Challenges in Construction Sector:
Construction Industry at present is facing severe crisis with regard to risky contracts. Risks are many. Knowingly there are known risks in the contract works they are bidding, contractors - with entrepreneur’s zeal - bidding even for such known imbalanced bids!
Imbalanced Bids:
Employers, to gain more control on the contract works - opting for - imbalanced bids. What is an imbalance bid? The lack of balance between the duties and responsibilities – results in – imbalance between the two parties. In general employer wants a safe ground for himself. To be in a safe side, the employer is opting for the following measures:
1. Increase the responsibilities of the Contractor
2. Reduce the rights of the Contractor
3. Hide Information about the site conditions
4. Enhance the Penal Conditions
5. Increase the Cap for Variations
6. Put cap on Price Adjustment
7. Dismiss the Arbitration for Dispute Resolution
8. Remove the Indemnity Clauses
9. Put the onus on the Contractor for Site Survey and Submission of Drawings without any pay.
10. Tighten the Extension of Time Clauses
JICA has released a Book with 48 such situations where Employer indulges in alteration of standard clauses. What is the effect of such unbalancing controls? How they will benefit the Projects. The experience in many countries is - such imbalance bids naturally leads to frustration of contracts and generate more claim and compensation events.
Phobia of the Employer:
FIDIC is insisting on follow the standard practices without any alteration. ADB, World Bank and JICA like international organizations also are suggesting Balance Bids only. However, the not so ethical practice of imbalance bidding is continuing especially in developing countries. It has become a phobia of the Employer. They argue in favor of it. Their assumption is - by nature contractor is a dangerous entity. Hence they are taking a precaution. To rein on the contracting firms - there are many facilities in the standard bids itself, if employers follow the best practices of contract management. The actual problem is the system at the disposal of the employer. It is the phenomenon of the statutory bodies, wherein many ills are inherent in the system. The required empowerment is not there. Hence, it has become a tendency to search for skin saving measures.
The Remedy:
What is the remedy to check the same. Contractors have to follow certain project management traits like - risk management and claims management. Many contractors are not following the good management practices. Even big companies also are attempting to mitigate risks in the wee hours of the contract and trying for claims at the end of the contract. This is not correct. Many risks will be there in the contract design itself. One has to put great attention since the initiation of the project itself to avoid risks or to mitigate their intensity. Likewise claims will not be realized just by claiming the same.
Intense Care necessary:
Many Claim events will be there within the contract profile in the form of seeds. Claims are rightful payments granted by the contract with a rider – if proved diligently. Claims are – unresolved payments. To resolve the same and to realize the claims - one has to nourish them with good evidence, proper documentation and timely notices. Or else you may lose the claims - for your negligence, lack of knowledge in contractual management.
At Professionels we are mastering the Risk and Claims Management. Our suggestion to Contracting Firms is to take up these two critical aspects since the initiation of the project itself. These two management practices - naturally control the entire project work and yield better results too in workmanship and project yield!
For any further details and discussions please contact at: [email protected] Mobile: +91 8885197533
Further Reading:
Construction Claims Management by Professionels
Tags: Construction Claims, Construction Risks, Claims and Risk Management, Claim Realization, imbalance bids, contractual management
Construction Industry at present is facing severe crisis with regard to risky contracts. Risks are many. Knowingly there are known risks in the contract works they are bidding, contractors - with entrepreneur’s zeal - bidding even for such known imbalanced bids!
Imbalanced Bids:
Employers, to gain more control on the contract works - opting for - imbalanced bids. What is an imbalance bid? The lack of balance between the duties and responsibilities – results in – imbalance between the two parties. In general employer wants a safe ground for himself. To be in a safe side, the employer is opting for the following measures:
1. Increase the responsibilities of the Contractor
2. Reduce the rights of the Contractor
3. Hide Information about the site conditions
4. Enhance the Penal Conditions
5. Increase the Cap for Variations
6. Put cap on Price Adjustment
7. Dismiss the Arbitration for Dispute Resolution
8. Remove the Indemnity Clauses
9. Put the onus on the Contractor for Site Survey and Submission of Drawings without any pay.
10. Tighten the Extension of Time Clauses
JICA has released a Book with 48 such situations where Employer indulges in alteration of standard clauses. What is the effect of such unbalancing controls? How they will benefit the Projects. The experience in many countries is - such imbalance bids naturally leads to frustration of contracts and generate more claim and compensation events.
Phobia of the Employer:
FIDIC is insisting on follow the standard practices without any alteration. ADB, World Bank and JICA like international organizations also are suggesting Balance Bids only. However, the not so ethical practice of imbalance bidding is continuing especially in developing countries. It has become a phobia of the Employer. They argue in favor of it. Their assumption is - by nature contractor is a dangerous entity. Hence they are taking a precaution. To rein on the contracting firms - there are many facilities in the standard bids itself, if employers follow the best practices of contract management. The actual problem is the system at the disposal of the employer. It is the phenomenon of the statutory bodies, wherein many ills are inherent in the system. The required empowerment is not there. Hence, it has become a tendency to search for skin saving measures.
The Remedy:
What is the remedy to check the same. Contractors have to follow certain project management traits like - risk management and claims management. Many contractors are not following the good management practices. Even big companies also are attempting to mitigate risks in the wee hours of the contract and trying for claims at the end of the contract. This is not correct. Many risks will be there in the contract design itself. One has to put great attention since the initiation of the project itself to avoid risks or to mitigate their intensity. Likewise claims will not be realized just by claiming the same.
Intense Care necessary:
Many Claim events will be there within the contract profile in the form of seeds. Claims are rightful payments granted by the contract with a rider – if proved diligently. Claims are – unresolved payments. To resolve the same and to realize the claims - one has to nourish them with good evidence, proper documentation and timely notices. Or else you may lose the claims - for your negligence, lack of knowledge in contractual management.
At Professionels we are mastering the Risk and Claims Management. Our suggestion to Contracting Firms is to take up these two critical aspects since the initiation of the project itself. These two management practices - naturally control the entire project work and yield better results too in workmanship and project yield!
For any further details and discussions please contact at: [email protected] Mobile: +91 8885197533
Further Reading:
Construction Claims Management by Professionels
Tags: Construction Claims, Construction Risks, Claims and Risk Management, Claim Realization, imbalance bids, contractual management