CONTRACTUAL PROCEDURE

ACKNOWLEDGEMENT I would like to thank Mrs.Indra Rajapaksha for giving us this opportunity to improve our knowledge on Contractual Procedures

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CONTENTS

I.

Appreciate the need to select suitable contractors for successful management and completion of a project

2-4

II.

Explain problems and difficulties that the client may face if a suitable qualified contractor is not selected

5-6

III.

Identify the role of QS in post contract management

7-8

IV.

Distinguish the post contract management functions

9 - 10

V.

List down the application and interpretation of contractual clauses for specific contracts 11 - 13

VI.

Identify key issues in interim and final valuation

14 - 15

VII.

Assess interim and final claims

16 -17

VIII.

Explain preparation and evaluation of variations and Fluctuations 17 -18

IX.

Explain the preparation and evaluation of other claims and documentation.

18 - 19

X.

Explain the ways to communicate and negotiate to reduce disputes.

19 -20

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1 ). Appreciate the need to select suitable contractors for successful management completion of a project

and

A successful project requires a good contractor. Each project is unique and to achieve the right design outcome and design quality a strong team of designers need to work with a strong contractor group with focus and leadership. Delivering a capital project from start to finish is complex and challenging but also hugely rewarding. The role of the contractor is fundamental to its success. Client needs to satisfy himself that his contractor is competent to do the job safely and without risks to health and safety. The degree of competence required will depend on the work to be done. The success of the above project will be largely determined by choosing the right contractor. Before selecting a contractor for above project, the client should consider about several factors. They are,

Whether the person has more past experience or not The financial background of his organization or the company Reputation & good quality of workmanship Availability of labour capacity & equipment to carry out the project Arbitration or the litigation history of the company.

Although the client would want to require that the contractor has the experience and knowledge to provide quality workmanship. Thus, the contractor should be responsible and reliable for his work and he should maintain a good cooperation with other related parties in the construction. A good professional contractor will use expert knowledge of his trade and can bring the latest technology and the most effective construction techniques for the particular project.

Being confident that the client has selected the right contractor will help assure that he has a quality construction and that his hard-earned money has been wisely spent. Therefore, it is always very essential to select a suitable contractor to complete a project successfully.

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2 ). Explain problems and difficulties that the client may face if a suitable qualified contractor is not selected Contractor plays a very important role in making the clients dream come true, so for that client through consultants has to select the best contractor to carry on the project. Some of the common problems the client may face are, I. Defective works carried out due to less capacity of the contractor. II. Defects in workmanship and materials. III. Claiming variations and value of variations. IV. Delays and extensions of time.

i. Defective works carried out due to less capacity of the contractor If the suitably qualified contractor is not selected one of the major problems the client may face is the defective works done by the contractor. One of the main reasons for this to take place is the skills and capabilities of the contractor. The contractor may not have the required capacity the client expects.

ii. Defects in workmanship and materials Defects in workmanship and materials can also lead to problems. Mainly problems arise when wrong methodologies in caring out work and unsuitable materials are used, where this will be a great issue in the quality of workmanship of the building. Another reason to lead problems is the value of variations, where the value of variations forwarded by the contractors quantity surveyor may not tally with the value of the consultants party. More over theses issues may also arise Contractor will not carrying out the project till completion They may comes with arguments with client and consultant Client may expend more money than budget requirement Project will be delay due to non availability of labors, non-availability of materials, and contractor doesnt have proper delivery systems

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3 ). Identify the role of QS in post contract management The QS role in the post Contract stage is to ensure accurate measurement and pricing of construction work in order to comply with the Contract in addition to tracking changes requested by the client or his architect/engineer. I. Duties of Consultants Quantity Surveyor Consultants Quantity Surveyor performs a variety of functions in post contract stage. Such as, i. ii. Preparation of contract documents for signatures of both parties. Preparation of schedules of Rate of Spend during the construction period & advising on payments to the contractors giving dates and amounts. iii. iv. v. Checking valuations submitted by contractors and recommending for payments. Valuing variations of the project and advising on the financial effect on them. Advising on the financial and contractual aspects of contractors claims

II. Duties of Contractors Quantity Surveyor The duty of a Contractors Quantity Surveyor differs from that of a Consultants Quantity Surveyor and is given below. i. Preparation of bills of quantities for above contract based on drawings and specifications.

ii. Preparation of interim valuations for payments.

iii. Collection of information of the various operations and under which conditions they occurred, which can be used for future estimates of the project.

iv. Preparation of lists of materials for the project in hand using bills of quantities or working drawings.

v. Assisting the contract manager to prepare construction programme, progress charts etc.

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4 ). Distinguish the post contract management functions I. Monitor the program II. Billing (should be don on monthly basics or as for the agreement) III. Cash flow monitoring IV. Request or issue completion certificate after carried out the job V. Fist half of the retention should be limit 5% of the contract sum VI. At the end of defects liability period check about ratification of defects

Monitoring the program Monitoring the construction program includes the works to be carried out within the agreed time duration. The quantity surveyor should also make sure that the construction work is carried out according to the proper method.

Monitoring the cash flow One of the major responsibilities of the quantity surveyor is to look after the cash flow of the project. This includes releasing money for the invoices etc. where quantity surveyors of both the parties involve.

Billing - issuing interim payment certificates Under any form of contract consultants quantity surveyor has to issue an interim payment certificate at the intervals stated (usually one month). According to the contractual basis when issuing the payment certificate in the valuation of work which is properly executed by the contractor, the consultant quantity surveyor must be satisfied that the work has been carried out to the acceptable quality before certifying the payment certificate. Moreover the quantity surveyor should include the recovery of mobilization advance, retention money in each interim payment certificate.

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Issuing completion certificates after carrying out the job After any work is finished the quantity surveyor should assess the work carried out, weather it is done in an acceptable way and issue completion certificates. For example: if the contractor has completed the foundation work after that the quantity surveyor can issue completion certificate for carrying out the foundation work.

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5 ). List down the application and interpretation of contractual clauses for specific contracts

ICTAD/SBD/02 Sub-Clause 4.4

Subcontractors The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor.

ICTAD/SBD/02 Sub-Clause 4.14

Progress Reports Unless otherwise stated in the Contract Data monthly progress reports shall be prepared by the Contractor and submitted to the Engineer in two copies. The first report shall cover the period up to the end of the first calendar month following the Commencement Date. Reports shall be submitted monthly thereafter, each within 7 Days after the last day of the period to which it relates.

ICTAD/SBD/02 Sub-Clause 4.15 Contractors Operation on Site The Contractor shall confine his operations to the Site, and to any additional areas, which may be obtained by the Contractor and agreed by the Engineer as working areas. The Contractor shall take all necessary precautions to keep Contractors Equipment and Contractors Personnel within the Site and these additional areas, and to keep them off adjacent land.

ICTAD/SBD/02 Sub-Clause 4.17

Quality Assurance The Contractor shall institute a quality assurance system to demonstrate compliance with the requirements of the Contract. The system shall be in accordance with the details stated in the Contract. The Engineer shall be entitled to audit any aspect of the system.

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ICTAD/SBD/02 Sub-Clause 5.3

Payments to nominated Subcontractors The Contractor shall pay to the nominated Subcontractor the amounts, which the Engineer certifies to be due in accordance with the subcontract.

ICTAD/SBD/02 Sub-Clause 7.6

Ownership of Plant and Materials Each item of Plant and Materials shall, to the extent consistent with the Laws of the Country, become the property of the Employer at whichever is the earlier of the following times, free from liens and other encumbrances.

ICTAD/SBD/02 Sub-Clause 8.1

Commencement of Works The Engineer shall give the Contractor not less than 7 Days notice of the Commencement Date. Unless otherwise stated in the Contract Data, the Commencement Date shall be within 14 Days after the Contractor receives the Letter of Acceptance.

ICTAD/SBD/02 Sub-Clause 8.3

Programme The Contractor shall submit a detailed time programme to the Engineer within 14 Days after receiving the notice under Sub-Clause 8.1.

ICTAD/SBD/02 Sub-Clause 8.4

Extension of Time for Completion

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The Contractor shall be entitled subject to Sub-Clause 19.1 (Contractors Claims) to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 (Taking Over of the Works and Sections).

ICTAD/SBD/02 Sub-Clause 8.7

Liquidated Damages If the Contractor fails to comply with Sub-Clause 8.2 (Time for Completion) the Contractor shall subject to Sub-Clause 2.4 (Employers Claims) pay liquidated damages to the Employer for this default.

ICTAD/SBD/02 Sub-Clause 8.12

Resumption of Works After the permission or instruction to proceed is given, the Contractor and the Engineer shall jointly examine the Works and the Plant and Materials affected by the suspension.

ICTAD/SBD/02 Clause 12.0

Measurement and Evaluation

ICTAD/SBD/02 Clause 13.0

Variation and Adjustments

ICTAD/SBD/02 Clause 14.0

Contract Price and Payment

ICTAD/SBD/02 Sub-Clause 15.3

Valuation at Date of Termination As soon as practicable after a notice of termination under Sub-Clause of Termination by Employer has taken effect the Engineer shall proceed in accordance with Sub-Clause 3.4

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(Determination) to agree or determine the value of the works, goods and Contractors Documents, and any other sums due to the Contractor for work executed in accordance with the Contract.

ICTAD/SBD/02 Clause 17.0

Risks and Responsibilities

ICTAD/SBD /02 Clause 18.0

Insurance

ICTAD/SBD/02 Clause 19.0

Claims, Disputes and Arbitration

ICTAD/SBD/02 Sub-Clause 4.2

Performance Security The Contractor shall obtain (at his cost) a Performance Security for his proper performance of the Contract, in the amount stated in the Contract Date. The Contractor shall deliver the Performance Security to the Employer within 14 days after the receipt of the Letter of Acceptance. The Performance Security shall be in the form acceptable to the Employer as stipulated in Contract data.

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Interim Payment Certificate Project: - . Client:-. Contractor:-. Mobilization Advance Paid: Limit of Retention: Rs.. Rs..

Date of Commencement: - . Date of Completion: - . Date: - 1) Value of work done as per contract: a) By Variation b) By Extra Work c) By Day Work d) Materials on site (80%) 2) Claims for additional works Total Approved Deductions a) Discount b) Mobilization Advance Recovery c) Retention (10% of work done) Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.. Rs.. Rs..

Add a) VAT 3) Previous Payments Balance due to the contractor Principle Architect
Fig.2. Sample of an Interim Payment Certificate

Rs.. Rs. Rs...

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6 ). Identify key issues in interim and final valuation Prior to the Architect issuing an interim certificate it is usually necessary for the quantity surveyor to prepare an interim valuation. The key issues to be considered in an interim valuation are as follows, I. Measured work including preliminaries.

II. Value of variations and extras (applicable for above mentioned project).

III. Value of nominated subcontractors and suppliers work.

IV. Fluctuations (this is applicable for above mentioned project).

V. Unfixed materials on site.

VI. Retention monies & previous payments.

VII. Mobilization advance of recovery.

VIII. Government due taxes.

A valuation for an interim certificate should be as accurate as is reasonably possible. The contractor is entitled to the total value of the work properly executed, less a specified percentage for retention. If the valuation is depressed, it has the effect of increasing the retention which must be contrary to the terms and spirit of the contract.

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7 ). Assess interim and final claims The contractual basis of the certificate is the valuation of the work properly executed and the architect must satisfy himself as to the acceptable quality of the work before certifying payment by the client. Before making the final valuation of the interim, the following factors should be assessed accordingly by the quantity surveyor. I. Valuation of Preliminaries The preliminaries section of bill of quantities gives the contractor the opportunity to price items of an organizational and general nature which affect the cost of works but which are not restricted to any particular works section. Each of three methods is used on occasions to value the items contained in the preliminaries section of a bill of quantities, and these are now described and evaluated. Based on the amount of the contract period that has elapsed. Based on the value of work done. Based on valuation by individual assessment.

The third method would be suitable for above project to value the preliminaries. But it is always the quantity surveyors responsibility to judge the suitable method in the prevailing circumstances.

II. Valuation of Variations and Extras The architect may issue instructions from time to time encompassing variations. The contractor may also be involved in direct loss or expense arising from actions of the client. Thus, the above project it was mentioned that there were variations from the clients and the consultants side. Therefore, the quantity surveyor should assess those items to include to the interim valuations. The valuations of variations involves the omission of work as originally included in the bill of quantities and the addition of the work as executed in its place. Each variation should be considered separately and their net values carried forward to a general summary. III. Valuation of Nominated Subcontractors and Suppliers Work

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Nominated subcontractors and suppliers accounts are included in interim valuations as and when the work has been executed or materials supplied. The nominated firm will submit accounts to the contractor who will pass them to the quantity surveyor for assessment. The accounts often include work executed to date in accordance with the original quotation,

extra works, materials on site and possibly fluctuations. All accounts are checked before they can be included in a valuation for interim payment.

IV. Fluctuations A fluctuation clause can be inserted to the above project which provides for the adjustment of the price of steel, cement and the other materials after the date of tender. The mentioned fluctuation prices should be assessed and included in each interim valuation. The fluctuations in the cost of materials are based on a schedule of basic rates of the principal materials agreed at the time of tendering. The list should contain such commonly used materials as sand, steel, cement, gravel, common bricks and other materials that the contractor considers necessary. The contractor will produce invoices for the materials used and from these the quantity surveyor will be able to extract the relevant quantities and prices in order to calculate the fluctuations. V. Unfixed Materials The value of unfixed materials is also included in the interim valuation. This value is usually based on a list prepared by the general foreman or clerk of works which can be checked on the site. The materials should be of the specific quality, be insured and properly protected and not be brought on to the site prematurely. VI. Retention Retention is generally expressed as a percentage agreed between the parties. The object of the retention is to create an incentive for the prompt and satisfactory performance of the work and to provide security for the client against default by the contractor.

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8 ). Explain preparation and evaluation of variations and fluctuations

I. Evaluation of Variations Variations may arise in any of the following situations. a) When the architect needs or wishes to vary the design or the specification b) When a discrepancy is discovered between any two or more of the contract documents c) When a discrepancy is discovered between any statutory requirement and any of the contract documents d) When an error in or omission from the contract bills is discovered The architect may order any variation that he wishes, the contractor is bound to carry out such an order only if it is in the form of a written instruction issued by the architect. If the contractor carries out any variation involving him in additional expense and the variation has not been the subject of a written Architects Instruction (AI), he runs the risk of being unable to recover the extra costs. There are several ways of valuing variations, the choice in a particular case being that which is appropriate to the circumstances. They are, a) By the inclusion in the variation accounts of a lump sum in accordance with a quotation submitted by the contractor and accepted by the architect. b) By pricing measured items in the variation accounts. c) By ascertaining the total prime cost of additional work and applying appropriate percentage additions. It should be noted that the JCT Form lays the duty of valuing variations upon the PQS, who has the right to decide which is the appropriate method and means of valuing them in each situation. Therefore, he is not bound to accept a statement on an AI to the effect that a variation is to be carried out on day work or to be paid day work.

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II. Evaluation of Fluctuations It was mentioned that the price of steel and cement has gone up by 60% and the other materials prices considerably increased. This situation can be taken as a fluctuation of materials. Therefore the quantity surveyor has a major responsibility to take necessary actions to evaluate these fluctuations. The adjustment is a list of materials (steel, cement etc.) with their basic prices. Both materials and prices may be entered by the contractor on a blank form attached to the bills at the same time as they are priced or the form may be required to filled in and returned with the for of tender. Sometimes, the above materials may be listed on the form by QS, the contractor adding prices when tendering. The prices on the list are intended to be industry prices current at the Base Date

and once the contract signed, they must be regarded as such anyway. Any fluctuations, to be allowable for recovery, must first, relate to materials named n the list and secondly, be due solely to changes in the industry prices. Such changes may arise from or include a change in tax or duty on a material or from either the abolition of existing duty or the imposition of new types of duty or tax.

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9 ). Explain the preparation and evaluation of other claims and documentation. No longer do quantity surveyors just measure and price work, they have more strategic activities to handle. Nowadays the QS is involved at all stages of a project from preparing tenders and planning costs to preparing final bills of quantities etc. Apart from these, the QS is entitled to evaluate the claims and to prepare the necessary documents such as, I. II. III. IV. V. Subcontractors documents Building maintenance documents Health and safety documents Quality assurance Insurance

I. Subcontractors Documents

Subcontractors will require the same details and information about the sub-contract works as the main contractor requires for his tender. Selection of subcontractors will take into account skill, performance, integrity, responsibility and proven competence in health and safety matters and for work of similar nature projects. The selection will be conducted by the senior management. In the same time the QS has to prepare the necessary documents on behalf of client or contractor.

II. Building Maintenance Documents

It is not inconceivable that quantity surveyors could become involved in building maintenance management encompassing building use, assessing the life of buildings and the effect of maintenance upon rental and capital values, maintenance surveys, and planning, programming, controlling and costing maintenance and repair work. The preparation of drawings, specifications and contracts for minor capital works may also be involved. Thus, this function more often falls within scope of the consultant quantity surveyor.

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III. Health and Safety Documents

According to the ICTAD/SBD/02, it is clearly mentioned how quantity surveyors & contractors can perform an effective role in promoting health and safety on a construction by setting up a specialist Health and Safety Division. The contractor shall designate a separate person to deal with safety and protection against accidents. The contractor shall send, to the QS, details of any accident as soon as practicable after its occurrence.

IV. Quality Assurance The contractor is mainly liable to institute a quality system to demonstrate compliance with the requirements of the contract. Thus, The QS is entitled to audit any aspect of the system. Details of all procedures and compliance documents shall be submitted to the QS (contractors QS) for more information before each design and execution stage is commenced.

V. Insurance Documents The contractor within 14 days from the letter of acceptance shall insure against each partys for any loss, damage, death or bodily injury which may occur to any physical property or to any person, which may arise out of the Contractors performance of the contract and occurring before the issue of the performance certificate. The contractors QS is entitled to prepare these documents. The client and the his QS shall also be indemnified under the policy of insurance, except that the insurance may exclude losses and claims to the extent that they arise from any act or neglect of the client or the clients personnel.

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Contractual Claims These arise from express terms of contract and form by far the most frequent kind of claim. The following claims can be achieved during the project.

a) Fluctuations. b) Variations. c) Extension of time. d) Loss and/or expense due to matters affecting regular progress of works.

a) Fluctuation Claims

It is mentioned that there was a major price fluctuation of several materials during the construction. Therefore, according to the ICTAD clause 19.1, the contractor is fully liable to gain a considerable claim from the responsible parties. To achieve this, the contractor should submit the necessary documents which are relevant to the claim to the QS.

b) Variation Claims

The contractor may claim that adjustment of one or more preliminary items should be made, though the QS has not included the adjustment in his valuation of a variation. For an example, an Architects Instruction changing the pointing of faced brickwork from pointing as the work proceeds to pointing on completion may require scaffolding to be left standing for a longer period than would otherwise have been necessary. If scaffolding is priced in Preliminaries (as usual), the relevant item should be adjusted.

c) Extension of Time Subject to the ICTAD clause 19.1, the contractor shall be entitled to an extension of the time for completion. The delay may occur by any of the following causes.

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i.

A variation or other substantial change in the quantity of an item of work included in the contract.

ii.

A cause of delay giving an entitlement to extension of time under the conditions of contract

iii. iv.

Exceptionally adverse climatic conditions Unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or

v.

Any other delay.

d) Loss and/or expense due to matters affecting regular process of works

If the contractor does formulate a claim or even if he just provides required information, he is much more likely to succeed in his claim if he makes a clear and orderly presentation of the data. It will not help the architect in forming an opinion as to the soundness of a claim or the QS in ascertaining the proper amount if they are presented with a jumbled mass of papers which it is virtually impossible sort out. Heads of claims may be any or all of the following,

i. ii. iii. iv. v. vi.

Insufficient use of labour and/or plant Increases in cost f labour, materials, etc. during the period of disruption. Site running costs Head office overheads Finance charges and interest Loss of profit

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10 ).

Explain the ways to communicate and negotiate to reduce disputes. When breaches occur in the performance disputes are likely occur. A dispute is essentially different from an opinion. A dispute is a result of unsettled conflict where the arguing parties are unable to settle their differences or reach a compromise. A dispute can arise at any stage of the above project.

Most common disputes are arising due to lack of clarity in the documents, poor communication & the lack of co-operation between the parties. The following disputes can be happened in any stage of a construction. I. Variations and value of variation II. Delay and extension of time III. Workmanship and material IV. Breaches of Conditions V. Defective work Alternative dispute resolution techniques are used to prevent and conclude the disputes in the construction. Dispute resolution techniques can be seen as from the most informal negotiations between the parties, themselves, to increase in formality and more direct intervention from the external sources to a full court hearing with strict rules of procedure. Alternative dispute resolution is a commonly used term to include a range of processors which involve the use of an external third party and which can be regarded as alternative to litigation. The most common techniques are as follows, i. Negotiation ii. Conciliation iii. Mediation iv. Adjuration v. Arbitration vi. litigation

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REFERENCE ghirardiconstruction.com/contractor_1.htm, 2010/01/21, 00:12 Quantity Surveying Practice book by Ivor H. Seeley, 2010/01/23, 14:47) (http://en.wikipedia.org/wiki/Quantity_surveyor Quantity Surveying Practice book by Ivor H. Seeley, pg 162-170, 2010/01/24, 11:35) (Major Contracts- second edition book pg 39-96, 2010/01/27, 15:01) (Contract Practice for Quantity Surveyors book by J. W. Ramus pg 160-165, 2010/01/27, 22:58) (Contract Practice for Quantity Surveyors book by J.W Ramus pg 99-136, 2010/01/26, 21:24)

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