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In our daily life one of the controversial issues is construction damages. There are a lot of scenarios of construction damages that require a plenty of issues from its insurance. According to advice guide 2005 Buildings insurance covers the cost of damage to the structure of your property. Buildings insurance usually covers loss or damage that occurs as a result of: fire, explosion , bad weather, including lightning, storms and flooding, earthquakes , theft or attempted theft , malicious damage or vandalism , freezing or bursting of any part of the plumbing system , falling trees, lampposts, aerials or satellite dishes , subsidence and impact by vehicles or aircraft.
However, one of this scenarios which will cover it as this assignment is the client is a leading manufacturer of confectionery in the United Kingdom. They have suffered a devastating fire at their Sheffield factory.
The client's Insurers have authorised that rebuilding work should commence immediately and have now started to pay your Client "Business Continuity" insurance that is worth approximately £1.5m per month to cover both loss of profit and to allow products to be imported from another country for packaging and sale.
The site has already been cleared using an enabling works contract. It has now been decided that a single contractor will be appointed who is experienced and capable of undertaking this type of work. As an experienced Project Manager, my task to administer the rebuilding of factory rebuilding which currently is thought to be in the region £60m. The time scale and who you will use to achieve the delivery of the new building and process equipment to enable the manufacture of confectionery to re-start, including any trials, performance tests and commissioning at the earliest possible opportunity is for you to decide.
However, this paper will focus on this cause and will provide the client the appropriate solutions for his issue.
The requirement of the research aims to provide the best possible opportunity for achieving the suitable form of contract that is appropriate and will allow the delivery of the new factory as early as possible. Furthermore, investigate form contract chosen. Also, examine the number of contract and discount those that are inappropriate the reasons why. Second part, identify at least 15 of the parties who are likely to be involved in project of this type, and present a detailed organogram that shows who parties could be and identify the contractual relationships that might exist between them and suggest suitable types of agreement that reflect the size, type , nature and issues that might affect the parties involved. Last part, presentation the final contract and the relationships.
The reality is that although the three most important considerations for the client are usually time,cost, and quality. This need for careful balancing of priorities is recognised in many publications. Because of that the consideration of my scenario will be the time as first because the speed of rebuilding is very important in the client cause as the scenario mentioned as early as possible. The second consideration is the cost which is fixed price and the last one is the quality. (figure 1).
Overview of contract building
Building construction today often entails complex and intensive site operations, with huge sums of money locked into development programmes. Contractors may have partial of total design responsibilities, and in addition may undertake demanding management and coordinating roles; patterns of working have never been so diverse. This change of emphasis, together with the increasing range and scale of work, has inevitably led to proliferation of alternative forms of building contract both standard and purpose drafted.
type of procurement methods
In this part I will provide the different kinds of procurement method in terms of the main point which based on my scenario which is speed, quality and flexibility
Speed: not the fastest of methods. Desirable to have all information at tender stage. Consider tow stage or negotiated tendering.
Quality : client requires certain standards to be shown or described. Contractor is wholly responsibly for achieving the stated quality on site.
Certainty : Certainty in cost and time before commitment to build. Clear accountability and cost monitoring at all stages
Design and build
Speed: Relatively fast method. Pre- tender time largely depends on the amount of detail in the client's requirements. Construction time reduced because design and building process in parallel.
Quality : client has no direct control over the contractor's performance contractor's. Design expertise may be limited. Client has little say in the choice of specialist sub- contractors.
Certainty: There is a guaranteed cost and completion date.
Speed: Early start on site is possible, long before tenders have even been invited for some of the works packages.
Quality : client requires certain standards to be shown or described. Managing contractor responsible for quality of work and materials on site.
Certainty: Client is committed to start building on a cost plan, project drawings and Specification only.
Design and build
benefit in cost and quality but at the expense of time
benefits in cost and time but at the expense of quality
benefits in time and quality but at the expense of cost
As we can see in this compression table between the type of contracts the suitable form of my scenario will be management procurement because it is appropriate with the client cause
Basically such contracts concentrate primarily on the management expertise of the contractor and are particularly suitable for fairly large projects with complex requirements. There are many variants, ranging from the procurement of a building designed by the client's professional team on the one hand, to in addition playing a major design role, to also accepting a wider facilities management obligation to fit out and maintain the operation of a building for some specific period, and even perhaps playing a substantial role in the immediate funding of the project. Clearly in the majority of such cases, developers will have to look to forms of contract specially drafted to suit their requirements.
There are some standard forms available for use with the main management
Procurement options, as follows.
This is a 'fast track' strategy which overlaps the design and construction stages and enables early work packages to be placed before the design is complete. A management contractor is appointed by the client to manage the overall contract in return for a management fee. The management contractor, if appointed early before the design is complete, can advise on build ability, programming, sequencing and the procurement of the various works packages. The contracts for the works packages are between the management contractor and the individual trade contractors.
â€¢ Early completion is possible due to a shorter overall period with overlapping design and construction activities, even in complex buildings.
â€¢ While the Client maintains direct control over the design team, the management and trade contractors can contribute to early design development and improve the management and build ability of the construction process
â€¢ The management contractor assumes some risk for the performance of the trade contractors.
â€¢ Changes can be accommodated in let and unlit packages provided there is little or no impaction the overall project
â€¢ The final price and timescale are not fixed at the commencement of the works and do not
become so until the last work package has been let.
â€¢ The Client must have the resources and access to the necessary expertise to deal with
separate design consultants and the management contractor.
â€¢ It is unsuitable for an inexperienced and/or hands off Client as there is a risk of increased
costs and delays arising from ineffective administration.
â€¢ Construction management should reduce the overall project timescale by allowing
procurement and construction to proceed before the design is completed.
â€¢ The Client controls the design and changes can be accommodated in let and unlet packages
provided there is little or no impact on the overall project (timetable and/or budget).
â€¢ It can be applied to a complex building and has build ability potential.
â€¢ The Client contracts directly with trade contractors, which could result in lower prices and
allows poor performance to be dealt with directly.
â€¢ The construction manager can build better team relationships with trade contractors and
resolve disputes directly.
â€¢ The final design, price and timescale are not fixed at the commencement of the works and do
not become so until the last work package has been let.
â€¢ The Client bears most of the total risk including delays, disruption, design and its coordination
with construction; there must be a robust process for instructing and approving changes.
â€¢ The construction manager does not assume any risk other than negligence, is not responsible
for achieving programme and cannot instruct third parties.
â€¢ The design team must envisage both the totality and detail of the design at the outset,
accommodating uncertainty, procuring long lead-time items early and avoiding retrospective
This is also a 'fast track' strategy where works packages are let before the design of later packages has been completed. A construction manager is appointed by the client to manage the overall contract in return for a management fee and, as with management contracting, the project can benefit from the early involvement of the contractor. The contracts for the works packages are placed directly between the client and the trade contractors, and the client can expect to have a high level of involvement during the design development and construction phases of the work. As with management contracting, the final cost will only be known once the final works package has been awarded.
Design and construct
In a design and construct contract, a single supplier is responsible for both the design and construction of the facility. The supplier is likely to deliver the greatest performance benefits to the client through innovation and standardisation, where appropriate output specifications are used.
Where an output specification is insufficiently well developed, there is a risk that the quality, design and performance of the completed facility may be compromised. Careful attention to the output
Specification is required to achieve the required outcome. There may be some circumstances where the design and construct procurement option should be extended to cover maintenance and also possibly operation of the facility for a substantial period. By including the maintenance and operation requirements within a design and construction contract, the supplier has increased opportunity for adopting innovative solutions that provide greater value for money when considering the whole life costs.
design and construct
â€¢ Low tendering and preparation cost to the Client.
â€¢ Single point responsibility for design and cost risks.
â€¢ Potential for more economical construction due to early consideration of building methods
â€¢ Could result in a shorter overall design and construction period.
â€¢ The Client's requirements must be properly specified prior to signing the contract as Client
changes to the scope of the project, once let, can be expensive.
â€¢ The Client has little control over design and quality standards once the contract is let, as the
building is specified on a performance basis.
â€¢ Design liability offered by design and build contractors is limited.
â€¢ Design and build is unsuitable for complex, challenging projects.
Standard form chosen
As the analyse for the standard forms of management procurement the suitable form of the client scenario is management contract because of early completion is possible due to a shorter overall period with overlapping design and construction activities, even in complex buildings which achieve the main consideration that is the time.
An inappropriate standard form
As can be seen from the analyse of standard for the forms which inappropriate with a gavin scenario are construction management and design and construct as shown in the table
inappropriate contract forms
The final design, price and timescale are not fixed at the commencement of the works and do
not become so until the last work package has been let.
Management Contract forms
this part will provide overview as first for three proposal s of contract forms which are JCT, NEC and FIDIC after that I will make a comparative between them as advantage and disadvantages to chose the appropriate contract form which is suitable with contact scenario.
IChemE publishes two sets of forms of contracts for use in the process industries:
Forms for use in the UK
Forms for international use
Both sets have been drafted by a team of highly experienced professionals who are well familiar with process plant contracts.
Each form of contract handbook contains a model form of Agreement and General Conditions, together with detailed guide notes to assist the user in preparing a contract.
IChemE provides both public and in-company training courses in the forms of contract, and in basic contract law.
The IChemE Green Book provides a flexible mechanism for contracting in uncertain conditions. As a cost reimbursable contract the risk of all costs associated with the construction activities lies with the purchaser, and he is well advised to consider employing one of the various cost-targeting methods available in order to limit his liability. In itself the IChemE Green Book does not allow for such a provision and thus could be seen as somewhat 'open-ended'. Collaborative relations between the purchaser and contractor are advised (especially given the purchaser's exposure to costs), but there is no guidance how such relations should be established or maintained.
JCT MC 98
For 'fast-track' projects where the Employer still wants the overall design, Specification and contract administration left in the hands of an independent professional team, management contracts are one solution. Their use in the United Kingdom became popular during the 1980s, but in recent years they seem to have lost ground to construction management. Major client bodies have become more sophisticated and well able to handle the direct involvement associated with this latter type of procurement. In 1979 the RIBA Council, on the advice of its Contracts Committee, asked the JCT to produce a standard form of management contract. At the time, the only forms available were those devised by contracting organisations who pioneered this kind of working. These were often geared to suit the preferred working procedures of the companies, and understandably drafted with their particular interests very much in mind. In 1987 the JCT issued the Standard Form of Management Contract (MC87) together with related documents necessary for management contracting. The main documents were the head contract between the Employer and the Management Contractor, and Works Contracts between the Management Contractor and each 'Works Contractor' carrying out a package of the work.
NEC is a modern day family of contracts that facilitates the implementation of sound project management principles and practices as well as defining legal relationships. Key to the successful use of NEC is users adopting the desired cultural transition. The main aspect of this transition is moving away from a reactive and hindsight-based decision-making and management approach to one that is foresight based, encouraging a creative environment with pro-active and collaborative relationships.
NEC2 was published in 1995 and was increasingly the contract of choice of many organisations in the United Kingdom. NEC3 is the result of feedback from industry on many years of successful use and is the first time that the complete integrated set of NEC documents have been launched at the same time.
NEC is a family of standard contracts, each of which has these characteristics:
Its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract.
It can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location.
It is a clear and simple document - using language and a structure which are straightforward and easily understood.
NEC is an integrated set of contract documents that are designed to provide Client and their suppliers with project-focused outcomes. The intention is that use of NEC will lead more frequently to achievement of Clients' objectives for all projects in terms of its ultimate quality, performance, cost and time aspects. It should also be possible to set more rigorous targets for these objectives with greater confidence in achieving them.
Comparison between forms of contract
IChemE Green Book (ICE)
â€¢ Clarity of contractual risk and project management.
â€¢ Complete flexibility - design development and Purchaser participation practicable.
â€¢ Purchaser/Contractor conflict of interest is minimized.
â€¢ Purchaser has control over costs incurred.
â€¢ Lengthy enquiry preparation time to prepare clear and complete specification and bid documentation.
â€¢ Cost to Purchaser may be unnecessarily high due to contingencies for risk and escalation.
â€¢ Contractor has no monetary incentive to minimise cost to Purchaser.
â€¢ Purchaser has no assurance of final cost.
One particular advantage is that Management Contractor can package and resource the works, utilising his own expertise, by overlapping activities and thus expedite the completion date.
â€¢ Management contracting can be more expensive than other forms of procurement because the management contractor has no incentive to keep the costs down
â€¢ The management contractor has little or no responsibility for the costs of the works
â€¢ The risk of increased costs has been removed from him and is carried by the client. The management contractor has no incentive to minimise the projects costs.
â€¢ Flexibility, clarity &simplicity - a stimulus to good management;
â€¢ Teamwork, single point responsibility and awareness of risk;
â€¢ Provides appropriate contract strategy and risk placement;
â€¢ PM presented with options for dealing with problems;
â€¢ Price changes based on quotations - no surprises;
â€¢ Up-to-date realistic programme used in joint decision making;
â€¢ Increased likelihood of mutually satisfactory project; and
â€¢ Improved cost certainty for the parties.
â€¢ Few legal precedents;
â€¢ Must be pro-actively managed - problems must be addressed as they arise;
â€¢ Different approach in contract administration required;
â€¢ Needs a different mindset - not "us and them".
This table shows that the main advantages and disadvantage for contract forms.
As u can seen the best type of contract form that suitable with client scenario is the NEC3 because of:
It is appropriate with the main aspect for the scenario which is the time as a given scenario
Flexibility: means that the NEC can be used for any type of construction work, any contract strategy, and work on any scale in any place. The NEC can also be used for all the contracts needed on one project. These may include contracts for main contractors, subcontractors and professionals.
Clarity and simplicity mean that the NEC uses a simple structure, simple language, simple procedures and clear risk allocation.
Stimulus to good management means clear roles, joint decision-making, proper motivation, a forward-thinking culture and controlled outcomes in terms of cost, time and function of the completed project.
An inappropriate contract
The contracts forms which are inappropriate for the client scenario are IChem and JCT due to
the most important factor is money but not time which is the prime factor for us.
procurements method is long and lengthy.
For the contractor there is no consideration and regard for the early completion of the project.
Finally the settlement of the dispute is not through arbitration but in court.
Options of NEC3
The contracts consist of nine 'core clauses'. These are known as the 'main option clauses': and will examin the main aspect for eaxh which are quality, variation in plan, variations in cost.
Option A: Priced contract with activity schedule.
Variations in plan: low
Variations in cost: high
Option B: Priced contract with bill of quantities.
Variations in plan: medium
Variations in cost: high
Option C: Target contract with activity schedule.
Variations in plan: medium
Variations in cost: medium
Option D: Target contract with bill of quantities.
Variations in plan: high
Variations in cost: medium
Option E: Cost reimbursable contract.
Variations in plan: high
Variations in cost: low
Option F: Management contract.
Variations in plan: low
Variations in cost: low
From the above clear that, Option F has the best match with selection criteria of the given project scenario.
Reasons for selection of option F are as follows:
1. As per the scenario the factory has collapsed due to fire which means a new design is needed for the rebuilding as the SBC value will be lowered, If the contractor is appointed for both execution and design work it may take more time for the completion and if contractor does both the jobs then there are chances of bad quality of work.
2. In the selected option client and insurers can appoint consultant for the designing and supervising contractor work, and the program manager can take care of the things with consultant and contractor to report to client and insurer, with this the three aspects of time, quality and cost can be managed.
An organizational chart (often called organization chart, org chart, organigram is a diagram that shows the structure of an organization and the relationships and relative ranks of its parts and positions/jobs.
An organizational chart of a company usually shows the managers and sub-workers who make up an organization. It also shows the relationships between the organization's staff members which can be one of: Line - Lateral - Staff - Functional.
This part will provide the orgaogrm chart for the parties and the relationship between them
Organgram is the graphical or 1 can say as the flow chart of the staff or parties involving in the project, as the project is huge so it will have lot of parties. As per the organ gram shown above the insurance company have the direct dealing with the client for the commencement of the project and as per the scenario its mentioned that the client and insurance company will decide to go for a main contractor who will be responsible for designing and execution work, as there are no other parties for design but the contractor itself responsible for it then its most important that the contractor selected is good and have both design team in head office and construction team on site, the work of the contractor will be checked by the client and also with the officials of the insurance company (mostly the monthly bills for the insurance company).
The design department of the contractor includes
Designer and Structural Engineer: Architect make the architectural drawings for the project, but this only possible if the architect have discussion with structural engineer as its very important for the architectural drawings to be matched with the structural drawings. The designer may get the feedback from the Civil, Mechanical and electrical engineer. Structural engineer will get guidance or help from the assistant engineers.
The construction department of the contractors includes
Project Manager: The PM is the main or key person from the contractor side as he is the 1 who leads the contracting team. All the decisions from the contracting side will be taken from him.
Civil Engineer: After the PM civil engineer will take the charge as he will be responsible for execution work on site.
PMCS dept: It pure based to submit official documents to the client and the consultant and submittals may include daily, weekly reports, site reports, RFI's etc.
Equipments: They are the driving resources for any contractor, as with out machinery no work can be done, a contractor is said to be strong if has more equipment power. Maintenance of equipment is the important task for any contractor.
Sub contractors: They comes under contractors vicinity and shares the contractor's work, they are required to report to the contractor. Sub contractor will have there own separate staff depending on the type of the project.
All the relationships mentioned here are from the mention organisation chart and the main relationships are as follows
Insurer and client: Insurer is directly connected to client as they are paying for client's work and will be in discussion with client for any decision.
Insurer, client and contractor: Contractor has to follow the instructions from both the parties and client as well the insurer will inspects the contractor's work.
Design department and construction department from the contracting side: Like the name suggests design team is responsible for the designing work and will include designer, civil, mechanical, electrical engineers for the architectural part and will have structural engineer, asst engineers for the structural designing part. The construction department is meant for the execution work as per the design from the design team and will include Project manager, Civil engineer, Site supervisor, PMCS dept, resources and the sub contractors.
Contractor and subcontractor: As mentioned earlier subcontractor are those who shares the contractor's work partially for the subcontractor contractor is the client
In conclusion this paper has been shown that the process of chose contract form and examine the relationship between parties to solute scenario as given which was a devastating fire at their Sheffield factory and the client required was rebuilding this factory as early as possible. The process which taken to chose contract form made it by two parts.
The first part was covered the process to chose contract form. Firstly to examine the suitable procurement method and the appropriate procurement was management procurement. Secondly, management procurement has three standards forms which were contract management, construction management and design construct and the best standard which suitable with client scenario was contract management. Thirdly, contract management include three forms of contracts which were icheam, JCT and NEC. The appropriate form of the client scenario was NEC . the NEC were suitable with the client requirements which are the time as a main aspect , cost and quality . the benefits of the NEC form are flexibility , clearly and stimulus. NEC has a plenty of options and the suitable option that achieve client scenario was the option F : contract management .
The second part has been analyzed that the main parties who are involved on this type of project as an organization chart and presented the organ gram which is illiterated the different parties and relationship between parties. The main contractual relationship were Insurer and client Insurer, client and contractor, Design department and construction department from the contracting side and Contractor and subcontractor.