 [UAE Civil Code]
3
FIDIC (1999), Sub-Clause 10.2, pg. 31
4
Grose (2016), pg. 332
5
cf. FIDIC (1999), Sub-Clause 10.2
6
Article 879(1) [UAE Civil Code]
7
cf. FIDIC (1999), Sub-Clause 11.4
- 36 -

Issuance of the Performance Certificate pursuant to Sub-Clause 11.9 marks the end of the
Contractor’s obligations under the Contract and entitles the Contractor to recover the
Performance Security.1 However, on many occasions, the Engineer unrightfully holds back the
issuance of the Performance Certificate in an attempt to force the Contractor to carry out works
that are additional to his original scope.

5.11 Chapter 12 – Measurement and Evaluation

It is almost always the case that disputes arise when it comes to the adequacy of the rates used
in evaluating the Works and especially varied works even though the principles are spelt out in
Sub-Clause 12.3 [Evaluation]. However, “until such time as an appropriate rate or price is agreed
or determined, the Engineer shall determine a provisional rate or price for the purposes of Interim
Payment Certificates.”2

Omissions of any part of the Works are likely to add another possible cause for claims by the
Contractor for compensation on abortive works or loss of profit. Sub-Clause 12.4 [Omissions]
“provides the Contractor with a mechanism by which to obtain reimbursement for work rendered
abortive by a valid omission instruction.”3

5.12 Chapter 13 – Variations and Adjustments

The Engineer is entitled, pursuant to Sub-Clause 13.1 [Right to Vary], to introduce any Variation
prior to the Taking Over Certificate being issued.4 However, the Engineer may abuse this right by
purposely delaying the issuance of the Taking Over Certificate in an attempt to introduce new
Variations. As a result, “the Engineer and Employer may face an objection … based on the UAE
Civil Code, Articles 246 and 106, which impose on the parties a general duty of good faith and a
prohibition on abuse of rights respectively.”5 Another problem which may arise is that Variations
are not always introduced as clear and formal instructions to the Contractor, thus creating
ambiguity which may lead to disagreements as to whether the Contractor has any entitlement to
an extension of time and/or additional cost. In this respect, Article 887(2) of the UAE Civil Code
demands that “if any variation or addition is made to the plan with the consent of the employer,
the existing agreement with the contractor must be observed in connection with such variation or
addition.”6 It is also common knowledge that the cost of change tends to increase over time as

1
cf. Grose (2016)
2
FIDIC (1999), Sub-Clause 12.3, pg. 36
3
Grose (2016), pg. 339
4
cf. FIDIC (1999), Sub-Clause 13.1
5
Grose (2016), pg. 339
6
Article 887(2) [UAE Civil Code]
- 37 -

the project advances, so it wouldn’t be a viable decision to instruct Variations at later stages of
the project life.

Sub-Clause 13.5 [Provisional Sums] provides the Engineer with the freedom “to instruct or omit
all or any part of the Works covered by a Provisional Sum”1 subject to adjusting the Contract Price
accordingly. The fact that the majority of the contracts in the UAE use provisional sums, which
amount to a considerable portion of the contract value, poses lots of risks related to “claims,
variations and conflicts among the contracting parties, ... the cost uncertainty, the projects delay
and in some cases the poor quality due to scope conflicts, management and coordination issues.” 2

5.13 Chapter 14 – Contract Price and Payment

Sub-Clause 14.1 prescribes that agreeing or determining the Contract Price shall be done in
accordance with Sub-Clause 12.3 [Evaluation]3, thus leading to possible disputes between
projects participants as stated earlier.

Although Sub-Clause 14.2 defines clearly the procedure relevant to the release of the advance
payment by the Employer4; however as mentioned earlier, it is often the case in the UAE that the
release of the advance payment is sometimes linked to the notice to commence with the Works
even if the Performance Security and the advance payment guarantee have already been
received by the Employer. This will certainly cause disruption to the Contractor’s mobilisation
plans and project site setup.

The two main reasons that allow the Engineer to withhold the Interim Payment Certificate, as
specified under Sub-Clause 14.6 [Issue of Interim Payment Certificate], are in respect of “the cost
of rectification or replacement of any things supplied or work done by the Contractor not in
accordance with the Contract, and/or the Contractor’s failure to perform any work or obligation in
accordance with the Contract, provided the Contractor has been so notified by the Engineer.” 5
However, certification is sometimes unrightfully withheld by the Engineer and thus the Contractor
might be forced to pursue his right to suspend the Works or even terminate the Contract pursuant
to Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work] and Sub-Clause 16.2
[Termination by Contractor] respectively.6

1
Grose (2016), pg. 342
2
Seneviratne et al (2016), pg. 543
3
cf. FIDIC (1999), Sub-Clause 14.1
4
cf. FIDIC (1999), Sub-Clause 14.2
5
Grose (2016), pg. 348
6
cf. Grose (2016)
- 38 -

Sub-Clause 14.8 [Delayed Payment] is probably the main reason that drives the Contractor to
exercise his rights to suspension and later to termination of the Works. As a result of delayed
payments, Contractors might lose their banking facilities, fail in their financial obligations towards
their supply chain, and might even reach a state of insolvency. This is exactly the case of the
British construction firm Carillion who claims that the reason for its collapse in January 2018 was
a developer’s “refusal to settle a £200 million bill” 1 of overdue payments for works done on a
project related to the 2022 FIFA World Cup which is taking place in Qatar.

The Contractor becomes entitled, pursuant to Sub-Clause 14.9 [Payment of Retention Money], to
recover a proportion of the Retention Money once the Taking Over Certificate has been issued,
whereas the balance becomes due at the expiry of the Defects Notification Period unless the
Contractor has not fulfilled his obligations to clear all pending works as demanded under Clause
11 [Defects Liability].2 However, if the certification and payment of the retention have been unduly
delayed by the Engineer, then the Contractor may claim for financing charges in respect of the
amounts being withheld and include the same either in the Statement at Completion or in the
Final Statement pursuant to Sub-Clause 14.10 and Sub-Clause 14.11 respectively.3

The Contractor is required, pursuant to Sub-Clause 14.11 [Application for Final Payment
Certificate], to submit his draft final statement which will be triggered upon the Contractor’s receipt
of the Performance Certificate.4 However, “it is envisaged that any dispute as to the content of
the draft final statement will be referred to the DAB for a decision, which is then incorporated in
an agreed Final Statement.”5

5.14 Chapter 15 – Termination by Employer

Sub-Clause 15.2 [Termination by Employer] clearly identifies what actions done or not done by
the Contractor that shall entitle the Employer to exert his right to terminate the Contract and
instruct the Contractor to abandon the site accordingly.6

Sub-Clause 15.5 [Employer’s Entitlement to Termination], on the other hand, gives the Employer
the right to terminate the Contract at his own convenience on the condition that the Works are not
to be completed either by the Employer himself or any other Contractor.7

1
Nanji, N. (14/03/2018), Internet source
2
cf. FIDIC (1999), Sub-Clause 14.9
3
cf. FIDIC (1999), Sub-Clauses 14.10 & 14.11
4
cf. FIDIC (1999), Sub-Clause 14.11
5
Grose (2016), pg. 351
6
cf. Baker et al (2009)
7
cf. FIDIC (1999), Sub-Clause 15.5
- 39 -

Exercising any of the above termination rights by the Employer is not straightforward under the
UAE law because Article 892 of the UAE Civil Code stipulates that “a contract of muqawala shall
terminate upon, the completion of the work agreed or upon the cancellation of the contract by
consent or by order of the court.”1 Therefore, “unless the requirement for a court order has been
expressly waived by bespoke drafting, the court is required to review and, if appropriate, ratify the
termination through the issue of a court order. A further important point is that UAE law provides
contractors with a legal entitlement to retain possession of the site following termination of the
construction contract if the contractor believes that sums are owed to it. If a contractor elects to
exercise this right, the employer could be prevented from accessing the site, and therefore from
completing the project, until the contractor’s entitlements have been finally determined.”2

5.15 Chapter 16 – Suspension and Termination by Contractor

The Contractor’s rights to suspend or slow down the Works are preserved pursuant to Sub-Clause
16.1 [Contractor’s Entitlement to Suspend Work].3 It also follows that the Contractor, subject to
providing the proper notices, has the right to demand for an extension of time for delays caused
by the suspension of Works and at the same time for a compensation for any incurred costs that
may result plus a reasonable profit.4

If any of the events that gave rise to the suspension of Works remain valid, then the Contractor
may terminate by giving a notice pursuant to Sub-Clause 16.2 [Termination by Contractor].5
However, the same constraint of the UAE Civil Code, i.e. a court order that brings termination by
the Employer into effect, also applies to the case of termination by the Contractor unless an
explicit waiver to this requirement is incorporated within the Particular Conditions.

5.16 Chapter 19 – Force Majeure

Sub-Clause 19.1 [Definition of Force Majeure] provides a clear classification as to what


constitutes a force majeure and these being exceptional events or circumstances.6 However, this
hasn’t stopped disputes from arising due to the Contractor’s limited “entitlement to recover Cost
as part of an extension of time”7 that results from natural catastrophes.

1
Article 892 [UAE Civil Code]
2
Lambert, S. (06/03/2018), Internet source
3
cf. FIDIC (1999), Sub-Clause 16.1
4
cf. FIDIC (1999), Sub-Clause 16.1
5
cf. FIDIC (1999), Sub-Clause 16.2
6
cf. FIDIC (1999), Sub-Clause 19.1
7
Grose (2016), pg. 373
- 40 -

5.17 Chapter 20 – Claims, Disputes and Arbitration

Sub-Clause 20.1 [Contractor’s Claim] is the only resort for the Contractor to put a notice of any
claim for extension of time and/or additional payment that he considers he has an entitlement to.1
However, the problem lies in the Contractor’s failure to adhere to the 28 days’ time-bar for the
submission of the notice of claim. In such an event, “the Time for Completion shall not be
extended, the Contractor shall not be entitled to additional payment, and the Employer shall be
discharged from all liability in connection with the claim.” 2

Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] sets out clearly the procedure
for obtaining the DAB decision in the event of a dispute arising between the parties 3; however, “if
the decision is challenged and, therefore, does not become final and binding there is no provision
within the FIDIC Conditions for the consequences of any subsequent failure to implement the
DAB’s decision, as required, on an interim basis.”4

1
cf. FIDIC (1999), Sub-Clause 20.1
2
FIDIC (1999), Sub-Clause 20.1, pg. 58
3
cf. FIDIC (1999), Sub-Clause 20.4
4
Grose (2016), pg. 381
- 41 -

6 Relational Contracting

A contract is formed upon three distinct elements: offer, acceptance and consideration. With these
elements secured, the construction contract becomes the legal means by which the exchange
between the parties is regularised in terms of parties’ rights and obligations. However, Ian
Macneil, a scholar in the domain of contract law, labels this transactional contract as a discrete
contract “that leaves out every relation between the parties apart from the simple exchange of
goods.”1 In fact, the complexity and uncertainty that typify construction projects tend to nullify the
effectiveness of discrete contracts thus leading to a verity that “complete, fully contingent,
costlessly enforceable contracts are not possible.”2 The results of this contractual relationship
would obviously be reduced performance, time and cost overruns, and increased confrontation
between project participants. After investigating the issues being faced by the construction
industry in the UK, it became evident to Sir John Egan that “the industry must replace competitive
tendering with long term-relationships based on clear measurement of performance and
sustained improvements in quality and efficiency.”3 Accordingly, it became mandatory to devise
an environment of maximum flexibility, collaboration and trust between parties even to an extent
that exceeds what is explicitly mentioned in the contract. All this has led advocates of relational
contracting to propose it as a requisite for achieving this goal.

Relational contracting involves “working relationships among the parties who do not often follow
the legal mechanism offered by the written contracts, and instead govern the transactions
themselves within mutually acceptable social guidelines.”4 The target of such working
relationships is to remove obstacles, foster a sense of commitment, collaboration and trust,
provide quick dispute resolution, and achieve successful project outcomes.5 Although, relational
contracts are “based on outcomes that are observed by only the contracting parties ex-post, and
also on outcomes that are prohibitively costly to specify ex-ante… however, cannot be enforced
by a third party and so must be self-enforcing.”6 Therefore, relationship contracting is proposed
“to break down the contractual and commercial walls between owners, contractors, designers and
suppliers so that a trusting team is formed which shares the risks when something goes wrong
and shares the savings when the team performs exceptionally well.”7 The characteristics of

1
Van der Veen (2009), pg. 63
2
Klein (1980), pg. 356
3
Egan (1998), pg. 5
4
Yean et al (2014), pg. 276
5
cf. s. n. (1999), Australian Constructors Association
6
Baker et al (2002), pg. 40
7
Cheung et al (2005), pg. 127
- 42 -

relational contracts are presented in Table 6. Examples of relational contracts include partnering,
alliances, public-private partnerships, and joint ventures.1 The scope of this paper, however, will
be focused on discussing the qualities and downsides of adopting project alliance contracts as
an alternative to the traditional project delivery methods in the construction industry.

Relational Contracts

Communication is extensive, and is both formal and informal


Many aspects are difficult to measure, either in monetary or in other terms.
The beginning and end, if any, of the contract relationship are gradual

There is limited specific planning at the beginning


The contract involves extended mutual planning - a "joint creative effort"
The contract agreement is tentative
The success of the contract is entirely dependent on further cooperation in both
performance and further planning
There is undivided sharing of both benefits and burdens
Rules and benefits are non-specific and non-measurable
There is significant expectation of altruistic behaviour
The possibility of trouble is anticipated and is dealt with by cooperation

Table 6: Characteristics of relational contracts2

1
cf. Yean et al (2014)
2
Darwin et al (2000), pg. 41
- 43 -

7 Project Alliance: an Alternative Project Delivery Method

It has become evident that the traditional approach to project delivery has been lacking and thus
has been contributing to reduced performance and increased adversarial relationship among
project participants. Moreover, with the traditional forms of contract, “responsibilities and risk are
allocated to different parties with commercial and/or legal consequences for the individual parties
where they fail to manage their risks or properly discharge their contractual/legal obligations.” 1
Accordingly, academics and practitioners sought to bring advancements to the construction
industry by advocating the notion of relational contracting that range from the “traditional risk-
transfer arrangements undertaken in a collaborative manner to ‘pure alliance’ arrangements
where nearly all risks and opportunities are shared amongst participants.” 2 Alliance contracting is
an alternative project procurement and delivery method in which the Owner and Non-Owner
Participants (NOPs) work collaboratively in a manner that embraces risk and opportunity sharing,
commitment to no disputes, best-for-project unanimous decision-making processes, ‘no fault no
blame’ culture, good faith, transparency, and joint management structure. 3 More specifically in
alliance contracting, “alliance participants assume collective ownership of the risks/opportunities
and responsibilities associated with delivery of the project, with equitable sharing in pre-agreed
ratios of the ‘gain’ or ‘pain’, depending on how project outcomes compare with pre-agreed
targets.”4 Project alliancing is most suitable where risks are complicated and cannot be predicted,
complex interfaces exist between different parties, timeframes are very strict, scope changes are
likely to occur, owner involvement is required for value-adding opportunities, or where threats
and/or opportunities are better managed collectively.5 It is beneficial to highlight, however, that
project alliancing and project partnering are quite different although the terms are usually used
interchangeably. “The alliance agreement will seek to formally align the commercial interests of
the respective participants. This is to be contrasted with partnering, a term generally used to
describe an informal understanding between the client and contractor as to how they will conduct
business”6 collaboratively.

The notion of project alliancing dates back to the early 1990s when it was first adopted by British
Petroleum in its North Sea oil and gas projects; however, it has seen extensive research and
implementation by the Australian construction industry and acquired worldwide recognition ever

1
Ross (2003), pg. 1
2
Ross (2009), pg. 3
3
cf. DTF Victoria (2010)
4
Ross (2009), pg. 3
5
cf. Ross (2003)
6
Jones (2001), pg. 413
- 44 -

since.1 For this reason, the Australian model of project alliancing is discussed here as a guide for
application elsewhere provided the underlying concepts are valued and espoused by the
contracting parties. A typical project alliance scenario involves a series of activities that form the
guidelines in the set-up and operation of an alliance as depicted in Figure 2.

Fig. 2: Typical project alliance process and relevant activities2

7.1 Selection of Alliance Members

The selection of the preferred and qualified NOPs, such as the designer, project manager, and
contractor, is a delicate process and is usually done “on the basis of non-cost criteria, and typically
involves a written proposal, followed by a series of structured interviews and workshops.”3 A non-
cost selection process is normally the appropriate selection route whenever the owner intends to
have an immediate or early commencement of the works in the absence of full and detailed project
information that would otherwise allow the NOP to provide a comprehensive and competitive
price. As an alternative, an open book “estimate of the total capital expenditure required to deliver
the project”4 is jointly determined by the Owner and NOP as the Target Outturn Cost (TOC). Non-

1
cf. Manley (2002)
2
Chen et al (2015), pg. 2
3
Ross (2009), pg. 4
4
Love et al (2011), pg. 128
- 45 -

cost selection criteria relate mainly to the proponent’s capabilities and past performance on similar
projects, team members’ experience, team’s homogeneity and affinity to work as part of an
alliance, understanding of the project and owner’s requirements, approach to the development of
the project solution and TOC, and finally the expected fees and the proponent’s response to the
commercial arrangements drafted by the owner.1 After the selection process has been concluded,
the preferred proponent works on developing a final project proposal that establishes the project
solution, suggested team, proposed commercial arrangements, performance targets, and TOC.2
The final project proposal is then evaluated and negotiated to confirm whether it will be “achieving
the Owner’s VfM Statement at a fair cost.”3 If the evaluation and negotiations fail, then the
selection process starts all over again with a new preferred candidate from the previously
shortlisted proponents.

7.2 Project Alliance Structure

The project alliance is a multi-party legal/commercial relationship formed and executed between
the Owner and the NOP Corporations upon endorsing the Project Alliance Agreement (PAA)
following a successful selection process. The PAA establishes a governance, leadership, and
management model which forms the alliance structure illustrated in Figure 3 below.

7.2.1 Alliance Leadership Team

The alliance structure is comprised of representatives from both the Owner and NOPs who jointly
form the Alliance Leadership Team (ALT) that will eventually have control over the project and
shall be reciprocally accountable towards the wider organisations of the Owner and the NOPs.4
An important feature of the ALT, as the key decision-making body for the alliance, is that all
members have equal voting rights and must take decisions unanimously; however, the Owner
can still exercise his right to give instructions for amending the project scope and VfM objectives. 5
Therefore, the ALT “is responsible for providing leadership and governance to the alliance, and
ensuring that the obligations of the Participants are fulfilled and the Owner’s VfM objectives are
achieved.”6 In addition to its role in appointing the Alliance Manager and the Alliance Management
Team, the ALT also has a responsibility to set the principles and challenging objectives,
agree/approve the cost and performance targets, set policy & delegations, review/approve the
Alliance Management Plan, employ the best resources from NOPs’ organisations, monitor the

1
cf. DTF Victoria (2010)
2
cf. DTF Victoria (2010)
3
DTF Victoria (2010), pg. 12
4
cf. DTF Victoria (2010)
5
cf. Jones (2001)
6
DTF Victoria (2010), pg. 73
- 46 -

performance and take the necessary corrective actions, and resolve conflicts arising between the
participants.1

Fig. 3: Typical project alliance structure2

7.2.2 Alliance Manager

The ALT appoints and empowers the Alliance Manager (AM) who becomes responsible for project
delivery, daily operations of the alliance, and is accordingly “accountable for ensuring that the
alliance meets or exceeds the agreed alliance objectives.”3

7.2.3 Alliance Management Team

The ALT shall appoint or approve the appointment of the Alliance Management Team (AMT)
members based on their experience, qualifications and capability of being part of the alliance.

1
cf. Ross (2009)
2
DTF Victoria (2010), pg. 20
3
DTF Victoria (2006), pg. 14
- 47 -

The AMT shall be headed by the AM and shall be responsible for appointing, empowering and
leading the wider project team, delivering outcomes that meet or even exceed the pre-set
objectives, managing daily project operations, measuring the overall performance and forecasting
and reporting critical issues to ALT, and taking the appropriate corrective action.1

7.2.4 Alliance Project Team

The Alliance Project Team, selected by the AM on a ‘best for project basis’, shall include an
“integrated, collaborative team of NOPs and Owner’s professional and support staff that plan,
design and manage construction and delivery of all aspects of the Owner’s VfM Statement.”2

7.3 Risk/Reward Compensation Model

The main feature of a project alliance is the compensation model which operates as an incentive
for NOPs to work together collaboratively by providing “a fair and equitable performance-related
payment mechanism to project partners who strive to achieve predetermined performance
criteria.”3 For the compensation model to function, the actual cost at completion referred to as the
Actual Outturn Cost (AOC), is compared to TOC “to determine the extent of under/overrun that is
to be shared amongst the alliance participants.”4 Figure 4 below shows a typical risk/reward
compensation model identified as the ‘3-limb’ model. Limb-1 represents the reimbursable costs
that cover “the direct project costs and indirect project specific overhead costs actually and
reasonably incurred by the NOPs, and the Owner if applicable, in the performance of the work.”5
Limb-2 represents the fee for “the respective NOPs’ agreed profit margin and a contribution
towards recovery of non-project specific (or corporate) overhead costs.”6 Finally, Limb-3
represents the risk or reward amount that “measures the alliance’s actual performance against
the target cost and other agreed project objectives”7 and is calculated as AOC less TOC, with
TOC comprising the amounts of both Limb-1 & Limb-2.

7.4 VfM Opportunities in Project Alliances

VfM is defined as “the optimum combination of whole-of-life costs and quality (or fitness for
purpose) of the good or service to meet the user’s requirement.”8 However, it should be obvious
by now that the real focus in traditional procurement and delivery methods is on cost reduction

1
cf. Ross (2009)
2
DTF Victoria (2010), pg. 27
3
Love et al (2011), pg. 128
4
Ross (2003), pg. 5
5
DTF Victoria (2010), pg. 48
6
DTF Victoria (2010), pg. 48
7
DTF Victoria (2010), pg. 49
8
s. n. (2006), HM Treasury, pg. 7
- 48 -

rather than on value generation.1 This is unfortunate especially that it is widely accepted that a
reduced project cost does not necessarily achieve the intended best value or Value for Money
(VfM).2 Therefore, it would be wise to differentiate between project management success and
project success because “a project may be delivered successfully but may not create significant
value to justify the resources being deployed to deliver it.”3 VfM can be realised during project
delivery by concentrating on the balance between the constituents of the triple constraint:
budgeted cost, planned time and specified quality.4 Alliance contracts can play a major role in
achieving this balance.

Fig. 4: Typical alliance compensation model5

7.4.1 Selection of NOPs

The VfM process starts with the selection of NOPs whose expertise and qualifications, rather than
their lowest bids, are the major drivers of the selection process. It is often the case that “the

1
cf. Bertelsen (2002)
2
cf. Akintoye et al (2003)
3
MacDonald et al (2013), pg. 281
4
cf. MacDonald et al (2013)
5
Love et al (2011), pg. 128
- 49 -

contractor with the lowest bid will have the smallest margin. If this margin is depleted then there
is a possibility they may adopt opportunistic practices to recover any losses that may have been
made”1; thus, eroding any opportunity for VfM.

7.4.2 Early Involvement of Contractor and Specialist Suppliers

Early Contractor Involvement (ECI) is an important feature of a project alliance whereby the
contractor provides his feedback on the feasibility of the VfM proposals and on the constructability
of the design before the design is finalised and becomes contractually binding and before the
construction phase is reached.2 ECI also contributes to genuine improvements in productivity by
facilitating a faster and clearer start, properly established communication system, better site
management, increased innovation and creative problem solving, and reduced number of
variations.3 It is equally important to involve key specialist suppliers at the earlier stages of the
design process; otherwise, “a great deal of potential value may be lost.”4

7.4.3 No-Claim/No-Blame Culture

Another important characteristic of a project alliance is the no-claim/no-blame culture that


promotes innovation in project participants who would otherwise tend to be “reluctant to engage
in open and collaborative problem-solving” in traditionally procured projects due to their concern
“about the repercussions of failing to deliver on the plan.”5 This momentum towards innovation
and continuous improvement is a direct driver in the VfM process. The no-claim/no-blame culture
also provides an opportunity that allows project participants to have an open dialogue on issues
that each party might foresee as a probable cause for any non-value adding activity known as
construction waste.

7.4.4 Risk Management and Risk Sharing

In the traditional project procurement context, the contractor shall price all risks that are improperly
allocated to him as a contingency thus inflating the final price. However, in a competitive
construction sector where the client’s bargaining power is at its most, the contractor will be forced
to accept the risks without adding any such contingency to his price but will later suffer when the
risks start to materialise. Project alliancing offers proper risk management and risk sharing via a
risk/reward compensation model that “provides incentive for participants to deliver outstanding

1
Love et al (2010), pg. 419
2
cf. MacDonald et al (2013)
3
cf. Pheng et al (2015)
4
Black et al (2000), pg. 429
5
Lloyd-Walker et al (2014), pg. 231
- 50 -

outcomes in KRAs and ensure that all participants receive an equitable share of the risk or
reward.”1

7.5 Pitfalls and Weaknesses of Project Alliancing

The previous section has highlighted the benefits of adopting alliancing in the award and delivery
of construction projects rather than the traditional models which are currently being implemented.
However, project alliancing has also attracted wide criticism from academics and practitioners
due to the problems and setbacks it carries along either during the award or the delivery
processes of construction projects. The result would be something probably opposite to the
purpose of adopting project alliancing in the first place. Some critical issues of project alliancing
are discussed further below.

7.5.1 No Accountability for Individual Non-performers

With the no-blame culture and the risk/reward compensation of alliancing, parties to the alliance
share all the risks and are not compensated for a single party’s poor performance; instead, all
parties collectively suffer and that party is not liable for his own lack of performance.2

7.5.2 Misperception of Cost Underrun

The alliance is considered to be a success when the Actual Outturn Cost (AOC) is less than the
Target Outturn Cost (TOC), hence, resulting in parties sharing different percentages of the cost
underrun. However, in some public-sector projects, “the fact that the owner also shared in the
underrun was overlooked and there was a perception amongst the general public that budgets
had been set too high”3; thus, raising questions about the transparency of the award process and
the competitiveness of the original tender.

7.5.3 Risks of Deadlocks

An important feature of a pure alliance contract is the exclusion of a dispute resolution clause in
favour of the compelling requirement to resolve all disagreements amicably by the Alliance
Leadership Team.4 However, the unanimous nature of decision making in the ALT makes it
sometimes difficult to reach a consensus on how disagreements should be addressed and
resolved, thus reaching a deadlock that might escalate the disputed issues further. 5

1
Love et al (2011), pg. 129
2
cf. Lahdenperä (2009)
3
Davies, J. (20/03/2018), Internet source
4
cf. s. n. (2008), International Association of Dredging Companies
5
cf. Campbell / Reuer (2001)
- 51 -

7.5.4 Exclusion of Supply Chain from the Alliance

The composition of some alliances is limited to the owner, main consultants, designer and main
contractor; hence excluding any role for trade contractors, speciality consultants or key expert
suppliers in the alliance.1 This eventually “limits the extent of possible collaboration and therefore
benefits that can be obtained.”2

7.5.5 Cost and Time Uncertainties

Completion date and cost, which are determined at the inception of an alliance contract, are the
targets against which the pain-share/gain-share mechanism is driven; however, the uncertainty
on actual time and cost shall remain until project completion.3 Accordingly, there are no
assurances in the interim that the rewards will be realised.

7.5.6 Bankability Issues with Alliance Contracts

Due to the uncertainty on time and cost in alliance contracts, there is a risk that the banks would
be reluctant to finance the project. Accordingly, banks will seek recourse by exercising greater
due diligence and allowing for a financing structure that mandates for a “contingent equity in the
form of sponsor standby commitments triggered by delays or cost overruns, or even sponsor
completion guarantees; and cost overrun debt facilities, typically attracting a higher margin and
repayable by a cash sweep.”4 Moreover, due to the no-dispute clause feature of an alliance
contract and the requisite for consensus-based decisions, “banks will generally prefer to see a
deadlock breaker to cover any prolonged failure of the alliance board to agree on a material
issue.”5

1
cf. Davies, J. (20/03/2018), Internet source
2
Davies, J. (20/03/2018), Internet source
3
cf. Cornwell, P. / Millhouse, A. (25/02/2018), Internet source
4
Cornwell, P. / Millhouse, A. (25/02/2018), Internet source
5
s. n. (2008), International Association of Dredging Companies, pg. 4
- 52 -

8 The FAC-1 Framework Alliance Contract

A recent development in project alliancing was observed in 2016 through the formation and
launching of the standard-form Framework Alliance Contract (FAC-1) in the UK.1 The drivers for
such an initiative were a combination of the need for an alliance contract and the
acknowledgement of the framework contract as “an agreement between one or more contracting
authorities …, the purpose of which is to establish the terms governing contracts to be awarded
during a given period.”2 Further, it was also accepted that “the general lack of standard-form
framework arrangements makes it difficult for clients to procure frameworks on a consistent
basis.”3 Accordingly, it has become a belief that “significant savings, benefits and other
efficiencies in construction can be achieved by effective frameworks through the longer term
arrangements, non-adversarial relationships, common incentives, integrated teams and objective
assessment of performance associated with such frameworks.”4

The FAC-1 framework alliance contract can be considered as the UK version of the project
alliance agreement adopted in the Australian alliancing model. However, contrary to the PAA,
FAC-1 is not a project contract form but is “designed to help plan and integrate any number of
related two-party contracts and/or related projects for works.”5 FAC-1 is used as an annexe to the
project contracts that have been formed bilaterally between the client and individual project
participants. Thus, the project contract shall remain in full force and effect and shall take
precedence over the Framework Documents in case of any discrepancy.6 FAC-1 is compatible
with the different standard forms of contract such as FIDIC7; thus, it adds the merits of a relational
multi-party contract to the rigid and transactional bilateral project contracts. In fact, FAC-1
imposes another set of obligations on parties to work in a collaborative manner as mandated by
project alliancing.

8.1 FAC-1 Structure

A typical multi-party structure of FAC-1 is comprised of Client(s), an Alliance Manager and other
Alliance Members, such as the contractor(s), designer(s), consultant(s), etc., with external links
to stakeholders and the supply chain as illustrated in Figure 5. Individuals are chosen by the

1
cf. King’s College London (17/03/2018), Internet source
2
s. n. (2016), Local Government Association & National Association of Construction Frameworks, pg. 3
3
s. n. (2012), Government Construction Strategy, pg. 51
4
s. n. (2016), Local Government Association & National Association of Construction Frameworks, pg. 4
5
Mosey (2017a), pp. 6-7
6
cf. FAC-1 (2016), Clause 1.5.3
7
cf. Mosey (2017b)
- 53 -

Client(s), Alliance Manager and other Alliance Members from their own organisations to form a
Core Group which shall be responsible for monitoring and warranting the proper implementation
of FAC-1.1

Fig. 5: Typical FAC-1 structure2

8.2 Proposed Benefits of FAC-1

With the consensus-based governance provided by the FAC-1 structure, members of the Core
Group are empowered to take unanimous decisions on controversial matters related to the
alliance.3 Moreover, the FAC-1 structure ensures “that all parties are aware of each other’s roles
and that their respective contract terms are consistent. This can motivate the mutual trust among
team members necessary for successful joint working.”4 The multi-party structure provided under
FAC-1 also allows for the formation of performance measurement and reward systems based on
agreed objectives between all Alliance Members.5

8.2.1 Savings in the Procurement of Works

The use of FAC-1 offers clients and bidders tangible savings in the cost and time that would
otherwise be spent in the preparation of bespoke frameworks.6 FAC-1 sets out the procedures
for the direct and/or competitive awards of the Project Contracts as well as for the later
implementation of the awards.7 The award procedures “explain the procurement model for each

1
cf. FAC-1 (2016), Clause 1.6
2
Mosey (2017b), pg. 2
3
cf. Mosey (2017a)
4
Mosey (2017c), pg. 398
5
cf. Mosey (2017a)
6
cf. Mosey (2017b)
7
cf. FAC-1 (2016), Clause 5 and Schedule 4 Parts 1 & 2
- 54 -

Project, including any intended Orders for Pre-Contract Activities …, the sources and timing of all
contributions to design, Supply Chain engagement, costing, programming and Risk Management,
and incorporating the required approach to BIM.” 1

8.2.2 Risk Management

Pursuant to Clause 9.2 [Risk Management] Alliance Members shall identify the risks relevant to
their respective projects and shall propose collectively the required Risk Management actions and
mitigation plans.2 A Risk Register, which includes the likelihood of occurrence, impact, action by,
and time frame, is formed and regularly updated by the Alliance Manager for the approval of the
Core Group.3 The Early Warning mechanism set out in Clause 1.8 also plays an important role in
identifying and informing other Alliance Members and the Core Group of any issue that might
pose a threat or complication to the Alliance.4

8.2.3 Improved Value

Achieving Improved Value through FAC-1 is associated with the “performance of ‘Alliance
Activities’ backed by ‘Objectives’, ‘Success Measures’ and ‘Incentives’, prescribed by the parties,
and by a ‘Timetable’ which sets out the nature, sequence and duration of an agreed activity for
each Alliance Member.”5

Supply Chain Collaboration, defined under Clause 6.3, introduces another opportunity for
achieving Improved Value through the coordinated appointment, by the client and tier-1
contractors, of subcontractors and suppliers.6 The purpose of this collaboration is to ensure that
the solutions agreed and provided by Alliance Members are consistent with the pre-set Objectives
and would result in “longer term, larger scale subcontracts that attract reduced costs, improved
warranties and improved social value.”7

Early involvement of Alliance Members in the project is regulated by Clause 7 [Orders and Pre-
Contract Activities] that “provides a contractual system for the Client to issue early Orders
instructing works, services or supplies in advance of award of a Project Contract, without the cost
or risk involved in bespoke letters of intent, to allow early involvement of tier-1 and tier-2/3
contractors.”8

1
FAC-1 (2016), Schedule 4 Guidance Note, pg. xii
2
cf. FAC-1 (2016), Clause 9.2
3
cf. FAC-1 (2016), Clauses 9.3 & 9.4 and Schedule 3
4
cf. FAC-1 (2016), Clause 1.8
5
Trowers and Hamlins (27/03/2018), Internet source
6
cf. Mosey (2017c)
7
Mosey (2017c), pg. 404
8
Trowers & Hamlins (27/03/2018), Internet source
- 55 -

8.3 Observations on FAC-1

Although FAC-1 is still a new standard form that is not fully tried and tested, yet there are some
critical observations on its provisions. Some critics consider that FAC-1 does not differ from
traditional frameworks already in use where “each party enters into a bilateral contract for the
delivery of individual projects and retains the associated risk and responsibility … Furthermore,
the approach to generating prices for individual projects is unclear and does not sit comfortably
with either a competitive or a direct award procedure. Prospective users should not, therefore, be
misled into thinking that FAC-1 offers a ready-made form of alliance contract, nor that it represents
a step change from other forms available in the market.”1

Pursuant to Clause 3.2 [Representation of Client] the Alliance Manager is authorised by the Client
to act on his behalf.2 This is to be compared to the appointment of the Engineer in the FIDIC forms
and to be contrasted with that of the Alliance Manager in the project alliance contract. In the
former, the Engineer “shall be deemed to act for the Employer”;3 whereas, in the latter, the
Alliance Manager shall be selected by and report to the Alliance Leadership Team. 4 Accordingly,
the role of the Alliance Manager as described under FAC-1 shall carry with it the same concerns
about impartiality as is the case with the Engineer under the FIDIC forms.

FAC-1 includes a tiered process for dispute resolution which is detailed under Clause 15
[Problem-Solving and Dispute Resolution].5 This is to be contrasted with project alliance contracts
which “have traditionally not included a formal dispute resolution procedure.”6 Accordingly, the
dispute resolution clause in FAC-1 is not consistent with the essence of project alliancing which
doesn’t prescribe a dispute resolution mechanism because “a fundamental principle of alliancing
is that all issues will be resolved within the alliance … The inclusion of a prescribed dispute
resolution process is unnecessary, illogical and inappropriate.”7

A provision for Incentives is specified under Clause 2.4 of FAC-1 to compensate Alliance
Members for the achievement of Objectives and/or Targets.8 However, there is no clear pain
share scheme that sets the limit of Alliance Members’ financial liability towards the Client in the
event of their failure to achieve the agreed Objectives and/or Targets.

1
Hughes-D’Aeth, J. (02/02/2018), Internet source
2
cf. FAC-1 (2016), Clause 3.2
3
FIDIC (1999), Sub-Clause 3.1(a), pg. 10
4
cf. DTF Victoria (2010)
5
cf. FAC-1 (2016), Clause 15
6
DTF Victoria (2010), pg. 15
7
Ross (2003), pg. 13
8
cf. FAC-1 (2016), Clause 2.4
- 56 -

8.4 FAC-1’s Approach to Problematic FIDIC Clauses

The fact that the framework provides for a non-adversarial relationship between Alliance
Members, prevents project participants from exploiting others’ shortcomings with regards to any
obligation under the contract. Critical FAC-1 clauses shall be discussed further below in relation
to similar clauses form the FIDIC Red Book.

8.4.1 Clause 1.8 – Early Warning

FAC-1 Clause 1.8 [Early Warning] applies to all matters that might imperil the alliance or even the
performance of any of the Alliance Members.1 For example, FAC-1 Clause 1.5 [Errors, Omissions
and Discrepancies] addresses the same issues of ambiguity and discrepancy in contract
documents that are discussed under FIDIC Sub-Clause 1.5 [Priority of Documents], except that
under FAC-1 an Alliance Member gives an Early Warning to the other Alliance Members pursuant
to Clause 1.8.2 Accordingly, the Core Group shall be convened by the Alliance Manager to discuss
the matter at hand and unanimously agree on the right way forward3. This is to be contrasted with
the role given by FIDIC solely to the Engineer to provide interpretations to such ambiguities.
Similarly, Clause 1.8 [Early Warning] applies to other disputable matters such as delayed
drawings, late access to the site, unforeseeable physical conditions, the manner of execution,
and delayed tests, which in FIDIC contracts require a decision to be exclusively made by the
Engineer whose neutral role is dubious to that effect.

8.4.2 Clause 4 – Agreed Prices

Pursuant to Clause 4.3 each Alliance Member can specify his profit and overheads separately as
part of the project agreed price if so is allowed under the Framework Alliance Agreement. 4
Whether the Agreed Prices have been reached at in a direct and/or competitive award
procedures, identifying the profit and overheads “can ensure that alliance members proposing
cost savings do not erode their own margins.”5 A percentage rate representing the overhead and
profit is normally specified in the Appendix to Tender of the FIDIC Red Book and is applied on
two occasions: provisional sums and variations. For the evaluation of provisional sum items
overhead and profit are applied to the “actual amounts paid (or due to be paid) by the Contractor”.6
For the evaluation of variation orders if no rates in the contract are “relevant for the derivation of
a new rate or price”, then overhead and profit shall apply to the “reasonable Cost of executing the

1
cf. FAC-1 (2016), Clause 1.8
2
cf. FAC-1 (2016), Clause 1.5
3
cf. FAC-1 (2016), Clause 1.8
4
cf. FAC-1 (2016), Clause 4.3
5
Mosey (2017c), pg. 403
6
FIDIC (1999), Sub-Clause 13.5(b), pg. 38
- 57 -

work”.1 In both occasions, contractors tend to inflate the actual/reasonable costs in order not to
lose the opportunity of securing a considerable amount of overhead and profit.

8.4.3 Clause 8 – Payment

If either the Alliance Manager or the Client fails to issue Payment Notices within the stipulated
time pursuant to Clause 8.4 [Payment Notices to Alliance Members] or Clause 8.5 [Payment
Notices to Alliance Manager], then the relevant payment applications shall be considered as
Payment Notices.2 Accordingly, the time for payment by the Client shall run from the date of the
payment application. This is contrasted with FIDIC where an interim payment certificate is a
requisite for the release of any payment due for executed work. However, like FIDIC, non-
payment by the Client of the amounts due entitles the Alliance Member to give a notice of
suspension and then to “suspend performance of any or all of its notified obligations to the Client
… until the payment due is received in full.”3 There is no clear provision under FAC-1 that entitles
the Alliance Member to terminate the Contract if payment remains due as is the case with FIDIC
Sub-Clause 16.2(a). However, pursuant to Clause 14.4.1 the Alliance Member “may terminate its
own appointment under the Framework Alliance Contract by notice with immediate effect” 4 subject
to providing the proper notice under Clause 14.4 for Client’s breach and allowing enough time for
considering the Core Group’s recommendation.5

8.4.4 Clause 9 – Change and Risk Management

Pursuant to Clause 9.1, “any change to the scope or nature of the Framework Programme or to
any other aspect of the Framework Alliance Contract shall be by agreement of all Alliance
Members”6 unless agreed otherwise. This is to be contrasted with FIDIC Sub-Clause 13.1 [Right
to Vary] whereby the Contractor “shall execute and be bound by each Variation”7 instructed by
the Engineer.

8.4.5 Clause 14 – Duration and Termination

Pursuant to Clause 14, termination of an Alliance Member or of the Framework Alliance Contract
may occur, subject to providing the proper notices, only if pre-set Targets are not achieved, an
Alliance Member becomes insolvent, or in case of breach by an Alliance Member.8 It is therefore

1
FIDIC (1999), Sub-Clause 12.3, pg. 36
2
cf. FAC-1 (2016), Clauses 8.4 & 8.5
3
FAC-1 (2016), Clause 8.10, pg. 9
4
FAC-1 (2016), Clause 14.4.1, pg. 12
5
cf. FAC-1 (2016), Clause 14.4
6
FAC-1 (2016), Clause 9.1, pg. 9
7
FIDIC (1999), Sub-Clause 13.1, pg. 36
8
cf. FAC-1 (2016), Clauses 14.2, 14.3 & 14.4
- 58 -

clear that there is no provision under FAC-1 that allows the Client to terminate for convenience
as is the case in FIDIC Sub-Clause 15.5 [Employer’s Entitlement to Termination].

8.5 Barriers to the Adoption of FAC-1 in the UAE

There is obviously a scarcity of literature on the adoption of FAC-1 which was introduced in 2016
as a standard-form multi-party framework alliance contract that is intended to complement and
integrate the various bilateral project contracts. Reports that are promoting FAC-1 have confirmed
that over £9.5 billion worth of private and public sector projects have adopted FAC-1 in the UK
during the first year of its launch.1 Other reports have also revealed that considerable savings
have been achieved in these projects during the award and post-award stages. Moreover, FAC-
1 has been receiving lots of praise which have led to its use with standard project contract forms
by the European Bank for Reconstruction and Development (EBRD) and several other countries. 2
However, there are no recorded data regarding the possible barriers to the implementation of
FAC-1 in the countries which have already started adopting it let alone in the UAE where it is a
completely new topic. Therefore, it would be logical to consider the disadvantages and risks
associated with project alliancing as the potential impediments to the proper and successful
adoption of FAC-1 in the UAE. Similarly, other issues that are linked to the provisions of FAC-1
and are perceived as barriers to the implementation will also be discussed.

8.5.1 Nonbinding Arrangement

FAC-1 can end up being a nonbinding agreement because there is always a risk of the FAC-1
being terminated if targets are not achieved and no corrective actions have been agreed upon. 3
Pursuant to Clause 14.5, termination of FAC-1 doesn’t mean a termination of the original project
contract which shall remain in full force and effect until such termination is also effected under the
individual project contracts.4 Thus, the prospects of the multi-party contract will cease and
individual parties will only become bound by the terms of the transactional bilateral contracts
already in existence between the client and each member.

8.5.2 Lack of Commitment

The undisputable criteria for a successful project alliance and/or framework alliance are the
individual and collective commitments of the parties to work in a collaborative manner, establish
a trusting relationship, and invest in building a cohesive team.5 However, all these efforts may be

1
cf. King’s College London (17/03/2018), Internet source
2
cf. Mosey (2017c)
3
cf. FAC-1 (2016), Clause 14.2
4
cf. FAC-1 (2016), Clause 14.5
5
cf. Osborne Clarke (21/12/2017), Internet source
- 59 -

jeopardised if the cultures and leadership of the participating organisation do not instil such
commitments in its respective project members. Moreover, commitments for achieving alliance
goals are guided by strong and positive communication between all project participants because
“weak communication between respective parties will lead to the disruption and ineffectiveness
of the delivery and coordination system in addition to … low productivity and quality”. 1

8.5.3 Opportunistic Behaviours

An appropriate incentive structure in a project alliance helps reduce opportunistic behaviours


through the cooperative relationships between project partners.2 However, partners have
tendencies, influenced by traditional practices, to act in an opportunistic manner that “brings
immediate realization of individual goals without facing the uncertainty of long-term returns.”3 The
attitude of prioritising individual over collective benefits will definitely jeopardise the attainment of
the objectives set by the alliance and might even bring the whole alliance to an end.

8.5.4 Cyclical Nature of the Construction Industry

The risk/reward system in a project alliance can only operate in the presence of benchmarking
that helps in defining alliancing success measures which are “the agreed basis for determining
the achievements of the Objectives and for measuring the performance of the Alliance
Members.”4 However, the cyclical nature of the construction industry is considered a major
obstacle to benchmarking5 and has become evident after the 2007 global financial crisis that
impacted drastically the construction sector in the UAE.6

8.5.5 Resistance to Change

FAC-1 “is intended to be usable in any country under any legal system, and provides for its
contract terms to be supplemented or amended by particular legal requirements in order to comply
with the laws of the jurisdiction stated in the framework alliance agreement”7; however, its
adoption in the UAE is not within arm’s reach. The reason is that FAC-1 is still not fully tried and
tested, plus in the UAE there is a general lack of long term commitment to change from the
traditional models that are currently being used in the award and delivery of construction works.8
In the UAE there are no real examples of project alliances, but there are examples of joint ventures
that are created between contractors only to carry out large-scale projects and which have proved

1
Abdullah et al (2009), pp. 6-7
2
cf. Laan et al (2011)
3
Park / Ungson (2001), pg. 42
4
FAC-1 (2016), Schedule 1 Part 2 Guidance Note, pg. viii
5
cf. Alinaitwe (2009)
6
cf. Al-Malkawi / Pillai (2013)
7
Mosey (2017c), pg. 405
8
cf. Kanafani (2015)
- 60 -

to be ineffective most of the time. Resistance to change is even observed in the use of the latest
FIDIC standard forms. For example, some contracting parties are accustomed with the provisions
of FIDIC’s 1987 publication of the ‘Conditions of Contract for Works of Civil Engineering
Construction’ and are still using it rather than the 1999 Red Book which was issued later. This is
not to mention that the 2017 edition of the FIDIC Red Book is far from being implemented in the
near future.

8.6 Measures for Overcoming Barriers to FAC-1

For a project alliance to succeed there is an obligation on the parties to exert the necessary joint
efforts to overcome the barriers which have been identified earlier as being linked to the partners
themselves. The key to overcoming the barriers to FAC-1 and achieving the alliance objectives is
through partners’ cooperative relationships whereby “organizations need not only to carefully staff
their projects; they also have to interact with the people employed such that attitudes of
commitment are reinforced and rewarded.”1

Alliance members should also direct their efforts towards achieving collective long-term gains
rather than individual short-term gains by moving away from “using claims to maximise recovery
on projects”2 and by adhering to collaborative relationships and non-opportunistic behaviours.
Moreover, “by linking the commercial interests of all parties directly to best-for-project outcome,
the participants are encouraged to work as an integrated team to identify, eliminate and/or
mitigate all risks regardless of the source, including in some cases risks that no single party could
manage effectively on its own.”3

An alliance team that is committed to achieving the alliance objectives should be driven by strong
and effective communication carried out internally within organisations and externally between
the respective alliance organisations.4 An open and transparent communication should be
ascertained by a no-blame culture that would encourage teamwork, resolve disagreements before
materialising into disputes, and would guarantee “safety for those experimenting and exploring
alternatives thus triggering innovation.”5 Such effective communication is also critical as it would
ensure “genuine open book accounting, so that accurate figures for forecasts, costs, expenses
and profits are freely available to all parties, without question.”6

1
Laan et al (2011), pg. 675
2
Osborne Clarke (21/12/2017), Internet source
3
Ross (2003), pg. 7
4
cf. Osborne Clarke (21/12/2017), Internet source
5
Lloyd-Walker et al (2014), pg. 242
6
Osborne Clarke (21/12/2017), Internet source
- 61 -

9 Discussion and Conclusions

9.1 Summary

The trend in the construction industry has been and still is the adoption of traditional practices for
the award and delivery of works. This has created a state of inefficiency, loss of productivity, low
profitability, adversarial relationships, less innovation and decreased value for money in a
business environment that can be described as uncertain and turbulent. More specifically “in the
present big, complex and speedy projects, traditional project management is simply
counterproductive; it creates self-inflicted problems that seriously undermine performance.”1 The
Client’s decision to transfer risks that are within his control to designers and contractors is often
considered the main cause of the adversarial relationship, commercial disputes, and deteriorating
performance.2 Moreover, in a traditional contract setting the three basic domains of a project
delivery system, namely the organisation model, operating system, and commercial terms,
operate in a way that the project eventually suffers from management by results, low team
identification with project objectives, improper risk sharing, and time and cost overruns.3 The
challenges being experienced by the construction industry have encouraged Sir Michael Latham
and Sir John Egan to ‘Construct the Team’ and ‘Rethink Construction’ in their reports of 1994 and
1998 respectively in order to find ways out of the vicious circle of traditional practices the
construction industry in the UK has been trapped in. Latham advised that “a cultural change in
the UK was needed, with components of greater trust, less adversarial and more relational
contracting, greater reciprocity and focus on the common purpose of the client’s needs.”4
Moreover, Egan concluded that the concept of the alliance is “fundamental … of how efficiency
and quality in construction can be improved and made available to all clients, including
inexperienced ones.”5

The FIDIC forms remain the most widely used international standard form of the construction
contract in UAE and the Middle East region; however, “the presence of some biased clauses in
favour of the employer in the FIDIC contracts can have serious consequences on the contractor.
This would cause the contractor to bear more risks than he is capable of, increase contingency
in the cost estimate and possibly submit a bid much higher than the expectations of the client.”6

1
Koskela / Howell (2002), pg. 300
2
cf. s. n. (1999), Australian Constructors Association
3
cf. Sayer / Anderson (2012)
4
Colledge (2005), pp. 38-39
5
Egan (1998), pg. 29
6
Rached et al (2014), pp. 297-298
- 62 -

Although the FIDIC Red Book remains a bilateral and transactional contract; however, some new
provisions have been introduced in the 2017 edition in an attempt to reduce the bias and promote
parties’ collaboration. Sub-Clause 3.8 [Meetings] of the 2017 FIDIC Red Book, for example,
stipulates that “the Engineer or the Contractor’s Representative may require the other to attend a
management meeting to discuss arrangements for future work and/or other matters in connection
with execution of the Works.”1 An important addition is Sub-Clause 8.4 [Advance Warning] that
allows each party to warn the other parties of any current or future event that would adversely
impact the execution and performance of the Works, cause delay to the completion of the Works,
or increase the Contract Price.2 Another critical feature of the new FIDIC standard-form is the
inclusion of dispute avoidance in the role of the Dispute Adjudication Board (DAB) hence
becoming Dispute Avoidance/Adjudication Board (DAAB). Pursuant to Sub-Clause 21.3
[Avoidance of Disputes], a standing DAAB shall, by joint request of the parties, “provide
assistance and/or informally discuss and attempt to resolve any issue or disagreement that may
have arisen”3 between the parties before it materialises into a dispute.

Advocates of the relational contract theory consider that the problem with the transactional
contract is that its main focus is on the transaction itself while ignoring the impact of the
relationship between parties to the contract.4 Accordingly, it became mandatory to devise an
environment of maximum flexibility, collaboration and trust between parties even to an extent that
exceeds what is explicitly mentioned in the contract. All this has led advocates of relational
contracting to propose it as a requisite for achieving this goal. A key feature of relational contracts
is “the development of team-based incentive or reward mechanisms … placing value on the
successful outcome rather than in cost, or quality reduction by one of the parties.” 5

Of the different types of relational contracts, project alliancing has emerged as an effective
alternative to the traditional contracts. Alliance contracting is a project procurement and delivery
method in which the parties work collaboratively under a multi-party contract in a manner that
embraces risk and opportunity sharing, commitment to no disputes, best-for-project unanimous
decision-making processes, ‘no fault no blame’ culture, good faith, transparency, and joint
management structure.6 Non-Owner Participants in an alliance are selected based on non-cost
criteria that relate mainly to the participants’ capabilities and past performance on similar projects,

1
FIDIC (2017), Sub-Clause 3.8, pg. 21
2
cf. FIDIC (2017), Sub-Clause 8.4
3
FIDIC (2017), Sub-Clause 21.3, pg. 102
4
cf. Van der Veen (2009)
5
Colledge (2005), pg. 32
6
cf. DTF Victoria (2010)
- 63 -

team members’ experience, homogeneity and affinity to work as part of an alliance, understanding
of the project and owner’s requirements, approach to the development of the project solution and
Target Outturn Cost, and finally the expected fees and the proponent’s response to the
commercial arrangements drafted by the owner.1 The governance structure of an alliance allows
for the formation of a collaborative team that has aligned objectives and that is incentivised to
pursue these objectives via a risk/reward compensation mechanism. Despite all the benefits that
are possible in alliancing; however, there are still some downsides to it such as the absence of
accountability for individual non-performers, risk of deadlocks in reaching at unanimous decisions,
exclusion of the supply chain from the alliance, uncertainties to cost and time, and the reluctance
of banks to finance a project alliance.

The Framework Alliance Contract (FAC-1) is “a new type of standard form which connects
multiple projects, integrates team members and sets out agreed processes for improving value
… but which is not itself a construction or engineering contract.”2 FAC-1 also features the
characteristics of an alliance contract whereby the alliance members are committed to working
collaboratively towards a common goal and would accordingly reap the financial benefits through
the performance measurement and incentive mechanisms. Other benefits of FAC-1 include
savings in the cost and time of procurement of works,3 clear risk management and early warning
procedures,4 and improved value through supply chain collaboration and early involvement of
alliance members.5 FAC-1 is compatible with any standard form of contract such as FIDIC.
Moreover, the collaborative approach of FAC-1 reflects positively on the way a FIDIC project
contract is administered. However, there are several potential barriers to the adoption of FAC-1
in UAE. Resistance to change from the traditional models is a serious concern in the UAE,
although the legal system is developed enough to cope with the requirements of alliance
contracts. Lack of commitment and effective communication can be considered as the major
impediments towards the successful implementation of FAC-1. The individual and collective
commitment of the parties guided by strong communication is an essential catalyst for working
collaboratively towards achieving alliance goals. Furthermore, “if projects focus on the framework
but ignore leadership, they create the right commercial and contractual environment but fail to
exploit it, leading to sub-optimal outcomes.”6 Despite the declared benefits; however, there are
certain preliminary observations in relation to the provisions of FAC-1 that render it closer to the
traditional contract than it is to the project alliance contract.

1
cf. DTF Victoria (2010)
2
Mosey (2017a), pg. 1
3
cf. Mosey (2017b)
4
cf. FAC-1 (2016), Clauses 1.8 & 9.2
5
cf. FAC-1 (2016), Clauses 6.3 & 7.1
6
Ross (2009), pg. 9
- 64 -

9.2 Directions for Future Research

Being a new initiative, FAC-1 has not yet received sufficient peer reviews from practitioners and
academics except for the positive feedbacks given by the people who helped in drafting and
developing the framework and who are promoting its use. Such reviews are highly needed in
order for the industry to build on the successes and avoid the failures of FAC-1. It is equally
important to identify and analyse the barriers to the implementation of FAC-1 in order to devise
the necessary measures for overcoming them. It is also necessary to conduct further research to
investigate how receptive UAE’s construction industry is to project alliancing and to framework
alliance contracts since these are still novel topics in the UAE. This is especially important in a
busy, competitive, but short-on-cash market where multi-billion large-scale projects are currently
underway or in the pipeline for Expo 2020 where time, cost, and quality extremely matter.
- 65 -

List of References

Abdullah, S., (2009), Towards Producing Best Practice in the Malaysian


Abdul Razak, A., Construction Industry: The Barriers in Implementing the Lean
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