Contract Administration

Contract Administration

Factors to consider when preparing a disruption claim

by David Merritt

Disruption claims are routinely made during the course of a construction project yet they remain notoriously difficult to prove. One of the main reasons for this is that productivity losses are often extremely difficult to distinguish, as opposed to other money claims which are more directly concerned with the occurrence of a distinct and compensable event, such as an instruction for a variation during the progress of work or a properly notified compensation event.
Most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause & effect), which are inadequate for evidencing a loss of productivity claim.
When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim to try and recover its losses. The claimant must first establish that the factor causing the disruption is compensable risk under the contract.
To do this, the contract needs to be reviewed to understand the basis of the agreement as certain productivity issues may have been foreseeable and therefore accounted for within the claimant’s productivity allowances. The contract may also identify if a party expressly accepted certain productivity risks. Common causes of disruption on projects that may lead to a loss of production include site access restrictions, unforeseen site conditions, late or incorrect design, changes in the work, labour availability, remedial/corrective work, testing/inspections, client and third party interference, changes in construction methods and adverse weather.
The primary challenges the claiming party faces in preparing a disruption claim are to identify the root cause of the loss of productivity and quantifying the associated labour and equipment productivity losses. Many methods exist to quantify a disruption claim such as the measured mile; the modified total cost approach; a time and motion study or a comparative work study.
Alternatively research data published by the Mechanical Contractor Association or the National Electrical Contractors Association on the effects of disrupted working may be utilised but care must be exercised because no one size fits all.
Productivity is normally measured as production per unit of effect or output divided by input (ie units/hr) or it may be expressed as input divided by output (ie hrs/unit). A loss of productivity occurs when it takes more labour and equipment to do the same amount of work, thereby increasing project costs. A common error made by a claiming party when preparing a disruption claim is to confuse productivity with efficiency.
Efficiency is a measure of productivity as a ratio or percentage during the affected periods. If target production is 50 units per day and actual production is 25 units per day then given the same input the efficiency of the operation would be 50%. If actual production was equal to the target production efficiency would be 100%. The efficiency formula must take into account the variable input (resources) as well as variable output (production).
For instance it is possible to increase productivity but reduce efficiency. A decrease in efficiency is often associated with one or more secondary factors unrelated to the original excusable event but which are implemented to negate or mitigate the effects of the root cause. These secondary factors include out of sequence working, multiple work fronts, new learning and unlearning curves, fatigue (overtime/shift working), dilution of supervision and stacking of trades in confined spaces.
So when preparing a disruption claim for a loss of productivity it is very important to consider not just immediate effects on the rate of production but also the inefficiencies of some of the secondary factors.

Disruption claims are routinely made during the course of a construction project yet they remain notoriously difficult to prove. One of the main reasons for this is that productivity losses are often extremely difficult to distinguish, as opposed to other money claims which are more directly concerned with the occurrence of a distinct and compensable event, such as an instruction for a variation during the progress of work or a properly notified compensation event.

Most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause & effect), which are inadequate for evidencing a loss of productivity claim.

When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim to try and recover its losses. The claimant must first establish that the factor causing the disruption is compensable risk under the contract. …

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Civil Engineering, Construction Industry, Contract Administration

Building Design

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Building designs
by Dennis Brand
Perhaps the best way to describe design and build contracts is to explain what they are not. The traditional design-bid-build contract is a sequential process of phases or stages in which the owner or developer first contracts with a design professional to prepare a concept or basic design, then later a detailed design that is suitable for construction. This will include plans and specifications that when complete will be used to solicit competitive bids and finally the award of a construction contract to the lowest bidder.
In design and build contracts, one entity performs both the design and construction under a single contract. Often the contract is awarded by some process other than competitive bidding, thus it differs from traditional design-bid-build in two ways. First, the design and construction components are packaged into a single contract; second, it is not necessarily awarded to the lowest bidder after competitive bidding.
Why use design and build?
Design and build contracts have the potential to reduce the overall project costs as the contractor performing the design has a better appreciation of the construction costs of the various alternatives. They can therefore produce a design that is less expensive to build and they have an incentive to do so.
Another way to look at this advantage is that it moves value engineering from after the contract award, where the contractor proposes cost reduction ideas and shares the savings with the owner, to pre-award, where the owner enjoys most of the savings.
Design and build contracts may also result in the earlier completion and occupancy of a project as there is no downtime between the completion of a design and start of construction. Furthermore, the contractor can begin construction of early phases of the project, such as grading and foundations, before the design of later phases like the building envelope and MEP systems are complete.
This process is sometimes referred to as fast-track. It eliminates the traditional liability gap that can occur when the design is produced by a consultant and the contractor constructs the design under a separate contract. Design professionals can obtain insurance coverage for professional liability insurance only, which covers negligence, error and omissions. Virtually all design contracts limit their liability to this.
However, there can be non-negligent errors and omissions on the part of the designer that cost the owner money, but for which the designer is not liable. One example of this is where the designer undertakes reasonable subsurface investigations but fails to detect a rocky outcrop that will require additional work on the part of the construction contractor.
In the traditional design-bid-build approach, the owner warrants the correctness of the plans and specifications to the construction contractor. In the event of an error where the contractor incurs additional costs, these are met by the owner with little prospect of recovery from the designer. Design and build contracts eliminate this gap because the is solely responsible for defective plans, specifications or differing site conditions.
When a project is designed around current generation products, any proposed substitution of new or alternative items following bidding may require revisions to the structure, mechanical or electrical components to accommodate the new design. In such occasions the question arises: who will pay for the resulting charges? Design and build contracts solve this problem: the contractor selects the equipment then designs the building around this, which seems a more logical way to proceed.
The traditional design-bid-build method of contracting can suffer from under-optimisation when individual project participants seek to optimise their own positions. For example, the total cost to the owner of a building’s steel frame includes the cost of the engineering to determine the required steel sections plus that of the steel. The designer has little incentive to minimise the amount of structural steel, their concern is only to spend sufficient design time to ensure that there is enough steel to meet both gravity and seismic loads.
With design and build contracts, the contractor has an incentive to use additional engineering in order to achieve the optimum amount of steel required for the structure. That is not to say that this type of contract results in unsafe or less efficient structures, rather that it reduces unnecessary quantities of materials and equipment that do not necessarily add to the robustness of the structure.
Design and build contracts may reduce the administrative burden on the owner as there is one award and one contract to administer. The total cost of the project becomes apparent earlier. In traditional design-bid-build jobs, construction costs are not known until bid opening and it is possible to spend money on a design that the owner may not be able to build. Frequently construction bids exceed the project budget, which results in it having to be redesigned, thus delaying completion.
The risk factors
Under a traditional design-bid-build contract arrangement the owner has full control over the details of the plans and specifications. It does not publish them for bids until it is satisfied that they reflect their requirements. With design and build contracts the owner gives up some of this control.
Moreover, the owner must confirm its needs much earlier. With traditional design-bid-build contracts, if the owner is indecisive on its needs, it can clarify them during the design phase. With design and build projects, however such changes can be very expensive and disruptive, impacting on both costs and completion.
To summarise, if the owner is not certain what they want, due to the expense in making changes after contracts are awarded, the more traditional design-bid-build method may be the best choice.

Building designs

by Dennis Brand

Perhaps the best way to describe design and build contracts is to explain what they are not. The traditional design-bid-build contract is a sequential process of phases or stages in which the owner or developer first contracts with a design professional to prepare a concept or basic design, then later a detailed design that is suitable for construction. This will include plans and specifications that when complete will be used to solicit competitive bids and finally the award of a construction contract to the lowest bidder. …

Building DesignRead More »

Construction Industry, Construction Law, Contract Administration

Surviving the Slowdown: A Current Analysis of the UAE Construction Industry

by Omar Al Saadoon

The title of this article does not suggest the fear of stakeholders in the construction industry in the UAE or any other country affected by the global downturn is wholly irrational. No, on the contrary, the fact the UAE is currently experiencing a dramatic and unprecedented slowdown in its construction industry (which apparently accounts in part for Dubai’s first budget deficit in 2009) is symptomatic of the global fear of the instability of global financial markets and the ability of banks to lend to the public and each other. It is difficult to guage the actual effect of the downturn on the local construction industry given the UAE does not publish its GDP date on a quarterly basis. …

Surviving the Slowdown: A Current Analysis of the UAE Construction IndustryRead More »

Contract Administration

Quantity clause needs update

by Chris Larkin

The UAE has undergone dramatic changes in recent years and the building boom has led to increasingly sophisticated methods of procuring construction work. The speed of these changes has made it difficult for the legal framework to keep up. As a result, some provisions of UAE law can appear outdated and even in conflict with modern forms of contract. …

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Construction Law, Contract Administration

Good form for resolution

by Joe Colgan

For a market whose construction projects are almost beyond imagination in terms of scale and design, the UAE’s contracting policy, when compared to the UK’s, is languishing in the past.

Whilst the UK has introduced novel forms of procurement and contract, such as PFI, PPP and the NEC, virtually all contracts in the UAE are executed using the FIDIC conditions of contract.

Both the 1987 and 1999 forms are used to varying degrees, with bespoke project requirements generally picked up in the Particular Conditions of Contract (PCCs). …

Good form for resolutionRead More »

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