Contracts Administration and Disputes Resolution in Hong Kong - Coursework Example

Contracts Administration & Disputes Resolution (Hong Kong) Assignment Table of Contents Introduction 2.Documents forming part of the Contract and their order of precedence 2 2.1 FIDIC Red Book 1999 2 2.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 3 Article 5 lists certain documents as forming part of the Contract. They are (a) the Articles of Agreement and the Appendix, (b) Form of Tender submitted by the contractor, Letter of Acceptance of the Employer, (c) Special conditions if any , (d) General conditions, and (e) the contract drawings. The order of precedence is as above from a to e. Besides, for adjusting contract sum, contract bill shall precede the contract drawings and specification and for all other purposes including execution of the work, Contract drawings shall precede Contract Bills (Hkia.net, 2005) 3 3.How variations are instructed and valued during the project 3 3.1 FIDIC Red Book 1999 3 3.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 5 4.Procedures necessary for claiming extension of time 7 4.1 FIDIC Red Book 1999 7 4.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 8 5.Dispute Resolution procedures 9 5.1 FIDIC Red Book 1999 9 5.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 10 6.Conclusion 11 The above report shows that the two forms of contracts namely FIDIC Red Book 1999 and Hong Kong Standard Form of Building Contract Private with Quantities 2005 11 7. References 12 1. Introduction This Report is intended to compare the contractual terms and conditions as set in the FIDIC Red Book 1999 and the Hong Kong Standard Form of Building Contract Private with Quantities 2005 2. Documents forming part of the Contract and their order of precedence 2.1 FIDIC Red Book 1999 Clause 1.4 states that law of the country governing the contract must be stated in the Appendix to the Tender. The documents forming part of the Contract shall be in the following sequence as stated in clause 1.5. (a) the agreement under the contract if any, (b) the letter of acceptance, (c) the Letter of Tender , (d) the special conditions, (e) general conditions, (f) specifications, (g) drawings and (h) schedules and other documents if any to be construed as part of the Contract. In case of any ambiguity or discrepancy in the documents, the Engineer must suitably clarify or give instruction. The contractor shall execute contract agreement within 28 days of receiving letter of acceptance (clause 1.6) unless otherwise agreed to and the contract shall be in the prescribed form in the appendix attached to the Particular Conditions. 2.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 Article 5 lists certain documents as forming part of the Contract. They are (a) the Articles of Agreement and the Appendix, (b) Form of Tender submitted by the contractor, Letter of Acceptance of the Employer, (c) Special conditions if any , (d) General conditions, and (e) the contract drawings. The order of precedence is as above from a to e. Besides, for adjusting contract sum, contract bill shall precede the contract drawings and specification and for all other purposes including execution of the work, Contract drawings shall precede Contract Bills (Hkia.net, 2005) 3. How variations are instructed and valued during the project 3.1 FIDIC Red Book 1999 Clause 13.1 deals with the right to vary. As a right, the Engineer can issue instructions for variations in the works any time prior to issue of the Taking-Over Certificate for the Works or ask the Contractor to send a proposal. The contractor shall comply with each modification unless the Contractor notifies the Engineer promptly that he will not be able to effect a variation giving reasons with particulars. The Employer then cancels, confirms or varies the instructions. Every variation can include changes in the quantities of nay item of work ordered, changes in quality or other characteristics of an item of work, changes in the dimensions, levels or positions of any part of work, omission of any work except when being carried out by others, any additional work, plant, material or services essential for the Permanent Works which should also include any related tests on completion etc. No variation can be initiated after the Taking-Over Certificate has been issued. The proposal is usually requested in order to avoid an unnecessary variation orders without full appraisal of its consequences. The Engineer is not allowed to omit a work to be carried out by others and he has no power to amend the contract either. This means all variation order must not differ drastically from what the contractor has contracted to do. The Contractor is allowed under special grounds as part of Value Engineering under clause 13.2. What kinds of variations can fall under this clause are defined in the said clause itself. If the Engineer approves the variation beyond the scope of clause 13.2, it will be construed as a variation order. However, the contractor will be entitled additional fee only if the requirements under clause 13.2 are met with. Clause 3.3 states that if an instruction is considered a variation, clause 13 shall apply. Hence, it is important to know for the both the parties to the contract and the Engineer whether an instruction from the Engineer is a variation or a simple site instruction. The Engineer is required to give instructions from time to time for various purposes such as to rectify defects, to recover work and test work. As per clause 1.5, he has to give instructions in case of ambiguity in the documents. If by virtue of instructions, priority of documents is changes as against what is mentioned in clause 1.5, then instruction according to which a document of less priority overrules a document of higher priority, then it is a Variation. In I.R.C. v Williams [1969] 1 WLR 1197, an English Court ruled that where an instrument mentions a legal term of art, it is presumed that it will prevail in the absence of clear instructions to the contrary even if the drafter is found to have misunderstood the law. However, Variation is a term defined under the Contract which the Contractor cannot presume that the Engineer is acting beyond the scope of his authority (Jaeger & Hok, 2010). Clause 13.3 sets out the variation procedure. In case of the Engineer requesting a proposal, the contractor shall give reply why cannot comply or by submitting a detailed plan of execution along with modifications required in the programme as in clause 8.3 and time for completion and his valuation of the variation. The Engineer should respond as soon as practicable with approval, disapproval or comments. The Contractor is expected not to delay ay work during the pendency of the proposal. Every instruction for variation along with procedure for recording of costs issued by the Engineer shall be acknowledged by the contractor and each variation shall be valued as prescribed in clause 12 (Measurement and Evaluation) except when the Engineer otherwise instructs or approves 3.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 Here also clause 13.1 applies. It is the duty of architect to make variation instructions which the Contractor can reasonably object to if the variation results in imposition of an obligation of the contractor or restriction of the Contractor’s access to the Site, limited access to the working area or working hours in which case the Architect shall confirm or withdraw the instruction. In case of confirmation, the Contractor is entitled to refer the dispute to arbitration under clause 41. It is also a variation if the Contractor consents in writing for nomination of a sub-contractor to carry out the works which the Contractor has agreed to execute under the contract and are included in the Contract Bills or for omission of a contracted work for being carried out by other. These instructions whether single or accumulated shall however not change the nature or scope the Works. The variation instructions should spell out the change in terms of design, quality or quantity of the Works or any requirement or change to any obligation or restriction on the contractor. The Architect should wherever applicable give revised drawings and /or schedules to the contractor. The Contractor has no right to comply with any variation instruction which is not in writing from the Architect or without his own written confirmation of the oral instructions except in the case of an emergency as stipulated in Clause 4.4. Clause 13.2 empowers the Architect to issue instructions for provisional quantities, provisional items and provisional sums covered by Contract Bills, Nominated Sub-Contracts or Nominated Supply Contracts. The Quantity Surveyor shall value the work carried out by the Contractor by suitable measurement pursuant to the Architect’s instruction contemplated in clauses 13.1, 13.2 (a) and 13.2 (b). The rules in clause 13.4 shall apply to valuation. The governing rules are that prices set out in the contractor’s bill shall apply if work is the same or similar in character and to be carried out in similar conditions without substantial change in the quantity of work. If working conditions are different and quantity will substantially change with other things remaining the same, there shall be a fair adjustment to the differences in conditions and quantity shall be applied to the rates in Contractor’s bills for the same work or work similar in character. If the work is not the same or not similar in character priced in Contract Bills, the work shall be valued at fair prices subject to the word “conditions “ in clause 13.4 (1) meaning physical conditions and not financial conditions. If the work cannot be properly measured and valued in accordance with clause 13.4 (1), it can be carried out as day work with prior consent of the Architect subject to the contractor giving at least 7 days’ notice to the Architect before doing the job or in case of urgency, giving notice sufficiently earlier and his furnishing vouchers detailing the number of hours spent daily , names of employees engaged, the details goods and equipment used to the Architect within 14 days of carrying out of the job for the Architect’s verification. Prime cost shall be applied labour, material, goods, plant and equipment plus overheads and profit. The contractor should have furnished rates for day work in the Contract Bills failing which the pricing shall be based on the prevailing labour in the official records for Average Daily Wages of Workers in Government Building and Construction Project published by Hong Kong Government Department of Census and Statistics. In addition, the net cost of materials and goods, cost of packaging, transport and delivery at actuals, cost of plant hiring with cost of transportation, fuel, transportation and insurance plus the percentage of overheads and profit as included in the Contract Bills or in the absence of such percentage , at 15 % shall be allowed. If the valuation relates to the omission of work mentioned on the Contract Bills, the rates shall be as per Contract Bills. If Quantity Surveyor finds that Contractor has reasonably incurred expenditure becoming unnecessary as a result of the omission, a fair adjustment valuation shall be made in respect of that expense. If the valuation is not contemplated as. for additional work or substituted work or the omission of work but it relates to extraneous matters, a fair valuation shall be made as provided for in clause 13 (4). The fair valuation shall be an appropriate allowance as any percentage or a lump sum payment made to the contract bills. In case of Architect’s instruction of a variation for additional work after substantial completion, a fair valuation shall be made instead of application of clause 13 (4) (1). Any measurement of work on the site for valuation shall be done in the presence of the Contractor who can also take his own measurements. If the variation arises on the contractor’s breach, the default shall also be taken into account in valuing the variation (Hkia.net, 2005). 4. Procedures necessary for claiming extension of time 4.1 FIDIC Red Book 1999 As an explanation to clause 20.1, condition precedent is that if the contractor is not compliant, he is deemed to forego any entitlement to an extension of time or cost regardless of relevant circumstances. Clause 20.1 states that the contractor shall notify the Engineer of any event or circumstances for a claim as soon as possible but not later than 28 days of his becoming aware or should have become aware of the event or circumstance. As such the contractor must be alert enough to send notices to the engineer throughout the contract period. The only cause for any lenience to the contractor is that when it was reasonable to conclude that the contractor could not have been aware of the event or circumstance justifying extra time and/or cost. Thus, it will be prudent to review at least once in 28 days to ascertain if any notice is required to be given under the contract. Clause 20.1 also requires that the contractor must keep records and make them available to the engineer. Within 42 days of the contractor having knowledge or should have knowledge of the claim or a longer duration as may be agreed to by the engineer, the contractor must submit his claim supported by evidences. This will be treated as an interim claim and updated once in a month. The final claim must be sent within 28 days after the end of the effects arising out of the event or circumstance giving rise to the claim. This requirement of 42 days and updating are not condition precedent as it applies to the initial notice. The engineer can within 42 days of receiving the claim must approve or reject with comments. The monthly payment certificates will include the amounts the Engineer approves within the contractor’s claim. . 4.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 Article 25 applies to extension of time. Contractor should give first notice of delay to the Architect within 28 days of occurrence probable cause of delay in work completion or a section of work beyond the prescribed date. The notice shall state the likely extent of delay and material circumstances causing the delay. He can also claim entitlement for extension of time due to events listed in Article 25 such as force majeure, weather conditions, cyclone, excepted risks, ambiguity in Architect’s instructions, Architect’s variation instruction, Architect’s instruction to postpone date of site possession, date of commencement of work, to examine the object of antiquity found if any at the site during excavation or removal by a third party, delayed instruction of the Architect among others (Hkia.net, 2005). 5. Dispute Resolution procedures 5.1 FIDIC Red Book 1999 Applicable laws The parties following FIDIC contract must make sure there is no conflict between the contractual terms and the applicable law. Thus, the chosen law of contract should not be repugnant to the local laws if the site is in a foreign country. If the FIDIC is used in UAE, the Emirates Code for Civil Transactions law No 5/1985 empowers court to impose liquidated and ascertained damages at their discretion. Under English law, fitness for purpose obligation may be implied unless an alternative standard has been expressly chosen. Earlier, the engineer’s decision was to be obtained before being referred to arbitration However, the new Red Book 1999 Clause 20.2 states that disputes can be referred to Disputes Adjudication Board (DAB) for adjudication instead of the Engineer. The relevant provisions are found in clauses from 20.2. To 20.4 and additional conditions are mentioned in the appendix as “general conditions of dispute adjudication. The Dab members can visit the site on regular basis unless parties decide an ad hoc DAB when a dispute arises. The site visits are intended to enable the members to become acquainted with the work progress and potential problems or claims (Hilig, Dan-Asabe, Dursun, & Thamburatty, 2010). The DAB will comprise one or three members. Generally default practice is to have three members. The contract itself may include a list of potential members from which the DAB can be selected. In the case of three members, each party selects one member for other party’s approval and the parties and members may agree upon the third member who will act as the chairman of the DAB. The form of the DAB appointment is the General Conditions of Dispute Adjudication Agreement as prescribed in the Appendix to the contract as a Tri-Partite Agreement (TPA). The Dab members can be replaced at any time by mutual consent of the parties or if a member refuses to act, dies or resigns on disability or termination of a member’s appointment. The decision of the DAB is binding and should therefore be complied with immediately unless revised by amicable settlement or arbitration. Clause 20.4 says that parties must give notice of dissatisfaction failing which the decision of the Board is final and binding (Savage, 2012). It is appealable only under the International Arbitration (Jaeger & Hok, 2010). 5.2 Hong Kong Standard Form of Building Contract Private with Quantities 2005 Article 41 applies to settlement of disputes. Before reference to Arbitration under clause 41.5, parties shall initiate settlement measures by first designating their respective senior executives as their representatives within 14 days of acceptance of the Contractor’s tender. The designated representatives shall take steps to settle disputes as and when they arise during the contract execution. The designated representatives authorised to settle disputes shall not be in the day to day management of the Contract. It is the Architect who shall refer a dispute to the Designated Representatives immediately at the request of either party when a dispute arises. The Designated Representatives shall meet within 7 days of receiving the notice of the Architect in this connection for resolving the dispute within 28 days failing which either party may give notice to the other party shall refer the dispute to the mediation by a mediator selected pursuant to their mutual consent. If the parties have not selected a mediator within 21 days, the Hong Kong Institute of Architects or Hong Kong Institute of Surveyors shall appoint a mediator. The mediation shall be conducted in accordance with the rules of Hong Kong International Centre for Mediation except for the rules applicable for appointment of the mediator. If the dispute is under Article, it shall be referred directly to Arbitration. If the mediation does not resolve the dispute within 28 days, it shall be referred to arbitration by an arbitrator as mutually agreed between the parties. If the appointed Arbitrator does not begin to act with 21 days, the Hong Kong Institute of Architects or Hong Kong Institute of Surveyors shall appoint an Arbitrator. Alternatively Hong Kong International Arbitration Centre may be asked to appoint an Arbitrator. If no Arbitrator is appointed within 60 days by the Presidents or Vice-Presidents of the Hong Kong Institute of Architects or Hong Kong Institute of Surveyors, Hong Kong International Arbitration Centre can be asked by either party to the dispute to appoint an Arbitrator. The Arbitration shall be domestic arbitration as contemplated by the Arbitration Ordinance (Chapter 341, Laws of Hong Kong) except as otherwise agreed up on by the Parties. The arbitrator is competent decide matters relating to Article 5 objection. Besides, Arbitrator can decide on the question whether the Architect’s instruction is in order, whether or not a certificate has been unreasonably withheld or not issued as per the Conditions among others. The Venue of Arbitration shall be Hong Kong. Needless to say that Arbitrator’s decision is binding and final unless it involves substantive law (Hkia.net, 2005). 6. Conclusion The above report shows that the two forms of contracts namely FIDIC Red Book 1999 and Hong Kong Standard Form of Building Contract Private with Quantities 2005 are suitable for application in the international contracts and local contract within Hong Kong respectively. 7. References Hilig, J.-B., Dan-Asabe, D., Dursun, O., & Thamburatty, A. (2010). FIDICs Red Book 1999 edition : astudy Review. Management Procurement and LAw , 163 (3). Hkia.net. (2005). Retrieved April 11, 2014, from Hong Kong Standard Form of Building Contract Private with Quantities 2005: http://www.hkia.net/en/Resources/Resources_01_03.htm Jaeger, A.-V., & Hok, G.-S. (2010). FIDIC- A Guide for Practitioners . London : Springer . Savage, D. (2012). The top 10 things you need to know about FIDIC. www.charless Russell.co.uk. Read More