Article ONE “BEYOND CONTRACT” SERIES OF MUSINGS -- LESSONS LEARNED FROM 27 YEARS OF

CONTRACT AND COMMERCIAL MANAGEMENT

2nd

Aug 2011 Andrew Ng, Consultant at RDP Consultants Pty Ltd Australia

Beyond Contract : Reliance on Instituted Procedure Maturity and

Compliance in the Prevention of Unfounded Contractual Claims Under

International EPC and Turnkey Contracts.

Andrew Ng, B Sc (Hons) Construction Management,

Change is an inevitable part of any project but some risks can be clearly identified and separated from

those which can’t or haven’t been considered as best managed by the Contractor. Against these risk

must be allocated appropriate rewards, incentives and reimbursements of resources which Contractor

have agreed to carry throughout the project duration. Unless there exceptional circumstances which

made those allocation grossly inadequate, like misrepresentation by the Employers etc., there can’t be

too many circumstances they need to be separately reimbursed, extra over the Contract sum.

However, what to do next is where the difference begins between the approach of practitioners of the

science of project control and the approach of those who are not.

As Contract and Project Contract consultant to many clients, I have never been ceased to be amazed by

the prevalence of a naive belief amongst many that reliance on some well-crafted Contract clauses

alone would somehow discourage the Contractors from engineering some dubious ground for recovery

of prelims and other costs. They have this puzzling abhorrence of what they consider redundant

procedures and processes beyond those what the professional would consider as whimsical and

impotent “motherhood statement like” write-ups. On my part I have always been requiring the

Contractors to comply procedures which require the Contractors’ provision of quantities of reasonably

verifiable records of man-hours of labour, management and plant/equipment used throughout the

project.

It may have something to do with the many failed projects(where the Clients paid millions of dollars)

and the lessons I learned there that the Contractor's honesty is not to be expected as a given or

foregone conclusion. It is rather the results of tough policing made possible through properly detailed

procedures which enable the Employers to speaking softly but always wielding a big stick to demand the

Contractor’s respect.

To enable the Employer’s Rep achieving a decent degree of policing, I have always advocated

supplementing the Contract Document and the Employer’s Requirements with the following:-

a) complete suite of procedures (or process, usually forming part of the Employer's

Requirement) stipulating the Contractor's obligation and commitment on strict compliance

with a set of prior-agreed project deliverables, their timely submission of records of

meetings, plant and labour records and returns at pre-set intervals. And if external parties

are relied upon for supervision, the contract would further prescribes obligation on the part

of the PMC;s team members and the Employers staff (where assigned) to attend to such

deliverables and records and certifying them as true reflection of their field observation of

the resources expended by the Contractor. For good measures too, the project managers

are often required to rotate these assigned resources every quarter to avoid familiarity with

any particular ground of contractors workforce or subcontractors;

b) clearly defined baselines of these performance and resources requirement, with quantities

and major categories of staff, labour, vehicles fuels and etc., which are tabulated in a

histogram spreading over the whole Contract Period including those time identified as free

floats in the Construction/Baseline programme.

Article ONE “BEYOND CONTRACT” SERIES OF MUSINGS -- LESSONS LEARNED FROM 27 YEARS OF

CONTRACT AND COMMERCIAL MANAGEMENT

2nd

Aug 2011 Andrew Ng, Consultant at RDP Consultants Pty Ltd Australia

In nearly all tender clarification meetings before award, I would revisit each of the above and negotiate

and rationalise these deliverables, procedures, processes, quantities and rates of each and require the

Contractor to confirm their acceptance of these parameters as the baselines beyond which their claims

begin to have any chance to be considered.

In most remote mining sites or in those more compact urban site, I also advocated the use of access

control for those plant and human resources entering site, site offices as well as mess/camps as means

of registering the hours and days of work . For those sites other than above, monitoring may be done

through some RFID, which should be relatively cheap now. But I must confess that I have not as yet

worked on a project which requires the latter todate.

Even in FIDIC Silver Book type of EPC Contract I would not be fooled into a complacent belief or reliance

on high level Pricing Schedule (<200 cost breakdowns/quantities) as the means of benchmarking the

Contractor's claim entitlement. This is even if the Contractors can prove to me that it has done for

example, the same configuration of CCPP twenty or more times before.

To pinnacles of the Employer's sins would be to accept Pricing Schedule without any kind of Prelims

breakdown, especially the details of those recurring ones separated from those for mobilisation and

demobilisation.

Even in FIDIC Silver Book type of EPC Contract I would not be fooled into a complacent belief or reliance

on high level Pricing Schedule ( those with <200 cost breakdowns/quantities) as the means of

benchmarking the Contractor's claim entitlement. This is even if the Contractors can prove to me that it

has done for example, the same configuration of CCPP twenty or more times before.

But I can tell from most of the projects in the skill-constrained resource industries in Australia Asia and

Africa, the Contractors are struggling to even assemble a team with half the years of experience or half

of the complete skillsets normally required in executing such a project. One needs to either have some

superior connection with the all mighty above or an indomitable conviction of one’s infallibility, to rely

on such poorly equipped parties to execute its project.

But nothing could surpass the pinnacles of the Employer's sins than to accept Pricing Schedule without

any kind of Prelims breakdown, especially the details of those recurring ones separated from those for

mobilisation and demobilisation.

It is nothing short of inviting future claims and headaches if Employers’ beliefs and relances like those

cited above stand uncorrected. In fact most savvy contractors consider the mere absence of project

control procedures requirements and properly configured breakdown of prelims from the Contract

document as the strongest sign of inviting open season on such misguided if not foolish paymaster. For

them, these clients are not worthy of any sympathies especially if they are long on ignorance but short

on acumen.