International Construction Contracts - Assignment Example

International Construction Contracts Section A Question This question seeks to consider the rights of main contractor, IRN Construction Plc. (ICP); an Aberdeen based construction Company, who has taken an international construction contract for construction of a roadway or a four lane motorway. The highlight of contention in this case is the adverse road conditions which may need more costs to be expended and more time for final contract to be completed. Another noteworthy aspect of this contract is the technical personnel and project manager of the consultant firm. They were retained to oversee the project that was previously aware of the adverse ground conditions and needed additional time and costs; this was not disclosed to ICP lead contractors. The Silver Book: The Silver Book deals with composition of contracts for EPO/Turnkey projects while the Red Book deals with conditions of contract for construction in industry. It is first necessary to delve into the aspects of the Silver Book and its impact on the conduct of business. The need for the Silver Book has risen during the course of global contracts due to the fact that standard form became necessary to underpin contractual obligations between parties- the contractor, the company and the fund lender. The main essence of the Silver Book is to delineate the general obligations of the parties under contract. The Silver Book also concerns itself with controversial aspect of “unseen ground conditions” that is a major aspect in global contracts. Thus, under Article 4.12 of the Silver Book - “This results from the general principle according to which the Contractor is to accept "total responsibility for having foreseen all difficulties and costs of successfully completing the Works” (Goff 154). Perhaps, one of the most interesting aspects about the ground conditions is that it is not often possible to predict with any degree of accuracy or reliability what lies deep below the surface of the soil. Therefore, contractors are cautious to pass any opinion that may prejudice their economic and competency interests unless they have an idea about what lies below the ground. But, one of the major justifications with truth is that the ground conditions could be assessed only after deep digging and excavation. On the other hand, the lender would not be willing to pay more than what the contracted price may be and even show reluctance to pay extra costs or allow more time for performance of the contractual obligations on the part of the contractor, even if it is genuine and is based on solid grounds. Thus, there may be occasions when the contractors may have to challenge the principle of fixed pricing, if it does not provide scope for variations in costs and time. Neither would it be possible for contractors to even commit a price and timeframe unless the work has actually commenced and results are obtained. Thus, from all sides the cases that present themselves are very interesting and absorbing. The company would like the contract to be completed within minimum time and expending least costs and highest margins for them. The lender would seek to maintain or enhance the margins, hence limiting and budgeting costs and seeking lowest contract payment with maximum output. The poor contractor is on the horns of the dilemma. He cannot give an assurance, or commitment until the major portion of the ground is dug up and each stage of the contract is completed. There are possibilities that he may encounter obstacles and impediments in the smooth performance of the contract of which he was not aware or which was not told to him. In this case, it is observed that although the original consultant were aware of the ground realities and also the fact that more time and costs may be involved; they refrained from informing the lead contractor, IRN Constructions Plc (hereinafter ICP) which they ethically ought to have done, keeping the greater commercial interests of the lead contractor, ICP and the progression of the contract. By not informing ICP, making them wait to find out things for themselves; the consultant firm has been a contributory party in the adverse position of the case. If these critical facts were made available to ICP, they could have changed their perspective of this contract and acted according to the demands of the situation which unfortunately the consultants did not allow them to do and decide. Perhaps, what the consultants may have considered is that the contractor finds things out for themselves. Red Book: Coming to the rights and obligations of contractors’ aspect of the Red Book, it may be observed that Clause 2.4 deals with the need for financial disclosures to the contractor upon his asking for the same. This clause states that the employer is under obligation, within a period of 28 days of receipt of such request, to provide reasonable evidence of the employer having the funds for meeting the project. Further, it is also mentioned that in the event the employer making any conspicuous changes affecting the contractual relationship with the contractor, the employers are duty bound to disclose this and in the event this is not carried out. It is possible for the contractor to “reduce the rate of work, suspend work and eventually terminate the contract.” (Swiney 150). The other rights that may accrue to the contractor could be that the company needs to inform the contractor in case changes have been made in the initial contract. Besides, there are also reasons that point to the fact that the contractor needs to be certain that the main company would be in a position to pay for the contract along its completion course. It also, completes the final analysis at the end which is enunciated under Clause 2.4. The main crux of argument and controversy in the case of public contract work is that of the responsibility of the contractor to take reasonable steps to ensure that his part of the contract is carried out with due diligence and responsibility. The contracting company also needs to make sure that the contract is performed according to the contractual obligations. Unfortunately, with the powers entrusted with the contractor is the responsibility and accountability that the entire responsibility of managing the project including the testing of ground soil at several stages. According to the Silver Book, except in the case of discovery of fossils or other artefacts; the contractor would be held liable for unseen ground conditions and could not use this as an excuse for delaying his contractual obligations and liability under relevant Act. Thus in most cases; it could be said that the dice is loaded against the contractor. If he is able to place his case exceptionally well with the aid of expert evidence, it would be unlikely that he could evade his responsibility arising from unfit ground conditions. Question 2: The request for additional cost and time for completion of the project has been rejected under Section 20 of the FIDIC Red Book-First Edition. According to Section 20.1, the request for additional time and costs has to be placed by the contractor within 28 days of the time when he became aware of the need to file such a claim. Unfortunately, nothing of this kind has happened in this case and the request was sent after 30 days of such awareness. Thus, there has been a clear trespassing of Section 20.1 and the company is quite justified in rejecting the appeal since it has failed to meet the date norms. It is now believed that ICO, the main party now seeks to challenge the refusal to grant its claims for time and costs, and the LD clauses that underpins this refusal. Since common laws in both England and Australia are almost the same, the English common laws could be used in this case. “The law of Australia consists of the Australian common law (which is based on the English common law), federal laws enacted by the Parliament of Australia, and laws enacted by the Parliaments of the Australian states and territories” (The Law of Australia). Under English common law, this could be treated as a contract pursuant to an agreement between the Companies, normally the Government of Zarubia on one hand, and IRN Construction Plc. (ICP), an Aberdeen based construction Company, on the other. Clearly, if a strict invocation and interpretation of the Silver and the Red books are taken, it is quite possible that ICP would be under guilt for having not followed the terms of contract in letter and spirit. Besides, they have defaulted on the terms of Section 20. However, it could be said that the best way for seeking an amicable solution to this issue would be through mediator, or arbitration, in accordance to practiced law and also if necessary seek remedial measures through Appeal to the relevant authorities. In other words, “amicable settlement using alternative dispute resolution” (Bunni). It is believed that a multi-tiered process of dispute resolution needs to be adopted and a ruling could be given by an engineer or “dispute board “official. At the final stages, it is also necessary that “arbitration” process could also be used for achieving results on these issues (Introduction to FIDIC and the Old Red Book 9). Section B It is now proposed to take up the matter of Engineering and Construction Contracts (hitherto ECC) which is an urgent piece of documents which seeks to remedy the ills that are present in the documentary aspects of global construction business.” The ECC is essentially a family of interlocking documents, including subcontract and professional services, suitable for a variety of uses and contracting methods and contains a number of secondary options for contractual flexibility.” (Lavin & Potts 1) This critical aspect of project management has assumed great relevance in modern day construction business for the wrong reasons. In its earnest bid to plug all possible loopholes in the construction laws, the lawmakers have only succeeded in making it more abstruse, complex and out of reach of laymen who however are involved very much in the construction industry; not only in the United Kingdom but also in any part of the world. Enter- ECC which is seen as a family of documents is meant essentially to lend credibility, “simplicity”, flexibility and much needed stimulus to good project management ((Sakal 18). Plain English Language: Perhaps, some of the redeeming features of ECC have been that it is couched in simple language that is amenable to effortless translation into local languages in its country of import, it does not rely on legal jargon and difficult-to-follow words and meanings and inexonarably does away with difficult words and phrases. Perhaps, one of the major victories of ECC lies in the fact that it has add-on sub-contracts that seamlessly interlock with the main contract between owner and contractor. Thus, the need to adopt different sets of contracts for a few subdivisions of contract is obviating. Moreover, it is also seen that the text is simple and easy to read and understand unlike the verbose and dithering choice of words used in earlier constructions contract documents. This has definitely augured well not only for the respective players in the construction industry like owner, contractor, engineer and funder, but has lent a sense of vibrancy and direction to contractual obligations. This structure is remarkable for the following reasons in the context of ECC. For one thing, all compensation events are listed very precisely and in the same place, clearly showing employers and risks of contractors. Again, the roles and duties of each player in the contract are vividly delineated in order to obviate any ambiguity. The use of flow charts adds value to the wordings and drives the message home more accurately and vividly and also serves to enhance the understanding of the procedures and processes involved in complex construction matters. “All possible ‘compensation events’ (i.e. change orders) are listed very precisely and in the same place in order to clearly display the employer’s and, therefore, the contractor’s risks. A comprehensive Schedule of Cost Components (a list of pre-agreed upon contractor costs for resources) is used to pay contractors for compensation events that occur during the course of a project.” Finally, “ The ECC is accompanied by critical Guidance Notes that describes the purpose of using the NEC ECC, gives definitions for key terms, and provides narrative to explain all clauses and options“ (Sakal 21-22). ECC ‘pick and mix’ structure: The pick-and-mix concept, although not a novel concept, has nevertheless been new to the construction business. It seeks for ways and means by which compensation claims could be reduced through proper planning of contracts. As a matter of fact, ECC’s main concern has been with regard to “substantially revised core clause 8 “Risks and Insurances”. It is now far more straightforward and easy to understand; however it is brief and given the importance attached to this area.”.” (Lavin & Potts 6). Next, ECC also needs to address another important aspect of construction business especially the question of collaborative working approach, which may be challenging in several work cultures. The building industry itself is prone to many vicissitudes and pitfalls, including legal and execution of various statutory and non –statutory disclosures and filings; given a kind of complexities and competitiveness that has dominated this industry. The ECC is indeed seen as manna from heavens. Besides, there are also long term efficiencies to be gained from the use of ECC mainly because it is a composite type which needs to be studied and practiced intensely. The aspect about ECC lies in the fact that the complexities and extra-ordinary aspects of construction need to be well reflected in the activities. It is also necessary that the inputs of ECC must be ingrained to lead to a greater savings and lower costs for the project. It is now necessary to consider how defining concepts like mutual trust and co-operation could help in furthering the cause of ECC. To most people, this is viewed as a totality of project management procedures to suit the specifics of the situation. It is also necessary to consider how these aspects could help in better and more scientifically planned processes for implementation of ECC. Perhaps, the underpinning concept of mutual trust, confidence and assuredness goes a long way in compensating issues between the company, engineer, contractor and funder. All along it has been observed that the major problems have been averted due to the prevalence of mutual trust and confidence. The next aspect is that of early warning system. It is necessary that the project manager and the contractor work in tandem to reduce the impact of EWS. In other words, the PM needs to inform the contractor regarding the implementation of any plans that lead to savings and should also inform the contractor regarding this before hand through EWS. Thus, its main objective is for the respective parties to take such preventive and pre-emptive steps that could “reduce, diffuse or solve “the difficult situation for the welfare of all concerned. (Introduction to the new Engineering Contracts 12).The factors that now need to be taken into account would be also in terms of compensation events over which the contractor would have jurisdiction over costs, although not in terms of extra costs or time. There is also an element of time in that the contractor needs to inform the PM of any major changes within a period of 8 weeks since he became aware of such changes, failing which he would lose claim which he is seeking. Besides, this also needs to consider aspects like speeding up the project work and also other relevant matters that need to be taken into consideration. The primary motive of ECC was to make smooth the frayed areas of contracts in terms of possible issues that could crop up in areas of mutual understanding in performance of work, certification of work, claims and progress of work etc. Thus, all major units need to work in tandem and with overall co-ordination and co-operation in the absence of which it is possible that misunderstandings and conflict zones between the company, contractors engineer and others may occur which may become irreparable or incorrigible losses. Thus, with perfect co-ordination it is possible to achieve the key objectives of the project. Perhaps, in no other country is the aspect of adversarial elements so pronounced as in that of the UK. Due to this, it is possible that lucrative projects are shelved and do not see the sight of day. Besides, adversarial conflicts may occur at any time and could therefore be a threat to any project performance, resulting in overall losses which need to be avoided. Again, there are also elements regarding losses and how these could impact upon the resultant course of the project, either requiring it to be carried out, postponed or even shelved or rejected. Besides, ECC needs to also bear in mind the final aims and objectives of business project that needs to be completed in order to enforce compliance and gain the funds that are necessary to make profits. What ECC seeks to fundamentally achieve is to rationalize and streamline the entire gamut of the project, thus adding elements of speed, alacrity, efficiency and cost effectiveness, along with the need to meet budget and deadline estimations. Thus, it is important that ECC should be used in order to reduce complexities and apparent sub failures in construction contracts. Whether in your view the ECC philosophy represents a potentially more successful and efficient contracting form for International Construction projects than the prevailing traditional forms: Definitely, ECC has empirically proved that it could counter the threats and obstacles presented by adversarial type of business. Besides this, it is seen that many critical sub contracts also need to incorporate the critical aspects of ECC in order that full justice is carried out for the project without impacting upon the business needs and aspirations. Besides, there are also concerns whether ECC can be effective. In many empirical cases, it has been seen that ECC has displayed substantial versatility in that it has been able to cater not only to civil engineering but also to mechanical, technological and electrical projects. However, it would not be plausible or worthwhile to either condemn or praise ECC without a proper testing of its overall mechanism and its efficacy in actual situations. While it has been marketed as a good concept in the legal circles; due to the fact that it is simpler, less complexities involves, use of jargon free lucid English with smaller sentences with no bargains. The proof of pudding is in eating and this is inapplicable for ECC also. It needs to substantially prove itself in the following areas: Mutual trust and assurance- This needs to be able to work out a strategy by which mutual trust and assurance could be reassured and the contract tried to project the clear and substantive objective. Early warning is also required to avoid the pitfalls of project and render it safe and worthy in time and cost parameters. Besides, EW could also reduce risks of dubious projects which are meant to be hoaxes to defraud the unwitting company and decamp with money. Compensation events: These are events under which it is possible for the contractor to stake his claim for more time and costs, provided the terms and conditions of the event are honoured. The extra payments for time and costs could be disputed and would need to be amicably settled. Conclusion: From the deliberations above it is clear that the roles and responsibilities of the respective parties are important in order to gain the clear picture and get the correct perspective. Where the roles are clear and motives are questioned in public, it is believed that a large measure of success in business could be through the transparency and accountability part of construction business. As has been mentioned earlier, one of the significant contributions of ECC has been that it has largely done away with the adversarial aspects that has marked UK Construction and has imbued it with a fresh sense of purpose, conflict resolution process and an atmosphere where the right kind of decisions are taken to build large construction marvels and architectural innovations. It is sufficient to say at this stage that a lot more needs to be done to help the UK to gain its long lost supremacy in this pivotal area of business through its efforts. However, it is necessary to hasten slowly- ECC does not have the mantra to make overnight improvements in the construction business scenario in the UK. It would definitely be in everybody’s interests to help in gaining momentum and qualitative progress in all legal matters that surround the construction business in the UK. While ECC does offer limited solutions, it is also necessary for business to know how ECC could be best suited in their respective businesses and how this could also set forth major improvements and dramatic changes for the betterment within the business scenario. Only then could it be forecasted with a reasonable degree of accuracy that ECC may enjoy major sustenance in the later years. Work Cited Bunni, Nael. The FIDIC Forms of Contract, 3rd Edition. Wiley. 2005. Web. 01 May. 2010. . Goff, Pierrick. A New Standard for International Turnkey Contracts: The FIDIC Silver Book. Hein Online. 2000. [Provided by Customer]. Introduction to FIDIC and the Old Red Book. Campus Moodle. 2010. [Provided by Customer]. Introduction to the new Engineering Contracts. Campus Moodle. 2010. [Provided by Customer]. Lavin, M A & Potts, K F .Cobra 98. RICS. 1998. [Provided by Customer]. Sakal, Matthew.Constructing Projects in a Dynamic Environment: A Focus on Relational Contracting: New Engineering Contract. University of California Berkeley.2004. Web. 01 May. 2010. . Swiney, Gabriel. The dubious upgrade of international development contracts. International Law and Management Review. 2007. [Provided by Customer]. The Law of Australia. Wapedia. Web. 01 May. 2010. . Read More