dm construction claims

Building Department

BASICS OF CONSTRUCTION PROJECT MANAGEMENTA AS S OWITH AN EMPHASIS ON

EFFECTIVE CONTRACT ADMINISTRATION

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What is a Project?j

A P j t i t d A Project is a temporary endeavor undertaken to create a unique product,

service or result.

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Project Characteristics Slide 1 of 3Project Characteristics – Slide 1 of 3

1. Temporaryp y– Temporary means every project has a definite

beginning and a definite endTh d i h d h th j t’ bj ti h – The end is reached when the project’s objectives have been achieved

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2. Unique Products, Services or Results– Uniqueness is an important characteristicUniqueness is an important characteristic– For example, many thousands of buildings have been

built in Dubai, but each building is unique – different diff t d i diff t l ti diff t owner, different design, different location, different

contractors, different use etc.– The presence of repetitive elements does not change p p g

the fundamental uniqueness of the project work.

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3 P i El b ti (P E)3. Progressive Elaboration (P.E)– P.E means developing in steps and continuing in

incrementsincrements– For example, the project scope will be broadly

described early in the project and made more explicit d d t il d th j t t d l b tt d and detailed as the project team develops a better and

more complex understanding of the objectives and deliverables.

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Project ConstraintsProject Constraints

Ti C tTime Cost

PROJECTPROJECT

Scope

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p

Project ExamplesProject Examples

Constructing a building or facility

Moving a company’s office to a new location

Developing a new Product or Service

Power Plant construction

Telecom Tower Erection

Etc.

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Wh t i P j t M t?What is Project Management?

Project Management is the application of knowledge, skills, tools and techniques to project activities to

meet Project requirementsmeet Project requirements

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Wh i P j t b dl M d?When is a Project badly Managed?Cost or schedule overruns

Unrealistic schedules

Changing of work or schedules

Poor communication and increased conflict

Running out of time at the end of the project

Unsatisfactory quality

Too many project meetings

Low Morale

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Effective Project Management requires that a project management team understands and use knowledge

and skills from at least five areas of expertise:and skills from at least five areas of expertise:

The Project Management body of knowledge

Application area knowledge, standards, and regulations

Understanding of project environment

General management knowledge and skills

Interpersonal Skills

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The knowledge of the Project Management consists of:

۩ Project Life Cycle definition

۩ Five project management process groups

۩۩ Nine knowledge areas

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Interpersonal Skills:

۩ Effective Communication

۩ Influencing the Organization

۩۩ Leadership

۩ Motivation

۩ N ti ti d C fli t M t۩ Negotiation and Conflict Management

۩ Problem Solving

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Project Management Nine Knowledge Areas

1) P j I i M1) Project Integration Management2) Project Scope Management3) Project Time Management3) Project Time Management4) Project Cost Management5) Project Quality Management6) Project Human Resources Management7) Project Communications Management8) Project Risk Management8) Project Risk Management9) Project Procurement Management

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Project Quality Management

Q li Pl iQuality Planning

Perform Quality AssurancePerform Quality Assurance

Perform Quality Control

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Project Risk ManagementProject Risk Management

Risk Management Planning

Risk Identification

Qualitative Risk Analysis

Quantitative Risk Analysis

Ri k R Pl iRisk Response Planning

Risk Monitoring and Control

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g

Project Procurement ManagementProject Procurement Management

Plan Purchases and Acquisitions

Plan Contracting

Request Seller (Contractor) Responses

Select Sellers (or Contractors)

C t t Ad i i t tiContract Administration

Contract Closure

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Contract Administration – Some Definitions

A j t i t f b f t t f th l f•A project may consist of a number of contracts for the supply ofgoods and materials or the supply of a service.

•There are usually two parties to each contract. The first may bey p ycalled the employer, the client or the buyer. The second party may becalled the contractor, the seller or the provider.

•The Dubai Municipality (DM) Standard Conditions of Contract for•The Dubai Municipality (DM) Standard Conditions of Contract forCivil Engineering Works use the terms “Employer” and “Contractor”and therefore this lecture will generally use these terms.

h b i f l i i i d di h “ i ”•Another brief explanation is required regarding the “Engineer”. Heis appointed by the Employer to administer the Contract but he is nota party to the contract.

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Contract Administration - Basics•Both the Employer (the Buyer) and the Contractor (the Seller) administer the contract for similar purposes.

•Each party ensures that they meet their contractual obligations and that their legal and contractual rights are protected.

•The contract administration process ensures that the Contractor’s The contract administration process ensures that the Contractor s performance meets contractual requirements and that the Employer performs according to the terms of the contract.

O l j t ith lti l d t i d i t k •On larger projects with multiple products, services, and inputs, a key aspect of contract administration is managing interfaces among the various Contractors.

•The legal nature of the contractual relationship makes it imperative that the project management team is acutely aware of the legal implications of actions taken when administering a contract.

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Contract Administration – Some EssentialsContract Administration – Some Essentials

■Provisions in the Contract for Extension of Time and Prolongation Costs

■Dealing with Contractor (or Concurrent) Delays

■Calculation of Prolongation Costs

■Contract Dispute Settlement Procedures

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Standard Forms of ContractStandard Forms of Contract→International Federation of Consulting Engineers - FIDIC – International Standard

→Australian Standard General Conditions of Contract - AS 4000 – AustraliaAustralian Standard General Conditions of Contract AS 4000 Australia

→New Engineering Contract Conditions - NEC – United Kingdom

→Federal Acquisition Regulation (FAR) - United States

→American Institute of Architects - AIA A201 - United States

→Engineering Advancement Association of Japan – ENAA - Japan

→Construction Industry Development Board - Singaporey p g p

→Contract for Building and Civil Engineering Major Works - GC/Works/1 – United Kingdom

→The World Bank, Standard Bidding Documents, Procurement of Works – International (FIDIC based))

→Joint Contracts Tribunal – JCT – United Kingdom

→Institution of Civil Engineers – ICE – United Kingdom

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dFIDIC – An Introduction

•Founded in 1913Founded in 1913•Expanded in 1945 to include 40 national associations•Published first Conditions of Contract in 1957•Presently has 70 member associations from 70 Countries•Headquarters in Switzerland•Web Site : www fidic org•Web Site : www.fidic.org•Pre 1957 – no internationally recognised contract conditions•First “red book” based on UK ICE conditions •FIDIC has international committees to improve contracts •Dubai Municipality (DM) Standard Conditions are based on FIDIC

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Provisions in the Contract for Extension of Time and Provisions in the Contract for Extension of Time and Prolongation Costs

•Time is of Essence•Time is of Essence•Delays are inevitable on construction projects•The only project to have completed on time is a Mosque. Divine y p j p qintervention (or God’s help) was later understood to be the force behind the timely completion of this Mosque.•Time and Money go hand-in-hand. This makes it imperative to take control of project delays; timely and effectively.•This is to avoid Time-at-Large situations and Constructive Acceleration This is to avoid Time at Large situations and Constructive Acceleration Claims.

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Provisions in the Contract for Extension of Time

•Extension of Time (EOT) claims can arise under several clauses of the DM Standard Conditions of Contract (1999 Version), such as;

•Sub-Clauses 6.3/6.4 related to Delay in Issuing Documents like drawings•Sub-Clauses 12.2/12.3/12.4 related to Adverse Physical Obstructions/ / y•Sub-Clause 27.1 related discovery of Fossils•Sub-Clause 36.5 related to Tests not Provided for•Sub Clause 40 2 related to Instructions to Suspend the Works by Engineer•Sub-Clause 40.2 related to Instructions to Suspend the Works by Engineer•Sub-Clause 42.2 related to Failure to give Possession of Site•Clause 44 related to several causes of delay•Sub-Clause 69.4 related to Default of Employer•Other Employer’s Breaches as defined in the Contract

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Classification of Delays - Slide 1 of 3

(1) Excusable and Compensable[Th d l h ibili f h E l ][These delays are the responsibility of the Employer]

• Extension of Time should be granted

• Contractor is relieved from the liability of Liquidated Damages

• Contractor may claim for reimbursement of Prolongation Costs

• Examples:• Late Possession of Site by the Employer• Late issue of construction drawings by the EngineerLate issue of construction drawings by the Engineer• Late approval of Shop Drawings by Engineer• Etc.

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(2) Excusable but Non-Compensable[Th d l d d N l][These delays are regarded as Neutral]

• Extension of Time should be granted

• Contractor is relieved from the liability of Liquidated Damages

• Contractor may NOT claim for reimbursement of Prolongation Costs

• Examples:• Exceptional Rainfall• Unforeseen Public Holiday announced by LocalUnforeseen Public Holiday announced by Local

Government• Etc.

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(3) Inexcusable (Contractor or Culpable or Concurrent)[Th d l d d h ibili f h C ][These delays are regarded the responsibility of the Contractor]

• Extension of Time should NOT be granted

• Contractor is NOT relieved from the liability of Liquidated Damages

• Contractor may NOT claim for reimbursement of Prolongation Costs

• Examples:• Late Mobilization of Construction Equipment• Slow Progress due to insufficient ResourcesSlow Progress due to insufficient Resources• Etc.

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Corrective Action following DelaysSlide 1 of 3Slide 1 of 3

Acceleration:

Delay Types (1) and (2) will require an Instruction to Accelerate Pursuant to Sub-Clause 46 2 Sub-Clause 46.2.

Contractor will be entitled to additional costs of acceleration.

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Expedite Progress:

Delay Type (3) will require the Engineer to issue a Sub-Clause 46.1 Notice i i h C k i hi d lrequiring the Contractor to take appropriate measures to recover his delays.

These measures to be implemented by the Contractor at his own expense.

No reimbursement of additional costs to the Contractor.

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Contractor’s Duty to Mitigate:

Irrespective of the Type of Delay, the Contractor has the duty, as expressly defined by Sub-Clause 53 3(c) to mitigate or reduce the effect of delays such defined by Sub-Clause 53.3(c), to mitigate or reduce the effect of delays, such as;

•Increase (or divert) resources on an activity on the critical path•Change sequence of activities to reduce the longest path of the project•Increase motivation of workforce•Change method of construction•Etc•Etc.

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Procedure for EOT Claims – Slide 1 of 5

Procedure Specified by Clauses 44 and 53:The Contractor must follow the procedure and mechanism defined in Clauses 44 The Contractor must follow the procedure and mechanism defined in Clauses 44 and 53. Failure to follow the specified procedure and mechanism could result in the invalidation of the related claim. Some of the procedural requirements are;

Contractor to timely issue a Notice of Delay: The intention and spirit of the Contract is that the Engineer and the Employer are timely aware that there may be a claim in respect of a delay event and that corrective or remedial action may be initiated to reduce or mitigate the effects of the delay. This also gives the Engineer and Employer an opportunity to reverse the cause of the delay event.

Contractor’s obligation to keep Contemporary Records: Upon the happening of the delay event, the Contractor shall keep such contemporary records as may reasonably be necessary to support any claim he may subsequently wish to make.

Engineer’s obligation to inspect Contemporary Records: Without necessarily admitting the Employer’s liability, the Engineer shall, on receipt of a Delay Notice, inspect such contemporary records and may instruct the Contractor to keep any further contemporary records as are reasonable and may be material to the claim of which Notice has been given. The Contractor shall permit the Engineer to inspect all records and shall supply him with copies thereof as and when the Engineer so instructs.

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Procedure Specified by Clauses 44 and 53 (Cont’d):

Contractor to timely submit Claim Particulars: Within 28 days of giving a Delay Notice, or at such other reasonable time as may be agreed by the Engineer, the Contractor shall send to the Engineer an account giving detailed particulars of the time extension claimed and the grounds upon which the claim is based.

Where the event giving rise to the claim has a continuing effect, such account shall be considered to be an interim account and the Contractor shall send further interim accounts giving the accumulated claim and any further grounds upon which it is based at the end of each week following the submission of the first account, or at such other intervals as the Engineer may reasonably require. In cases where interim accounts are sent to the Engineer, the Contractor shall send a final account within 28 days of the end of the effects resulting from the event.

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Procedure for EOT Claims – Slide 3 of 5Procedure Specified by Clauses 44 and 53 (Cont’d):

Contractor to submit Sufficient Claim Particulars: The Claim Particulars submitted by the Contractor should, as a minimum, contain;

the description of the event including the timing and nature of the event the impact of the event on the Contractor’s Work Program, resources,

deployment of Materials, Equipment and Personnel, the Works, the Contractor’s site operations, costs, etc.

an analysis of the measures undertaken to deal with or alleviate the problemreferences to the applicable Clauses of the Contract and to the critical path of the

d f lContractor’s approved Work Program pursuant to the provisions of Clauses 14.1 and 14.2

a detailed justification of the time delay suffered by the Contractor, including the details of all the calculations.

h i f h i l d h f l l f d ilany other requirement of the Engineer related to the format, level of details, arguments, documentation, etc.

supporting documents

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Contractor’s Failure to Comply with Specified Procedure: There is an express provision in the DM Contract Conditions, Sub-Clause 53.4, which specifies that if the Contractor fails to comply with any of the provisions of Clauses 44 and 53, the related p y y p ,claim shall be invalidated.

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Engineer’s Obligation to timely Determine the Contractor’s Claim: Upon receipt of the g g y p pContractor’s account, after due consultation with the Employer, the Engineer shall take one of the following actions:

reject the Contractor’s claim on the ground that either the Contractor did not j gcomply with the provisions of Clause 53.4 or that the Contractor’s arguments were not supported by the provisions of the referenced Clauses of the Contract.

return the Contractor’s claim to the Contractor and set a new deadline for resubmission, if the Contractor did not develop his claim, did not follow the Engineer’s instructions, or the Contractor’s arguments were insufficiently developed, calculations incorrect, or the documentation incomplete.

accept the Contractor’s claim for analysis and verification. In this case, the Engineer may ask the Contractor to provide further clarifications, if required, and the Contractor shall comply. The Engineer shall prepare a detailed analysis of the Contractor’s claim with specific recommendations to the Employer. Within 28 p p ydays from the receipt of the Contractor’s detailed, complete and valid claim, the Engineer shall submit both the Contractor’s original claim and the Engineer’s analysis to the Employer.

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Requirement to Consult with the Parties

It is important that the Engineer should carry out Consultations with the Parties (especially the Contractor) prior to issuing a Determination of the Contractor’s Claimsof the Contractor s Claims.

“After Due Consultation by the Engineer with the Employer and the Contractor” means that the Engineer shall consult with the Employer Contractor means that the Engineer shall consult with the Employer and the Contractor to such extent as is appropriate in the circumstances….. The term “due consultation” shall not be construed in any instance as to mean no consultation with the Employer and the y p yContractor

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Timebar Provisions related to Claims

DM Contract, its meaning and interpretation, and the relation between the parties shall be governed by the Laws of UAE and Dubai [Clauses 5.1 and 1.1(f)].

It i th f i t t t k th ti b i i f th It is therefore important to keep the timebar provisions of the governing law into perspective in the event of crystallization of a dispute with respect of a claim.

Timebar provisions of UAE law are very relaxed (to be verified by legal professionals)

It is therefore suggested and recommended to assess a claim with the aim of reducing future disputes

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EOT Claims : Assessment Parameters

– Factual Data Verification – Primary and most Important– Critical Path– Who owns the Float?– Contractor Delays and how these effect EntitlementContractor Delays and how these effect Entitlement– EOT and its relation with Compensation for Delay– Method of Schedule Analysis

A Pl d V A B ilt C i» As-Planned Vs. As-Built Comparison» Impacted As-Planned» Collapsed As-Built / But-For» Time Slice / Sub-Networks / Time-Impact» Etc.

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Contractor Delays and how these effect Entitlement

– Contractor Delays are Type 3 delays (Inexcusable) and are as a result of Contractor’s own breaches and mistakes

A l f C t t D l i i ffi i t ( i t t ) – An example of a Contractor Delay is insufficient resources (manpower, equipment etc.) resulting in slow progress

– Contractor Delays should have NO bearing on EOT entitlement. EOT should NOT reduce y gdue to Contractor Delays.

– Contractor Delays DO have a bearing on Prolongation Costs Claims.

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EOT and its relation with Compensation for Delayp y

– Time is NOT equal to Money.q y

– Entitlement to an EOT does NOT automatically lead to entitlement to compensation.

– If the Contractor incurs additional costs (such as Prolongation Costs) that are caused both by Excusable Delays and Contractor Delays, then the Contractor should only recover compensation if it is able to separate the additional costs caused by the Employer Delays from those caused by the Contractor Delays.

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Prolongation Costs - General

• Prolongation or Delay Costs are additional costs associated with the extended Time for Completion (or period of EOT).

• “Cost” means all the expenditure properly incurred or to be incurred, whether on or off the Site, including overhead and other charges and expenses properly allocable thereto, but does not include any allowance for profit.

• Prolongation Costs are, generally speaking, the Time-Related Costs associated with the extended period determined following an assessment of an Extension of Time (EOT).

• Time related costs is a general term that is used to differentiate between those costs that are di tl l t d t th ti f th k th j b it d i d l h th directly related to the execution of the work on the jobsite and are incurred only when the work is in progress, e.g. the cost of steel fixers or machine operators working on the site. Time-Related Costs are costs that arise independently of the progress of the work on the jobsite.

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Prolongation Costs – General (cont’d)

• When the Contractor sets up his Site establishment and his head office support team, he is committed to a regular programme of time-related expenditures that will accrue almost independently of the amount of work carried out on the jobsite. Some of these time-related costs are:

Supervision and ManagementTechnical and Clerical supportHead Office costsSite facilities, Water, Electricity etc.

• The Contactor also has, on Site, plant and equipment which may not be working and requiring operators and fuel but still represents a cost. These costs are of two types:operators and fuel but still represents a cost. These costs are of two types:

It is depreciating in value, and The cost of purchase has not been recovered through payments for work done and h f fi i f h di f h i itherefore financing of the outstanding cost of purchase is an ongoing cost.

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Prolongation Costs – General (cont’d)

• Time related costs begin to be incurred as soon as the Contractor sets up his Site organization • Time related costs begin to be incurred as soon as the Contractor sets up his Site organization. These costs are as a result of his presence on the Site. These costs cannot be reduced even though the work on the jobsite slows down or stops due to delays.

• Therefore project time-related costs are accrued irrespective of whether site work is ongoing or is on standby. These costs are also independent from the rates of production. Slower rates of production do not reduce time-related costs.

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Elements of Prolongation Costs

• Extended hire or ownership costs (depreciation etc.) of plant and equipment• Extended employment of general labour• Extended manufacturing, fabrication and temporary works facilities• Extended employment of site staff• Extended hire or depreciation and maintenance of site offices and equipment.• Extended utility servicesExtended utility services• Extended transportation services and storage facilities• Extended safety and quality assurance facilities• Extended bonds, insurances and warranties• Extended head office overheads• Extended hire of external consultants• Extended hire of external consultants• Increased cost of labour, plant and materials employed, hired or purchased during the extended period due to

inflation• Increased cost of site and head office overhead resources employed or hired during the extended period due to

inflation• Idle resources and other effects of inclement weather encountered during the extended period• Idle resources and other effects of inclement weather encountered during the extended period• Extended Inventory Financing Costs• Financing all the above

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Extended Head Office Overheads

• Calculation of Head Office Overheads is permitted using one of the following Formulae:

H dHudsonCorrected HudsonEmdenEichleayEichleay

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Standard for Evaluation of Construction Delay Issues

One of the most difficult areas in dealing with delay and associated cost claims (unless the works being carried out are very simple) is establishing the impact of individual delays on the completion date and whether these p y pimpacts should be compensated. The Society of Construction Law’s Delay and Disruption Protocol provides a fair and equitable basis for agreed methods and mechanism of dealing with such issues. It is important to emphasise that if the Protocol is to be effective its recommendations must be emphasise that if the Protocol is to be effective its recommendations must be implemented from the start of the contract and the most important of these recommendations is the preparation and regular updating of programmes.

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It is, therefore, recommended that the;

should be adopted as a Standard and should be where possible incorporated should be, where possible, incorporated

in the Construction Contracts

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The SCL Protocol can be downloaded,free of cost, from:

lwww.eotprotocol.com

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Contract Disputes

• When either party (Employer or the Contractor) is dissatisfied with any opinion, instruction, determination, certificate, or valuation of the Engineer, the matter in di t b f d f ttl t b th d fi d d d h i dispute may be referred for settlement by the defined procedure and mechanism defined in the Contract.

• For the specific case of DM Contract Conditions this procedure and mechanism is • For the specific case of DM Contract Conditions, this procedure and mechanism is defined by the section titled ‘Settlement of Disputes’ (Sub-Clauses 67.1 to 67.6).

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Dispute Avoidance

• The primary focus of the Contractor, the Employer and the Engineer should be to be able to avoid disputes

• Disputes are expensive and sometimes unnecessary• Disputes are expensive and sometimes unnecessary• In this respect both the parties and the Engineer have certain obligations,

which must be fulfilled• The Contractor should focus on ‘real’ issues and avoid unnecessary claims The Contractor should focus on real issues and avoid unnecessary claims • The Engineer should act fairly and impartially• The Engineer to avoid delays in issuing opinions, determinations,

instructions etc.• The Employer to act fairly and impartially• The Employer to avoid delay in issuing approvals

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Dispute Settlement Procedure

• The “Settlement of Disputes” procedure specified by the DM • The Settlement of Disputes procedure specified by the DM Standard Conditions of Contract is a multi-tier (or several steps) process

• The higher tiers get more and more expensive

• Thus it suits both parties to resolve disputes as early as possible

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Settlement of Disputes ProcedureTi 1 E i ’ D i iTier 1 – Engineer’s Decision

• Tier 1 of the “Settlement of Disputes” procedure is specified by Sub-Clause 67.1 –Engineer’s DecisionEngineer s Decision

• Either party may refer a matter in dispute to the Engineer for his ‘Decision’

• Referring party must comply with the specified procedure. Failing which, the request for ‘Decision’ may be rejected

• Once the Engineer issues a ‘Decision’, the Contractor and the Employer shall give effect forthwith to every such decision of the Engineer unless and until the same shall be revised in either of the higher tiers of the Settlement of Disputes Procedure

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Settlement of Disputes ProcedureTi 2 A i bl S ttl tTier 2 – Amicable Settlement

• Tier 2 of the “Settlement of Disputes” procedure is specified by Sub-Clause 67 2 Amicable Settlement67.2 – Amicable Settlement

• Where a party is dissatisfied by an Engineer’s Decision and where a notice f i i ili i bi i (3 d d 4th Ti ) of intention to commence conciliation or arbitration (3rd and 4th Tiers) as to

a dispute has been given, the parties shall attempt to settle such dispute amicably before commencement of conciliation or arbitration

• The parties are permitted a maximum of 56 days to amicably settle a dispute

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Settlement of Disputes ProcedureTi 3 C ili tiTier 3 – Conciliation

• Tier 3 of the “Settlement of Disputes” procedure is specified by Sub-Clause 67.3 –Conciliation

• Failure to reach amicably settle a dispute is a pre-condition for the commencement of Conciliation

• The Conciliator is to be appointed pursuant to the current Dubai Municipality’s Rules of Arbitration and Conciliation

• The Conciliator has 28 days from the date of submission of the dispute to the • The Conciliator has 28 days from the date of submission of the dispute to the Conciliator, or such extended time as may be mutually agreed by the Parties, to resolve the dispute

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Settlement of Disputes ProcedureTi 4 A bit tiTier 4 – Arbitration

• Tier 4 of the “Settlement of Disputes” procedure is specified by Sub-Clause 67.4 –Arbitration

• Either party who is dissatisfied with the results of Conciliation may commence bi iArbitration.

• Failure to amicably settle a dispute is a pre-condition for the commencement of Arbitration

• The Arbitral Tribunal is to be appointed pursuant to the current Dubai pp pMunicipality’s Rules of Arbitration and Conciliation

• Arbitration may commence prior to or after the completion of the Works, provided that the obligations of the Employer, the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the W kWorks.

• All costs of arbitration shall initially be shared equally between the Parties, but the Arbitral Tribunal shall have the right, when making its award, to allocate such costs between the Parties as it shall think fit.

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Dubai Municipality and Construction Solutions thank you for attendance and contribution.

We wish you all Good Luck.

Construction Solutions (www.cspk.org) will remain available for further discussions on the foregoing and any other relevant issue.

This Lecture was delivered by the Managing Partner of Construction Solutions, Mr. Khalil Tayab Hasan. For any queries

d l ifi i l f l f M H and clarifications, please feel free to contact Mr. Hasan at;

[email protected]

kh lilh @h t [email protected]

+971 50 8861709

+92 345 8500195

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