Comment: Collaborative Contracting

Prabhakar Kesavan, commercial director for Voltas, provides solutions on working collaboratively

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Prabhakar Kesavan, commercial director, Voltas.
Prabhakar Kesavan, commercial director, Voltas.

"FIDIC is more abused than used in the region”, a couple of over 40 year’s industry veterans in our company have long maintained this expression and several of us may agree with this.
One is all too familiar with the pattern of delays (both in progress and payments), disputes, protracted and expensive resolution processes, with the Middle East earning the dubious distinction of rapidly moving up league tables on these matters.
This article is not intended to point fingers or blame anyone in a construction project. It intends to express concerns that we share. It attempts to seek consensus on issues, possible root causes, potential solutions and, importantly, the collective and individual roles that all players, from the developer through to the last link of the supply chain, play in contributing to improvements. 
We are, on the one hand, blessed to be in a region that continues to see the announcement and award of several projects of substantial values. On the other hand, we continue to hear of projects being stalled, delayed and all participants being severely impacted. Arguably, when things go wrong, no-one wins and, the biggest loser is the project itself. Of course, there are several positive instances and we will do well to learn from these too.
Economic cycles and geo-political factors make for a challenging business environment and the construction industry is not immune to this. These are macro-factors and there is not much that we can do other than adapting to the ‘new normal’ and focusing our energy and effort on things that we can control.
Some thoughts below on matters in our minds, with a suggestion that these are discussed and debated in an appropriate industry forum towards, even if gradual, changes and improvements:
1. All of us will agree on the need for a project to have a viable business case for it to be eventually successful in all aspects. Faced with the unenviable task of dealing with an ever-evolving and dynamic environment, developers and funders will be conscious of having to ensure a disciplined approach to their feasibility studies, budget and funding arrangements. Clause 2.4 of the FIDIC Red Book (1999 edition) allows for the contractor to request and obtain proof of financing arrangements from the employer. Against current practice of this clause being deleted, adaptation of a balanced version of the clause may go towards improving discipline and providing assurance to all.  
2. We know that the design, or pre-construction phase, is critical for smooth execution of a project. With ‘Build Only’ contracts more prevalent in our region, architects and design consultants play a crucial role by ensuring the availability of an adequately complete design prior to issue of tender. This will allow for refining budgets, arranging funding to suit, competitive bidding, apple-for-apple pricing comparison, quick engineering drawings and material approvals and smooth construction progress with fewer changes and related impact.
3. Possibly in response to past disputes, contract documents and conditions issued by employers are increasingly onerous in an apparent transfer of risks to contractors. It is not uncommon that even in ‘Build Only’ contracts, one can now see requirements such as ‘contractor to verify design and take responsibility for errors’, ‘price to allow for both stated and implied requirements’, ‘installations to be fit for purpose’, ‘Contractor to be responsible for workmanship and material quality issues well beyond Defects Notification Period’ and ‘Priority of Documents does not determine scope and the highest requirement in of the documents will apply’. We also come across clauses such as ‘no compensation for changes in legislation after tender’, ‘no financing charges or suspension rights for delayed payments’, ‘limiting non-responsibility for Consequential Losses to the Employer only’, ‘Employer’s assignment and novation rights without consent’, ‘extension of time without costs even for reasons out with the Contractor’s control’ and ‘termination for convenience’. In fact, even where FIDIC Conditions are issued as General Conditions, the Particular Conditions are quite often longer than the GCOC! Employers’ legal advisors will be aware of the need to advocate the use of a balanced set of contract conditions with logical allocation of risks. Contractors, while, perhaps, needing to accept part responsibility for past actions leading to a hardened stance from employers, could be firm while polite in pushing back against some conditions. As contractors, we are open to accepting requirements where they can be priced in with reasonable certainty or insured and also minimizing qualifications in bids, to facilitate an easier and quicker process.
4. Contractors’ focus should be on ‘execution, execution and execution’! This starts with contractors avoiding taking on projects beyond their capacity, price under-cutting, unnecessary RFI/Cs to buy time and frivolous or exaggerated variation and other claims. This also includes ensuring trained and adequate staff and workforce, improved productivity, automation and timely payment of salaries and fair treatment of the supply chain down the line.
5. Last but not the least, is the need for a collaborative approach with objectives of problem avoidance and solving. Some of these are: a clear Schedule of Attendances between various contractors; workshops with consultants for quick approval of engineering drawings, material submittals and variations; RFI/Cs from contractors along with suggestions for solutions and; NCR/Site Memos/Defects IR signoffs by the engineer’s representatives during site walks. Establishing and maintaining good relationships among all project participants, with agreed ground rules, pulling together in the same direction and avoidance of blame games will be of benefit to all. The establishment of an appropriate Industry forum including an ‘ombudsman’ role within it, akin to those in advanced environments, will be a step in the right direction.
We are all in the construction industry for the long run and are responsible to our Investors and Boards for sustained profitable growth. The region offers plenty of opportunities and so working together in a collaborative way to improve the contracting environment will benefit all players in the industry.

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