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SLQS JOURNAL

SRI LANKAN QUANTITY SURVEYORS

Volume 3 - September 2009

SLQS Journal

The Forum of Sri Lankan Quantity Surveyors Across the Globe

Volume 3 September 2009

Editorial Committee
Ajantha Premarathna FRICS, FIQS(SL), ACIArb.
Dhammika T. Gamage

NDT(Civil Eng.), ICIOB, ACIArb, AAIQS, MIIE(SL), IEng, FACostE, FCInstCES

Kamal Paranawithana BSc (Hons), MRICS, ACIArb


Lakshman Gunatilake MCInstCES, MACostE, ACIArb, MIIE(SL), IEng,
Ranjith Disanayaka BSc(QS) Hons, MRICS, MCIArb

Editorial Policy
We, the editorial committee reserve the right to select, reject, edit, and excerpt articles at our sole discretion. We will
publish no article which, in the opinion of the editorial committee, can be reasonably interpreted as insulting or offensive
to any individual or group. We will not return unsolicited manuscripts. The opinions expressed in articles contained in the
SLQS Journal are the opinions of individual authors and not necessarily those of the SLQS Journal editorial committee.
Articles are provided for the general interest of the quantity surveying and contract administration community, but the
information contained therein does not constitute legal advice and should not be relied on as such. Neither the SLQS nor
the individual authors assume any responsibility for the accuracy of information reported.
The editorial committee assumes no responsibility for failure to report any matter inadvertently omitted or withheld from
it. The mode of citation utilised within the articles and for the bibliography would be the Chicago method.
Email your own creations to journal@slqs-uae.org with your passport size photograph and brief profile of yourself which
should not be more than 35 words.

September 2009

SLQS JOURNAL
CONTENTS

Page

Editorial
The Quantity Surveyor and the Law
Edward Jayathunga AAIQS

Facilities Management An Introduction


W B Elmo F J Fernando FRICS, FIE(Aust), CPEng, F.ASCE, MCIArb, FIQS (SL)

12

Application of Cost Engineering Techniques during the Global Recession


Gamini Dayaratne MACostE, AACE

16

Tender Procedure- Criterion Influencing the Decision to Tender


Ranjan Dommanige TCInstCES, HND(QS)

22

Is the Regional Engineer Fair Enough in Dealing with Variations?


Prabash Miriyagalla M.Sc., Dip. in Eng.

27

Implementation of Knowledge Management Processes and Practices in


Construction Industry
Vijitha Disaratna BSc.(Hons)QS, MBA, MRICS, ACIArb

35

Time for Completion in Construction Contracts


Senerath Wetthasinghe LL.M, AAIQS, FCIArb, MQSi, ACIOB

40

Arbitration and its Development in the UAE Construction Industry


E.A.Thusitha P. Edirisinghe B Sc (Hons)QS, MCIArb, CCE, Pg Dip (Arb & Const. Law)

50

Is FIDIC-99 Contractor Friendly?


Ajantha Premarathna FRICS, FIQS(SL), ACIArb

57

Sri Lankas Ombudsman Schemes


Dr. Wickrema Weerasooria
LLB(Ceylon), PhD(London), Attorney-at-Law Sri Lanka, Barrister and Solicitor Australia

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SLQS JOURNAL

September 2009

Editorial
Dear Sri Lankan Quantity Surveyors
I am writing this editorial the day after the most successful Continuing Professional Development
event in the history of Sri Lankan Quantity Surveying, the programme, Variations and Valuation
of Variations under the ICTAD and FIDIC Forms of Contract, conducted by Prof. Indrawansa
Samaratunga, held at the BMICH- Colombo, on 31 August, 2009, with over 600 participants.
This most pleasurable event was the beginning of the commemoration of the Silver Jubilee of the
SLQS UAE get-together.
We wish to thank all those of you who were behind the overwhelming response of instructive, highquality articles to our request; all of those articles were a tremendous pleasure to read. Also, it was
with great satisfaction that we observed the outpouring of interest generated by the participants
of the recent training course conducted by SLQS-UAE, Sound Contract Administration, by
providing many articles which will be published in future issues.
In the last journal, from the readers perspective, one of the most noteworthy articles was Construction
Contract Arbitration by Renchen Perera, due to its rich content blended with simplified language.
Likewise and also of timely necessity, Ajantha Premarathnas article of Is FIDIC 99- ContractorFriendly ? would be considered of similar rank.
We trust that it is essential to remind you that this journal is designed to encourage interest in
all matters relating to contract administration, with an emphasis on matters of theory and onboard issues arising from the relationship of contract administration to other disciplines in the
construction industry. The subject matter of the articles will consist mainly of, but not be limited
to contractual matters.
Also, questions were raised on the appropriate length of the articles. We should say that as we have
many submissions of high quality than we may be unable to accommodate within one volume, the
ideal length is less than 5,000 words. There have been concerned about the size of the print (fonts).
Due to various constraints, we restrict the number of pages we can print and if we increase the font
size, we would be forced to reduce the number and length of the articles.
The topics written upon in this journal are those submitted by your peers and various highly
experienced and qualified industry professionals and academics of today. Articles included in this
journal, which have been arriving from the very large number of Sri Lankan quantity surveyors
living and working across the globe, are those felt to be relevant to our entire readership, either
personally or professionally.
We eagerly anticipate future articles from you, our readers, for our forthcoming journal, the Silver
Jubilee special edition.
On behalf of the editorial committee,
Dhammika T. Gamage

September 2009

SLQS JOURNAL
The Quantity Surveyor and the Law
Edward Jayathunga AAIQS

Edward attached Bond Communications as Chief Quantity Surveyor since 2008, prior to that he served
Gardiner and Theobold International as a Senior Quantity Surveyor over a period of ten years leading the
Electromechanical quantity surveying team

Introduction:

Quantity Surveyor (QS) in practice deals with his/her


employer, the employers clients, and different parties
when performing his/her duties. His/her involvement
for the project may vary from the concept design
stage by preparing conceptual cost estimate to the
settlement of disputes of the project. This includes
preparing of preliminary cost plan, Bills of Quantities,
tender evaluation, project financial and contractual
administration, disputes resolution etc. When proceeding
in the above long and complicated processes, QS would
have to make many important decisions and measures
in terms of commercial, financial, or contractual nature
and that affects many other parties in their business. This
perhaps could decide whether a party wins or loses a
project, and also it may affect the partys existence in the
business or its exit! It is therefore, very important that
the Quantity Surveyor must always be without prejudice,
be knowledgeable and be up dated with all aspects of
modern practice in the profession regularly and apply
this knowledge in his regular practice; act impartially, and
his decisions must be neutral, fair and reasonable always
to both the parties in the contract. It is obvious that
there is a party who pays for the QS for his/her service.
However; he/she should not act in an unfavorable and
un-lawful manner towards the pay master who will be
influenced similarly in return. It is also very important
for the QS to maintain integrity at any cost. Therefore, it
is very important to understand how the law affects the
QS in practice. Quantity Surveyors very often deal in the
following areas.

Contract/Employment agreement:

Professionals may some times find themselves in difficulty


by undertaking or assigning work to others by means
of verbal/gentlemen agreements, or upon incomplete

written agreements. If the agreement or the contract is not


a clearly worded document, or contains ambiguities, the
parties will be in a situation that would lead to disputes
in a future day when the agreement or the contract is
in process or after the completion of the process. Thus,
it is very important first of all, to have a properly and
specifically worded agreement in place. Appointment of
the QS is normally made directly by the employer or on
the advice of the architect or by any other agent with the
knowledge of the principles. It was held in Waghorn vs.
Wimbledon Local Board that the architect was instructed
by the client to call for tenders; however, without having
quantities it was not possible for the architect to call
tenders and accordingly, the architect was advised to
appoint a QS under the standard terms of the RICS
(since this is mentioned for the first time, its better to
spell it out.).
There is no legal requirement to have a written agreement
between the QS and his/her employer. However, in the
event of a dispute, the relationship between the parties has
to be established for the litigation and it is very important
for the courts to understand the clear intention of the
worrying parties where, written agreement or recorded
contemporaries bring a strong impact on the case. The
nature and the existence of the agreement has to be
established by using standard form of appointment, form
of agreement, terms and conditions of appointment etc,
that are published by the Royal Institute of Chartered
Surveyors (RICS) or any other standard methods which
are in practice today. Whatever the way we contracted, the
important thing is to ensure that a valid, comprehensive
and adequately evidenced contract must exist between
the parties. This is very important as many people are
regretting that their verbal and even written agreements
not having an opportunity to revert once agreed and

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SLQS JOURNAL
many gentle agreements are breached by not delivering
as promised. When professional services are provided, the
intention is clear that the professional body or the person
must be paid for the service provided. In the example, H.
M. Key & Partners vs. M. S. Gourgey and others (1984)
in the UK, it was said: the ordinary presumption is that
a professional man does not expect to work unpaid for
his services. Given that all relevant terms are settled and
agreed, incorporated in a formal contract, the intention
of the parties may still be frustrated by a failure to express
the terms clearly.
Who are the parties a QS is involved with when performing
his/her routine duties? The first party is the employer or
the paymaster of the QS, with whom he is having an
agreement of employment and who assigns duties to
him. His duties and responsibilities must comply with
the terms and conditions of the employment agreement,
codes and conducts of the organization, moral and cultural
understandings of the organization and fellow co-workers
etc. Then the QS deals with the employers, contractors,
sub contractors, consultants, local authorities, insurance
agents, banks, material suppliers etc. at the work place
and with relevant professional institutions and their
ethics, professional codes and conducts. The following
(figure 1) illustrates patterns of contractual relationships
and links existing between various parties of design and
procurement teams.

Under the English law, it should be noted that only the


parties in the main contract, namely the employer and
the contractor might be sued. According to the JCT-1998
form of contract, the contracts between the employer and
professional services are based on standard professional
agreements formed by respective institutions. However,
there should be collateral warranty, which would permit
the employer to sue a subcontractor or a supplier directly.
Not withstanding the absence of a contractual link, the
employers professional advisers could become liable to the
contractor in tort. Therefore, if the architect was to exceed
the limitations of his authority without the knowledge
of the contractor, the contractor could recover any loss
suffered as a result of the actions of the architect.
In terms of negligence, similar to the many other
professionals, Quantity Surveyor too has responsibilities
and duty of care towards his/her client to carry out his
work with due diligent, proper care and skill as per signed
agreement. Where the law is concerned, negligence usually
consists either of a careless course of conduct or such
conduct coupled with further circumstances, sufficient to
transform it into the tort of negligence itself.
In the English law, this requirement is clearly interpreted
under Supply of Goods and Services act 1982. Accordingly,
if a QS fails to fulfill his/her duties deliberately or due to
negligence, the liabilities come into effect and he must

Figure 1- Contractual relationship of the QS

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SLQS JOURNAL
pay the damages. As discussed above, Quantity Surveyors
duties and responsibilities as well as the liabilities and
consequences in the event of the failure, must be stated
as a part of their service agreement. In the case of lack of
care in delivering or discharging his contractual duties
the QS can always be held responsible and is in breach
of contract as per the 1982 act. For this reason, it is very
important for the QS to perform with diligence and due
care. For further protection however, it is advisable to have
a Professional Indemnity Insurance Policy (PI) in place to
cover any negligence.
What is the indemnity policy and its coverage? Professionals
are advised to have some method to cover the liabilities
for loss or damage in the event of any negligence caused
by them. PI has become more popular in these days than
before, as it can share the liabilities for possible losses.
Such a policy will provide an indemnity in respect of
legal liability for errors and omissions done or committed
by professionals. PI is compulsory in many professional
organizations; the RICS has introduced a compulsory PI to
be effective for its members since January 1986. However,
freedom of choice is with the members, and where to place
such insurance remains open. Generally, all professionals
must seriously consider the importance of this in todays
complicated market conditions, and in particularly to
those who are willing to start their own businesses.
As discussed and shown in figure 1 above, the contractual
link is very important and effects for claims or suing against
negligence. Liability is considered independently. If there
is no contractual link between the parties, a third party can
sue only in the tort of negligence. However, plaintiff suing
in negligence has to show that:


The defendant had a duty of care to the plaintiff


The defendant was in breach of that duty
The plaintiff suffered damage due to the breach of
that duty and kind which is recoverable

In line with the above, in the case Junior Books Ltd vs.
The Veitchi Co. Ltd (1982), the House of Lords held that
a specialist flooring subcontractor was liable in negligence
for defective flooring to the employer with whom a
subcontractor had no contractual link or relationship. There
are not much cases of law concerned with the negligence
of Quantity Surveyors. However, it is advisable to have a
PI cover which may limit the risk involved. According to
the RICS code of conduct, a surveyor should never accept

work on ad hoc basis, but should always seek to formalize


the process in some way.
For a QS, it is very important to identify and have a
thorough knowledge of the contract documents. The
contract should very clearly, unambiguously state and
include which documents are forming a part of the
contract. In construction industry, this may include the
following among others:







The Contract Agreement (if completed)


The Letter of Acceptance
The Tender
Conditions of Contract
The Specifications
Contract Drawings
Bill of Quantities (BOQ)
Any other document forming part

It is important to state the language or languages, in which


the contract documents are written. In the event of more
than one language is used in the contract document, the
ruling language and who is interpreting etc, must be
stated. Further, there are several documents in the forming
part of the contract, and it is inevitable to have ambiguities
because of different documents and accordingly, the
priority order for documents (which shall take precedence)
shall be given unless stated otherwise. Following cases
illustrates how important the contract documents are in a
construction contract:
In a lump sum contract the contractor is liable to complete
the project complying with drawings and specifications.
In Williams vs. Fitzmaurice (1858), a lump sum contract
to build a house was awarded to the contractor and he
agreed to complete the works with supplying all materials
as necessary. However, it was found later that flooring was
omitted in the specification and accordingly, the contractor
has demanded additional payment to do the flooring. It
was held that the flooring was necessary to complete the
work despite mentioning it or not in the specification.
In Davis Contractors vs. Fareham UDC (1956), the
contractor had signed the agreement to built 78 houses in
eight (8) months for a fixed price, subject to the adequate
supply of labour in the market. However, this qualification
was in a separate letter, which was not forming a part of
the agreement. In the process of the work, there was an
unexpected labour shortage in the market and delayed
the project causing an additional cost of 17,000.00

SLQS JOURNAL
to the contractor for the prolonged period. It was held
that the contractor himself should absorb this additional
cost because the aforesaid letter of qualification was not
forming a part of the agreement.
Quantifying of project scope is a fundamental duty of QS
and therefore, a measurement of work is very important and
this is to be done in accordance with Standard Methods of
Measurements published by widely accepted international
professional institutions like Royal Institute of Chartered
Surveyors. When following an internationally accepted
(standard) method by all parties, it is acceptable and
clear to all users how and what work has been measured
as parties are talking in the same language. Therefore, a
professional QS must follow these standard methods of
measurements in practice. Following are widely accepted
methods currently in use:
SMM 7 -Standard Method of Measurements by RICS
POMI -Principles of Measurements (International) by
RICS
CESMM 3 Civil Engineering Standard Method of
Measurements by Institute of Civil Engineering UK

Bill of Quantities (BoQ) is another standard and

important document that is used in the industry, and this


provides a basis for estimating, price comparison, budget
control, and contract administration guides. This is a very
important and useful controlling tool at the tender stage
as it provides uniformity for quantities for all tendering
parties. In measured (re-measurable) contract (JCT 05,
ICE 7), quantities are considered as approximate and shall
be measured at the completion of the works, whilst JCT
standard is for quantities, not required to re-measure.
In a lump sum contract, quantities are not subject to be
changed under normal circumstance and rates given in the
BOQ are used to asses the progress of work for payment
and pricing of variations.

Standard forms of contract are general and very

important for all types of projects and parties use them very
familiarly with the contents of the form of contract; by using
widely used standard contract conditions, the contractor
and the employer are aware of their common obligations
and responsibilities towards the contract from the initial
stage to the settlement of final accounts. The contract
administration is the core function of the QS, where he/she
has to apply internationally accepted contract conditions;
RIBA, JCT, NEC, GC/wks/1, FIDIC etc, are some of

September 2009

them. However, some countries and different authorities


perhaps in the same country follow their own contract
conditions. Most of them had modified standard contract
conditions to suit their local/domestic requirements e.g.
ICTAD in Sri Lanka. Dubai Municipality, Dubai Civil
Aviations, Dubai Properties, Nakheel etc, in the UAE, are
having their own contract conditions and thus heading to
a complicated situation according to the writers personal
view. Therefore, it is very important for professionals in
practice to follow standard contract conditions not only
to mitigate or/and resolve disputes but also to keep the
profession in a greater position. Notwithstanding different
forms of contract being used amongst many, there are some
common clauses experienced day to day in the construction
industry, particularly by Quantity Surveyors:
Performance Security Bond - If the employer requires,
the contractor shall provide a valid performance bond
by using standard formats within an agreed period (as
per FIDIC, this is 28 days after receipt of the Letter
of Acceptance), in order to assure the proper and
timely performance of the contract scope. This is for
the employer to allow recovery of monies from the
contractor in the event of breaching the contract by
contractor. It is worth to read the following two cases
to understand how effectively the law is playing in two
different ways for two similar incidents.
Case-1: Trafalgar House vs. General Surety (1995), the
House of Lords reversed an unwelcome decision of
the Court of Appeal that a conditional bond was to
be treated as an on-demand bond. Default by the
contractor has to be demonstrated. However, in Perar
vs. General Surety (1994) the Court of Appeal came
to another surprising decision. The defendant had
provided a bond by which they agreed to pay damages
in case of contractors default. The contractor went
into administrative receivership, and his employment
was automatically determined. The Court held that
default meant breach of contract and that insolvency
did not constitute as default. Therefore, bond provided
no protection in precisely the circumstances in which
it was needed.
Case-2: De Vere Hotels Ltd vs. Aegon Insurance Co Ltd
(1998) is an attempt by a contractor to escape from his
liabilities; the bond in that case stated that the contractor
was to be released from his liability on issue of certificate
of completion. However, before completing the work,

SLQS JOURNAL
contractor who provided the bond became insolvent
and his employment was terminated automatically.
Prior to issuing the certificate of completion, the
employer had brought in another party to complete
the work and the certificate of completion was issued
after that. The plaintiffs made a claim on the bond, but
the defendants refused to pay on the basis that their
liability ceased on issue of the certificate. The intention
had been that the bond should remain in force to
protect the employer until the original contractor had
completed the work. This had not happened because of
its insolvency. The purpose of the bond was precisely to
guard against such an event. The court therefore held
that the bondsman is liable and the contractor could
not escape from paying the damage to the employer.
Programme - For the execution of the work, the
contractor must give a programme using standard
forms, and the method he proposes to adopt to
execute the work. The contractor has to comply
with the programme and he is liable for any failure in
completing the programme due to reasons within the
limits of his control. In such a situation the contractor
has to pay liquidated damages and other consequences
associated.
Possession The date or dates (if more than one) by
which the contractor is to be given possession of the
site enabling him to commence the work; liabilities
and consequences are given for either party in the
event of failure to give or take the possession.
Completion and delay In the Appendix to the tender,
a particular time for completion of the work is to be
stated for whole or parts of the work as appropriate and
this may be extended by the contract administrator/
employer under certain acceptable circumstances. In
the event that the contractor fails to complete the work
by this date (original or extended completion date),
the contractor has to pay compensation for liquidated
damage to the employer and if there is a delay from
the employers part requiring an extension of time, the
costs are to be awarded to the contractor by employer.
Liquidated damages (LD) - This must represent a
genuine pre-estimated value of the losses that will be
suffered by the employer due to the non-completion of
the work by the contractor on time. Courts usually do
not uphold this pre-estimated figure of LD.

September 2009

Defects Liability - Defects for which the contractor is


liable under the terms of the contract to be rectified by
the contractor. Failure to do so will result the employer
in bringing a third party to complete the work and
the cost to be deducted from the monies due to the
contractor. However, the employer should not prevent
the contractor from rectifying the defects for unfair
advantages or benefits because then his rights to recover
the costs from the contractor under the contract may
cease.
Variations This could be any addition or omission to
the contract scope, or changing of quality, changing of
levels perhaps, or this could even be changes to time.
All the variation to the contract must be authorized
by the contract administrator/employer prior to the
contractor commencing the varied works; otherwise
the contractor shall be at a risk for the entitlement of
payment for varied work. Most contracts state that
variations must be in writing. Whilst some forms
of contracts do not permit verbal instructions for
variations, some are permitted subject to confirmation
in writing within a certain period of time. Under the
common law of contract the contractor is still entitled
for payment for varied works even if the employer
argued on the pretext that there is no written instruction.
This is because there is an implied promise to pay for
varied works, as illustrated in Molloy vs. Leibe (1910).
However, the situation is different, if it is an express
term of the contract which says that, precedent to
payment for extra work an instruction in writing is a
condition. There is no payment due without having a
written instruction (Nixon vs. Taff Railway 1848).
Payment Progress of the work must be paid usually
by monthly installments on the basis if the contract
will take more than 44 days to complete( unclearrephrase); if this is less than that period, payment will
be given upon completion of the whole work. Employer
is liable to pay the contractor on time as per contract
under normal circumstances. Delaying of payment by
the employer shall face consequences and perhaps the
contractor may terminate the contract and leaving the
project. An employers contract administrator (QS) has
no contract with the contractor and it is impossible
for contractor to sue the QS under the contract but
the employer. Additionally, as he does not owe a duty
of care, under the tort law it is also not possible to
sue the QS (Leon Engineering and Construction Co.

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SLQS JOURNAL
vs. Ka Duk Investment Co. Ltd 1989). However, it is
the contract administrators moral duty to recommend
correct representation of the work progress in a timely
manner for payment to the contractor; remember the
employer can take action against the QS for his/her
delay in recommending payment on time for the
contractor.
Retention The entire interim amount certified for
progress of the work including materials at site is
subject to deduct retention by the employer in order to
protect himself, if the work is incomplete or defective.
The contractor has to rectify his defective or incomplete
work in order to get the retention money. Normally,
the retention is 10% of the certified value. First half
(first moiety) of this will be released with the issuing
of completion certificate (or Taking Over Certificate)
and the rest will be released after the issuing of Defects
Liability Certificate.
Determination - Either party in the contract need to
determine their rights under the contract or provide
some method to reserve their rights. The contract
administrator shall consult the employer and the
contractor before determining the amount or time of
such a right.
Disputes- Most probably disputes occur when more
than one party is involved in a business; in the
construction industry also there are many disputes
during the progress of the work. Therefore, there must
be some methods to resolve these disputes. It may be
resolved by Conciliation, Mediation, Adjudication,
Amicable settlements, and Arbitration which are some
common alternative methods for resolution of disputes
over the litigation.

Alternative Methods of Disputes Resolution:

Disputes occur very commonly when dealing with multi


cultural or multi national societies and that will be further
fueled by applying of non-standard contract documents
in the construction industry. This is further heightened
by current recession. The construction industry is heavily
affected in numerous ways. Knowledge, ethics, discipline,
and different interests of the parties also affect disputes.
Standard methods, and accepted norms exist to handle
these issues and the QS must be aware of those. In resolving
construction related disputes, Quantity Surveyor plays a
major role. In most of the cases, the Quantity Surveyors

10

in different capacities are responsible for activities such as


keeping all relevant contemporary records, time and cost
related information, identifying the disputes, preparing
and presenting the case, acting as adjudicator, arbitrator
and representing as members of the tribunal panel of
the arbitration etc. This is because, the QS who has the
contractual, commercial, constructional and perhaps, legal
knowledge of the construction industry is better than the
other professionals in the industry in handling such issues.
Few alternative methods of dispute resolution are briefly
explained below as they are internationally accepted.

Mediation: Both the worrying parties come together,


select and accept a third party to act as a mediator to
resolve their dispute. The mediator has no power to
impose a decision but witness the solution agreed by
the parties and document it to accept for both the
parties.
Conciliation: This is also almost the same as mediation
but the third party (Conciliator), has more power than
the Mediator, as he can suggest possible solutions for
the parties to agree.
Ombudsmen: Large organizations like banks, finance
companies, insurance companies etc. apply this
method by selecting a neutral person to investigate
their complaints. This person (Ombudsman) has to
have an independent office for public to bring their
complaints about any malpractice of public or private
organizations. Most ombudsmen can only recommend
solutions; very few can make legally enforceable
decisions.
Arbitration: Here the parties agree to present their
dispute to an independent and well-reputed third
party to bring a decision, which can bind the parties.
This is a private method for dispute resolution and is
widely accepted by many countries with the exception
of criminal disputes. Parties can appoint arbitrators.
Both litigation and arbitration consume more time
and cost, but compared to litigation, the arbitration
is better in terms of cost and time. Also arbitration is
more flexible compared to litigation. Importantly, as
arbitration is not open for public, the parties can avoid
unwanted publicity and keep their confidentiality.

As discussed above, there are many reasons behind rises


to disputes and it is important to get them resolved in a
fair and reasonable manner for the acceptance of all the
relevant parties within a reasonable cost and minimum
time. Nevertheless, litigation and arbitrations are mostly

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SLQS JOURNAL
accepted methods to resolve disputes; both are very costly
and consume lengthy time in an unacceptable manner.
Following are important factors to be reviewed prior
deciding to go for arbitration:
Amount disputed will remain unpaid till the dispute is
resolved
Cost of arbitration is very high and that is an additional
burden
Contract perhaps should be completed or abandoned
some years before the award
Interest for the money withheld and losing future
opportunities may occur
This could badly affect the reputation of the company
name
In the worst case, companies may face bankruptcy or
declare insolvency prior to the award
Looking at all the given reasons, it is better not to encourage
parties to go for above methods but for other alternative
methods of dispute resolution. Goodwill of the parties and
proper coordination and communication are important at
this point to bring the worrying parties for an amicable
settlement.

Conclusion:

Quantity Surveyors role in the construction industry is


vital. Starting from preparing of conceptual cost proposals
stage to the settlement of final accounts, he plays a major and
an invaluable role covering many different and important
disciplines. In early seventies, work of the Quantity
Surveyor is defined by the Royal Institute of Chartered
Surveyors (RICS) as Ensuring that the resources of the
construction industry are utilized to the best advantage of
society by providing, Inter alia, the financial management
for projects and a cost consultancy service to the client and
designer during the whole construction process. However,
the above classification and role cant be used as it is today,
because the industry and the profession have changed,
developed rapidly during the past three decades and are
more complicated now. In 1980s, a survey conducted by
RICS revealed that the role of Quantity Surveyor has been
expanded based on skills, knowledge, expertise provided by
the QS and that could be provided both inside and outside
of the construction industry based on clients requirement.
The changes we have referred to above have mainly been
identified by a survey carried out by Davis Langdon in
the year 2000 and that are; changes in market, changes
in the construction industry, changes in clients need, and

changes in the profession in line with globalization. The


traditional QS had a very limited scope according to the
situation and requirement of the time. However; today
this has changed rapidly due to the reasons discussed above
and can be classified as follows:



















Investment appraisal
Advice on cost limits and budgets
Whole life costing
Value management
Risks analysis
Insolvency services
Cost engineering services
Sub contract administration
Environmental services measurements and costing
Technical auditing
Supply chain management
Products and projects life cycle
Planning and supervision
Valuation for insurance purposes
Project management
Facilities management
Time management
Advice on contractual disputes (Arbitration)
Planning supervisor
Employers agent

These changes should be focused mainly on following areas:


business world, customers, projects, skills and information
and communication technology (ICT).
In view of the above, isnt it obvious that the Quantity
surveying profession is highly innovated, becoming
more complicated and competitive? In order to have a
smooth flow of function, the profession has to be more
standardized and simplified on one hand and in the other
hand, Quantity Surveying professionals must be updated
to comply with the above requirements. What is the key
for simplifying of complicated areas as above? Without
doubt, it is the law. Each and every single area of above is
linked with the law. Therefore, it is very important for QS
to learn the law at least in the area related to the profession
in order to succeed in the future; this is a challenge which
can be turned into an opportunity.

Bibliography:

Williss Practice and Procedures for Quantity Surveyor (12th edition)


2007, Construction
Construction and Regeneration act 1996 in the UK, Arbitration Law in
Sri Lanka (second Edition), Evolved role circa (2006)

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September 2009

SLQS JOURNAL

Facilities Management An Introduction


W B Elmo F J Fernando FRICS, FIE(Aust), CPEng, F.ASCE, MCIArb, FIQS (SL)
is a Chartered Professional Engineer and a Chartered Quantity Surveyor. He has a vast experience in Project
Management and Facilities Management. He was elected by RICS to represent Asia in Project Management
in RICS International Board UK from 2000 to 2003 and in Facilities Management in RICS International
and Asia Pacific Boards from 2000 to 2008

For the last three decades, Facilities Management (FM)


has developed faster than almost any other professional
discipline. FM provides property and related services to
enable businesses to optimise its working conditions.
Its rapid rise has outpaced criticism that it is simply a
marketing platform, or an attempt to exaggerate the
importance of the group of specialist middle managers.
The facilities management movement is gathering pace
in a truly international sense: from its North American
origins, it has now spread to Europe, Australasia and all
eastern countries such as Japan Hong Kong, Singapore,
Thailand, Malaysia, Indonesia and the Middle Eastern
countries. The role of the facilities manager is recognized
as something more pro-active than that of the traditional
Premises, Building, or Maintenance Manager.
So what is facilities management? It is the structuring of
building plant and contents to enhance the creation of
the end product, which in other words is to get the best
out of the facility. As with all systems it is the generated
benefit to the business or activity that matters, not the
system itself. The end product can, in this case, be a
tangible manufactured item or a service.
Well designed, well built, well operated buildings/facilities
are a pleasure for the inhabitants and the owners. In the
best circumstances they enrich the environment of the
people who use these facilities. The best facilities are the
ones whose operations are not noticed because they run
so well. When analyzed, the life cycle entails two major
sectors. Those are the Project Cycle and the rest is the
economic real Life Cycle of the Building or the Facility.
Ideally, the Facility Manager should take over the Building
or the Facility at the tail end of the Project Management.

12

Facilities Management Improves Business


Performance

The Integrated Strategy


Each modern organisation is complex and highly
individual, so it is vital to understand how its various parts
fit together in the jigsaw and how these parts interact with
each other. The organisations individual parts must be
effectively managed if performance is to be maximised.
The facilities manager has a very important role to play in
this by understanding a broad range of aspects: acquiring
and setting up suitable premises; managing staff moves
into space; the workplace environment; health/safety; fire
precautions; insurance; churn (i.e. office change); thus,
organising all the support services and infrastructure in a
timely manner to ensure Quality, Cost and Performance
to achieve BEST VALUE FOR MONEY is necessary.
To ensure the ideal balance, it requires an integrated
approach by a professional with the necessary breadth
of knowledge and skills and a realistic, practical ability
to implement changes smoothly. A combination of high
level specialist expertise with an emphasis on flexibility is
essential.

Cost Effectiveness

The cost of facilities represents a significant element of


most organisations outlay. Ensuring that the facilities
provided are appropriate and delivered at best cost will
benefit the organisation at every level.
By offering a full understanding of the way these elements
interact, the facilities manager will not only ensure that
specifications for the support services are appropriate,

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SLQS JOURNAL
but will go on to ensure that services are monitored,
service levels maintained and budgets adhered to. The
balancing of facility cost and service quality is crucial to
an organisations effectiveness.

Performance measurement

One important aspect of FM is the comparison of


costs and techniques with similar businesses. But these
techniques can also offer the realisation that better ways of
doing things do exist out there, and that the employment
of new techniques can make a huge difference to the
effectiveness of an organisation. A good facilities manager
will be aware of best practice in the facilities industry and
be able to integrate new methods into an organisation.

Outsourcing

Many organisations have been looking at outsourcing as a


way of saving cost. But is this a good solution? How does
any one select the right supplier, get the right services,
deal with problems and endure that standards are kept?
While outsourcing may often offer a solution, there are
many alternative routes to consider, each with its own
advantages and disadvantages. Organisation needs to
consider all the issues, and decide how the solution will
be managed within the organisation. A vital balance
comes into play here; enough control must be retained
for the organisation to stay at the helm, yet enough must
be outsourced for the arrangement to be worthwhile.
The scope of the Facilities Management is extremely
wide and varied. The following list indicates the range of
services covered in Facilities Management

Business Management



Business Planning
Strategic Advice
Business process re-engineering
Disaster recovery planning

Real Estate







Property Reviews
Asset Management
Property Management
Maintenance and Repair
Rent Reviews
Lease Negotiations
Acquisition & Disposals
Service Charges

Security

Security Systems and Managements


Risk Management

Support Services

Catering Vending
Cleaning and Refuse Disposal
Building Services and Equipment

Project Management

Change Management
Construction Management

Financial

Preparing Operating Budgets


Operating and Reporting Cost Analysis

Workplace



Space Planning
IT & Telecommunications Infrastructure
Energy Management and Conservation
Post Occupancy Evaluations

Health & Safety

Health & Safety Law


Fire Safety Requirements and Procedures

Procurement

Tendering of Goods & Services


Assessment of Goods and Services
Contract Administration

Operations



Managing Operational Services


Analysis of Requirements
Preparing Specifications
Benchmarking

The economic principles and the business objectives which


apply to any organization that receives funding through
income, grants or proceeds of sales should balance that
income with its expenditure.
The most beneficial cost controlling activities within
facilities management are:
Space Planning and Costing.
Asset Tracking.
Maintenance.
Life Cycle Costing.

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SLQS JOURNAL
The space, like time, costs money. The provision, servicing
and maintenance of accommodation are large costs for
many organisations. Without efficient space management
the resources tied up in property are not used to the
companys best advantage.
Asset tracking may not be instantly recognizable as an
activity, but it is a logical development and replacement
of traditional inventories. Companies dependent on
external funding of working capital through banks,
venture capitalists or shareholders are deeply interested
in the net asset valuation of their work; it is the basis of
much bank-based financial support and together with
profit/dividend potential earnings sets the level of share
value in a floating market. A strong net asset value gives
confidence in long-term stability which, together with a
strong share value, presents one of the least costly funding
routes for raising development or expansion capital.
Maintenance and life cycle costing are interrelated with
maintenance planning, which is often thought to be the
facilities managers principal task. Reality is not quite the
same, for in fact the facilities managers task, if properly
developed, covers a wide range of activities relating to the
provision and use of buildings and contents. Maintenance
should be reviewed with references to total quality
management (TQM). But experts have observed that
periodic maintenance allows the Building capability to
be recovered to a level comparable with the Buildings
initial condition. However a gap continues to emerge
throughout the Buildings life because user expectations
increase and indeed change in nature & Technology
and this was seen as a technological and functional driver
of Facilities Management. Also, Life Cycle Costing needs
to be examined and monitored throughout in order to
balance cost against life expectancy.
Facilities Management is not just about controlling cost;
there are several significant services that can be managed
through FM systems to ensure the smooth operation of a
company or organization. These services are:



Health and safety monitoring (no full stop)


Component specifications
Systems and software
Services

Property is a finite resource that needs to repay the


capital cost of its creation on an investment basis. Those

14

September 2009

buildings that serve a public need but cannot satisfy the


investment return principle can only be funded with
grant, government or other non-commercial assistance.
Buildings have a value cycle whereby they are developed
to satisfy current and perceived future demand. If the
developer makes the correct judgement the building will
grow in investment value, driven by demand. Progress,
however, changes demand and in time most buildings
will have matured to their peak value and will slip into
decline. The application of active facilities management
that studies the use of the building and adjusts it and
the occupation to best match current demands will slow
down the value decline. Refurbishment, alteration and
even change of use all prolong the life of the building.
Most cities have easily recognizable examples of fine
architectural buildings that have changed use. This all
helps to preserve heritage, as well as conserve building
stock.
Some buildings will have a defined lifespan and will be
constructed accordingly; here the facilities managers task
is different. In this case the objective is to extract the
maximum benefit from the property over its planned life,
without incurring excessive cost in keeping it running
towards the end of the period and therefore, life cycle
costing is very relevant to any manager in this position.
The ultimate conclusion for any building at the end of its
economic life is demolition, which then releases a site for
a new development, thus starting the cycle over again.
The facilities manager, while dealing with day-to-day
occupational demands, has a long-term influence on
property economics.
The economic benefits of facilities management results
in improved productivity, better product quality and
overhead control. The control of overheads generates a
return to the organisation year after year, but engaging
a full-time facilities manager or even setting up a
department adds directly to the overhead. It is important
therefore, to ensure that the financial benefits more than
justify the cost of a full-time, in-house service.
The use of a professional facilities management consultant
can sometimes solve these problems by supporting an
over-stretched in-house manager on specific projects like
market testing outsourced support services, or for system
development, in order to add more management functions
or update records and technology. However difficult the

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SLQS JOURNAL
generalisations remain, a common thread binds facilities
managers together and reinforces their contribution to
overall business performance. For as coordinators of such
a wide range of technical skills, facilities managers are in a
unique position to set and maintain quality standards in
the working environment, and to help improve briefing
and decision-making by providing data on how their
buildings are performing. They also have an increasing
important role to play in terms of accountability for
safety standards and for ensuring that staff and occupants
are protected from potential health hazards, and that the
building is not a Sick Building.
The profession of facilities management is gaining
respectability through the interest of various professional
bodies and educational establishments. The Royal
Institution of Chartered Surveyors has a skills panel and
a separate faculty on the subject and there are bodies like
the British Institute of Facilities Management formed
out of the amalgamation of the Association of Facilities
Managers with the Institute of Facilities Managers where
membership leads to an interchange of current views.
The most encouraging sign that this is evolving into a
recognised professional discipline must be the creation of
structured study and examinations leading to degrees and
corporate membership of several recognised professional
bodies.

Facilities Management - By Chartered Surveyors

The Royal Institution of Chartered Surveyors (RICS) is


the worlds leading professional body concerned with the
management of property and construction and it has a
Facilities Management Faculty representing over 9000
members worldwide.

Chartered Surveyors are educated to degree level and then


trained to develop practical skills necessary to manage
complex property and construction related issues. They
are educated and trained to take the wider view of the
issues to ensure their clients get sound advice about the
range of choices available to them.
The development of Facilities Management education
and training has been driven by demands primarily at
graduate level and University of Moratuwa, Sri Lanka,
has initiated timely action in introducing a four year BSc
Degree programme in Facilities Management, which is
accredited by RICS. The first batch of graduates will take
up their position as FM professionals when they pass out
in June 2010.
RICS is now offering alternate designation or the status,
Chartered Facilities Management Surveyor, for these
professionals who could demonstrate stipulated criteria
of this global professional body.
Chartered Surveyors recognise the importance of facilities
management to business today and RICS Facilities
Managers ensure their clients receive consistently a
high standard of professional advice and the world class
support demanded in todays global economy. Many
Chartered Surveyors practice and companies provide
facilities management services globally. Clients have
found that their expert professional knowledge and
practical management skills are unrivalled in this field,
enabling them to reduce their facilities costs and enhance
the productivity of their business.

Viking Grain Storage v T H White Installation (1980)


The contract concerned the supply of grain silos. The grain developed mould whilst stored, due to
inadequate ventilation.
Held that the defendants were liable for not provideding goods fit for their purpose.

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SLQS JOURNAL

September 2009

Application of Cost Engineering Techniques


During the Global Recession
Gamini Dayaratne MACostE, AACE
is holding memberships with The Association of Cost Engineers, U.K. and AACEI, U.S.A. He has been
employed by British International Construction companies for the past 18 years in Sultanate of Oman and
U.A.E. Presently working as a Assistant Commercial Manager, Al Futtaim Carillion LLC, Dubai

Summary

It is now confirmed that the world economy is in recession


since late 2008. It has affected businesses and organizations
in varying degrees and proportions depending on their
exposure to the global financial system. In this Technical
Paper, an attempt has been made to understand the effects
of global economic crisis on the parties involved in the
construction industry, (i.e. The Client, Project Manager
and other Consultants, Contractor and Suppliers) and
find ways and means in minimizing the effects in relation
to Cost Engineering principles.
The major conclusions and recommendations of the paper
relate to the effective use of Cost Engineering Techniques
in minimising the effects of the global economic crisis by
these parties. These include:
The effective use of Engineering Economics and CostBenefit Analysis by Clients
How Earned Value Management could help Project
Managers to accurately advise their Clients on their
projects
What costs may not be recoverable by Contractors?
What remedies they may have in the wake of project
cancellations?
How the Suppliers could protect themselves from the
sudden price fluctuations in the market theories of
Risk Management, Hedging and Insurance
Silver lining in the dark clouds Positives suggested
during the period of recession

What is the role of a Cost Engineer?

The Cost Engineers role in a project could be compared


with that of a navigator of a ship. He does not really
control the actual progress of the ship, but, he is
constantly evaluating its status, comparing with the plan,

16

helping the skipper stay on course. In order to accomplish


this navigation, the Cost Engineer must know exactly
what the scope of the job is, what the conditions are, the
present status of the job and how to forecast the future.
If, based on the present, the future is not assuring, the
Cost Engineer must inform the Project Manager so that
corrective action can be taken immediately. Cost control
will make sure that the ship will stay on course; cost
forecasting tells what will happen if the ship continues
its present course. That is why timely corrective action
is required if the trend is not as planned. Otherwise, the
ship will follow the dominant currents and winds, and
may land hundreds of miles away from its destination
and many days behind if it does not crash on some
rocks on the way1 .

Introduction to the global economic crisis in 2008

In 2008, a global economic crisis was suggested by several


important indicators of economic downturn worldwide.
These included high oil prices, which led to both high
food prices and global inflation; a substantial credit crisis
leading to the bankruptcy of large and well established
investment banks as well as commercial banks in various
nations around the world. This in turn contributed to
increased unemployment and the possibility of global
recession2.
The rise and fall of the oil prices during 2008 also is
largely seen as consequential to the same phenomenon.
Oil prices, which were zooming to all-time highs have
crashed. Oil prices had crossed the $100-mark for the
first time in 2008. The prices further zoomed to $147 in
July. There were even predictions that oil would hit the
$200 mark. The surge in oil prices was alarming. The fall
in the dollar rates was one of reasons for the rise in oil
prices. A weaker American currency tends to increase the

September 2009

SLQS JOURNAL

demand for dollar-denominated oil as it becomes cheaper for buyers using stronger currencies. Oil prices also rose as
investors saw it as a safe investment amid fears of rising inflation and a US recession.
However, demand for oil started slowing down drastically in the wake of the recession in developing countries. The
downslide of oil prices began3. (See Chart No.1)

Chart No. 1 The rise and fall of crude oil prices in 2008

How it affects the construction industry


a) Client
The term Client in this report refers to the individual or
company who owns or invests in the project. In todays
world of business organizations, most clients depend on
global financial institutions for financing their projects.
Since late 2008, in the wake of the global financial crisis,
banks in most countries have adopted credit control
measures creating a huge impact on the availability of
funds for the new projects. With the increasingly tight
financial regulations being introduced by their banks, the
clients are forced to revise their programmes and budgets
of their ongoing projects while the new projects are put
on hold or cancelled. Some clients may be forced to
revise their project budgets by measures such as reducing
the scope of works, revision of finishes (from luxury to
ordinary) and so on.

The Economic Analysis techniques in Cost Engineering


such as net present worth method, capitalized cost
method, annual cash flow analysis, rate of return analysis,
benefitcost ratio analysis and payback period analysis
shall provide clear guidelines to Clients in making
important decisions with regard to the economic viability
of projects. Many economic problems we face today have
more than one possible solution or alternative. The concept
of equivalence in Engineering Economics could be used
to compare the cash flows of the alternatives available at
different points in time. Equivalence is based on the time
value of money. The cash flows of the alternatives can be
converted to similar lump-sum values or uniform series at
a particular interest rate and at any given time using the
principles of Economic Analysis.
Cost-Benefit Analysis (CBA) is a powerful, widely
used and relatively easy tool for deciding whether to
make a change or not. This method involves the simple

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SLQS JOURNAL
comparison between benefits and costs of a proposed
action. Benefits are placed in the numerator and costs are
placed in the denominator. If the ratio of benefits to costs
is greater than one, the project is viable. Comparisons can
be made between many projects to select those projects
with the highest B/C ratio. Costs are generally one-off,
or may be ongoing. Benefits are most often received over
time. We build this effect of time into our analysis by
calculating a payback period. This is the time it takes for
the benefits of the change to repay its costs.
In the case of deciding whether or not to cancel a project
all the costs associated with the cancellation need taken
into account. These may include the following:





Costs associated with preliminary surveys


Consultants fees
Design costs
Setting-up of temporary facilities
Possible procurement costs
Costs associated with penalties as prescribed in the
Contract agreement in case of cancellation
Opportunity costs (cost of the alternative lost due to
cancellation)
The following information provided by the Cost Engineer
will provide a good platform for the Client to take
important decisions with regard to his projects:
ROS Return On Sales (Ideal tool for property
developers to monitor over a period of time to judge
where their businesses are heading)
The Cost-Benefit analysis
The current status of the project financially, in
comparison with the cost plan
Details on cost over-runs if any, and its cause and
effect
Point out unfavourable trends based on the available
data and make recommendations for future actions, if
any
Forecast the cost to completion based on the costs
foregone and projected future costs
Recommend corrective actions to be taken, if any
b) Project Manager (and his team of Consultants that
the Client hires for the execution of the project )
Project Manager organises and manages the project on
behalf of the Client. In addition to co-ordinating clients
decisions among various parties involved in the project

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September 2009

(eg: Architect, Structural Consultant, QS Consultant /


Cost Engineer, MEP Consultant, Main Contractor etc.) ,
it is the Project Manager who updates the Client with the
feedback from all these parties.
At the time of the global economic slowdown, Project
Manager plays a significantly important role in assisting
the Client to make important decisions with regard to
the commencement of a new project or continuity of an
ongoing project. This may be in the form of presentations
on the financial viability of a new project based on
current trends in the global market and reports on actual
against planned progress(idea not clear), current cost
versus budgeted costs and so on for an existing project.
The Cost Engineers role is quite significant here as all the
important decisions with regard to project finance will
be taken by the Client with the use of financial reports
prepared by the Cost Engineer. For instance, the decision
to go ahead with a new project or purchase of a particular
plant/equipment for the project at a certain juncture will
be taken by the Client after studying the cost analysis
prepared by the Cost Engineer using his knowledge in
the principles of Economic Costs.
Another Cost Engineering technique the Project
Managers can utilise within the current economic turmoil
is the Earned Value Management (EVM). Earned Value
Management is the process of integrating the project
costs and the project schedule in order to measure actual
performance and forecast future performance against
an established baseline. With proper implementation
of EVM, accurate measurement can occur at anytime
throughout the project lifecycle. However, accuracy
requires that a thorough Earned Value Management
System is in place and is being utilized consistently
throughout the project.
Project Managers are required to demonstrate to the
Client that they effectively manage project costs. Through
Earned Value Management they can answer the Clients
question, What am I getting for the money being
spent?
Utilizing EVM techniques does not prevent project costs
overruns, but it does provide project managers with data
for more effective cost and risk management, which has
become increasingly important in todays scenario. Risks
that are identified through the use of EVM provide early
warning signals that imminent project risks exist4 .

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C) Contractors (and subcontractors)
In the Tsunami of global economic meltdown, the
Contractors could be the hardest hit in terms of lost
revenue, reduced profit margins and loss of skilled
manpower.
The first line of fire the Contractor receives is from his
beloved Client in the form of cancellation of the project
awarded a few months ago with no prior notice whatsoever.
The reason we hear most often is common; due to global
financial crisis. All the effort that the Contractor puts
into the project over the past few months in the form
of planning, procurement, recruitment, setting-up of
offices etc. will be shot down with that powerful letter
from the Client. The Client might promise that the works
already carried out will be jointly recorded, evaluated and
properly reimbursed, but, still the Contractor will end up
on the losing side due to other indirect costs such as;

a) Recruitment costs The cost spent on recruiting

specialist personnel may not be fully recovered. It could


be that the Contractor may have to terminate the
employment contracts of some of these new recruits with
a penalty payout for early termination.

b) Procurement costs The Contractor may have

placed an order for the full quantity of steel for the


project just after the projects award, which could be a few
months before the meltdown began. That time the general
conception in the market was that the price of a barrel of
oil will exceed $200 and the prices of other commodities
will also follow suit. The unit price (per tonne) the
Contractor agreed with the steel supplier could well be
more than what he allowed in his tender which must have
been submitted a good six months before the steel price
shot up in the world market. By the time the Contractor
receives the letter of cancellation of the project from the
Client, the steel price in the world market has plummeted
to as low as 25% of the price in peak. (Refer Chart No. 2
Global steel price graph)
If the Client agrees to takeover all the steel delivered
to site at the LPO price, then the Contractors woes
are minimised. But this is very unlikely as most of the
Contracts now demand for just-in-time deliveries of
major materials, plant and equipment.

Global Steel price graph.

Chart No. 2 The rise and fall of world steel prices in 2008

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SLQS JOURNAL
c) Opportunity cost i.e. The cost of the jobs foregone.

It could be that the Contractor has declined to submit


tenders for a number of other projects offered by reliable
clients with secured finances a few months ago, simply
because he/she was so keen on this multi million dollar
project he/she was concentrating on at that time. All his/
her estimators were busy pricing this big project with such
a prestigious Client which was finally won and awarded
to the Contractor with much fanfare and announcements
in the press. A few months into the project, the letter of
cancellation arrives from the Client. The poor Contractor
has no chance now to secure those smaller projects.
The second attack also comes from the beloved Client. This
time in the form of non-issue of cheques by his finance
department for the work already carried out and properly
certified by the Consultants. The effect of this second line
of fire will have a domino effect. The subcontractors and
suppliers will be lining up at the Contractors office until
their payments are released. The company will look into all
the possible means of cost reduction techniques that may
include scrapping of bonuses, increments, advertisement
and reduction of overtime hours and so on. Depending
on the severity of the financial situation many workers
will also be made redundant.
In light of the current economic downturn, contractors
will have little legal recourse if payments for on-going
projects get delayed, legal experts say. According to a
legal consultant in the United Arab Emirates, Payments
getting delayed will be a common feature in the market
over the next six months. If the money isnt there, there is
very little a contractor can do about it. It is a risk they have
taken. It is possible that certain contractors have taken
payment security in the form of bonds or letters of credit,
but that is extremely rare. Under UAE law a contractor
can claim property against his/her unpaid dues. But, it is
extremely difficult to get to that position as it requires a
court order. The bottom line is that a contractor is left to
chase the assets of the owner. Unfortunately, we will soon
find out that insolvency laws are under-developed in the
UAE. There is a huge inequality between a contractor and
developer - if a contractor defaults, the employer has the
ability to get the money from the bondsmen or the bank,
conversely if the employer has to pay, there is no similar
mechanism for the contractor5.

d) Suppliers

In the Global financial crisis, the suppliers of materials and

20

September 2009

services also suffer in varying proportions. The suppliers


who rely on the Contractors for their businesses may
affect in two ways. One, when the Contractor receives
the letter of cancellation of the projects from the Client,
he/she will pass it down the line to his subcontractors and
suppliers, often cancelling the orders placed with them.
Two, the loss a supplier (who is a stockist of materials
such as Bar reinforcement in bulk quantities) will incur
due to the falling of prices of major materials in the world
market. The Cost Engineering principles of Economic
Order Quantity (EOQ) and Re-order Point (RP) are
handy tools for the supplier to manage his purchases
efficiently which is a key to offering competitive prices
in the market.
The principles of Risk Management in Cost Engineering
provide a consolation for suppliers caught in this type of
uncertain market conditions. Every major supplier must
have a risk planning procedure in place with regard to
his/her business. Broadly, the risk management procedure
should include external, internal, strategic and tactical
risks identified assessment criteria for occurrence and
impact, analysis approaches and general mitigation
strategies6.
Once a risk is identified and assessment criteria defined,
a mitigation technique is to be chosen. In the example of
the steel supplier losing money due to sudden reduction
of prices in the world market could be mitigated by
techniques such as hedging or insurance.
Hedging is a specialized part of transfer where the risk of
price fluctuations is assumed by a speculator through the
purchasing and selling of futures contracts. It is assumed
the commodity futures contracts are covered by an
organized exchange, such as Chicago Board of Trade.
Insurance is a part of transfer but by companies that
indemnify parties against specific losses in return for
premiums7.
Silver lining in the dark cloud What are the positive
alternatives which could be implemented during the
economic crisis?
The different parties discussed in this article could draw
a lot of positives from the global economic downturn
surrounding the world today.

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Clients could make use this opportunity to promote
sustainable alternatives which are environmental
friendly and having a smaller carbon footprint.
According to an expert at the Reuters Global
Environment Summit, The current financial
downturn could spur demand for sustainably
designed buildings and communities. The heart of
sustainability is conserving and not wasting, and this
idea of getting clients to think about projects that are
actually less expensive rather than more expensive and
still sustainable these days gets a lot of good traction.
Its the environmental opportunity of a lifetime and
if we dont use it now as an opportunity to make the
sustainable movement not just make progress, but
gallop ahead, weve lost our chance8.
Project Managers, Architects, other Consultants and
Contractors main aim during this period should be
to control and reduce costs. They need to look at the
scope for reducing costs, addressing which overheads
are fixed (bills that will continue to fall due even if
there is no work coming in) and which are variable
(most significantly staff costs). Savings are likely to
mean a reduction in staff, but they need to remember
that redundancy is expensive (payout of gratuity
etc.) and so is re-recruitment. Sharing resources with
another practice could give a bit more flexibility
during the difficult times.
Since Clients are also struggling with the same economic
pressures, Consultants could give a thought to how
to create value for them in the way that the service is
delivered. i.e. How do we get buildings up at minimum
cost and maximum value?
Another good idea may be, If possible, keep investing
in training, research and development, and plan for the
medium and long terms. Markets could bounce back any
time and with different demands. It is necessary therefore
to be ready to respond to those differences in the face of
ever-growing competition on both quality and price.
In the case of Suppliers, this could be the best time
to re-evaluate their strategies. If the companies who
purchase materials from the supplier is in a financial
mess (may be due to not receiving due payments from
Clients) there is a chance that the supplier may not
get his payments for the materials already supplied.
In such cases a little open dialogue and honesty can
go a long way. It may be worth offering discounts or

renegotiating terms for the existing orders so that the


chance of receiving overdue payments could be high.
This would help them regaining the confidence of the
Contractor who may continue business with them in
the future. It will also be beneficial for them to review
their insurance policies to avoid future losses in
similar scenarios. It is also worth to study the option
of hedging if such a cover does not currently exist for
their supplies.

Conclusions

In this technical paper the writer has attempted to


identify and analyse how the different parties involved in
a Project are affected during the global economic crisis.
It further develops into identifying the Cost Engineering
techniques that could be used by the different parties to
minimise the risks to their organizations during this era
of economic uncertainty. Further, an attempt has been
made to look into the possibilities of obtaining positive
results based on sustainable development of the industry
with the use of environmental friendly techniques. Based
on the suggestions made by the writer in the section
titled Silver lining in the dark cloud, a follow-up study
in detail could be beneficial for the future of the industry
in general.

Bibliography

1 Abstract from the book Construction Cost Engineering


Handbook by Anghel Patrascu, C.C.E.. Published by
CRC Press, 1988.
2 Abstract from Economic crisis of 2008 - www.wikipedia.
com and slightly modified.
3 Abstract from the URL : http://specials.rediff.com/
money/2008/oct/17slide1.htm
4 Abstract from the report titled Utilizing Earned Value
Management During Economic Downturn
By Kevin L. Smith, MBA, PMP, and slightly modified to
suit the subject.
5 Abstract from the article titled UAE Laws do not favour
Contractor by Shikha Mishra from the website www.
arabianbusiness.com.
6 Abstract from Chapter 31 Risk Management by Allen
C. Hamilton, CCE from book Skills and Knowledge in
Cost Engineering, 5th Edition Revised page 31.2
7 Abstract from Chapter 31 Risk Management by Allen
C. Hamilton, CCE from book Skills and Knowledge in
Cost Engineering, 5th Edition Revised page 31.6
8 Abstract from a news item from website http://www.
futurefuelsme.com/news/2008/news_08_472.html

21

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SLQS JOURNAL

Tender Procedure- Criterion Influencing the


Decision to Tender
Ranjan Dommanige TCInstCES, HND(QS)
Ranjan is a Technical Member of the Chartered Institution of Civil Engineering Surveyors and holder of
High National Diploma in Quantity Surveying & Building Economics, and having over 20 years diversified
experience in the construction industry in various projects in Sri Lanka and United Arab Emirates. He is
currently working as a Consultant Quantity Surveyor for Dubai branch of Aurecon International Pvt Ltd.

Evaluation and identification of the criteria


in the tender documents including the form
of invitation to tender and their influence on
decision to tender

Invitation to Tender

The identification of the project category would assist the


Tenderer to evaluate the availability of suitable resources
such as managerial & technical staff, plant & equipment
of suitable type and capacity, skilled and unskilled
workmen, special materials, specialist sub contractors etc.
He/she has to take account of availability of his/her own
resources and consider other arrangements such as hiring,
procurement and leasing of items that are not available.
He/she also has to consider any special requirements or
conditions associated with construction of the specific
type of the project. A project with many specialized items
of work involving high level of technical expertise could
be beyond the tenderers capacity. The magnitude of the
project and the period of construction dictate the scale of
financing of the project and the tenderer should have a
proven plan of funding.

Invitation to tender is an important document containing


valuable information which could influence the decision
to submit the tender. The information contained in the
tender invitation will reflect whether open tendering or
selective tendering will be used in the tender procedure.
Generally the information provided can be identified as
follows;

The Client

The details of the client is vital as much can be learnt


about credibility, attitude towards releasing payments,
financial stability etc. by investigation. The necessary
information will be readily available in case the tenderer
has previous experience of working with a particular
client. Furthermore, knowledge of clients practices with
regard to dealing with variations claims or any contractual
disputes will be quite useful and will influence the
tender.

Type of Project

The type of work is another important factor that the


Tenderer has to consider. He/she should be satisfied that
he/she has the capacity and the competency to undertake
the work defined by the scope of work.
Generally projects can be categorized into several fields
as follows:
Commercial
Industrial
Residential
Healthcare

22

Transportation
Marine
Educational
Water supply & drainage

Location of the Project

Factors related to the location of the project are numerous


and should be observed and investigated by a site visit.

Locality of the site such as urban, rural or isolated


and details of nearest town, shops, hospital, police
etc.
Physical site conditions such as subsoil data, level
of ground water table, terrain, proximity to rivers,
lakes, sea etc., presence of nearby structures or
obstructions.
Availability of services such as electricity, telephone,
water etc.
Presence of highways, railways, airports, harbours and
the distances to the nearest bus or rail terminals.

September 2009

SLQS JOURNAL

Access to the site and the presence of bridges, tunnels


or other highway structures restricting transport of
equipment and material to site.
Information on whether the site is situated within
any restricted zone such as military or defense
services etc. requiring working times, noise level etc.
to be controlled, the need for personnel working
within to be screened and issued with entry passes.
Other types of special precautions may be necessary
for working within airports where use of certain type
of equipment and tools may be limited.

Time available to tender

Time available for a tender affects the accuracy and the


quality of the bid. During the tender period the Tenderer
has to collect lot of information relevant to the project.
Mainly, if it is a Lump Sum Contract, the Tender has
to verify the accuracy of quantities of major items
in the BOQ involving re-measurement of quantities
from drawings. In instances where special materials are
unavailable in the local market, it will be necessary to
obtain overseas quotations for importation. In addition,
quotations will be obtained from local suppliers and sub
contractors and be scheduled for determination of lowest
quotations. The normal practice in construction industry
is to allocate a period of two to three weeks for tender
submission. Tenderers can request for an extension of the
closing date of the tender, if the given time is rendered
insufficient due to the nature of work, magnitude of the
project, or other valid reasons. Employer may consider
the Tenderers request and extend the tender closing date
if they realize that the request is reasonable and would
yield a realistic bid. But some times this may not be
possible in case of a fast-track project depending on the
type of tendering and the end users requirement.

The Consultant

The Consultant is the representative or agent of the


Employer. Consultant and his supervisory staff play a
major role during project implementation. Information
on consultants performance with regard to quality of
contract documents and working relationship with
contractors could be used by the management in finalizing
a tender. Many a contractor would favour working with a
friendly and professional consultant.

Tender queries

During the tender period tenderers may submit queries


to the consultant to obtain clarifications on ambiguities

and inadequate details. The consultant may send notices


to tenderers clarifying the issues raised by the queries and
other important information related to the tender. These
notices should be distributed among all the tenderers to
ensure uniformity of the bids and will help in reduction
of post tender disputes. All such notices and amendments
should be incorporated in the Contract Document.
During the construction period these correspondence
may become useful in resolving disputes related to pretender issues. Sometimes a pre-bid meeting is held well
before the closing time but after sufficient time has
elapsed for tenderers to study the documents. Contractors
queries are discussed and an attempt is made to resolve
whatever possible during the meeting. Minutes of this
meeting together with answers to outstanding queries are
circulated among all tenderers.

Other participants of the tender

The competitiveness of a tender depends on the climate


of the construction industry. The other participants will
price their bids depending on their work load and how
badly they require a particular project. An understanding
of their work load may help in submitting a successful
bid. It is a good practice to maintain a record of tender
results which can be used in identifying the bidding
patterns of various competitors.

Tender Documents
Instruction to Tenderers

Instruction to tenderers provides important information


about preparation of the bid, packaging and submission.
Closing time of tender, place and mode of submission,
opening time if applicable, amount of bid bond if any,
number of copies to be submitted etc. are given in this
document. Therefore, the tenderer should carefully read
and understand all the important information given in it,
so that the tender may not be rejected due to carelessness.
As per the FIDIC Conditions of Contract it is not a
contractual document.

Method of measurement

The method of measurement governs the mode of pricing


items in the BOQ. Normally in UAE POMI or SMM7
is used for Building projects, while in civil engineering,
projects are based on CESSM3. A working knowledge of
the relevant method of measurement is essential to price
a tender properly. For instance, under SMM7, a margin
is allowed as working space for excavation whereas in

23

September 2009

SLQS JOURNAL
CESSM3 it is measured net. So that in pricing an item
for excavation under CESSM3, the allowance for working
space should be included in the rate.

Amount of tender bond

A tender bond of a certain amount which is valid over a


period of normally 3 or 6 months is sometimes stipulated
in the tender. The value of this bond could be a fixed
sum or a percentage of the tender sum. This bond will be
forfeited if the successful tenderer refuses to accept the
tender. Some Employers insist that the tender bond be
obtained from a specified bank of their choice. Tenderer
may face difficulties in such a situation if he does not
have any relationship with that bank and may be required
to secure the amount of the bond in cash or another
guarantee. Bank commission for the tender bond usually
depends on the tenderers relationship with the bank.

Number of copies to be submitted

The number of copies of bid documents to be submitted


is specified in the instruction to tenderers.

Documents to be submitted with the tender
















The Tender Document Issued to the Tenderer with


priced BOQ
The Form of Tender
The Tender Bond
The Tender Appendix completed by the Tenderer
Schedules of Subcontractors and Suppliers
Schedule of Plants and Equipment
Current Valid Trade License
Schedule of Authorized Signatory
Work Programme for proposed project
Method statement
Names and Qualifications of Key Personnel
Statement of Site Visit / Inspection of Drawings
Additional Information related to tender
(Optional)
Alternative Tender proposals (Optional)
Notices to Tenderers and Addenda

Location and closing time of tender

The tender has to be submitted to the specified location


on or before the closing time indicated in the instruction
to tenderers. Care should be taken not to delay the
submission and risk the rejection of the tender. Delivery
should be planned in advance considering the distance
to be traveled, mode of transport, traffic and weather
conditions etc.

24

Appendix to tender

Generally appendix to tender includes applicable Clauses


related to Insurance, performance bond, liquidated
damages and its maximum limit, minimum amount
of monthly interim valuation, percentage value of the
material on site payable, percentage for Provisional Sums,
time for issue of notice to commence, time period for
completion of the works, defects liability period, names
of Engineer and the Employer.

Form of tender

Tenderer has to mentioned final value including markup


in this form, get it signed by the person authorized by the
origination and put the company stamp on that form.
Then only it becomes a valid legal document according
to Contract.

Milestone dates

The milestone dates indicated are to be strictly taken


into consideration by the tenderer in pricing the tender.
The costs associated in fulfilling all his obligations to
complete the project including the costs of carrying out
maintenance during the Defects Liability Period as stated
in the appendix to the tender, should be included in the
tender. It should be noted that the maintenance certificate
for the whole project will be issued on completion of the
defects liability period of the last milestone as stated in
the Appendix to the tender.

Tender and Conditions of Contract

The Tenderer should be familiar with the general conditions


of contract and study in detail the particular conditions
of contract prior to pricing of the tender. Normally in
UAE conditions of contract FIDIC 4th Edition or other
locally/internationally accepted Conditions of Contract
are used in contracts.
There are two parts in Conditions of Contract
a. Part I General Conditions of Contract
b. Part II Conditions of Particular Application
The Part II Conditions of particular application takes
precedence over the general conditions of contract. The
contents and their true meaning should be grasped for
proper interpretation of these conditions and their effect
on the tender. It may contain some clauses beneficial to
the employer. The financial impact on the tender arising
from these conditions should be considered in the pricing
of the tender

September 2009

SLQS JOURNAL
Tenderer should be fully aware of the Conditions of
Contract for the particular project and especially those
related to following commonly used Clauses:











Extension of time
Payments
Liquidated damages
Fluctuation
Variations
Dispute Resolution
Defects Liability period
Materials at Site
Nominated sub contractors
Retention
Provisional sums & prime cost sums
Insurance

Specifications

This section can be divided in to two parts.


A. General Specification
B. Particular Specification

General Specification

Classified into four major elements


i. Site Regulation, Safety and Security
ii. General
iii. Design, Supervision & Contractors Drawings
iv. Deliverables from the Contractor

Particular Specification

This section needs careful attention. Particular


specifications deal with special technical requirements,
special construction techniques, special materials etc.
Proper understanding of these specifications is essential
in preparing a realistic bid. Often much time will be
required to obtain pricing information related to items
covered by these particular specifications

Bills of Quantities

For a specimen BoQ format, the sections of the BoQ


based on CESMM3 shall consists of following parts:
i. Principal quantities
ii. Preamble
iii. Day work schedule
iv. Measured work items (Grouped in to parts)
v. Grand summary
The pricing preamble is one of the most important &
critical sections in the BOQ. It provides information on

the method of measurement, details of items deviating


from the standard method of measurement, details on
pricing general & preliminary items and guide lines for
pricing certain items. Proper understanding of this section
will provide a tenderer with an opportunity to identify
items that could become variations whilst executing the
contract and the pricing of which need not be included
in the tender.

Drawings

A list of Tender Drawings issued with the tender is


included in the tender documents. In general, it may
contain the following drawings.
a.
b.
c.
d.
e.
f.

Location Plan
Site Plan
Detail Plans
Sections
Elevations
Any special features

Tenderer should be satisfied that the issued Drawings are


sufficient for the purpose of pricing the respective items
in the BOQ. Tenderer is at liberty to request required
additional details in order to respond to a tender query
from the Engineer when the drawings do not give
adequate details.

Current Work
Department

Load

in

the

Estimating

A first step in the tendering process is to study the feasibility


of submitting a bid. This involves understanding of details
of other tenders under preparation, any tenders that may
be issued in the immediate future, expected profitability
of the tenders in hand etc. This information will help the
management to select tenders that offer better returns
and will be in the best interest of the organization.

Current Workload
Department

in

the

Construction

Evaluating the current construction work load is also a part


of the feasibility study mentioned in the previous section.
This study should include the work load of the respective
construction divisions, availability of managerial & technical
staff, availability of plant, machinery etc. Based on this
information a decision will be taken by the management
about taking part or declining to take part in the tender.

25

September 2009

SLQS JOURNAL
Conclusion and Recommendation

The client, the conditions of contract, type of project,


value of project, project duration, works in hand, current
situation in the construction industry as well as current
workload in the organization should be considered before
submitting a tender. In practice, the circumstances will
not always be favourable to the contractor for submitting
a particular tender, but an experienced contractor will use
his/her judgment in taking a decision.

Bibliography




Contract and Tender procedure book provided by


International College of Business and Technology
The Surveyors Construction Handbook by RICS
Contractual Procedures in the Construction
Industry by Allan Ashworth
Various web site relevant to the subject
Various journals on the subject

Caparo Industries Plc -v- Dickman and others [1990]


The plaintiffs sought damages from accountants for negligence. They had acquired shares in
a target company and, relying upon the published and audited accounts which overstated the
companys earnings, they purchased further shares.
Held: The purpose of preparing audited accounts was to assist company members to conduct
business, and not to assist those making investment decisions, whether existing or new investors
in the company. The auditors did not owe a duty of care to the plaintiffs. Liability for economic
loss for negligent mis-statement should be limited to situations where the statement was made
to a known recipient for a specific purpose of which the maker was aware, and upon which the
recipient had relied and acted upon to his detriment. The law has moved towards attaching greater
significance to the more traditional categorisation of distinct and recognisable situations as
guides to the existence, the scope and the limits of the varied duties of care which the law imposes.
The House laid down a threefold test of foreseeability, proximity and fairness and emphasised
the desirability of incremental development of the law. The test was if the court considers it
fair, just and reasonable that the law should impose a duty of a given scope upon the one party
for the benefit of the other. Lord Bridge of Harwich: What emerges is that, in addition to the
foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care
are that there should exist between the party owing the duty and the party to whom it is owed
a relationship characterised by the law as one of proximity or neighbourhood and that the
situation should be one in which the court considers it fair, just and reasonable that the law should
impose a duty of a given scope upon the one party for the benefit of the other.

26

September 2009

SLQS JOURNAL

Is the Regional Engineer Fair Enough in


Dealing with Variations?
Prabash Miriyagalla (M.Sc., Dip. in Eng.)
Project Quantity Surveyor Blair Anderson Ltd

The objective of this article is to discuss the issues related to Valuation of Variations under FIDIC 4th Edition in
the regional industry (United Arab Emirates), and also to examine the powers and impartiality of the Engineer
under the standard form of FIDIC 4th.
Several major contractual issues such as deactivation of price fluctuation clauses, non availability of relationship
between clause 14 programme and clause 52, non availability of material procurement information related to
clause 52 have been considered.
As per the professionals in the region and also the outcome of the research revealed that the problems encountered
in dealing with clause 52.1 were mainly due to:
Lack of awareness of the FIDIC conditions
Incorrect interpretation of clauses

Mistrust among the parties to the Contract


Incorrect implementation of clauses

The behaviour of some regional professionals related to clauses in FIDIC have caused considerable difficulties in
the administration of project works.
It is necessary to look at clause 52.1 by the industrial professionals and should alleviate necessary concerns for
sound contracts administration in the region. Most contracts disputes can be eliminated with small improvements
to the clause 52.1 which all the parties involved in the industry will be pleased to accept.

A regional construction project usually runs into a large


number of variations due to numerous reasons. Some
of the major factors are incomplete design, changes due
to Employers requirements, and practical problems due
to buildability of complex designs, and local authoritys
requirements and also due to Contractors own faults.
The construction industry within this region is often faced
with claims and disputes which are related to variations.
According to industry professionals, clause 51 and clause 52
of the FIDIC 4th are root causes for disputes in the region.
Two major concerns dealing with these clauses are,
the non availability of price fluctuation clause and the
non availability of clear provision linking with clause
14 programme to deal with problems in valuation of
variations which arise due to late instruction of works.

As per Nael G Bunni


The adjustment of rate should be done considering
the time delay, out of sequence of working, change
of method of execution and extend of preliminaries
affected. (Nael G Bunni 2000, p.305)
The clause 52.1 has given the authority to the Engineer
to fix the rates in an event of disagreement. Whenever
the Contractor disagrees with the Engineers decision
there is no remedy for the Contractor other than going
for a dispute resolution method for settlement which has
higher cost involvement, effort and time in the regional
dispute resolution mechanism like arbitration. Such
situation will render the regional Contractors helpless
and tend to agree to the Engineers decision incurring
losses rather than challenging them.

27

September 2009

SLQS JOURNAL

Figure -1

Most of the people in the region believe that the regional


Employers get advantage in variations by omitting the
price fluctuation provision in contract.

45.71%

Figure 2 below (next page) shows that the majority (60%)


agreed that the Employers get advantages (irrespective
of the scale of the advantages) from deactivating the
price fluctuation clause. In this situation, whenever the

10.48%

9.52%

The most identified modification in regional Contracts


is the deactivation or deletion of price fluctuation clause
and it has become a very common practice, refer figure
1 below;

the same period would minimize most of the related


issues. By inclusion of the above referenced Clauses,
the Contractors risk could have been determined when
pricing projects. The specific period to which the rates are
limited, should be clearly mentioned in the agreement.

34.29%

It was found that a majority of the disputes were due to


Engineers impartial decisions, especially in valuation of
variations and administering the instructions. Since there
is no price fluctuation mechanism practised within the
region, the problems could have been alleviated if there
is a clear provision provided with in the FIDIC linking
clause 14 programme and the time of the Engineers
instructions to vary the works.

The availability of Price Fluctuation clause in regional Contracts

The volatility of the market condition experienced in the


recent past has created serious difficulties for Contractors
in forecasting material prices when tendering in the
absence of suitable price fluctuation clauses. The cement
and steel price hikes (at the time the research was carried
out) in the recent past can be given as a good example to
this effect. This uncertainty in forecasting material price
not only created difficulties for the Contractors but also
for the Employers in procuring Contractors.

variations are instructed Contractors have to do those


additional works as per the rates in the Contract. If the
material prices go up in unpredictable manner Contractors
may have to suffer the extra cost. As a precaution all the
Contractors in the region add large amounts of money in
their tender bids considering price fluctuation risk.

Considering the unfair and unreasonable methods


adopted to deal with price fluctuation clause in the
region, it is evident that if the term the Contract Period
is defined in FIDIC, and the Contract rates limits to

28

Reg Thomas in his book Construction Contract Claims


(1993) explained the issue as follows:
In practice, most variations have some effect on the
progress of the works and the method of executing
the work. Where it is possible, each variation should
be valued taking into account all of delaying and

Figure 2

45.71%

34.29%

10.48%

9.52%

SLQS JOURNAL

September 2009

The effect for the Employer due to lack of price fluctuation clause

disruptive elements which are directly related to the


variation. (Reg Thomas, 1993, p116)
Usually the Contractors prepare their material procurement
schedule in the early stage of the project. This schedule
is in accordance with the clause 14 programme and also
coordinates with their cash flow. Any instruction which
requires procurement of material out of this procurement
schedule will incur additional money which would not
have been envisaged.
Under normal circumstances the Contractor would have
recovered the additional cost of those works incurred, if
the clause 52.1 administers them in fair and reasonable

manner. Whenever the Engineer administers the changes


impartially and with rigid attitude the Contractors face
difficulties in recovering the additional cost incurred.
This problem could have been avoided if there is a clear
link provided in FIDIC between clause 14 programme
and the timing of the issuing variations.
The time related to the construction activities of the
project is explained in the clause 14 programme of the
FIDIC 4th. Whenever the works affect the work in
progress, the impacted programme shows the actual
time needed to complete those works. The programme is
prepared by the Contractor showing how he/she intends
to do the works and it should clearly show the beginning

Figure 3 Necessity of a relationship between clause 14 programme for valuation of variations

29

September 2009

SLQS JOURNAL

There is a provision in FIDIC 4th for additional cost


consideration for the case of out of sequence works as
described under clause 51.1(f ). However, the prevailing
contract administration practise in the region shows
that the Contractors are not always compensated for the
additional cost incurred for the out of sequence works.
The figure 4 below illustrates how often Contractors are
getting paid for out of sequence of work in the UAE
region.

8.74%

39.81%

When the Works out of sequence are specified as variations,


according to clause 51.1 those works need to be paid with
extra consideration. However, noticeably in this region
it has become a custom to neglect those out of sequence
works for extra payments. This particular issue also has

Even though the Contract professionals are aware that


the prevailing practice is questionable since there is no
clear mechanism in FIDIC 4th to deal with the problem
the administrators in the region tend to ignore the
professional practice and opt not to pay for additional
cost due to out of sequences work.
Introducing valuation of variations using invoices as an
alternative method is a good solution subject to high
degree of transparency in the process. Greater care
should be taken to avoid misusing invoices if this method
is going to be implemented.
According to lump sum contract procedure, the rates
are fixed for the Contract period. However the term
Contract Period is an undefined term in FIDIC. People
have argued in several ways defining the Contract Period
as the original Contract duration, including the extension
of time period until taken over and some interpret the
Contract Period to include the defect liability period.
So it is better to agree, what is meant by the Contract
Period in the Contract before agreeing to the rates for

17.48%

Figure 3, above illustrates that 70% of the regional


professionals in the industry prefer to have a formula
for price adjustments in the process of valuation of
variations, with a relationship to clause 14 programme.
However, the FIDIC 4th edition does not have such a
provision included.

not been mentioned in any part of the FIDIC 4th. The


clause 52.1 should address this issue as a separate part
of the valuation process. If it is written in the Contract,
people will comply with the clause and at least consider
those provisions.

33.98%

and the end of each construction activity. When the


variations are instructed those works need to be included
and impacts are shown in revised programmes ( unclear
/ rephrase).

Figure 4 Payments for affected sequence of works

30

September 2009

SLQS JOURNAL
Most of the construction projects get delayed due to
various reasons. Non availability of such clarifications
about the Contract Period generates a lot of disputes in
the final stage of the projects. Especially when the parties
deal with price fluctuations and ad hock variations issued
in the later part of the project, the situation destroys the
relationships and most of the times they could end up
following the dispute resolutions procedure.

All other three groups together (52.94%) are saying that


the payment using BOQ rates is unfair. However in the
FIDIC 4th there is no clear explanation on how the rates
should be revised or how to add the price fluctuations
when the EOT is granted. Especially when the modified
Contracts in the region deactivate the price fluctuation
clause there should simultaneous be amendments to the
clause 52 on how to value the variations in those period.

When a project is extended due to additional works


instructed by the Employer, how are the additional works
being paid? There are a number of construction projects
in the region having these issues and what should be the
correct methodology to administrate the issues?
Should it be fair for the Contractor to be paid on BOQ
rates during the Extension of Time period granted due
to clients delays?

The suspicious nature among the parties (Employer,


Consultant and Contractor) in construction projects in
the region has hindered building up sound and friendly
background for construction when carrying out day
today construction work. This has created untrustworthy
environment for the construction which is not accepted
in any environment, by any standard. The above
environment can generate disputes between the parties
which have always found difficult to arrive at agreement.
All the time each party tries to get the advantage over
the others weaknesses rather than providing fair and
reasonable service to the industry.

Figure 5

23.53%

11.76%

42.16%

4.90%

42% of the sample prefers to use the BOQ rates but


additional costs need to be covered from the EOT claim.
It means that this particular group thinks that there

It can be seen that most of the disputes created in the


regional industry relate to the behaviour of individuals
involved in the construction field. Those who have
arrived in the region with different cultural backgrounds,
without proper contractual knowledge and experience

17.65%

39.81%

8.74%

According to the survey results illustrated in figure 5


above, It is very interesting that 4.9% of people in the
sample think that the costs should be absorbed by the
Contractor. It is arguable why the Contractor needs to do
so, thus compensating Employers requirements.

17.48%

should be a compensation for those rates.

33.98%

the period.

Fairness of use BoQ rates in Extension of Time period

31

September 2009

SLQS JOURNAL

Figure 6 General view about the Clause 52.1

in administering FIDIC contracts are the root cause for


disputes in the industry.

their rights. This is not a very healthy environment for


the regional construction industry.

Moreover these professionals are always under extreme


pressure due to fast track nature of projects currently
being carried out in the region that have restricted their
ability to perform their duties diligently and with indepth investigations.

The regional professionals believes that the clause is drafted


satisfactorily and need a few improvements for sound
contract administration in the regional construction
industry while very few professionals appreciated the
existing clause as a perfectly drafted clause which does
not require any improvements.

Most of the Employers in the region expect their


employees to safe guard his/her own interests rather than
serving in fair and reasonable manner. The Engineer is
the Employers representative in a working project that
is paid by the Employer. When the regional Employers
expect such nature from person who should behave fair
and reasonable way to both parties, other party (the
Contractor) is always positioned in danger of missing

Figure 7

32

Figure 6 above shows that only 14% of the professionals


recommend that the clause does not need any changes
while another 2% say that the clause has been poorly
drafted. All other 86% have emphasised the necessity
of improvements where majority (77%) of them
recommended few improvements. It is interesting that the
majority from the above 86% is working as consultants

Contractor representatives views about the clause

September 2009

SLQS JOURNAL

Figure 8 Consultant representatives views about the clause


(Engineer) in the industry.
As a summary the clause 52.1 has problems and those
problems increase due to administering of the FIDIC 4th
by the professionals in the regional industry.
Improvements
It is true that most of the expatriates in the regional
construction industry have come together from different
countries bringing their own experiences in different types
of contracts. Thorough understanding of the regional
contracts in used essential before practising as Contract
Administrators in the regional industry.
The situation can be improved easily by providing
proper training and conducting workshops in contract
administration under FIDIC standard form of contracts to
regional construction professionals who lack experience.
Some of the misinterpretations also can be eliminated by
adopting the strategy of in-house training programmes
for the new comers to join the industry.
It is highly recommended to pay special attention to
make aware of the professionals in dealing with the
major concerns such as issue of variations, valuation of
variations, delays, extension of time, prolongation costs
and also dispute resolution before practicing as Contract
Administrators in the regional industry. Getting a clear
understanding and learning of the correct procedures
of the FIDIC 4th will mitigate the ambiguities and
misunderstandings in the industry and the contracts can
be administered more efficiently.
The Engineer and his/her team should be well experienced,

qualified and trained with an ability to deliver their


duties in a fair and reasonable manner to safe guard
the interests of the Employer as well as the Contractor.
Impartial, independent construction professionals with a
fair knowledge and maintaining professional ethics can
be a better solution to deal with the prevailing issues in
the region.
Special attention should be given regarding the clause 51
and clause 52 by the regional experts in the construction
industry where the powers of the Engineer need to be
re- examined.
The misuse of the powers given to the Engineer under
clause 51.1 and 52.1 of the FIDIC, by some of the
Engineers in the regional construction industry should
be avoided. While issuing the necessary and appropriate
changes as variations under clause 51.1 and also fixing
of rates under clause 52.1, FIDIC needs to be reviewed
by the regional experts to rectify the situation. It is
suggested to form a professional body which can be used
for resolving minor disputes such as the ageing of rates.
It is also important that the understanding of the role
of the Engineer by the regional Employers to be an
impartial person who has to carry out his duties in a fair
and reasonable manner to both the Employer and the
Contractor. Even though the Engineer is appointed by
the Employer, the Employer should not use his powers to
drive the Engineer to safeguard his interests by letting the
Contractor into difficulties.
Adding the term Contract Period to FIDIC under

33

September 2009

SLQS JOURNAL
the Definitions and Interpretation section by which
the rates can be fixed for the duration of the Contract.
Maintaining price indices or any other cost indices can
be used for adjusting the price fluctuations in the region.
Under present situation the regional Employers are facing
the risk of the price fluctuations included in the tender
even though the material prices may remain unchanged
during the Contract duration.

which have different mechanisms than the traditional


procurement methods. The use of Partnering Contracts is
becoming popular in the regional industry and it can be
seen that the projects carried out under this arrangement
are running smoothly and effectively. However those
alternative procurements need to be proven in the region
where the parties always have suspicious nature among
them.

Alternative mechanism has been introduced by the Abu


Dhabi government. It is a remarkable development to
compensate the price escalations by the Employer taking
into consideration of the material procurement schedule
prepared in accordance with the clause 14 programme.
The Contractor should give the material procurement
schedule together with the clause 14 programme.
Implementation of this method in the region in valuation
of variation process can be an excellent solution to the
disputes in valuation of variations.

Finally it is highly recommended to maintain the


standards of the professionals and professional ethics for
fair and reasonable practise by all the professionals in the
regional industry.

The alternative procurement routes and alternative forms


of contracts can be tested as alternative methods while
there are some Employers who have already started GMP
Contracts and also Partnering Contracts in the region

Finally if all the parties understand their responsibilities


and liabilities under FIDIC standard form of Contract
and if all the parties worked diligently and ethically in
fair and reasonable manner most of the identified issues
in the region can be mitigated. It is essential to work with
a mutual understanding in the professional environment
for the development of the industry, for the satisfaction
of all the parties involved and for higher returns for the
stakeholders.

White, Frost and others -v- Chief Constable of South


Yorkshire and others [1999]
The House considered claims by police officers who had suffered psychiatric injury after tending the
victims of the Hillsborough tragedy.
Held: An employer has a duty to protect his employees from physical but not psychiatric harm unless
there was also a physical injury. A rescuer, not himself exposed to physical risk by being involved in
a rescue was a secondary victim, and as such not entitled to claim. Primary victims are victims who
are imperilled or reasonably believe themselves to be imperilled by the defendants negligence. Lord
Steyn: (T)he law on the recovery of compensation for pure psychiatric harm is a patchwork quilt
of distinctions which are difficult to justify In my view the only sensible general strategy for the
courts is to say thus far and no further. The only prudent course is to treat the pragmatic categories
as reflected in [case law] as settled for the time being, but by and large to leave any expansion or
development in this corner of the law to Parliament. In reality there are no refined analytical tools
which will enable the courts to draw lines by way of compromise solution in a way that is coherent
and morally defensible. It must be left to Parliament to undertake the task of radical law reform.

34

September 2009

SLQS JOURNAL

Implementation of Knowledge Management


Processes and Practices in Construction
Industry
Vijitha Disaratna, BSc(Hons)QS, MBA, MRICS, ACIArb
Is Quanity Surveyor graduated from the University of Moratuwa in 1993. Passed licentiate part 1 & 2 and
professional part 1 examinations conducted by the Institute of Chartered Accountants of Sri Lanka. Completed MBA in Construction & Real Estate course conducted by the University of Reading and compiled a
research dissertation on Implementation of Knowledge Management Processes and Practices in UAE Construction Industry. This article is based on part of literature review carried out for the MBA dissertation.

Definitions

Awad and Ghaziri (2008:28) identified sixteen alternative


definitions of Knowledge Management (KM) provided
by various writers and organisations. Therefore, it is
evident that there is no universal definition for KM.
The Oxford Advances Learners Dictionary defines
process as:
a series of actions or tasks performed in order to do,
make or achieve something.
The same defines practice as:
the actual doing of something; action as contrasted
with idea.
For the purpose of this article, KM processes and
practices are defined as processes and practices designed
to identify, capture, structure, value, leverage and share
knowledge and this definition of KM was adapted from
a definition given in businessdictionary.com.

KM in Construction Industry

was designed as aforesaid. The contractors were selected


using the traditional procurement system generally on
a project by project basis and in turn the contractors
selected the sub-contractors also on the same basis. The
whole process consisted of transactional episodes and the
parties were attempting to maximize their own profit at
the expense of the others. The goodwill, trust and cooperation between the parties were minimal. Due to
the transactional nature of the industry, opportunities
for repeat business were less. The traditional way the
construction industry operated provided less incentive /
opportunity for the industry to continuously learn from
the process, build relationships, the integration of skills
and innovation. The clients are generally dissatisfied as the
projects fail to achieve their objectives in terms of time,
cost and quality. This sequential nature and the culture
of the industry identified above acted as a barrier to use
the skill and knowledge of suppliers and contractors in
the design and planning of the projects. The knowledge
gained on many project were lost due to break down of
the project team once a project was complete.

Introduction
A client investing in a construction project expects the
project to be completed on time, with specified quality
and at agreed cost (or agreed budget). However, the
general perception of the industry is that most projects
fail to achieve these project objectives due to various
reasons. Egan (1998: 7) admits the unpredictability of
projects in terms of delivery on time, to be within budget
and to the standards of the quality expected.

Egan report (1998) prepared with a view to investigate


the extent to which the quality and efficiency in UK
construction could be improved by re-engineering the
construction process, suggested that the construction
industry has to learn to do the things differently and
believed that the industry has to rethink the process
through which it delivers the projects in order to
achieve continuous improvement in its performance and
products.

Construction industry is predominantly a project based


industry. The construction industry and construction
projects traditionally operated in an adversarial manner.
The design was done by the Architect and other consultants
and the contractors were expected to construct on site what

The report further identified that contrary to the common


view that every project is unique, products such as houses
are repeat products. Moreover, the process of construction
itself is repeated from project to project and these products
and the processes can be repeatedly improved.

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SLQS JOURNAL

September 2009

Therefore, Egan report recommended that the industry


should create an integrated project process around the
four key elements of product development, project
implementation, partnering the supply chain and
production of components. It defines integrated project
process as a process that utilizes the full construction
team, bringing the skills of all the participants to bear on
delivering to the client and is explicit and transparent,
and therefore easily understood by the participants and
their clients.

1) Lack of time
Construction projects always work on tight deadlines.
KM requires additional efforts that may be considered
by the project staff as less important within a tight
construction programme.

A key requirement of this process is that teams of designers,


contractors and suppliers work together through a series
of projects, continuously developing the products and the
supply chain, eliminating waste in the delivery process,
innovating and learning from experience. It emphasizes
that both the clients and industry must change.

However, Awad and Ghaziri (2008:37) have


reservations on this approach and state that a
company should start with a strategy and a champion,
with a focus on a worthwhile, high profile project that
can set the tone for the rest of the organization.

Egan further recommends that the construction industry


requires substantial changes in its culture and structure in
order to achieve its full potential. The recommendations
include building long term relationships based on trust,
sustained improvement in quality, good human relations
practices and sharing learning etc.
Proper implementation of Egans recommendations
involves challenging the status quo in the construction
industry. However, this will enable the industry to
integrate the untapped capabilities of their intellectual
capital and to provide innovative solutions by managing
their knowledge to satisfy the clients demands whist
gaining competitive advantage.
Latham (2006: vii) states that lessons learned on many
construction projects are often lost at the end of a project
and the parties move on to new projects. He further
states that post project reviews carried out to capture
the lessons learned are usually carried out in a haphazard
and untimely manner and without providing sufficient
time. Therefore, Latham (2006: vii) proposes that KM is
essential for improving the project delivery system.
Challenges/Problems
Associated
with
the
Implementation of KM Processes and Practices in
Construction Industry
Carrillo et al. (2000) identified that the barriers/problems
to successfully implement KM within a construction
enterprise include:

36

2) Trying to solve large problems


KM involves various complex stages. It is easy to
implement KM as small projects in practice. Instead
organizations attempt to tackle it at a large scale.

Therefore, combining both the views it can be


said that it is important to have a strategy and to
select an appropriate project to start with to suit its
circumstances when KM processes and practices are
implemented by a company.
3) Converting knowledge
Traditionally construction industry has a culture
which does not promote knowledge sharing. KM
in a project environment requires capturing the
knowledge of employees from different organizations
and converting their tacit knowledge into explicit
knowledge within a reasonable period at an acceptable
cost, which is a difficult task.
4) Large number of small to medium enterprise (SMEs)
For SMEs, KM is of less concern as they have other
pressing concerns. They also have no commitment or
resources to undertake KM.
5) Multi-Disciplinary teams
Project teams involve multi-disciplinary teams from
different organizations or divisions, who work towards
the agenda, set by the organization or division. KM
within such a team in a project of short duration is
difficult.
6) Unique projects
Traditional view of construction industry is that it
comprises of unique projects even though attempts
are made recently to identify the common processes
within projects. People having unique project views

SLQS JOURNAL
are of the opinion that KM in a project will be wasted
as the next project may be quite different.
7) Lack of learning
The unwillingness of people to learn from past mistakes
having the view that projects are unique and therefore
attempting to learn from past mistakes is futile.
8) Lengthy time period
KM is long term and takes time to reap its benefits
and to reflect the effectiveness in the organizational
performance.
9) Loss of faith
Even though KM is a long term process employees
may expect immediate benefits from a KM system
and may lose faith when it is not happening.
10) Information Technology support
Many KM systems rely on Information Technology.
Connecting construction project offices which may
be of temporary portacabins located in isolated
environments with inadequate infrastructure can be
a barrier in implementing KM.
As identified above the traditional culture of the
construction industry having an
adversarial nature,
sequential nature and traditional procurement systems as
integral parts of the culture provides very less incentive /
opportunity for the industry to continuously learn from
the process, build relationships, the integration of skills
and innovation and therefore does not promote KM.
Anumba et al. (2006: 216) identify some mechanisms /
solutions that can address these problems as follows:
1) Establish the KM problem prior to investing in KM
processes and practices
2) Establish the characteristics of knowledge that needs
to be managed as these have implications on the
approach to be adopted
3) Assess organizational culture and take steps to move
towards a sharing culture if the current culture is an
authoritative one
4) Identify the location knowledge is required to be
managed and the constraints involved when devising
KM processes and practices
5) Establish how the knowledge is to be acquired (formal
courses or by informal interaction between knowledge
owners)

September 2009

6) Identify and involve all stakeholders who may be


affected by a KM initiative
7) Select a manageable size business unit or a process
initially and implement KM rather than implementing
across the whole organization at once
8) Be clear on knowledge that is required to be shared
and that is required to be retained within the
organization
9) Devise means of measuring the effectiveness of KM

Implementation of KM Processes and Practices


in the Construction Industry
Egbu and Robinson (2006:36) state that there are
three aspects of knowledge that need to be managed in
construction context:
1) Products or project types
2) Processes
3) People.
They recognize technology which supports connectivity
as an enabler that supports the KM processes.
Product-based factors relate to the characteristics of the
services or goods to be produced, whether standardized,
mature or innovative (Hansen et al., 1999 as cited in
Egbu & Robibson 2006 : 36).
Egbu and Robinson (2006:36-38) further states that the
construction organizations are characterized by the types
of projects or the products they deliver. They state that the
process-based factors relate to the technical and management
systems required for the delivery of products. They further
state that the people-based factors relate to skills, problemsolving abilities and the characteristics of teams.
Egbu and Robinson (2006:36-38) recognise that the end
products required by the clients are often different and
therefore may require different technical and management
processes which have implications on the processes and
knowledge to be managed during design and construction
. Therefore, they recognize that highly skilled individuals
and competent teams are vital in the construction process.
They highlight the need for problem-solving creative
people with tacit knowledge for innovative projects that
are often vaguely defined and complex to implement.
Al-Ghassani et al. (2006: 83-89), Egbu and Robinson
(2006:39-46), Sheehan et al. (2006: 53-60), Siemieniuch

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SLQS JOURNAL
and Sinclair (2006: 65-79) and Kamara et al. (2006: 112113), identify the KM process and practices that are in
use in the construction industry as follows:
Post project reviews
Active involvement of top level to KM initiatives
Availability of a Knowledge Manager, Chief
Knowledge Officer or a similar position to deliver the
knowledge management strategy.
Non-traditional procurement methods
Training and development of staff, coaching and
mentoring
Apprenticeship programmes
Promotion of Life Long Learning
Use of Information Technology to capture, amplify
and disseminate knowledge within the organization
and to know who knows.
Proper archiving practices including effective means
of retrieving
Standard construction products
Promotion of e-business approaches
Promotion of a culture of organizational learning and
sharing and actively seeking to apply new learning
Organisation structures promoting KM
Team stability via use of same people working together
project after project
Research and development
Use of partnerships, alliances, joint ventures,
framework agreements
Effective networks with the members of supply chain
Identification of experts, empowering them and
encouraging them to share
Facilitate Communities of Practice within the
organization
Motivational practices related to KM such as linking
KM to appraisal system, team based rewards.
Face to face meetings
Brainstorming sessions
Job rotation
Quality circles
Reports and project summaries
Bulletin boards
Best practice documents.
Policies to retain staff to avoid knowledge drain
Egbu and Robinson (2006:43-44) state that construction
industry is increasingly aware of the knowledge sharing
through networks and identify knowledge sharing
networks such as Construction Best Practice Programme

38

September 2009

(CBPP), Construction Productivity Network (CPN),


Movement for Innovation (M4I), Co-operative Network
for Building Researchers (CNBR) as examples. They also
point out the formation of a number of benchmarking
clubs following Egan (1998) recommendations.
Egan (2002), the follow on report to Egan (1998) states
that teams that only construct one project learn on the
job at the clients expense and recommends continuous
improvement of performance for the industry to become
more successful. Three main drivers to secure a culture
of continuous improvement are: the need for the client
leadership, need for the integrated teams and the need
to address people issues to secure a culture of continuous
improvement (CEM, 2007:55). The client through action
can create an environment conducive for KM in the
project by facilitating integrated teams and addressing the
people issues related to the project. The client leadership
becomes more important when a client is having repeat
business or a portfolio of projects.
The Movement for Innovations Working Group (2000)
attempts to find effective and practical ways for the
construction industry to radically improve its performance
on people issues. It states that there is a strong business case
for such improvements as the firms who fail to improve
their attitude and performance towards respecting people
will fail to recruit and retain the best talent and business
partners. It identified six action themes, namely diversity,
site welfare, health, safety, lifelong learning, and off-site
welfare. The working group developed a set of toolkits in
the form of checklists for each of these themes and also
proposed a framework of performance measures. They
recommend that the implementation of proper people
practices will yield benefits such as better standard of work,
more cost effective projects, fewer delays and expensive
mistakes, reduced staff turnover, earlier completion dates,
competitive advantage and more repeat business. People
are the core in KM. Proper people practices make it
possible to gain total commitment from them in order to
implement effective KM processes and practices that will
yield these benefits.
Office of Government Commerce (2006) illustrates how
best practices have been adopted in practice to achieve
excellence in construction projects focusing on the
approach taken toward the supply chain. The case study
focuses on selecting the team, changing the culture and
knowledge shared between the parties among others.

SLQS JOURNAL
Conclusions

1) Knowledge Management (KM) in construction can


improve the project delivery system.

Egan (1998) recommends that the construction


industry requires substantial changes in its culture
and structure in order to achieve its full potential.
The recommendations include building long term
relationships based on trust, sustained improvement
in quality, good human relations practices and sharing
learning etc.
Latham (2006) states that lessons learned on many
construction projects are often lost at the end of a
project and the parties move on to new projects. He
further states that post project reviews carried out to
capture the lessons learned are usually carried out
in a haphazard and untimely manner and without
providing sufficient time. Therefore, Latham (2006)
proposes to implement KM for improving the project
delivery system.

September 2009

Edition), Dorling Kindersley (India) Pvt. Ltd., ISBN 978-81317-1403-4


BusinessDictionary.com knowledge management definition,
Available from: http://www.businessdictonary.com/definition/
knowledge-management.html [Accessed 2 May 2008]
Carrillo P, Anumba C J and Kamara J M (2000) Knowledge
Management Strategy for Construction: Key IT and Contextual
Issues, Department of Civil and Building Engineering,
Loughbourough University Available from: http://itc.scix.net/data/
works/att/w78-2000-155.content.pdf [Accessed 11 April 2008]
CEM (2007) The Real state Development Process (Paper 3575V8-0)
Egan J (1998) Rethinking Construction, Department of Trade
and Industry, ISBN 1851120947
Egan J (2002) Accelerating Change, Construction Industry
Council, ISBN 1898671281
Egbu C O and Robinson H S (2006) Construction as a
Knowledge-Based industry in Anumba C J, Egbu C and Carrillo
P Knowledge Management in Construction, Blackwell Publishing,
pp.31-49 ISBN 1-4051-2972-7

2) There are problems associated with the implementation


of KM processes and practices in the construction
industry.
Carrillo et al. (2000) and Egan (1998) identified the
problems associated with the implementation of KM
processes and practices in the construction industry.

Hansen M T, Nohria N and Tierney T (1999) Whats your strategy


for managing knowledge? Harvard Business Review. MarchApril, pp106-117 cited in Egbu C O and Robinson H S (2006)
Construction as a Knowledge-Based industry in Anumba C J,
Egbu C and Carrillo P Knowledge Management in Construction,
Blackwell Publishing, pp.31-49 ISBN 1-4051-2972-7

3) There are mechanisms / solutions to problems


associated with the implementation of KM processes
and practices in the construction industry.

Kamara J M, Anumba C J and Carrillo P M (2006) Cross-Project


Knowledge Management in Anumba C J, Egbu C and Carrillo P
Knowledge Management in Construction, Blackwell Publishing,
pp.103-120 ISBN 1-4051-2972-7

Anumba et al. (2006: 216) identified the mechanisms


that can address the problems associated with the
implementation of KM process and practices in the
construction industry.

Latham M (2006) Foreward in Anumba C J, Egbu C and


Carrillo P Knowledge Management in Construction, Blackwell
Publishing, pp.vii-viii ISBN 1-4051-2972-7

References

Al-Ghassani A M, Anumba C J, Carrillo P M and Robinson H


S (2006) Tools and Techniques for Knowledge Management in
Anumba C J, Egbu C and Carrillo P Knowledge Management
in Construction, Blackwell Publishing, pp.83-102 ISBN 1-40512972-7
Anumba C J, Egbu C and Carrillo P (2006) Concluding Notes
in Anumba C J, Egbu C and Carrillo P Knowledge Management
in Construction, Blackwell Publishing, pp.213-217 ISBN 14051-2972-7
Awad E M, Ghaziri H M (2008) Knowledge Management (2nd

Office of Government Commerce (2006) DWP Jobcentre


Plus roll-out Integrated Supply Chain, OGC Case Study
Available
from:
http://www.ogc.gov.uk/documents/
DWPJobcentrePlusSupplyChainCaseStudy.pdf
[Accessed 25
September 2008]
Sheehan T, Poole D, Lyttle I and Egbu C O (2006) Strategies
and Business Case for Knowledge Management in Anumba C J,
Egbu C and Carrillo P Knowledge Management in Construction,
Blackwell Publishing, pp.50-64 ISBN 1-4051-2972-7
Siemieniuch C E and Sinclair M A (2006) Organisational
Readiness for Knowledge Management in Anumba C J, Egbu
C and Carrillo P Knowledge Management in Construction,
Blackwell Publishing, pp.65-82 ISBN 1-4051-2972-7

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SLQS JOURNAL
Time for Completion in Construction
Contracts
Senerath Wetthasinghe LL.M, AAIQS, FCIArb, MQSi, ACIOB
Senior Contract Administrator - Dar Al Handasah Consultants in Dubai

1. Overview
Time is Money1 is an immemorial adage used to indicate
that time is a very valuable commodity. Therefore, to be
successful and competitive in any business venture, time
needs to be managed efficiently. Construction, being a
business very complex in nature and which employs
multifarious trades and disciplines, requires more stringent
time management techniques than other businesses to
ensure that construction projects are completed within
their prescribed times for completion.

In construction contracts, it is the contractors obligation
to complete the works specified in the contract by the
date for completion stated therein. Failure to comply
with this obligation amounts to a breach of a condition
or a warranty depending upon the construction of such
terms2. If the obligation is a condition the innocent party
can repudiate the contract3. Otherwise, that party has a
remedy in damages liquidated if so specified in the
contract, or un-liquidated4. Therefore, it is important to
investigate the precise meaning of completion.
2. Meaning of Completion
Construction contracts, by their construction, can be
divided into two categories:

Entire contracts (frequently referred to as lump sum


contracts), and
Severable contracts5.

The term completion as used in construction contracts


can have different meanings depending on to which
category a particular contract falls and the judicial
interpretation thereof.

40

As a general rule, in an entire (lump sum) contract,


complete fulfilment of obligations of a party to a contract
is a condition precedent to the other party exercising its
obligations under the contract6. This means that failure
by one party to complete its obligations entirely under
the contract creates justifiable grounds for the other
party to rescind the contract7. Further, it also means
that failure to comply with the terms and conditions of
the contract, despite the obligations under the contract
being fully completed, but not in full compliance with
the requirements of the contract, the defaulting party
can recover nothing8. Thus, completion under entire
contracts implies absolute completion of the obligations
of the parties.

The harshness of this concept can be illustrated by the
case of Cutter v Powell 9, where the widow of the deceased
seaman was refused even part of the agreed payment,
which was agreed to be paid ten days after the arrival at
the port of destination, as the seaman could not complete
the voyage.
From the judgements delivered by the courts on
disputes as to the meaning of the term completion in
construction contracts, it can be seen that the courts have
adopted a similar approach in interpreting the meaning
of completion under an entire contract.
In Appleby and Another v Myers10, the plaintiff who
agreed to erect machinery on the defendants premises
under an entire contract could not complete the works
as the portion of the completed works together with the
building was destroyed by an accidental fire. The court
held that the plaintiff was not entitled to recover payment
for the portion of the completed works. While delivering
the judgment in Appleby Blackburn J said11:

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SLQS JOURNAL

[t]here is nothing to render it either illegal or absurd


in the workman to agree to complete the whole, and
to be paid when the whole is complete, and not until
then...

Further, in Sumpter v Hedges12, where the plaintiff


was contracted to construct a building under an entire
contract, apart from the cost of materials left on site
which had been used by the defendant to complete the
works, the plaintiff could not recover any money from the
defendant for the part of the works completed, either on
proportional basis or on quantum meruit in the absence
of any evidence of a new contract to pay such a sum, as
the plaintiff abandoned the contract without completing
it due to lack of funds.
Similar judgements have been delivered in the following
old and contemporary cases akin to meaning of
completion under entire contracts:





Ellis v Hamlen13
Jackson v Eastbourne Local Board 14
Lucas v Drummoyne Borough15
Edward and Webster v Coley16
Ibmac Ltd v Marshall (Homes) Ltd 17
Update Construction Pty Ltd v Rozelle Child Care
Centre Ltd 18
Semour Segnit v Christopher Cotton19
Morse Group Ltd v Cogniesis Ltd 20
Safe Safe Homes Ltd v Massingham21

It is evident from the judgements of many of the above
cases that the entire performance rule conferred the owner
an undeserved benefit at the expense of the contractor.
The inequity of this system led to the emergence of the
doctrine of substantial performance23. The inception
of this doctrine is usually credited to the judgement
promulgated in Dakin & Co. v Lee24, albeit the courts
have evolved this doctrine much earlier than Dakin24.
Under this doctrine a contractor who achieves substantial
completion of its obligations under a contract in
contrast to absolute completion is eligible for
payment. Some of the many cases in which this doctrine
had been upheld in their judgements are as follows:
Cutler v Close25
H Dakin & Co Ltd v Lee26
Jacob and Banners v Kent27

Hoenig v Isaacs28
Kiely & Sons Ltd v Medcraft29
The Law Commission paragraph 2-11 of 19th Annual
Report (1983-1984) of England and Wales has
recommended the removal of the entire performance
rule from contracts, subject to certain limitations,
preferring that the party in breach of the contract should
be entitled to the value of the works it has completed, up
to the occurrence of the breach, if such completed works
have bestowed a benefit to the other party30.
Most of the present day construction contracts have
adopted the substantial performance doctrine instead
of entire performance rule by allowing owners to accept
or take-over the works once they have achieved practical
completion or substantial completion terms used in
JCT forms of contracts and ICE and FIDIC forms of
contracts respectively.
Further, provision made in present day construction
contracts for interim payments to be paid to contractors
as works progress, has alleviated cash flow problems
akin to entire contracts. In the United Kingdom, legal
assent to such interim payments is conferred by sections
109 and 110 of the Housing Grants, Construction and
Regeneration Act31, provided that the agreement is in
writing.
Under UAE law, Article 247 of the Civil Code32 provides
for the performance of contracting parties obligations.
The Article stipulates:

In contracts binding upon both parties, if the mutual


obligations are due for performance, each of the party
may refuse to perform his obligation if the other
contracting party does not perform that which he is
obliged to do.

Thus, if a contracting party does not perform its


obligations under a contract, the other party may
[emphasis added] refuse to perform its obligations under
the contract. Although the provisions of this article, prima
facie, indicate that the Civil Code33 promulgates entire
contracts, the word may used in the wording makes such
refusal an option. Further, Articles 258 and 265 of the
Civil Code34 provide that the intention of the parties
is the main criterion when interpreting the wording of
any contract and clauses thereof. As the bespoke forms

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SLQS JOURNAL
of contract used in Dubai provide for substantial
completion of the works, it is highly unlikely that the
term completion would be interpreted by the courts
in the UAE in any other way than to mean substantial
completion.

The above proposition can be supported by the decision
given by the Federal Supreme Court (Court of Cassation)
of Abu Dhabi in a case35 related to partial completion of
a contract. There, the court held that if the contractor did
not complete all the agreed work and only completed part
of it, it should be entitled to payment in proportion to
the work it had completed and the value of essential work
required for the contract work. This means that, even if
the contractor has not achieved substantial completion
of the works, it is entitled for payment provided the
employer is benefited from the completed portion of the
works.
In a typical construction contract, the term completion
may be used in at least four separate senses36.
The first is practical or substantial completion. The
second, which may be called works completion, occurs
when all the actual physical work has been finished; this
may or may not coincide with practical or substantial
completion. The third is defects completion, which is
achieved when all defects appearing during the Defects
Liability Period have been made good. The fourth is
legal completion, which occurs when the contractor has
provided all information necessary for the preparation
of the final account and the employer has made his final
payment, so that in legal sense the contract has been
performed on both sides37.
Even though, the meaning of completion akin to latter
three scenarios can be comprehended, the meaning of
practical or substantial completion is not apparent.
Although there is no judicial interpretation of the term
completion promulgated by the UAE courts, such term
has been judicially interpreted in several occasions by the
courts in the United Kingdom. From the interpretations
given by the courts for practical completion, in the
context of JCT standard form contracts, it is clear that
once all the necessary construction works specified in the
contract are performed the works can be considered to be
practically completed for the purposes of such provisions
in the JCT form38. In Westminster City Council v J Jarvis

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September 2009

& Sons Ltd39, Viscount Dilhorne said:



... a practical completion certificate can be issued
when owing to latent defects, the works do not fulfil
the contract requirements and that under the contract
works can be completed despite the presence of such
defects. Completion under the contract is not postponed
until defects which became apparent only after the
work had been finished have been remedied.
Conversely, in H W Neville (Sunblast) Ltd v William Press
& Sons Ltd40, it was held that, if it was apparent that
defects exist in the works, practical completion could
not be said to have occurred unless those defects were so
trifling as to be classified as de minimus.
A more convincing analysis of the term practical
completion is given in Keating on Construction
Contracts41:

Practical Completion is perhaps easier to recognise than
to define It is submitted that the following is the
correct analysis:
(a) the Works can be practically complete
notwithstanding that there are latent defects;
(b) a Certificate of Practical Completion may not
be issued if there are patent defects. The Defects
Liability Period is provided in order to enable defects
not apparent at the date of Practical Completion to
be remedied;
(c) Practical Completion means the completion of all
the construction work that has to be done; and
(d) However, the Architect is given a discretion to certify
Practical Completion where there are very minor
items of work left incomplete, on de minimis
principles.
The absence of a definition for substantial completion is
a conspicuous omission from the FIDIC Red Book42, on
which all of the bespoke forms43 considered in this paper
are modelled. It is opined that substantial completion is
generally taken to refer to a state of the works which would
allow the employer to take beneficial use of such works44.
Reference to substantial completion is made in clauses
48.1 Taking-Over Certificate, 48.2 Taking-Over of
Sections or Parts, 48.3 Substantial Completion of Parts,
and 49.1 Defects Liability Period of the FIDIC Red
Book and all of the bespoke forms.

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SLQS JOURNAL
Clauses 48.1 and 48.2 provide that when the whole of
the Works, or sections or parts of the Works (if sectional
or partial completions are allowed) are substantially
completed the contractor has to notify the engineer of
such completion with a written undertaking to finish
any outstanding works during the defects liability period
and request the engineer to issue a taking-over certificate
thereof. Within 2145 days of receiving such notification
from the contractor, the engineer must, either issue a
taking-over certificate for such works stating the date
on which such works, in its opinion, are substantially
completed to its satisfaction including passing of all the
prescribed tests, or instruct the contractor specifying all
the work, which in the engineers opinion, is required to
be completed before the issue of a taking-over certificate.
From the above provisions, it is evident that the state of
substantial completion of the works is solely a matter of
interpretation of that state by the engineer by observing
the state of the works and applying its professional
judgment thereof46. It is important to note that as per
the above provisions, it is mandatory for the engineer to
arrive at its decision as to the state of the works and issue
a certificate or notification to the contractor within the
prescribed period. Failure to comply with that provision
would amount to a breach of a warranty by the employer
which may lead to claiming damages therefore by the
contractor.
Out of the bespoke forms, DCA Standard Conditions of
Contract47 provides a definition for substantial completion.
In this form the term substantial completion is defined as:

iv. all warranties, guarantees and service agreements


required by the Contractor having been complied
with, supplied and assigned to the Employer by the
Contractor;
v. all services or facilities having been certified by the
Engineer as having been correctly installed and/or
having performed to specification; and
vi. the Works and Site being clean, free from refuse and
rubbish.

From the wording of the above definition, it is arguable
that the legal interpretation of the term substantial
completion as promulgated by the case authorities
discussed above can be construed. The wording ...
there are no defects or outstanding work or any matter
which could prevent the Works from being used for their
intended purpose in paragraph i above, implies absolute
completion rather than substantial completion. Further,
paragraphs ii and v of this definition are redundant in
the light of the provision for testing made in clause 48
and the wording of paragraph i, whereby the contractor
is required to complete the works, which include the
services referred to in paragraph v.
The meaning emanating from the above definition
can be distinguished with the meaning ascribed to
practical completion equivalent term for substantial
completion used in JCT forms by clause 2.30 in JCT
200548. Accordingly the practical completion is said to
have occurred when:

the stage when the Works are completed as evidenced by:


i.

there not being any legal impediment (for which


the Contractor is responsible) to the Employers
use or occupation of the Works and there are no
defects or outstanding work or any matter which
could prevent the Works from being used for their
intended purpose;
ii. all tests required to be obtained by the Contractor in
accordance with the Contract have been carried out
and passed to the satisfaction of the Engineer;
iii. all documents and information required from the
Contractor for the use, occupation and maintenance
of the Works and as stated in the Contract, having
been supplied to the Employer;

in the opinion of the architect/contract administrator,


practical completion albeit, the term practical
completion is not defined of the works is
achieved;
the contractor has complied sufficiently with clause
2.40 (supply of As-build drawings);
the contractor has complied sufficiently with clause
3.25.3 (health and safety file).


From the above it can be seen that sufficient compliance
with the above provisions of the contract by the contractor
and architects / contract administrators unhindered
opinion on the state of the works are the sole requirements
necessary to issue a practical completion certificate.

The provisions of bespoke forms require the engineer or,


in the case of Nakheel forms, the employers representative

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SLQS JOURNAL
to consult the employer before issuing a taking-over
certificate or a notification. Hence, it is clear that the
employers perception as to the state of the works will
directly influence the interpretation of the engineer of
such state. Further, apart from the DCA form of contract,
all the other forms, by provisions of clause 2.1, have made
it mandatory for the engineer to obtain specific approval
of the employer to issue a taking-over certificate.

the period stated in the Appendix to Tender subject to


other provisions contain therein. Failure to complete the
Works by the Time for Completion due to its own faults,
the contractor would be liable to pay liquidated damages
as per the stipulations of clause 47.1 Liquidated
Damages for Delay. In all of the bespoke forms, clause
47.1 is referred to as Penalty for Delay in line with the
terminology used in the UAE Civil Code51.

In the authors experience, such provisions in the bespoke


forms have burdened the engineers interpretation of
substantial completion and many a time delays have
occurred in notifying the contractor of the engineers
opinion due to the time taken by the employer in granting
approval for the engineers requests.

FIDIC Red book Clause 14.1 Programme to be


Submitted, provides for the contractor to submit a
programme for the execution of the Works(rephrase/
repetition and unclear) depicting the sequence,
arrangements, and methods the contractor proposes
to adopt for the engineers consent within the time
specified in Part II conditions. Usually this programme is
produced using an approved software package52, which
supports CPM analysis and it will be in a form and will
contain such details as prescribed by the engineer.

Adverting to severable contracts, a severable contract is


defined as a contract comprising two or more separately
enforceable promises49, which relieves the promisor of
breach of the entire contract if it fails to complete any
one of the promises . In some of the major building and
engineering contracts provisions are made to complete
the works in stages with payment made for each
completed stage. Such a contract can be interpreted as a
severable contract as the contractor is paid for each stage
completed irrespective of whether the whole of the works
is completed. An analogy for such an arrangement can
be found in the case Collin Bay Rafting and Forwarding
Co v New York and Ottawa Railway Co50 . In this case
the plaintiff was contracted to remove two spans from a
wrecked bridge over a river for a contract price of $25,000
with a contractual arrangement of payment of $5,000
upon removal of one span, a further $5,000 upon it was
placed ashore and the balance on completion. Only one
span was removed and placed ashore by the plaintiff. The
court held that the plaintiff could recover its entitlement
of $10,000 for the completed stages from the defendant.
3. Completion within a Specified Time

Invariably, all modern construction contracts have a time
for completion of the obligations of the parties and all the
standard form contracts (JCT, ICE, NEC, FIDIC etc.)
provide for the works to be completed within a prescribed
time. Similarly, all bespoke forms of contract (DM, RTA,
DP, and Nakheel forms) considered herein have such
provision. Clause 43.1 Time for Completion, stipulates
that the whole of the Works or any part or section
thereof, as the case may be, should be completed within

44

Even though there is no explicit provision in FIDIC Red


Book or in the bespoke forms that the contractor should
proceed with the works as per the consented program,
the obligations to proceed with the works with due
care and diligence (clause 8.1) and due expedition and
without any delay (clause 41.1) require the contractor
to follow a properly formulated sequence as depicted in
the consented programme in executing the works. This
fact is corroborated in West Faulkner Associates v London
Borough of Newham53, where the court held, among other
things, that the contractor had to progress the works
steadily towards completing substantially in accordance
with the contractual requirements as to time, sequence,
and quality of works. A properly formulated programme
is an invaluable tool to monitor the progress of the works
and to evaluate delays to time for completion.
Clause 8.1 of all bespoke forms, inter alia, provides that:

The Contractor shall, with due care and


diligence, .., execute and complete the Works ....
therein in accordance with the Contract ..

Further, clause 41.1 provides that:


The Employer shall fix the date by which the


Contractor is to commence execution of the Works on
Site .. Thereafter, the Contractor shall
proceed with the Works with due expedition and
without delay.

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SLQS JOURNAL
It is clear from the above stipulations of the bespoke
contracts that the contractor has two important
responsibilities to carry out apart from completing the
works within the time for completion. Accordingly the
contractor is required to:
1. execute the Works diligently as per the contract
This means that the contractor has to carry out
the works in a meticulous manner, thoroughly in
accordance with the contract using specified material
and adhering to specified execution procedures.
Failure to comply with such requirements may render
the completed works not substantially completed
and the contractor may not be able to recover its
entitlement. An analogy can be drawn from Bolton v
Mahadeva54, where, despite completing installation
of the central heating system the plaintiff could not
recover its entitlement as the appeal court held that
the contract was not substantially performed due to
major defects in the completed system.
2. proceed with the Works with due expedition and
without any delay Under this provision, the
contractor is required to proceed with the works
expeditiously mitigating any delay. Therefore, the
contractor does not have any grounds to slow down the
works anticipating catching up with the delayed work
later. As reasoned earlier the contractor has to adhere
to the consented programme of works to achieve
such requirements. Clause 46.1 Rate of Progress,
provides for the engineer to notify the contractor
if the rate of progress is too slow, in the engineers
opinion, to comply with the Time for Completion.
Provisions are made in the bespoke forms55
empowering the employer to terminate the contract
when it is inevitable that the time for completion
would be delayed due to the contractors failure to
proceed with the works expeditiously and diligently
despite receiving notice for slow rate of progress from
the employer. Such provisions override the common
law inference that the contractor is entitled to proceed
with the works at its own pace, provided the time
fixed for completion in the contractor is met. This
proposition was discussed in West Faulkner56, where
the court had to decide whether the contractor was
required to proceed regularly and diligently as per
the terms of the contract. The court affirmed that the
contractor was required to proceed so. In contrast,
if such provision is not an expressed term of the

contract, the contractor is required to complete the


works within the time for completion at its own pace.
The question of whether the term due diligence and
expedition could be implied into a contract, when
it was not a requirement therein, was considered
in Greater London Council v Cleveland Bridge and
Engineering Co Ltd 57 . The court at first instance held
that in the absence of expressed term in the contract,
the contractor had the right to plan and execute the
works as he/she wished, provided he/she finished the
works by the time fixed in the contract.
The stipulations of Article 874 of the Civil Code58 of
the UAE make it mandatory to provide the particulars
of the time for completion for a muqawala contract
contract to make a thing or to perform a task59 . This
Article, inter alia, states:


In a muqawala contract ... particulars must be given of
... the period over which it is to be performed ...

Although the provisions of Article 874 do not provide
explicitly for submission of a programme of works as
stipulated in clause 14.1 or to adjust the completion
period explicitly as in clause 43.1 where it allows
adjusting the time for completion with extensions thereof
granted under clause 44 or to proceed with the works
diligently with due expedition and without delay, it can
be said that such additional provisions will be implied
into the provisions of Article 874 as the word particulars
therein is broad enough to encompass such provisions,
as Article 877 provides that the contractor must
complete the work in accordance with the conditions of
the contract, and as the provisions of Articles 258 and
265 grant priority to the intention of the parties when
interpreting the contract.
The issue of a taking-over certificate for the works triggers
the following provisions of the contract, which relieve the
contractor from some of its obligations:

On the date of issue of the taking-over certificate;


care of the Works (clause 20.1) passes on to the


employer,
responsibility for insurance of the Works (clause
21.1) passes on to the employer,
the contractor can remove the construction
equipment from the site (clause 33.1), and

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SLQS JOURNAL

the contractor is entitled to the first moiety of


retention (clause 60.3).

On the substantial completion date stated in the takingover certificate;



the contractor is relived from the imposition of


liquidated damages/penalties for delay (clause 47.1),
and
the Defects Liability Period (clause 49.1) starts.

Therefore, the employer is required to arrange the


necessary insurance to cover the completed works as
the responsibility for care of the works passes on to the
employer once the works are taken over by him/her.

According to the provisions of FIDIC Red Book and
all of the bespoke forms, a contract cannot be treated as
completed until a Defects Liability Certificate is issued to
the contractor under the provisions of clause 62.1, which
stipulates, inter alia, that:

The Contract shall not be considered as completed


until a Defects Liability Certificate shall have been
signed the Engineer60 and delivered to the Employer
with a copy to the Contractor, stating the date on
which the contractor shall have completed his
obligations to execute and complete the Works
and remedy any defects therein to the Engineers61
satisfaction .


Accordingly, an issue of a Defects Liability Certificate
indicates the full completion of works under the contract
and it is issued once the contractor completes whole of
the works including remedying any defects found in the
Defects Liability Period, which is normally one year.

However, according to the mandatory provisions of


Article 880 of the Civil Code, both the designer (architect
or engineer) and the contractor are jointly liable for
a period of ten years, from the date of taking over the
construction, to compensate the employer for any total or
partial collapse of the construction they have constructed
or installation they have erected, and for any defect
which threatens the stability or safety of the construction.
Therefore, despite the completion of the contract upon
issue of a Defects Liability Certificate, the contractor will
be liable to the employer for major defects discovered
within the said period of ten years.

46

September 2009

To deal with this issue, all of the bespoke forms contain


a Decennial Liability clause. Such liability of the
consultants (architects/engineers) is covered in respective
consultancy agreements.
It is noteworthy that such liability arises only in the event
of total or partial collapse or discovering any defects that
threatens the stability or safety of the construction due
to acts or omissions of the designer and the contractor.
In a case62 heard at the Federal Supreme Court (Court
of Cassation) of Abu Dhabi, it was held that both the
engineer and the contractor were not liable for the defects
discovered that affected the stability of the structure as
such defects were linked to subsidence of the ground
under the foundations occurred due to deep excavation
carried out for a sewage pipeline construction in close
proximity to the structure without proper earthwork
supports.
4. Completion where Time is not Specified
Although the modern standard form contracts and
bespoke form of contracts considered herein provide for
time for completion, there are instances where contracts
have been entered into without specifying a particular
time to complete the works. The courts have generally
ruled that in such instances works have to be completed
within a reasonable time63.
In Startup v Macdonald 64, the court decided that as the
contract did not specify the time within which delivery of
goods had to be completed, and agreement to complete such
delivery within a reasonable time was implied and therefore,
the delivery had to be completed within a reasonable time.
As to the question of reasonableness of time, the court, in
the case of Hick v Raymond and Reid 65, held that reasonable
time for completion would be determined taking into
consideration the circumstances existed at the time.
Further, there are instances where the specified time
has become inapplicable due to an agreement between
the parties to that effect, or a waiver, or the employer
preventing the contractor from completing the works
within the agreed time66. The courts, as in the above
cases, have held that in such instances the works have to
be completed within a reasonable time. In Bruno Zornow
(Builders) Ltd v Beechcroft Development Ltd 67 the agreed
preliminary works, which had a specific date to complete,
were subsequently varied to include the remainder of the

SLQS JOURNAL

September 2009

works without agreeing a date for completion of such


varied works. The court held that, for reasons of business
efficacy, the parties must be presumed to have intended
that the contract, as varied, would continue to have a
fixed date for completion.

5. Completion when Time is of the Essence
Under normal circumstances, if the contractor fails to
comply with the time provision in the contract, it is in
breach of contract and is liable for damages under the
terms of the contract68. However, if the terms of the
contract as to time have made time is of the essence
(unclear/ rephrase), then breach of that condition by one
party will discharge the other party from its obligations
under the contract69. This proposition was upheld by
the court in the case of United Scientific Holdings Ltd v
Burnley Council70. Further, in Lombard Plc v Butterworth
, Mustill LJ said71:

Where a breach goes to the root of the contract, the injured
party may elect to put an end to the contract. Thereupon
both sides are relieved from those obligations which remain
unperformed ... A stipulation that time is of the essence, in
relation to a particular contractual term, denotes that timely
performance is a condition of the contract. The consequence is
that delay in performance is treated as going to the root of the
contract, without regard to the magnitude of the breach.

1. the parties expressly stipulate that conditions as to


time must be strictly complied with; or

Generally, in construction contracts, time will not be of


essence in the absence of expressed wording making it
so. In Lucas v Godwin72, referring to an obligation to
complete building work by a specific date, Tindal CJ
said:

in a contract, time therein will not be treated as


essence81.

It was not a condition, but a stipulation, for non-observance


of which the defendant may be entitled to recover damages;
but, even if a condition, it does not go to the essence of the
contract, and is no answer to the plaintiffs claim for the work
actually done. It never could have been the understanding of
the parties, that if the house were not done by the precise day,
the plaintiff would have no remuneration; at all events, if
so unreasonable an engagement had been entered into, the
parties should have expressed their meaning with precision
which could not be mistaken73.
It has been stated that the time will not be of the essence
unless74:

2. the nature of the subject-matter of the contract


or the surrounding circumstances show that time
should be considered to be of the essence75; or
3. a party who has been subject to unreasonable delay
give notice to the party in default making time of
the essence76.
As held in Gibbs v Tomlinson77, a mere discussion between
the employer and the contractor wherein the employer
emphasises the importance of completion of the works
by a particular date will not suffice to make time is of the
essence (unclear/rephrase).
Further, as held in Lowther v Heaver78, making time is of
the essence of the contract; by the mere insertion of the
words to that effect will not have any effect if they are
inconsistent with the other terms of the contract.
It is said that in the presence of provisions for:
a) granting extension of time79,
b) payment of Liquidated Damages80, or
c) payment of bonus for expedition,

Thus in Lamprell v Billericay Union82, Rolf B. said:


Looking to the whole of the deed, we are of opinion that the
time of completion was not an essential part of the contract;
first, because there is an expressed provision made for a weekly
sum to be paid for every week during which the work should
be delayed after June 24, 1840; and secondly, because the
deed clearly meant to exempt the plaintiff from the obligation
as to the particular day in case he should be prevented by fire
or other circumstances satisfactory to the architect; and here,
in fact, it is expressly found by the arbitrator that delay was
necessarily occasioned by the extra work.
To determine the status of time whether it is of
the essence or not in a contract, it is important to
scrutinize whether time provision in the contract can
be categorised as; a condition a mere breach of
which entitle the innocent party to be excused from

47

September 2009

SLQS JOURNAL
all subsequent performance under the contract; or an
innominate or intermediate term a breach of which,
depending on its extensiveness, allow the innocent party
to claim damages if the consequences of the breach are
less serious, or otherwise the innocent party has the
same remedy as in the case of a breach of condition; or a
warranty a breach of which entitles the innocent party
to claim damages83.
In Anglia Commercial Properties Ltd v North East Essex
Building Co Ltd84, it was held that the failure of the
defendant to develop the site of the plaintiffs company
within the four year period as stipulated in the contract
was a mere breach of warranty and the plaintiff was
entitled only to recover damages for the contemplated
cost of the delay.

In the standard form contracts85 as well as in the bespoke
forms, a delay in the time for completion is primarily
remedied by a claim for liquidated damages or penalty86.
Such provisions are underpinned by the elaborate
provisions made in these forms for granting extensions to
the time for completion87.
As reasoned earlier, in the presence of the above
provisions in standard and bespoke forms, the time in
these forms will not be of essence. However, the notice
issued to the contractor under the provisions of clause
46.1 Rate of Progress, which empowers the engineer
to notify the contractor that the progress of the works is
too slow to comply with the time for completion, makes
time is of essence. This allows the employer to terminate
the contract under clause 63.1(b)ii, which stipulates
that the employer may, after giving 14 days notice to
the contractor, terminate the contract, if the contractor
without reasonable excuse has failed to proceed with
the Works, or any section thereof, within 28 days after
receiving notice pursuant Sub-Clause 46.1.

Reference
1
2
3
4

48

For the origin, refer to The Phrase Finder on


http://www.phrases.org.uk/bulletin_board/10/
messages/570.html.
Wallace, I.N. Duncan. (1970). Hudsons Building
and Engineering Contracts 10th Edition. Sweet &
Maxwell. p604.
Ibid.
Capper, P. (1996). Emdens Construction Law - 8th
Edition. Butterworth, p172.

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42

Capper, P. op. cit. p138.


Ibid.
Ibid.
Capper, P. op. cit. p139.
(1795) 6 Tem Rep 320.
(1867) L.R. 2 C.P. 651.
Wallace, I.N. Duncan. op. cit. p246.
[1898] 1 QB 673, CA.
(1810) 3 Taunt 52.
(1886) 2 Hudsons BC (4th Edition) 81, HL.
(1895) 16 NSWLR 55.
(1954) 104 L.J. 844.
(1968) 208 Est. Gaz. 852.
(1990) 20 NSWLR 251.
1999 WLR 1111819.
[2003] EWCH 1076.
[2007] EWCH 2556.
Wilmot-Smith, R. (2006). Construction Contracts,
Law & Practice. Oxford University Press, p216.
[1916] 1 K.B. 566.
Wallace, I.N. Duncan. op. cit. p245. See also Cutler
v Close (1832) 5 C & P 337.
(1832) 5 C & P 337.
[1916] 1 K.B. 566, CA.
(1921) 129 NY 889.
[1952] 2 All ER 176, CA.
(1965) 109 Sol Jo 829.
Stevens, R. & McFarlane, B. (2002). In Defence of
Sumpter v. Hedges. Law Quarterly Review.
Housing Grants, Construction and Regeneration
Act, 1996.
The UAE Federal Law No. 5 of 1985 with revisions
made by law no. 2 of 1987.
Ibid.
Ibid.
Case No. 39-16 dated 12.06.1994
Thompson, T. (2004). Practical completion in
building contracts: a legal definition?. Construction
Law Journal.
Ibid.
Capper, P. op. cit. p173.
[1970) 1 All ER 943.
(1981) 20 BLR 78.
Furst, S & Ramsey V. (2006). Keating on
Construction Contract 8th Edition. Thomson,
Sweet & Maxwell. Paragraph 19-113, p774.
Conditions of Contract for Civil Engineering
Construction. (1987 -1991). 4th Edition. Federation
Internationale Des Ingenieurs-Conseils.

September 2009

SLQS JOURNAL
43 Dubai Municipality (DM) Conditions of Contract
for Works of Civil Engineering Construction
1991, Department of Civil Aviation (DCA)
Standard Conditions of Contract Revision
2, October 2002, Road Transport Authority
(RTA) Conditions of Contract for Works of Civil
Engineering Construction January 2006, Dubai
Properties (DP) Conditions of Contract for Building
& Civil Engineering Construction, Re-measure and
Lump Sum January 2006, and Nakheel General
Conditions of Contract (Re-measure and Lump
Sum) January 2003.
44 Corbett, E.C. (1991). FIDIC 4th A Practical Legal
Guide. Sweet & Maxwell, p275.
45 Period stated in FIDIC Red Book. All of the bespoke
forms provide for 28 days.
46 Nestor, J. (2004). Completion is The Key to
Liquidated Damages: But What is Completion?
Paper D48. Society of Construction Law, UK.
47 See note 43.
48 JCT Standard Building Contract With Quantities
2005, published by the Joint Contract Tribunal.
49 Garner, B.A. (1999). Blacks Law Dictionary, 8th
Edition. Thomson West, p348.
50 (1902) 32 SCR 216.
51 See note 32.
52 Either Primavera Project Planner or Microsoft
Projects.
53 (1994) 71 BLR 1.
54 [1975] QB 326.
55 Clause 63.1(b)ii of the bespoke contracts.
56 See note 53.
57 (1984) 34 BLR 50.
58 See note 32.
59 Refer to Article 872 of Civil Code for the

definition.
60 In the case of Nakheel forms Employers
Representative.
61 Ibid.
62 Case No. 529-22 dated 09/10/2001
63 Capper, P. op. cit. p175A.
64 (1843) 6 Man & G 593.
65 [1893] A.C. 22
66 Wallace, I.N. Duncan. op. cit. p606.
67 [1990] 51 BLR 16.
68 Furst, S & Ramsey V. op.cit. Paragraph 9-002,
p305.
69 Ibid.
70 [1977] 2 W.L.R. 806, HL.
71 [1987] Q.B. 527, at 535, CA.
72 (1837) 3 Bing NC 737.
73 Ibid at 744.
74 Furst, S & Ramsey V. op.cit. Paragraph 9-002, p305
& 306.
75 Boris Homes Ltd v Oakcliff Investment Corpn.
[1994]BLM (June) 5.
76 British and Commonwealth Holding Plc v Quadrex
Holding Inc [1989] 3 All ER 492. See also Charles
Rickards Ltd. V Oppenheim [1950] 1 K.B. 616.
77 (1992) 35 Con LR 86.
78 (1889) 41 ChD 248, CA.
79 Bespoke forms of contract clause 44.1.
80 Ibid clause 47.1.
81 Capper, P. op. cit. p175B.
82 (1849) 3 Ex. 283.
83 Capper, P. op. cit. p175C.
84 (1982) 266 EG 1096.
85 JCT, ICE, NEC, FIDIC etc.
86 Clause 47.1 of the bespoke contracts.
87 Clause 44.1 of the bespoke contracts.

Sauter Automation Ltd v Goodman (Mechanical Services) Ltd (1840)


A sub-contractors quotation was expressed as subject to our standard terms and conditions
which included a retention of title clause. The main Contractor sent an order stating terms
and conditions in accordance with the main contract. The Sub-contractor, without further
communication, delivered the goods.
Held that this amounted to an acceptance by them of the main Contractors counter offer.

49

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Arbitration and its Development in the UAE


Construction Industry - an Overview
E.A.Thusitha P. Edirisinghe, B Sc (Hons)QS, MCIArb, CCE, Pg Dip (Arb & Const. Law)
is a quantity surveyor graduated from University of Moratuwa in 2000, currently studying for MSc. in Arbitration and Construction Law in the Robert Gordon University of Scotland, Dubai Campus.

The arbitration in the United Arab Emirates is still


young compared to most European countries. Still there
is no arbitration law implemented in the country. Most of
the international investors are still reluctant to enter into
the country to invest due to the uncertainties existing in
the law and, specially, the lack of international standards
in dispute resolution methods

Abstract

United Arab Emirates is one of the emerging countries


in the region heading towards development. Currently
there are massive construction projects being carried out
including the worlds tallest tower, green cities, manmade islands and many experimental constructions.
This has attracted different investing parties entering
into the country including companies from domestic
and international property developers, consultants and
contractors. Many of the projects are based on fasttrack construction methods; therefore the construction
activities have become critical when delivering a good
quality product on time to the clients. Eventually, this
has created many disputes among the parties involved in
the industry.
Arbitration is the most preferred course of action to
resolve the disputes in the industry. Almost every contract
includes an arbitration clause enabling the parties to refer
their disputes to the arbitration since arbitration has its
inherent advantages over litigation and other dispute
resolution techniques.
The purpose of this article is to investigate the development
of the arbitration procedure in the United Arab Emirates
and to observe its role in the challenging economic boom
existing in the construction industry.

50

The introduction deals with defining the arbitration, the


requirement to arbitrate and certain important aspects
in the arbitration mechanism. The article focuses on
the evolvement of the arbitration in the United Arab
Emirates from its conception. It also focuses on certain
interesting features in arbitration in the country. Then the
discusses various institutional laws existing in the country
including a brief role in respect to the construction. It
also discusses key conventions/treaties ratified in relation
to the arbitration in the country. Finally it concentrates
on the future of the arbitration in the country.

Introduction

The arbitration in the United Arab Emirates is still young


compared to most of the European countries. Most of
the international investors are still reluctant to enter into
the country for the investments due to the uncertainties
existing in the law and, specially, the lack of international
standards in dispute resolution methods. This promoted
me to write this article so as to find out the evolvement
of arbitration in the United Arab Emirates and its role in
construction industry in particular.
There are attempts that have been taken by professionals
and experts in the field to investigate on the subject.
This includes texts, seminars, discussion forums and
conferences. However, more analytical and detailed
investigations are required to the subject to understand
the demands from the various parties in the industry so
that the arbitral awards can be recognized and enforced
fairly simply and quickly.

1.1 The Arbitration

1.1.1 The Definition


Arbitration can be described as resolving of disputes
arisen between the contractual parties. As the

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procedure may vary from case to case, jurisdiction
to jurisdiction and region to region, there is no
common definition that can be given. This has been
pointed out by the authors of the book Arbitration
of Commercial Disputes as:

There is no universal definition of Arbitrationeach


jurisdiction may apply its own spin in deciding
what may and what may not be arbitrated, who
may arbitrate, and how the arbitral process be
conducted1

Another attempt to define the arbitration has been


made by a Scottish Author, Professor DM Walker:

The adjudication of a dispute or controversy on fact


or law or both outside the ordinary civil courts, by
one or more parties to whom the parties who are at
issue refer the matter for a decision2

The main principle in arbitration is the agreement


to arbitrate, a dispute, a third party reference (an
arbitrator) and finding a resolution to the dispute
by that third party. It is important to mention
that arbitration does not itself directly provide the
solution to the dispute; they set out the procedure to
be followed in resolving it.

1.1.2 Reasons to Arbitrate


There are many advantages in arbitration. The key
benefits are discussed below.
The court procedure takes its established time
framework. This cannot be changed by the parties.
Also the fees for the lawyers/solicitors are very high
and may have to be paid for several times. Therefore,
the arbitration is considered cheaper and quicker than
lengthy litigation procedure.
Arbitration is more flexible than litigation since the
parties can decide where arbitration is held and who
their arbitrators are. Also the parties may agree upon
time limits so that it can be completed fairly quickly.
Arbitration can be conducted in private premises.
Therefore, the parties can keep their privacy. In most
occasions, litigation is open to the public attendance
thus no privacy is reserved in litigation.
The skilled and knowledgeable input can be obtained
to resolve the disputes. The reason is that the court
judges are not often the experts in the subject matters.

This leads to the satisfaction of each parties and a fair


decision could be received.
Arbitration is preferred by many parties especially
in complex international commercial disputes. The
reason is that the parties outside the place of arbitration
are unfamiliar with jurisdiction and languages. There
is a tendency towards being bias and unfair in certain
countries. Even the arbitration can be held outside
the region where the dispute has taken place.
Finally, the decision of the arbitrator is final and
binding and is enforceable in law similar to a decision
of the court.

1.1.3 The Arbitration Award

The arbitration award is a decision of the arbitrator


given for that dispute after the proper submission by
the parties. Also the award can be an oral one or a
written one; however, oral awards are rare. On the
other hand, mostly the parties prefer to have their
awards in writing in case it is so required by certain
legislations in the country. Also the party may have
to present it to the courts if there is a failure from the
other party to comply with the arbitral award.

Another purpose of an award is to record the


arbitrators decision, which is final and binding, so that
the parties are informed about the decision. An award
may be a payment of money, order a rectification,
order to do or refrain from doing something or a
specific performance.

1.1.4 Characteristics of Arbitration

1.1.4.1 Agreement to arbitrate


There should be a valid agreement to arbitrate in
order to have a valid Arbitration between the parties.
The absence of this causes the arbitration to fail. This
is a fundamental requirement in arbitration. The
reason is that the arbitration agreement is considered
as another agreement. Similarly, the recognition
and enforcement of an arbitration award should be
established in the concerned jurisdiction though
courts order, if applicable under the conventions3
(when international parties are involved) where
the arbitration takes place. Also an arbitration
agreement can form a part of a main contract or a
separate agreement. When it takes a role of a separate
agreement, it is considered as an ad-hoc agreement.

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1.1.4.2 The judicial nature of Arbitration

An arbitrator has more freedom than a court judge


due to the flexibility in the arbitration procedure as
discussed earlier. However, they (arbitrators) cannot
discard the basic principles of justice. A party can,
however, challenge a decision given by an arbitrator
in the court in very limited provisions such as a bias
or incompetent act to resolve the matter. It is worth
mentioning that, challenging (appealing) an arbitral
decision could be more difficult than appealing
against a court decision. Therefore, arbitration award
has more power in enforcement than most of other
alternate dispute resolution methods.
Unless the parties have agreed, there are no fixed rules
in the arbitration process. Arbitrators may implement
case base approach to arrive at a resolution based on
the submissions of the parties. The submissions are not
usually disclosed unless otherwise required to do so.

2.1.2 Arbitration and the UAE Courts


some key features
2.1.2.1 Arbitration Agreement

The courts in United Arab Emirates recognize a


decision made by both the parties to refer their
differences (disputes) to the arbitration under the
Federal Law No. (11) of 19926. No parties can
request a court decision before the arbitration in the
event of a dispute if there is an agreement to refer to
arbitration. Also the parties can refer their matters to
the arbitration any time during the litigation.

The courts must certify all arbitration decisions in the


emirate. Also the courts can invalidate any arbitral
decision based on the procedural considerations
which will be discussed in detail later in the article.
This provision allows the parties to appeal for the
certification which may prolong the award indefinitely.
This is a disadvantage in the system and vitiates the
purpose of setting a limit for an arbitrator for his/her
award.

1.1.4.3 The Award is final and binding


As mentioned in chapter 1.1.4.2, an Arbitral Award is


usually final and binding. However, in some countries,
it is questionable whether an Award is final and binding.
For example, in United States, the use of non-binding
arbitration by the courts in domestic disputes is not
uncommon4. However, this feature attracts many
parties to choose arbitration. Also, it is important to
note that, once the arbitration is commenced, parties
cannot quit from the proceedings.

2.1 The Development of Arbitration in the


UAE Construction Industry
2.1.1 Introduction

52

The Emirates, specially Dubai and Abu Dhabi,


have become the worlds leaders in construction
related projects over the past 10 years. Most of the
projects are fast track, and the projects need to be
completed within a very short period of time without
compromising quality and cost. However, this
goal has been challenged due to the complexity of
commercial transactions made between international
companies and local enterprises and it creates more
disputes among the parties. Main reasons for such
disputes are; the sudden inflation in the region due
to the high demand for the supplies, major changes
to the designs, delay in carrying out the projects and
increase of labor wages in line with the current global
economic recession.

In the recent past, foreign companies were reluctant


to invest in this challenging industry as they are
unfamiliar with the law and jurisdiction, specially the
accessibility and fairness of the UAE courts and, in
particular, the arbitration process. Currently there is
no formal legislation in the Emirates exclusively for
the use of arbitration which is similar one to England
and Wales5, thus it is at present governed by the UAE
Civil Procedure Code.

2.1.2.2 The Arbitral Tribunal


In the Emirates, the appointment of the arbitrators


is not generally restricted to the nationality, gender
or religion. This is the case in most Arab countries in
the region as well as in other countries in the world.
The only restriction in this regards is found in the
Article 206 of the Civil Procedure Law, which is; an
arbitrator must not be a minor, under guardianship or
deprived of his civil rights7.

The arbitral tribunal may be appointed by the parties


in the following manner. Each party may appoint
their arbitrators according to their own will, and
then the two arbitrators will jointly appoint the third
arbitrator who acts as a panel judge. Otherwise, the
arbitrators may be appointed in accordance with
the institutional rules provided that the partied have

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agreed. There are powers and restrictions granted by
the law for the tribunal, which is outside of the scope
of this article.

Here, an interesting point is that, the law expressly


obliged the tribunal to comply with the arbitration
agreement made by the parties. This provision gives
the parties to appeal (challenge) against the award/
tribunal on the grounds in addition to the other
provisions such as the tribunal is being bias. Another
point in the Emirates law regarding the arbitration is
that, any arbit

6 months from the date of the first arbitration session


subject to the extension can be granted to this by an
agreement by the parties or by a court order. If an
arbitral award is not granted within the stipulated
time, either party can refer to the dispute to the
court.

It is also important to formally establish the extension


to the time limit. In one of the cases held in Abu Dhabi
Supreme Court in 2002, the main consideration of
the courts was to find out whether or not there was a
valid agreement to extend the time limit between the
parties. It could have been more advantageous if the
parties had formalized their agreement to extend the
time bar. Since there was no valid agreement, it was
held that the award was invalid. However, as previously
noted, the main purpose of such a dead line is to push
the parties to the arbitration. Otherwise there is a
danger of parties delaying the proceedings and finally
appealing to invalidate the award based on the time
bar. Also there are some critics about the time limit
as to its sufficiency since more complex commercial
disputes need more time to arrive at a resolution.

ratify the awards. Once an award is made, the parties


need to request from the Courts to ratify it. The
Courts will ratify it only where the followings are
satisfied:
1. That the State courts do not have jurisdiction in
the dispute which the judgment/award has been
given or the order made, and that the foreign courts
which issued it have jurisdiction therein under the
international rules for legal jurisdiction prescribed in
their law;
2. That the judgment or order has been issued by a court
having jurisdiction under the law of the country in
which it was issued;
3. That the opposing parties in the case in which the
foreign judgment has been given have been summoned
to appear and have duly been approved;
4. That the judgment or order has acquired the force of a
fait accompli under the law of the court which issued
it;
5. That it does not conflict with a judgment or order
previously issued by a court in the state and contains
nothing in breach of public morals or order of the
state.

2.1.3 Key Arbitration Institutes in the


United Arab Emirates

There are several institutes existing in the Emirates


which provide sets of procedural arbitration
rules. Most of these rules are based on the United
Nations Commission on International Trade Laws
(UNCITRAL) or Civil Procedure Law of the
country.

The advantage of having arbitral institutes is that


the parties can agree to refer by reference to these
rules so that there will be a body which exercises
an administrative and supervisory functions more
efficiently. However, as there is no proper arbitration
law yet been developed and implemented, arbitration
procedure exhibits somewhat complicated as pointed
out earlier in chapter 2.1.2

2.1.2.3 Enforcement of an Arbitral Award


Prior to the New York Convention, the enforcement of


foreign arbitral awards was not certified automatically
in the country. The parties, especially internationally,
had many difficulties in relation to their desires to enter
into the country. Until the New York Convention
(refer chapter 2.1.4.1), the enforcement of foreign
arbitral awards were enforced by the provisions of the
Civil Procedure Law as discussed earlier.
Article 235 of the Civil Procedure Law sets out, in
order to enforce a foreign award, the Courts must

2.1.3.1 Dubai International Arbitration


Centre (DIAC)

In 1993, the Abu Dhabi Chamber of Commerce


Industry established the Abu Dhabi Commercial
Conciliation and Arbitration Centre to settle
commercial disputes through conciliation or

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arbitration. However, the most popular establishment
is the Dubai Chamber of Commerce and Industry
Conciliation and Arbitration Centre (known as
Dubai International Arbitration Centre or DIAC)
established in 19948.

DIAC was first established 1994 as a Centre for


Commercial Conciliation and Arbitration. The
primary objectives were to provide extensive facilities
to conduct commercial arbitrations, promoting parties
to settle their disputes in arbitration and practicing
arbitrators for international arbitration. In addition
to the local experts and qualified lawyers, DIAC has
a connection with the network of international law
firms in various countries so that they provide their
services to the international parties.
The Rules of Commercial Conciliation and
Arbitration of 19949 has been replaced by DIAC
Arbitration Rules 2007 which are to be applied to all
disputes referred for arbitration since 199410 . These
new rules provide comprehensive set of procedures in
conducting arbitration such as appointment of the
tribunal, place and language of arbitration, defense,
hearing, witness statement, and the enforcement of
the award.

is enforceable in UAE and in the Gulf Cooperation


Council (GCC) under the 1983 Riyadh Convention.
Further, DIFC Courts have been established based on
Common Law of system which gives more flexibility
with comparing to United Arab Emirates civil
jurisdiction.

Compared to Dubai International Arbitration Centre


(DIAC) rules which handle primarily construction
related disputes, DIFC has an advantage of attracting
international commercial arbitrations with one or
both the parties being outside the UAE.

The records of Dubai International Arbitration


Centre shows that there were 77 new arbitration cases
referred to the Centre in 2007 and 80% of them were
related to the construction industry. In this year, so far
in total 55 cases have been reported12.

2.1.4 The Conventions/Treaties in the


United Arab Emirates
2.1.4.1 The New York Convention

The UAE has become the 137th member of the


United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards: The
New York Convention has been ratified by the UAE
Federal Decree no. 43 and the convention entered in
to force internationally for the UAE on 19th

November 2006. (Foreign arbitral awards in the UAE


have been dealt with in the same manner as foreign
judgments under Articles 235 246 UAE Federal
Law 11 Civil Procedure Code)

Under this convention, any award made in any state,


whether that state is a member of the convention or
not, will be recognized and enforced by any other
state that was a party, so long as the award satisfied
the basic conditions set out in the Convention.

Article 1 of the Convention provides:


1. This convention shall apply to the recognition and
enforcement of arbitral awards made in the territory
of a State other than the State where the recognition
and enforcement of such awards are sought, and
arising out of differences between persons, whether
physical or legal. It shall also apply to arbitral awards
not considered as domestic awards in the State where
recognition and enforcement are sought.

2.1.3.2 Dubai International Financial


Centre (DIFC)

54

Dubai International Financial Centre (DIFC) and


London Court of International Arbitration (LCIA)
have jointly established the new DIFC Arbitration
rules in September 2008. Although the objective
of the establishment of DIFC arbitration law is to
conduct dispute resolution in connection with DIFC
Authority11, the DIFC LCIA Arbitration Centre is
open to any parties who have agreed to have their
deputes settled with the Centre. This is the second
arbitration centre established in Dubai after Dubai
International Arbitration Centre.
The new DIFC Arbitration rules are based on the
United Nations Commission on International
Trade (UNCITRAL) Model Law on International
commercial Arbitration. Since the DIFC Court
judgments will be enforced through the Dubai Court,
it is necessary to obtain DIFC Court judgment for
the DIFC Arbitration awards which is then enforced
through the Dubai Courts. Then the arbitration award

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SLQS JOURNAL

Article 2 requires the Arbitration Agreement in


writing. The term agreement in writing shall
include an arbitral clause in a contract or an arbitration
agreement, signed by the parties or contained in an
exchange of letter or telegrams13. Therefore, the need
for documentation of terms of contract is an important
step in commercial transactions in the region.

Article 3 of the Convention requires each Contracting


party to recognize the arbitral award as binding and
will be enforced in accordance with the rules of the
territory.

Also the Convention provides the provision for


the refusal of enforcement under certain limited
conditions. The main provisions include; when the
arbitration agreement is invalid, when the party was
not given proper notice, where the dispute is not the
one that an arbitrator was given, the appointment
of an arbitrator or arbitration procedure was not in
accordance with the agreement, and finally when the
enforcement of the award would be contrary to the
public policy if the country. It is difficult to refuse an
arbitral enforcement condition other than the above.

2.1.4.2 The Riyadh Convention


On 17th June 1996, the Emirates ratified the Riyadh


Convention. As of to date, Gulf countries have
ratified the Convention. Article 37 deals with the
enforcement of arbitral awards made between the
member countries in relation to civil, commercial,
administrative and personal status disputes. As in
other occasions, the Convention takes precedence
over the countrys Civil Procedure Law.
In Addition to the above, the United Arab Emirates
have signed up to two bilateral treaties with France
and India in relation to the enforcement of foreign
judgments and awards.

2.2 The Future of Arbitration in


United Arab Emirates

As mentioned earlier, no arbitration law has been


enforced in the Emirates. However, the Ministry
of Economy and Commerce, in coordination with
Ministry of Justice, has recently finalized a draft
federal legislation on arbitration14.

More care has been taken to suit the law into the existing
economic and trade rules while creating provisions
for domestic and international arbitration. The new
draft law is based on the Model Law of the United
Nations Commission on International Trade Laws
(UNCITRAL). The new law will enforce the arbitral
awards domestically and internationally in consistent
with various conventions/treaties including the New
Your Convention. It is also an objective of the new
law to establish an arbitration office to monitor the
international developments in arbitration and make
recommendations for improving the law further.

3 Conclusion

The Arbitration has its inherent advantages over the other


dispute resolution methods. Especially in construction
arbitration, due to the complex nature of the disputes,
most parties prefer the arbitration as a dispute resolution
method. The key advantages of arbitration are; the final
and binding nature of arbitral awards, flex ibility of the
procedure, more input expertise that can be used, and
that it is quick and cheaper than litigation.
The Arbitration in the United Arab Emirates is still in
the initial stage. The requirement for an arbitration law
has been identified by the government. As a result, a
draft arbitration law has already been drafted and now
opens for the comments by the experts in the field. The
arbitration draft law will soon come into force. However,
the absence of a proper arbitration law has caused some
drawbacks and international parties are reluctant to invest
in the country.
There are several institutes operating in the United Arab
Emirates to provide procedural arbitration rules for the
parties in dispute. The advantage of having arbitral
institutes is that the parties can agree to be referred by
these rules so that there will be a body which exercises
administrative and supervisory functions more efficiently.
The Dubai International Arbitration Centre and
Dubai International Financial Centre are the primary
governmental bodies which provide procedural arbitration
rules.
The United Arab Emirates had ratified significant
conventions and treaties for recognizing and enforcing
arbitration awards made locally and internationally. The
New York Convention and the Riyadh Convention are
the important conventions ratified by the government.

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Certainly, the future of arbitration in the country will
be very successful if the draft arbitration law is well
established.

Specific references
1

Tweedale A, and Tweedale K, 2007, Arbitration of Commercial


Disputes, Oxford, P34.
2 Refer fn.1 above.
3 A Convention or a treaty is a contract signed between governments
e.g. New York Convention-See chapter 2.1.4.1
4 A federal court will have no jurisdiction to enforce an arbitration
award where the parties have not consented in the agreement to
allow the judgment to be entered upon award by the court. See
The US Arbitration Act, Chapter 1, s9. This rule applies only to
domestic cases.
5 The Arbitration Act 1996 (England).
6 www.diac.ae
7 Refer Article 206, Civil Procedure Law of UAE for more details
8 Michelle N, Masons G, Dispute Resolution in the Middle East;
Highlights of the Middle East Construction Industry, 2006, SCL.
9 These are the rules that the Dubai Chamber of Commerce &
Industry has established with the aim of settling commercial
disputes through conciliation and arbitration.
10 The new rules have been issued by Decree No. (11) 2007 in the
Official Gazette, no. 321 - year (41) on May 2007.
11 DIFC Authority has been established by the Dubai Law No. 9 of
2004 and DIFC Courts have been established to have exclusive
jurisdiction in civil and commercial matters in DIFC.
12 ALB legal news;

http://www.asia.legalbusinessonline.com
13 Article 2 Para 1 New York Convention.
14 Refer http://www.uae.gov.ae/Ministries/moec.htm and

www.uae.gov.ae/moia

Bibliography of other relevant materials


Legislations

Federal Decree no. 43, 2006, Regarding the United


Arab Emirates Joining the Convention of New York on
Recognition and Enforcement of Foreign Arbitral Award,
Article I to XVI.
The UAE Civil procedure Code, Federal Law No. (11) of
1992, cp 3, article 203 to 218.

Text Books

Act 1996, 4th edition, Blackwell, UK.


Turner R, 2006, The Arbitration Awards: A Practical
Approach, Blackwell, UK.
Tweedale A, and Tweedale K, 2007, Arbitration of
Commercial Disputes, Oxford, UK.

Articles

Dewey & LeBoeuf,2008, DIFC new Arbitration Law,


www.dl.com.
Nelson M, Galadari M, 2006, Dispute Resolution in
The Middle East International Conference 2006, Society
of Construction Law, Dubai, UAE.
Subak. M,2008, Managing Construction Related
Disputes in the Middle East, Viewpoint, US.
UAE Construction Law and Dispute Resolution, Al
Tamimi & Company: Advocates and Legal Consultants,
UAE.

Internet Sources

AME Info, UAE Ministry of Economy completes draft


federal law on arbitration, <http://www.ameinfo.com/
cgi-bin/cms> accessed on 17/11/2008.
Dubai International Arbitration Centre,<http://www.
diac.ae> accessed on 11/11/2008.
International Chamber of Commerce, New York
Convention now in force in the United Arab Emirates,
<http://www.iccwbo.org/collection34/folder258/id9740
accessed on 11/05/2008> accessed on 05/11/2008.
Keeting Chambers, An Introduction to Arbitration in
the Middle East, <http://www.keatingchambers.co.uk/
resoursec/publications/> accessed on 05/11/2008.
Keeting Chambers, UAE Construction Arbitration:
Time for a Revolution?, <http://www.keatingchambers.
co.uk/resoursec/publications/> accessed on 05/11/2008.
Society of Construction Law, The DIFC Courtsjurisdiction and arbitration with specific reference to
banking and construction disputes, <http://www.scl-uae.
org/news.php> accessed on 06/11/2008.

Harris B, Planterose R & Tecks J, 1996, The Arbitration

Gillies Ramsay Diamond v PJW Enterprices Ltd (2003)


A claim for professional negligence against Diamond, who had provided general consultancy
services in relation to a building project, was referred to adjudication.
It was found that these services included arranging construction operations for others and/or
contract administration and therefore the matter could referred to adjudication, despite the
absence of an adjudication clause in the contract.

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Is FIDIC-99 Contractor Friendly?
Ajantha Premarathna FRICS, FIQSSL, ACIArb
Contracts Advisor-Dubai Martime City

1.0 BACK GROUND


The FIDIC conditions or its amended versions are
the most popular forms of contract used widely in the
construction industry in international construction
contracts. The International Federation of Consulting
Engineers (Federation Internationale des Ingenieurs
Conseils or FIDIC) has issued five editions of such
forms of contracts since 1957. The latest edition was
issued in 1999 after 12 years of successful practice since
its previous edition in 1987. The 1999 edition with its
20 clauses, compared to the 72 clauses in 1987 edition,
has addressed several contentious issues and some new
concepts to deal with in the ever evolving construction
industry. Most of those new concepts addressed in 99
editions are benefiting to both the employer and the
contractor to safe guards their respective rights. Further,
this version has taken every effort to keep the balance of
risks between the contracting parties. In the following
sections of this paper, it has analyzed in details to what
extent FIDIC-99 is contractor friendly (or not).
When you focus closely on some of the key clauses, such
as priority of documents, signing of contract agreement
within a specified time period, demand for financial
arrangement of the employer for the project, formulae for
price fluctuation, new rate for increase of BoQ quantity,
wide range of possibility to claim extension of time and
additional payments, entitlement for loss of profit and
release of performance security upon termination by the
contractor, introduction of dispute adjudication board, it
can be considered to be contractor friendly.
At the same time, from the employers point of view
number of concepts such as no access to the site shall
be made without submission of the performance security,

employers entitlements to claim extension of time for


defects notification period and additional payments,
removal of FIDIC -87 clause which is related to that
the engineer act impartially, claim against performance
security without prior notice to the contractor, payments
to the contractor within 56 days instead of 28 days in
FIDIC-87, in case of no notices for extension of time or
for the additional payments claims from the contractor
the employer has no liability for them, entitlement to
terminate for convenience can be considered to be the
employer friendly.
Further to foregoing, it can be concluded that FIDIC-99
is a standard form of contact fair to both parties. It has
kept the risk fair between the both parties.

2.0 INTRODUCTION
Several contracts are signed or entered into at a daily basis.
These contracts may have an agreement or may not have
an agreement. All the contracts should have an agreement
but all the agreement may not fall under the contract.
Out of all these contracts, the construction contracts
are peculiar and they have their own characteristics, in
terms of the form of the contracts upon which parties
sign an agreement, and duration of contracts, etc. The
duration of construction contracts generally takes a longer
period compared with the other commercial contracts.
In addition to the main two parties to the contract it
would have domestic sub contractors, nominated subcontractors, domestic suppliers, nominated suppliers,
design and supervision consultants, project manager,
local authorities, project financer etc. To deal with this
complex nature of construction contracts, in particular
in the international construction contracts, it needs
sophisticated and well drafted conditions of contract

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to execute the contract until the final account has been
signed or until all the disputes have finally been resolved.
To deal with this, several international conditions
of contract have been issued by various professional
institutions, world bodies, and financial institutions etc.
Few of them are:
The International Federation of Consulting Engineers
(Federation Internationale des Ingenieurs Conseils,
(FIDIC),
Institute of Civil Engineers, (ICE) in Great Britan ,
World Bank,
United Nations, etc.
The meaning of international construction contracts may
have different forms; (i). the law of the country where
the contract is made differs to one party, or (ii). the
project is constructed in a different country from another
party, (iii) two different nationals signed a contract for
a construction. Following the formation of FIDIC with

three national associations of consulting engineering in


Europe in 1913, FIDIC has invented its first Conditions
of Contract (International) for Works of Civil Engineering
Construction in August 1957. Since then for the last
41 years FIDIC has issued five such editions; second
edition in July 1969, the third in March 1977, fourth
edition in September 1987, and the current edition
in 1999 to be used in the international constructions
contracts. The fourth edition in 1987 has not been
revised for 12 years until the new version was issued in
1999. The fourth edition, unlike other first editions, has
been used extensively in the international construction
industry. With the issuance of the 1999 edition, industry
professionals, and employers were in a dilemma when
selecting the form of contracts that should be used for
their developments. FIDIC 1999 has published four new
standard forms of contract designating from the designers
point of view. The FIDIC 4th edition in 1987 has also
published four forms of contracts. The table-1 below
gives the forms of these two editions.

Table 1
Forms of Contract in FIDIC 1987 and 1999
FIDIC 1987

FIDIC 1999

Conditions of Contract for Works of Civil Engineering Conditions of Contract for Construction for Building
Construction 4th edition (Commonly referred as the and Engineering Works Designed by the Employer.
Red Book).
(Commonly referred as the Red Book).
Conditions of Contract for Electrical and Mechanical
Conditions of Contract for Electrical and Mechanical
Plant, and for Building and Engineering Works Designed
Works 3th edition (Commonly referred as the Yellow
by the Contractor (Commonly referred as the Yellow
Book).
Book).
Conditions of Contract for Design-Build and Turnkey Conditions of Contract for Engineering, Procurement,
1st edition in 1995 (Commonly referred as the Orange and Construction and Turnkey (Commonly referred as
Book).
the Silver Book).

Works of Civil Engineering - Subcontract- 1987

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Conditions of Contract for Short Form of Contract


(Commonly referred as the Green Book).

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For this paper, the Conditions of Contracts for
Construction of Engineering Work Designed by the
Employer (red book) issued in 1999 is selected. It has
attempted to explore to what extent this conditions of
contract are friendly to the parties to the contract. The
exploration has been specifically carried out with reference
to the FIDIC 1987 and generally with New Engineering
Contracts, Third Edition, (NEC-3) which is commonly
used in the international construction contracts. The
arguments have been compiled in general aspects and on
the specific core areas of the industry as follows:





General aspects
Variations
Payments
Extension of time
Suspension and termination
Claims and disputes

The conclusion to Is FIDIC 99 Contractor Friendly?


may be subjective depending on the parties to the
contract. The strength of arguments will depend on how
other forms of contract share, or allocate the risk between
the parties. The distribution of risk of the parties and
user friendliness of the conditions of contract to the
parties would be the central pivot of the final tender
sum. Therefore, every effort has been made to have an
independent approach to the subject matter in view of
reaching an open conclusion.

3.0 GENERAL ASPECTS


3.1 Definitions

The key words used throughout a form of contract give


consistency to the meaning of such words. It gives a
standard meaning to all parties to the contract. In order to
assist the user to understand the document more readily
and more clearly and to use easily, definitions have been
selected as groups of heading/ topic in FIDIC-99. The
FIDIC-87 also has listed out such definitions in a manner
of group forms but without separating as distinct group
heading or topic. FIDIC-99 has six headings/topics and
58 definitions whereas FIDIC-87 has seven headings/
topics with 32 definitions. This is an increase of 82%
over the FIDIC-87 (26 new definitions). This is a fair
increase after 12 years of industry development since
1987. The industry has faced a number of disputes due
to lack of contractual definitions in the contact for some
commonly used key words.

New definitions like Letter of Tender would emphasize the


fundamentals of Offer and Acceptance theory of the law of
contracts with the definition of Letter of Acceptance. The
other major shift in the FIDIC-99 definitions is identifying
the issues related to disputes and addressing them in the
definitions. In this context new definitions like DAB, Base
Date, Force Majeure, Unforeseeable, and Variation would
give advantage to the both parties.
The definition for contract sum is classified in two forms;
Accepted Contract Amount, and Contract Price. This has
cleared the issue related to the final contract sum at the
submission of the final statement. According to FIDIC99 the definition of the Accepted Contract Amount is
similar to the definition of Contract Price in FIDIC-87
which is the sum stated in the letter of acceptance and it
is a fixed sum. However, the definition of Contract Price
in FIDIC-99 is a variable price until the agreement at the
final certificate upon submission of final statement by the
contractor.
NEC-3 has identified 19 definitions under General core
clause 11(Identified and defined terms). Most of such
definitions are similar to FIDIC versions except subclause 11.2. (14) The Risk Register. This is a new feature
compared to the FIDIC version.

3.2 Priority of Documents

In a situation of contractual disputes or ambiguities in a


contract, the hierarchy between various documents which
form the contract documents would greatly help to resolve
disputes or ambiguities in an amicable manner to both
parties. Identification of more documents in the forms of
contract would provide more clarity of order of precedence
in the documents that are forming the contract. The
FIDIC-99 has clearly identified eight such documents and
FIDIC-87 has five such documents, whereas NEC-3 has
not identified such a list of priority of documents. NEC3 has included a core sub-clause 17.1, Ambiguities and
Inconsistencies from which the Project Manager has been
empowered to resolve such ambiguity or inconsistency.
In this situation, the contractor would not have an
opportunity to assess the order of precedence of the tender
documents and subsequent contract documents until
and unless they found ambiguity or inconsistency during
the post contract stage. The table-2 below, illustrates the
priority of documents set out in both FIDIC-87 and 99.
Further the illustration in table 2 reflects that it has cleared
the debate in the industry on the order of precedence of
specifications and drawings after 12 years.

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Table 2- Priority of Documents
FIDIC 1987 Clause 5.2 Priority of Contract
Documents
(1) The Contract Agreement (if completed);
(2) The Letter of Acceptance;
(3) The Tender;
(4) Part II of these Conditions;
(5) Part I of these Conditions; and
(6) Any other document forming part of the Contract.

3.3 Contract Agreement

Late signing of contract agreement or in some cases no


contract agreement being signed at all by the parties, is a
common failure by the parties in construction contracts.
Following issuance of the letter of acceptance, parties
take their own time to finalize the contract agreement
and prolong due to various issues. In many instances,
the contractors are taking very negative approach to
finalize the contract agreement and sign the same. Most
of the standard forms of contract have not given any
remedial actions to this issue or a time frame to sign the
agreement.

FIDIC 1999 Clause 1.5 Priority of Documents


(a) the Contract Agreement (if any),
(b) the Letter of Acceptance,
(c) the Letter of Tender
(d) the Particular Conditions
(e) these General Conditions
(f ) the Specifications
(g) the Drawings, and
(h) the Schedules and any other documents forming part
of the Contract.

to the site or possession until the contractor submits the


performance security. Thereby, employer can make sure
his works have a security in case of early default by the
contractor. There is no such prerequisite for possession of
site in FIDIC-87, sub-clause 42.1, Possession of Site and
Access to Thereto, nor in NEC-3, core clause 33.1, Access
to and Use of the Site.

3.5 Employers Financial Ability

The FIDIC-99, sub-clause 1.6, Contract Agreement,


states that 28 days after the contractor receives the
letter of acceptance, parties shall enter into a contract
agreement. This placed both the parties to fulfill an
expressed contractual obligation within a set time limit.
In FIDIC-87 sub-clause 9.1, Contract Agreement, does
not have such a time period. According to the same, the
contractor shall only enter into and execute contract
agreement if employer is called upon to do so. This leaves
the desecration on the employer and the contractor would
be in a vulnerable situation. The provision in FIDIC-99
has relieved the contractor from an open risk.

In the construction industry the majority of employers


are the government sector, multinational companies
and major property developers. With these influential
employers, the contractors have little or no bargaining
power. The contractors have no clue of the financial
ability of the employers or their financial arrangement
to the project on which the contractors have committed
contractually. No standard forms of contract have
addressed this vital matter in the contract. FIDIC-99 subclause 2.4, Employers Financial Arrangements, has given
rights to the contractor to request reasonable evidence of
financial arrangement made to pay the contract price. The
employer shall submit such evidence within 28 days after
receiving any such request from the contractor. This is a
very positive provision towards the contractor and would
increase the confidence among the contract parties.

3.4 Possession of Site

3.6 Engineers duty and Authority

According to FIDIC-99, sub-clause 2.1, Right of Access


to the Site, has placed some restriction to the contractors
right to access the site. This is a new development towards
the employers benefit. The employer may withhold access

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Unlike FIDIC-87, sub-clause 2.6, Engineer to Act


Impartially, FIDIC-99 has not given reference to the
engineer required to exercise the discretion granted
to him/her under the contract impartially within the

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terms of contract. The engineer is deemed to act for the
employer unless expressly stated in particular applications
of conditions.
This is somewhat a wide variance from the original concept
of engineers impartial role in the contract administration.
This might expose the contractor to an unknown risk
while pricing the tender during the post contract stage.

3.7 Replacement of the Engineer

This is a new provision in the FIDIC-99 form of contract.


The engineer has a major role in the contract administration.
Similarly, depending on the status, and credibility of the
engineer, it has a considerable impact on the tender price
of the contractor. Therefore, any subsequent replacement
of the engineer may have an impact on the contract
price. The sub-clause 3.4, Replacement of the Engineer,
provides a fair and reasonable compromise between the
parties. If the employer intends to replace the engineer,
the contractor must receive 42 days notice with details of
the newly nominated engineer. Further, it has given the
opportunity for the contractor to notify his/her reasonable
objection for such a replacement.

3.8 Performance Security

In a construction contract, the employer may anticipate


the potential problems related to the performance of
the contractor and possible default by the contractor. It
is a common requirement of the employer to request a
performance security from an approved and recognized
bank or financial institution. FIDIC-99 sub-clause 4.2,
FIDIC-87 sub-clause 10, and NEC-3 Optional clauses
X13 have identified the requirement of Performance
Security and Performances Bond respectively. NEC-3 has
identified insurer as an institute to provide a performance
bond. The FIDIC-99 has specifically identified that the
employer shall not make a claim under the performance
bond/security except at a defined event in the sub-clause.
This gives sufficient time to the contractor to remedy any
default. Further according to FIDIC-99, the employer
shall return the performance security within 21 days after
receiving a copy of the performance certificate whereas
according to the FIDIC-87 the employer shall return the
performance security within 14 days after of the issue of
the defects liability certificate. In accordance with the
sub-clause 10.3 of FIDIC-87, Claims under Performance
Security, prior to making a claim the employer shall notify
the Contractor stating the nature of the default. No such
provisions have been made in both FIDIC-99 and NEC-3.

In overall, both the clauses have their own merits and


demerits with regards to apportion of risks towards to the
contractor. One of a salient feature in FIDIC 99 is that it
does not require giving prior notice to the contractor for
claims under performance security. In the meantime, the
employer is not entitled to claim against security unless
in specified events in the sub-clause. The events which are
entitled to claim against the security are not specified and
it is open to the employers discretion. Considering these
aspects, FIDIC-99 provision is more moderate and the
risk has been identified to an extent which can be assessed
by the contractor.

3.9 Records of Contractors Personnel


and Equipment

In order to facilitate the evaluation of the claims and


variations, it is necessary to have established a basic
contemporary record-keeping from the commencement
date of the contract. In accordance with the FIDIC-99
sub-clause 6.10, Records of Contractors Personnel and
Equipment, the contractor shall keep-on submitting such
records in each calendar month until the completion of
all snags works and until the issuance of the taking over
certificate. FIDIC-87 is less rigorous on this requirement.
The Sub-clause 35.1, Returns of Labour and Contractors
Equipment, needs to be delivered from time to time if
required by the Engineer. Further, as per the FIDIC-99,
no period for payment stated in sub-clause 14.7, Payment,
commences until the relevant report is submitted under
sub-clause 4.21, Progress Report, including the records
of contractors personnel and equipments as described in
sub-clause 6.10.
Sub-clause 6.10, of FIDIC-99 has imposed onerous work
on the contractor in order to comply with the site records
submitted to the Engineer. No such requirement had been
placed with the engineer.

3.10 Force Majeure

Most of the countries dont recognize the force majeure


for the contract parties to relieve from their contractual
obligations. In the meantime, most of the standard forms
of contract have not specified the provision of force
majeure. FIDIC-87 has identified some risks from which
both parties, in particularly, the contractor is released from
his/her obligations. Most of the special risks identified in
FIDIC-87 under sub-clause 65.2, Special Risks, and,
65.4, Projectile, Missile have been recognized as force
majeure in the FIDIC-99 clause 19.1, Force Majeure.

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This is a positive step to address the industry ambiguity in
respect of force majeure. The parties now are aware of the
circumstances to which their risks are exposed under the
pretext of force majeure. A part of employers risks stated
in FIDIC-87 sub-clause 20.4, Employers Risks, also are
categorized as force majeure. It has however qualified that
events leading to force majeure beyond the clause 19.1
stated in the sub-contractors agreement does not fall
under the clause 19.1.
There is no defined force majeure clause in NEC-3.
However, similar events which leads to the force majeure
defined in FIDIC-99 have been identified in core clause
80.1, Employers Risks, which is somewhat similar to
the provision set-out in FIDIC-87.
Clearly defined force majeure under sub-clause 1.1.6.4
and identifying events leading to force majeure, describing
its limitation for application and procedure to be applied
in sub-clause 19.1 of FIDIC-99 give an easy opportunity
to the contractors to assess their risks whilst the tender is
being priced.

4.0 VARIATIONS

Unlike most of the forms of contracts, FIDIC-99 has


defined variations under sub-clause 1.1.6.9. This is a
constructive step to avoid the ambiguities and disputes
that frequently arise between the parties. The boundaries
of the variations have always been debatable. Variations
are frequently a source for potential disputes in a contract.
Therefore, the employers have no choice but include a
variation clause to the contract in order to change the
works and to add additional work to the project from
time to time during the project period as they wish.
Similar to FIDIC-87 clause 51, Variations and 52,
Valuation of Variations FIDIC-99 has compiled two
clauses. Under the clause 12, Measurement and Evaluation
variations are evaluated and under clause 13, Variations
and Adjustments variations can be instructed. The events
and circumstances leading to the variations are almost
similar in both FIDIC editions. FIDIC-99 has elaborated
in a more comprehensive manner the events leading to
variations. Under sub-clause 13.1, Right to Vary, of
FIDIC-99, the Engineer can either instruct variation or
request a proposal from the Contractor. Unlike FIDIC87, the contractor can serve notice to the engineer in case
he/she is unable to carry out the variation instruction or
proposal. In that case engineer shall cancel, confirm, or
vary the instruction.

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A further improvement of FIDIC-99 is the inclusion


of clause 13.3, Variation Procedure. The parties, in
particular the contractors are fully aware of the procedure
to be adopted for the variation instructions and variation
proposals unlike in an ad-hoc procedure adopted for
the other situations. Under sub-clause 13.2, Value
Engineering, contractor can also submit proposals which
could ultimately construe as variation if the proposal is
accepted by the Engineer. The valuations of variations are
defined in clause 12.3, Evaluation and it has been listed
along with the provisions given in FIDIC-87 in the table
3 below with some emphasize.
Sub-clause 13.5, Provisional Sum, permits the process to
be adopted for the use of provisional sums. This described
process is similar to the one in the FIDIC-87. The
major difference is that provisional sums are categorized
under variations. This will facilitate to classify the final
adjustment of provisional sums under variation section of
the final account statements.
The sub-clause 13.8, Adjustments for Changes in Cost in
FIDIC-99, and sub-clause 70.1, Increase or Decrease of
Cost in FIDIC-87, deals with the fluctuation of costs of
the project. FIDIC-87 has not elaborated the methods or
means of calculation of such rises or falls in the costs of
labour, goods and other inputs to the works. It is left to
the part II of the conditions to deal with them in an adhoc manner. The sub-clause 13.8 of the FIDIC-99 has
comprehensively illustrated the method and procedure to
be followed by the parties in case of fluctuation of costs.
As the formula for adjustment of fluctuation cost is given
in the sub-clause itself it will relieve both parties in a
potential dispute to agree in method calculation.
The secondary option clause X1, Price Adjustment for
Inflation of NEC-3 has given a fairly detailed mechanism
for the adjustment of contract price in case of fluctuation
of cost of work.
In overall, the dealing of variations has been addressed in
a balance manner in the FIDIC-99. Introducing of value
engineering, variation procedure, adjustment of contract
rates in case of quantity variance, definition to variations,
formulae for adjustment of cost of fluctuations are to be
considered as positive steps and most of these steps have
created an ambiguity free environment for the contract
administration to all parties.

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Table 3
Valuation of Variation in FIDIC- 87 and 99
FIDIC 1987 Clause 52 Valuation of Variation

FIDIC 1999 Clause 12.3 Evaluation

At the rates and prices set out in the contract. At the rates and prices set out in the contract. (contracted
(contracted rates and prices)
rates and prices)

If the contract does not contain any rates and prices


applicable to the varied work, rates and prices set
out in the contract shall be used as the basis for the
valuation. (pro-rata to the contract rates and prices)

Failing to above 1 and 2, the engineer with due If above 1 and 2 is failed, a new rate or price shall be
consultation with the employer and the contractor, appropriate for an item of work if;
suitable rates or prices shall be agreed upon between (a) (i) the measured quantity of the item is changed by
the engineer and the contractor.
more than 10% from the quantity of this item in
the bill of quantities or other schedules,
(ii) this change in quantity multiplied by such specified
rate for this item exceeds 0.01% of the accepted
contract amount,
(iii) this change in quantity directly changes the cost per
unit quantity of this item by more than 1%, and
(iv) this item not specified in the contract for as a fixed
rate item
Or
(b) (i) the work is instructed under clause 13, Variations
and Adjustments,
(ii) no rate or price is specified in the contract for this
item, and
(iii) no specified rate or prices is appropriate because
the item of work is not of similar character , or is
not executed under similar conditions, as any item
in the contract.

In the event of disagreement to above item 3, the


engineer shall fix such rates and prices as are, in his
opinion, appropriate and shall notify the contractor
with copy to the employer.

If the nature or amount of any varied work relative


to the nature or amount of whole of the Work or any
part thereof, in the opinion of the engineer, the rate or
prices contain in the contract rendered inappropriate
or inapplicable, with due consultation by the engineer
with the employer and the contractor, a suitable rate
or price shall be agreed upon between the engineer
and the contractor subject to serve notice by either
party as described in the sub-clause 52.2.(a) and (b).

If the contract does not contain any rates and prices


applicable to the varied work, rates and prices set out in
the contract shall be used as the basis for the valuation.
(pro-rata to the contract rates and prices)

If no rates or prices are relevant for the derivation of a


new rate or price, it shall be derived from the reasonable
cost executing the work, together with reasonable
profit.

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5.0 PAYMENTS
5.1 Advance Payment

The sub-clause 14.2, Advance Payment, has clearly


identified the requirement of advance payment and a
comprehensive procedure for the process of advance
payment. Annex E of the FIDIC-99 has given a specimen
form of advance payment guarantee. The recovery of the
advance payment mechanism has been clearly laid down in
the sub-clause. Frequent uncertainty for the requirement
of performance guarantee prior to the advance payment
has now been clarified explicitly and in detail in the
sub-clause. The expressed provision of advance payment
requirement has not been addressed in the FIDIC-87.
In the core clause 5, Payment, of NEC-3 there is no
provision given for the advance payment. However, in

the secondary optional clause X14, Advance Payment to


the Contractor, has given the provision for the advance
payment. However, the mechanism and the procedure set
out in the FIDIC-99 can be considered to be superior.

5.2 Interim Payment Certificate

The term interim payment certificate, very commonly


refers to the contractors payment mechanism compared to
monthly statements referred in FIDIC-87. The contractor
him/herself shall include those additions and deductions
which may be applicable to the interim payment unlike
FIDIC-87. In the case of FIDIC-87 the contractor shall
include only the items for which payments are due to
him. The table-4 below illustrates the comparison of
both sub-clause 14.3, Application for Interim Payment
Certificate of FIDIC-99 and sub-clause 60.1, Monthly
Statement of FIDIC-87.

Table 4
Interim Payment Certificates in FIDIC 87 and 99
FIDIC 1987 Clause 60.1 Monthly Statements
(a). the value of the Permanent Work executed

FIDIC 1999 Clause 14.3 Application for Interim


Payment Certificates
(a). the estimated contract value of the Works executed
and the Contractors Documents produced up to the
end of the month including Variation.

(b). any other items in the Bill of Quantity including (b). any amount to be added and deducted for changes in
those for Contractors Equipment, Temporary Works,
legislation and changes in cost.
dayworks and the like,
(c) the percentage of the invoice value of listed materials (c). any amount to be deducted for retention.
and Plant delivered to the Site for incorporation in
the Permanent Work but not incorporated in such
Works,
(d ) adjustment under Clause 70, Changes in Cost and (d). any amount to be added and deducted for advance
Legislation
payment and repayment
(e). any amount to be added and deducted for Plant and
(e) any other sum to which the Contractor may be
Materials intended for the Works
entitled under the Contract or otherwise,
(f ). any other addition or deduction which may have
become due under the Contract or otherwise
including Claims.
(g). the deduction of amounts certified in all previous
Payment Certificates.

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Unlike FIDIC-87, the contractor shall submit the
payment statements with supporting documents and this
shall include the report on the progress of the work of that
particular month. Further, the employer shall pay to the
contractor the amount certified in the interim certificates
within 56 days after the engineer receives the statement
and supporting documents (not from the date receipt
by the employer). Whereas in FIDIC-87, the payment
shall be made within 28 days after such interim payment
certificates delivered to the employer by the engineer.
The onerous of application for interim payment in terms
of degree of information to be provided (in FIDIC-87, it
was five items and in FIDIC-99, it has seven items, refer
table 4 above), supporting documents to be submitted
and payment period compared to FIDIC-87 is now on the
Contractors side. In a way, this will facilitate the engineer
to certify the interim payment based upon the submitted
information and supporting documents. Further it is a
practically difficult task for an employer who has internal
bureaucracy to settle an interim payment certificate
within 28 calendar days which is nearly 20 working
days. Therefore, the increase to 56 days is a reasonable
step towards the practicability provided that engineer has
certified it within less than 28 days.
Most of the Contractors are concerned about receiving
payment within due date. In the case of delayed payments,
there should be a remedy for the same. Both FIDIC87 and 99 have provided the remedy for the delayed
payments. FIDIC-87 has not specifically stated the rate
of interest in the general condition but has stated to
insert in the appendix to tender. However, FIDIC-99 has
spelled-out the ways and means to calculate the applicable
rate for finance charges. In case no such rate has been
specified, an annual rate of three percentage points above
the discount rate of the central bank in the country of
the currency of payment would be taken to claim finance
charges for delayed payments. Further, the sub-clause
has strengthened the contractors rights stating that the
contractor shall be entitled to this payment without formal
notice or certification, and without prejudice to any other
right or remedy. This is a remarkable improvement in
the payment related clauses where most of the time the
contractors are suffering from delayed payments from the
employers.

6.0 EXTENSION OF TIME


The both editions of 87 and 99 of FIDIC have clauses
related to the extension of time to the time for completion.

September 2009

However, there are significant differences of application


in both versions as to the notices procedure, and events
leading to extension of time. With regard to the notices
procedure, under sub-clause 44.2, Contractor to Provide
Notification and Detailed Particulars, of FIDIC-87,
the engineer is not bound to make any determination
unless the contractor has served the notices within 28
days after such event has first arisen. This is commonly
a debatable clause as it has been worded in way that the
engineer has been given enormous discretion in case of
failure to comply by the contractor. Whereas, FIDIC99, sub-clause 20.1, Contractors Claim, has expressly
stated that if the contractor fails to give notice of claim
for extension of time within such period of 28 days,
the time for completion shall not be extended and the
contractor shall not be entitled to additional payments
and further, the employer shall be discharged from
all liability in connection with the extension of time
claim. This is a considerable improvement in condition
precedence for the notices requirement for extension of
time in FIDIC-99. This has benefited both parties; it will
safeguard the risks and liability of the employer to avoid
ambush by claims from the contractors. At the same time,
it has removed the engineers discretion over the notice
procedure. Consequently, contractors will pay more
attention to extension of time claim notices and would
employ competent contract administrators to deal with
such cases. The events leading to extension of time claims
have been increased in FIDIC-99 compared to the 87
editions as illustrated in the table -5 below.
The sub-clause 8.4.(d) is a new invention in FIDIC-99
(refer Table 5) which would greatly reduce the contractors
risk and would consequently reduce the tender sum as
well. Sub-clause further has explicitly stated that the total
of all extension of time cannot subsequently be decreased.
This is so even if many omissions are instructed as
variations. This is a positive move in FIDIC-99 to clear
some grey area of this aspect.
The sub-clause 8.5, Delay Caused by Authorities, is
another new clause and it has categorically identified the
means and ways to deal with such delays occurred due to
Authorities, which is very common in the construction
industry. The ambiguity as to who is responsible for such
delays has now been cleared to the parties, thus the risk
to the contractor and impact to the final tender sum are
also reduced.

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Table 5
Extension of time clauses
FIDIC 1987

FIDIC 1999

Sub-clause 44.1 Extension of Time for


Completion

Sub-clause 8.4 Extension of Time for


Completion

(a) the amount or nature of extra or additional work,


(b) any cause of delay referred to in these conditions,
(c) exceptionally adverse climatic conditions,
(d) any delay, impediment or prevention by the employer,
or
(e) other special circumstances which may occur, other
than through a default or breach of contract by the
contractor or for which he is responsible.

(a) a variation or other substantial change in the quantity


of an item of work
(b) a cause of delay giving an entitlement to extension of
time under a sub-clauses of these conditions
(c) exceptionally adverse climatic conditions
(d) unforeseeable shortage in the availability of personnel
or goods caused by epidemic or governmental action,
or
(e) any delay, impediment or prevention caused by or
attributable to the employer, the employers personnel,
or the employers other contractors on the site.

The table-6 below lists the provisions relevant to extension


of time and its financial implication. There are 12 instances
in FIDIC-99 from which the contractor can claim for
extension of time and out of which seven have explicitly

stated the instances where the contractor entitlement for


reasonable amount of profit. FIDIC-87 has expressly
identified seven instances where the contractor is entitled
for the extension of time.

Table 6
Extension of time and its financial implication FIDIC-99
Subclause
1.9

Sub-clause

4.7
4.12
4.24
7.4
8.4

Delayed
Drawings
or
Instructions
Right to Access to the Site
Setting out
Unforeseeable
Physical Conditions
Fossils
Testing
Extension Time for Completion

8.5

Delays Caused by Authorities

2.1

Costs

Profits

Costs

Profits

Costs

Profits

Costs
Costs
Costs
Costs
-----

Profits
----Profits
----

Remarks

Contractor may claim extension time


under this sub-clause.
Contractor may claim extension time under
this sub-clause, and no mention of the
financial consequences. It may be depend
upon the particular circumstances.

Table 6 contd.

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Table 6 contd.
Extension of time and its financial implication FIDIC-99
Subclause
8.9
10.3
13.7
16.1
17.4
19.4

7.0

Sub-clause
Consequences of Suspension
Interface
with
Tests
on
Completion
Adjustments for Changes in
Legislation
Contractors Entitlement to
Suspend Works
Consequences of Employers
Risks

Costs

Profits

Costs
Costs

--Profits

Costs

---

Costs

Profits

Costs

Profits for subclause 17.3.(f )


& (g) only

Consequences of Force Majeure Costs for subclause 19.1 .


(i) to (iv)

SUSPENSION AND TERMINATION

The suspension has been addressed in sub-clause 8.8,


Suspension of Works, of FIDIC-99. Unlike FIDIC-87,
it has not identified the reasons for which the employer
is not responsible for extension of time and its associated
costs due to suspension. However, in accordance with the
sub-clause 8.8, the engineer may notify the cause for the
suspension. If and to the extent that the cause is notified
and to the cause he may not get extension of time and cost
is similar to the provisions in FIDIC-87. This has been
further emphasized in the sub-clause 8.9, Consequences
of Suspension. FIDIC-87 has not clearly identified the
contractors entitlement for other costs as a result of
suspension other than the associated cost of extension of
time. In FIDIC-99, under sub-clause 8.10, Payment for
Plant and Materials in Event of Suspension, has clearly
identified the contractors entitlement for payment.
Both FIDIC-87 and 99 have given opportunity for
contractors entitlement to suspend the work. In
accordance with sub-clause 16.1, Contractors Entitlement
to Suspend Work, of FIDIC-99 and sub-clause 69.4,
Contractors Entitlement to Suspend Work, of FIDIC-87
it has described the procedure to be followed and events
leading to suspension. The FIDIC-87 has identified only
one reason for the contractors entitlement to suspend the
work which is due to delayed payment by the employer.
Whereas, FIDIC-99 has identified three reasons: i. if the

Remarks

engineer fails to certify in accordance with sub-clause


14.6 - Issue of Interim payment Certificates, ii. or the
employer fails to comply with sub-clause 2.4 - Employers
Financial Arrangements or iii sub-clause 14.7 - Payments
which entitles the contractor to suspend or reduce the
rate of progress of the work. According to the FIDIC-99
it should give lesser notice period of 21 days compared to
28 days in FIDIC-87. This will give some seven day early
relief to the contractor to reduce his sufferings.
The termination clause in both version of FIDIC-87 and
99 is almost similar except a new sub-clause is added in
99 editions. The sub-clause 15.5, Employers Entitlement
to Termination, establishes that the employer is entitled
to terminate the contract at any time for his/her own
convenience by giving notice of such termination to the
contractor provided that no such work was carry out by
him/herself or someone else. However, such termination
shall not be effective unless the employer returns the
performance security to the contractor. There is no such
provision of termination on convenience given to the
contractor. However, express provision has been given for
compensation due to such termination under sub-clause
16.3, (Cessation of Works and Removal of Contractors
Equipment) and vide sub-clause 19.6 (Optional
Termination, Payment and Release).
The termination of contract by the contractor has been
addressed in both FIDIC-87 and 99 under different

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headings. The FIDIC-87, under sub-clause 69.1, Default
of Employer, and FIDIC-99 under sub-clause 16.2,
Termination by Contractor have described the ways and
means which entitles the contractor to terminate the
contract. FIDIC-99 has identified seven such reasons
whilst FIDIC-87 has identified four reasons leading to
termination of the contract by the contractor as illustrate
in the table 7 below with added emphasize.
After giving 14 days notice to the employer, contract can
be terminated by the contractor. However, no notice is
required for sub-clause 16.2.(f ), and (g) of FIDIC-99, for
which the contractor may by noticed the termination of
the contract immediately. There are no such provisions
like sub-clause 16.1.(a), (b), (d), and (e) in FIDIC-87.
However, in FIDIC-87 there is a provision that contractor
is entitle to terminate the contract under sub-clause 69.1
(b), Employer interfering with or obstructing or refusing
any required approval to the issue of any certificate,
and sub-clause 69.1.(d), Employer giving notice to the
contractor that for unforeseen economic reasons it is
impossible for him to continue to meet his contractual

obligation. These two provisions are vital to both the


parties to continue the contract. Nevertheless, FIDIC-99
has identified more practical grounds which influence the
contractors entitlement to terminate the contract.
Further, in accordance with the sub-clause 16.4,
Payment on Termination, after the expiry of notice for
termination given by the contractor under sub-clause
16.2 (Termination by Contractor) the employer returns
the performance security to the contractor. This is a new
positive move taken in FIDIC-99. This has cleared the
long time ambiguity with regard to the fate of contractors
performance security following the termination of the
contract by the contractor. The sub-clause 16.4, Payment
on Termination has further specifically identified that the
contractor is entitled for any loss of profits or other loss
or damage sustained as a result of termination of contract
by the contractor or in other word, due to default of
the employer. These specific clarifications would avoid
the lengthy disputes and save time and money of the
contacting parties to concentrate on their other core
activities.

Table7
Termination of Contract due to default of the Employer
FIDIC 1987

FIDIC 1999

Sub-clause 69.1 Default of Employer

Sub-clause 16.2 Termination by Contractor

(a) Employer failing to pay the certified amount by the (a) The contractor does not receive the reasonable
Engineer within the specified time to the Contractor,
evidence within 42 days after giving notice under
sub-clause 16.1(Contractors Entitlement to Suspend
(b) Employer interfering with or obstructing or refusing
the Work) in respect of a failure to comply with subany required approval to the issue of any certificate,
clause 2.4 (Employers Financial Arrangements),
(c) Employer becoming bankrupt or, being a company, (b) The Engineer fails, within 56 days after receiving a
going into liquidation, other than for the purpose of
statement and supporting documents, to issue the
a scheme of reconstruction or amalgamation, or
relevant payment certificate.
(d) Employer giving notice to the contractor that for (c) The contractor does not receive the amount due
unforeseen economic reasons it is impossible for him
under an interim payment certificate within 42 days
to continue to meet his contractual obligation
after the expiry of the time stated in sub-clause 14.7
(Payment),

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Table 7 contd.

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Table 7 contd.
Termination of Contract due to default of the Employer
FIDIC 1987

FIDIC 1999
(d) The employer substantially fails to perform his
obligations under the contract,
(e) The employer fails to comply with sub-clause 1.6
(Contract Agreement) or sub-clause 1.7 (Assignment),
(f ) Prolonged suspension affects the whole of the work as
described in sub-clause 8.11(Prolonged Suspension),
or
(g) The employer becomes bankrupt or insolvent, goes
into liquidation

8.0 CLAIMS, AND DISPUTES

connection with such claims.

The claims are one of the most contentious areas of the


construction industry. Most of the industry professionals
have made their prime efforts to avoid claims in the
construction sector, thereby minimize the disputes and
lengthy arbitration and even litigation. Well defined form
of contract with equally and appropriately shared risks
between parties can minimize the claims, disputes and
arbitration in the construction industry.

In a similar manner, Employer also can submit claims


to the contractor. This new provision of FIDIC-99 has
been given in sub-clause 2.5, Employers Claims. Except
to claim for extent defect notification period, notices
shall be given before the expiry of the defects notification
period. No other onerous restriction of notices has been
placed on the employers claims.

Both FIDIC versions of 1987 and 1999 have taken


tremendous effort to achieve above described objectives
in their previous editions. In this context, FIDIC-99 has
introduced several positive measures, most of which are
discussed in the previous sections of this paper, to treat the
contracting parties equally. Compared to 17 sub-clauses
relating to contractors entitlement to claim in FIDIC-87
edition, there are 22 potential sub-clauses upon which
the contractor would be able to submit claims under 99
Edition. Further sub-clause 20.1, Contractors claim, has
expressly stated that if the contractor fails to give notice
for a claim, either for extension of time or for additional
payments, as soon as practicable, and not later than 28
days after the contractor becomes aware of such claims,
the contractor shall not be entitled to the claim and
the employer shall be discharged from all liability in

The Engineers Decision is one of the effective and


mostly debated provisions in the settlements of disputes
in sub-clause 67.1 of FIDIC-87 as it has challenged the
impartiality of the engineers role. The Engineer, who
has a separate contractual agreement with the employer
as the employers professional advisor/consultant on the
same project, his/her role as an independent dispute
resolution agent has been questioned in many forums.
This has now been effectively addressed in FIDIC-99 by
abolishing the engineers role in settlement of dispute
under the Engineers Decision. The provision of Engineers
Decision is replaced with sub-clause 20.2, Appointment
of the Dispute Adjudication Board. Unlike the Engineers
Decision, the process of adjudication has a legal back
ground through the Construction, Housing Grant and
Re-generation Act, 1996.

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9.0 CONCLUSION
The analysis above shows that most of the new clauses
introduced in FIDIC-99 has taken maximum care to
maintain the balance between the parties. However,
some of the new clauses directly benefit the contractor
or employer. Summarized below are some of those key
clauses identified in terms of how they affect the parties.

9.1 Towards Contractor Friendly


(i) Sub-clause1.1 Definitions
There are 58 definitions compared to 32 in FIDIC87. The definitions like Accepted Contract Amount
and Contract Price provide clear distinction between
original contract sum and final contract sum. Further
newly added definitions of Variations, Unforeseeable,
Force Majeure, and Contractors Documents, etc.
iron out the ambiguity existing in FIDIC-87. To an
extent the employer too would however benefit from
a considerable number of definitions in the contract.
(ii) Sub-clause 1.5 Priority of Documents
FIDIC-99 has identified and prioritized eight
documents compared to six in FIDIC-87. More
importantly, the order of priority of Specifications and
Drawings is identified. This was always an ambiguity
to the parties and lead to disputes. To an extent the
employer too would however benefit from this new
detailed priority.
(iii) Sub-clause 1.6 Contract Agreement
This sub-clause has given 28 days for the contractor
to upon receive the letter of acceptance entered into a
contract agreement. This places both parties to fulfill
an expressed contractual obligation within a set time
limit. According to the FIDIC-87 clause 9.1, Contract
Agreement, the contractor shall only enter into and
execute contract agreement if employer is called upon
to do so.
(iv) Sub-clause 2.4 Employers Financial Arrangements
The Sub-clause has given rights to the contractor to
request reasonable evidence of financial arrangements
made to pay the contract price. The employer shall
submit such evidence within 28 days after receiving
any such request from the contractor.

70

(v) Sub-Clause 4.2 Performance Security


The employer shall not make a claim under the
performance bond/security except in a defined event
in the sub-clause.
(vi) Variations
Variations are dealt in two different clauses, clause
12, Measurement and Evaluation, and clause 13,
Variations and Adjustments. These clauses have
identified several positive steps which are in friendlier
to the contractor. Introduction of variation procedure,
a definition for variation, value engineering, formulae
for price fluctuation etc. are few of them. Further
classifying the provisional sums under variation too is
a positive step and it will simplify the preparation of
final account.

In the case of quantity of the BoQ changed, contractor


may be entitled to a new rate for the respective items.
Further, contractor can serve notice to the engineer in
the case him/her being unable to carry out the variation
instruction or proposal. In such cases, engineer shall
cancel, confirm, of vary the instruction.

(vii) Payments
A new detailed clause for advance payment has
been included to the conditions with a specimen
for advance payment guarantee. The contractor has
to prepare and submit his/her payment statement
in a fully comprehensive manner identifying the
deductions. Further, in the case of delayed payment
by the employer, the applicable rate of finance has
been given in the sub-clause 14.8, Delayed Payment.
.
(viii) Extension of Time
Following establishing the conditions precedence
for the notices for extension of time, it has diluted
engineers discretionary on the determination of
extension of time in case no notices submitted by the
contractor. Under sub-clause 8.4.(d), contractor is
now entitled to claim extension of time in the case of
unforeseeable shortage in the availability of personnel
or goods caused by epidemic or governmental
action. Further, in accordance with the sub-clause
8.5, Delays Caused by Authorities, the ambiguity is
cleared in terms of the responsibility of the contractor
when a delay is caused by the authorities. It is further
expressly stated that no reduction of time from the
time for completion.

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FIDIC-99 has expressly identified 12 events leading to


the entitlement of extension of time by the contractor
whereas in FIDIC-87 there are seven events. Further,
it has expressly stated in seven instances that the
contractor is entitled for a reasonable amount for
profits.

(ix) Suspension and termination


In accordance with sub-clause 16.1, Contractors
Entitlement to Suspend the Work of FIDIC-99,
suspension can be enforced based upon three events
by giving 21 days notice whereas FIDIC 87 has only
one event by giving 28 days notice. Further, it is
expressly stated that the contractors entitlement in
case of suspension.

The contractor is entitled to terminate the contract


based upon seven events whereas as per FIDIC-87
it has only four events upon which the contractor
is entitled to terminate the contract. In such cases
employer shall return the performance security and
the contractor is entitled for loss of profits.

(x) Claims and Disputes


Under FIDIC-99, there are 22 expressed instances to
which the contractor is entitled to claim additional
payments compared to 17 such expressed instances in
FIDIC-87. FIDIC-99 has abolished the Engineers
Decision and has introduced Dispute Adjudication
Board.

9.2 Towards Employer Friendly


(i) Sub-clause 2.1 Right to Access to the Site
The employer may withhold access to the site
or possession until the contractor submits the
performance security. Thereby, employer can make
sure his/her works have a security in case of early
default by the contractor.
(ii) Engineers duty and Authority
The engineer is deemed to act for the employer
unless expressly stated in particular applications of
conditions.
(iii) Sub-clause 3.4 Replacement of the Engineer
Unlike FIDIC-87, under this sub-clause the employer
is able to replace the engineer.

(iv) Sub-clause 4.2 Performance Security


The employer shall return the performance security
within 21 days after receiving a copy of the
performance certificate whereas according to the
FIDIC-87 it is 14 days after of the issuance of the
defects liability certificate. Unlike FIDIC-87, there
is no requirement to notify the contractor prior to
making a claim against the performance security.
(v) Sub-clause 6.10 Records of Contractors Personnel
and Equipment
The contractor shall keep-on submitting such records
in each calendar month until the completion of
all snags works upon issuance of the taking over
certificate. No period for payment stated in sub-clause
14.7, Payment, commences until the relevant report
is submitted.
(vi) Payments
In accordance with clause 14.7.(c) the employer shall
pay to the contractor within 56 days after receiving of
the interim payment and final payment certificates from
the engineer unlike 28 days specified in FIDIC-87.
(vii) Extension of Time
FIDIC-99, sub-clause 20.1, Contractors Claim, has
expressly stated that if the contractor fails to give
notice of claim for extension of time within such
a period of 28 days, the time for completion shall
not be extended and further, the employer shall be
discharged from all liability in connection with the
extension of time claim.
(viii) Suspension and termination
In accordance with the sub-clause 15.5, Employers
Entitlement to Termination, the employer is entitled
to terminate the contract at any time for the employers
convenience by giving notice to the contractor.
(ix) Claims and Disputes
Unlike FIDIC-87, the FIDIC-99, sub-clause 20.1,
Contractors Claim, has expressly stated that if the
contractor fails to give notice of claim for additional
payments within such a period of 28 days, the
contractor shall not be entitled to additional payments
and further, the employer shall be discharged from all
liability in connection with the claim for additional
payments.

In accordance with sub-clause 2.5, Employers

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Claims, if the employer considers he/she is entitled
for payments or extension of the defects notification
period, the employer or the engineer shall give notice
and particulars to the contractor.

10 Conclusion

The above would conclude that both the contractor and


the employer are benefited fairly from the new edition of
the FIDIC-99. It has addressed all the contentious issues
faced in FIDIC-87 during the last 12 years since 1987
in FIDIC-99 edition. Following a close focus on some
of the key clauses such as priority of documents, signing
of contract agreement within a specified time period,
demand for financial arrangement of the employer for
the project, formulae for price fluctuation, new rate for
increase of BoQ quantity, a wide range of possibility
to claim extension of time and additional payments,
entitlement for loss of profit and release of performance

security upon termination by the contractor, introduction


of dispute adjudication board can be considered to be
contractor friendly.
From the Employers point of view a number of concepts
such as no access to the site shall be made without the
submission of the performance security, employers
entitlements to claim extension of time for defects
notification period and additional payments, removal
of clause related to that engineer act impartially, claim
against performance security without prior notice to the
contractor, payments to the contractor within 56 days
instead of 28days in FIDIC-87, in case of no notices
for extension of time or additional payments from the
contractor no liability for them, entitlement to terminate
at his convenience can be considered to be employer
friendly.

Caparo Industries Plc -v- Dickman and others [1990]


The plaintiffs sought damages from accountants for negligence. They had acquired shares in a target
company and, relying upon the published and audited accounts which overstated the companys
earnings, they purchased further shares.
Held: The purpose of preparing audited accounts was to assist company members to conduct
business, and not to assist those making investment decisions, whether existing or new investors in
the company. The auditors did not owe a duty of care to the plaintiffs. Liability for economic loss for
negligent mis-statement should be limited to situations where the statement was made to a known
recipient for a specific purpose of which the maker was aware, and upon which the recipient had
relied and acted upon to his detriment. The law has moved towards attaching greater significance to
the more traditional categorisation of distinct and recognisable situations as guides to the existence,
the scope and the limits of the varied duties of care which the law imposes. The House laid down a
threefold test of foreseeability, proximity and fairness and emphasised the desirability of incremental
development of the law. The test was if the court considers it fair, just and reasonable that the
law should impose a duty of a given scope upon the one party for the benefit of the other. Lord
Bridge of Harwich: What emerges is that, in addition to the foreseeability of damage, necessary
ingredients in any situation giving rise to a duty of care are that there should exist between the party
owing the duty and the party to whom it is owed a relationship characterised by the law as one of
proximity or neighbourhood and that the situation should be one in which the court considers it
fair, just and reasonable that the law should impose a duty of a given scope upon the one party for
the benefit of the other.

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Sri Lankas Ombudsman Schemes
Dr. Wickrema Weerasooria

Dr Weerasooria has written over 15 textbooks on Banking and Credit. His Australian book on Banking
Law is titled Weerasoorias Banking Law of Australia. He also continues his academic lectures and writing work and teaches Business Law and Banking, Finance and Administration Law at the Postgraduate
Institute of Management (PIM) in Sri Lanka. Presently serve Insurance Ombudsman of Sri Lanka

I am happy to contribute this article on the above topic


in the SLQS journal. As a legal academic and teacher
for over thirty years I realize the value of developing
into legal education, curricular of practical value which
keep abreast of changing issues in Society Alternate
Dispute Resolution (ADR) and mediation as apposed to
litigation, is one such important area and for Sri Lanka,
the Ombudsman Schemes are the newest entry to ADR.
No one has yet published a comprehensive account
of the countrys Ombudsman Schemes, their origin,
development, current position and assessment. Hence,
my selection of this topic.

it is said that there was a senior and trusted official in


the Kings palace called The Dukganna Rala which
in translation means The person who receives or hears
complaints. However, it is generally believed that this
high listened to and provided whatever relief he could
only to the complaints and requests of the King and not
his subjects. It is also said that the Kings complaints to
the Dukganna Rala mainly concerned the problems the
King had with his wife the Queen. Thus, it appears
that the office of Dukganna Rala was not meant for the
average citizen.

Ombudsman schemes are now to Sri Lanka and many Sri


Lankans including some lawyers are unaware of all
the ombudsman schemes operating in the country. For
instances, only a few weeks ago, a lawyer asked this writer
what is an Ombudsman and what does he do.

In modern times, Sri Lankas first Ombudsman was


established by the 1978 Constitution. Article 156 of the
Constitution established the office of the Parliamentary
Commissioner for Administration (Ombudsman).

The dictionary meaning of the term Ombudsman is a


government official appointed to investigate complaints
made be individuals against the government or public
bodies. According to the dictionary meaning, the origin
of the word is Swedish-from umboth (commission) plus
mathr (man). Thus, the term ombudsman can mean a
One-man Commission
Historically, the modern office of Ombudsman can be
traced to the establishment of such an office in Sweden
in 1809. From Sweden, the Ombudsman concept was
copied in other Scandinavian countries like Finland.
Denmark and Norway and over the last two hundred
years Ombudsman Schemes came to be established
globally in most developed countries.
In Sri Lanka, during the reign of the Sinhalese Kings,

Sri Lankas Parliamentary Ombudsman

Since 1978, two legislative enactments were made relating


to the office of the Parliamentary Ombudsman. These
were as follows
i) Parliamentary Commissioner for Administration Act
No.17 of 1981, and
ii) Parliamentary Commissioner for Administration
(Amendment) Act No.26 of 1994.
Under the law now applicable, the Parliamentary
Ombudsman is appointed by the President and can
continue in office until he reaches 68 years unless he
resigns or is removed by the President on account of
illness or mental incapacity. Like in the case of a Supreme
Court Judge, he can also be removed by an address in
Parliament. Thus, the Parliamentary Ombudsmans
independence is assured.

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The Parliamentary Ombudsmans functions and powers
are contained in the two Acts of Parliament referred to
above. His main duty is:

To investigate and report upon complaints or


allegations of the infringement of fundamental
rights and other injustices by public officers or
public corporations, local authorities and other like
institutions, in accordance with and subject to the
provision of law.

The world injustice is defined broadly in the legislation


to include any injustice caused by any decisions /
recommendation (including a recommendation to a
Minister) or by any act or omission and the infringement
of any right recognized by the Constitution.

Matters
excluded
from
Ombudsmans purview

Parliamentary

The Parliamentary Ombudsman is not entitled under the


legislation to investigate any matter relating to:
a) Members of the Armed Forces or Police
b) The appointment, transfer, dismissal or disciplinary
control of public officers
c) The Auditor General and the Commissioner of
Elections.
As will be seen above, the Parliamentary Ombudsman
can only inquire into complaints relating to public sector
and local government sector bodies and institutions.
Also, his decision or award lacks implementation effect
unless the institution or official to whom it is directed
decides to comply with it, The first feature is a limitation
on his jurisdiction. The second feature is a limitation
on the effect of his award. His report is however tables
in Parliament and Parliament, if it so deems fit, can take
steps to ensure that an ignored award is honoured.

Other Sri Lankan Ombudsman Schemes

Apart from the parliamentary Ombudsman, currently


there are only three other Ombudsman Schemes
operating in Sri Lanka. This is the Financial Ombudsman
which commenced in December 2003, the Insurance
Ombudsman of which commenced in February 2005, and
more recently the Tax Ombudsman who was appointed
by the Ministry of Finance in mid 2005. All the above
three schemes are not statutory schemes but are modeled
on similar schemes operating in developed countries.

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1. Financial Ombudsman

The Financial Ombudsman was set-up in December 2003


with the approval of the Central Bank, by the banking
industry and other financial institutions supervised by
the Central Bank like the finance companies, the leasing
companies and the primary dealers. They incorporated a
company under the Companies Law called the Financial
Ombudsman. Sri lanka (Guarantee) Ltd. This Company
selects and employs the Financial Ombudsman. The
Ombudsman is selected on an open advertisement in the
newspapers. The first Financial Ombudsman is Mr.Walter
Ladduwahetty a respected retired Judge. Much of the
success of the scheme is due to him.

Origin of the Scheme

This writer is indeed proud that he was closely associated


with the establishment of this scheme. On my return to Sri
Lanka in 2002 after teaching for several years at Monash
University in Australia, he was asked and accepted office
as a Consultant in Legal Reforms to our Central Bank.
At that time from 2000 onwards, the Government had
set-up a Financial Sector Reforms Committee (FSRC)
chaired by the Central Bank Governor. I was a member
of that Committee. I proposed to the Committee that we
set-up a Banking Ombudsman scheme similar to the one
established in several other countries. As an academic
at Monash University I had worked closely with the
Australian Banking Ombudsman scheme. While the idea
gained favour, the heads of our banks were not overtly
enthusiastic about such an Ombudsman. But then, the
Government enacted the Consumer Affairs Authority
Act No.9 of 2003. Under that Act, all banking and
financial transactions, were also subjected to inquiry and
investigation by the Consumer Affairs Authority. To
overcome this problem, the banking industry quickly
agreed to establish the Banking Ombudsman scheme so
that any complaints can be handled by the Ombudsman
rather than by the Consumer Affairs Authority. That
is how the Sri Lankan Banking Ombudsman scheme
came to be established. Just before the scheme started to
function in December 2003, other financial institutions
like the finance companies, leasing companies and
primary dealers also wanted to join the scheme. Hence,
the name was changed from Banking Ombudsman to
Financial Ombudsman.
The Financial Ombudsmans power and functions are laid
down in the Memorandum and Articles of Association of
the Company Limited by Guarantee. Generally speaking

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SLQS JOURNAL
the Financial Ombudsman can inquire into complaints
by customers of the banks and other financial institutions
who are members of the scheme and those institutions
will be bound by his decisions and awards. Like in other
Ombudsman schemes in foreign countries, the Financial
Ombudsman is not bound or restricted by rules relating
to the laws of evidence or legal procedures which govern
a normal court of low. Nor can lawyers appear before the
Ombudsman. The object of freeing the Ombudsman
from having to observe legal rules and preventing lawyers
appearing before him is to enable him to decide disputes
without delay. All that is required is that he must be
reasonable, fair and just in arriving at this decisions and
awards. This is how Ombudsman schemes in foreign
countries also operate and the Financial Ombudsman of
Sri Lanka will be guided by the foreign schemes.

actual rates charged are different to the published


rates prescibed by the member financial institution.
(l) The Financial Ombudsman may also deal with any
such other relevant matters as may be specified by the
Central bank from time to time.

Ombudsmans Powers

The banks and the other financial institutions that are


members of this scheme are giving their full support and
co-operation to the Financial Ombudsman. Sometimes, the
Ombudsmans decision or the relief he awards is against the
bank or the financial institution and they may not be happy.
However, up to date no bank or financial institution has
challenged a decision or Award given by the Ombudsman.
This alone proves that the scheme is a success. Many people
who have gone to the Ombudsman have written very
complimentary letters about the prompt and courteous,
manner they have been treated at his office which is situated
at No. 143 A, Vajira Road, Colombo 5. Each of the banks
and financial institutions who joined the scheme have also
appointed Complaints Resolution Officers in each of the
institutions to liaise with the Ombudsmans office. These
officers also should be complimented for having made the
scheme a success. Everything about the scheme is found on
its Website which is www.financialombudsman.lk.

The powers of the Financial Ombudsman are contained in


Article 43 of the Articles of Associations incorporating the
Financial Ombudsman, Sri Lanka (Guarantee) Limited.
Article 43 states that the Ombudsman can entertain any
complaint relating to the following matters:
(a) Non-payment/inordinate delay in payment or
collection of cheques, drafts, bills etc.
(b) Non-issue of drafts to customers and others.
(c) Non-adherence to prescribed working hours.
(d) Failure to honour Guarantee/Letter of Credit
commitments by Banks.
(e) Claims in respect of unauthorized or fraudulent
withdrawals from deposit accounts, current accounts,
savings accounts.
(f ) Fraudulent encashment of a cheque/bank draft.
(g) Complaints by customers pertaining to the operations
in any customer accounts maintained with the
financial institution.
(h) Complaints from export customers on the mishandling
of export bills, collection of bills and delays in receipt
of export proceeds.
(i) Complaints from non-residents having accounts in
Sri Lanka in relation to their remittances to Sri Lanka
and operations in their accounts.
(j) Complaints relating to the violation of directives of
the Central Bank of Sri Lanka in relation to financial
services.
(k) Complaints in respect of charges/interest and fees
levied. In relation to charges/interest and fees, the
complaints shall be restricted to situations where the

In the middle of 2004, the above powers of the


Ombudsman were enlarged because the scheme was
providing a success. Now the Ombudsman can also inquire
into complaints made by persons other than individuals
such as companies and partnership who are customers
of banks and financial institutions. He can also inquire
matters relating to special debt recovery procedures used
by banks as parate execution procedures. As a result of
enlarging the Ombudsmans powers more complaints are
coming in.

2. Insurance Ombudsman

This scheme is a replica of the financial Ombudsman


scheme. If was set up by the insurance industry which
today consists of fifteen private sector companies and
the scheme has the concurrence and approval of the
Insurance Board of Sri Lanka which is the state regulatory
body for insurance. The following matters are within his
jurisdiction.
(i) A complaint on any one of the following grounds
alleging deficiency in respect of general insurance or
long-term insurance service, may be lodged with the
Ombudsman;

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a) Non-settlement or delay in the settlement of a claim
b) Inequitable interpretation or application of the terms
and conditions of
the insurance policy
with regard to the following:
Claims including maturities of long-term insurance
policies
Premium payable and premium refunds
(i) Other benefits payable in terms of the insurance
policy
(ii) Any complaint by a policy-holder against an insurance
agent relating to an insurance policy.
(iii) Any complaint by an insurance agent or broker against
an insurance company in relation to an insurance
policy.
(iv) Any matter referred to the Ombudsman by the
Insurance Board of Sri Lanka (IBSL)
(v) Any matter referred to the Ombudsman by the
Consumer Affairs Authority of Sri Lanka (CAA)
Any decision or award of the Insurance Ombudsman upto
Rs. 500,00/- is binding on the insurance company but
not on the complainant who can proceed to arbitration
or litigation etc. Above Rs. 500,000/- the award is not
binding on the insurer but the Ombudsman decision can
be made available to an arbitrator or to the court if the
insurer contests it in that manner.
This writer was appointed as Sri Lankas first Insurance
Ombudsman in February 2005. In the eyes of the
insurance companies which are now all in private sector
hands and the insurance policy holders the possible
complainants the insurance ombudsman scheme is
working successfully.

3. Tax Ombudsman

September 2009

Revenue. Mal-administration in this context is defined


to include;
(a) A decision, process, recommendation, act of
commissioner or omission of which appears to;
i. be a departure from established practices;
ii. be arbitrary, unreasonable or discriminatory;
iii. have been given on irrelevant ground; or
iv. Involve the exercise of powers, or the failure or refusal
to do so, for corrupt or improper motives or as
administrative excesses.
(b) Neglect, inattention, delay, incompetence, inefficiency
and ineptitude in the administration or discharge of
duties and responsibilities;
(c) Repeated notices, unnecessary attendance or
prolonged hearings while deciding cases concerning.
i. Determination of income or value;
ii. Assessment of liability to taxes or levies administered
by the Inland Revenue Department.
iii. Classification or valuation of goods;
iv. Settlement of claims of refunds or rebate; or
v. Determination of fiscal and tax concessions or
exemptions.
(d) Willful errors in the determination of refunds or
rebates;
(e) Deliberate withholding or non-payment of refunds or
rebates already determined;
The Ombudsman will entertain any complaint made
(i) directly by the person aggrieved
(ii) in writing and addressed to Tax Ombudsman
(iii) within a period of six (6) months from the date on
which the complainant had first notice of the injustice
complained of (The period may in appropriate
circumstances be extended)

The Tax Ombudsman scheme which was established by


the Ministry of Finance and Planning in mid-2005 is an
administrative arrangement designed to look into and
redress grievances of the taxpaying public. It is established
in terms of a Cabinet decision.

The Ombudsman may, where he considers it appropriate to


do so, conduct an inquiry into any complaint. Every such
inquiry shall be held in private; the complainant is entitled
to appear before it either in person or by a representative.

The Ombudsman will inquire into complaints of any


injustice arising in consequence of any mal-administration
on the part of any officers of the Department of Inland

On the conclusion of every inquiry the Ombudsman will


submit a report to the Commissioner General of Inland
Revenue, setting out his findings and recommendations.

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Where the Ombudsman decides not to conduct an inquiry
he will communicate such decision to the complainant
together with reasons therefore, such communication
shall be treated as the conclusion of such complaint.
Every complaint with or without any inquiry being
conducted will be dealt with to a finish within a period of
ninety (90) days from the date on which the complaint
is received.

The Press Complaints Commission of Sri Lanka

The only other non-statutory mediation/dispute


resolution scheme in operation in Sri Lanka which bears
some resemblance to an Ombudsman Scheme is the
Press Complaints Commission of Sri Lanka (PCCSL).
The PCCSL which commenced operation in October
2003 is a self-regulatory body which (like the Financial
Ombudsman scheme) is incorporated under the
Companies Law of Sri Lanka.
The PCCSL will act through Council consisting of eleven
persons representing civil society and the media. The
Council will receive, inquire into and make findings on
complaints from the public on any matter published in
the Press. The Council will also inquire into any breaches
of the Code of Practice of the Editors Guild of Sri Lanka
which the PCCSL has now adopted. This Code of
Practice was compiled to provide a balance between press
freedom and social responsibility. In public awareness
advertisement, the PCCSL states that our main objective
is to ensure a free and responsible press in Sri Lanka. We
will adjudicate complaints on a free, fast and fair basis.

Assessment of Dispute Settlement by Ombudsman


Schemes

Except for the Parliamentary Ombudsman Scheme


which commenced in 1978, the other Ombudsman
Schemes in Sri Lanka are of very recent origin. Hence,
its too early to pass judgment on their effectiveness and
value. However as an individual who helped to set up the
Financial Ombudsman and the Insurance Ombudsman
schemes, this writer is of the view that the Ombudsman
schemes have been a success and we should set up more
such schemes. They need not be set up by the state or
by an Act of Parliament, in which case the operation
of the scheme would be a burden on the Consolidated
Fund and ultimately the taxpayer. Voluntary, industry
established schemes such as the Financial and Insurance
Ombudsman are quite sufficient and their operation is

not a financial burden on the State.


Having functioned as the Insurance Ombudsman for
almost two years from January 2005, I have however
noticed a few main shortcomings of voluntary
Ombudsman schemes. The first is that unless the
industry that sets up the scheme fully supports it and is
prepared to go the extra mile to support it the public
for whose benefits the scheme was set up will ultimately
lose confidence in it. Bluntly put, the industry that set up
the scheme whether it be the bankers or the insurance
companies must fully abide by any awards or decisions
made by the Ombudsman. This must be so even if in
a few individual cases that particular bank or insurance
company finds it difficult, embarrassing or uncomfortable
to accept the award or decision. It is better for the sake
of the concept of Ombudsman to accept a few difficult
decisions rather than to oppose or reject a decision and
create an impression that the ombudsman is not to be
taken seriously if his decision is not to the liking of the
institution concerned.
The other feature that needs improvement for all
Ombudsman schemes voluntary or State established
is to publicise them more. Many members of the Sri
Lankan public are not aware that there are Ombudsmen
appointed to investigate complaints into financial,
insurance, tax and media matters. The Press Complaints
Commission gets fair publicity because the newspapers,
being part of the scheme carry media advertisements about
it. But this is not so with the Parliamentary, Financial,
Insurance and the Tax Ombudsman. All of them have
websites and email addresses but these are not resorted to
by the average Sri Lankan. Hence, more media publicity
about the Ombudsman schemes is required.
Another shortcoming is that apart from the Parliamentary
Ombudsman, the annual reports of the other Ombudsmen
are not published and therefore not available for public
scrutiny and comment. In most other countries annual
reports by Ombudsman are not only compulsory but they
must be published and accessible for public comment and
criticism if any. A similar procedure should be followed
in Sri Lanka.

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