Contracts&disputesht5

Tenders & Contracts. Clauses & Conditions.

Recent Developments

Purpose of a Tender Get offers from alternate parties who have the competency & capability Tender evaluation – C & C – First Step Establish equality or clears a set benchmark

Tender pricing to be from parties of equal C & C to be on common platform – based on Specifications, BOQ and price schedules Payment, intermediate & final Technology & Time for completion & Quality

Selected tenderer becomes contractor on acceptance INSTRUCT of tender and signing of the contract JNB

Program on Emerging Trends In Contract Management & Dispute Resolution

2

Purpose of a contract Bring two parties together to work for a commo n obj ective Both parties to benefit as a result of the activity

Parties ---- Owner & Contractor Parties ---- Developer & Architect Parties ---- User & Regulator Do these parties have a common objective???

Each party has its own private goal. Contra ct is to t ie the par ties to the commo n goa l by satis fying the priva te INSTRUCT go al of each par ty. JNB Program on Emerging Trends In Contract Management & Dispute Resolution

3

Tenders & Contracts Infrastructure work contracts constantly gets blamed for cost & time overruns. Most of the contracts result in disputes either during the contract period or at the end of it. Conditions in tenders, which on acceptance become contract conditions are designed or drafted to avoid overruns and disputes. Costi ng or estima ti ng the project cost & mea sur ement & pa yme nts are very critical activities responsible for the healthy operation of a contract. Projects are complex & Unknown elements either exist or crop up during the life of the project. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

4

Tenders & Contracts PROCESS

SKETCH DESIGN Building Demands

Room Demands Terminal Device Spec Room Design

Network Design

Plant Spec

Riser and Void Design

Plant Room Design

Co-Ordination Equipment Selection

Fabricatio n Drawings

Plant Selection

Installation, Testing & Commissioning JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

5

Tenders & Contracts

Project Brief

By Employer

By Employer

By Contractor

By Contractor

Concept Design Detail Design Production Info Construction Testing & Comm Occupation JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

6

Tenders & Contracts Change & Cost of Change

JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

7

Tenders & Contracts All contracts basically involve an element of risk transfer from one party to the other contracting party. The coverage for picking up the risk is the profit. Conditions in tenders, particularly the nonspecific ones such as “Any other costs arising due to event xxx are to be borne by the contractor” are the ones which create problem. Errors in Co sti ng o r es ti mat ing the project cost result in an implied risk. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

8

Tenders & Contracts TIME Most Certain

Earliest Start on Site

Quickest

5 Design

4

3

2

1

1

2

3

4

5

Client Controlled

Most Certain

COST

QUALITY Products JNB

Lowest in Use

Lowest to Buy

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

CONTRACT PROFILE

9

Tenders & Contracts TIME Most Certain

Earliest Start on Site

Quickest

5 Design

4

3

2

1

1

2

3

4

5

Client Controlled

Most Certain

COST

QUALITY Products JNB

Lowest in Use

Lowest to Buy

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

D&B CONTRACT PROFILE

10

Tenders & Contracts TIME Most Certain

Earliest Start on Site

Quickest

5 Design

4

3

2

1

1

2

3

4

5

Client Controlled

Most Certain

COST

QUALITY Products JNB

Lowest in Use

Lowest to Buy

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

MANAGEMENT CONTRACT PROFILE

11

Tenders & Contracts TIME Most Certain

Earliest Start on Site

Quickest

5 Design

4

3

2

1

1

2

3

4

5

Client Controlled

Most Certain

COST

QUALITY Products JNB

Lowest in Use

Lowest to Buy

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

TRADITIONAL CONTRACT PROFILE

12

Infrastructure Projects Infrastructure projects require inputs from at least about 22 different entities for its success. Non cooperation from any-one will cause delay. Project success - benefits a few out of the 22. -- causes loss or problems to some. -- few are unaffected. -- few beneficiaries have no voice. -- few have capacity to put spokes. Categorization of the 22 JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

13

Tenders & Contracts Cladding

Ceilings

Partitioning

Structure

Floors

Basement Planning

Voids & Risers

M/E Design Horiz/Vert Circulation

Reception

Toilet Cores

Joinery Passive Design Elements

JNB

Catering/ Refrigeration

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

14

Project & Contracts Employer

Employer’s Their role QS & CS Agent the emerging changes in their role with changes in construction Contractor contracting practices. ME

A

SC1

SC2

SC3

SC4

Contract Manager - Functions Manage and control costs within construction projects Use a wide range of management procedures and technical tools to achieve this goal. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

16

Change over the years Costs have become dynamic; Fast Changes. Technology change, Mechanization. From primarily civil engineering work to a mix of work of different disciplines, particularly Electrical, Air-Conditioning, Plumbing, Electronics, Fire detection & protection----Corresponding to change from single & double story construction to multistory complexes. Energy costs and Environmental requirements. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

17

Change over the years Energ y cost s have also brought in a change in the outlook of the architectural design of buildings. We cannot afford to overlook the opera ting cost of t he b uil di ng as a whole. Closely associated with the energy are the envi ronmenta l f actors associated with energy usage. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

18

Energy & Environment Global Warming which was considered to be a distant dream of a pessimistic scientist is now identified to be a reality staring at us. Energy consumption is directly associated with the production of green house gasses and global warming. We cannot afford to face the consequences on the environment JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

19

Building & Energy Our building designs should keep energy in all its forms and stages of utilization Energy that goes into the formation of the building materials. Energy that is utilized in the construction. Energy that will be spent during the life time of the building. CDM (Clean Development) & Green Buildings are also becoming important. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

20

Speed of Construction & Maintainability The speed of construction has also been assuming importance. Speed of construction is dependent on the method adopted and the type of structure. Maintainability is another aspect. Today with the gradual but continuous increase in the labor costs it is essential that the design is such that the requirements of resources are kept to the minimum. Computers, IT & Automation. INSTRUCT JNB

Program on Emerging Trends In Contract Management & Dispute Resolution

21

Requirement Today Contract administrator is required to know(?) Basic civil work processes & costing. Component materials. Services work processes & components. Material selection & Equipment Selection and effect on costs. Building operation costs based on the aspects of Energy efficiency, Environment friendliness, Maintainability. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

22

Drivers for the Change Changes driven by energy, environment, IT, fire, natural hazards like earthquake, floods, cyclone, tsunami have influenced construction in a big way. Major change in technology, materials. Standards & Codes. Regulatory bodies, Local Byelaws, pollution, Manpower availability, shortage of trained & skilled workers JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

23

Wide range of responsibility Cost controller, Material Management Procurement of material & equipment Work coordination strategy Life cycle costing Taxation & Tax planning Outsourcing & sub contracting Work break-down & package development Special work packages and costing Dispute resolution INSTRUCT JNB

Program on Emerging Trends In Contract Management & Dispute Resolution

24

Contract systems Item Rate, Percentage rate, Lump sum Labour only, turn key, composite Design & Build, Construct, Design, Finance, Build, Operate & Transfer Build & Operate Build, Operate, Transfer, Build, own, operate & transfer Propose, design, build, own, run, share JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

25

Financial & Legal aspects Process financial controls, inventory control Dispute resolution – ADR, Concilliation, Arbitration Labour welfare management, worker training Valuation of assets Asset management Plant & Machinery, materials, equipment

JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

26

New Subjects In Curriculum Economics, Derivatives, Financing Risk Evaluation & Management International contracting, exports Intellectual property rights Health & Safety regulations JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

27

Case Study Heathrow Airport Extension Europe’s largest and most complex construction projects. HEATHROW TERMINAL 5 4.3 billion Pound; Nov 2001 start; March 2008 finish 260 Hectare site; 16 projects; 140 sub projects 1500 contracts; Monthly 80 million Pounds work; over 8000 workers. Gives 50% additional capacity to the terminal. JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

28

Unique Landmark Contract The T5 agreement is a unique legal contract in the construction industry – in essence it is a cost reimbursable form of contract in which suppliers’ profits are ring-fenced and the client retains the risk. non-adversarial style on the causes of risk and risk management through integrated team approaches. no claims for additional payments and no payment disputes so far on the project Will save 24 months of construction time!!! JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

29

BAA uses cost information from other projects, validated independently, to set cost targets. If the out-turn cost is lower than the target, the savings are shared with the relevant partners. This incentivises the teams to work together and innovate. It is the only way to improve profitability: all other costs, including the profit margin, are on a transparent open-book basis Agreement focuses on managing the cause and not the effect and ensures success in an uncertain environment. High performance levels and high benchmarking standards are INSTRUCT JNB Program on Emerging In Contract Management & demanded from allTrends parties. “The idea is to Dispute Resolution

30

BAA selected a consultancy framework for cost consultancy on the T5 project comprising the Turner & Townsend Group and EC Harris Group Ltd (known as TechT). Both companies were selected under the same terms of commission and each provided 50% of the staff. On this project these two major consultancy companies became one team “joined at the hip”. At its peak the cost INSTRUCT JNB Program on Emerging Trends In Contract Management & consultancy team comprised 120 staff. 31 Dispute Resolution

Conclusions

Preparing development appraisals • Development of the business case and master planning. • Producing the facility cost model allowing option appraisals within the master planning phase and functionally based cost planning. • Executing the business case sensitivity analysis to test each option’s rates of return on investment. • International benchmarking of airport INSTRUCT indicators (operational and construction JNB Program on Emerging Trends In Contract Management & Dispute Resolution

32

Conclusions 2. Advising clients on project brief, preferred procurement route and cash flow • Design of the incentivised procurement strategy and resultant contract terms and conditions involving the development of an innovative strategy and framework agreement against which contracts could be let. • TechT and Laing O’Rourke provided comprehensive commercial benchmarking across the whole T5 programme to enable BAA to judge whether the Anticipated Final Cost (AFCs) provided good/poor value for money INSTRUCT JNB Program on Emerging Trends In Contract Management & compared to otherDispute BAA and non BAA projects. 33 Resolution

Conclusions 3. Analysing whole life costs • Implementation and management of an innovative value improvement process which secures cost and time based on themes of designing, buying and delivering better. 4. Planning the construction process • Project management of the Planning Supervision process. • Project planning undertaken jointly between BAA/Laing O’Rourke based on overall T5 Strategic Plan using Primavera; however QS role minimal. • Sub-Project Planning - each sub-project (£75INSTRUCT JNB Programits on Emerging In Contract Management & £100m) has ownTrends cost and programme Dispute Resolution

34

Conclusions 5. Monitoring control of cost during precontract stage • TechT cost managers engaged with suppliers’ cost managers to verify the cost plans and ensure alignment with the schedule. The aim was to achieve a cost plan that was 95% bottom up i.e. based on figures from suppliers by BAA’s “D Day” (the milestone before the site assembly starts but when most of the manufacture is complete and design is 95% complete). • Contractors were required to monitor their INSTRUCT pre-contract costs and JNB Program on Emerging Trends Incontinually Contract Management & update BAA Dispute Resolution

35

Conclusions 6. Preparing tender and contractual documentation • TechT supported BAA’s Supply Chain team to negotiate and periodically review the Commercial Model Agreements (CMAs) between BAA and each of the 1st tier suppliers. • TechT supported BAA’s Supply Chain in providing advice on appropriate procurement routes and choice of Supply for each work package then utilised INSTRUCT the CMAs as a basis for agreeing the AFC. JNB Program on Emerging Trends In Contract Management & Dispute Resolution

36

7. Advising on payments to contractors, cost control and settlement of final accounts Majority of 1st tier contractors reimbursed on “an actual cost based” form of contract; interim payments and final account based on actual cost. • TechT work in conjunction with BAA’s cost verification team to check, audit and then verify that the costs approved for payment are valid. • used COINS (accounting package) to collate costs; BAA/TechT had read-only access to COINS to verify that costs were properly incurred. • BAA ran the project using Oracle/Artemis; contractors feed information into Artemis using comma separated variable (CSV) files on a weekly basis, updating costs, INSTRUCT progress and forecasts on a work breakdown structure JNB Program on Emerging Trends In Contract Management & (WBS) basis. 37 Dispute Resolution

Laing O’Rourke developed their own data-base system of weekly capturing costs against WBSs, recording progress and forecasting final costs, this was loaded electronically into BAA’s Artemis system every Wednesday for the previous week. 8. Controlling the project on behalf of their employer • Supporting BAA’s integrated team in the preparation of the project process and procedures and implementation of a project control system and software including change control and risk management. • Introduction of performance management system with KPIs based on cost, time and quality criteria. • Provision of monthly earned value analyses (linking time and cost) and schedule INSTRUCT performance indices. JNB Program on Emerging Trends In Contract Management & • TechT have driven the of – and are the 38 Disputeproduction Resolution

9. Negotiating with client or subcontractors • TechT work with BAA in agreeing AFC targets throughout the duration of the programme; each project and sub-project has its own AFC target, progress against which is reported on and discussed on a monthly basis. • TechT together with BAA’s supply chain and 1st tier contractors work as collaborative teams. 10. Reporting on the programme and financial matters • The TechT cost managers are integrated within their project and sub-project teams, they report to the project leader, who in turn reports to the T5 Directors; TechT are also represented at Programme Office level. • The Heads of Cost Management, Commercial INSTRUCT Management and Performance Measurement are all JNB Program on Emerging Trends In Contract Management & senior TechT people reporting 39 Dispute Resolution to BAA Directors.

Conclusions 11. Risk and value management • Ongoing option appraisal and value engineering of construction systems. • On going value improvement initiative focusing on productivity improvements and global acquisition combining leverage and partnering based buying. • Development of bespoke Risk Management Process aligned to the T5 insurance cover. 12. Giving contractual advice in case of disputeINSTRUCT JNB Program on Emerging Trends In Contract Management & 40 Disputedue Resolution to collaborative • Minimal dispute

Conclusions The example of the present running project gives an overview of Contract Management without disputes in the context of the mega projects that are coming up with great complexity.

Thank You JNB

INSTRUCT Program on Emerging Trends In Contract Management & Dispute Resolution

41