CONSTRUCTION INDUSTRY ASSIGNMENT
1.Introduction
The involvement and the higher risk that is associated with construction industry is being set to meet the overall dignity and share the culture with standard forms to make the contract more successful. It is having the overall negotiation with the values that is increment the profits margin and making the stability in the construction company. In UK the construction company JCT is having the higher trending and maintaining the overall purpose of the study. Standardization of the contract that is making the highest field in changing the stability with direct contract in the construction industry. Moreover, it is acceding the values with the changing system that is having the broader direction in industrial performance in the UK and Sri Lanka. The economic barrier among the countries is making the dignity to access the values that are aching the profitability and making the development in the construction industry. However, it is facing higher challenges that are required to meet the overall negotiation.
2. Why these countries (the UK and Sri Lanka)
The construction field is the biggest section in the economics of the UK that have pound 90 billion as a value addition in the economy. It comprises more than 280,000 construction organisations that cover almost 2.93 million jobs which are 10% of the overall UK employment (publishing.service.gov.uk, 2023). Moreover, the contracting industry is the biggest sub-sector of the construction industry that accounts for a total of 70% of value added by the UK construction sector. Products and services in this industry irrespective of size, are significant to the industrial performance and generation of substantial economic benefits.
On the other hand, the construction industry of Sri Lanka is one of the largest contributors to GDP and employment generation. Direct contracting is one of the significant subsectors of the construction industry in this country (trade.gov, 2022). The industry gets various opportunities as the developers in this country frequently partner with engineering and design entities in the US. Sri Lankan Government has set up a state-run enterprise to take over different assets and acts that serve as the investment arm of the country’s government. However, this industry also faces challenges due to import control measures by the government subsidizing foreign currency reserves, which, therefore, causes shortages of cement, and other materials.
Hence, it has been understood that both UK and Sri Lanka have well versed construction industries that are using different contract types, such as the UK is using NEC and JCT suite of contract while Sri Lanka is using ICTAD. Different types of contractual teams impact the industries in different ways and hence, by comparing the contracts between these two countries would enable us to understand geographic and cultural differences of the countries in terms of construction contracts.
3. Selection of the different type of contracts in the Projects
In the UK construction industry, contracts are developed as a form of written agreement between contractors and clients to come down to a decision of setting out what kind of services to be given, the cost of services, along with the delivery schedule. Contracts are entered in construction projects for the following reasons: start a new construction project, for replacing an existing contract, and carrying out a maintenance project. There are two standard forms of contractual suits which are JCT (The joint contracts tribunal) forms of contracts and NEC (The new engineering contracts) forms of contracts. It has been noted that public funding generally uses NEC contracts whereas private funding in the UK deploys JCT contracts. The terms and conditions existing in these two contracts are well balanced which helps the client and contractor to work effectively. For instance, the JCT contracts consist of seven members showcasing broader experience and interest in the construction of the UK. Both types of contracts use a standard form of body to place a balance, providing equal allocation of risks between parties involved in the contracts with predetermined tasks.
The Government of Sri Lanka executed a large set of infrastructure projects in the past decades, some of them experienced cost overruns, delays and disputes. It has been found that inefficient contract management skills along with a lack of dispute resolution procedure with the unit of project management are the key contributing factors towards such experience (treasury.gov.lk, 2023). In this regard, the government has developed guidance for contract management and project management capability of workers engaged in implementing national infrastructure projects, workers engaged in implementing and monitoring the development of infrastructure projects and enhancing the interest of members within the technical evaluation board, procurement board and other staff members. It helps them to select effective contracts for projects depending on the projects’ type and scenario. The Public finance department carries out a dissemination program for the relevant Government institution on GPMCM to make the staff concerned regarding principles of contract management.
4. What are the most common use contracts in the UK and Sri Lanka
It is identified that privately funded projects mainly use JCT suits as a means of contract type. Within this family, different construction contracts are chosen for different construction projects based on project size and complexity. For example, the JCT minor work building contract is used in projects that are funded up to £250,000. On the other hand, JCT standard building contract is used in projects with funding over £1 million and JCT intermediate building contract for projects needing funding up to £1 million. It is also noted that different forms of contract must be selected in the following procurement route that is undertaken in UK construction projects. Along with this, The NEC suits are being used to procure a range of services and works within the public sector of the UK. NEC types of contracts are intended to be flexible and all purpose.
The most famous contract used in Sri Lanka is EPC (Engineering, Procurement and Construction) Contract. EPC Contract is a turnkey Contract in which contractor is responsible for the whole project including the procurement of material design and construction.
In EPC contractor is mainly responsible for the completion of project with in the specific timeframe and budget. In this contract typically it provides the requirement and specification for the completion of the project. However, client is responsible for the approval of the EIA (environmental impact assessment) and IEE (Initial Environmental Examination)
The Design-Build (DB) contract is yet another popular construction agreement in Sri Lanka. The contractor is in responsible for the project’s design and construction. In this contract, the client provides the project specifications, and the contractor develops and builds the project in accordance with those specifications.
Overall, both EPC and DB contracts are widely used in Sri Lanka, with the choice of contract depending on the specific project requirements and the preferences of the client and contractor.
5. Case study (UK London Olympics Stadium 2012)
A. Project description and context
The Olympic stadium in London was developed with an innovative design of temporary and permanent structures that are intended to fulfil 80000 games viewers capacity along with a 25000 legacy viewer capacity. The constriction of the projects included sizes of structural elements, structural geometries, and connection designs that have altogether created a refined and elegant simplicity to the construction design and a partial and economic structure temporarily. Engineering activities were included in the construction of this project including roof structural engineering, enclosure engineering, structural podium engineering, green edges and biodiversity. After the completion of overall construction work, the fit-out of the stadium continued further (olympics.com, 2022). The organizing committee of London 2012 laid the track surface later to avoid damage during the heavy temporary construction overlay that was then needed for preparing ceremonies and games.
B. Types of contracts used in the project
The construction project of the London Olympics Stadium 2012 was procured under option C of the NEC engineering and construction contract (NEC3). As per John Fernau, the ODA deputy chief of procurement, the NEC3 contract was chosen for the project to procure the velodrome along with other venues in London in 2012 because it offers a collaborative pathway that supports the delivery of the project on time, that was also fundamental to ODA. With the NEC contract type, there was full visibility of the project cost that helps management to fix the budget effectively. The NEC3 contract contains six options contracts including option C which is a target contract along the activity schedule and option A which is priced contract along the activity schedule (assets.publishing.service.gov.uk, 2013). Besides, it was possible to monitor the impacts of any change arising in the project. It has been found that olympic Delivery Authority compiled several improvements to the contract for getting support in polity ambitions along with the provision of enhanced dispute avoidance activities, in terms of increased payments. All these included the usage of sub-contract provisions and independent disputes abolition panels appointed by an ODA.
C. Evaluation of the advantages and disadvantages of each contract
The following are some benefits of the NEC3 contract:
- The NEC3 contract provides a formal method of project management along with the process of managing delivery and supporting a standardised approach to contract management. This contract also has an understanding of working with the supply chain even within market uncertainty over a new bespoke contract by ODA.
- The contract uses a set of target arrangements that give a clarified incentive to accelerate program delivery efficiently, evidenced by the achievement of cost performance and construction progress.
- The ODA’s mechanisms of prescribed dispute avoidance were used only to a limited extent as a consequence of the proactive utility of the contract for problem-solving as that was developed collaboratively.
The disadvantages of the NEC contract are in below:
- The NEC contract needs too many experts to manage the project and also creates a lot of paperwork.
- Uncertainty is another disadvantage of the contract, because of the flexible nature of working relationships, contractors do not always guarantee the continuation of the work after the end of the project.
- The contractor not only has the responsibility to find work but also, is responsible to meet their finances.
- The contractor does not hold any employment rights
D. Results and outcomes
The construction work of the London Olympic Stadium 2012 was supported by an NEC3 contract that provided room for the contractor to derive an effective design solution (assets.publishing.service.gov.uk, 2013). The contract depended on target pricing and allowed for a flexible design. Therefore, the construction had scope for innovation and exchanging of the savings achieved.
6. Which contract they have used and why?
In the UK, most of the heavy construction is operated by the Government itself and therefore, the NEC form of contract is being used potentially, just like the case study of London Olympic Stadium 2012 did. This contract fixes the sustainable development needs that can be specifically applied to the contractor (assets.publishing.service.gov.uk, 2013). This contract takes a collaborative approach with an early concerning notice period. It helps to ensure transparency in terms of monitoring and controlling change and delivers a way of mitigating risks. Therefore, contractors can find opportunities to realise the contract level. This contract also provides an incentive mechanism for the completion of the work through sharing gain.
On the contrary, Sri Lanka has used EPC as a type of contract in the construction industry. Contracting organisations registered in Sri Lanka that carry out the business of civil engineering, piling and specific construction, electro-mechanics are allowed to use this contract type. In EPC Contract through bidding process, the client organisation can choose the right contractor for a project following the grading system (cida.gov.lk, 2021). The grading system encourages contractors for upgrading and self-development as well as stopping contractors from undertaking projects that are beyond their capability.
7. Benefits and drawbacks
It has been pointed out that almost 27% of CO2 is emitted in the UK from construction projects (Pan, Chen and Zhan, 2019). In this concern, the NCE contract helps the contractors to follow up on a sustainably developed project which is an important element of any construction project and also assists in obeying environmental law. The NEC contract provides full flexibility on payment and pricing along with a range of open-book, lump-sum, and target cost arrangements and adaptability. Besides, this contract offers clarity, ease to use and simplicity. According to the drawback, it has been found that part of the construction work under the NEC3 contract is not followed by the works information.
8. Risk and Concerns
NEC3 contract:
Risk
A risk register is a tool that is utilised to manage risk under NEC3 ECC that intends to recognize the hidden risks in a construction project and record the actions that should be taken to minimise those risks (addleshawgoddard.com, 2023). The inclusion of a risk register preliminary within ITT documentation would help the contractors to understand the severity and impacts of those risks on construction projects.
Concern
The majority of NEC3 contracts work with core nine clauses including the main responsibilities of contractors, testing and defects, time, payment, risk and insurance, compensation events, termination, and title (Azghandi-Roshnavand, 2019). In case while using NEC3. It is important to consider that both parties must enter into the contract with a collaborative mindset so that all the identified terminologies are followed properly. The contractors under NEC3 need to recall the contract documents to be included in the contract such as work information, contract data, the agreement form, and activities schedule along with prices and bill of qualities, site information, and terms of contracts.
EPC Contract:
Risks
The parties engaged in an Engineering, Procurement, and Construction (EPC)
Contractor must take certain risks into account and manage them. One such worry is schedule risk, as project completion can result in higher expenses, fine Project schedules can be affected by variables including the weather, labour
shortages, design modifications, and unforeseen events.
Another risk connected to EPC contracts is cost overruns. Even with a fixed price or a target price with cost adjustment procedures, there is still a chance that the budget may be exceeded because of scope changes, design changes, inflation, or unanticipated site conditions.
9. Outcome of the discussion
It has been found from the discussion that the UK in its most large construction projects use NEC contract terms as those are regulated and operated by the government of the UK. Working with NEC has several advantages, it provides a flexible and formal methodology to proceed with construction activities. It also supports standard management for the contract to be performed and the achievement of predetermined results. From the case study of the 2012 London Olympic Stadium, it is noted that the contractor created a design solution with the NEC contract in terms of permanent and temporary structures. As a benefit, the case study project contractors could attain sustainable development in their project by taking a collaborative approach to complete the task within time and avoiding elementary risk through risk register tools. Apart from that, the ICTAD contract has been discussed further and is widely used by Sri Lanka for its contractual projects in the construction industry. This contractual term helps in price adjustment as well as time adjustment to avoid any misconduct in construction projects and avoid price fluctuation.
10.Conclusion
Hence, based on above discussion it can be concluded that the GDP of the country is trying to access and make the overall values with the dignity to set and manage the industry with the challenges that is required to overcome. Moreover, it is also trying to fetch the practices that is creating a standard diversification with changing system to improve the stability and managing the shortage cement with dynamic dignity. It is more stable to achieve the overall profit margin with the cultural prospect that is making UK and Sri Lanka different from each other. It is being analyses from the study that both UK and Sri Lankas are making the construction industry more successful with the contract types and application of NEC and JCT is suitable for the overall development.
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