Q9/91 Compare the use of direct labour with that of private contractors on civil engineering

works in the public sector.

(Kelvin Au Yeung 9/91)

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1.0 INTRODUCTION

Public sector is usually the major client in the implementation of civil engineering
works of a society. Owing to the different nature of individual types of works, direct labour or
private contractors may be chosen for their execution in accordance with the required capabilities
and merits. For most maintenance works, which are of a continuous and steady nature, direct
labour is considered to be a more appropriate choice for carrying out the works. However, for
large scale civil engineering projects, the use of direct labour may be considered impractical and
private contractors would commonly be selected.

In general, there are advantages and disadvantages of using direct labour and private
contractors on civil engineering works in the public sector and their merits are discussed in the
following sections.

2.0 MERITS OF USING DIRECT LABOUR

When direct labour is used, fast implementation of work is possible. This is because
work can commence once the design has been completed (or partially competed to allow for an
early start). There is no need to prepare the tender documents and go through the procedures for
calling and assessing tenders. This is particularly helpful when an emergency work is necessary
and immediate action has to be taken.

Through the use of direct labour, the client can always exercise full control of the
works. When there are numerous jobs to be done, the client can give priority to the urgent ones
and leave the others to be completed at a later stage. He can also mobilize his plant and resources
flexibly to emergency works within a short time without causing any contractual dispute. As in
the case of a private contractor, the client usually has to liaise or compromise with the contractor
for such arrangements. Very often, disputes and claims will arise causing extension of time and
extra costs to the works.

If no private contractors are involved, the administrative cost in dealing with them
can be saved. As there is not a contract between the client and the constructor, no contractual
claims and disputes in variations and extension of time will arise. Contract administration will be
largely simplified. The supervisory staff can then concentrate on the technical aspects of the
works rather than the contractual ones. Considerably less expenditure and effort are required for
taking detail measurements, preparing records and settling interim and final accounts.
Furthermore, if direct labour is employed, the client may have additional saving in cost due to
the non-profit making nature of the system. He will only have to pay for the resources and labour
used, the expenditure can exclude the profit of the contractor.
The turnover of staff in the public sector is relatively small when compared to those
of the private contractors. The labour groups are more coherent due to long term cooperation and

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better coordination between different trades can be achieved. Various operations on site may be
more easily incorporated into the works programme and higher efficiency may be attained. On
the other hand, difficulties will inevitably be encountered in coordinating the different parts of
the works if private contractors are employed because they usually sublet a large percentage of
their works to numerous sub-contractors.

As the client recruits his own supervisory staff and labour, the quality of his
personnel can be assured. In this respect, it is always impossible to assess the competence of the
private contractors' staff at an early stage. Moreover, the client is more willing to provide
training to his labour to maintain and improve their skills while the private contractors are
usually more reluctant to spend their money on these aspects as the labour is mostly employed by
their subcontractors.

Moreover, there will be no risk of bankruptcy when direct labour is employed. For a
private contractor, there is always a risk of re-entering a contract when the contractor has
financial difficulties. The situation would be worse if a lot of the works have to be completed
within a fixed period to facilitate the implementation of an important scheme. In extreme cases,
the client as well as the private contractor have to go to arbitration resulting in prolonged
disputes and loss in money. After all, the works will be substantially delayed.

If work is carried out by direct labour, the workers are more conscious to site safety
and public concerns as the client is usually the local government. Among private contractors,
some of them may treat site safety and concerns of the public in a lower key and make no
encouragement for their staff to undertake all the necessary preventive measures.

3.0 MERITS OF USING PRIVATE CONTRACTORS

Since the employment of direct labour is a long term commitment of the client, the
size of the labour force should be kept to a minimum necessity. An oversized direct labour force
would mean an ineffective use of resources since part of the force would bound to be idle during
the time of market recession. As a result, it is more practical to use private contractors for the
execution of large scale civil engineering works in the public sector.

Because of the size and nature of capital works contracts, private contractors can
utilize their resources more flexibly to cope with their needs at the time. Most often, a private
contractor will have entered into more than one contracts at a period. To share the overhead and
utilize their resources in an effective way, they would carefully plan their programme so that
their plant and resources could be utilized to a maximum among all their sites with a goal to
increase their profit. Furthermore, they can sublet small pieces of work to subcontractors who
would be more adapted to the effective execution of the particular type of work. In this way, The
efficiency of the private contractor can further be enhanced.

Moreover, It is expensive for the client to set up his own expert teams for all kinds of
special technologies in different disciplines. The purchases of special equipment and recruitment
of skilled labourers for some specific but not commonly adopted techniques are not economical.
It is much desirable to use a private contractor that possesses the required specialized experience
and equipment. The adoption of private contractors can also promote transfer of technologies.

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Usually, a lot of the international private contractors possess their own expertise and skilful
labourers. They can often bring in advance technologies and innovative designs during their
execution of the works.

Private contractors are experienced in construction. They may make

recommendations on better alternatives to the original design from a specialist's point of view.
The contractor may then submit an alternative design which is more economical or efficient, and
the client is offered with more choices. However, if direct labour is used, the designer of the
project may also supervise the construction works. Under this arrangement, it would be difficult
for him to appreciate a better alternative from his own design.

To reduce their overhead costs, the private contractors usually have great incentive to
finish their works as quickly as possible. Because of this, their programme of works would be
more carefully planned with an aim to achieve the best efficiency. Furthermore, there exists no
red-tape in the working procedure of private contractors. Paperwork through bureaucratic
communication channels which is unavoidable in the public sector will be much reduced. Formal
procedures required for the work to proceed will also be simplified.

Lastly, if a private contractor is appointed for a construction project, the liability of

the works during construction is shared by them. They are liable for the consequential risks and
damages arising from any failure caused by them in fulfilling their obligations.

4.0 CONCLUSIONS

There are both merits and demerits in the choice between the using of direct labour
and private contractors on civil engineering works in the public sector. Dependent upon the size,
nature and complexity of the works, the choice of using either of them can be assessed without
much difficulty. In general, the use of direct labour can be adopted for maintenance works or
during emergency situations, whereas private contractors should be employed for large capital
works or when competitive construction is desirable.

(1341 words)

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SUMMARY

1.0 INTRODUCTION

- Public sector is the major client.

- Different nature : required capabilities and merits.

- each has its own merits.

2.0 MERITS OF USING DIRECT LABOUR

- Fast implementation : No tendering

- Direct Control : No disputes on redeployment of resources.

- Saving in administration cost and profit of the contractor.

- Better coordination and cooperation due to low turnover.

- Better quality of labour and training.

- No risk of Bankruptcy.

- Better safety and public concern.

3.0 MERITS OF USING PRIVATE CONTRACTORS

- Use of direct labour is a long term commitment of the client.

- More effective use of resources.

- Availability of expertise and transfer of technologies.

- Alternative designs.

- Better efficiency and less bureaucracy.

- Share of liability.

4.0 CONCLUSIONS

- Both have merits and demerits.

- Direct labour better for maintenance and emergency works.

- Private contractors better for capital works.

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