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Safyra Nurshafiyana

Ethics Aspect of Construction Assignment

Case Study :
Eighteen months into the project, the owner found several failures which submitted
by the contractor; the slow progress and poor quality of the works. Accordingly, the
owner served some causes that the contractor was in default by separate substantial
breaches under the contract and requiring the contractor to show cause (in writing) why
the principal should not:

1. Take the whole or part of the remaining work out of the contractor’s hands; or

2. Terminate the contract.

According to the initial contract, the causes must (among other things) specify the
alleged substantial breach. The allegations of substantial breach made against the
contractor, in the show causes, were failed to;

1. Proceed with the works with due expedition and without delay;

2. Comply with directions of the superintendent; and

3. Use the standard of materials or workmanship required by the contract.

However, the owner determined that the contractor had not shown cause, so then
the owner took the work out of the contractor’s hands and engaged a third party
contractor to complete the work. The contractor responded to the show cause and
complaint that the show cause did not specify the alleged substantial breaches with
sufficient particulars and were therefore invalid. Accordingly, the principal’s attitude in
taking the work out of the contractor’s hands was unlawful.

Argument :
In a project, the contractors are strictly mandated to complete the project on time,
except when prohibited by the owner or relieved by the explicit provision of the contract.
The effect of extending time is to maintain the obligation that the contractor is required to
complete the project within the stipulated time, and for damages which caused by the
contractor's nonperformance, the contractor bears the liability for damages according to
the terms of the contract (Egglestone, 2001). The time extension also has various
purposes, such as; to retained stipulated time of completion, to escape the strict
obligation to keep the completion without delay due to the designated neutral event, and
to retain the owner’s rights to liquidated damages against acts of prevention. And about
the reimbursement, the delay time is reimbursable or not is determined from the cause or
reasons of the delay time and the proof of cost arising, unless the owner has been
granted an extension time. (Egglestone, 2001). However, the claim has to be made under
several sub-clauses, if the contractor also asks reimbursement of additional costs and
reasonable profit. There are two delays of completion time; rate of progress and delay
damages. When the owner found that the rate of progress is too slow to complete within
the time for completion, the owner entitled to require the contractor to revised the
working methods in order to speed up the works and finish without delay. The owner may
do so only if the causes of the delay time are reasonable. Delay damages occur if the
contractor fails to finish the project within the time for completion calculated from the
commencement date, the contractor should pay to the owner as written in the final
contract, which represents a genuine pre-estimate of the damages likely to be suffered.

In this case of dispute, there is a resolution mechanism which is negotiation.

Negotiation involves the same sorts of concerns and issues as with the original contracts.
Since it has clearly written in the final contract that there will be penalty for the contractor
as if they could not proceed the work without delay; comply with directions of the
superintendent; and use the standard of materials or workmanship required by the
contract. Because to focus on negotiation before deal with the contract, the issues to be
decided in the contract are already defined. Such as; completion date, penalty for late
completion, bonus for early completion, arbitration procedures, special work item
compensation, contingency allowances as well as the overall price, and another issues
that have to take into account in final contract, in which would prevent the disputes. For
all the issues that written in the contract also require an agreement, and so represented
on a form that signed by both sides. Not only about time for completion, the initial
contract should be consists about the required materials, since the lump sum is already
calculated before two parties signed the contract. A contract has important role on trust,
a complete contract is beneficial to building calculative trust. Sako (1992) stated once, a
contractual trust is necessary for the smooth working relationship. Detailed items of the
contract can be a tool when disputes arise, and also can reduce risks. The more
complete a contract is, the more calculative trust the contractor will receive from the
owner. The more complete a contract is, the more rational trust the contractor receive
from the owner. Thus, the contractor had been in substantial breach of the contract. As
stated above, the owner asked the contractor to make the cause in writing. It means that
the owner still have the willingness to negotiate with the contractor. And if the contractors
do not have the willingness to do it then, the owner has the obligation to terminate the
contract. Because, as the contractors, they need to behave strictly as promised from the
initial contract that they have signed before, since the owner will supervise their works
and when some disputes arise the owner can ask the contractor the cause and negotiate
the solution.

Negotiation itself is an important mechanism for arranging construction contracts.

It can be complex and often present important opportunities and risks for various sides
involves. As a general rule, the history of the contractor and general economic climate in
the construction industry will determine the results of negotiation. The negotiator's skills
may affect the possibility of reaching an agreement, the profitability of the project, the
extent of the final dispute, and the possibility of additional work among participants.
Hence, negotiations are an important task for many project managers. Therefore, the
owner acted properly and in accordance with their rights and obligations arising under the
contract. Furthermore, the owner’s attitude in taking the work out of the contractor’s
hands and asked the third party contractor to complete the work was legal, since the
contractor was not admitted the alleged substantial breaches. But it would be a risky
decision in engaged the third party contractor to complete the work, it would be waste of
time during the transition period when the third party contractor take over the project, and
of course it would be increased the expenses. Unless, the contractor has the willingness
to write the cause of alleged substantial breaches, and write logical reasons. On the other
hand, the owner could ask the contractor to revise their working methods in order to
speed up the working time for completion, thus the project would be finish on time
without delay. In conclusion, all the resolution mechanism of disputes above can be
solved by negotiation process. If the contractor has not the willingness either to negotiate
the disputes or pay the penalty as written in the initial contract, the owner has all the
rights to terminate the contract.

References :
• Potts, Keith. Construction Cost Management. USA: Taylor & Francis, 2008, pages

• Hendrickson, Chris. Project Management for Construction. Pittsburgh: Prentice Hall,

1989, pages 13-16