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CONTRACTUAL PROCESS
01. INTRODUCTION
Houses low and high rise can be defined by the functions they are
intended to be utilised for.
Industrial
Office blocks
Hotel buildings
Hospital buildings
Teaching buildings
Churches, mosques, temples etc.
Prisons
3. Civil engineering nature roads, dams, harbours etc.
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02. PARTIES TO A BUILDING CONTRACT
There are two parties in every contract and at times third parties are given
rights and obligations within the same contract. The two major parties are;
Design Team
Local Authorities and Government Agents e.g. NEMA
Local Communities
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CONTRACT FORMULATION CTD
There are various parties involved in the formulation of a building contract i.e.
Client, Architects, Engineers, Quantity Surveyors and/or Project Managers
etc.
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04. CONTRACTORS UNIT RATE COMPILATION
Though every project is different from the other, inputs in both materials, labour
and financing charges are similar and contractors are advised to build a bank of
data for their use in future projects with whatever adjustment one needs to sort
particular situation i.e. DO NOT INVENT THE WHEEL ALL THE TIME
NEEDED!
Contractors are also advised to utilise fully materials procured for a particular
project but any surplus should be well stored for next project however, take
care not to over-order perishable materials e.g. cement which will go to waste
after a certain time!
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CONTRACTORS UNIT RATE COMPILATION CTD
Labour: Use of 14/10 concrete mixer which will cost 650/= per M3
including fuel and operator.
Loaders of cement
Loaders of sand
Loaders of ballast
Placers of concrete
SUMMARY
Shs. 10,659.00
Add V.A.T. @ 16% Shs. 1,706.00
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If the contractor is desperate for work, he will cut on profit and reduce management
charges. This will bring the rate to as low as shs.11,000/= and as high as
shs.15,000/= where the tenderer does not need the job and all he can do is to
overload his rates get the job at any price!
Politics of the day will affect the pricing of construction tenders e.g.
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There are various inputs (materials, plant, labour and financial) that the
contractor is required to put into building projects. The quantum of each input
depends largely on the projects;
Size
Complexity
When needed (Time)
Location
Financing
Politics of the day
Large high rise buildings will need materials hoists and cranes and less
labour.
Low rise housing estate will need more labour input and less plant.
Factories and Godowns sheds will need less materials than shopping
complex.
The larger the project and the complicated nature of the project dictate
the construction time. The construction time dictate the capital outlay
hence finance.
.01 Actual Inputs
Politics
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.02 Constraints/Challenges
Sourcing of financing
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This situation of using FIXED PRICES affects the projects and the
construction industry as follows;
Bankruptcy
abandonment
In both cases, the Client will retender and pay CURRENT PRICES IN THE
MARKET.
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(i) Duties which shall include all customs and excise charges, tariffs, taxes
and other duties imposed by statutory or other authority.
(ii) Local taxes V.A.T., Kenya Bureau of Standards, Local Authorities
cess, National Construction Authority Levy etc.
(iii) Currency exchange rate fluctuations.
(iv) Changes in prices of locally available materials and labour i.e. local
inflation in materials and labour prices.
In most third world or developing countries, the major contributor to price
fluctuations is the instability of local currency vis-a-vis the hard currency which
is very erratic at times and can induce an inflationary rate of over 100% in a
very short period.
e.g. In early 1993, and due to varied factors, our Kenya Shilling fell from
Kshs.35.00 = U.S.$1.00 to Kshs.85.00 = U.S.$1.00 i.e. by 143% fall.
Due to the import component of our building materials and other products
indirectly used in construction industry e.g. plant and fuel the cost of such
inputs had to rise as well by a factor related to import component of each
product.
Materials inputs are classified into two categories Locally available and
imported.
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This guidance rules were formulated in 1974 and are still operational with
project value adjusted.
It is worthwhile noting that not all material fluctuate that erratically and also
some material are less in quantum input in the buildings- hence the materials
included in Fluctuations clause e.g. cement, sand, aggregate, steel, concrete
blocks, roofing sheets etc. do not constitute 100% of materials as fixed in the
building.
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The Joint Building Council is a limited private company registered under CAP
486 Kenya Laws. It came to be in operation in 1974 (though it was registered
in 1980) as a result of problems arising from world wide oil crisis in 1973
(which caused inflation over a period of six months to reach over 100%) to try
and prevent possible collapse of the industry. It was initiated jointly by the
Government, KABCEC and the Architectural Association of Kenya.
(A) To promote the consideration and discussion of all questions affecting the
building industry (which expression in this Memorandum includes the trade
of builders and Contractors for the execution of public and private works,
the practice of the professions of architect, surveyor and engineer, and all
ancillary and allied trades and professions, and every branch of such trade
and professions).
(B) To arrange and promote the adoption of equitable forms of Contracts and
other documents used in the building industry, and generally to promote
co-operation within and the stability of the building industry through the
Contract and sub-contract procedure and the adoption of model forms of
contracts, and in particular to take all measures necessary and incidental to
the production of such particulars as may be required from time to time for
the Fluctuations Clauses contained in any agreement.
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(D) To advance the science and art of planning and building, and to
promote excellence in the construction of building, and just and
honourable practice in the conduct of business, and to suppress
malpractice.
(E) To give members of the Legislature and other public bodies facilities
for conferring with and ascertaining the views of persons engaged in
the building industry as regards matters directly or indirectly affecting
the industry.
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Not all materials incorporated in the buildings are covered in the J.B.C.
Fluctuations monthly list.
Constitution
Cement
Sand
Aggregate
Steel
H.T. Square twisted
Round mild bars
Fabric mesh reinforcement
Structural steel
Concrete blocks
Solid
Hollow
Building stone
Clay products
Asbestos cement sheeting
G.C.I. sheeting
Resincot I.T.4 and L.T.S. sheets
Vinylex floor tiles
PVC drain pipes and fittings
Galvanised mild steel pipes and fittings
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Timber
Softwood
Hardwood
Blockboard
Paint
Emulsion
Enamel
Precast concrete roof tiles
Bitumen and mastic asphalt
Labour
A typical building tender is currently broken down as follows;
Preliminaries 6%
Overheads 8%
Profit 5.5%
TOTAL
100%
This is after excluding specialist services which are executed by others and not
subject to Fluctuations.
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Lifts
Sanitary fittings
Above items have very high IMPORT COMPONENT and the items are
excluded because either there is not enough data available to enable
smooth management of price changes or such items are tendered for just
about when needed for installation or fluctuations is INCORPORATED in
the tender.
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Transport
Fabrication
Prices of oil affects the price of electricity raises the cost of fabrication
and site assembly.
Some materials e.g. copper has increased in prices hence the price of
electrical wires. Kenya cannot control this situation as it is external.
Kenya is just a consumer of situations created by the G/8 etc and soon
the collapse of world economy will soon be with us!
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KABCEC collects the price lists, the JBC also collects price lists and any
other interested person within the industry may provide the JBC with
pricing data e.g. Developers, Consultants and even price control/price
regulatory bodies.
e.g.
Timber - Timsales
- Wood Makers
The source so chosen must be reliable and has a fairly large share of
the market.
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Factory price
Delivery charges within Nairobi City Centre
Waste/breakage factor during delivery
Taxes e.g. V.A.T.
e.g.
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e.g.
Steel being a major input in construction industry and also having a very high
import component value is both affected by world steel market and exchange
rate of Kenya shilling.
e.g.
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From the foregoing, there are more advantages in contracting based on Fluctuations
Clause because the Client obtains a competitive Tender and minimises the
frequency of claims by contractors to try and catch on weak points from Clients-
caused delays.
if neither the Client nor the Contractor can accurately foretell the future why demand
the Contractor to foresee future price changes and include the same in the Tender?
they are both reasonable human beings.
.01 Current projects that were contracted prior to December 2007 todate have
been affected by;
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I pray and hope that one day all building components shall be included in the
Fluctuations Clause but who knows when? Let us all work towards that goal and as
we do so we also encourage contractors to be less claims-conscious and work with
the Design Team and the Client as partners and evolve the construction process into
a more honourable profession
ALL future projects to have basis of tender extended to bulk of items that are not
currently in JBC list e.g.
MINIMISE SPECULATION
MINIMISE DISPUTES
This is the paramount objective of JBC to minimise disputes both ways and
eventually establish a stress-free industry.
GIVE IT A TRY!
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SECTION TWO THE JOINT BUILDING COUNCIL
As stated earlier, all good businessmen learn from others as well as own experience.
For a Building Contractor, he must treasure experience from past jobs and tread of
economy and political climate.
For one to grow and rise in categorisation (NCA Categorisation) one has to invest in
the business both in plant, owned workshops and offices and a reliable backup of
professional/technical staff.
For one to survive lean days of workload, one has to set aside some profit for that
rainy day!
Access to finance from banks and access to credit of materials from suppliers are all
assessed on the financial stability of the Contractor and above all attitude towards
payment of debts as and when they fall due!
As one starts on a new project, one has to plan how to complete the old ones and
also how to get jobs for the near future.
This assures continuity of business and that is the aim of each and every
businessman!
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