EG7036 1920 T2 Business Procurement and Contractual Practice Assignment Sample 2023

1. Corporate Social Responsibility in the international construction market

Corporate Social Responsibility has become one of the important agenda for all the companies who like to grow in this competitive world. Earlier, the companies didn’t focus much on the environment, society etc. However with devastating impact by some of the companies and unethical behavior in both society and environment, the people are looking to support the companies which are sensitive & responsible to the people, society and environment.

Corporate Social Responsibility: The definition for Corporate Social Responsibility varies based on the different authors and based on different perspective. One of the early author Carroll (1979, p. 500), explains Corporate Social Responsibility as the view that the company’s has not only on economic and legal front, but also on ethical and philanthropic activities for the wellbeing of the society. As the theory matures Carroll refines it saying that the corporate social responsibility is a pyramid, with economic benefits being the base of the pyramid, legal and ethical issues as the middle one and the philanthropic activities at its apex.

Corporate Social Responsibility in the International Construction Market: Construction Industry is one of the industry which is twin headed when it comes to the Corporate Social Responsibility. The people and the society want a sophisticated buildings, well developed cities and the facilities with world class. However when it comes to the construction of the same, they people around it protest saying that it is not eco-friendly, it is against the wellbeing of certain people in the society and it is against the environmental.  The construction industry competes with the natural environment resulting in land degradation, afforestation, water bodies’ depletion, waster generation and other forms of pollution as quoted by Lu and Tam 2013.

Moreover, the competition in the construction industry is fiercer and the companies in the industry in front of the competition they act at the cost of societal well-being, it also paves way for harsh working environment, not meeting minimum required safety standard both in work environment and in labours living environment. The labours are ill-treated and sometimes over pressured to complete the project in time or before the deadline.

The technological advancement, trade liberalization, open markets, fast transportation and other advancements has led the national wide companies to expand their frontiers in the international arena (Lu et al. 2013a).

The International Construction companies are now focusing more on the corporate social responsibility and they are also publishing their corporate social responsibility activities in the annual report. They are also doing CSR as a part of their brand building exercise and to have smooth conducting of business in the foreign soil (Petrovic-Lazarevic 2008;Murray and Dainty2008).

Corporate Social Responsibility activities by International Construction Companies: The Corporate Social Responsibility activities that are carried out by International Construction Companies are care for employees, education of employees, maintaining ecology, sponsoring the societal activities in and around the site area, donation for the development and upliftment of the needy, building relationship with school and non profit organization, company transparency etc (MARTINA KORNFELDOVÁ, RENÁTA MYŠKOVÁ, Application of CSR in Construction Industry).

The International Construction Companies enjoy a lot benefits because of their voluntary corporate social responsibilities such as positive reaction from the business environment, improves the corporate image, the customers are more satisfied, new business opportunities, locals appreciate the company for their efforts, positive reactions in general and positive feedback from community engagement and sustainable developments (DilekUlutaşDuman, Faculty of Architecture, Turkey, HeyecanGiritli, Turkey, andPeter McDermottSchool of Built Environment, University of Salford, Salford, UK, Sep 2015, Corporate social responsibility inconstruction industry – A comparative study between UK and Turkey)

Importance of Corporate Social Responsibility: The Corporate Social Responsibility is carried out by the international construction companies for multiple number of reasons. The first and the foremost thing is that now the regulatory authorities in most of the countries mandate the companies to spend a portion of their profit for the CSR activities. They also mandate that the companies has to disclose their CSR activities in their annual report. The secondary objective is that the International Construction Companies want to have less (or) no objection from the environmentalists, local talents and from others, when it comes to the construction of the ongoing project or when there is opportunity for taking up of new projects. They also feel that the Corporate Social Responsibility activities are creating positive impact in the minds of the people and thereby the brand image is also improving. Indirectly, the company is also able to save huge amount of money in their project. For instance, if a company receive a legal notice which has been raised by the people in and around the project site, then the project might be put on hold. This might take from days to months to fix the issue and to restart the program and in mean time the company might have incurred a huge amount of money for facing the legal issue. The company also might have to incur a huge cost for its labours, staff and unexpected cost inflation as well. Thus the CSR plays a major role in the international arena. The company should consider the raw material prices, labor cost and miscellaneous cost based on the project and the country where they are doing their work. This affects the local construction companies to increase their labor cost. This should be avoided by having a standard budgeting throughout the world. The company should provide opportunity for the engineers and workers in the native country.

Impact of Corporate Social Responsibility: The impact of the corporate social responsibility is varied and it depends on what type of the CSR the company does, where it does, the project site and the impact of the project in the society etc. The positive side may vary but if the companies are not involving themselves in the CSR activity, then the repercussion might lead to stoppage of the project itself. Thus the Corporate Social Responsibility is very much important for the International Construction Companies (M Loosemore, 2017, Linking corporate social responsibility and organizational performance in the construction industry).

2. Investigation of issues before accepting the Indian contractor’s tender price

The concern raised by the consultants of University of Mauritius is really valid and they have to look for lot of factors before allocating the project.

1. i) Core Factors of the Indian Construction Company

The consultants has to see the history of the Indian Construction Company. They have to see the company’s existence from its incorporation. They have to see the number of projects that has been handled so far. The magnitude of the project that has been handled and the experience of the Indian construction company in finishing the project in time. The consultants has to be very cautious if there is any failure in the construction (or) dropping out of a project by the Indian company in its earlier history. The reason for the failure or drop out has to be studied.

The consultants can also look for the company’s experience in the foreign soil, their ability and the way they have handled the project. They also have to see the strength of the company such as structural engineering, thermodynamics and civil engineering. They also have to be accessed for their assets quality and the way they treat the labours. The treatment of labours has to be seen in both home country and in foreign country.

1. ii) Success Rate of the Indian Construction Company:

The consultants has to visit the projects that has been completed by the Indian construction company and have to get the feel of their work. They also have to check for their success rate, meeting the objective of the tender issuer, the quality of the building.

They have to see the longevity of the building completed by the Indian construction company so far they have constructed. The company can be analyzed using their previous projects by evaluating the project plan, execution and maintenance activities. The bidder can be investigated with a clear documentation of project budgeting. Then the budget should be checked whether they used the standard costing procedures for procurement and human resource cost. Also the human resources in the Indian company should be in the balanced mix of technical engineers whether they have good architects, site engineers, electrical and mechanical engineers. The labor cost should be considered whether the company will give opportunity to local laborers of the country where the project will be executed.

iii) Cordial Relationship of the Indian Construction Company: The consultants also has to check for the cordial relationship of the Indian construction company with that of the client, workers, stakeholders, environmentalists and the people in and around the project area.

1. iv) Corporate Social Responsibility: The consultants also have to check for the Corporate Social Responsibility of the Indian Construction Company. If they are well known player for their CSR, treatment of employees, staffs and labours, etc, then they are known for their ethical and CSR standards.
2. v) Financial Possibility: The consultants are worried about the low quote that has been offered by the Indian Company. In this juncture they are at crossroads and not sure as what has to be done. They can take up the Indian company’s financial statement to check for their performance over the year. They can verify the earlier projects done by the Indian Construction Company and check for their quotes. If there is a satisfactory evidence stating that they are one of the low cost construction company with efficient management, then the consultant can rely on the quote. If they find that the company initially they get the orders by quoting less and then if they have failed in meeting the deadline or the target, then the consultants can reject the offer.

The consultant of University of Mauritius can call up on the Indian Construction Company which has given a quote of US$ 78 Million and they can ask for the detail backup of the cost as it is necessary for the award of the contract. They also can request for any subcontract that they have planned, they equipment’s that they are going to use, the workers that they are going to use and how they are going to deploy them, staffs, engineers, materials, quality of materials etc. Once the consultants are convinced with the details provided by the Indian contractor and after cross checking the financial calculation, contingency amount, profit % etc then they can proceed toward releasing the offer.If not then can hold the offer and it can be issued to the next second lowest bidder.

INTERNATIONAL CONSTRUCTION CONTRACTS:Each and every business and every part of the business is susceptible to risk. There is no activity in the world without any risk. Hence, the concern with regard to Indian Construction Company is not huge one and the risk can be mitigated by using an appropriate terms and condition in the contract.

With the international trade barrier minimizing and the companies becoming more global, there are different legal system in different countries, different cultures, different values, time zones, different political system etc. This makes us to call for an International Construction Contract as the Indian Company is about the take up the work in Mauritius.

The terms and conditions that has to be covered and detailed in the contract are

1. The completion of the project and the performance of the company in meeting the quality
2. Penalty with regard to delays

• Time related Issues such as delay, disruption, Ownership of flats, Construction acceleration etc

1. Qualification of claims
2. Payment terms whether it is going to be a progress payments or Milestone payments. In case of milestone payment, the authority which confirms the achievement of the milestone.
3. Release of payment with regard to the relationship of the work completed

• The intermediate agency which oversees the project and the quality of the project
• Any damages, accidents or loss of life during the construction of the project and the responsibility of the same

1. Any legal compliances
2. Any legal cases or criminal cases during the construction phase and the court that they would seek for any dispute resolution
3. Risk sharing and management

• Unexpected cost escalation and treatment of the same
• Time period for the completion of the project
• Insurance for covering any unexpected damages (L Klee – 2015, International construction contract)

The consultants can also seek the help of FIDIC – International Federation of Consulting Engineers to understand the efficiency and other attributes of the Indian Construction Company and they also can learn as how the contract has to be designed so that the risks are covered towards any failure of the Indian Construction Company.

5. Benefits and disadvantage of having local content clauses in a construction contract for a project in a developing country.

Local Content: Local Content is defined as the people, material, services and other facilities which is available in a specific country (or host country) where the project is about to start. Any company which comes from outside the host country with its technical expertise can bring its resources from its own country or from anywhere based on the availability. However, the host country Government will look to develop its manpower and to create job opportunities within its nation. Hence, the regulatory authorities might make a mandate for any International Construction companies to use the Local Content or local talents to a certain % in the project. Thereby it creates job opportunities for the people directly or indirectly. Sometimes, the International construction companies might train the local content for the specific skill and they might use them for their project. Once the project is completed, Government will identify those people who are trained in this construction and will use them for the next phase or for the new project (Sherry M. Stephenson, 2013).

Benefits of Local Content Clause in an International Construction contract:

The local content might the people or the material which might be sourced within the country and used directly for the completion of the project or used intermittent process which supports the completion of the project.

The benefits of the local content requirement policy are

1. i) Local Content Requirement helps the infant industries a lot. The local talents get trained from the international experts (learning by doing) and they in turn can train the local people.Thus the infant industries become internationally competitive.
2. ii) The local content requirement helps the Government to create jobs in the country and foster the GDP growthSherry (M. Stephenson, 2013).

iii) By following the Local content requirements, the currency movement from the host country to the other country is limited to certain extent.

iv)The international knowledge transfer happens seamlessly and the local talents also become experts in the respective areas.

1. v) The international companies also can save a good quantum of funds by using the local contents. They save by minimal transport from other countries, less human resource cost if they use local people vs the high cost of expatriates, chances of subsidies from the Government, acts as a Corporate Social Responsibility etc.
2. vi) The increase in local content can have a important development in the assets of various sectors such as construction, transport and industries.

vii) The local content clause will provide employment opportunities, demand for construction equipments and the raw materials. This will improve the revenue of the country.

Viii) The local people can have the opportunity to experience about new technologies and techniques adopted by the international construction contract.

Demerits of Local Content Clause in an International Construction contract:

Some of the demerits of local content clause in an International Construction contract are

1. i) The untrained Local talents might pose threat for the project as well
2. ii) The Local Content Clause might make some renowned International Construction companies to stay away from bidding as they might fear that it is not sure about the quality of the materials and the talents in the country.

iii) The International Construction Company might feel that their intellectual know how might get distorted resulting in losing its uniqueness.

1. iv) There is a good chance of cultural issues getting erupted and this might result in the stoppage of the project (Gary Clyde Hufbauer& Jeffrey J. Schott, 2013).
2. v) The local talents might not follow the rules and regulation of the superiors of foreign nation due to language barriers, sex, color, race discrimination and this might result in the unnecessary delay of the project.
3. vi) The local people as they know each other well may join and protest together for very small issues which will affect the project. Some local authorities who want to create nuisances may induce these local workers.

References:

1) MS Schwartz, AB Carroll – Business ethics quarterly, 2003, Corporate social responsibility: A three-domain approach

2) AB Carroll – Business & society, 1999, Corporate social responsibility: Evolution of a definitional construct

3) W Lu, M Ye, R Flanagan, K Ye, 2016, Corporate social responsibility disclosures in international construction business: trends and prospects

4) ZY Zhao, XJ Zhao, K Davidson, J Zuo, 2012, A corporate social responsibility indicator system for construction enterprises

5) W Lu, M Ye, KW Chau, 2018, The paradoxical nexus between corporate social responsibility and sustainable financial performance: Evidence from the international construction business

6) H Wang, W Lu, M Ye, KW Chau, X Zhang – Journal of cleaner production, 2016, The curvilinear relationship between corporate social performance and corporate financial performance: Evidence from the international construction industry

7) W Lu, M Ye, R Flanagan, K Ye – Journal of Construction, 2016Corporate social responsibility disclosures in international construction business: trends and prospects

8) I Ndekugri, N Smith, W Hughes – Construction Management, 2007, The engineer under FIDIC’s conditions of contract for construction

9) L Klee – 2015,International construction contract law

10) Sherry M. Stephenson, 2013, Addressing local content requirements: Current challenges and future opportunities

11) Gary Clyde Hufbauer& Jeffrey J. Schott, 2013, Local Content Requirements:Report on a Global Problem

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