Академический Документы
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PROJECTS
2012
UNMESH DHANUSHKODI
SCHOOL OF MECHANICAL, AEROSPACE AND CIVIL
ENGINEERING
(MACE)
TABLE OF CONTENT
TABLE OF CONTENT ...................................................................................................................... 2
LIST OF FIGURES ............................................................................................................................ 5
LIST OF TABLES .............................................................................................................................. 6
ABSTRACT...................................................................................................................................... 7
DECLARATION ............................................................................................................................... 8
INTELLECTUAL PROPERTY STATEMENT......................................................................................... 9
ACKNOWLEDGEMENTS ............................................................................................................... 10
1. INTRODUCTION ....................................................................................................................... 11
1.1OVERVIEW.......................................................................................................................... 11
1.2 AIM & OBJECTIVES ............................................................................................................ 12
1.3 SCOPE AND LIMITATIONS ................................................................................................. 12
1.4 DEFINITIONS ...................................................................................................................... 13
1.5 GUIDE TO CONTENTS ........................................................................................................ 14
2. RESEARCH METHODOLOGIES.................................................................................................. 16
2.1 INTRODUCTION ................................................................................................................. 16
2.2 KEY WORDS ....................................................................................................................... 16
2.3 ONLINE SEARCH PROCEDURE ........................................................................................... 16
2.4 RESEARCH FOR CASE STUDY ............................................................................................. 18
2.5 SUMMARY ......................................................................................................................... 18
3. LITERATURE REVIEW ............................................................................................................... 19
3.1 INTRODUCTION ................................................................................................................. 19
3.2 DEFINITONS OF CONTRACT STRATEGY ............................................................................. 19
3.3 IMPORTANCE OF CONTRACT STRATEGY ........................................................................... 20
3.4 ROLE OF THE CLIENT ......................................................................................................... 26
3.5 CONTRACT STRATEGY AND PROJECT MANAGEMENT ...................................................... 28
3.6 CONTRACT STRATEGY AND RISK MANAGEMENT ............................................................. 30
2
LIST OF FIGURES
Figure 1: Organisational choices for project and construction management
Figure 2: Contractual procedure involved in Traditional Procurement Method
Figure 3: Contractual procedure involved in Design and Built Procurement Method
Figure 4: Contractual procedure involved in Management Contracting
Procurement Method
Figure 5: Nature of various Payment Terms
Figure 6: Flow chart for mechanism to be follwed while a Compensation Event
Figure 7: Gateshead Millennium Bridge
Figure 8: Crane used for Gateshead Millennium Bridge
Figure 9: Before the construction of Hungerford Bridge
Figure 10: The new Hungerford Bridge
Figure 11: Graphical Representation of key factors involved in Management of
London Olympic Park
Figure 12: Pie chart representing the distribution of Management Authority
involved in London Olympic Park
Figure 13: A complete view of London Olympic Park 2012
Figure 14: A complete view of The Montreal Olympic Complex 1976
LIST OF TABLES
Table 1: List of data source used for search strategy
Table 2: Main features of the FIDIC Red, Yellow and Silver books
Table 3: Various NEC options along with their Incentives, Financial and other Risks
Table 4: Various NEC options used in London Olympic Park along with their Usage
and Rationale
Table 5: A Comparison of physical Condition of clauses in Traditional and NEC
form of Contract
ABSTRACT
There are many numbers of projects taking place around the world and contracts
are signed for each project comprising of major firms in action. The client parties
shall quote their title objective in the contract and expect the contractor to abide
by their agreement for mutual benefits. This shows the importance of contract
strategy. This research is aimed at exploring the different types of contract
strategy in construction industry to determine their time of application. A
comparison of Traditional method of contracting with the modern form of
contracting will be executed as a part of research.
The research will be carried out with the help of several journal articles and books
by major contract and project management authors. The authors intention is to
first enlighten the importance of contract strategy to the readers by reviewing
different authors view on role of various project participants and project
management in contracts. The second part of this research explores the different
types of contracts and case studies are conducted based on them which reflect the
different trends of contract options considered over a period of time. The later
parts of the research consist of a comparison between the Traditional form and
NEC form of contracts with the concept derived from project records.
It is concluded the NEC contracts prove to be more efficient when it comes to
complex and high risk projects and clients role plays a major part in the project
success. It is considered that the findings will be of interest to project managers for
larger and complex engineering and construction projects in any country.
DECLARATION
No portion of the work referred to in the dissertation has been submitted in
support of an application for another degree or qualification of this or any other
university or other institute of learning.
The
University
Librarys
regulations
http://www.manchester.ac.uk/library/aboutus/regulations)
and
(see
in
The
ACKNOWLEDGEMENTS
I consider my obligation to acknowledge and express my gratitude to my
supervisor Mr. Peter Thompson for his guidance, assistance and invaluable
support throughout the dissertation.
I would like to thank the University of Manchester for providing me this
opportunity for submitting this research by providing me essential resources.
I would also like to thank my family and all my friends who were helpful in
completing this dissertation by motivating me and supporting me whenever I
needed them.
10
1. INTRODUCTION
1.1 OVERVIEW
The recent development around us shows us that the world is fast growing. For
these developments to take place it requires more than just one field in operation.
For instance, in a construction process there are so many groups of entrepreneurs
involved like suppliers, buyers and builders. The relationships among these parties
are maintained by forming contract. A contract is a legal agreement made between
two or more parties for a delivery of certain services in return for money or any
other value. In past, promises were made in place of contract where in several
disputes arose; due to which the legal entities are made in modern times. The
study taken into consideration here belongs to the construction industry sector
however there may also be certain sections relating to other industrial sectors.
This shall be due to the fact that the latest trend in carrying out any project entails
integration of various engineering sectors.
In a civil engineering construction contracts the Contractor obligates to carry out
works of construction and other ancillary obligations. Majority of the civil
engineering works are performed under the contract which requires the
Contractor to finish the work and the Client to pay for it. The main functions of a
contract are:
1) To specify the work to be done,
2) The amount to be paid,
3) To assign responsibility to the concerned parties to finish the work and
4) Decide who takes charge for the unexpected events if they occur.
Based on these, there are different types of contracts used in the construction
industry; this research is focussed to explore them.
11
To look into the merits and demerits of various contract procedures for the
given situation.
who are on the verge of pursuing an engineering project and Contractors intending
to catch the Employers attention. The study will also be helpful to other parties
such as, project management representatives (employed by the Client) for signing
lucrative deals by examining the results.
The civil engineering contracts existing within a procurement and legal
environment may affect them in their interpretation and operation. The study may
not necessarily be effective to all the problems in contracting world. The research
work for this study is limited to a set of peer reviewed journal articles and
interpretation and conclusion will revolve around the paper works only. Due to the
time constraints no site works are done and no construction professionals are to
be approached.
1.4 DEFINITIONS
Project
A project is an investment of resources to produce goods and services. A project
can be any new structure, plant, process, system or software, large or small, or
replacement, refurbishing, renewal or removal of an existing one. It is a one-off
investment.
Programme
A programme of projects means a set of related projects. A project programme
means a list of activities for a project showing the dates for starting and finishing
them. It is also called a Schedule.
Project Management
Project management is the planning, organisation, monitoring, and control of all
aspects of a project and the motivation of all involved to achieve project objectives
safely and within a defined time, cost and performance. (Association of Project
Managers, 1995)
Project Manager
The (NEC, 2005) states the Project Manager is appointed by the Employer, either
from his own staff or from outside. His role within the ECC is to manage the
13
contract for the Employer with the intention of achieving the Employers
objectives for the completed project.
The Client and Contractor
The Client is the natural or legal person/individual who carries out a construction
project for him or another person/organisation that took the initiative of the
construction.
The
Contractor is
the
one
responsible
for
day-to-day
oversight
of
collection methods applied by the author for selection of the resources are
mentioned.
Chapter 3 reviews the importance of contract strategy into the construction
industry. It explains the need for introducing the project management into the
contract strategies. The roles played by the Client and Project Manager are
depicted and their impacts are analysed.
Chapter 4 provides an outline of the various procurement strategies used in the
construction industry. It offers background information of the Clients choice of
procurement for various situations and the terms of payment involved in the
contract.
Chapter 5 describes the different forms of contracts employed in general industrial
purposes. It explains about the standard conditions of contract and their
applications towards the construction industry. The forms of contracts such as
Traditional, FIDIC, JCT and NEC are explained in detail in this chapter.
Chapter 6 analyses the different projects which took place in recent times for
drawing out a comparison between the forms of contracts. The main differences
between the Traditional form of contracts and NEC form of contracts are compared
and contrasted stating the most effective one of them for the future use.
Chapter 7 focuses on the authors comments about this entire research. It
comprises of two parts the first one being the findings throughout this dissertation
emphasising the trends being followed by the Clients/Contractors along with their
scope and limitations. The second part consists of the authors recommendations
for the future use and applicability of project management in construction
industry.
Chapter 8 concludes the research by listing the objectives met by the author and
other key findings achieved en route to meeting the objectives.
15
2. RESEARCH METHODOLOGIES
2.1 INTRODUCTION
This chapter deals with the selection criteria for the various articles present in this
dissertation. This section describes various procedures followed and the selection
criteria of the author in choosing the sources. The different key words used along
with their application in online search engines are listed in this chapter.
The search was conducted to extract the study materials used for the topic
Contract Strategy for Construction Projects in the course Management of Projects.
There are several journal articles selected for the purpose of conducting this
research. The author's interest in the field of study played a major role in the
selection. The search strategies applied to find the relevant articles are given
below.
Conditions of contract
following tools were useful in conducting the search and detecting the relevant
sources for the study.
Search Engines
Journal Names
Construction Innovation
Catalogue
Google Scholar
ScienceDirect
Construction Technology
Management
Centre)
Countries (JCDC)
Google Scholar
Google Books
Facilities
Journals
Open Thesis
Architectural Management
ICE Proceedings
ICE Proceedings: Engineering Divisions
ICE Selected Engineering Papers
International Journal on Recent Trends in
Engineering & Technology
Journal of the ICE
New Civil Engineer (NCE)
Proceedings of ICE - Civil Engineering
Table 1: List of data source used for search strategy
By accessing the above tools several papers were found in relation to the keywords search applied. However the majority of sources selected were books
17
written by the project management theorists. The selected books and other articles
were produced to the supervisor and with his acceptance and guidance the
research was moved forward.
2.5 SUMMARY
The selection of resources used for carrying out this research was depicted in this
section. The list of different journal names and the methods applied to find the
related articles were explained. Finally the work was started with the aim of
learning important lessons in the field of project management by reviewing the
articles. The usage of sources acquired can be seen in the upcoming chapters.
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3. LITERATURE REVIEW
3.1 INTRODUCTION
The importance of contract strategies will be reviewed in this chapter. The author
discusses about the contract strategy and their effective application in
construction field with the help of different authors comments. This literature
review highlights the role Project Management can play in execution of contracts
methodologies of the industry carrying out the work. There is a lot clearer
statement when compared to the above one stated by Perry (1985), who goes by
saying that: The organisational and contractual policies which are chosen for the
execution of a specific project. Though it can be considered as the better one when
compared with its predecessor the author still feels awkward to move forward
with the available concepts. Both the definitions do not adequately explain the
features of the contract strategies. However there is a definition provided by
Procurement Guide: Procurement and contract strategies (2003) in Procurement
and contract strategies achieving excellence in construction procurement guide.
The definition states that The contract strategy determines the level of integration
of design, construction and on-going maintenance for a given project and should
support the main project objectives in terms of risk allocation, delivery, and
incentivisation and so on. The author feels this is by far the best definition
available about the contract strategy. This version of the definition proves to be
more descriptive, the organisation structure provided in the book explains well
about the strategy adopted and its significance with the level of integration of
design and construction for a given project. Accessing a good definition for a
contract strategy is necessary since it would help in developing and implementing
a highly effective procurement strategy and plan for an organisation which would
reduce overall cost of purchasing along with a better supply chain management.
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cause over budget of project and delay in completion time. Perry (1985) in his
study outlines the key decisions for contract strategy:
a) The project characteristics
b) Organisational structure for design and construction
c) Types of contracts
d) Tendering process including conditions of contract, contract selection and
tender analysis.
These are key decisions the Client must consider while selecting a contract
strategy for carrying out a project, the above points highlight the areas which build
the contract strategy and are regarded as a subsystem of a contract strategy. Perry
(1985) has also given his views on the nature of an effective contract strategy. He
quotes Optimal contract strategy will be one which displays a consistent
integration of the selection within each of these strategic areas. However he also
reacts to his own quotes that the optimal strategy will not be truly known until the
project is fully finished. And the best Contractor strategy need not necessarily be
the most feasible one.
The author suggests that the Client must thoroughly enquire about the various
choices available before zeroing on a single contract strategy. The contract strategy
chosen must be able to fulfil the primary objectives of the project. The Client sets
the primary objectives of a project along with Contractor and other parties. In
accordance to the Clients dilemma of setting the objectives there are different
choices available, as Bower (2003) traces Due to the diversity of both
construction and the Clients requirements there are different types of strategies
available and no single uniform approach to contractual arrangements shall be
advocated. With so many options available the Client certainly has an upper hand
in selecting one of them but it isnt an easy job as it seems to be. Within those
several options the Contractor has to select out a single contract which meets the
necessity of the Contractor. While deriving information from the past projects it
must be noted that the contracts used in those projects may not suit the current
needs. If needed the Client must be bold enough to amend the contracts as per the
requirements for effective project outcomes.
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Smith (1995) outlines some main topics to be taken into consideration for setting
up a contracting strategy. They are:
a) Project objectives
b) Organisation system for design and implementation
c) Risk allocation
d) Terms of payment
e) The conditions of contract and
f) Tendering procedure
Haswell & De Silva (1989) has stated in his book that it is not well appreciated by
many people (the Clients) the importance for the correct type of contract to be
selected and one is always in demand for obtaining value of money. Opposing the
Clients mentality from Haswell & De Silva (1989) book and in favour of Smith
(1995), Aboushiwa & Bower (2000) has stressed the importance of contract
strategy and describes it as an amalgam of activities that runs from defining the
Clients:
a) Project objectives
b) Priorities
c) Responsibilities
d) Organisational structure
e) Types of contract
f) Conditions of contract
g) Contractor selection
h) Tender procedures, and
i) Risk allocations to the selection of most appropriate contract strategy.
The author reiterates the importance of the contract strategy and its process which
is carried out in order to reach the required end products. A contract strategy
should be established at an early stage to meet the cost, programme and quality
objectives of a particular project Aboushiwa & Bower (2000). He urges the
introduction of contract strategy as early as possible into the project for its
betterment. The author supports this point by saying that the contract strategy is
the most important aspect of a project because it forms the foundation on which
22
everything else is built. Therefore earlier the contract strategy is decided and the
works are planned the better will be the project outcomes.
In order to select a correct procurement procedure Masterman (1992) suggests
the Clients must first understand that there is no standard solution among the
procurement systems and the construction projects vary so considerably that a
single procurement method does not suit for all projects. For making a decision
about selecting a contract strategy it is essential that the Clients primary and
secondary objectives are analysed and these objectives are to be compared with
the characteristics of all available procurement methods and the most logical
method is to be chosen out of it. The author agrees with this point stating the
difficulty involved in the selection process. The selection must be carried out with
a substantial amount of attention. It is evident that no unambiguous solution can
be found for each specific project each contract type should be tailored to the
specific requirements of the project (Veld & Peeters, 1989). Not only the
procurement types are to be analysed but also the different conditions of contract
to be used must also be considered. This paper further investigates the different
types of contracting strategy used in construction industry.
Contract strategy is an important factor concerning the successfulness of a project.
However Venters (2005) expresses his view that nevertheless its importance, it
wont be the sole dependent for the success of the project. He argues Successful
project must also require a solid work scope commitment of a project team and a
realistic budget to support a successful project. The author is not fully satisfied
with Venters (2005) comments as he feels the contract strategy is the foundation
for everything in a project. When an inappropriate strategy is chosen then the
whole project may fail and no solid work scope no project team and no budget can
be of any use. In the support of Venters (2005) another author named Langdon &
Rawlinson (2006) has cashed in his view that It is the performance of the team
that is at the root of project success not the strategy per se. The author is staying
firm in his decision that whatever it may be, contract strategy is the prime
necessity for a project and its above everything else for its success and outcomes.
In a research work carried out by Perry (1985) he revealed that Decision taken
before the sanctions have the most significant impact. It means that the decisions
23
which are made before the selection of contracts or even beginning the project are
the most significant ones which decide the flow of the project. These decisions
have their direct effects on the project outcomes and will encompass on the
procurement strategy that has to be chosen. For this purpose Aboushiwa & Bower
(2000) has advised on the meticulous effort to be taken by the Client on deciding
the parameters of the project. He quotes It is evident that no unambiguous
solution can be found for each specific project; each contract type should be
tailored to the specific requirements of the project. It is bizarre that, usually very
big things start with small beginnings; such is in this case where the least budget
allocated stage of the project makes most of the impacts on the outcomes of
project. Therefore each and everything needs to be put under scrutiny in these
phases because it may affect the clarity of project definitions and incomplete
tenders if something goes wrong. When these stages are disturbed they deeply
harm the project outcomes and result in over budget and delay in time.
24
25
actually want. For this purpose the Clients must understand the contract strategy
that is the reason why the importance of contract was explained in the earlier part
of this dissertation.
The attitude of the Client towards a project is a matter of consideration. This
means the levels of involvement in the building and contracting process. For the
Clients with little or no experience, they shall wish to stay away from the internal
affairs of the project. For the Clients who are well aware of the work culture would
like to have a closer look at the construction process. The level of involvement
must be specified at the beginning of the contract. Next comes the funding of the
project, whether the project is going to be funded by private or public sector. The
funding shall also be in form of instalments or whole sum paid. This funding choice
will be considered while selecting the contract strategy. Depending upon the
Clients funding choice, liabilities during the crunch situations are decided
beforehand. For instance, in case of a cost overrun the contract strategy must
clearly specify the party responsible for it. All these details decide the costing
adjustments such as whether the incentives are required, will the Client reimburse
the Contractor for inflation or not.
The next factor that needs consideration is the risk. The type of contract and the
clauses used in the contract will be determined using the preferred choice of the
Client on the amount of risk he is willing to share with the Contractor. Taking into
account both the management and effect of risks occurring Bower (2003) has
stated it is essential that the risk should be shared between both the Client and
Contractor in a realistic and equitable manner. With the transfer of risks to the
Contractors, the Clients may lift their burden from exposing themselves to any
major threats. On the other hand contracts can charge money from the Client with
respect to the amount of risk they are facing. Hence the risk faced by the Clients
and Contractors are related to the preferred contract type and specified at the start
itself.
In a case study illustrated by Masterman (1992), he found that for majority of the
Clients it meant certainty of completion date more important rather than
shortest design and construction period. The author agrees with this point that
the trend has been changing and the Clients have started giving attention to time
rather than money. For the effective completion within time a type of contract
27
strategy can be selected where the construction process begins before the
completion of design stage. For an efficient working of the Contractor the Clients
may employ the services of incentives. The Client can also wish to control the
presence of the number of the sub-Contractors involved in the project.
Bennett & Flanagan (1983) researched about the various the Clients expectations
and produced a list of typical the Client requirements comprising of the following:
1) Functional building at the right price
2) Quality at the right price, i.e. value for money
3) Speed of construction
4) Balance between capital cost and long term ownership costs
5) Recognition of the risks and uncertainty associated with the project
6) Accountability in the public sector
7) Innovative design, high-technology building
8) Maximizing taxation benefits
9) Flexibility to change the design during construction
10)The building should reflect the Clients activities and image
11)Minimizing future maintenance
12)Need to keep any existing buildings operational during building work
13)A desire to be actively involved in and kept informed about the project
throughout its life.
Just how the Client wishes that the Contractor he appoints must be an efficient
worker as well as good, the construction industry too will judge the performance
of the Client. Rowlinon & Mcdermott (1999) emphasises the role of the Client
impacts heavily on the Contractors mentality and this factor plays a major role in
the performance of the character. The Client will be judged on his behaviours such
as: prompt payment, fair and open tendering system, the experience and
knowledge to understand the implication of design changes and the ability to
provide prompt, timely decisions. Therefore it is clear that the role of the Client
plays a major factor in the success of the project.
employed delivering a project to an agreed quality, safety, time and cost (Spring
& Wearne, 2003). The author accepts with this point and feels the significance of
project management in contract strategy. Perry (1985) talks about the importance
of positive effects the project management can bring into the contract strategies.
He concludes Contract strategy is an integral part of the project management
decision making process because the development of a contract strategy for any
project should comprise a thorough assessment of the choices available for the
implementation and management of design and construction. Both Spring &
Wearne (2003) and Perry (1985) mention the use of the Project Manager in the
entire project. They encourage the appointment of the Project Manager at the very
start of project. Spring & Wearne (2003) describes the role of the Project Manager
as the one who provides essential direction, discipline and drive to a project and
The Project Manager with experience, enthusiasm and energy for the project is a
good starting point.
In support of them Haswell & De Silva (1989) illustrates the roles of an engineer in
a project. The first role is to ensure the work for the Client that it is viable and the
Employer is given due value for money. Another equally important role is that he
must act impartial and be fair to each of two parties i.e. to the Employer and
Contractor. The use of the Project Manager will definitely assist the Client when it
comes to get the job done. It is becoming increasingly popular that most the Clients
starting major projects have started using one of their own staff or an independent
project management organisation to carry out the management of the works to
exercise more control over project (CIRIA, 1991). There are several case studies
researched and reviewed in the later sections of this dissertation where the
applications of project management in contracting strategies are extensively used.
Therefore it is suggested that the use of the Project Manager is advantageous not
only to the Client and Contractor but for project itself as it helps in deriving better
outcomes. Especially when a complex project is being undertaken the appointment
of the Project Manager in a project as soon as possible is suggested. Admitting to
this Bower (2003) has also derived some qualifications for the Project Manager. He
opts for an experienced Project Manager for the effective function of the project
team and completion of work in a time. He believes only experienced managers
could help in progress of the projects even during the crunch situations. A Project
29
Managers role would be to control the changes and execution of project on behalf
of the Client and execute authority if activities are to be effective. He concludes by
saying that the Project Managers role would be to control the changes and
execution of project on behalf of the Client and execute authority if activities are to
be effective.
4. Organizational risks
5. Societal risks
6. Turbulence risks
Bower (2003) & Smith et al., (2006) list the following common questions to
consider while forming a contract:
a) Which party can best control events
b) Which party can best manage risks
c) Which party should carry the risks if it cannot be controlled
d) What is the cost of transferring the risk
If the Client thinks he does not want to bear risks then he can transfer his risk to
the Contractor as per his wish. The Contractor can be motivated to control and
possibly reduce construction costs by making him bear some risk (Olsen &
Osmundsen, 2005). However for trading the risks the Client needs to pay money to
the Contractor and the money may depend on the amount of risks being
transferred. He adds on "Trading off risk bearing and incentives, the buyer will
offer more incentive based compensation (less cost sharing) in cases where the
remaining project risk is low. He reckons financial incentives aim to increase the
efficiency and effectiveness of projects by stimulating the motivation to work
harder and smarter in pursuit of such goals. All these details on incentives must be
put forth in the start of the project while framing the contract itself. Bower &
Merna (2002) has listed the main types of financial incentives used on
construction contracts:
1. Share of savings incentives, where cost savings are shared between the Client
and the Contractor based on an agreed formula;
2. Schedule incentives, where a premium is offered to the Contractor for the early
completion of the project; and
3. Technical performance bonuses for meeting performance targets, other than
cost and schedule. A performance bonus arrangement can be applied to a wide
range of performance areas such as quality and functionality.
Assaf & Al-Hejji (2006) feels that the common cause of risk by increasing the cost
and time of the project is Change. This point is totally agreeable by the author.
31
The variation in a project is the main cause for any effects in the project outcomes.
Variation could also be considered as a risk in a project and must be foreseen.
Enough arrangements must be made in the contract strategy to deal with the
variation like mentioned in the earlier part of this dissertation. The time period of
the change occurring in a project also impacts the project performance. Changes
that occur near the end of the project are likely to be particularly disruptive and
expensive. Conversely, changes near the start of project, unless they affect the
contracted project specification and scope of work will probably cost only time in
design office (Lock, 2007). Therefore it is assumed that sooner the changes occurs
lesser the disruption in the project performance.
Risk management is not a onetime process rather it should continue throughout
the Project Life Cycle (PLC). However the risk management has not been
considered seriously by many firms as Barnes (2006) mentions that risk
management is a new entrant to the project management techniques and it has yet
to achieve the penetration it should. The author too encourages the consideration
of risk management in construction industry and into contract strategy for
complex projects. The risks cannot be controlled by everyone and it is a wrong
approach to do so. Griffiths (1989) explains The contract establishes the risk to be
carried by each party. The general principle suggested is that risks should be
carried by the party best able to either control the risk or estimate the risk. He
illustrates the work of the Contractor must be intense to reduce the risk. He has
advised certain duties to Contractor for reducing the risks. His studies reveal that
the contract should:
A risk free project is almost impossible but a project with a maximum number of
mitigated risks is always the better option. A contract strategy helping in effective
risk mitigation is a good one indeed. Therefore good projects are derived from the
32
3.7 SUMMARY
This literature review fully focussed on the views of various project management
expert authors about the contract strategies and role of different project
participants played in it. The need for Project Management and Risk Management
were also analysed in detail with several evidence suggesting their significance for
effective outcomes. The theories discussed in this section can be contrasted with
the procedures practiced in the industry in the coming chapters.
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4.2 PROCUREMENT
Procurement is a process of obtaining goods and services. It is involved in every
industry for all sorts of acquisitions and there are many methods of procurement
available. The selection of an ideal procurement method according to the situation
is mandatory since the procurement methods play a major role in defining as well
as shaping contractual and work relationships between parties involved. In a MOP
Commercial Contract Management: Lecture 1 by Mr Alan. F. Comish states that
the purpose of contract strategy by listing its purpose. He states that the
procurement types cover various aspects including (Comish, 2012):
j.
Assessment of risks
35
36
37
Dis-Advantages:
a) Very high bidding costs
b) High level of resource required
c) Complex and demanding
d) Tough contract terms
5. Management Contracting
a) Management Contracting
This is a fast track strategy where certain elements of construction process starts
even before the completion of the design. The management Contractor is given
charge of whole of the project including the design and build ability in return of a
fee. Here the management Contractor assigns work packages to the individual subContractors
b) Construction Management
This is the same as the Management Contracting except that here the work
packages and the individual sub-Contractors are assigned by the Client.
In this method there are maximum overlap between design and construction.
Cooke & Williams (2004) sees this feature as a potential benefit. Other advantages
of the management contracts cited by Wearne (1989) are that the Contractors
project team is enriched with the contracting and construction expertise, the
service of which could be hired or fired. As per Cooke & Williams (2004) the
disadvantage these methods possess is the risk carrying threat for the Client; this
threat mainly applies to the construction management arrangement.
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39
7. Framework Agreements
This is a form of a contractual agreement which allow suppliers to be brought
together with the relevant expertise and experience resulting in savings to both
the parties where a number of projects are involved. Cooke & Williams (2004)
explain the main difference between other contracts is that with framework
contract there will be no main Contractor. These agreements also cover different
forms of procurement including Design and Build, Traditional, etc.
Contractor for proceeding with his work and also Contractor benefits by getting
paid sooner. The demerit in this method shall be the lack in clarity and resulting
disputes when the milestones are not defined properly at the start.
3. Bill of Quantities (BOQ)
In the bill of quantities the work agreed to be done under the contract are listed as
each item along with the quantity of material needed and quality specified for the
work. The Contractor is usually paid according to the quantities of items completed
each month. One of the advantages of this method is that it induces performance. It
can be effective because the Contractor is paid as soon as possible after incurring
costs and the Client gains in by reducing the total cost of the construction. The
disadvantage is that this method is more complex and expensive for all parties
when compared to the basic lump sum contract.
4. Schedule of Rates
This method is similar to the BOQ in listing the work to be performed, however the
rates are more related to the total quantity of work done rather than the amounts
expected. The basis of payment is considered to be a more flexible form of bill of
quantities. Wearne (1989) says that this method can be useful when the work type
is certain but the quantity of work is not clear enough. The risk for the Client is that
sometimes it causes very uneconomic use of resources. Schedule of rates are used
in civil engineering for preparatory and site exploration work, contracts for design,
demolition, repairs and maintenance.
5. Cost-reimbursable payment
This method is different from all other cost based terms of payment. In the
simplest form of a Cost-reimbursable contract the Employer reimburses the
Contractors costs of work on a project, plus usually a fixed sum or percentage for
financing, overheads and profit. Wearne (1989) feels this type of contract is used
for design studies, development, some repair, demolition and emergency work.
The advantage of this method is that the work is started as the changes are defined
and the Contractor wont incur any prices avoiding the disputes. On the other hand
the Client has to deal with the demerit that Contractor may not be responsible for
the economic use of his resources and cost control.
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4.6 SUMMARY
This chapter explained the various types of procurement methods along with their
advantages and disadvantages. The procurement selection criteria from the
Clients perspective were listed. The author has managed to show the procurement
procedures and their time of usability with respect to situation to the readers. The
natures of the payment terms were graphically explained. The application of the
above procurement types and terms of payment can be seen in the forms of
contract which is discussed in the next chapter.
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44
5.5.1 FIDIC
FIDIC is an abbreviated form of Federation Internaionale des Ingenieurs-Conseils
was founded in 1913; FIDIC claimed by its official website (FIDIC, n.d.) Is charged
with promoting and implementing the consulting engineering industrys strategic
goals on behalf of its Member Associations, and to disseminate information and
resources of interest to its members. The FIDIC forms of contracts are known for
its standard conditions for construction and design industries. FIDIC (n.d.) regards
the FIDIC forms of contract as the most widely used forms of contract
internationally.
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The above forms of contracts are advised for common use where tenders are
invited. For the preparation of particular conditions guidance is provided into each
book. Masons (2011) points out that one of the common principles dealt with the
FIDIC forms are that it recommends a fair allocation of risks among the parties to a
contract. It calls for the best possible team to control the risk.
All the books in the FIDIC contracts specify roles for the Employers and
Contractors they ought to follow. Their respective roles are listed by Masons
(2011) as follows:
b)
c)
Acts as certifier.
Fitness for purpose make sure that the design will meet the Employer's
needs;
Carrying out the works in a proper and workmanlike manner with properly
equipped facilities
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Along with these roles the Contractor also needs to perform certain administrative
functions to facilitate performance. The functions include providing information
for carrying out works and delivering notices for events increasing cost and
completion time.
For ensuring the protection of time and money it is important that an effective
administration of FIDIC contract is carried out. It is essential to write notices in
clear and unequivocal terms.
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Table 2: Main features of the FIDIC Red, Yellow and Silver books
Source: (CIDB, 2005)
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Clause 3.3
Clause 4.11
Sufficiency of Tender
Clause 4.12
Clause 8.3
Clause 8.4
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Clause 8.7
Clause 12
Clause 12.3
Clause 13
Clause 13.2
Value Engineering
Contractor can be paid a fee related to the saving.
Clause 13.3
Variations Procedure
Instructions
Evaluation in accordance with Clause 12
Payment in appropriate currencies
Clause 13.5
Provisional sums
Clause 13.6
Dayworks
Clause 13.8
Clause 14.1
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Clause 14.2
Advance Payment
Contractor to provide Guarantee
Clause 14.8
Delayed payment
Clause 14.9
Clause 20.1
Contractors Claims
Contractor to give notice
Claim to be determined in accordance with Clauses 3.5 & 8.4
Clause 20.2
Clause 20.6
Arbitration
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5.5.2 JCT
The Joint Contracts Tribunal commonly known as JCT form of contracts was first
established in 1931. In her study about the JCT contracts Taylor (2008) claims JCT
provides a range of building contracts, subcontracts, warranties and associated
guidance notes. Masons (2012) reports the JCT is made up of seven members
representing a wide range of interests in construction industries. It also regards
the JCT as the most common form of contracts used in UK with 70% of the
construction projects employing this form of contract.
The main contracts in the JCT suite are listed below (Masons, 2012):
One of the main principles of JCT as stated by Ensom (1998) is that, all the design
works are to be carried out by the Employer. The main task of the Contractor is to
carry out the works according to the design provided to him. If this routine is
disturbed for instance if incomplete design is provided by the Employer then this
in itself will cause problems. In JCT contracts there is someone referred as
Contract Administrator whose duties and functions are set out in the contract
Ensom (1998), He lists the role of a Contract Administrator as:
1. Administrative functions
2. Functions performed as an agent of the Employer
3. Certifying functions
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Definitions
Payment;
Variations;
Termination;
Settlement of disputes.
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5.5.3NEC
The NEC Engineering and Construction Contracts (ECC) previously known as the
New Engineering Contracts are created by the Institution of Civil Engineers. The
purpose of developing this form of contract as explained by The Institution of Civil
Engineers (1995) is to meet the current and future needs. The application of NEC
in construction projects is becoming increasingly common, and it is the contract of
choice for the 2012 Olympics.
5.5.3.1 Objectives
The objectives for the design of NEC contracts were to improve the following
characteristics (Lewendon, 2003):
5.5.3.2 Intent
The intent of the NEC forms of contracts is the effective collaboration of all the
project participants in order to deliver efficient project outcomes. The
collaboration helps in the speedy processing of the projects by reducing the
decision making time and avoiding conflicts and disputes among the various
project participants.
significant to the project since for the Employer the project success is dependent
on the competence of the Project Manager.
2. General core clauses
These nine sections listed by the Masons (2011), are the similar in every form.
They cover the basics that are applicable for all contracts. The clauses are:
1. General - includes defined terms, interpretation, communications, ambiguities;
2. Contractor's main responsibilities provision of works, design, people,
subcontracting;
3. Time starting, completion dates, key dates, programme, access, takeover,
acceleration;
4. Testing and defects tests and inspections, notifying defects, correcting
defects, accepting defects, uncorrected defects;
5. Payment assessing amounts due, payment provisions, pain share/gain share
where appropriate;
6. Compensation events events which will give rise to time and money and
procedures for dealing with these;
7. Title for example, to plant and materials;
8. Risks and insurance Contractor and the Employer risks, insurance
requirements;
9. Termination grounds, procedures and payments on/for termination.
Main options:
These relate to contract structure and pricing mechanism. The Client shall opt for
any option from A to F. The options are (Eggleston, 1996):
A: Priced Contract with Activity Schedule;
B: Priced Contract with Bill of Quantities;
C: Target Contract with Activity Schedule;
D: Target Contract with Bill of Quantities;
E: Cost Reimbursable Contract;
F: Management Contract
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Secondary options:
There are seventeen additional clauses for certain matters, for example; changes in
law, modification of pricing for inflation and provision of performance bonds.
These options can be selected as suitable.
3. Time (The Programme)
Hide (2007) beholds from his study that NEC helps the Contractors to produce and
maintain; Project Managers to accept a live programme. (Davis, n.d.) Compliments
the role of programme stating its significance in
Outlining the role in management of works
Setting out the work to be executed
Requirements to carry out that work, and
The periods and dates in which to accomplish it.
With the help of the programme and by proper maintenance Davis (n.d.) feels the
Employer will have better opportunities in minimising the effects of delays in
project and cost overruns. Broome (1997) acknowledges the higher priority of the
programme in ECC than in other contracts. Overall with the programme in the
hand of the Client and the Contractor will have a tool by which, they can manage
the entire construction process.
4. Compensation events
NEC (2005) defines the compensation events as events which, if they occur and do
not arise from the Contractors fault, entitle the Contractor to be compensated for
any effect the event may have on the Prices. A compensation event will normally
result in additional payment to the Contractor but in a few cases may result in
reduced payment. Broome (1997) reports in his study that in a NEC contract
when a compensation event occurs, the Project Manager has a liberty to ask the
Contractor to submit a quotation in best interests of keeping the completion date
and price of the project close to the originally planned. But in order to make an
appropriate decision from the available options Broome (1997) insists, the Project
Manager must be aware of the Clients objectives concerning time, cost and quality.
The Project Manager must also have considered the Employers attitude towards
risk.
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The various NEC options along with their incentives, financial and other risks they
bear are tabled below as per given by Lewendon (2003):
Table 3: Various NEC options along with their Incentives, Financial and other Risks
Source: (Lewendon, 2003)
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The advantages and disadvantages of the NEC type of contracts are analysed by
Boulding (2006).
Advantages
a. It employs a user friendly language.
b. NEC places a laudable emphasis on endorsing good project management
practice.
c. NEC is considered an appropriate choice for partnering as well as other
collaborative arrangements (Gould, 2007).
d. In NEC it is possible for an early identification of risks.
Disadvantages
a. Use of narrative and descriptive present tense causes distress to the legal
advisers who have to interpret its consequence.
b. It places the Project Manager in an extremely challenging role which demands
an intense use of resources and it also involves certain amount of uncertainty
(Broome, 1997).
c. It causes concerns that it may sway in the Contractors favour.
5.6 SUMMARY
This chapter described about the improvements in the contracts from the
traditionally followed forms. The NEC forms of contracts were examined in detail
with its merits and demerits. In the next chapter case studies based on the
Traditional form and NEC will be carried out. With the help of an exercise, the
Traditional and NEC contracts will be compared and their characteristics will be
discussed.
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6. CASE STUDIES
6.1 INTRODUCTION
This chapter analyses different projects based on the forms of contracts studied in
the previous sections of this dissertation. The nature of the projects selected, the
problems faced by them and the contract solutions for solving the obstacles will be
reviewed in this part. At the end of this chapter a comparison of Traditional forms
of contract and NEC forms of contract will be carried out as inference to the case
studies.
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conflicts and disputes were effectively resolved and the construction works
progressed in a quick manner. The Contractors work was highly satisfactory that
the accounts were finalised even before the works were finished.
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One of the most significant concerns during the design stage was the ship impact.
The design work required a significant effort for producing a substructure that was
capable of resisting these forces without being visually obstructive.
The Client decided to seek help from a consultant called Halcrow for helping the
Client with the critical decisions on the progress of the project. Several innovative
construction methods were proposed by the Contractor and its designer
concentrating mainly on the foundations. Initially the contract was based on the
ICEs Design and Build form but the consultant recommended a change in the
contract form accommodating more changes in the design features if needed in
future. The resulting contract called as adopt and build was sensed that it was no
longer suitable as the Clients engineer had to infiltrate changes to the design
before starting the contract. The resultant of this move shall cause additional delay
and unnecessary extra cost. Hence for this purpose a new contract was negotiated,
NEC Engineering and Construction Contracts were brought in for a more equitable
allocation of cost and risk as well. The contract with option C was selected which
was target contract with activity schedule. This move was helpful in allocating all
the design responsibility to the Contractor and the designer. To reduce additional
costs a value-engineering exercise was also carried out. This involved close
cooperation of the whole project team and identified significant cost savings.
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Table 4: Various NEC options used in London Olympic Park along with their Usage
and Rationale
Source: (Cornelius et al., 2011)
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Design, construction and management of this massive project have been rightly
praised. Completion within time and budget without a single fatality is an
outstanding achievement. The programme for the 7 billion project included to
years of planning followed by four years of implementation with a final one year of
testing and rehearsals. NEC was the best contract which offered a prescribed
project management methodology of processes and procedures to manage
delivery as expected. Finally the Olympic delivery authority with the help of NEC
established a clear delivery strategy, maintaining a high level of transparency, clear
definition of scope and focused delivery. The role of NEC played in delivering
London Olympics is being praised by everyone; one such view is presented below.
I think NEC3 is the unsung hero of the Olympic Games a bit like the spine or the
heartbeat in the human body Owen (2012), Commercial director at CLM he
expressed his views on NEC by stating, I believe it helped deliver the project.
Owen (2012) specified the effect of three factors that are important, If you just
focus your teams on those three elements that will go a long way to success..
And thats what NEC3s all about those three ingredients are very clear but its
actually making them work.
The idea was to making NEC work for adapting the contract to CLMs purposes
therefore first factor Owen (2012) named was the people: When youre looking
at something of this size and scales dont forget about the organization around it
and the people you put in place. Secondly it was important that the supply chain
was trained which was fundamental in overcoming a disconnection between
corporate and operational understanding of NEC3. And the third key enablers
were that the team adopted a web based collaboration tool to manage the contract.
With the help of this the entire team had covered around 70000 formal contract
communications. Owen (2012) conceited the success of the project, I think thats a
real mark of success because we have managed the contract how it was intended
to be managed from day one.
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crews, double shifts and overtime. Doubling the crane alone increased the overall
productivity by 25%.
Procurement type
For constructing this design an innovative contract strategy had to be developed.
The Olympic site was built on a cost plus fixed free arrangement. The Contractor
agreed this on a condition with the Client that he is not responsible for the
completed structure.
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Finally after starting the project with a budget of $120 million at the finish it had
cost $1.5 billion. The final project contained less than originally envisioned and the
government has been since trying to cover this huge debt via taxes to the
frustration of the citizens. The incomplete Olympic site was finally opened on July
17, 1976 and offered for commencing the games. The Montreal case may prove as a
lesson to be learnt by the Client and Contractor while undertaking a project. This
failure emphasises on the importance of the need for right evaluation of the cost
and time and those features which translate into higher average costs.
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6.6.1 EXERCISE
In projects changes may cause either benefits or drawbacks. One of the
major drawbacks is the cost overruns. The major cost due to change is by the cost
of rework or revision of work. Rework is the unnecessary effect of re-doing a
process or activity that was incorrectly implemented in the first place and can be
created by defects or variations. The effects due to the changes can be grouped as
direct effects and indirect effects. Rework is an example of a direct effect of project
change and in addition to this, project changes can also bring some indirect effects,
which will ultimately have an impact on project cost and schedule.
Direct effects
Addition of work
Deletion of work
Demolition of work already done
Rework
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Specification change
Time lost in stopping and restarting current tasks in order to make the variation
Revisions to project reports and documents
Reorganise schedule and work methods to make up lost time
Indirect effects
Loss of productivity due to reprogramming; loss of rhythm, unbalanced gangs
and acceleration
Change in cash flow, financial costs, loss of earnings
Increased risk of co-ordination failures and errors
Loss of float, therefore increased sensitivity to further delays
The major sources from which the Contractor may try to recover the additional
costs are:
1. Materials
For any building work the construction materials are bought beforehand. When
the building plan changes the work as planned gets halted and therefore the
materials bought do not serve their purpose at that time. These materials need to
be either stored or used for other purpose. For the variation new construction
materials have to be bought. With the inflation, the rates of the materials change.
Certain materials cant be save for use at another time they are nothing but waste.
For the extra reinforcement work needed additional quantity of steel will be
required. These buying will affect the cash flow as well as the tender quoted at the
beginning.
2. Formwork
The change in formwork increases the cost of total construction. Reinforcements
are required for a formwork construction; hence for a specified plan the
reinforcement materials are brought in advance. When the plan changes and a
higher quality of formwork are required, the materials currently available do not
match the quantity required. Materials of a higher specification are required which
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incur additional costs and time. Due to this the time and price quoted in the tender
for the formwork are not followed as planned ultimately causing chaos.
3. Delay
The delay caused in the project due to variation affects the entire characteristics of
the project. The work planned, the materials purchased and the equipment
borrowed all are wasted due to the delay. For instance, a tower crane is rented for
the work with the money already had been paid. In this situation when the project
is delayed the tower crane could not be utilised for the real purpose it was brought
and with the work unfinished the crane needs to be rented again. Along with this
the overheads from the administrator point of view would also be affected.
4. Disruption
The variation causes disruption to the entire programme of the project. The
disruption mainly affects the Contractors work. Initially the Contractor would
have planned for a certain program for the flow of works. With the variation
coming into the play, this program is affected. Disruption to the work occurs as the
work has to be stopped for the new design to be made until that the materials pre
ordered for the construction work continues to arrive. Later the storage of these
materials becomes a concern. This causes a loss of productivity to the Contractor
and additional costs to carry out the works using new rates.
5. Cash Flow
Due to variation disruption in work takes place, this affects the works ordered to
the sub-Contractors and the materials supplier because the cash had already been
paid by the Contractor for the progress of the work. When the work gets stopped
the payment made to the Contractor gets delayed causing a serious damage to the
Contractors cash flow. During this period his outcome exceeds his income forcing
him to operate at loss.
6. Consequential Factors
This factors deal with the various consequences the the Client and Contractor need
to face for delaying the project. Say if the project was initially planned to be built
on summer due to the delay now the project needs to be built on winter in the
presence of horrible weather. This causes extra money for delaying and sometimes
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reheating the materials if needed. Certain equipment need to be rented again for
the work to progress. There are several consequences that need to be faced caused
by the variation.
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In this case the Contractor shall insert the method related charges in the tendered
B.O.Q to charge extra for the variation introduced. Because of the variation the
Contractor have to strengthen the slab and thickening columns section which
involves some extent of complexity. He can also include some time related cost
elements, if it took more time to re-draw the design the material price may be
inflated which in-turn costs the Contractor more than expected. So using method
related charges in the Traditional admeasurement contract as assumed, the
Contractor can sustain his credited cash flows and can manage the project within
the anticipated budget having the variation in mind. Although the method related
charges does not have specific standard to be followed which depends on the
Contractor this might help him in retaining the control of the project in all aspects.
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Sometimes the compensation to the Contractor from the Client shall be based on
the forecast change in actual costs. The disruptions caused, the parties suffering
and the amount to be compensated. All these details are forecasted and dealt with.
According to NEC (2005), Compensation events are valued before they occur,
ensuring that project parties have early awareness of the cost and time
implications of events, allowing for effective planning and reductions in disputes.
Therefore with the help of NEC the variation can be better tackled when compared
to the Traditional methods. The benefits will be better communications and faster
development of a close working relationship between the parties, with little or no
extra cost involved. In the Traditional methods the variation causes severe cost
and time overruns whereas in NEC there are some accommodating features in the
contracts for variation. Thereby enlightening us that NEC is a preferred choice of
contracts over the Traditional methods in case of complex projects and crunch
situations where the risk is very high.
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The philosophies of the NEC contracts which are the main reasons for its success;
as described in the NEC (2005) are:
1) A collaborative approach to any issues mitigates them and also reduces the risk
inherent in construction work
2) A clear definition of roles and responsibilities helps accountability and
motivates people to play their part
This philosophy has widely been accepted by the world for the essential popularity
of the NEC contracts. Wright & Fergusson (2009) lauds the NEC contracts for its
versatility when compared to its other forms of contract. He claims that NEC is
suitable for any engineering and construction projects due to its exclusion of
discipline specific matters. Therefore he relishes its use by any discipline or
combination of disciplines including civil, mechanical, electrical, building and
process.
6.8 SUMMARY
The contracting strategies applied in some major construction projects in the
world were analysed in this chapter. From the case studies a comparison was
drawn between the Traditional and NEC form of contract. From the difference it
was learnt that NEC offers a better contracting solutions. The further lessons learnt
will be described in the next chapter of this dissertation.
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7. GENERAL DISCUSSIONS
7.1 INTRODUCTION
This chapter presents some results of research carried out by the author so far in
this dissertation. The purpose of the research was to learn the importance of
contract strategy, different types of contract strategies involved in the construction
industry and the difference between Traditional form of contracting and New The
Engineering Contracts. The author has studied the FIDIC and ICE form of contracts
as the example for the Traditional form of contract. During his research the
following issues have been highlighted by the author.
severely affects the Clients objectives. Hence it was stressed that innovations have
to be brought on. Developments have already started arising; the various
developments were described in this dissertation with the comprising changes and
speciality.
To study the role of project management and the Clients in the contract selection
for effective completion of project, case studies were illustrated. The case studies
were selected appropriately to reflect the current trend of contract strategies
implemented and compare them with the Traditional methods. For example the
paper Delivering London 2012: procurement stands as a perfect example for the
NEC form of contracts used. In recent years most of the modern projects are opting
for the developed forms of contract rather than the conventional forms. From the
case studies dealt it is inference that for a complex project where there are scope
for uncertainties and variation, the Traditional form of contracts are not suitable
anymore. In the case studies it can be seen with the help of NEC contracts the
projects are completed well in time and budget. There are different types of
contracts into the NEC each one of which could be accommodated as per the
requirement of the project. The case studies also explained us that the contract
alone is not the match winner for the project but also the various parties involved
in the project. In the Gateshead project all the parties collaborated with each other
and formed as the Project Manager which helped them with a quicker decision
making process. The appointment of a special Project Manager for the Clients
consultation and overlooking the Contractors work was also observed. The
findings derive from the case studies were that the use of NEC had made the
project outcome more effective and efficient. An early forecasting of the cost and
other characteristics of the project by the NEC methods alerts both the Client and
Contractor. This makes them work together and solve the problem.
With the help of these case studies, the author has studied the effective
implementation of the innovative contract strategies such as NEC form of contracts
in the projects. The author has learned about the NEC contracts and depicts one of
its main features as: it will highlight the shortcomings and deficiencies by the
project participants. The reason for this is the definitions of roles, risks and
processes in the NEC contract are much tighter than in any other form of contracts.
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The case studies outcast the advantages of the improved form of contracts to the
Traditional form. In The Montreal Olympic Complex project, the project fails and
results in severe cost overrun. The budget of the project increased ten times the
planned amount. There were no specific single reason for the failure, rather it
could be said that everything on the project was faulty. Starting from the design to
the construction the project faced so many problems. The project management
was not efficiently applied into the project; if a different contract strategy is to be
applied into the project the results could be very different.
The time factor in the project has been fast growing as the fundamental factor in
upcoming projects. The study from case studies reveals the Clients opt for
certainty of completion date when compared to the shortest design and
construction period. From the case studies dealt in this dissertation, in the case of
Olympic park the main objective of the project is the timely delivery. The Montreal
Olympic project stands as a perfect example to stress the importance of project
completion in time. It is learnt from these projects that delay in time causes the
cost overrun as well. For reducing any further defaults completion of project in
time is suggested.
An effective application of a good project management technique is also equally
important in a project. This research has stressed on the project management in
contract strategy. The author has learned the positive effects out of this
involvement. It is learned that the quintessential characteristics of project
management is its ability to look at the needs of the Client and the risks involved in
it. It is also helpful in anticipating problems and communicating the contingency
plan and priorities to rest of the participants. The most important reason for
employing project management was discovered to be its ability to produce quality
and deliver value for money.
Role of the Client is another important component in the project success criteria.
However not all the Clients are the same and so do their needs vary accordingly.
The author emphasises from his research that the Clients must first find out their
needs and set objectives such that they are clearly specified to the Contractor. The
Clients need so far has focussed on the classic trio of time, cost and
functionality/quality. But the modern the Clients have started demanding more
involving the reduction in time or reduction in cost based on the project situation.
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The research has discovered that the Clients have started setting incentives for
effective performance of the Contractor. However studies have revealed setting
incentives does not always help rather an effective collaboration of the Contractor
and the Client is the most important factor for project success.
Lastly the author has made a comparison between Traditional forms of contracting
with the NEC forms. From the exercise it was learnt that the NEC can effectively
deal with the variation with minimal demerits. Whilst dealing with case studies it
was determined that the Clients using NEC feel they are well aware of financial and
time outcome of project at any time. This is due to the transparent nature of the
NEC contracts which makes the project participants feel comfortable. The variation
exercise teaches that the Client must not always go for changes once the project is
initiated and construction work going on, unless he is fully aware of the
consequences he has to face. The Client must also learn to select the contract
strategy well keeping in mind the progress of project.
2. Increase the awareness of the benefits of the developed form of contracts to the
Clients.
3. Promote wider future use of the innovative contracting strategies in the
Engineering and construction industry.
4. Actively promote the joint working approach of the Client, the Contractor and
Project Manager Collaboration by co-locating future project teams in site offices.
7.4 SUMMARY
This chapter focussed on the authors perception of the dissertation. The lessons
learnt from the start of the research till the end were analysed. The case studies
were examined and their views about the form of contracts used were mention.
Lastly this chapter is concluded with the recommendation for future purpose by
the author.
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8. CONCLUSIONS
The author has researched the Engineering contracts and contract management
along with all aspects of contract strategy. He has compared theory with practice
by the introduction of case studies of recent projects. Finally the author has
achieved his project objectives namely:
Analysing into the merits and demerits of various contract procedures for the
given situation.
The author has analysed the necessity for contract strategy study and has limited
his research to risk analysis and the Clients objectives involved in success of the
project. Initially the authors intention was to study the various contract strategies
available and suggest an appropriate one over each type of project. Therefore he
has discussed about the application of different types of contract strategies and
place of their use. For example, in a case where the time is stated as the most
important objective a suggestive use of management contract or a cost
reimbursement contract with time target is encouraged. However at the later
stages of the research the author has learnt, the decision of the contract strategies
vary by the project situation and the Client/the Contractor needs and it is
inappropriate to judge based on the project types.
The author feels that the project management is an essential part in contract
strategy and it is important that the Client is informed about the progress or
changes in the project. For example, in all but the simplest repetitive contracts
there is need for the Client to appoint the Project Manager and the Project Manager
must keep the Client informed about all major decisions. From the research it is
deduced contract strategies alone do not cause the success in projects, but also an
effective collaboration of all project participants along with a wise application of
92
3. A collaborative approach to any issues mitigates them and also reduces the risk
inherent in construction work
4. A clear definition of roles and responsibilities helps accountability and
motivates people to play their part.
Finally the author is satisfied with his work that he has explored the range of
contract types and administrations which have progressed to meet the varied
requirements of the industry as well as society and changes in technology. From
his findings the author states the future of the contracts in construction industry
lies in the hands of developed forms of contracts rather than the traditionally
followed ones. The author feels that such innovative contracts which promote
collaboration and facilitate project management will be widely used in the future
for major high budget and high risk projects.
94
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