Contracts&DisputesHT5

8/14/2019 Contracts&DisputesHT5

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Tenders & Contracts.

Clauses & Conditions.

Recent Developments


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Program on Emerging Trends In Contract Management &

Dispute Resolution 2

Purpose of a Tender

Get offers from alternate parties

who have the competency &capabilityTender evaluation C & C First Step

Establish equality or clears a set benchmark

Tender pricing -to be from parties of equal C & Cto be on common platform based on

Specifications, BOQ and price schedules

Payment, intermediate & finalTechnology & Time for completion & Quality

Selected tenderer becomes contractor on acceptanceof tender and signing of the contract


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Program on Emerging Trends In Contract Management &Dispute Resolution 3

Purpose of a contract

Bring two parties together to work for acommo n obj ectiveBoth parties to benefit as a result of the activity

Parties ---- Owner & Contractor

Parties ---- Developer & ArchitectParties ---- 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 thecommo n goa l by satis fy ing the priva tego al of each par ty.


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Tenders & ContractsInfrastructure work contracts constantly gets blamedfor cost & time overruns.

Most of the contracts result in disputes either duringthe contract period or at the end of it.

Conditions in tenders, which on acceptance become

contract conditions are designed or drafted to avoidoverruns and disputes.

Costi ng or estima ti ng the project cost &mea sur ement & pa yme nts are very criticalactivities responsible for the healthy operation of acontract.

Projects are complex & Unknown elements either existor crop up during the life of the project.


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PROCESS

Tenders & Contracts

SKETCH DESIGN

Room

Demands

Terminal

Device

Spec

Room

Design

Co-Ordination

Equipment

Selection

Installation, Testing & Commissioning

Network

Design

Riser and

Void

Design

Fabricatio

n

Drawings

Building

Demands

Plant

Spec

Plant

Room

Design

Plant

Selection


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Tenders & Contracts

Project Brief

Concept Design

Detail Design

Production Info

Construction

Testing & Comm

Occupation

By

Employer

By

Contractor

By

Employer

By

Contractor


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Change & Cost of Change

Tenders & Contracts


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Tenders & ContractsAll contracts basically involve an element of risk

transfer from one party to the other contractingparty.

The coverage for picking up the risk is theprofit.

Conditions in tenders, particularly the non-specific ones such as Any other costs arisingdue 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 projectcost result in an implied risk.


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Tenders & Contracts

TIME

COSTQUALITY

QuickestMost Certain Earliest Start

on Site

Lowest to Buy

Most Certain

Lowest in UseDesign

Client

Controlled

Products

CONTRACT PROFILE

12

34

5

12

34

5


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Tenders & Contracts

TIME

COSTQUALITY


on Site

Lowest to Buy

Most Certain

Lowest in UseDesign

Client

Controlled

Products

D&B CONTRACT PROFILE

12

34

5

12

34

5


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Tenders & Contracts

TIME

COSTQUALITY


on Site

Lowest to Buy

Most Certain

Lowest in UseDesign

Client

Controlled

Products

MANAGEMENT CONTRACT PROFILE

12

34

5

12

3

54


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Tenders & Contracts

TIME

COSTQUALITY


on Site

Lowest to Buy

Most Certain

Lowest in UseDesign

ClientControlled

Products

TRADITIONAL CONTRACT PROFILE

12

34

5

12

3

54


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Infrastructure ProjectsInfrastructure 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


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Tenders & Contracts

M/E Design

Passive

Design

Elements

ToiletCores

Horiz/Vert

Circulation

Basement

Planning

Structure

CladdingCeilings

Partitioning

Floors

Voids &

Risers

Reception

Joinery

Catering/

Refrigeration


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Project & Contracts

Their role &the emerging changes in their rolewith changes in construction

contracting practices.

Employer

Employers

Agent

Contractor

ME A CS

SC1 SC2 SC3 SC4

QSTheir role &the emerging changes in their rolewith changes in construction

contracting practices.


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Contract Manager - Functions

Manage and control costs

within construction projectsUse a wide range of

management procedures and

technical tools to achieve thisgoal.


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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 storyconstruction

to multistory complexes.

Energy costs and Environmental requirements.


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Change over the yearsEnerg y cost s have also brought in a changein the outlook of the architectural design of

buildings.We cannot afford to overlook the opera tingcost of t he b uil di ng as a whole.Closely associated with the energy are theenvi ronmenta l f actors associated withenergy usage.


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Energy & EnvironmentGlobal Warming which was considered to be adistant dream of a pessimistic scientist is now

identified to be a reality staring at us.Energy consumption is directly associatedwith the production of green house gassesand global warming.

We cannot afford to face the consequenceson the environment

B ildi & E


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Building & Energy

Our building designs should keep energy in all

its forms and stages of utilizationEnergy that goes into the formation of thebuilding materials.

Energy that is utilized in the construction.

Energy that will be spent during the life time ofthe building.

CDM (Clean Development) & Green Buildingsare also becoming important.

S d f C t ti &


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Speed of Construction &Maintainability

The speed of construction has also beenassuming 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 thatthe design is such that the requirements ofresources are kept to the minimum.

Computers, IT & Automation.


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Requirement Today

Contract administrator is required to know(?)

Basic civil work processes & costing.

Component materials.

Services work processes & components.

Material selection & Equipment Selection andeffect on costs.

Building operation costs based on theaspects of Energy efficiency, Environmentfriendliness, Maintainability.


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Drivers for the Change

Changes driven by energy, environment, IT,

fire, natural hazards like earthquake, floods,cyclone, tsunami have influencedconstruction in a big way.

Major change in technology, materials.Standards & Codes.

Regulatory bodies, Local Byelaws, pollution,

Manpower availability, shortage of trained &skilled workers

d f b l


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Wide range of responsibility

Cost controller, Material ManagementProcurement of material & equipment

Work coordination strategy

Life cycle costingTaxation & Tax planning

Outsourcing & sub contracting

Work break-down & package development

Special work packages and costing

Dispute resolution


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Contract systems

Item Rate, Percentage rate, Lump sum

Labour only, turn key, composite

Design & Build, Construct,

Design, Finance, Build, Operate & TransferBuild & Operate

Build, Operate, Transfer,

Build, own, operate & transferPropose, design, build, own, run, share

Fi i l & L l


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Financial & Legal aspects

Process financial controls, inventory control

Dispute resolution ADR, Concilliation, Arbitration

Labour welfare management, worker training

Valuation of assets

Asset managementPlant & Machinery, materials, equipment

N S bj t I C i l


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New Subjects In Curriculum

Economics, Derivatives,Financing

Risk Evaluation & Management

International contracting,exports

Intellectual property rightsHealth & Safety regulations

Case Study


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Case StudyHeathrow Airport Extension

Europes largest and most complexconstruction projects.

HEATHROW TERMINAL 5

4.3 billion Pound; Nov 2001 start; March 2008finish

260 Hectare site; 16 projects; 140 sub projects

1500 contracts; Monthly 80 million Poundswork; over 8000 workers.

Gives 50% additional capacity to the terminal.

U i L d k C t t


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Unique Landmark ContractThe T5 agreement is a unique legal contract in

the construction industry in essence itis a cost reimbursable form of contract inwhich suppliers profits are ring-fenced and

the client retains the risk.

non-adversarial style on the causes of risk and

risk management through integrated teamapproaches.

no claims for additional payments and nopayment disputes so far on the project

Will save 24 months of construction time!!!

BAA uses cost information from other


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BAA uses cost information from otherprojects, validated independently, to set costtargets. If the out-turn cost is lower than the

target, the savings are shared with therelevant partners.

This incentivises the teams to work togetherand innovate. It is the only way to improve

profitability: all other costs, including theprofit margin, are on a transparent open-bookbasis

Agreement focuses on managing the causeand not the effect and ensures success in anuncertain environment. High performancelevels and high benchmarking standards are

demanded from all parties. The idea is to


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BAA selected a consultancy frameworkfor cost consultancy on the T5 project

comprising the Turner & Townsend Groupand EC Harris Group Ltd (known as

TechT).

Both companies were selected under thesame terms of commission and eachprovided 50% of the staff.

On this project these two majorconsultancy companies became one teamjoined at the hip. At its peak the cost

consultancy team comprised 120 staff.


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ConclusionsPreparing development appraisals

Development of the business caseand master planning.

Producing the facility cost model

allowing option appraisals within themaster planning phase and functionallybased cost planning.

Executing the business case

sensitivity analysis to test each optionsrates of return on investment.

International benchmarking of airport

indicators (operational and construction

Conclusions


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Conclusions

2. Advising clients on project brief,

preferred procurement route and cashflow

Design of the incentivised procurementstrategy and resultant contract terms andconditions involving the development of aninnovative strategy and framework agreementagainst which contracts could be let.

TechT and Laing ORourke providedcomprehensive commercial benchmarkingacross the whole T5 programme to enable BAAto judge whether the Anticipated Final Cost(AFCs) provided good/poor value for money

compared to other BAA and non BAA projects.

Conclusions


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Conclusions3. Analysing whole life costs

Implementation and management of aninnovative value improvement process whichsecures cost and time based on themes ofdesigning, buying and delivering better.

4. Planning the construction process Project management of the PlanningSupervision process.

Project planning undertaken jointly between

BAA/Laing ORourke based on overall T5Strategic Plan using Primavera; however QSrole minimal.

Sub-Project Planning - each sub-project (75-

100m) has its own cost and programme-

Conclusions


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Conclusions5. Monitoring control of cost during pre-contract stage

TechT cost managers engaged withsuppliers cost managers to verify the costplans and ensure alignment with the schedule.

The aim was to achieve a cost plan that was95% bottom up i.e. based on figures fromsuppliers by BAAs D Day (the milestonebefore the site assembly starts but when most

of the manufacture is complete and design is95% complete).

Contractors were required to monitor their

pre-contract costs and continually update BAA

Conclusions


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Conclusions6. Preparing tender and contractualdocumentation

TechT supported BAAs Supply Chain teamto negotiate and periodically review

the Commercial Model Agreements (CMAs)

between BAA and each of the 1st

tier suppliers.

TechT supported BAAs Supply Chain in

providing advice on appropriateprocurement routes and choice of Supply foreach work package then utilised

the CMAs as a basis for agreeing the AFC.

7 Ad i i t t


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7. Advising on payments tocontractors, cost control and

settlement of final accountsMajority of 1st tier contractors reimbursed on anactual cost based form of contract; interim paymentsand final account based on actual cost.

TechT work in conjunction with BAAs cost verificationteam to check, audit and then verify that the costsapproved for payment are valid.

used COINS (accounting package) to collate costs;BAA/TechT had read-onlyaccess to COINS to verify that

costs were properly incurred. BAA ran the project using Oracle/Artemis; contractorsfeed information into Artemis using comma separatedvariable (CSV) files on a weekly basis, updating costs,progress and forecasts on a work breakdown structure(WBS) basis.

L i OR k d l d th i d t b t


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Laing ORourke developed their own data-base systemof weekly capturing costs against WBSs, recordingprogress and forecasting final costs, this was loadedelectronically into BAAs Artemis system everyWednesday for the previous week.

8. Controlling the project on behalf of theiremployer

Supporting BAAs integrated team in the preparationof the project process and procedures andimplementation of a project control system andsoftware including change control and riskmanagement.

Introduction of performance management systemwith KPIs based on cost, time and quality criteria.

Provision of monthly earned value analyses (linkingtime and cost) and schedule performance indices.

TechT have driven the production of and are the

9 N ti ti ith li t b t t


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9. Negotiating with client or subcontractors

TechT work with BAA in agreeing AFC targetsthroughout the duration of the programme; each

project and sub-project has its own AFC target,progress against which is reported on and discussedon a monthly basis.

TechT together with BAAs supply chain and 1st tiercontractors work as collaborative teams.

10. Reporting on the programme and financialmatters

The TechT cost managers are integrated within their

project and sub-project teams, they report to theproject leader, who in turn reports to the T5 Directors;TechT are also represented at Programme Office level.

The Heads of Cost Management, CommercialManagement and Performance Measurement are allsenior TechT people reporting to BAA Directors.

Conclusions


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Conclusions11. Risk and value management

Ongoing option appraisal and valueengineering of construction systems.

On going value improvement initiativefocusing on productivity improvements

and global acquisition combiningleverage and partnering based buying.

Development of bespoke Risk

Management Process aligned to the T5insurance cover.

12. Giving contractual advice incase of dispute

Minimal dis ute due to collaborative

Conclusions


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P E i T d I C M &

Conclusions

The example of the present running

project gives an overview ofContract Management withoutdisputes in the context of the megaprojects that are coming up withgreat complexity.

Thank You

Contracts&DisputesHT5

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