EG7036 Business Procurement and Contractual practice Sample
Question 01
The procurement method is a crucial decision that is taken in a construction project. Procurement decides the viability and profitability of the project. In this case, Jim Aki’s khan must consider various factors like location, risk-taking capability, project design, complexity, capital, weather conditions, labor availability, logistics, and management. The main functions of procurement are planning, designing, building, operations, management, and finance As given he wants 4units of the bedroom. Jim is not a construction expert and he wants involvement in the project with moderate risk. Here the main parties involved can be Jim Aki’s, Khan, the consultant (me), and the contractor.
Types of procurement methods:
Old school procurement: This is a traditional method, where the role of the contractor is limited to construction and building. Design, management, operation, and finance are the responsibility of the client or maybe another reengineering expertise third party. As stated by Love (2002), the main advantage is it’s very simple and there is no overlapping of functional responsibilities, however, this method is not very advanced due to extra designing cost, risk allocation, and less influence on the contractor as it is just operational partners.
Management contractor: This is a widely used practice in the construction industry. In this method, specialized contractors are hired to complete specific skills tasks eg: flooring and ceiling, woodwork, painting, fittings, and fixtures. etc. In this, the main contractor acts as the management and he takes care of the actual building function. In this method financing and operations are handled by the client. This method is used when projects can be divided into packages.
Design and build:
It is the method by which the contractor is responsible for designing and building. The contractor is closely involved and associated and shares the risk. Here the consultant is the one who manages the project and finance and operations remain the client’s territory.
Partnering or joint venture:
In this method, the client goes into partnership with the contractor. The purpose is to have common interests, share risk as well as returns, create professional work culture, communicate flow between parties, set common targets, cut cost, and enhances productivity. Such projects are large and require multiple parties’ involvement.
Contracts and types of contracts:
A contract is a legal document that binds two or more parties to whatever is written and signed, In construction, this contract is done between the property owner or owners and the contractor or contractors. There are various kinds of contracts available for Jim Akis Khan. Like procurement method selection this decision also has a great deal of impact on overall project deliverables and viability.
Cost – Plus contract: In this system, the contractor is paid the cost incurred indirect labor, material, and also paid overheads for machinery hours, office rent, insurance, etc. After the project, they also get a pre-decided percentage from the profit. This is very safe for the contractors and the profit percentage keeps them motivated. However, in this case, keeping a tab of all the costs incurred can be extra labor hours.
Design and building contract: In this method, the contract includes both designing and building costs as one. Unlike traditional methods when designing was done before the contracts. It helps in proper information flow and repeatable process management. As pinned by Alves and Shah (2018), it avoids conflict between the designer and the builder. The clarity expedites the whole process. It gives benefits of streamlining the process and collaborations. The only problem is there is bidding and competition which could lead to higher costs.
Guaranteed maximum Cost price contract: As the name suggests the highest cost price needs to be paid by the client to the contractor has capped Any expense incurred above that price will be bared by the contractor. It is sharing cost and risk by both the parties.
Incentive-based contracts: It is based on positive motivation. The contractor gets incentives if he delivers the project before the deadline. The contractor also receives a bonus if he completes the projects below the set expectations of expenditure and total cost. In this, the contractor is always motivated to meet deadlines and cut costs.
Integrated delivery contract: This is a contract where the complete project is delivered within a single contract with shared risk and rewards, lean and collaborative principles, and liability waiver. It is a multi-party engagement between designers and construction, engineers and the owner. In this type of contract risk and rewards are divided between various parties. These parties may or may not get their profit ratio depending on the agreed terms.
Lump-sum contract: In this, the contractor signs the complete project for a lump sum cost. He does the working and quotes a price rather than keeping a record and reporting expenses of different activities separately. This contract is best when the deliverables are specific and easy to estimate the cost beforehand.
In this case as a consultant after understanding the priorities and expectations of Jim Akis Khan, I will suggest he design and build a procurement method as he is not a construction and design expert and will suggest he go for a Guaranteed maximum cost price so that he can limit his risk in the project. This will help his involvement in the project also.
Question 2
Three torts (civil wrongs) can occur in the construction phase of projects.
Tortuous acts are the wrongful acts that make one party suffer any kind of financial or other loss or harm and bring legal liability to the other party. Examples of most common such civil wrongs are:
Negligence: As explained by Bracey,(1990), In general terms, negligence can be termed as failure to do what is expected or omission of an important task due to sheer careless behavior. It includes a breach of duty to take care. To make it into a legal liability the claimant must prove in the civil court of law that :
- The defendant owned that duty of care to the plaintiff
- The defendant breached that duty of care
- Plaintiff has suffered the harm or loss due to a breach of that duty to care
These duties are exclusive of contractual obligation and once these three points are proven, the defendant has to compensate the losing party.
Nuisance: It includes both public and private nuisance. Public nuisance includes acts that involve unwanted interference in other parties’ land or property. Public nuisance means that affects a whole class. Like polluting the water bodies, blocking the highway, etc. As described by Miller (1982), Private nuisance is created when only specific parties have the right to their land usage. It includes intrusion or trespassing of any sort, hindering the party to enjoy their land by excessive noises or smells, or any kind of damage caused to these lands. In this case, legal action is taken when the damages are proven which need not be physical or financial.
Trespass in construction: This means intrusion in the property or land, where any kind of intrusion is denied without permission or rights. Trespassing includes entering the land or property or leaving something within the legal boundaries of the property without required permissions. In construction, many times access to neighboring lands is required, this should be done by taking due permission.
The possible defenses to these torts.
Negligence:
Negligence on the part of the plaintiff: The plaintiff cannot claim or recover the losses or the harm caused if he also has some role in the wrong deeds. In this case, the plaintiff can be held responsible for his good deeds. Even if the ordinary care execution by the plaintiff could have avoided the losses by the negligence of the defendant the claims will be dismissed. If both the parties are involved in the act of negligence or even if the duty of ordinary care by the plaintiff could have avoided the negligence or the loss occurred due to negligence.
An act of God: If the main reason for the negligence is any act that could not be avoided or foreseen and even if foreseen can not be avoided by the human, then the defendant can be spared. It generally covers natural disasters.
Inevitable accident: This can be used as a defense if the negligence is proved to be a result of a physical accident that could not be avoided even if ordinary duty, skill, and talent were used.
Nuisance:
Prescription: It is the act where a person can claim certain rights to land or property as his ancestors enjoyed the same rights for the property. This duration is twenty years. This nuisance is not illegal as it has the grant of the owners. These rights can be claimed if the use of the property is done by the individual himself in front of the eyes of everyone and without creating any violence. The things used must be identifiable and these rights should not come in way of the rights of any other individual.
As coined by Weinrib (1976), another defense can be Statutory authority. It can be claimed if the state has authorized an individual to use a certain part or complete land to carry on an act of state. This authority can be conditional or absolute.
Trespass: The defense available for trespassing is if the plaintiff did not use a proper board or signage to describe the rights to enter the property. If the plaintiff did not occur any losses and the trespassing was a sheer act of negligence, the charges are less harsh.
Question 3
Time delays under NEC4 ECC Contract and FIDIC red Book:
There is a timeline attached to every phase of the project starting from project proposal, appraisal, and selection, planning, designing, start-up and activation, construction and execution, supervision and operation, finance to project closure. Delay in the project delivery at any face harms project outcomes, performance, and profits due to extra cost. However, no matter how well managed, planned, or executed a project is, there will be times when the project will face delays. As stated by Alhyari, and Al Ani (2022), there can be multiple reasons causing these delays in the results of the project. The delay will have a cost overrun or extra cost and timeline implications for all the parties involved. It is very important to understand how much responsibility the client and contractor have for different types of reasons for the delay while dealing with these delays. In clause 60 of the Engineering and construction contract there is a list of compensation events .these are events that cause delay however the contractor has little control over it. The contractor can notify the owner about the occurrence of the compensation event along with its details in the contract. If the contractor notifies about the occurrence or knowledge of the compensation event within 8 weeks, the compensation of the contractor will be reconsidered. Failure to inform within the set time limit will lead him to lose the right to any such reconsiderations, In some cases even if this 8 weeks deadline is not met but the compensation event is proved, the claims can be given. For eg: during one start-up meeting there was a small change in the design plan. The contractor did not claim the compensation event, however, there was documented evidence that the design was a change that caused extra time and delays. In this, the contractor was given extra compensation for time and cost. Also, these contractors with the help of their experience in handling g similar projects can predict these compensation events and can add a section of this prediction and extra cost in case these events happen. In this case, the parties can understand their responsibility for the timely completion of the project and can be held responsible for the delays and pay for the damage caused due to the delay. Under FIDIC red book similar practices have been offered. In case of the events which are beyond or with little control of the contractor, they can dispose of the liability of delivering the projects within the said deadlines They can also claim for lost time and cost incurred. The contractors are supposed to give written notice of the event that occurred for eg bad weather conditions, pandemic and complete lockdown or mobility restrictions, change in import or export policy that affects the raw material or end products, advancements in technology, unavailability of required resources. technical problems on-site that could not be foreseen. The contractor must inform the client before 28 days of the actual beginning of the delay of these events. This is mentioned in clauses 20 and 20.2. The events must be informed as soon as they can be predicted. These delays must be claimed through an extension of the deadline without attracting any extra cost for the contractor. Sometimes there are delays in events when clients are not able to raise funds as per the project requirement to finance the fund. In these cases also the contractor will inform the client of the procedure and record it for future reference. The notification n process should be understood and followed precisely to claim an extension. In this case, the claims can be approved or disapproved by the client in the formal prescribed way. The contractor has further rights to reclaim through DAAB if he does not feel satisfied with the response of the client.
Question 4
‘Multi-tiered Dispute Resolution Mechanisms’ (legally binding and non-binding
Multi-tiered dispute resolution mechanism or escalation determines that in case of any dispute between the parties involved in commercial contracts what will be the different procedures and the series of steps that could be taken to reach an agreement and resolution of the dispute. There are two phases legally binding and not legally binding phases. Some disputes can be solved by pre arbitrage clauses which means the parties can mutually solve the dispute without any arbitrage process outside the court. Major ways of dispute resolution in pre-arbitration phases are Conciliation Negotiation, mediation, etc The main purpose of these clauses is to try to amicable resolve the issues. These clauses also involve third-party involvement. There could be a mediator, advisor, or negotiator. The problem with putting these clauses is their decision is not enforceable and non legally binding. In the contractor, the dispute arises when one of the parties fails to comply with the commitment and another party does not want to suffer any kind of loss. Arbitration is an expensive and time taking process which is why it is always considered cost-effective to put relevant clauses in the contract to resolve case a dispute arises.
Post Arbitration escalation process is also well defined in the contracts. As said by AYDEMİR, ( 2021), various clauses can be used. For eg: ICC Arbitration with an emergency, application of speedy arbitration in less value or stake cases, Clause of not publishing any order or reward in the arbitration. This arbitration cannot be summed with other dispute tools.
The principles of NEC contracts.
A new engineering contract is a contract created by a group of civil engineers that compiles the standard form and documentation of the construction contract. It was first published in 1993 revised in 1995 and then the latest version was published in 2005. The main purpose of formulating this contract was to bring confrontational and adverse relations between involved parties in the construction industry. It was a contract with vast application and could fit any nature and size of the project. It also helped inefficient management and productivity.
Easy to understand: Unlike its predecessors, this contract comes with supporting notes, key term meanings, charts, and a detailed explanation of every clause. The language used is simple English which is widely accepted and understood. It uses present tense and it is very clear with no jargon. The only problem is this language sometimes does not pass in court and can create unclear situations.
Helps in effective management: As per Mante (2018), the present approach of the contract focuses n what can be done rather than what could have been done. It helps in real-time project management. It needs a clear understanding of administrative and procedural aspects. Both the parties involved must have sufficient resources to ensure that the contact is understood and implied correctly.
Options and flexibility: The NEC gives the parties flexibility and comes with nine different sections. Each section comprises core clauses, primary and secondary options, and dispute resolution techniques. The options are given, to ensure that the lengthiness and too much paperwork can be avoided if possible.
Contribution of Donoghue and Stevenson to the tort of negligence
Brief of the case:
The case dated back to 1928, when a plaintiff bought a ginger beer bottle from a cafe. The bottle was opaque and sealed. After drinking half of the bear, the bottle was emptied into another glass tumbler and they observed dead snails in the bottle. The site was disgusting and created gestational issues for the appellant. In views of Gabriella, and Siddiqui ( 2020 ), till that time the duty of care of the manufacturer towards the client was not defined. As a manufacturer, it is their responsibility that the manufacturing area was inspected well and there will be no unwanted elements like a snail in the drinks. The questions to be answered here were – was the manufacturer aware of the presence of snail in this bottle? There was no direct contract between the appellant and the manufacturers still it is possible to apply the tort of negligence.
References
Love, P.E., 2002. Influence of project type and procurement method on rework costs in building construction projects. Journal of construction engineering and management, 128(1), pp.18-29.
Alves, T.D.C. and Shah, N., 2018. Analysis of construction contracts: searching for collaboration. In Construction Research Congress 2018 (pp. 148-157).
Miller, B.J., 1982. The architect in the design-build model: Designing and building the case for strict liability in tort. Case W. Res. L. Rev., 33, p.116.
Bracey, K.E., 1990. Implications of tort law on professional liability in the design and construction industries (Doctoral dissertation, Virginia Tech).
Alhyari, O.H. and Al Ani, A.R., 2022. Is the Engineering and Construction Contract Legally Less Competitive than the Red Book in Civil Law Countries?. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 14(3), p.06522001.
Mante, J., 2018. Dispute resolution under the FIDIC and NEC Conditions: paradox of philosophies and procedures?. International construction law review, 35(2).
Garimella, S.R. and Siddiqui, N.A., 2020. The Enforcement of Multi-Tiered Dispute Resolution Clauses: Contemporary Judicial Opinion.
AYDEMİR, D.A., 2021. Multi-Tiered Dispute Resolution Clauses after UML on Mediation 2018 and the Singapore Convention. Public and Private International Law Bulletin, 41(1), pp.191-229.
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