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CAASA Dispute avoidance

At the start of a building contract, when excitement still surrounds the creation of the new facility, little thought is given to aspects that may not happen or may not function as intended, resulting in a (often-avoidable) dispute

So, what can go wrong? Let us look at the six phases of project execution:

  1. PROJECT INITIATION AND BRIEFING

The client on his own, or in consultation with consultants, must create a project definition in which the numerical results of a business plan are converted into a schedule of activities to execute a project within defined performance criteria of cost, time, quality and the scope of the intended works. This is subject to the following risks:

  • Business risks which include the correct identification of the need for a project at a particular location and time;
  • Financial risks which (simplistically) confirm if the proposed investment will yield the projected income;
  • Political risks which consider the socio-economic, environmental and applicable statutory criteria;
  • Technological risks which interrogate changing trends and techniques, and the consequences thereof, if ignored; and
  • Project risks which deal with the scope of the project and the subsequent execution of the project, assuming the other risks have been accepted.

Generally, project initiation and briefing is an activity and cost which falls outside of the project execution phase and budget, and it is the project risks which form the subject of the rest of this review.

  1. PROJECT CONCEPT AND FEASIBILITY

During this phase the client and/or business consultants must convert and test the assumptions made during the project initiation phase by restating such information in measurable terms, dealing with the workflow and workspace requirements, equipment to be housed in (or outside) a building, and a first ‘guestimate’ of the likely cost and durations.

A series of ‘statement of requirements’ documents, based on consultation with project stakeholders, should be published and formally agreed, recording options considered, and proposed implementation strategies dealing with:

Location – ranging from the (re)location of a (new) facility if dependant on access to raw materials; (skilled) labour; road, rail and/or air transport, the availability of utility services, founding conditions and opportunities for expansion, etc;

Statutory compliance including town planning, zoning and environmental criteria, (some of which may take years for approval!) building and other regulations applicable to the specific industry, etc;

Scope of the project quantifying the purpose, size and relationship of spaces to one another. Failure to define the operational criteria in detail and in full is probably the primary cause for ‘time and cost’ claims from the contractor. These are avoidable if the employer defines the whole project in detail;

Design and construction of the proposed facility including the evaluation of different design options and construction methods, the choice of materials, the buildabilty of such structures and the ease and cost of maintenance during the facility’s economic life;

Use of a standard form of building contract will vary depending on whether a conventional ‘employer designed’open tender for construction solution, a ‘design and build’ option, or another form of contract altogether, option is considered appropriate. It is important that the project team understand the available options as the method of procuring and executing both the design and the construction phases will be quite different as will the risk allocation. For example, a design and build option may limit the employer’s ability to make changes to a poorly defined brief, without incurring significant delays and additional costs.

Once the project definition has been considered and carefully drafted to identify performance criteria to be achieved, it is easier to interpretand explore realistic design options, consequently limiting possible claims for ‘finishes’ that are not as expected and/or other events attracting additional time and/or costs.

At the conclusion of this phase the client and/or business consultants must critically review the initial project requirements against measurable terms identified in this phase as well as market related costs and durations, confirming that optimum solutions have been identified and that these can be achieved within the original performance parameters or revised parameters. Only then should the project be allowed to proceed.

On the other hand, it may be necessary to consider aborting the project altogether, if circumstances change.

Where insufficient consideration is given to these aspects numerous queries will arise during the execution phase, that may develop into (avoidable) disputes.

  1. PROJECT DESIGN DEVELOPMENT

In principle this phase follows the ‘concept and feasibility’ phase. The design is now developed in greater detail, resulting in a firm decision after the valuation of options identified in the earlier phases. As stated above, aborting the project may have to be considered if circumstances have changed. Whilethe cost for abortive work is high, it is cheaper than an unsuitable final product. Also, although not necessarily easy to judge, if a member of the consultant team is not performing, then the unpleasant decision to terminate such appointment must be implemented without delay.

Where insufficient consideration is given to these aspects the project documentation may lack crucial information during execution that may develop into (avoidable) disputes.

  1. PROJECT TENDER DOCUMENTATION AND PROCUREMENT

Project performance criteria must be finally decided before the client proceeds to procure the services required for the project.

Depending on the nature and complexity of the project certain professional service providers may have to be appointed during the ‘initiation and concept phases’. Their appointment may or may not continue to the next phase. Additional services will invariably follow – sometimes adding to the risk of smooth project execution where, for example, building work must be undone to accommodate the requirements of an acoustic engineer to meet specified sound isolation or other criteria.

A recent tendency in the industry is to procure professional services on a tender basis, often resulting in appointments for a fee below the cost of providing a competent professional service. The amount of detail and the quality of construction documentation and contract management must suit the project, its location and the construction team to be appointed. Professionals are often told that the project is not feasible due to the high cost of professional fees! Such projects were probably only superficially conceived resulting in a higher risk of claims and consequently of disputes.

Similarly, the procurement of construction services will vary with the decisions made in the earlier phases, to follow a conventional employer designed/contractor built option, a design and build option or any other option deemed appropriate.

Regardless of the execution options for a project the employer must define the required outcome. The implementation methods may differ as will the risk allocation, and with it the likelihood for disputes arising from poor project conception, planning and execution.

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  1. PROJECT CONSTRUCTION, DOCUMENTATION AND MANAGEMENT

Regardless of the method of building and the (standard) form of contract chosen, the employer’s agents or persons with like professional qualifications working for the contractor will have to produce the appropriate documentation for construction.

All statutory requirements must have been complied with before construction can start. If not, the employer acts outside of the law when instructing the contractor to commence work, and the contractor has the right to refuse to work under these circumstances. Further, if he is issued with a stop order by an inspector from the local authority, the contractor will be entitled to claim for the construction time lost and costs incurred. This could, possibly, be the first delay event claimed on a project.

For a project to commence, on day one, with all relevant documentation issued, is unlikely. It is, however, still possible for the contractor and the professional team to work together to ensure that the required information is issued to suit the construction programme. On the other hand, assuming that the accepted construction programme is reasonable then the late issue of construction information can, potentially, give rise to a number of claims from the contractor.

Further, the quality and presentation of construction information may be problematic to the contractor if information is not clear, errors in dimensions are made, or contradictory information between the drawings, specifications and bills of quantities is found.

It may be useful to create stationery for the project that boldly identifies a document as a ‘notice’, ‘contract instruction’, ‘certificate of/for …’ etc to simplify acting on information received and filing. Similarly, drawings must be boldly identified to be ‘for information’, ‘preliminary’ or ‘for construction. Also, it would be a good idea to consider a writing style that is concise, uses short sentences and communicates in simple English, when drafting reports, minutes of meeting and instructions etc.

Apparently, the banking industry pioneered the principle of ‘four eyes’ – to ask a colleague to check information before it is issued. It is easy to read what should be there, without seeing the errors in the text. Spellcheck and similar tools forming part of word processing software or CAD drawing packages – whilst useful – do not necessarily ‘see’ such errors, particularly when referring to unique industry terminology.

Another source of potential unhappiness is when the standard of finishes is not as envisioned by the employer (this is more applicable in residential work). If quality has not been specified in measurable terms it is almost impossible to argue with the contractor, and the employer may have to live with such a product.

A number of standard form contracts are used in the building and construction industry. In one way they are all the same, namely they define the legal relationship between the employer and contractor. Most of these standard form contracts are also a guide to the execution of the works, requiring either party to give notice, respond to instructions and/or to make payment within a given time period or be in default of the contract.

Interestingly, most standard form contracts use their own unique terminology and it is important that parties to the contract use the same terminology in corresponding with each other. Terms, although similar, may not be interchangeable with similar words in another standard form contract, and use of the incorrect terms may create confusion or ambiguity. All standard form contracts incorporate dispute resolution clauses within them and using terminology from another standard form contract has the potential to invalidate a claim!

If a dispute should arise, it is important that all design documentation and statutory compliance certificates, the (revised) construction programme, notices, instructions, payment and completion certificates are filed safely in a manner and place so that they can be easily and correctly retrieved and shared with members of the project team (or the dispute resolution team).

  1. PROJECT CLOSE OUT

It is generally accepted that a project is not complete until all relevant paper work has been done. This applies to ‘as built documentation’, all product or service warranties and operational information needed to facilitate use and maintenance of a building competently over its lifespan. It is obviously important to file such information safely, where it can easily be retrieved and passed on to successive owners.

Once the contractor’s specified obligations have been completed the contract administrator will issue a certificate of practical completion. Thereafter the employer will apply for an occupation certificate from the local authority before the completed building may be occupied. Occupation without such certificate is illegal and any damage will not be covered by insurance

CONCLUSION

Dispute avoidance is not rocket science – it is simply applying common sense, working methodically, being proactive and recording and filing information systematically. This is required of all members of the construction team. In short, if the performance criteria for a project and the assumptions made at the inception and feasibility stages are not consciously evaluated then – and later reconsidered as the project progresses through the execution stages, the possibility of poor performance increases, and so too the likelihood of (avoidable) disputes. To quote Apollo 8 astronaut Frank Borman … ‘a superior pilot uses his superior judgement to avoid situations which require his superior skill’.