General Principle of Construction Contracts - Coursework Example

? Contracts work 10/20 Executive Summary The recommendation described below reflects the assessment of this based on the provisionsindicated by the NEC3-ECC contract frame work. I shall describe an alternative framework that may provide more understanding and coverage as far as ensuring project completion. The combination of the two frameworks shall be the recommended convergence of two frameworks designed at completing projects. AOS Development is a national housing development company in Edinburgh and has embarked on eighty housing units developments in Skye, Scotland. The consultant’s documents were submitted on time, planning permissions gained and quotes received from various contractors. The project was awarded under NEC3-ECC conditions of contract. The Project duration was agreed to be 26 months and payment to the contractor through interim valuations. The project was delayed due to late payment, lack of workmen on site, work behind schedule and late project administrator’s instructions. The contention between the parties was about payment, contractual standing of contractor’s program and principle guiding claim and dispute resolution. The project ran into great difficulties after the 10th month, accusation were exchanged, agreed payments not made and the workmen were pulled off site by the contractor which led to dispute. Table of Contents Executive Summary 1 Table of Contents 2 Introduction 3 General Principle of Construction contracts 4 Dispute resolution guidelines 5 Comparable Analysis of NEC3-ECC, JCTO5 SBC/Q 6 NEC3-ECC 8 JCTO5 SBC/Q 9 Clear Difference 10 Recommended Approach 11 References/Bibliography 14 Introduction AOS Development is a national housing development company in Edinburgh and has embarked on eighty housing units developments in Skye, Scotland. The consultant’s documents were submitted on time, planning permissions gained and quotes received from various contractors. The project was awarded under NEC3-ECC conditions of contract. The Project duration was agreed to be 26 months and payment to the contractor through interim valuations. The project was delayed due to late payment, lack of workmen on site, work behind schedule and late project administrator’s instructions. The contention between the parties was about payment, contractual standing of contractor’s program and principle guiding claim and dispute resolution. The project ran into great difficulties after the 10th month, accusation were exchanged, agreed payments not made and the workmen were pulled off site by the contractor which led to dispute. It should be noted that the case did not specify the order in which the causes of delay accrued on the project site. Given the facts of the case each item will be taken in seriatim or in the order by which it was stated in the case. To illustrate: The case stipulated that the delay “was due to late payment, lack of workmen on site, work behind schedule and late project administrator’s instructions”. For purposes of this paper, it would be assumed that the delay in payment was the sole and primary reason for the lack of workmen on the site, since the amount that was due which would ideally be used to compensate the workers were not credited to the account of the contractor. This would leave the contractor no choice but to let go of the workers to prevent further losses in his company. As a result of the delays in payment, which in turn resulted in the lack of workmen on the site, work will definitely be behind schedule. General Principle of Construction contracts Construction contracts define the relationship of all the parties concerned with the sole purpose and aim of completing the project on time or sooner while following the specification with fealty. In fine contracts not only define the relationship of all the parties concerned but contract also define the parameters of the obligation of each parties. As predicated contracts defines the relationship and the obligation of each party arising from the contracts (Savage & Jones Mitchell, 1994). Contracts should also include the delivery of the obligation of each party, dispute management and the administration of time and money. Contract is defined as “a legally binding agreement made between two or more parties, by which rights are acquired by one or more to acts of forbearance on the part of the other or others” (Beatson, 2002). Construction contracts generally involve several parties since construction projects involve several highly specialized parties with the sole purpose of completing a very complex project. It should be noted that complex relationships should not rely on fiduciary relationships, performance and satisfaction of the obligation of the contract by each party should be governed by the criteria stipulated in the contract. Contracts should include the offer by one party in exchange for a tangible consideration and the acceptance by the other in the form of performance. Contracts indicate that there is meeting of the minds with regards to the creation of a legal and binding relationship over a single purpose anchored on the capacity of each party to deliver their obligation congruent to what is stipulated in the contract. It is essential to note that contracts should not only conform to the requirements of the law where the contract is drawn and signed, contracts will also govern the relationship of the contracting parties where the law is silent and ambiguous. Dispute resolution guidelines Contracts should also stipulate the management of conflict leading to its resolution in a structured and civil manner to avoid litigations its expense and most especially the delay it may cause to the project. This is essential in managing the complexity of construction projects most especially the possible misinterpretation of the different provisions in the contract. There several dispute resolution route that can be stipulated in the contract that would include mediation, adjudication and arbitration (Brooker & Wilkinson, 2010). Dispute resolution guidelines calls for all party to ensure that they are voluntarily submitting to the jurisdiction of the dispute resolution mechanism that the parties have agreed into and signed in the contract as detailed in the stipulations or provisions. The parties shall ensure that all documents, claims are covered and in the contracts and its provisions. It should be clear that the claims are for specific reasons and not for general reasons to ensure that it can be quantified equitably by the parties concerned (Levin, 1998). The primary essence or the principle behind any conflict resolution process is to manage the claims or any disputes to prevent the escalation of the misunderstanding in an atmosphere where it will be more adversarial and costly for all the parties concerned. Thus it is essential that the each construction contracts stipulates warning mechanism that is cordial and civil to alert possible conflicts in the relationship. Definition or division of responsibility to align each party as to their role in the execution of the contracts and the appropriate risks associated with the roles leading to the completion of the contract. Comparable Analysis of NEC3-ECC, JCTO5 SBC/Q AOS Development contract was signed and patterned after the NEC3-ECC contract framework. For the purposes of this paper JCTO5 SBC/Q shall be compared as to how specific disputes shall be handled by each framework. At the end of this section we shall examine the clear difference between the two and how a better framework can be constituted to ensure that contracts not only manages the relationship of the parties in a construction project but also an enabler of how their relationship will be better rather than a hindrance. More often than not contracts are sometimes considered a hindrance to a better working relationship. This could be due to the disparity with regards to responsibility allocation and compensation allocation if not the assignment of risks and the disparity of the commercial exposure of the parties not aligned to the risks assigned to them. Equitable distribution of risks as well as the commercial exposure in the form of compensation or in the form of expense should be understood by all parties. This comparable analysis shall cover the framework, the execution as well as the dispute resolution mechanism not to mention the completion, acceptance and eventual retention if there is a need for it for each framework. The mechanism and their distinct differences shall be discussed in seriatim. However, how each framework is better will be discussed towards the conclusion of the comparison. NEC3-ECC In a nutshell the NEC3-ECC framework defines the Employer, Contractor, Project Manager, and the supervisor as the primary players identified in the contract to execute and deliver the contractual obligations and its conditions. It is assumed in an NEC3- ECC framework that its core clauses is present, a main option B (lump sum with bill of quantities), W1 that includes adjudication in the UK, X6 indicating a bonus for early completion, delay damages and lastly retention. An NEC3-ECC contract requires that a contractor’s programme is indicated as part of the contract that will define the start date, access dates, completion dates and many more significant dates that indicate the completion of each phase. It should be noted that all parties should abide by the dates, thus the NEC3-ECC contract provides that the significant dates be supplied by the parties who will perform the task in the execution of the contract. The parties should take into consideration all the facets of their own processes and practices in the delivery dates that they would commit to. According to Cliff Jones, the Senior Policy Performance Manager of ProCure21 of the Department of Health; “The NEC Contract is a positive and progressive form of contract which allows all parties to collaborate and contribute to the successful delivery of buildings, facilities and best value solutions”. NEC contracts are promote collaboration between all parties since each party are assigned specific tasks, deliverables and timelines which they themselves supplied to the construction team. This would ensure that all the risks are not only spread amongst the parties but most are mitigated. JCTO5 SBC/Q While the NEC3 contract framework calls for the collaboration of parties that is considered a positive approach in establishing contractual relationships, JCTO5 SBC/Q valuates and assigns values to every aspect of the engagement. This approach will ensure that all the parties are aware of the economic aspects of any delays or decisions that pertain to the project. This approach will also make it easier for any potential problems to be resolved immediately since the values that will be the basis for adjudication has been set and known at the onset. The JCTO5 SBC/Q framework also concentrates on auditing and assessment at every phase or before a compensation event happens. While all the frameworks require an assessment of some sort in support of a compensation event, JCTO5 SBC/Q not only mandates it, it is essential in the execution of the contract. The NEC3-ECC in the meantime provides for the settlement of any disputes amongst the parties by themselves. JCTO5 SBC/Q, however requires that they use a third party in resolving disputes. Clear Difference The clear difference between the two types of framework is their approach; NEC3-ECC assumes that the contractual relationship will result to a harmonious relationship while the JCTO5 SBC/Q assumes that problems will surface in the course of the execution of the contracts. Documenting the actual performance and completion as well as compliance of the construction team to the terms and condition of the contract under the JCTO5 SBC/Q ensures all parties that their performances are objectively quantified. Setting the value of the contract at the onset will ensure that each party will abide by the contractual obligation on account of the value of the projects. JCTO5 SBC/Q, also provides within the contract provisions that will anticipate retentions to ensure that construction related problem arises. In view of the foregoing it is recommended by this paper that an NEC3-ECC contract be augmented by some of the provision of the JCTO5 SBC/Q framework. In analyzing the problem of AOS Development a contract that uses JCTO5 SBC/Q and NEC3-ECC frameworks not only provide a mechanism on how to adjudicate disagreements but also a mechanism to objectively assess the performance of all the parties. Recommended Approach It would be prudent for all parties to enter into mediation to resolve all conflicts and disputes and for all parties to be appraised and be reminded of their responsibilities. Contracts are drawn to protect all parties while ensuring the completion of the project. Contracts also define the relationships of each parties and their responsibilities and role in the completion of the project. Failure of any party to perform their tasks or responsibilities that leads to delays or losses to one or more party can be a justified compensation event. NEC3-ECC has provided a mechanism to ensure that disputes of any kind are resolved within the purview of the law if not between the contracting parties. NEC3-ECC as well ensures that each party abides by their roles as defined by the contracts. A demand for performance from each party in this case from the project administrator is a responsibility of each of the parties in a contract to ensure that possible delay will be avoided. If in case the demand for performance has not been heeded or have been ignored arbitration before the proper forum should be the second logical action for the parties concerned. It should be noted however, that bringing matters into arbitration to resolve any conflict requires time and should be affected immediately to prevent further delay on the project. Acceptance of a situation is the natural assumption when a grievance has not been presented before the proper forum and the party who has accepted the situation or have been remiss in bringing the offending party notice of their failure may be equally be liable in the delay of the project. Contractual obligation carries with it the responsibility of bringing to notice parties that have been remised in their obligation to ensure that the project is completed in time. The following are recommended course of action to resolve the issue and in order for the project to proceed: It is important for the current state of the project to be known, thus an assessment or an audit of the project should be conducted. Based on the result of the assessment proper compensation should be provided to the contractor for it to pay its workers and finally complete the project. Under the JCTO5 SBC/Q there are limitations with regards to an entitlement to claims these are Relevant Matter and Relevant Event. However Claims can only cover loss and expense that cannot be recovered by any other contractual means; Loss and Expense that has been incurred by the contractor when working in a reasonable manner. On the last note the contractor must have taken all reasonable steps to prevent additional costs. It should be noted that claims covered by “relevant events” justifies extra time while “relevant matters” justify compensation or compensatory damages. JCTO5 SBC/Q specified that relevant events include uncontrollable events while relevant matters do not. In the case of AOS Development, it is clear that the delay in the audit or review of the project administrator caused the delay in the payment that led to the non-payment of workers and consequently the delay in the project. The case as presented is clearly a case of a “relevant matter” as defined under JCT05 SBC/Q that justifies compensatory damages that should be awarded to the contractor. Please note that under the NEC3-ECC rules compensations due to delays can be shouldered by the employer. However, NEC3-ECC is ambiguous with regards to delays caused by parties other than the contractor or the employer. In the case of AOS Development the delay was caused by the project manager who ideally represents the employer. The nature of the delay as well stipulates that the nature of the delay is of “relevant matter” thus the contractor is entitled to compensation. In this regard AOS development as the client should be reminded that the dispute resolution provisions including the dispute prevention provisions of the contract requires that an early warning mechanism is followed to prevent instances such as the one described. It will be prudent for AOS development to ensure that the “early warning” mechanism is followed. Availing of such mechanism will avoid the escalation of the conflict and allow for the smooth execution of the contracts that may translate to its early completion. Litigation should be avoided at all costs, thus mediation or voluntary arbitration is the best course of action. Since NEC3 – ECC contract framework stipulates that claims should be within the purview covered by the valuation conducted at the onset claims should be limited to the actual costs. Other damages not directly incurred as an actual expense or damage as a matter of principle should not find their way in any conflict resolution or arbitrary process. Moving forward, the payment that will cover the actual work done should be completed as well as the actual damages incurred covering what is due to the workers who were not paid when employers failed to pay on time. As soon as the payments are received work should resume to make it sure that the completion of the project is worked on immediately. Adjustment in the project programme timeline should be adjusted to cover the delay. The cause of the delay and the resolution adjudicated by the arbitrary board should remain and be part of the contract as its addendum. References/Bibliography Beatson, J., 2002. Anson's Law of Contract. 28th edition ed. Oxford: Oxford University Press. Brooker, P. & Wilkinson, S., 2010. Mediation in the Construction Industry: An International Review (Cib). kindle edition ed. London: T & K Books. Levin, P., 1998. Construction Contracts Claims, Changes and Dispute Resolution. 2nd edition ed. London: Amer Society of Civil Engineers. Pantouvakis, J. & Vandoros, N., 2006. A critical Revuew of Published Research on PFI/PPP in Construction, Athens: Civil Engineering National Technical University. Savage, C. & Jones Mitchell, K., 1994. Construction Forms and Contracts. London: Craftsman Book Company; Pap/Dis Edition. Read More