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In the construction industry there are a number of key decisions to be made by the client that will shape projects from pre-construction to completion. This report reviews three key areas that will affect the contractual context in which the project must function.
Procurement Methods Available
"Methods of procurement play a vital role in defining and shaping contractual and work relationships between parties involved in the construction industry." It is therefore essential that selection of suitable procurement route is made correctly and to fully enhance the construction process. In order to select the most effective form of procurement the project context should be highly influential. Two of the main procurement methods that can be used for the hotel project are traditional and design and build procurement.
During the traditional method the client or employer has a high involvement with recruiting the workforce needed for the completion of the project. This will include professions such as quantity surveyor, architect, civil/structural engineers and any other designers. The Team of consultants are then used to provide documents such as the brief, budget and tender documents formed by the client requirements. The appointed contractor will be given this information and required to build the project to the stated specification, time period and budget. At this stage the consultants will create a contract with the contractor on behalf of the client related to design progress and client payments. Specialist firms and subcontractors used will become the main contractor's liability.
Due to the low risked nature of the traditional route of procurement this method suits more complex projects where functionality is the primary objective. However due to the sequential method of traditional procurement it is less suited to fast track projects. One of the main factors that differentiates this method from design and build procurement is the separation of the contractor from the design stages. In some cases this can lead to missed opportunities of specialist contractor input. Liability issues are another concern as unlike design and build projects contractual linkages are more complex.
The more modern approach of design and build procurement involves the contractor being responsible for both the design and construction of a project. The contractor's obligations also include providing all services labour and materials. After obtaining a bid the contractor will develop their concept further and a fixed price then agreed on. Due to the integration between design and construction processes projects benefit from specialist input and also speed of completion. However design and build projects have a poor capacity for variations due to the effect on the whole design and build contract. The tendering process is usually more expensive but overall cost certainty of the project is high.
Design and build procurement method provides a much clearer understanding of the contractual context as the contractor is now liable for both design and construction aspects. This method is suitable for all clients including inexperienced, and is most suited to fast track projects. A high accuracy of cost certainty can also be achieved and overall project understanding and organisation improved.
Possible forms of contract
Construction contracts available have been developed in order to fully meet the requirements of the modern construction industry and have been adapted to suit a range of situations and procurement methods. The most suited forms of contract for the procurement methods listed above includes documentation issued by the Joint Contracts Tribunal (JCT) and the Institute of Civil Engineers (ICE).
The standard building contract was issued by the JCT in 2005, and is regarded as the "industry standard". It consists of contract families made up of main and subcontracts. This core contract is intended for all aspects of work in the construction industry. The JCT SBC 05 (Joint Contracts Tribunal Standard building Contract Edition 2005) is highly suited to traditional projects, as this form continuously being kept up to date with modern practice and any difficulties amended. In response to more modern procurement methods JCT have also created the JCT Design and Build Form (JCT DB 05), this contract contains the client requirements followed by the contractor's obligations to undertake the design.
The ICE form of contract was created specifically for works of civil engineering construction. In contrast to JCT only one version of this contract exists. Therefore all documents are of equal weight and significance. In ICE contracts the engineer play a vital role as all work must be carried out to the satisfaction of the engineer, who will also have extensive powers of control and project direction. The ICE 7 form of contract is fully suited to traditional procurement projects. However due to the transition of design and build in modern projects ICE have also developed their own design and construct conditions (1992). These function by incorporating employer's requirements and the contractor's submission into the contract documents.
The ICE also produced the New Engineering Contract (NEC) in response to the growing improvement to contractual procedures and the opposing attitudes with the construction industry. The NEC compromises of a full suite of standard contracts that covers number of contractual issues. One of the main advantages of NEC contracts is its suitability with both construction and engineering projects and also to most procurement options. Another main objective was to accommodate for all levels of design responsibility in projects, which allows NEC to be used effectively for both the traditional and design and build method of procurement. I would recommend the use of NEC3 for the hotel project due to its vast compatibility, structured design and clarity with liability issues.
NEC 3 Compensation Clauses
In order to clarify under which circumstances changes to the original completion date and price are acceptable, the new engineering contract has developed compensation events. These clearly identify liability for both time and cost to specific scenarios. Overall there are 19 compensation events stated in the core clauses of the contract, which may be argued in more detail in the option clauses. The core clauses collectively cover a range of situations; covering areas such as design changes, unforeseeable circumstances and breaches of contract (see NEC3 60.1). In the order to qualify for compensation events some form of breech or error usually occurs from either the employer or project manager. The NEC 3 contract also allows provision for highly unlikely events, such as extreme weather or sites with historical interest. All the events listed in the core clauses 60.1 give the contractor entitlement to both additional cost and extension of time.
The process of resolving a contractor's entitlement to an extension of time or addition of cost involves a number stages set out in the contract 61 - 65. When compensation events arise from Project Manager or Supervisor decisions, the project manager must notify the contractor of the compensation event at the time of giving the new instruction. This stage is mainly affected by time constraints. After the compensation event has been discussed the contractor will then be given the responsibility of producing quotations within three weeks. These will compromise of the proposed cost implementations and any delay on key dates of the project.
Compensation events can then be calculated in terms of cost and time through "assessing compensation events". Final fees are calculated from the defined cost of work already done and the predicted defined cost of work to be completed. Any delays to key dates are also assessed at this time. This stage may cause some risk to the contractor, as after a project has began accurate forecasts of time and cost usually become more difficult. If the project manager feels the assessment has not been carried out effectively, or is not finished in time they will take responsibility for the assessment process. Finally the compensation event will need to be implemented. This is achieved through acceptance of the contractors quotation and notification of the project managers own assessment.