Volume 6 - December 2010

SLQS JournalThe Forum of Sri Lankan Quantity Surveyors Across the Globe

Volume 6 – December 2010

Editorial Committee

Ajantha Premarathna FRICS, FIQS(SL), ACIArb.

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

Lakshman Gunatilake MCInstCES, MACostE, ACIArb, MIIE(SL), IEng

Prasanna Pushpajith DipSurv., MSc, MRICS, ACIArb

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.

SLQS JOURNALDecember 2010

CONTENTS

Editorial

Letters of Intent – Beware of the RisksRagupathy Nadarajah MSc MRICS

Project Control – Practical AspectsSajeewa Amantha B.Sc.(QS) Hons.MRICS

Management of Change Dr. D.A.Harendrasinghe Gunaratne Ph.D; D.Sc;GC&G;MIESL; MIIE(SL)IEng; MRICS; AAIQS; AIQSSL; Fellow APQSESL; MCIArb; Reg.Arb.NACSL; Mem.ICCSL; Mem.CCISL; Mem.AACE; Mem.SAVE; Mem.SLAQ; Mem.SLGS

Life-cycle Approach to Minimise Construction Waste D.D.A. Niluka Domingo B.Sc. (Hons.)

Application of Risk Management Associated with Activities of Building Contractors in UAE Chrisantha Fernando HNDE, HND(QS), AMIIE(SL), ICIOB

Challenges Facing the Establishment of the Quantity Surveying Profession in Sri LankaRanjith Chandrasiri MRICS MCIOB DipQs(UK) AAIQS ACIArb AIQSSL FIPMSL

Setting Smart ObjectivesBuddhika Jayatillake MBA BSc(Hons) FCIOB MRICS AAIQS

Partnering in the Construction IndustryB. Darshanie Taraka Perera BSc (Hons) TCInst.CES

The Implied Terms and the Damages of Contracts under Common Law.A. M. Manju Sri Nandana BSc. (Hons), MRICS, MCIArb, MIIE (S.L.) I Eng, GCGI (UK).

An Out Look of the APC – Assessment of Professional Competence By an APC AssessorAjantha Premarathna FRICS, FIQS-SL, ACIArb

Innovation in the Construction IndustryShantha Wijayaratne MBA, MRICS, MCInst. CES

Head Office Overheads RevisitedProf. Indrawansa Samaratunga

Page

5

9

15

18

21

24

28

30

35

38

41

46

SLQS JOURNALDecember 2010

�

Editorial

I am writing this editorial shortly after our annual get-together held on 09 December, 2010. On behalf of the SLQS Committee, we, SLQS-Journal Sub-Committee congratulates the SLQS-UAE membership and their families for their participation. The get-together was a most pleasurable event and may be considered a positive beginning to the New Year 2011.

The need to better serve our growing membership within the UAE and the Middle East has been recognized by the SLQS UAE and arrangements has been made within the 2011 agenda to accommodate such requirements. I believe SLQS Committee can also improve service to our local membership, partly through becoming more receptive to feedback from our innovative young membership, which can later be transformed into constructive proposals or new resolutions within the group. The lull in the international economy that we are experiencing can be used to further enhance our role as pivotal industry professionals, through Continuing Professional Development (CPD), programmes that allow us to develop the competencies necessary to conduct our duties in exemplary fashion. I am sure that you will agree with us in saying that it is our duty to the industry we are part of to ensure that we are in prime professional condition to carry out the tasks we are entrusted with. The Editorial committee believes that our relatively young SLQS-Journal is able to shed some light on your search for the path to best practice.

In this issue, we are delighted to publish Prof. Samaratunga’s revolutionary paper of ‘Head office Overheads Revisited’, adding great value to this edition. We are also pleased to note some eminently practical and useful contributions of Sajeewa Amantha in his article on ‘Project Controls’, and Crishantha Fernando’s ‘Risk Management’. Volume 6 is further enhanced by the article entitled ‘Letters of Intent’ by Ragupathy Nadarajha, warning for the misuse of this concept implemented across the industry. Niluka Dominigo’s discussion of ‘Construction Waste Management’ is a good academic proposal to a leading waste generator; the construction industry.

Ranjith Chandrasiri’s article on ‘Quantity Surveying in Sri Lanka’, mentioning both its history and way forward touches on the roles and responsibilities of all practicing professional quantity surveyors and also all professional institutions associated with the quantity surveying practice in Sri Lanka.

While sharing his wide experience in assessment of professional competence, (APC), Ajantha Premarathna added value to this issue and Dr. H. Gunarantha and Buddhika Jayathilaka joined the journal through the management avenue.

On a closing note, we ask all our readers to recall that this journal is your property. As such, its performance is indeed your concern and all feedback and articles are not only appreciated, but an active part of being a member of the SLQS and the construction community.

Yet again, the thanks of the Editorial Committee due to Vishwa Chaturangi for her assistance in editing and to those writers who have contributed to SLQS-Journal Volume 6.

We anticipate your academic pleasure and hope that you assist us in ensuring it for future readers as well, by providing high-quality articles of your own in the near future.

On behalf of the editorial committee,Dhammika T. Gamage

SLQS JOURNALSLQS JOURNAL

Ragupathy Nadarajah MSc MRICSSenior Contracts Administrator- Thiess John Holland, TBM Tunnelling Division, Airport Link, Northern Busway and Airport Roundabout Upgrade Project, Brisbane, Australia. A Quantity Surveyor with over 25 years experience in Sri Lanka, Hong Kong, Macau and Australia. Member of the Royal Institution of Char-tered Surveyors

Letters of Intent – Beware of the Risks

AbstractIn a perfect world, work on a construction contract should not commence before a full and complete contract has been executed by the parties. It is, however, often desirable for work to commence before the formal agreement has been signed. In such circumstances, it is common practice to issue a letter of intent to enable the selected contractor to start work. Whilst this is a convenient solution to bring the contractor on board as early as possible, letters of intent are sometimes problematic and subject to dispute.

Disputes can arise over the interpretation of the obligations of the parties, such as whether the letter of intent has created a binding agreement or not. A letter of intent is fundamentally an agreement by the parties today to enter into a contract in future, with the expectation that the parties will reach agreement on the terms and conditions of that future agreement. In the case of Turriff Construction Ltd v Regalia Knitting Mills (1971), the courts expressed the general rule that a letter of intent is “the expression in writing of a party’s present intention to enter into a contract at a future date” and that only in exceptional cases would it have a binding effect (Turner 2010). In the more recent case of Diamond Build Ltd v Clapham Homes Ltd (2008), the courts identified three types of letters of intent. The first is a “pure” letter of intent, the second is a simple contract which is intended to be superseded by a formal contract and the third is a whole contract with no intention of a future contract.

Keywords: Letters of Intent, Quantum Meruit

IntroductionThe term ‘letter of intent’ is familiar to most construction professionals, yet not all practitioners are fully aware of

the true meaning and the potential risks associated with such letters.

What are letters of intent? Kelly (2007) states that ‘A letter of intent is a statement of intention that outlines an intended agreement between two or more parties’. Fairclough & Chance (2004) state that ‘A letter of intent ordinarily expresses an intention to enter into a contract in the future but creates no liability with regards to that future contract’. For this reason letters of intent are often called ‘if ‘ contracts.

What are the reasons for issuing letters of intent? According to McMullan (1991) the reasons for issuing letters of intent include the following;

1. Delay in reaching agreement of all contract terms or delay in preparation of the formal agreement.

2. The need for early commencement of works or for ordering of materials.

3. A declining use of letters of acceptance in favour of extensive negotiation with the successful tenderer.

Whilst a letter of intent may be issued for one or more of the above reasons and with no intention of constituting a contract between the parties, a letter of intent can, in certain circumstances, create a contract, albeit unintended by the parties.

A letter of intent is an interim arrangement before a contract is agreed and signed. Letters of intent should not be considered as substitutes for a properly drafted contract, but merely as a safeguard of legal rights whilst the contract is being finalised (Kilvington 2002). Where parties do not enter into a formal agreement but rely on a letter of intent, the consequences can be very costly.

�

December 2010

�

SLQS JOURNAL

�

December 2010

In Monk Construction Ltd v Norwich Union Life Assurance Society (1992) the Court of Appeal found that the letters of intent can give rise the following three possible scenarios;1. There may be no contract at all. i.e. pure letter of

intent.2. There may be an ordinary contract. 3. There may be an “if ” contract.

Similarly, in the case of Diamond Build Ltd v Chlapham Homes Ltd (2008), the courts recognised and confirmed that three types of letters of intent exist:

1. Pure “letters of intent” which do not give rise to contracts at all;

2. Simple contracts, which are capable of being binding, but are entered into with the intention that they will be superseded by subsequent finalisation and execution of the formal contract; and

3. Those that are (so far as they go) the whole contract (which may be supplemented by verbal agreements, or even need further terms implied into them), with no intention that they will be superseded by a formal contract.

In deciding whether a letter of intent falls into one of the three types mentioned above, the courts have taken into account both the wording of the letter of intent and the perceived intention of the parties at the time of its issuance.

Quantum meruitBefore exploring the various types of letters of intent, it is helpful to review the related subject of quantum meruit and claims in relation thereto. Quantum meruit generally means reasonable remuneration for work performed at the request of another.

Pickavance (1997) categorises quantum meruit as either “contractual quantum meruit” or “resitutionary quantum meruit”. Contractual quantum meruit is a claim for reasonable remuneration under a contract. Resitutionary quantum meruit will arise where there is no agreement between the parties or where the agreement between the parties has been frustrated, voided or has been become unenforceable.

Where a letter of intent has failed to materialise into a contract or where no clear definition of the value of work

to be performed has been agreed by the parties, then a claim for restitutionary quantum meruit may arise. Restitutionary quantum meruit will not apply if there is a contract, in which event and the terms and conditions of the contract will prevail.

If a Letter of Intent is Non Binding As mentioned above, a letter of intent, in principle, is not a contract. When work is carried out under this type of arrangement, and no contract is subsequently entered into, a contractor will usually be entitled to be paid on a quantum meruit basis. In such circumstances, there will be no fixed date for completion and the employer will not be able to deduct liquidated damages for delay. It was held in the case of Murphy v Brentwood District council (1990) that in the absence of a contract agreement, the contractor will not be liable for negligence for defects in the building. (Fairclough & Chance 2004, p2).

The principles affecting the formation (or not) of contracts where an offer or acceptance is said to be “...subject to contract...’ were set out extensively in Masters v Cameron (1954) (McMullan 1991). The High Court concluded that the words used by the parties are not the sole consideration for deciding if contract was formed or not. The intention of the parties, as evidenced by the circumstances in each case, is a critical matter to be discerned by the court.

In the case of British Steel Corporation v Cleveland Bridge and Engineering Company Ltd (1984), Cleveland Bridge wrote to British Steel advising of its intention to enter into a supply contract and proposed a number of terms, (which were never agreed) and to proceed with the works. The parties continued to correspond each asserting their preferred terms, but never reached an agreement. British Steel subsequently completed delivery of the materials. Cleveland Bridge claimed that the delivery was late and that British Steel was liable for damages. The delivery schedule was one of the items not agreed by British Steel. The court found that;

1. No contract had been formed2. British Steel was entitled to recover on a quantum

meruit basis 3. It was possible for a contract to be created by a

letter of intent although it was not the case in this particular instance.

SLQS JOURNAL

�

December 2010

In relation to whether a contract had been created, the trial judge re-affirmed that;“there can be no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement, everything must depend on the circumstances of the particular case”

In summary, if the letter of intent is non-binding then the following would be some of the key rights and obligations of the parties:1. The contractor is entitled to be paid on a quantum

meruit basis for work performed2. The employer will not be able to claim damages for

delay3. The contractor will not be liable for defects4. Limitation for action would be 6 years

If a Letter of Intent is BindingAccording to Murdoch and Hughes (1997), a letter of intent itself does not usually give rise to any legal rights and obligations. There are exceptions to this general rule. In the case of Turriff Construction Ltd v Regalia Knitting Mills Ltd the court held that the letter of intent constituted a contract. In that case, the plaintiffs (Turriff Construction Ltd ) were advised that their tender for designing and building a factory building for the defendants (Regalia Knitting Mills Ltd), was successful. The Plaintiffs asked for ‘an early letter of intent……to cover us for the work we will now be undertaking’. The defendants issued a letter stating ‘the whole to be subject to agreement on an acceptable contract’. The Plaintiffs carried out design work necessary to seek planning permission and obtained estimates. Six months later, the defendants abandoned the project. The court held that the plaintiffs had made it sufficiently clear that that they wanted an assurance of payment for their preparatory work in any event, and that the letter of intent constituted that assurance and therefore the plaintiffs were entitled to be paid.

Fairglough and Chance (2004) have quoted two other instances where the courts have held that letters of intent formed a contractual relationship. Generally, the inclusion of the words “subject to contract” would lead the courts to the conclusion that the parties did not intend to be bound by the letter of intent. However, in the case of Harvey Shopfitters Ltdv ADI Ltd (2003) the Court of Appeal found that the court is entitled to look behind the apparent or literal meaning of the words of a letter to determine the parties’ true intention. The

courts will analyse each letter of intent as a whole. As a consequence, even express wording, such as “we do not intend to create legal relations”, may not be sufficient to avoid the courts finding that the letter of intent is in fact a binding contract.

In another case, Tesco Store Ltd v Costain Construction Ltd (2003), the judge – emphasising the importance of the intention of the parties to be legally bound – found that a letter of intent issued by the developer, a copy of which had been signed and returned by the contractor, did amount to a simple contract. In addition, there were terms implied into the contract such that the contractor would perform any construction work in a good workmanlike manner, and that any design element would be reasonably fit for its intended purpose.

If there is a binding letter of intent and a full contract is subsequently entered in to by the parties, the terms of the contract will govern retrospectively the works carried out under the letter of intent. Where there is a binding letter of intent but no final contract has been entered into by the parties, the works will be based on the terms of that binding letter of intent.

Including the above information would reduce ambiguities in the letter of intent.

What are the points to be considered when drafting a letter of intent?

It is important to consider the following key points in drafting a letter of intent, so that the letter fulfils the intended purpose.

Kilvington (2002), suggests that the letters of intent should;1. Clearly describe the scope of works.2. Set out a mechanism for payment3. Set a monetary cap that can be paid to the

contractor4. Include a programme5. Describe the insurance obligations of the parties6. Set out the matters need to be resolved for the

contract to be entered into.7. Indicate that neither party intends to be bound until

the written contract is executed by each of them8. State that the contractor is not entitled to further

payment by way of quantum meruit

SLQS JOURNAL

�

December 2010

9. Make it clear that once the contract is concluded it will apply retrospectively

McNair, Milliner and Mazzochi (2003), suggest that a binding letter of intent (a contract) is preferable for the owner, because it creates contractual certainty with respect to those matters stipulated in the letter. Where a binding letter of intent needs to be issued, they recommend to include the wording ‘This letter of intent is intended to create a legally binding contract between the parties’

Where the parties desire to use a non-binding letter of intent, McNair, Milliner and Mazzochi (2003), recommend to include the words ‘This non-binding letter of intent is simply a statement of the parties’ present intention with respect to its contents. Each party represents to the other that no reliance will be placed on this letter and is not intended to constitute, a binding obligation”

Concluding observationsA letter of intent is not a substitute for, but is sometimes a necessary prelude to, a contract. In instances where a letter of intent needs to be issued, it is important to clarify whether the letter is intended to be binding or non-binding.

A binding letter of intent can be beneficial to the owner by creating contractual certainty. A non-binding letter of intent may allow greater bargaining power for the contractor.

In deciding whether a letter of intent created a binding contract between the parties, the courts have repeatedly considered not only the letter itself but the intentions of the parties and their conduct. Care should also be taken when drafting letters of intent to include clear intention of the parties and certain key aspects as described in the preceding sections.

Where used appropriately, letters of intent can be a useful tool for securing the early engagement of a contractor where commencement of work prior to signing of the formal contract is necessary or desirable.

AcknowledgementsThe writer takes this opportunity to thank Mr. Les Pearce MRICS for his valuable comments and editing which was instrumental in improving this paper and also to Mr Renaldo Karaman for his useful comments.

References 1 Fairglough I and Chance C 2004, ‘Letters of Intent’,

retrieved January 2, 2011 from h t t p : / / w w w. c a n n o n w a y. c o m / w e b / p a g e .

php?page=1012 Kelly A 2007, ‘Letters of Intent’, Australian

Construction Law Newsletter #112, January/February 2007, retrieved: January 2, 2011 from http://www.austlii.edu.au/au/journals/AUConstrLawNlr/2007/6.html

3 Kilvington H 2002, ‘Letters of Intent – Avoiding Common Pitfalls’, retrieved: January 2, 2011 from

http://www.thkp.co.uk/media/bulletins-new/Letters%20of%20Intent%20-%20HK.pdf

4 Mc Mullan J 1991, ‘Letters of Intent’, IIR Conference, Construction Law Sydney 1991, retrieved: January 2, 2011 from

h t t p : / / w w w. m c m u l l a n s o l i c i t o r s . c o m /uploads/1254701299_letters-of-intent.pdf

5 McNair D, Milliner R and Mazzochi M 2003, ‘Letters of Intent’, retrieved: January 2, 2011 from http://www.mallesons.com/publications/Asian_Projects_and_Construction_Update/Asian_Projects_and_Construction_Update_31_May_2003.pdf

6 Murdoch J & Huges W 1997, Construction Contracts, Law & Management, 2nd Edition, E & FN Spon, London

7 Pickavance (1997) Pickavance, K., 2000, Delay and Disruption in Construction Contracts, LLP Asia Limited, Hong Kong

8 Turner C 2010, ‘Letters of Intent – Open to Interpretation’, retrieved: January 2, 2011 from

http://www.ts-p.co.uk/knowledge/publications/articles/letters-of-intent---open-to-interpretation

SLQS JOURNALSLQS JOURNAL

Sajeewa Amantha B.Sc.(QS) Hons. MRICS Sajeewa is a Quantity Surveyor graduated from University of Moratuwa, Sri Lanka and currently working in Manila, Philippines, for Australian managed project manegment organisation.

Project Control – Practical Aspects

IntroductionThe delivery of a project ‘on time’, ‘to budget’ and ‘at the required quality’ are generally considered key performance indicators of any project. How often do project managers experience projects that are delivered ’on time, to budget and at the required quality’? Although most projects are eventually completed more or less to specification, they are not often on time and within budget. There is an overabundance of reports on project overruns. Some research reports indicate that approximately fifty precent of construction projects encounter substantial time and budget overrun. Some reports have even suggested that a good rule of thumb is to add a minimum of fifty percent to every first estimate of time and the budget. If this is the case, the goals of ‘on time’ and ‘to budget’ would be extremely difficult task for the Project Manager to achieve.

The consequences of varying the project plan are apparent. However, Project Managers need to understand what the benefits and/or penalties are in terms of cost of delaying a project. When a project is completed and the facility commences its useful life, it commences generating revenue from that point onward. Hence, any delays to project completion influence revenue generation and ultimately cash flows and return on investment.

The discussion indicates the importance of having an efficient and effective project control system in place to ensure successful delivery of the project.

This paper discusses the scope of project control in general, to appreciate the importance of each task of the project control system. It is important to understand the effect that each individual task may have on the project performance. An integrated project control approach should be used as an ongoing monitor of project health.

The Project Control Manager is responsible for establishment of an appropriate project control system for the project. The key elements of a project control system and scope of each task are discussed below in detail.

Project Control scopeA number of Project Managers believe that monitoring and project control are the same thing, and that monitoring revolves around budgets and plans. This is not the case. Reports are for the Project Manager and Client to have summary details on what has happened thus far on the project. By implication, they deal with the history of the project, no matter how recent. On the other hand, control is taking action in response to these reports.

Monitoring is a key element of project control systems and it is important to establish, for example, if the project is performing in accordance with plans and budgets with the sole purpose of invoking controls necessary to re-establish the project. Therefore, monitoring exists to establish the need to take corrective action, whilst there is still time to take such action. Control on the other hand is management, not paperwork. Control involves analysing the situation, deciding what to do and actually doing it.

Project Control PlanThe Project Control Plan is the primary project control document for a project. It exists as a subset of the Project Management Plan as the framework for the control, measurement and reporting of a Project.

The Project Control Plan should be developed to satisfy both Corporate and Project reporting. The Corporate section of the plan is to be reviewed at regular intervals to ensure any corporate strategy changes are incorporated into the plan. The Project plan shall be prepared at the commencement of each Project and includes key

�

December 2010

�

SLQS JOURNAL

10

December 2010

information on the Project such as scope, definitions, programming, meetings, reporting, procurement, and auditing.

The Project Control Manager is the key person responsible for the implementation of the Project Control Plan. The Project Control Manager shall ensure that component personnel are engaged to effect proper control and reporting regimes over the project. The Project Control Manager shall be authorised to operate within limits required by the project control scope. On smaller projects, the Project Control Manager’s role will be played by the Project Manager and he or she is then will be responsible for the implementation of the Project Control Plan.

Programme ManagementA programme is a tool to monitor project performance in terms of its time factor.

It is a critical requirement that the programming be completed to the extent necessary for the proper planning, control and reporting requirements. The networked programmes are commonly used for the purpose and Gantt chart formats are popular in the construction industry because of their simplistic presentation and easy readiness. Other forms of Programme (such as March charts) may be used in addition, depending on the nature of the Project.

The Programming software requirements may be as listed in Project (Contracts) document and/or the Company’s choice. The Programme shall be developed in the initial stage of the Project with available information and then shall be reviewed regularly to introduce necessary changes with information that is more realistic to reflect planning changes and progress. The Programme must be supported by analysis of determined activity durations and dependency. The Programme may be developed as ‘resources loaded’ programmes or ‘time duration’ programmes depending on the nature of the Project and Project (Contracts) requirements.

The level of detail shall be sufficient to enable effective planning of the Project Works. The Programme shall be developed at least at level four as a minimum and shall clearly identify critical path(s) to completion(s). In general, the Work Break-Down Structure shall reflect the Project Cost Structure for better reporting and interpretations.

The Programme shall be updated at least weekly to understand the Project status and this is a key performance requirement that is required to determine the financial health of the project.

The Project Control Manager needs to work closely with the construction team and heads of other disciplines to obtain the correct information to update the Programme on a regular basis to ensure that the Project Programme accurately reflects Project status and intentions.

The summary Programmes may be useful in reporting to higher-level control and reporting (for corporate reports).

Not all activities in a programme are critical to achieve Project completion. The Project Control Manager should understand the critical activities (areas) of the Project Programme and should closely monitor those areas/activities to understand how well those activities are performed. A programme may have multiple critical paths if the project is having different milestone dates to deliver the project in different phases. The other vital point the Project Control Manager should monitoris that the programme critical path will be moving from one area to another, depending on the performance of different areas of the project. Thus, regular monitoring is an essential function of programme control. Any time slippages and gains of critical and closely critical activities should be reported and necessary warning and corrective measures introduced to the Programme.

The possible actions may have sometimes-critical impacts on budget, quality, and/or time. The Project Control Manager should evaluate actions which have zero or minimal impact on project cost, time and quality. To look at a simple example: assume that progress reports show that a project has to absorb a delay to a deliverable on the critical path. Most Project Managers will without much thought reach options such as reducing the scope of the deliverable, reducing the quality of deliverable, applying additional resources (generally manpower and/or capital) and rearranging the workload. Some of these options may be constrained by logistical problems e.g. unavailability of suitable labour to be assigned to a project when required. However, in many cases, the Project Control Manager has to use instinct as to deciding the appropriate course of action. The basic point here is that logistical problems and political thinking do exist within a project and the

SLQS JOURNAL

11

December 2010

Project Control Manager should not ignore these facts but should understand the implication of the action that is about to be taken and not ignore the effect their action will ultimately have on the final outcome of the project.

Project Cost ControlThe Project budget should be developed at the initial stage of the Project and reviewed and updated during its progress to incorporate more realistic figures. The budget should be structured in a manner that reflects the intended manner of project execution. It should logically splits costs according to activities and type of costs in a manner that provides for meaningful feedback for assessment of costs versus progress, and feedback for the estimators for future use.

As the nature of the construction business is one where productivity is largely measured by inputs of plant, labour and subcontracts verses linear progress, activity codes should generally include only these cost types. Materials and indirect costs should be accounted for in other codes. There will be activities where this does not apply and discretion shall be used in these cases.

Project cost shall be allocated in a manner that reflects the budget structure and intent. A costing map shall be prepared for the project that describes the way the budget costs have been allocated. This map will be used for allocation of costs in a manner that reflects the budget.

A cash flow forecast shall be prepared based on the project Budget and Programme detailing expenditure and revenue.

The cash flow forecast shall be reviewed and updated regularly to incorporate changes to the budget and programme during the progress of the Project. The impact of changes shall be clearly identified and reported to relevant parties for their information, avoiding any possible payment issues due to fund allocations by financiers of the Project. The information may be presented in worksheet form and in graphical format for easy understanding.

Risk ManagementContract agreements are documents that describe liabilities and responsibilities of parties to Contracts in delivering different elements of the project. The Agreements describe how parties share commercial and

other risks involved with the project in performing their roles. These risks need to be understood by each party well in advance. A risk management system should be in place to respond to any risks that materialise whilst delivering the project. A Risk register is a good tool the parties should use in recording, monitoring, and introducing necessary measures to the risks; each party is liable.

Though Contracts Conditions define each party’s responsibilities/liabilities it is common fact that parties have different interpretations and opinion on the same term of the Contract. This will lead to disputes among parties and will adversely affect project performance. Early identification of risks involved with the project and monitoring them closely will minimise potential disputes and improve project health.

It is apparent that some risks can be avoided or at least the effects minimised if they are identified in early stages. The risk register should include not only the risks identified but also possible risk mitigation strategies and measures introduced to avoid or minimise the effects. For example, if the Project Control Manager identifies obtaining a tree cutting permit from an environmental authority as a risk which will affect the Project Programme, it is then the Project Control Manager’s responsibility to suggest a strategy to avoid or, if not possible, mitigate the negative effects of this risk on the Programme.

Procurement ManagementA materials procurement plan should be prepared for the Project and this should highlight any long lead items and their necessity to the Project Programme. The procurement plan should be tailored to the size of the Project and the value of the procurement.

In its simplest form, the Procurement plan may be a worksheet (Spread sheet). The plan shall include details of the materials to be purchased by package, details of the potential vendors, engineering and construction interfaces, latest date to make a formal order (in order to meet the programme) and any contract requirements (specific Vendors or prior approvals for vendor). The decision on procurement will be made not only on price and quality but also on availability and delivery time and methods.

A sub-contract plan should be established by the Project Control Manager and in general, this plan

SLQS JOURNAL

12

December 2010

includes elements of the Works to be completed by Package Contractor(s), latest date for commencement of subcontract works and from that, a timeline established for the procurement of subcontractors for each package. The selection of subcontractor will be based on capacity, availability, and price. Standard conditions of contract will be used with any particular terms in preparing necessary agreements for suppliers and package contractors.

The expenditure approval authority matrix should be prepared indicating limits of authority of all key members of the Project, and this shall be strictly followed to avoid later disputes on approved personnel.

Contract ManagementIt is essential that adequate commercial controls are established at the commencement of a Project. Underlying the establishment of adequate controls is the need to understand the functioning of Contracts. In particular, a sound understanding of the operation of the Contracts with respect to payment terms, notices (including any time-bar provisions), change orders, delays, insurance and dispute settlement procedures.

It is good practice to prepare a flow chart on the operation of the Contract and brief the project team accordingly. The commercial team may prepare pro-forma documents for change orders, notices, schedule of change requests /delays and claims and where required, these document forms shall be agreed among the parties as information flow. Any entitlements under the Contract Conditions should be ensured by communicating messages to the relevant party as appropriate in a timely manner.

The package contracts shall be managed in a similar manner to the head Contract pursuant to subcontract terms and conditions. The Project Control Manager shall ensure that insurance obligations are met and certificates of insurances obtained. A schedule of change requests shall be established and maintained for all packages contractors. The final forecast value of each package contract shall be assessed and reviewed periodically to ensure correctness. A provision of manpower, safety and environmental statistics should be made a pre-requisite to entitlement to any payment under the contracts as a control measure

The Project Control Manager shall ensure that all required insurances are in place prior to the commencement of

works under Contract(s). The Project Control Manager shall ensure that whenever an event occurs that may be covered under an insurance policy that the insurer is notified and evidence collated in support of a possible claim. It is again good practice to establish and maintain a register of insurance events detailing claim number, policy, likely value, loss adjustment status and close out status.

Project Organisation The organisational charts clearly identify all positions of the project. Organisational charts shall be prepared in a format that suits the requirements of the Project and these charts should be reviewed regularly and updated to include changes taken place during the period.

The charts shall be developed for the purposes of communicating project-reporting lines and identifying key project personnel by name and position. Furthermore, they will provide a tool for the management of personnel and present labour resources on the project.

MeetingsRegular internal meetings and meetings with other parties of the Project are vital in communicating project issues in a timely manner.

All meetings shall be minuted and circulated among participants to receive any comments and/or feedback on the matters discussed and recorded in the minutes of meetings.

The Engineering and Procurement meetings and construction meetings shall be held weekly. Internal Project Coordination will be held as determined by the Project Manager and dependent on the size and complexity of the project.

For major Projects, supervisory board meetings (corporate level) may be conducted on a monthly basis.

Project coordination meetings are other essential meetings for major projects where many parties are contracted to deliver different elements of the project (civil, mechanical, electrical etc). In these meetings, parties can discuss and agree on their programme requirements, safety procedures etc to avoid any future conflicts, which will affect overall project performance.

SLQS JOURNAL

13

December 2010

Document ControlThe Project Control Manager shall implement a document control system. The system should have the characteristics of:

• All correspondence and documents (incoming and outgoing) go through document control

• All correspondence and documents should have a distinct identifying number

• All documents should include a Revision Status to enable the tracking of changes

• A documented distribution matrix to ensure that documents are effectively distributed to all personnel requiring them

• All correspondence and documents are approved prior to issue

• Registers are maintained for all correspondence and document transmittals

• Registers are reconciled on a regular basis with other parties involved

The Project Control Manager shall implement a file security system that may include secured hard copy files and access restrictions on electronic filers. A file access authorisation matrix should be developed and maintained for each project. IT administrators should administer electronic file access restrictions in accordance with this plan.

Whilst restricted access is not required for most project files, it is essential that only personnel authorised to access sensitive project files are permitted to do so. These files will include financial records and reports, commercial/claim records and personnel data of Project employees including wages and salaries.

Project Audit PlanThe Project Control Manager shall prepare a Project Audit Plan for the approval of the Project Supervisory Board. The Audit shall be performed by corporate personnel or third parties as required. The Audit plan shall include financial auditing, total quality management auditing, health, safety and environmental auditing and quality control auditing.

Project ReportingThe Project Control Manager shall develop a reporting matrix detailing type of report, due date, responsibility of preparation and distribution list. The Project Control

Manager shall review Contracts and determine reporting requirements under Contracts and where possible internal reports shall be used as the basis for Contracts report to minimise unnecessary duplication of effort.

The daily progress reporting is one of the key report that should be maintained to record the progress of the Project on a daily basis. These reports shall include, as a minimum, daily progress verse daily planned progress, deviation from programme in days for the day, summary safety statistics, manning, equipment (in operations and idling), issues, and mitigation strategies. A daily report format should be prepared that will form the basis of progress reporting to relevant parties of the project.

Weekly financial and programme status reports are common in many construction projects. The intention of this report is to discover gross deviations from budget and programme in a time frame enabling early corrective actions to be taken.

The monthly report is the primary report on the health of the project. It is correct practice to agree on a fixed date for project status (e.g.20th of each month). Submission on time is a key performance indicator for personnel involved in report preparation, review, and submission. The monthly reports should includes details of Health, Safety and Environment status, Engineering, Procurement and Quality status, Progress/Programme status, manning information, insurance and financial status.

The health, safety, and environment section in general reports details of total man-hours achieved during the reporting period including any loss hours due to accidents. It usually includes accidents, near misses, and damages. The monthly quality report shall focus on quality control status. It is good practice to establish and maintain registers for NCR, RFI, TQ and narrative on QC issues. Monthly Engineering reports should detail status of engineering using key performance indicator’s as determined on the Engineering plan. This section of the report in general records engineering percentage completion, drawings, and reports at approved status and engineering man-hours during the period.

A monthly procurement report is applicable to major projects with significant procurement scope. The data may be presented in a graphical form (typically S-curve) contrasting actual performance with planned

SLQS JOURNAL

14

December 2010

performance. The procurement report shall also include a copy of the procurement status and expediting status reports and shall detail key issues and mitigation strategies and a summary of risks and opportunities exists.

The programme report shall include actual performance with planned performance by month and cumulatively. The report shall discuss slippage and/or gaining of programme, changes to critical paths, forecast completion dates, key issues of programme achievement, mitigation measures, summary risks and opportunities. The manning report will comprise a manpower histograms/curve detailing actual verses planned under categories of Project Management, Construction Management, Construction Services, and Package Contracts.

The monthly report should include a forecast cost at completion that shall accurately reflect the Project Control Manager’s view of the likely final cost. The forecast should consist of a baseline estimate reflecting the updated programme and actual /anticipated resources levels to the anticipated end date. The report should include a financial assessment of risks and opportunities identified on the project that should be maintained in a matrix with an assessment of costs on a best/likely/worst outcome.

It is good practice to include an updated register for change orders, including details of notice submission, value, status (approval, pending), any extension of time involvement with change order etc.

SummaryMany project control systems involve monitoring, reporting and introducing necessary corrective actions to maintain project cost and time targets. The project cost control systems include monitoring and controlling of budgets, cash flows, commercial risks, and management of contracts. The programme control system involves monitoring and controlling of project time, resources and, procurement schedules. It will also monitor risks associated with the programme and strategies to minimise the effects.

Most Project Managers recognise the need for project control as it applies to budgets and plans. However many Project Managers fail to make the connection between these two elements in responding to situations.

In order that lessons learned on each project are communicated to the organisation to enable operating practices and procedures to be improved, a Project Close Out report will be generated.

Chichester Joinery Ltd v John Mowlem & Co plc (1987)

A quotation submitted by a sub-contractor was accompanied by their standard terms and conditions. The main contractor sent a purchase order containing their own standard terms which stated that ‘any delivery made will constitute an acceptance of this order’. Sub-contractors delivered the work, but not until after they sent the main contractor a printed acknowledgement of order, which stated that the order was accepted ‘subject to the conditions overleaf’.

Held that by accepting the joinery the main contractor had accepted the sub-contractor’s conditions.

SLQS JOURNALSLQS JOURNAL

15

December 2010

15

Dr. D.A.Harendrasinghe Gunaratne Ph.D; D.Sc;

Chartered Quantity Surveyo & Engineer; Mediator, Arbitrator & Contract AdministratorGC&G;MIESL; MIIE(SL)IEng; MRICS; AAIQS; AIQSSL; Fellow APQSESL; MCIArb; Reg.Arb.NACSL; Mem.ICCSL; Mem.CCISL; Mem.AACE; Mem.SAVE; Mem.SLAQ; Mem.SLGS

Management of Change

Human needs and the Response of the Industrial Society

“Man is the only animal who embraced change. He changed the human Journey from the cave to the moon, outer space, the universe.” – PIM International UAE

A collection of industries constitute an industrial society just like different people constitute a human society. Each of the industries will have their objective such as the following:

• The electricity power authority will want to provide reliable and quality electricity at an economic cost to different categories of consumers.

• The transport authority will want to provide an efficient and comfortable transport service at an economic cost to the public.

• The food industry will want to provide quality food at an affordable price to consumers.

Within an industrial sector such as power, the different boards will have different objectives depending on the emphasis on services. Thus the objective of a power distribution authority may not be identical to that of a power generation authority.

The objective of a wholesaler may be different to that of a retailer

It is important to note that whatever difference there would be in their industrial objectives, all industries and therefore the industrial society have one common objective, that whatever goods and / or service they produce should satisfy a need of society, without which it will not have a demand and therefore a market value.

Hence the object of the industrial society is to provide the goods and services needed by society through the application of the processes of production and management. There must be collation between human needs and the response to it by the industrial society.

The behaviour of the industrial society is conditioned by the market forces that exert pressure on it. The market forces in turn are conditioned by consumer behavior. Advertising, which is an important aspect of marketing, could influence consumer behavior. The survival of an organization depends on how much of a market share is owned by it. The desire to dominate the market leads to competition. Competition is to do / produce something new. This requires change in the organization.

The Cause for Change

The concept of organization without reference to its human resources is futile. The human resources are the heart of an organization, bringing life into it. Since the organization is predominantly a human concept, the human resource imparts all its organismal characteristics to the organization. The manner in which human behaviour constitutes or determines the manner in which the organization behaves. In other words, by looking at the manner in which its human resource behaves, one could predict how the organization would behave. Like human beings, the organization too will show organismal characteristics.

Organizations, like an organism, must adapt themselves to their environment if they are to survive and grow. The pressure for change comes from internal and external forces. The former is identified as those within the control of the management while the latter are not subjected to the control of the management.

SLQS JOURNAL

16

December 2010

Internal forces: These forces can be traced to the processes or to the people in the organization and to the organizational environment. These forces could be controlled by the management. Process forces include break-down in decision making, communications and interpersonal relations. The people’s forces are due to low morale, high absenteeism, waste, indiscipline, high accident rate and end up with fewer turnovers.

The organizational environment factors are:• Demand for worker involvement.• Alienation due to advancing technology and

organization size.• Growth of unions.• Changing management and employer attitudes,

values and skills.

External forces:These are due to activities taking place outside the organization which have an impact on the organization. This external environment is made up of:

Technological Factors: 1. Knowledge explosion, a more educated work force2. Advancement in production processes3. Advancement in sophistication of products4. Communication explosion

Social factors:1. Changing values towards work2. Changing values towards social responsibility of

organizations3. Government legislation4. Growing population

Economic factors:1. Internationalization of markets2. Rapid change in consumer tastes and product

preferences3. Growth of conglomerate businesses4. Increasing cost of scarce resources5. Increased competition

Organizational Entropy

Quite often, due to the intertia of its human resources, organizations tend to set up self-imposed blinds which limit the area and range of their vision. Executives are

therefore unable to see the ever-changing situation of the organization. They will also fail to realize the capacity of individuals and groups and consequently, they are underestimated and under-utilized.

The outcome of this is dependency, defensiveness and narrowness of perspective. This unrealized potential (or energy) of the organization is called organizational entropy. A possible outcome is rebelliousness and lack of system strength to do the work of the organization.

Organizational Life Cycle

Like any other living things, organizations have life cycles. A typical life cycle of an organization consists of the following areas:

The inability to change makes an organization rigid which will not lead to development. An indifferent and non-responsive attitude to the forces in the internal and external environment will result in the deterioration of the organization.

Resistance to Change

People resist change because it is easier to do what they do than to learn something new. People fight change for highly personal reasons. The process of implementation of change will enable managers to find out the limitations of the people, namely, whether it is for personal reasons or in the best interests of the organization. Usually a person is normally in between these two extreme conditions. Those who are closer to the former end will intensely resist change and will seldom wish to know the reasons for change, while the others will show an increasing desire to cooperate. The change is faster with high levels of education, communication and greater human aspirations about what people should have as an expected part of our life.

SLQS JOURNAL

17

December 2010

Moresk Cleaners Ltd -v- Hicks [1966]

An architect was engaged to design an extension to a laundry. He invited a contractor to design and build the reinforced concrete structure. After erection, the structure became defective because of the negligent design. The architect maintained that he was entitled to delegate certain specialist design tasks and that he was acting as the employer’s agent in asking the contractor to design the structure. It was held that if a building owner entrusts the design of a building to an architect, he is entitled to look to that architect to see that the building is properly designed. If the architect was not able to design the work himself he could:

1. tell the client that the work was not in his field; 2. ask the client to employ a specialist; 3. retain responsibility but pay the specialist out of his own pocket – then if the advice proves

faulty the person giving him the advice will owe the same duty to him as he owes to the client.

Culture and Change

Culture is a body of learned behaviour, a collection of beliefs, habits, practices and traditions shared by a group of people and successively learned by new members who enter the society.A culture could be found in an organization. The older the organization, the more certain it is to have developed a culture. A change is bound to affect these well-established relationships and conventions. Obviously this will be resisted by members of the society.

Since the culture is a long established reality, no change should attempt to create shock waves. Caution and careful consideration should be forerunners to the implementation of change

The Case for Change

The survival of every organization depends on its development. Development is always associated with change. Thus in the context of development, change is most unchangeable. Change is painful and needful. Change is a positive and a necessary sign of growth and progress.

Desirable change should be evolutionary, rather than revolutionary. Management of change certainly does not imply random and unplanned responses to a changing environment.

It must now be clear that the management of change and implementing appropriate changes is definitely essential for development. This is only possible if the management style of the organization is flexible.

SLQS JOURNALDecember 2010

18

D.D.A. Niluka Domingo B.Sc. (Hons.) Niluka is a Quantity Surveyor graduated from University of Moratuwa, Sri Lanka and currently reading for a PhD in Construction Management at the University of Loughborough, UK.

Life-cycle Approach to Minimise Construction Waste

AbstractWaste generation by the construction industry is a significant issue for the industry and for the whole society. In recent years, economic, political and social pressures to adopt sustainable work practices have led to a renewed emphasis on developing effective waste minimisation measures for major construction projects. Hence, this article illustrates the best construction waste minimisation practices to adopt throughout the building lifecycle to minimise construction waste generation as per research findings.

Key words: construction waste, waste minimisation

Introduction Many researchers have proved that the construction industry is a leading waste generator worldwide (Loosemore and Teo, 2001, McDonald and Smithers 1998, Dainty and Brooke, 2004). For decades, landfills have provided a convenient and cost-effective solution to construction waste. Due to increasing population and speed of development, it is anticipated that the quantity of waste generated through construction in the coming years will be considerable and thus requires waste prevention rather than relying on landfill sites. Moreover, it became a burden to clients, as they have to bear the costs of waste eventually. The cost of waste blunts the competitive edge of contractors, making their survival more difficult in a competitive environment (Macozoma, 2002). Waste creates loss of profit for contractors due to extra overhead costs, delays, lower productivity and extra work in cleaning and it is estimated that companies that produce a higher level of waste are at a 10 percent disadvantage in tendering (CIRIA, 1995). The above factors pertinent to the environment, economy and society lead the interest towards waste minimisation among construction industry practitioners.

Construction waste minimisation Waste management is defined as the process involved in dealing with waste once it has arisen. The waste management hierarchy (Figure 1) is a guide to determine the best available practical preferences to address the waste issues in construction sites. It represents the best practicable environmental options within the chain of priority for waste management starting from prevention and reduction and extending to waste disposal, which is the least favourable option.

Figure 1: Waste management hierarchy

However, the most economically and environmentally preferable option to manage construction waste is ‘waste minimisation’, which is an in-plant process that reduces, eliminates or avoids the generation of waste. The next section of this article discusses the recommended best construction waste minimisation practices according to current and on-going research in the field of construction waste management, dividing them into project lifecycle phases: predesign, design, procurement, and construction.

SLQS JOURNAL

19

December 2010

Pre-design PhaseSince past researchers have proven the fact that construction waste could occur as a result of incomplete briefing and clients’ lack of interest towards waste minimisation, literature highlights the need of educating clients on waste minimisation benefits to develop attitudinal changes to encourage waste conscious designs and construction practices from the inception of projects. Additionally, more emphasis should be given by clients on conferring a complete brief to the design team to avoid later changes (including variations) during the construction phase, which was identified as one of the major sources for generating huge amounts of construction waste.

Design phaseThe Design phase should play a major role in controlling waste in the construction industry. It has been estimated that 33% of on-site waste is due to the architect’s failure to implement waste reduction measures during the design stages (Innes, 2004). There is a general consensus in the literature that design changes, incomplete designs, designers’ lack of experience in evaluating construction methods and the sequence of construction operation, lack of design information, design complexities and over specification of materials are key origins of construction waste during the design phase. In order to minimise the adverse effects due to the above waste origins, past researchers suggested waste minimisation practices such as:

• Design standardisation to improve buildability and to reduce the quantity of off-cuts

Reduce substantial amount of off-cuts by designing room areas and ceiling heights in multiples of standard material sizes.

• Design management to prevent the over-specification of materials

Appoint a dedicated design manager with a brief to minimise waste due to over-specifications. Also, more time can be allowed for value engineering design solutions for more complex projects.

• Increased use of off-site prefabrication to control waste and damage

Increase the use of prefabricated elements to improve the quality work, to reduce the amount of on-site damage and to reduce re-works.

• Environmental impact assessments of the scheme during the design phase

Conduct regular design and production reviews where the waste minimisation strategies are consider a primary performance criterion. This can be incorporated as part of the design development process to ensure that the building met the client’s criteria.

Procurement PhasePast research findings accentuate a number of waste origins in the procurement stage of a construction project. Most of these waste origins relate to the responsibilities of project partners towards waste minimisation. Thus, researchers suggested the following practices to implant during the procurement phase.

• Supply chain alliances with suppliers/recycling companies

Arrange partnerships with suppliers to remove excess materials, to reprocess them and to reuse material where possible. Such practices could be supported with financial incentives for minimising waste

• Dedicated specialist sub-contract package for on-site waste management

Appoint a specialist firm to remove waste from a site while allocating some responsibility to trade contractors and maintaining good control over waste processes with the principle contractor.

• Contractual clauses to penalise poor waste performance Include financial penalties for wasteful work

practices in the contracts.• Additional tender premiums where waste initiatives

are to be implemented Introduce financial subsidies for companies willing

to invest on comprehensive waste minimisation systems at the tendering stage.

• Supplier flexibility in providing smaller quantities of materials

Encourage supplier to produce materials to project specifications and to provide smaller quantities of materials to reduce the need for on-site storage

Construction phaseThe Construction phase could be termed the most critical stage when dealing with waste minimisation, because waste physically appears in this phase of a project. Over the decades, much research was conducted in different

SLQS JOURNAL

20

December 2010

parts of the world to identify on-site waste origins and waste minimisation measures. Many research findings concluded that waste origins in the construction stage were due to poor material storage and handling, negligence, material ordering errors, poor record keeping, poor workmanship and lack of site waste management plans. To facilitate waste reduction, researchers suggested the following practices to implement during the construction phase in a project.

• Stock control measures to avoid the over-ordering of materials

Tighter stock control measures coupled with the careful monitoring of on-site progress and raising awareness of site managers to eliminate over-ordering of materials.

• Improved education of the workforce Increase attitudes of site operatives to minimise

waste through education on the benefits of waste minimisation.

• Provision of waste skips for specific materials Centrally control material skips through the

principle contractor to help promote a culture of material segregation and recycling.

• Just-in-time delivery strategy Adopt a just-in-time delivery strategy to reduce the

potential damage from poor handling due to long-term site storage as well as reducing the potential for over-ordering materials.

• Waste auditing to monitor and record environmental performance on-site

Adopt waste auditing tools (SMARTWaste etc.) both to monitor the performance of on-site practices and to educate the workforce on the benefits of waste minimisation practices.

Other than the above-specified waste minimisation practices, it is essential to maintain effective and efficient communication and coordination systems and documents management systems throughout the project lifecycle to avoid confusion and miscommunications when handling project information among project partners.

Conclusion

Construction waste generation is a reality in the 21st century with the rapid developments in all parts of the world. Even though physical waste generates during the construction or demolition phase of a project, waste

origins emerge throughout the project life-cycle. Hence, waste minimisation practices should be implemented from the start of any construction project right through the design, procurement and construction phases to effectively reduce waste generation and to move towards sustainable construction targets.

References

1. CIRIA,1995. Waste Minimisation and Recycling in Construction: A Review, Guthrie, P. and Mallett, H. (eds), Construction Industry Research and Information Association, London.

2. Dainty, A.R.J. and Brooke, R.J., 2004. Towards improved construction waste minimisation: a need for improved supply chain integration. Structural Survey, 22, 20-29.

3. Innes, S., 2004. Developing tools for designing out waste pre-site and onsite. In: Proceedings of Minimising Construction Waste Conference: Developing Resource Efficiency and Waste Minimisation in Design and Construction, October 21, New Civil Engineer, London, United Kingdom

4. Loosemore, M. and Teo, M.M.M., 2001. A theory of waste behaviour in the construction industry. Construction Management and Economics, 19, 741 - 751.

5. Macozoma, D.S., 2002.Construction site waste management and minimisation: international report, International Council for Research and Innovation in Buildings, Rotterdam, available at:www.cibworld.nl/pages/begin/Pub278/06Construction.pdf

6. McDonald, B., and Smithers, M., 1998. Implementing a waste management plan during the construction phase of a project. Journal of Construction Management and. Economics, 16(1), 71–78.

SLQS JOURNALSLQS JOURNAL

Chrisantha Fernando HNDE, HND(QS), AMIIE(SL), ICIOBChrisantha is the holder of two HND’s, both in Civil Engineering and Quantity Surveying and currently working as a Senior Quantity Surveyor for the Quantity Surveying and Project Management Division of M/s Arab Experts Engineering Consultants. He possesses nearly ten years industry experience gained in Sri Lanka and the Middle East.

Application of Risk Management Associated with Activities of Building Contractors in UAE

The purpose of this article is to identify the risks associated with the building construction industry in the U.A.E. and to evaluate the application of Risk Management with a view to reduce or eliminate the consequences of risks - in particular, risk associated with the activities of building contractors.

Risk is a complex event which has physical, financial, cultural and social aspects. The consequences of risk go well beyond direct physical harm to financial or physical assets. Risk is not only formed by the extent of potential harm but the way in which we understand or sort out information about it.

There were continuous building collapses in the U.A.E during the year 2009. A building under construction collapsed in Dubai in August 2009, followed by the collapse of a nine-storey car park in October, in the emirate of Sharjah. ‘All construction industry stakeholders working in the UAE warned that such accidents had wider implications than just workers on the immediate site.’ (James Boley and McGrath, 2009).

The purpose of this article is to evaluate the application of Risk Management in the building construction industry in U.A.E. This article mainly identifies the risks associated with the activities of contractors in construction projects and how to analyze and respond to events to avoid or mitigate the impact of risks.

The ’ABC’ project, situated in Jebal Ali, Dubai, which is near completion, was selected to study for this purpose. The project includes a hotel, a furnished apartment building and an office building, each consisting of eleven storeys, along with all services, facilities, landscape and infrastructure.

The Contract or Contract Document is the main device used to identify and distribute risk and opportunities on the project. The Contract is the legal document in which project members record their agreements regarding the distribution of risks and opportunities among them.

Bank security, such as Performance Bonds, Advance Bonds and Retention Bonds, is provided by the contractor to the employer or the sub-contractor to the main contractor as a guarantee that the terms of their contract will be fulfilled. According to the conditions of contract in this project, these bonds are irrevocable and unconditional.

During the construction boom in the UAE, time or the project duration was the main factor when delivering the project and funds were not as important as they flow into the project gradually. Therefore, it was crucial for the contractor to hand over the project on time. The ‘ABC’ project was delayed for months from the beginning of the contract, due to the late possessing of the site and extensive variations instructed during the progress of the work.

The addition of three floors to the Hotel and Office Building during the progress of the works caused major delay to project completion, as this required re-designing of structural elements and other building services. This caused additional cost and time, thus delaying the project handover to the end users. Further negative impact to the project was the unforeseen financial crisis. This badly hit the funding of the project, causing more delay to completion. If the employer’s requirements were properly addressed or investigated to meet future demands during project briefing, this unfortunate risk event would not have happened.

The price fluctuation of major construction materials is a common risk in the construction industry. It is obvious

21

December 2010

21

SLQS JOURNAL

22

December 2010

that the price of rebar, concrete and cement increased rapidly during the years 2008 and 2009. The price increase was unusual when compared to the last five to ten years, and even an experienced contractor could not have foreseen this, thus reducing the contractor’s profit or even loss from the project. The shortage of material availability in the market is a negative consequence of material price increase, which also interrupts the progress of work.

Furthermore, poor performance of subcontractors, inclement weather, disputes and claims, poor site management are leading factors when delivering a project on time.

Moreover, the penalty or liquidated damages imposed in the contract could lead to unexpected hazards; of course, this clause is required to drive the contractor to complete the project on time. However, if the actual progress is behind schedule, he may take precautions to speed up the work to avoid penalty, which would lead to unexpected risks, which may have not been identified from the beginning of the project.

Apart from the above, insufficient labour force and lack of skilled labourers was the another major problem contractors faced in Middle East region. This always results in the delay of the construction progress. Further, using more unskilled labourers or utilizing the available labour force without giving them a sufficient rest increasing the possibility of causing an accident on a work site, leaving the site safety at high risk.

Also, poor communication, different cultures, personal attitudes and poor safety are other factors which may cause harmful hazards. The probability of occurrence of a hazard may decrease but consequences may be high.

Once a risk is identified, the next step is to analyze it. This is the process of evaluating identified risks to discover their extent and the way responses should be prioritized. Most risk analyses are carried out in two stages:

• Stage one – a qualitative analysis of risks and opportunities using qualitative/descriptive scales such as high, medium and low.

• Stage two – A quantitative analysis of risks and opportunities using numerical estimates.

(Martin Loosemore, John Raftery, Charlie Reilly, Dave Higgon, p.85).

To make risk assessments more efficient, a number of checklists have been produced and maintained from the beginning of the project. This would allow the formal Risk Assessment meeting to focus on key issues that might affect a project. In order to evaluate the risks arising from the hazard, the following has to be considered:1. Likelihood or Probability that a hazard will cause an

accident. 2. Severity of the consequence, if the hazard did cause

an accident.

Risk Assessments carried out for all tasks in this project follow a High, Medium and Low concept with the matrix set out as below.

The key steps followed are: identify hazards arising from activities, rate the probability (P) of the hazard occurring, rate the severity (S) using the index and multiply the severity (S) and probability (P) ratings to give a rating for the level of Risk(R) i.e. S * P = R

Assessments were carried out in accordance with the risk rating matrix described below.

According to the above rating matrix, Bank security and economic crises can be categorized as Low Probability and High Impact risk events, while failure to meet program and liquidated damages for delay can be categorized as Medium Probability and High Impact risk event. Delay in delivery of materials and accidents and injuries can be categorized as High Probability and Medium Impact risk events whereas increase of material costs and insufficiency of labour force can be categorized as High Probability and High Impact risk events.

HIGH - Major groups numbers 16 - 25MEDIUM - Intermediate group numbers 9 - 15LOW - Minor groups numbers 1 - 8

(Extracted from risk management procedure, ABC.. project).

Severity (S)Probability(P) 1 2 3 4 5

1 1 2 3 4 52 2 4 6 8 103 3 6 9 12 154 4 8 12 16 205 5 10 15 20 25

Level of Risk (R)

SLQS JOURNAL

23

December 2010

The final stage of the risk management process is the decision on how to respond to risks and opportunities, having identified and analyzed them. In essence, the decision is simple – to do something or to do nothing (Martin Loosemore p.155). The following paragraphs describe the ways in which one may respond to risks.

Firstly, risk pre-control is the most desirable way to eliminate risk, thus preventing the risk from occurring. Carefully studying tender documents such as soil investigation reports, specifications, drawings and physically visiting the actual site before tender could avoid most risks associated in the project.

Secondly, reducing probability of occurrence could reduce the hazard of the risk, similar to how conducting safety induction procedures could reduce the risk of accidents or injuries. Placing construction materials on time and following up the delivery of materials could reduce the probability of delay delivery. It is also important that managers have reactive strategies in place to deal with crises if and when they arise. This was obvious during the global financial crisis which affected businesses in recent years.

Thirdly, some risks in the construction industry can be transferred or shared between project members. The main benefit of passing on a risk to another party or sharing with members is that the chances of the risk increasing are reduced. Most risks which have been identified so far on this project are transferred to another party and few of them are shared between them. Nevertheless, in transferring risks, there is a cost, which is a premium or additional cost charged by the party that absorbs the risk. Insurance is the most common type of risk transfer to a third party. The risks passed on to insurance companies are typically of very low likelihood and very high impact.

Finally, where risks cannot be eliminated, transferred or avoided, they must be absorbed if the project is to proceed. This requires sufficient margin or risk contingency in the project’s finances to cover the risk should it occur.

Once the decision has been made about the way to respond to a risk, regular review and, where necessary, revision of risk assessments must be undertaken. Risk assessment should also be reviewed following an accident, incident or dangerous occurrence to ensure that control measures are revised to prevent reoccurrence. Managers,

Supervisors and off-site Managers shall continually monitor the effectiveness of risk assessments.

In conclusion, there are many potential risks in the construction industry. Through investigating the contract document in the tender stage, most of the risk associated with the construction project can be identified. The price fluctuation of major construction materials, penalty or liquidated damages and the conditions on bank securities imposed in the contract are a few of them. In addition, unrealistic programme, poor performance of subcontractors and site management as well as insufficient skilled labourers may negatively impact the programme which may lead to unexpected hazards. Poor communication, different cultures, personal attitudes and poor safety are other factors which may cause harmful hazards.

The method of qualitative analysis of risk has been used in this project to analyze and evaluate the identified risks and then prioritize them. Based on this method, price fluctuation of major construction materials and insufficiency of labour forces are identified as high probability and high impact risk events. Risk pre-control, reducing probability of occurrence, transferring or sharing the risk between projects members are the ways to respond to identified risks. If not, the risk should be absorbed if the project is to proceed.

Reference1. Boley, J and McGrath, (2009), ‘Lessons from collapse

must be shared-experts’, ConstructionWeekOnline.com, August 17, 2009.

2. Federation International Des Ingenieurs - Conseils, (1987), Conditions of Contract for Works of Civil engineering Construction, Fourth Edition, Reprinted 1992 with further amendments.

3. Loosemore, M, Raftery, J, Reilly,C & Higgon, D, Risk Management in Projects, second edition, Taylor & Francis Group, London and new York. pp 1-3, 32-33, 35

4. Notes of Value and Risk Management, Heriot-Watt University, (2010)

5. Risk management guidance, ABC project.6. Smith, N J, Merna, T, Jobling, P (2006) , Managing

Risks in Construction Projects, second edition, Blackwell publishing, UK.

7. Weatherhead, M, Hall, C, Owen, K (2005), Integrating value & Risk in Construction, CIRIA, UK.

SLQS JOURNALDecember 2010

24

Ranjith Chandrasiri MRICS MCIOB DipQs(UK) AAIQS ACIArb AIQSSL FIPMSL Ranjith Chandrasiri’s quantity surveying carrier commenced as a Technical Quantity Surveyor in 1984. Since 2004 Ranjith Chandrasiri is practicing as Consultant Quantity Surveyor in Sri Lanka. Currently he serves as an office bearer in RICS Sri Lanka, CIOB Sri Lanka, and Institute of Project Managers Sri Lanka (IPMSL).Ranjith Chandrasiri is a registered Arbitrator in Institute of Commercial Law and Practice (ICLP Arbitration Centre) in Colombo.

Challenges Facing the Establishment of the Quantity Surveying Profession in Sri Lanka

Sri Lanka was the first country to establish the quantity surveying profession in South Asia, early in 1960, by introducing ‘Builders Quantities’ course in the then Institute of Practical Technology, Katubedda, which was established in November, 1958, with the support of the Canadian government. Presently, this institute is named the University of Moratuwa, which is the primary institute in producing academics in the engineering sector in Sri Lanka.

The National Certificate of Technology in Quantity Surveying was later introduced island-wide in 1972 through Technical Colleges (http://www.nct-tech.edu.lk/history.html - visited on 8th Jan. 2011). This was a turning point in QS education in Sri Lanka. Through this three year part-time course of NCT(QS), many needed QSs were produced for the construction industry in Sri Lanka. As a result of ever-increasing demand in the industry, the BSc in Quantity Surveying course was introduced in 1986 at the University of Moratuwa. With the expansion of the global construction industry, a number of quantity surveying courses were commenced in both the public and private sector during the last decade.

Despite significant improvement in the quantity surveying sector in terms of education and professional practice in Sri Lanka, currently it faces challenges in a number of situations which can be summarized under the following six main headings:

1. Standard of Education 2. Supervised Training Programme3. Fee Competitions among Practitioners 4. Experience, quality and standard5. Employment opportunities6. Establishing the Profession

Standard of Education:The quantity surveying profession needs to continue to recruit young qualified people who wish to continue with their further professional education. For the quantity surveying profession, currently a number of private institutions are conducting diploma level quantity surveying courses targeting school leavers who lost the opportunity to enter government Universities or other institutions of higher education. Currently, the University of Moratuwa provides a BSc degree course in Quantity Surveying to a limited number of students. The BSc in Quantity Surveying course has been accredited by the Royal Institution of Chartered Surveyors (RICS). The Government Technical Colleges provides full time and part time certificate level quantity surveying courses designed for school leavers and technical employees respectively.

The students of Government Technical Colleges who obtain marks above the minimum required level from the final examination conducted by the Department of Examinations receive their certificates. The College of Quantity Surveying, governed by the Institute of Quantity Surveyors Sri Lanka (IQS-SL), which has been incorporated by an Act of Parliament in 2007, provides quantity surveying courses designed to meet the requirements of the IQSSL.

The question then arises about the quality and standard of education of some of these private organizations, situated at various places in Colombo and outstations, which provide quantity surveying education, where a considerable number of students follow Diploma or Higher Diploma courses by paying a fair amount. Providing a quantity surveying education became a profitable business due to higher demand for quantity

SLQS JOURNAL

25

December 2010

surveyors in Sri Lanka and foreign countries before the recession of the global economy.

Attractive advertisements on newspapers show short and easy routes to reach membership of internationally recognized professional quantity surveying institutions and other professional bodies. Currently, no criterion measure or mechanism has been established by government authorities or relevant professional institutions for monitoring the quality and standard of the courses and examinations conducted by such private educational organizations.

Supervised Training:Currently, students who obtained their academic qualifications face challenges in entering an appropriate structured training programme with the relevant professionals’ supervision. This affects most students irrespective of the levels of their academic qualifications. This seriously affects young quantity surveyors who obtained academic qualifications accredited by foreign professional quantity surveying institutions such as RICS, AIQS, IQS-SL with the aim of becoming a chartered quantity surveyor through an appropriate membership route.

All professional institutions for various disciplines have formally recognized the need for structured supervised professional training to achieve recommended professional competencies to offer their memberships. The importance of this training to young quantity surveyors has been recognized by few employers while the majority of employers are underestimating its importance or ignoring trainees.

Currently, the key challenge for employers is to maintain their existing professional and technical staff including quantity surveyors and other assets until their average volume of work returns to normal. Another challenge for students is to find an employer, who allows trainees to practice what they studied at the university or college. All of the above difficulties are influenced by the current job market, which is directly linked with country’s economic climate.

Fee Competition: In many cases, quantity surveyors are being appointed as sub-consultants to a main consultant by the clients. Because of this arrangement, quantity surveyors have

become employees of an internal consultant of other professionals of the project. Quantity surveyors who wish to practice independently have to face increasing competition within the industry. The competition may come from within the profession or other construction professionals, for example, where the client requires appointing a professional quantity surveyor at the conception stage as his cost adviser, the project architect or engineer may express his interest to provide cost consultancy services as part of his consortium services reasoning that giving it would give a single point liability to the client. Finally, clients may prefer to obtain one-stop-shopping for consultancy services rather than appointing different parties for different services, which may think that he may save additional cost involvement in administrating various professional disciplines.

Non-Construction Personnel are also attempting to enter construction consultancy services such as advising on contract procurement, contract administration, dispute resolutions, contract drafting etc, which usually fall under the roles of quantity surveyors. Though quantity surveyors are expert in Procurement Management and Contract Drafting, most clients, including government departments, statutary authorities, banks etc still prefer to obtain services from personnel from other disciplines such as finance, legal, and from engineers. The majority of Consultants who provide consortium services to the client as ‘the Engineer’ for contract engage quantity surveyors as employees, those who have experience in merely measurements and quantifications, ignoring their academic or professional qualifications. This would undermine the professional services to be provided by the profession of quantity surveying to the society.

Experience, Quality and standardThe quantity surveyors employed by contracting firms have opportunities for gaining experience not only in quantity surveying but in various aspects of construction technology. However, clients expect high quality, proper and accurate tender/contract documents from quantity surveyors to avoid future disputes, which may arise at the post contract stage. The client always expects maximum value for their money and the contractor always expects maximum money for their products. A professional quantity surveyor should have the relevant experience to understand this concept and should be able to strike a balance between two parties. Therefore, by appointing an

SLQS JOURNAL

26

December 2010

experience and qualified professional quantity surveyor it may be possible to minimize disputes that may arise due to errors in the bidding and contract documents prepared by inexperienced quantity surveyors. The following example illustrates one of the disputes which occurred due to poor drafting of tender and contract documents:

The clause stated below was abstracted from preamble notes given in a measure and pay contract, where the Employer was a Statutary Authority.

“If the BOQ does not contain any work item which is to be executed by the contractor in accordance with the drawings or specifications, the cost of the missing work item is deemed to be included within other items”.The reason for the error seems that the quantity surveyor who was appointed by the architect copied preambles notes from a lump sum contract rather than preparing particular preamble notes for the project and failed to grasp the unfairness of the terms which he included in the contract and their potential legal implications.

Due to recent changes in technology, intelligent buildings and laboratory buildings have a higher proportion of mechanical and electrical installations compared to traditional buildings. Quantity surveyors would not be able to perform their duties for such buildings unless they have reasonable knowledge and experience in new technology.

Clients may need initial cost estimates and early cost advice to know the extent of their financial commitment in advance in order to allocate funds to the projects. The quantity surveyors should have the experience to provide a reasonably precise estimated cost, considering current cost, inflation forecast, and economic climate in the country.

Employment Opportunities:The demand for construction professionals, including quantity surveyors in Sri Lanka, has been drastically reduced since early 2008 due to construction works being reduced significantly, particularly private commercial buildings and apartment buildings. This situation seriously affects the demand for quantity surveyors. The situation is further influenced by foreign contractors currently carrying out most of the major construction in the country as they do not employ local quantity surveyors in senior positions of the project.

Re-construction of war-damaged infrastructure and buildings in the Northern and Eastern provinces are currently being carried out by various organizations. It is expected that a substantial volume of new construction of buildings and civil engineering in the Northern and Eastern provinces will commence soon and significant opportunities for quantity surveyors will be available in a more attractive environment. If the construction market expands as expected, quantity surveyors will need to increase their involvement to cater to the demand. However, under the present procurement policies maintained by relevant authorities, it is unlikely that the expected development process will provide opportunities for local consultants and contractors to the same extent, as the majority of such re-developments are being planned to be carried out with foreign grants and loans. In that case, those project funders would dictate their own terms to employ their own corporate team of foreign professionals. Therefore, the government should take maximum care to safeguard the employment of the local professional when they are negotiating the terms of the funding.

Establishing the Profession

Substantiate the Value of Quantity Surveying:Practicing quantity surveyors and relevant institutes should carry out public awareness campaigns in order to promote the profession. Relevant institutions will have to play a major role in demonstrating the value of the services of independent professional quantity surveyors. Government organizations, banks and potential developers should be made aware of the importance of the quantity surveying profession by relevant institutions. The major Institutes like the Institute of Construction Training and Development (ICTAD) and Institute of Quantity Surveyors - Sri Lanka (IQS-SL) may be in a position to introduce new guidelines in this regard.

Tools and New Technology:Computer aided techniques are being developed for measurements and quantifications with preparation of bills of quantities and valuation of executed works. Application of these new techniques will increase speed, efficiency, and the accuracy of products or services, particularly production of tender documents. New tools would be introduced in the future for improving most tasks of the traditional quantity surveyors.

SLQS JOURNAL

27

December 2010

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 company’s 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.”

Representation:Presently the UK government consults the RICS on making legislation and other government decision-making processes that may affect the construction industry and the profession. Unfortunately, the quantity surveying profession in Sri Lanka is not so strong. Achieving such a strong position will be a challenge for all Sri Lankan quantity surveyors today.

Supplying the Client’s Demand:All practicing professional quantity surveyors are required to market and promote their services to the clients. Quantity surveyors should expand their role from measurement taking-off to contract management and financial management. Diversified services should include procurement management, cost and time management, tax advice, investment advice and dispute resolution.

SLQS JOURNALDecember 2010

28

Buddhika Jayatillake MBA BSc(Hons) FCIOB MRICS AAIQSBuddhika attained his first degree from the University of Moratuwa, SL in 1993 and subsequently gradu-ated as a Master of Business Administration from the University of Durham, UK. At present, Buddhika is an Associate Director of Davis Langdon, an AECOM Company. He is a Chartered Quantity Surveyor whose expertise include strategic procurement/outsourcing and asset management.

Setting Smart Objectives

IntroductionIn order to achieve a desired goal or objective, it is vital to have a plan in place. Having a plan in place alone does not ensure achievement of the desired goal. Therefore, implementing the plan, monitoring and controlling of it and adjusting and fine-tuning the plan where necessary are also vital.

However, a plan is only the procedure or the series of actions intended to be taken to achieve an objective. Whether it is in one’s personal life or at the workplace, most individuals are masters of devising precise plans with a degree of certainty to achieve ‘preset’ objectives. Yet, it is somewhat tricky when it comes to setting the ‘right’ objectives.

Undoubtedly, some individuals have struggled at some stage in setting the right objectives in their Personal Development Records (PDRs). As a result, this fault is commonly seen in some PDRs, listing some ‘intended actions’ rather than identifying the right objectives.

This article provides some guidance that helps set objectives that really work.

Your Objectives should be SMART

It is a well known, widely accepted criterion that the objectives should be ‘SMART’, where SMART stands for Specific, Measurable, Achievable, Relevant and Time-bound.

‘Specific’ requires the objective to be the exact final outcome that one intends to achieve. For example ‘Completing evaluation of the xyz claim’ is an exact final outcome compared to ‘hiring a claims consultant’. The proposed hiring of the claims consultant is more of an

action in the action plan that intended to help achieving the final outcome of ‘completing the evaluation’.

This also suggests that hiring of the claims consultant is not necessarily the only way to achieve the objective. However, if hiring the claims consultant was set as the objective, it hinders the opportunity of investigating alternative methods available to achieve the true objective of completing evaluation of the claim.

‘Measurable’ requires the objective to provide clear evidence of achievement of the objective. It should be evident not only to the self but also to anybody else. Therefore, a measurable objective should ideally have associated physical output.

In the above claim evaluation example, the production of the report on evaluation findings and recommendations could be a clear indication of completion of the evaluation, and it is evident to and measurable by somebody else. Therefore the ideal objective could be ‘complete evaluation and recommendation report on claim xyz’

Objectives that use phrases such as ‘improve knowledge’, ‘contribute to’, ‘liaise with’, ‘gain understanding of ’ and the like do not provide clear measurable objectives. Whether the person gained ‘understanding of something’ is difficult to be judged and measured by somebody else.

‘Achievable’ is a straightforward requirement of a smart objective. If an objective is clearly unachievable, there is no point of setting such an objective.

An objective should be ‘Relevant’ to the purpose it is being set. An objective such as ‘loosing 15 kilos by 30 June 2011’ set in a book-keeping employee’s PDR is not necessarily relevant to the employing organization

SLQS JOURNAL

29

December 2010

although it could be a quite relevant personal objective to the employee (unless of course, the employees work performance is likely to be affected by the employee’s weight). However, there could be some occupations where ‘losing weight’ is a quite relevant objective.

All smart objectives should be ‘Time-bound’. That is the objective should be associated with an achievable time target. Having measurable interim time-bound targets will also help ensuring progress towards achievement of the objective.

Ensuring Your Objectives are SMART

Asking the following questions helps ensuring the objectives are SMART.

Specific – ‘Why do I do this?’ helps deriving the underlying specific objective. In the claim evaluation example above, asking the questions such as ‘Why do I hire a claims consultant?’ helps filter out ‘intended actions’ and deriving the underlying specific objective.

Measurable – ‘How do I (and somebody else) know that I have achieved this?’ helps making the objective a measurable one. For example ‘How do I (and somebody else) know that I have completed evaluation of xyz claim?’

Achievable - Questions to be asked are ‘Can I achieve this?’, ‘How?’, ‘Do I have a realistic plan?’

Relevant - Questions to be asked are ‘What is the reason of setting the objective?’ and ‘Is the objective relevant to the reason why it was set?’

Time bound – The question to be asked is ‘When am I going to achieve this?’

Fine-tuning Your Objectives

Keep an eye on your objectives and review them regularly to ensure that they are still SMART. The objectives that were once SMART could be no-longer SMART if the underlying circumstances were changed or affected.

Ensure that interim targets (milestones) such as percentage completion are achieved. If a milestone was not achieved, then revise the plan and set new milestones that ensure achievement of the objective.

Allocate time targets to the intended actions in the plan. Monitor and ensure that these time targets are achieved.

William Lacey (Hounslow) Ltd v Davis (1957)

A contractor tendered for reconstruction of war-damaged property and was led to believe that they would receive the contract. William then prepared, at Davis’s request, calculations and estimates which Davis used to negotiate a claim with the War Damage Commission, Davis then sold the property without concluding a contract for the reconstruction.

Held that a promise by the defendant to pay a reasonable sum for these service could be implied.

SLQS JOURNALDecember 2010

30

B. Darshanie Taraka Perera BSc (Hons) TCInst.CES Quantity Surveying, University of Reading, UK

Partnering in the Construction Industry

Introduction

Partnering is considered a radical departure from conventional procurement approaches in the construction industry. According to the Joint Contracts Tribunal’s (JCT) practice note on partnering: it is neither a particular procurement approach, nor is it a particular type of contract: it is about culture and the way in which the participants view and manage the project.

The key objective of developers when implementing any form of construction contract is the appointment of appropriately skilled and experienced contractors on the basis of the right price, programme and risk allocation. In a market where the balance of power between the contractors and employers is shifting, this objective is increasingly hard to achieve. Partnering is a process that is being used with increasing frequency in the UK and is slowly being recognised in the UAE as a solution for the afore-mentioned matters.

Partnering has been defined by number of authors in different words. However the essences of all those definitions means that it is a management approach used by two or more organisations to achieve specific business objectives by maximising the effectiveness of each participant’s resources.

Partnering in construction contracting started getting earnest attention in the UK through the Latham report ’Constructing the Team’ (1994). Sir Michael Latham drew attention to the benefits of partnering in order to avoid the problems in conventional adversarial procurement methods. The concept has been well supported by Sir John Egan’s report ’Rethinking Construction (1998)’. In it, he emphasized the need of applying principles of the automobile industry, such as total quality management,

lean production principles, integrated supply chain etc, into the UK construction industry.

Development of PartneringThere are three generations of partnering. Those are• Project Partnering – First Generation of Partnering• Strategic Partnering – Second Generation of

Partnering• Strategic Collaborative Working – Third Generation

of Partnering

Project Partnering - First Generation of PartneringProject partnering is a set of actions taken by the work teams that form a project team to help them cooperate in improving their joint performance. Specific actions are agreed upon by the project team taking into account the project’s key characteristics, and their own experience and normal performance. The choice of actions is guided by a structured discussion of mutual objectives, decision-making processes, performance improvements and feedback. The essential actions of project partnering are shown in Figure 1.

Figure 1- The essential actions of artnering

(Partnering in the construction industry, John Bennett & Sarah Peace - 2006)

SLQS JOURNAL

31

December 2010

Strategic Partnering – Second Generation Strategic Partnering is a set of actions taken by a group of clients, consultants, contractors and specialists to help them cooperate in improving their joint performance over a series of projects. The essential actions of strategic partnering are shown in Figure 2.

Figure 2 – Seven Pillars of Partnering - (Partnering in the construction industry, John Bennett

& Sarah Peace - 2006)

Strategic Collaborative Working - Third Generation of Partnering

This is a set of actions by a group of consultants, contractors and specialists to help them cooperate in establishing and continuously developing a long term business based on an integrated construction cycle that links client use of constructed facilities with their development and production. The process of strategic collaborative working is shown in Figure 3.

Figure 3 - Strategic Collaborative working -

(Partnering in the construction industry, John Bennett & Sarah Peace - 2006)

Selecting Appropriate PartnersThe success of partnering greatly depends upon the continuing will of the participants to make the relationship work, being primarily about teamwork even though team members are from different organizations. Therefore, selecting correct partners is an important factor.

The partners may be selected through personal or business contacts, by recommendations and in some instances through competitive tendering. Similar to conventional contracts, prospective firms should be evaluated on their technical skills, managerial expertise, financial resourcesand the like. However, unlike with conventional contracts, the cultural fit of the firms is important here. This is a fact which is difficult to evaluate. Therefore the most important facts to be considered under the culture of an organisation are:• Ethical values of the organisation• Business practice with respect to dealing with other

stake holders• Commercial objectives of the company

Available Forms of ContractEven though some landmark publications such as the ‘Egan Report’ state that “Effective partnering does not rest on contracts”, it has now become a fundamental requirement to have a contractual background for partnering arrangements. According to the JCT practice note, partnering is better served by the existence of an underlying contract. The Joint Contracts Tribunal (JCT), Institute of Civil Engineers (ICE) and Association of Consultant Architects Ltd. (ACA) have provided different forms of contracts which comply with partnering arrangements.

The JCT - Constructing Excellence Contract has been drafted to provide a document that underpins collaborative working and the formation of integrated teams within the supply chain. This includes:• a series of bi-lateral contracts that adopt a collaborative

approach within a common framework• a multi-party Project Team Agreement which

enables members of the Project Team to reinforce their collective approach to guiding the successful delivery of a project

• the active identification and management of project risks through the mandatory maintenance and updating of a Risk Register

• the flexible allocation of identified risks to the

SLQS JOURNAL

32

December 2010

party best able to manage the consequences of their occurrence

The ICE published NEC Partnering Option X12 is primarily derived from the ‘Guide to Project Team Partnering’ published by the Construction Industry Council. It is not a separate agreement but has been drafted as a secondary option for incorporation into the existing NEC family of contracts.

Option X12 is intended for multi-party partnering where the agreement can consist of single or multi-projects. All parties who are intended to make up the project’s partnering team will require the inclusion Option X12 in their contracts respectively.Key features of Option X12 include:• The parties must recognize that by entering into

the contract, they are undertaking responsibilities in addition to those detailed within the basic NEC contract. Responsibility is still retained for all the sub-contractors in the chain below.

• Where one party misses a particular target, due to poor performance, thereby letting the other members down, all parties may lose their bonus for that target.

• Option X12 does not include direct remedies between non-contracting partners to recover losses suffered. Remedies (if any) are a matter between the parties under their individual contracts. This will apply to all levels of the chain who are part of the partnering team

PPC 2000 was published by the ACA and is the first standard form of contract for project partnering. The authors of PPC2000 claim that it puts partnering relationships into a contractual context. It was launched by Sir John Egan and was recommended by several bodies such as the Housing Forum, Construction Industry Council in the UKSome of the key features included in this form are as follows.• the integration of the project team under a single

multi-party contract, in which all parties - client, consultants, contractors and specialists - have rights, obligations and liabilities with respect to each other

• governs the pre-construction phase as well as the construction phaseprovides a procedural framework that supports the partnering process

• Supply chain management on an open book-basis

• Core group responsible for management of partnering arrangements

• A formal risk management procedure• A partnering adviser to assist the project team• Non-adversarial dispute resolution process

Benefits of Partnering• Time and cost savings are the most highlighted

advantages of partnering. Literature shows that project partnering can reduce costs by 30% and time by 40%, whilst strategic collaborative working can reduce costs by 50% and time by 80%.

• Commitment to mutual objectives and a well constructed decision making/problem resolution process greatly reduces the extent of claims and litigation experienced.

• Improvements in quality control, reductions in defects, lower life-cycle costs, and greater sustainability can be achieved.

• Time reductions in selection process and design enable faster starts to projects.

• Designs can be improved through the early involvement of contractors. It improves the buildability and creates savings in time and cost. In strategic partnering the understanding gained through repetitive projects enhances the entire team’s input.

• Synergistic teams can be built by focusing on mutual objectives. Stake holders in a project can meld into a true team rather than merely a group with disparate goals.

• Efficiency is improved through organising administrative functions and focusing on direct project issues, rather than defensive posturing. Where strategic partnering is used, staff time is reduced by avoidance of going through repetitive learning curves.

• Partnering breeds greater co-operation and thus responsiveness to short-term emergencies or changing project and business needs.

• Partnering creates an environment and culture which is favourable for value management and the identification of innovative solutions can greatly improve project performance.

• The concentration of the whole team on customer objectives makes the programming of construction work more effective and hence improves certainty. Both cost and time creep can be kept in check more efficiently. Contractors and consultants can benefit

SLQS JOURNAL

33

December 2010

from a known workload. • Improved safety performance can be achieved

through the understanding of joint systems and procedures more thoroughly.

Drawbacks of Partnering• In a demand driven market it is the clients who

do not see immediate benefits from partnering, as it is seen to blunt competitive pricing. In this case contractors would rather like the idea for this exact reason, as well as work continuity, better resource planning and business sustainability. Again, if not based on long-term shared benefits, successful partnering is unlikely to evolve.

• Organizations trying to establish a partnering culture may face severe problems in competing to win other projects.

• Partnering relationships may restrict firms from developing more profitable new businesses.

• Forming teams from people who fit the partnering ideal may exclude creative individuals, new ideas and distinctive skills.

• Powerful partners may dictate terms and conditions to weaker partners who depend on them for future work and so cooperative teamwork can be impossible in some instances.

• Changes in commercial and organizational conditions may vitiate partnering.

• Targets that expect too much and too soon may vitiate partnering.

• Having strategic collaborative working relationships too often may disturb individual projects in the interests of long-term development.

• Partnering can be undermined by targets that can be achieved only at the expense of those further down the supply chain.

• For some, changing the thinking that it is necessary to win every battle at the other stakeholders expense will be difficult.

Potential Barriers to Successful PartneringAlthough much of the literature has concentrated on the success of partnering, some writers have alleged that they have missed the importance of the social and psychological issues associated with the application of partnering in an industry which is traditionally adversarial. It is also criticised by some authors that partnering is not appropriate for all procurement arrangements.

In the Royal Institute of Chartered Surveyors (RICS) research paper done by Wood (2005), analysis was done on the prevailing literature written on potential barriers to partnering. It shows that some writers have contended that partnering is a long way from resulting in the contractor benefits claimed by some authors. Wood has categorized the barriers under two main headings, cultural and economic barriers. These are briefly mentioned below.

Cultural Barriers• Difficulties in establishing real trust between client

and main contractor are a major barrier and are time consuming. Publications such as ‘Towards positive partnering’ (Barlow et al, 1997) have positively supported that notion.

• Absence of openness and honesty in either party has been identified as barriers.

• Behaviour of individuals is another barrier. Even though senior members of the organizations have realized the partnering ethos, the lower level teams, particularly at the site level, may not understand the new approach. Wood (2005) shows that the commercial staffs are found to be more difficult to adapt in this respect as they are used to addressing problems in a contractual manner rather through pragmatic solutions.

• Difficulty in changing the ’lowest cost’ mentality is found to be another barrier. Wood argues that some clients are obsessed with lower tender prices in the tender stage rather than looking at what they are going to pay later.

• The complexities that can emerge due to cultural differences of the organizations have been identified as another barrier.

Economic Barriers• As a principle, risk ought to be transferred to the

party who is most capable in managing that. However, discrepancies in allocating risk create many problems. This has been identified as a major economic barrier.

• The mechanism of sharing pain/gain is another barrier. This should be fair and reasonable for either party. However there are many criticisms about the percentages of sharing the pain and gain.

• The client’s use of their buying power in an adversarial way, described as ‘leverage’, is another factor that could affect the partnering ethos.

SLQS JOURNAL

34

December 2010

The Impact of Market ChangesWhile the current economic crisis weighs heavily on construction industries everywhere, in super-fast developing countries like UAE, the impact is probably more prominent than in most other countries. Many researchers have proved that developers still having partnering agreements in place now say that they are paying more than the market rate for contractors’ services. The easiest decision is to abandon partnering and return to more traditional procurement methods.

However contractors are still willing to engage in partnering arrangements under the economic down turn as they believe it to be a better way to exist in the market while earning a secured profit.

ConclusionPartnering has been identified as an improved solution to the adversarial culture of conventional construction contracts. It is a well tested method in the UK construction industry, yet is not very popular in the UAE. The project partnering concept has been developed over the last two decades in three generations. Partnering contracts were based on a non-binding agreement called a ’non-binding partnering charter’ in the beginning. However this has been changed due to discrepancies the contracting parties had to face because of the non-existence of a legally binding contract. There are several forms of contract catering to this requirement.

Even though partnering has provided a number of benefits, there are drawbacks as well. Furthermore, it has been identified barriers to successful partnering under the categories of ’Cultural and Economic barriers’. However,

the concept has been proven to be unsuccessful under the current economic down turn.

REFERENCES- Bennett J. and Peace S. (2006); Partnering in the

Construction Industry; a code of practice for strategic collaborative working; Butterworth-Heinemann

- Broome J; Procurement Routes for Partnering; a practical guide; London; Thomas Telford

- Bennett J. and Jayes S.; The Seven Pillars of Partnering (1998); Reading Construction Forum

- Bacon J (October 2009), A Quick Guide to Partnering; Journal of the Chartered Institution of Civil Engineering Surveyors; pp 30-35

- Construction Industry Board, working group 12; Partnering in the Team (1997); London; Thomas Telford

- Egan J; Rethinking Construction (1998)- Clamp H. et al (2007); Which Contract: choosing

the appropriate building contract; Fourth Edition; RIBA Publishing

- Latham M; Constructing the Team (1994); Department of the Environment

- The Joint Contracts Tribunal Limited; Practice Note 4 (2001), Partnering

- Thomas C.; Profitable Partnering for Lean Construction (2004); Blackwell Publishing

- Walker I; Wilkie R; Commercial Management in Construction (2002); Blackwell Publishing

- Wood G; Partnering Practice in the Relationship between Clients and Main Contractors; RICS Research Paper Series; Volume 5, Number 2; April 2005

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.

SLQS JOURNALSLQS JOURNAL

A. M. Manju Sri Nandana BSc. (Hons), MRICS, MCIArb, MIIE (S.L.) I Eng, GCGI (UK).Senior Quantity Surveyor, Trafalgar Technical Services Limited, UAE

The Implied Terms and the Damages of Contracts under Common Law.

The “breach of contract” occurs when one party to the contract fails to perform one or more of his/her or its contractual obligation(s). The claimant(s) of the breach must identify the terms of contract that are not complied with. The terms may be express, implied or a mixture of both.

The express terms of a contract are ascertained by discovering what the parties actually said or wrote, but there are two main rules to consider in relation to the ‘express terms’:

1. The parol evidence rule in the case of Henderson v Arthur (1907).This rule was applicable in England but not Scotland.

2. Whether a pre-contractual statement is a contractual term or a representation.

The implied terms: a contract, containing express terms, may contain implied terms. An implied term is one which is not actually formulated by the parties, but which the law imports into the contract.

Furthermore, in any contract, in addition to the express terms, implied terms are assumed to exist, even if there is no agreement between parties either orally or in writing, the law assumes that the terms exist.

The implied terms are invisible and when they are assumed to exist they have equal force to the express terms of the contract and they are not inferior in any way and can be fully enforced.

There are three basic terms implied in contracts;

1. Some terms are implied in particular categories of contract (for example: a contract for sale of goods, a contract of hire purchase) by statute, in the act of Sale of good Act 1979.

2. Some terms are implied in contracts by virtue of rules evolved by the courts, in the case of The Moorcock (1989).

3. Some terms are implied on the basis of rules of customs, in the case of Hutton v Warren (1836).

Lord Diplock explained the effects of a breach of a contractual obligations in the case of Photo Production Ltd v Securicor Transport Ltd (1980) that :

‘Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contact-breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach1.’

The remedies for breach of contract can be any of the following:

• Damages• Quantum meruit• Specific performance/ specific Implementation• Injunction / Interdiction

Depend on the estimation of what damages are to be paid by the party during the breach of contract, the damages can be divided into two parts by (i). remoteness of damages and (ii). measure of damages.

1 David Kelly & Ann Holmes, Principles of Business Law, 1998, Page 147

35

December 2010

35

SLQS JOURNAL

36

December 2010

The modern rules relating to remoteness are based on tests originally formulated in the case of Hadley v Baxendale (1854), where it was said that damage is not too remote if either of the following is satisfied:

• If the loss arises naturally, that is, as the probable result of the breach of contract,

• If the loss could reasonably be supported to have been in the contemplation of the parties as the probable result of the breach of contract. What was within the parties’ reasonable contemplation, that is, what was foreseeable, depends upon the knowledge of the parties and the time that the contract was made.

In the event of a breach of contract, the injured party has a choice of remedies; provided that any action is brought within the Limitation period, explained in the Limitation Act 1980. Under this remedy, the claimant can seek monetary compensation for the loss suffered. When damages are claimed, the amount of such damages is calculated pursuant to the relevant breach of contract principles vide:

‘The rule of common law is that where a party sustains a loss by reason of a breach of a contract, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed.’ In the case of Robinson v Harman (1848).

In a leading case of Western Web Offset Printers Ltd(1996) v Independent Media Ltd , this was a plaintiff’s appeal against an award of damages for breach of contract. The issue was whether the proper measure of damages was the loss of the net gross profit. The court held, allowing the appeal and substituting the figure of £176,903.88 for the award of damages. In the circumstances the plaintiff was entitled to be compensated for loss of gross profit.

The test for mitigation is that the victim should have acted reasonably:‘…take any step which a reasonable and prudent man would ordinarily take in the course of his business...’

In the case of British Westinghouse Electric and Manufacturing v Underground Electric Railways Company of London(1912), it was stated that the claimant was under a duty to mitigate his/her losses. To reduce losses, the responding party has to take all necessary cost mitigation

measures. In the case of Hadley vs. Baxendale, it was stated that the damages for the loss of profit were too remote as a consequence of the breach and therefore not recoverable. Furthermore, the court stated that the recoverability of the damages depended upon the knowledge or the contemplation of the parties at the time of entry into the contract and in particular the knowledge of the party in breach.

In the case of Victoria laundry (Windsor) v Newman Industries Ltd (1949), the court of Appeal held that the plaintiff was entitled to recover the damages for their general loss of profit but not for the loss of profit from the lucrative contracts.

The basis on which the damages are claimed will depend upon the type of loss suffered which is usually linked to the nature of the breach of contract. Some common examples are as follows:

a. Market value compensationb. Defective performance valuec. Loss of profits. It has been held that the loss of profit

was recoverable in the case of Victoria Laundry ( Windsor) Ltd v Newman Industries Ltd(1949).

d. Remedial damagese. Restitutionary Loss and f. Non-Pecuniary loss

In the other hand, if the parties enter into a contractual agreement without determining the reward that is to be provided for performance, then in the event of any dispute, the court will award a reasonable sum. This assessment was called the basis of Quantum meruit. In the case of Craven-Ellis v Canons Ltd (1936).

1.0 Bibliography

• Legislation- Limitation Act 1980- Sale of goods Act 1979

• Case Law- British Westinghouse Electric and Manufacturing

v Underground Electric Railways Company of London [1912] AC 673

- Craven-Ellis v Canons Ltd [1936] 2 K.B.403- Dunlop Pneumatic Tyre Co.Ltd v New Garage &

Motor Co. Ltd [1915] AC 79(HL)

SLQS JOURNAL

37

December 2010

Leicester Board of Guardians v Trollope (1911)

The clerk of works altered the design of a floor and as a result dry rot broke out in the floors some four years after completion. It was alleged that the defect arose owing to the negligence of the architect in not seeing that the concrete was properly laid in accordance with the contract. The architect denied that it was his duty to supervise the laying of the concrete and that this was the duty of the clerk of works who had been appointed by the Guardians.

It was held that while it was the duty of the clerk of works to supervise the details of the work, the laying of a floor such as this could not be regarded as a detail and that, therefore, the architect was liable in negligence.

- Hadley v Boxendale [1854] 9 Ex.341- Henderson v Arthur [1907] 1 K.B.10- Hutton v Warren [1836]1 M &W 466- Ownes v Brummell [1977] QBD- Photo Production Ltd v Securicor Transport Ltd

[1980] AC 821 (HL)- Robinson v Harman [1848] 1 Ex. 850- The Moorcock [1889] L.R.14 P.D.64- Victoria Laundry (Windsor) Ltd v Newman

Industries Ltd [1949] 2KB 528- Western Web Offset Printers Ltd v Independent

Media Ltd [1996] C.L.C.77

• Internet Sources - http://sixthformlaw.info/02_cases/mod2/cases_stat_

interp.htm >accessed 7/01/10 - http://www.scotcourts.gov.uk/sheriff/index.asp

>accessed 25/01/10

• Other sources- Ewan McKendrick, Contract Law Text, Cases

and Materials (13th edn, Oxford University Press, 2008)

- Denis Keenan, Smith & Keenan’s Law for Business (13th edn, Bell & Bain Ltd, 2006)

- Gary Slapper & David Kelly, the English legal System (5th edn, Cavendish Publishing Ltd, 2001)

- David Kelly & Ann Holmes, Principles of Business Law, (2nd edn, Cavendish Publishing Ltd, 1998)

- Richard card, John Murdoch, Sandi Murdoch, Estate Management Law, (6th edn, Lexis Nexis, 2003)

- Smith & Keenan’s, English Law 14th edn, Pearson Education Ltd, 2004

SLQS JOURNAL

Ajantha Premarathna FRICS, FIQS-SL, ACIArb has been a member of the RICS since 1993, and a Fellow since 2000, a fellow member of IQS-SL, holds ACIArb and works as a Director of Commercial and Contracts, for Dubai Properties. He has over 25 years of experience in Quantity Surveying and Contract Administration in Sri Lanka, Oman and the UAE. He regularly acts as a Chairman during RICS APC interviews; Ajantha is also a member of the RICS World Re-gional Board for the MENEA region, and is a representative of Institute of Quantity Surveyors of Sri Lanka for UAE.

An Out Look of the APC – Assessment of Professional Competence By an APC Assessor

The aim of this article is to provide a briefly assessors, view and goodness to APC Candidates to be successful in their assessments. The APC is a process by which most of the professional bodies seek to be satisfied those candidates who wish to become members of the institute are competent to practice as professional in their relevance field.

To demonstrate this competence, candidate must firstly go through a period of structured training. The objective of which is to show that the knowledge of theory gained primarily from accredited academic course has been complemented with practical experience. It is not only this but candidates have to prove his achievements of the required professional competencies through a process called final assessment interview.

January 2011

38

The “Competence” is to have the ability to perform a task or a function. This ability can vary from being able to be an expert. A competence is also a statement of the capabilities required to perform a specific role and is based upon behaviours, knowledge, skills and attitudes. It is for this reason most of the Professional Institutions have their own assessment of competencies before they grant the professional membership with their respective institutions through an Assessment of Professional Competence, APC.

The competencies should generally have following three levels which are to be achieved by the candidates;

Level 1 Knowledge and understanding of the subject area.

Level 2 Application of knowledge /understanding (Use it practically on the ground).

Level 3 Reasoned advice and/or depth of technical knowledge.

The supervisors, counsellors and the APC assessors will make the judgment as to whether candidates have achieved the required above levels of competence.

The APC is a process by which most of the Professional bodies seeks to be satisfied that candidates who wish to become members of the institute are competent to practice as a professionally qualified quantity surveyor. To demonstrate this competence, candidates must firstly go through a period of structured training. The objective of which is to show that the knowledge of theory gained primarily from QS education of either BSc(QS)/NCT(QS) in Sri Lanka or similar courses has been complemented with practical experience. It is not only this but candidates have to prove their professional competencies through a process called final assessment interview. This route for membership, APC, Assessment of Professional Competence, is generally common to most of the professional quantity surveying institutions.

In brief most of the APC therefore comprises in two parts:

1. A period of structured training. During this period candidates keeps;

• “Records of Experience” gained in a daily diary form.

• “Log Book” is a summary of experience of the diary under various competencies.

SLQS JOURNAL

39

December 2010

• “Records of Progress” against the various competencies.

• “Professional Developments”, or CPD/LLL records for the minimum requirement stipulated by the respective institutions.

2. Final assessment interviews with a panel of three practitioners/assessors over a period of maximum one hour depend on the institution.

During this short period of one hour assessor will not be able to assess the whole range of competence of the candidate. Therefore, it is the duty of the supervisor/counsellor of the candidate to constantly test the competencies of the candidate. In the absence of constant monitoring of progress of the candidate during the structured training period by the supervisor /counsellor most of the candidates have not been able success in the whole APC process. If the counsellor is not confident on the progress of competencies and other areas of the structured training of the candidate shall be advised not to appear for the interviews until such time candidate is fit for the interview.

Competencies can generally be classified to two areas as follows;1. Mandotory competencies - relate to personal, inter-

personal, business and professional practice skills etc.

2. Core competencies – primary skill of the practice area of the candidate.

These classifications of the competencies may be varied from institute to institute. The standards or levels of competence that candidates are expected to satisfy may also vary from country to country and from institute to Institute.

The structured training is a key element in the APC process. The intention of this is to deliver and receive the training requirements over an agreed period and to the specified levels of competence.

The CPD, It is also important to have continuous professional development, CPD (or Life Long Learning, LLL) programmes as a part of the training period. Depending on the requirements of the institution the candidates have to maintain CPD log for a specific CPD hours fixed by the institution. CPD or LLL provide candidates with the opportunity of gaining Professional

Development, additional knowledge and skills that might not be available in their day to day training and working experience. It may be broadly defined as any activity which is aimed at maintaining or improving professional, technical and personal skills or knowledge. The studying of business management or law may consider as CPD to an extent. Candidates should give serious attention to have continuing professional development through out the structured training period. And it should not consider that at the end of APC it would be the end of CPD. It is a continuing process of the carrier of professionals. Professional development may involve a mix of formal training courses, distance learning programmes and structured reading. CPD or LLL should complement the candidate’s training and experience for:

• Technical skills development — linked to the core competencies.

• Skills development — linked to specific common competencies.

• Professional practice skills development — linked to those competencies associated with professional practice. The CPD/LLL will equally support to enhance the day to day knowledge of the practice in the industry.

It is important that professional development is planned and evaluated by candidates in discussion with their supervisor/counsellor. The candidate shall use CPD to improve his core competence areas or competences which have no much exposure at work place or competences which are lacking behind with candidate’s experience.

The Critical Analysis, a written report which gives a detailed breakdown and analysis of the critical issues of a project(s) with which the candidate has been personally involved during the training period. The objective is to allow candidates to demonstrate their problem solving skill and high standards of professional and technical knowledge. The conclusion of the report must contain a critique of the outcome and also careful consideration of the experience gained. It would give the overall picture of the candidate by analyzing in depth and in detailed of the report.

It is the general trend of the candidates to select two or more issues for the report. However, it could be one critical too. In many cases candidates are trying to select and analyze the contractual issues related to claims and disputes. In my opinion it is not always necessary to select

SLQS JOURNAL

40

December 2010

contractual issues for the report for critical analysis. As examples, it could be a simple issue related to variation, measurement, tendering, selection of tenderers, mode of payments, ambiguity in documents, pricing and correspondences etc. The issues like claims, settlements of disputes, arbitrations are interesting topics and writer-friendly to analyze critically. Other main objective of the report is not the number of issues described in the report by the candidates it is to demonstrate to what extent the candidate has been involved with the issues and how the candidates has handled the issues in his capacity. The logical and factual presentation of the issue(s) is the most important in the report. Using of many appendixes may confuse the reader of the report. Using of tables, graphs, graphics, photos etc. at the appropriate place of the report is more effective than adding several appendixes at the end of the report. This will enhance the readability of the report. The critical analysis report would be the basis for the start of the interview. It will basically start to understand; • Has the candidate identified the key issues?• Have the options been considered and have good

sound and logical reasons been given for those options rejected?

• Are the chosen solutions supported by reasoned judgment and has the candidate demonstrated sound problem solving skills?

• Does the critical analysis contain a conclusions together with an understanding of the lessons learned?

• Has the candidate demonstrated a high level of written communication skills in terms of spelling, grammar and presentation?

In this case, consideration would be given for those candidates their mother language different from English. However, candidates should not take for grant this opportunity. They should demonstrate the maximum proficiency of the language which they choose to sit for the APC.

• Has the candidate demonstrated satisfactory level of professional and technical skills contained in the report?

The Interview, the final assessment of the professional competence comprises with an interview. It will allow candidates to demonstrate their abilities against the various competencies that form the requirements of the

training period. This will assess by asking questions and setting oral problems. It allows candidates to demonstrate on their experience and their problem solving skill. During the interview it will explore whether the candidate is able to put theory into practice. The interviewer would not question outside of the candidate’s actual training and experience. However, the objective of the APC is to consider whether a candidate is competent to practice as a chartered surveyor of the respective institute. In the interview, it will consider the national and regional variations as they apply to the standards or benchmarks that have been expected by the Institute. In other words, it will consider at the interview how variations may relate to current issues and local practice.

The presentation skill of the candidate is a very vital part of the interview. The presentation can be made standing or sitting by using multimedia, notes, diagrams, flipcharts or any other means of presentation modes. The simple logic and tips for the presentation are;

• Prepare, plan and rehearse to maintain the time limitation. Over run of timing is a negative sign of the presentation.

• Structure the core of the report for presentation in simple language.

• Keep the link of all the sections of the report until end of the presentation.

• Maintain body language, level of the voice, eye contact, proper pronunciation, pauses at the correct place and correct time.

• Have a clear and simple conclusion.

Show your strong personality throughout the interview. This would have a very positive influence to the assessors as to judge future professional practice of the candidate on the ground.

In Conclusion, the skills gathered from whole process of the APC shall use for the self-marketing by the candidates demonstrating his or her “strong personality” at the interview with combination of “strong communication skills” coupled with knowledge of theory and professional competence with experience and practical background.

In brief it can be narrowed down to that the “Strong Personality and Communication skill” of the candidate is the success to the APC.

SLQS JOURNALSLQS JOURNAL

Shantha Wijayaratne MBA, MRICS, MCInst. CESAssistant Commercial ManagerOman Tourism Development Company

Innovation in the Construction Industry

Introduction to InnovationEvery innovation is a change but not every change is an innovation. It seems there is no clear definition of the concept of an innovation and in fact many different definitions are available. The following are some of the definitions occasionally given by experts: • “Innovation is the process through which firms

seek to acquire and build upon their distinctive technological competence, understood as the set of resources a firm processes and the way in which these are transformed by innovative capabilities” (Dodson and Bessant- 1996 )

• “Innovation means the application of new knowledge to industry and includes new products, new processes and social and organisational change” (Firth and Mellor - 1999)

• The process of innovation is a rhythm of search, selection, exploration and synthesis, cycles of divergent thinking followed by convergent thinking. (CEM study pack).

However, the general concept is that something new, a product or process, is created and put to use. Understanding the client’s needs is most important in the business world, since the value of innovation in those industries depend on the actions of clients and are largely initiated by clients. Innovation can be defined as a future-directed activity and a mentally constructed shadow of future competition scenarios.

Innovation in General: According to Weyrich, sustaining innovation in a business organisation requires an understanding of the company’s core competencies, an innovative corporate culture and a systematic approach. The process involves the innovation phase, the implementation phase and market penetration phase.

Successful business owners continually innovate with regard to internal systems and processes in order to create and sustain a source of competitive advantage. There are many industries which are not in a position to survive in the market without innovation. For instance, in computer technology, software developments improve more frequently with new innovations. The automobile industry, pharmaceuticals industry and electronic industry are more vulnerable. However, in many industries, there are some discoveries found by chance. The introduction of penicillin is a good example. In the construction industry, these discoveries are very rare. Most are based on hard work with proper management of knowledge and creativity Innovation in the construction industry In 1997, the British Property Federation’s survey of major UK construction clients showed that more than a third of clients were dissatisfied with the performance of professional construction service providers in co-ordinating teams, design and innovation, providing speedy and reliable service and providing value for money.

Often the construction industry sector is blamed for being over conservative and low in innovation. The long delivery time when compared to most of other industries seems to be the main reason for the industry being less innovative and creative. The clients need to see the final product on the target date or even before and most clients reluctant to pay extra money for any innovative activities. This hinders the possible innovative or creative thinking of the people involved. Many other industries allow time for their workers to indulge in innovation. For instant, 3M famously allows their development staff up to 15 percent of their working time to pursue “personal projects” that are not necessarily related to their work. The result is a stream of new products.

41

December 2010

41

SLQS JOURNAL

42

December 2010

In the current scientific world, innovation in most businesses depends on the knowledge management of the organisations. This encourages many writers to focus on verity of theories to identify and manage tacit (gain through experience) knowledge, explicit (quantified and systematic) knowledge, etc. From the literature, it seems that most US and European companies have adopted knowledge management strategies and are actively using them to further their businesses. Following are comparisons of some of the sub-topic areas on which many industries have been focusing, to improve innovation and identification of where the construction industry stands.

Factors inhibiting innovation: Focus on a firm’s habitual activities and core capabilities is both advantageous and disadvantageous to a company. The requirement of breaking free of the past which inhibits innovation has been identified. The power of the present and experience needs to be used for improvement, instead of inhibiting organisations from developing dynamic problem solving techniques. The automobile industry in Japan is a good example. They always encourage their workforce in innovation and provide environments to implement all creative ideas. The survival of the software industry also largely depends on continuous innovative processes.

Unfortunately, it seems the employers of the construction industry have not been encouraging enough of innovation. Even though innovative thinkers are engaged in the construction process, most project environments inhibit this, mainly due to time and cost constraints.

Implementation and integration of innovation:Integration of knowledge among many individuals including users and integrating users into the process of production is valuable in many industries. Some areas of the construction industry also practice this to some extent by involving the client’s teams in the conceptual design process. However, during the detailed design process and construction process, this integration seems to be poor. Inability to recognise the final product and the cost of changes also contribute to this. For instant many housing development projects are developed based on designers’ requirements or client’s initial concept. Intermediate involvements of the users are minimal in general.

Creativity and innovation: Mainly focused on the link between creativity and

innovation. Under this heading are identified the different levels of knowledge that organisations have which can be used for change-management and problem solving. It also focuses on the importance of identifying and codifying knowledge to help organisations become more creative and innovative. The knowledge management professionals in many industries now focus on this idea, with the software and automobile industries especially focused on these different levels of knowledge. They focus on innovations from all levels of those involved in the process and encourage them through reward systems, such as publishing their work in company magazines and the like.

In the construction industry these procedures are followed at the top range of the process. For instant the Architects, Engineers and similar others are rewarded for ‘Best Design’, etc. by professional bodies and government authorities. However, creativity at the other levels is mostly ignored. The foremen, site engineers and workers are not encouraged for innovation and creativity in many instances. Generally in construction projects the site crew is rarely authorised to use or propose different construction techniques or even slightly deviate from the design drawings. One reason for this is risking the responsibility of the design engineers with unauthorised changes. However, some companies, especially the ones from developed countries, identify the importance of these site-level innovations up to some extent.

Generally, the knowledge of the contractors and suppliers is not properly used at the design stage. They can support by providing ideas of easy constructability as well as on the usage of high quality and cost effective materials, construction techniques, etc.

Problem Solving: Innovation and creativity in solving problems are essential for continuing project success which generates ideas in many ways from people both inside and outside the assigned teams. The involvement of the work force for problem solving is a good technique to encourage innovation and creativity since this forces them to store and retrieve the details of previous experiences to use as a base for the new problem solving approaches. The automobile industry, especially in Japan, seems to have been using this method on their way to success. Industries like tourism, air ticketing and sales and marketing widely use spontaneous problem solving methods and outcome

SLQS JOURNAL

43

December 2010

feedback to the management through a bottom-up information system.

In construction, we mostly see a top-down information system, which does not encourage innovation and creativity. The workers involvement or use of their comments based on practical problems are rarely incorporated into the design management process. However, with the advent of globalisation, the current trend seems to encourage this bottom-up information system. For instance, some hotel and residential development projects encourage new ideas based on customer comments mainly due to competition in the market environment.

Experimentation and innovation: This is a widely used technique in many industries producing pharmaceutical and chemical products. The construction industry has not widely experimented on cost effective materials, different construction techniques and efficient usage of plant and labour. The flexibility of managers on constructive mistakes, support for experimentation and motivation of innovation can improve the employee’s lateral thinking.

However, the issue related to the construction industry is the time and cost constraint due to the nature of the industry. Many clients are unwilling to accept additional costs or late completion of their projects for the sake of the development of the industry. I feel that it is the responsibility of professional institutes to implement these activities through their professionals without large damage to the clients. Model housing is a good example of experimentation in the industry.

Prototyping: Is a very useful innovation of software products related to construction industry. It allows the facility to widen innovative thinking without any real construction and to get the feeling of how the real product appears. The method is very cheap and trials of different proposals incurs almost zero cost. However, many professionals in this part of the world (M.E.) are still not fully utilising this facility and are more comfortable with traditional methods in dealing with changes.

Systematic learning for innovation: Many industries in the current competitive world focus on the systematic learning of previous experience for future use. The current professional education system

also encourages this by introducing many methods of proper record keeping such as the use of construction related database softwares. However, there is generally less focus on these matters especially during post contract administrations. However, some construction companies use these methods as guidance for the tendering exercises.

Organisational learning through stepwise process of innovation: Organisational learning is vital for progressive development in this competitive world. Single loop learning (concentrate on symptoms of problem) encourages new knowledge to improve the quality and efficiency of existing operations. Double loop learning (seek out deep causes) encourages new practice in an organisation which involved more innovative thinking in many business industries. The construction industry has been adopting this to a much lesser extent than many other industries.

The dynamics between individual and organisational learning: They are mainly the interaction of individual learning to organisational learning process. The process involves the cycle of conversion of leaning between individual and organisation between tacit and explicit knowledge. In general, the process involves the four stages of socialisation (share individual’s tacit knowledge), externalisation (tacit knowledge articulated into explicit knowledge), combination (create new abstract knowledge system called invention) and internalisation (convert explicit knowledge back to tacit knowledge).

However, this method cannot be adopted exactly as it is due to very nature of construction. During the construction itself, many different groups enter the process from time to time. For instance, specialist teams like project management, structural, construction management finishing and MEP engage during different stages of the construction phase.

Intelligence and innovation:This is developing and relating organisational intelligence to innovation. In the current industry, there are instances where organisational intelligence is not encouraging innovation since most employees are engaged on a temporary or project basis. Many companies do not expose their know-how to other parties. For instance,

SLQS JOURNAL

44

December 2010

many construction companies share internal cost details with selected employees in different stages. This inhibits industry innovation. Activities due to climate change and global warming have large impacts on the construction industry. The recent tsunamis and cyclones are prior warning to the industry.

Memory-based knowledge management: The idea is to facilitate the required flow of information. In order to face the competitive world, companies need to focus on experiments in line with their commercial needs. In the construction industry, cohesiveness among teams is vital and at the same time the responsibility of sharing information is more important. These innovative patterns are adopted by some companies by arranging gatherings, aiming for socialisation with other project team members. It also emphasizes sharing positive experiences as well as negative. In some parts of the world, however, this is impractical due to cultural barriers and the nature of the industry. In the Middle East, these social events are minimal among construction teams. Some reasons are the huge numbers of people involved in the process and the swift nature of developments, as well as the involvement of different nationalities.

Continuous innovation: As the name suggests this is the process of continued focus on innovation. The world’s leading companies have been adopting this pattern. The construction industry has enough chances for continuous innovation with the technical development. In the Middle East, Dubai was recently at the peak of its construction industry, which encouraged innovation in order to meet targets. In other areas of this region we notice some relatively less innovative products.

Knowledge brokers and continuous innovation: There are professional undertakers who facilitate innovation and provide advice to increase innovation and creativity in any industry. In the construction industry providing solutions to existing problems is vital. In the construction industry, this process seems to still be in premature stages even though some professional institutions constantly monitor and provide solutions. Collection of information at all levels seems to not yet be identified properly. It seems that until recently, even most key players in the construction industry had not taken effective steps to continue innovation and development of the industry.

ConclusionOften the construction industry is criticised as being overly conservative and low on innovation. One reason identified by researchers is non-financing for research and development due to cost-control measures. In today’s construction environment of globalisation of markets, intensification of competition and growing complexity of relationships with clients, suppliers, contractors and employees, organisations find that they need to innovate to survive and succeed

The discussion demonstrated why the construction industry seems less innovative than other industries. It is generally recognised that construction industry is slow in adoption of technical innovations compared to many other industries. By definition most construction projects are innovations initiated by the demands of different clients which have specific requirements. The main problem with the industry is non-integration of innovative ideas acquired in one project to the next project and the knowledge acquired is not properly managed for the benefit of the industry.

However, most leading firms in the field have identified the requirement of innovation and diversifying from the traditional practices. Knowledge management has come to the fore as a leading device for the process. The traditional role of information managers has converted with the information and communication technologies available by integrating with the design and construction process.

There are some industries like pharmaceuticals in which innovation is forced by the society’s needs. Similarly, computer and information technology-related industries need innovation for survival. Therefore it is clear that the construction industry has been labelled as less innovative than many other industries and now it is moving ahead with many new innovations with identification of potential and proper concerns on knowledge management. The recent encouragement to build a knowledge-sharing culture in construction project teams will be of benefit in changing the construction industry into being more innovative than some other industries.

The existing infrastructure and building stocks may not be equipped to cope with the predicted implications of the changes in the global climate. Therefore, no matter how lacking in innovation the industry was, the time

SLQS JOURNAL

45

December 2010

has now come to rethink and apply effective measures to promote innovation and creativity in the Construction industry.

References:• KnowledgeManagementinConstructionbyChimary

J.Anumba,CharlesEgbu&PatriciaCarrillo• TheManagementofInnovationandTechnology:John

Howells-2005• The Handbook of Industrial Innovation: Mark

DodgsonandRoyRothwell-1994• Project Management 3rd edition: Hurvey Maylor

2003• Managing Organisational Change, Roy McLennan,

1989

• A strategic Approach to Organisational Dynamics, ,BernardBurnes2000

• Theory and Practice of Change Management, JohnHayes2007

• Project Management: Planning and ControlTechniques,RoryBurke2005

• Websearch-“understandinginnovationinconstruction”in1999byRICSresearchfoundation

• Websearch-“innovationintheconstructionprocess”byKristianWidenon06.11.2003

• Websearch-“InnovationProcessintheConstructionIndustry” published by Centre for Innovative andCollaborativeEngineering

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 defendant’s 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.”

SLQS JOURNALDecember 2010

46

Prof. Indrawansa Samaratunga

Head Office Overheads Revisited

“Head Office Overheads” is not an expression that is found in FIDIC Forms of contract, resulting in frequent debate as to why a prolongation cost claim (especially under FIDIC Forms of contracts) should include a Head Office Overheads element. Typical expressions such as “off the Site overhead charges” (FIDIC–4th 1.1(g)(i), FIDIC–1999 1.1.4.3) and “Contractor’s general overhead costs” (FIDIC–4th 52.3) found in FIDIC Forms of contract are generally construed to mean Head Office Overheads. Whilst in some parts of the world they are referred to as “Home Office Overheads”, an accountant would use the expression “General and Administrative (“G & A”) expenses of the company” in referring to the Head Office Overheads.

In the books of accounts of a Contractor’s Head Office, the Overheads (G&A expenses) are generally recorded under the following heads (which vary from company to company):-

Though the total of all these expenses (taken as a percentage of the company revenue) is usually considered as a suitable basis for the pricing of tenders and building-up new rates / prices, some of these expenses are inappropriate for inclusion in the prolongation cost calculations of a

delay claim. There is no reason, for example, why the Employer of the delayed project should bear a part of a bad debt related to another project of the Contractor. Similarly, the Employer of the delayed project has no liability to bear any part of a claims consultant’s fees paid for the preparation of a claim for another project of the Contractor. Therefore, during an audit of the books of accounts of the Contractor’s Head Office by the Engineer or the Employer’s other Contract Administrators (or by the Contractor’s Contract Administrators in auditing a Subcontractor’s books of accounts) in order to verify whether the Contractor (or the Subcontractor) has calculated the Head Office Overheads element of a prolongation cost claim in a fair and reasonable manner, the following should be given due consideration:

(a) Capital expenditure (building extensions, new furniture etc) should be appropriately depreciated.

(b) One-off annual/quarterly expenditure (advertising costs, audit fees etc.) should be distributed over the year/quarter and the cost of bulk printing etc.

- Executive and administrative salaries, allowances & recruitment costs etc.- Head Office rent and maintenance. - Insurance.- Utilities, phone/data/fax, postal and bank charges. - Travel.- Depreciation of company assets. - Bad debts.- Furniture and equipment. - Entertainment.- Stationary and printing. - Pantry expenses.- Professional fees. - Contributions.- Auditing expenses. - Sponsorship fees.- Advertising and marketing (including tendering costs). - Idle resources.- Interest on company borrowings. - Training.

SLQS JOURNAL

47

December 2010

should be distributed over the relevant period.(c) Insurance costs and financing costs of projects should

not be included in the Head Office Overheads account. (They should be in the project accounts).

(d) Claims consultancy fees should not be included in the Professional Fees head.

(e) Any bad debts written-off under the Head Office Overheads should be completely removed from the calculations.

(f ) Cost of idle resources should be in the project accounts and not in the Head Office Overheads account. (It is permissible to allow the cost of some idle resources such as the asphalt plant of a road works contractor to be in the Head Office Overheads account).

(g) Cost of an employee (such as a Commercial Manager) whose time is totally dedicated to a project/projects, should not be in the Head Office Overhead account, despite being stationed at the Head Office.

(h) Sponsorship fee/parent company fee paid as an annual/monthly sum of money or as a percentage of the revenue could be a Head Office Overhead, but not if it is a portion/percentage of the profit.

Once the Head Office Overheads account is rationalized in the above manner (let’s call it the “Rationalized” account), it would be suitable for prolongation cost calculations.

Where a project completion had been delayed, it is not difficult for a Contractor to demonstrate (using daily records, photographs, correspondence etc.) that the cost of his Site Overheads increased due to the necessity of:-- supervision staff to stay longer on Site- site huts to be maintained for a longer period- tower crane to be retained on Site longer than

previously planned- performance security, insurance etc. to be extended- etc.

The prolongation of these Site Overheads are manifest and therefore this part of the claim generally receives few challenges, but when it comes to the matter of Head Office Overheads, the impact thereof on the site/project costs is not so obvious and therefore Engineers and Employers often have the following questions, as to:-

- why should there be an increase in the Head Office Overheads when the project completion is delayed?

- why should any Head Office Overheads be an additional cost under the contract?

- why should a formula be used (whereas the Contractor should demonstrate all costs using records)?

Moreover (unlike for Site Overheads), there are no site records that can be produced (other than the Head Office books of accounts) to support this part of the claim.

The answers are found in the explanation of how the Contractor sustains his Head Office. Since the Head Office does not have an individual income/revenue, the cost of sustaining the Head Office has to be borne by all the projects of the Contractor, by contributing a proportional sum every month from their project revenue, in order to meet the Head Office Overheads. Therefore such contribution is a cost incurred in the execution of the Works (not different to paying authority fees, taxes, subcontract/supplier payments, and any other project expense).

The resources deployed in the project were expected to generate revenue and pay to the Contractor’s Head Office a sum of money (to fund the Head Office Overheads) for the duration of the Time for Completion, following which the same resources were expected to be deployed in other projects to generate revenue in order to contribute further money to fund the continuing Head Office Overheads beyond the aforesaid Time for Completion, which was prevented by the Employer by delaying the project completion, requiring the said resources to be retained on Site for a prolonged period of time, resulting in the need to contribute more money from the delayed project to sustain the Head Office, which is an unforeseen additional cost, which is the answer to the second question.

The answer to the first question is that, it is not an increase in the Head Office Overheads but an increase in the contribution required from the delayed project to fund the continuing Head Office Overheads (though such Overheads may not have increased) for the prolonged period, because the resources were not released to generate such contribution from other projects.

Since there are adequate provisions in FIDIC Forms of contract entitling the Contractor to additional payment in respect of costs incurred as a result of a delay caused

SLQS JOURNAL

48

December 2010

by the Employer or by those for whom the Employer is responsible or by an event for which the Employer assumed the monetary risk, and since Head Office Overheads contribution is part of such cost, the Contractor would be in a position to successfully argue his Head Office Overheads claim, provided that it is quantified in an appropriate manner.

Where both parties are agreeable to use an existing formula such as Hudson, Emden, Eichleay or Hank Laan (see the Schedule at the end of this article), quantifying the Head Office Overheads claim would be quite simple, but where there is disagreement, such formulae cannot be used with FIDIC Forms of contract and most bespoke forms of contract (or with claims for damages for breach of contract) due to the necessity to deal with the actual (but fair and reasonable) costs incurred or to be incurred, in addition to other limitations/weaknesses found in such formulae.

It is ideal (but may not be convenient) to have a transparent method to apportion the Rationalized Head Office Overheads of a Contractor to all his projects and to recover monthly from each project, its due contribution, neither based on the revenue (as is being practised by some contractors) nor based on the overall expenditure (as practiced by the others), but based on the limited cost of staff, workers and equipment deployed on the projects (or in other words, based on the cost of those resources that a Contractor moves from one project to another and from which he generates revenue). If this is practised by Contractors, there would be no need of formulae to establish the quantum of Head Office Overheads element of the claim. The Contractor can simply produce proof of the contribution made by the delayed project towards the Head Office Overheads, during the delay period. But the general practice among Contractors (mainly due to administrative convenience) is to use either the revenue or the overall expenditure as the basis for the apportionment, thus necessitating the use of a formula to later assess (for the purpose of a claim) what a fair and reasonable Head Office Overheads contribution should have been, because the actual contribution made was disproportionate (and therefore not fair and reasonable). Moreover, a Contractor is at liberty to collect from any of his projects whatever level of contribution that he prefers, in order to fund the Head Office Overheads (which is the contribution that would be recorded in the project accounts), but an Employer is required to reimburse only what the project

should have contributed fairly and reasonably, and not what was actually contributed. Such fair and reasonable contribution could either be lower or higher than such actual (but unfair and unreasonable) contribution, and can only be assessed by using a formula, which is the answer to the third and final question, and therefore the use of an appropriate formula in the assessment of the Head Office Overheads element of a claim should neither be questioned nor rejected.

Where a necessity arises for the use of a formula, which is free of those shortcomings referred to in the Schedule given at the end of this article, the following formula developed by the author is available, which is currently being used successfully by Contractors and Consultants in the construction industry:-

where:

H = Actual total overhead costs (G&A expenses) of the Contractor’s Head Office during the period of EOT of the delayed project (Rationalized).

CP = “Contract Price of the delayed project divided by its original Time for Completion, and multiplied by the period of EOT”

SCP = Sum total of “Contract Price of each concurrent project divided by its original Time for Completion, and multiplied by the whole or part period of EOT (of the delayed project) through which it was in progress”, taking into consideration all projects in progress at the time, including the delayed project.

The application of the formula to a project and its claim, would demonstrate that the Contractor is not attempting to recover (from the Employer of the delayed project), all or most of its Head Office Overheads incurred during the relevant period, but only a fair and reasonable portion of it, which is the transparency that an Employer would expect. (Such transparency does not exist when using Hudson or Emden Formulae). It would also be transparent to the Contractor that he is not under-recovering on the reimbursement of the contribution, fairly due from the delayed project. Since the pace of the

H XCP

SCP=

Additional Payment due

SLQS JOURNAL

49

December 2010

project (fast track, slow paced etc.) has been factorized through the CP component, a fast-track project (where it is very likely that the Contractor’s highest paid Project Director and most of the brand new equipment are deployed) would need to contribute proportionally higher than a slow-paced project, which is a fair distribution of Head Office Overheads that cannot be criticized. Also a weighting has been introduced (to multiply by the full or part period of EOT through which a concurrent project was in progress) in order to avoid unfair apportionment to a project which was not concurrent through the full period of EOT. (Such factorization and/or weighting to ensure a fair apportionment cannot be found in Hudson, Emden, Eichleay or Hank Laan Formulae). Since actual costs are taken into consideration, this Formula can be used in claims under FIDIC Forms of contract and since a transparent method of fair apportionment is used, this Formula would be acceptable to both Contractors and Employers. For the same reasons, this formula should still be acceptable as a means of assessment of Head Office Overheads element of a prolongation cost claim at arbitrations and litigations even where the Form of contract is not FIDIC, and also where a claim is for damages for breach of contract.

One would wonder why the Author’s Formula takes into consideration the period of Extension of Time (EOT) rather than the period through which the delaying event continued. (It is not all the monetary aspects of the delay claim that should be calculated for the period of actual delay! Cost of prolongation of the Site Overheads for instance, should be calculated for the period of actual delay whereas financing charges in respect of reduced revenue should be for the period when the Contractor actually suffers from such reduction (i.e. probably after 2 months of the occurrence of the actual delay, given 28 days for certification and 28 days for payment. Likewise, financing charges for the late release of first moiety of Retention Money should be for the period from original date for completion to the end of the EOT, whereas in respect of the second moiety it should be a year later. Thus each kind of prolongation cost is incurred during a different period of the project time line). Head Office Overheads element should be calculated for the period when the Contractor was unable to generate revenue from other projects using his resources which were unforeseeably retained in the delayed project, which is the same period for which EOT was determined.

A refined version of the formula could be developed by using an S-Curve distribution instead of the linear distribution adopted for the CP factor but the necessity to use calculus and probable non-availability and/or unacceptability of the information required by such a version may pose administrative difficulties/impossibilities in its application for most projects. For this reason, parties to contracts consider the linear distribution to be adequate in order to arrive at a fair assessment of the Contractor’s Head Office Overheads contribution that should be reimbursed as part of a prolongation cost claim.

Schedule

HUDSON FORMULA:-

where :

HO/P = the percentage of head office overhead cost and profit allowed in the Tender

Author’s Comments:-

(a) This formula does not comply with the actual cost requirement of FIDIC Forms of contract (or of claims for damages for breach of contract) due to the following reasons:-

- The actual Head Office Overheads percentage could either be more or less (at the time of delay/EOT) than that included in the Tender.

- The average-per-week interim assessment is a departure from the actual.

(b) There is no transparency as to:-- whether the Contractor is attempting to recover

all or most of the Head Office Overheads from the Employer of the delayed project.

- whether the other concurrent projects of the Contractor are also sharing the Head Office Overheads in a fair and reasonable manner.

- whether the Contractor is over-recovering/under-recovering on the Head Office Overheads contribution of the delayed project.

XHO/P Period

of Delay (weeks)100

Contract Sum

Contract Period (Weeks)

X

SLQS JOURNAL

50

December 2010

EMDEN FORMULA:-

where : h = head office percentage arrived at by dividing

the total overhead cost and profit of the Contractor’s organization as a whole, by the total turnover.

c = contract sum cp = contract period in weeks pd = period of delay in weeks

Author’s Comments:-(a) This formula does not comply with the actual cost

requirement of FIDIC Forms of contract (or of claims for damages for breach of contract) due to the average-per-week interim assessment.

(b) There is no transparency as to:-- whether the other concurrent projects of the

Contractor are also sharing the Head Office Overheads in a fair and reasonable manner.

- whether the Contractor is over-recovering/under-recovering on the Head Office Overheads contribution of the delayed project.

EICHLEAY FORMULA:-

Step 1.

Step 2.

Step 3.

Author’s Comments:-(a) This formula does not comply with the actual cost

requirement of FIDIC Forms of contract (or of claims for damages for breach of contract) due to the average-per-day interim assessment.

(b) Where the value of billings of other projects of the Contractor is low, the delayed project would attract most of the Head Office Overheads, which would not be acceptable to an Employer.

HANK LAAN FORMULA:-

Author’s Comments:-(a) The actual cost requirement of FIDIC Forms

of contract (or of claims for damages for breach of contract) are satisfied to some extent by this Formula but the method of apportionment used in this formula would not be acceptable to an Employer for the reason stated in comment (b) under Eichleay Formula above.

(b) Author’s Formula is a development off this formula in search of a fair apportionment acceptable to both the Contractor and the Employer.

(Editoral Comment – Samaratunga Formula was first published in 2001, in his Doctoral Thesis “Contract Administration in the Middle East under FIDIC-4th ”, and later became a popular topic in his Sound Contract Administration training trilogy)

XH

PD100

C

CPX

XContract Billings Allocable

OverheadTotal ContractBillings

for Contract Period

Total Head Office Overheads for Contract Period

=

=Allocable Overhead

Days Of Performance

Daily Contract Head Office Overhead

XDaily Contract

Head Office Overhead

=Days of Compensable Delay

Additional Payment due

XContract Billings Additional

Payment dueTotal Company Billings

Total Head Office Overheads

(during the period of delay)

=

Volume 6 - December 2010