2 Contract Practice and Contract Administration

Contract Practice / Contract Administration

Dharmendar Pardasani

MSc, FRICS, MCIOB, ACIArb

Contracts Manager - Parsons

Contract Practice –Core Competency Level 3

Contract Administration - Optional Level 2

Date : 13 April 2012

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BEGINNING OF CONTRACTS

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Inception and Feasibility

• Advise on implications on proposed project.

• Establish priorities for quality, time and cost.

• Advise on Pre-Qualification of Contractors / Consultants.

• Prepare documents for inviting consultancy proposals.

• Prepare Consultancy Agreements.

• Review of Professional Indemnity / Insurances.

• Preparation of initial budget requirements.

Contract Administrator Duties

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Design Stage

• Advise on cost proposals being developed by design team.

• Advise on requirement of collateral warranties.

• Advise on various procurement options.

• Advise on use and/or amendment of standard form of Contracts in

association with legal advisors.

• Participate in value Engineering Workshops.

• Participate in Risk Analysis of Project.

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Tender Documentation

• Short listing of tenderers.

• Assist in allocation of cost plan into work packages.

• Review of tender documentation.

• Review of compatibility of various Contract documentation and ensure removal of

ambiguities, errors, contradictions, etc.

• To advise on provisions of liquidated damages / penalty.

• To advise the management on specific provisions in respect of Time Extension,

variation, acceleration, claims provision, dispute resolution provisions.

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Post Tender Stage

• To review tender proposals.

• Review Pricing strategy adopted by Contracts.

• To review compliance with Contract requirement.

• Advise on Tender Qualifications.

• To advise on merits / demerits of each tender / award.

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Post Contract Stage

• Review periodic cost report.

• Verify interim / final payments to Consultant / Contractor.

• To attend regular commercial meetings on site to ensure that all

commercial and contractual matters are being identified and addressed in

good time.

• To review the submitted claims / major variations.

• To participate in dispute resolution process conciliation, mediation, expert

opinion, adjudication, arbitration, etc.

Overall

To ensure completion of the project in line with intended cost, quality, time

and maintaining good relations between the parties as far as possible by

being objective at all times.

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Contract Administration /Contract Practice

Contract

�A Contract is a agreement formed between two or more parties that is intended to

be legally enforceable, should have following essential elements.

• Offer

• Acceptance

• Intent

• Legality

• Capacity of Parties

• Possibility of Performance

• Certainty of Terms

• Consideration (In case of English Law)

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Contract Administration / Contract Practice

Choice of Form of Contract

• Risk Allocation

• Involvement of Engineer

• Value

• Complexity

• Design Responsibility

• Need for Variation

• Work Type

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Advantages of using a Standard Form of Contract against a Bespoke contract

• Contractors aware of the risks, hence likely to be more competitive

• There are many legal cases available for interpretation of the clauses. Hence post

contract disputes are likely to be less.

• Each party is well aware of their risks and obligations and hence more chance of

the.

• Changing the standard form of contract without good professional advice creates

many ambiguities in the contract.

e.g. If cost escalation clause is changed so as to disallow for any increase in

prices but no clarification is incorporated for the variations, then it would result is

many disputes.

• If provisions are altered in a Bespoke form of contract to align the contract

completely in favor of the client, there is even a possibility that in case of any

dispute, the court may even reframe the contract to make it more equitable or in

worst case may even void the contract.

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Choice of Form of Contract

FIDIC 99 - Type

• Construction Works - Red Book 1999

• Short Form of Contract - Green Book 1999

• Plant & Design Build - Yellow Book 1999

• EPC Turn Key - Silver Book 1999

• Employer – Consultant - White Book 1999

FIDIC 87 / 95

• Civil Engineering Work - Red Book 1987

• Electrical & Mechanical Works - Yellow Book 1987

• Design & Build Turn Key - Orange Book 1995

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Key differences between FIDIC 87 and FIDIC 99

• The Engineer is specified to act for the Employer in FIDIC 99, not the impartial

role as envisaged in FIDIC 87.

• Instead of Engineer’s Decision as in FIDIC 87, Dispute Adjudication Board is

included in the FIDIC 99.

• Termination for convenience clause is added for the Employers.

• Value Engineering Clause added in FIDIC 99

• Interest on Late Payment to be on bank discount rate plus 3% specified in

FIDIC 99. In FIDIC 87, this is not specifically mentioned.

• Provision for revising the rate if the quantities exceed by more than 10% in

FIDIC 99

• Delay by authorities included as the grounds for EOT in FIDIC 99.

• Variations permissible only until issuance of Taking Over Certificate in FIDIC

99.

• Provision for Engineer to seek proposal for the variation in FIDIC 99.

• Basis of cost fluctuation calculation provided in FIDIC 99

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Contract Administration Contract Practice

Other Form of Contracts

• JCT

• NEC

• PPC 2000

• ICE

Insurances

• Contractor’s All Risk – value of Contract + %age for professional fee /

demolition, etc.

• Third Party – example Dhs. 5.00 Million / occurrence

• Contractor’s Equipment – value of equipments brought on site

• Workmen Compensation – total wages of workforce

• PI Cover – for design errors – example 5% of Contract value subject to

maximum of Dhs. 10.00 Million

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Contract Administration Contract Practice

Third Party Rights / Collateral Warranties

• To give certain rights to Third Party Stakeholders

• Employer – Sub-Contractor

• Investor / Landlord – Contractor

• Collateral Warranty is a concurrent Contract which is related to or dependent upon

another Contract. Warranty is to capture a promise from one party to another.

• To resolve the issues of ‘doctrine of privity of Contract’.

Nominated Sub-Contractors

• Nominated

• Named

• Domestic

• Listed – 2 or 3

Risks vary slightly in each case

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Key Features of a Partnering Contract

• A partnering charter signed by all the parties involved highlighting the spirit of

team work.

• Provision for KPIs to measure project progress

• Non-adversarial nature of contract

• Provision of early warning signs and the mechanism for review of problems and

resolution of same

• Provision for Value Engineering

• Provision for incentives for the proposals that helps in reducing the cost.

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UAE Legal System (Based on Civil Law)

• Based on Civil Law

• Civil Code Article 870-898. (Civil Law No.2)

• Article 203-219 of Civil Procedure Law No.11 of 1992

• UAE Commercial Transaction Law No.18 Article 1-95(1993)

• Law no. 6 (1997) applicable for Govt. Contracts in Dubai

• Abu Dhabi Emirates Construction Law No.4 of 1983

Some of main features of UAE Civil law are:

• Provision for 10 years Decennial Liability

• Court has the power to review the compensation stated in contract if it does not

commensurate with the damages likely to be suffered.

• If prices not mentioned in the contract, a fair price to be paid

• Contract to be performed in Good Faith

• Termination of contract by performance / consent /court order

UAE Courts Hierarchy

• Court of First Instance - Court of Appeal - Court of Cassation

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Provisional Sum & PC Sum

• FIDIC has the term Provisional Sum.

• If work instructed against this sum to be done by Main Contractor, then

evaluation under Clause 52.1.

• If work against it to be done by nominated Sub-Contractor, then evaluation

Clause 59.4.

• PC item term used in CESMM, etc. and some as Provisional Sum for work to

be done by nominated Sub-Contractor.

Material On / Off Site

Material Off Site Requirements

• Vesting Certificate

• Insurance

• Bank Guarantee

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Claims

Extension of Time

• Extension of Time

• Time with Cost - Employer’s delays

• Time Without Cost – Neutral Delays or Concurrent Delays by Employer and

Contractor

Impact Analysis Techniques

• Planned Impact

• As-Built Collapsed

• Window Analysis

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Cost Claimable

• Site Overheads

• HO Overheads

• Finance charges

• Disruption

• Cost Escalation

• Claim Preparation

Other Claims

• Acceleration Claim

Hudson Formulae

Eichley’s Formulae

Emden Formulae

Samaratunga Formulae

Instructed Acceleration

Constructive Acceleration

Hanklan’s Formulae

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Contract Administration/ Contract Practice

Disruption Claim

This is basically a delay claim but delay may or may not affect the project

completion.

Cost that are generally claimed are:

• Reduced Productivity

• Idle resources

• Demobilization / Re-mobilization

• Unproductive Overtime

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Suspension / Determination / Termination

Suspension (Under FIDIC)

• Clause 40

• Suspension 84 Days

• After that 28 days for omission / termination

Termination (Under FIDIC)

• Clause 63 - Termination by Employer

• Clause 69 - Termination by Contractor

• Clause 65 & 66 - Force Majeure

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Ending the Contract

• By Performance

• By Agreement As per UAE Law

• By Operation of Law

Termination term generally applicable for repudiatory breach (Example Clause 63

or 69 of FIDIC 87) where parties commit a serious breach of their contractual

obligation, while Determination term generally used where contract performance is

frustrated as explained below:

Doctrine of Frustration

Performance of Contract becomes

� Illegal

• Impossible to perform

• Radically different to what was initially envisaged

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Contract Practice /Contract Practice

Liquidated Damages vs. Penalty

• Liquidated Damages - Ascertained and agreed prior to entering into Contract –

Reflects actual losses to be suffered by Client due to delays.

• Penalty - A sum inserted in the tender and not necessarily reflective of actual

losses.

Sectional Completion / Practical Completion

• Clause 48.1 – Whole of the Works

• Clause 48.2 – Part of the Works

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Definition of Practical Completion

It varies, but most acceptable definition is that when the works are substantially

completed so as to be fit for use for the intended purpose

Discharge

Final statement pursuant to Clause 60.6 upon issuance of Defects Liability

Certificate

• Discharge by the Contractor that he has no further claims on the project

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Defects Liability Period

• Period stated in the Contract starts after Taking-Over of Works. (Generally 1 year)

• For Partial Completion – Separate Defects Liability Period

• However, Defects Liability Certificate is issued when last of Defects Liability Period

expires.

Letter of Intent

• Does not create a contractual relationship

• Unilateral assurance to enter into a Contract

• Reimbursement of Work – Legal doctrine of restitution which prevents unjust

enrichment

• Quantum merit reimbursement

• Limit of Liability

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Contra Proferentum Rule

An ambiguity in the document is construed in the way that it is least favorable to the

party who has drafted the document.

Concurrent Delays

Dominant Cause Theory

• Devlin Approach – Parties to bear their own loss

• Apportionment – Implication of each concurrent delay is allocated according to

relative efficacy of the delay.

Society of Construction Law ‘Delay and Disruption Protocol’ favors grant of

Extension of Time but no cost in case of concurrent delays unless the Contractor

can separate out the cost related to his delays and the delays caused by the Client

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Causes of Delays

• Excusable / Compensable – Employer’s Delay

• Excusable / Non-Compensable – Neutral or (Employer + Contractor Delays)

• Non-excusable / Non-compensable – Culpable Delay of Contractor

Alternate Dispute Resolution

• Mediation

• Conciliation – same as mediation, but a third party plays active role in putting

forward terms of settlement

• Early Neutral Evaluation – A preliminary assessment of facts / legal merits

• Expert Determination – A third party provides a binding decision

Facilitative

Evaluative

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• Executive Tribunal / Mini Trial – Panel of senior persons from each party and

a neutral person. Parties make submission of legal cases.

• Private Trials / Judiciary Appraisals – A judge is appointed to assess the

legal merits.

• Dispute Review Boards – Similar to Adjudication Board

• Med Arbitration – Initially appointed as a mediator, but later acts as Arbitration

if dispute persists.

• Adjudication – Similar to Arbitration but non-binding and with a shorter time

frame, wherein the parties normally do not engage the legal counsels. FIDIC 99

allows for this.

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Condition of the Parties if the Contract was not Managed Efficiently Condition of the Parties if the Contract was not Managed Efficiently

or the Risk were not Managed Effectively!!or the Risk were not Managed Effectively!!

Project OverProject Over--budget, poor quality, delays, safety issues, unsatisfied budget, poor quality, delays, safety issues, unsatisfied

client, disputes, litigation, loss of reputation, sore relationsclient, disputes, litigation, loss of reputation, sore relations

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QuestionsQuestions

((If your condition is not like as shown below!!)If your condition is not like as shown below!!)

2 Contract Practice and Contract Administration

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