Blog.
The dilemma of the elusive timely completion.
In the report titled “Constructing the Team” published in 1994, Sir Michael Anthony Latham (1942 – 2017) asserted that the UK construction industry is:
“…adversarial, ineffective, fragmented, incapable of delivering for its clients and lacking respect for its employees”.
We maintain that the above conclusion is also valid for construction in the MENA region. Indeed, due to the continuing financial and market pressures, Employers are demanding shorter construction durations, smaller budgets and – of course – higher quality.
Rarely, if ever, is a construction project finished on time. The landscape is inundated with literature on the causes of delays attributable to all the project stakeholders with little consideration for the two root causes.
Initially, Employers usually have some idea of their desired timescale. A reality check of these perceptions is carried out by the Engineer and a project duration is inserted into the tender documents.
Predictive models that use a least square linear regression to calculate a combined relationship between construction duration, construction cost, procurement strategy, contractor selection, client type, building function, and project location have been used without much success. A reliable model would require a database of several thousand projects.
In estimating the construction duration during tender, the Contractor makes assumptions regarding crew sizes, construction methods, equipment types and numbers, productivity, estimating guides, subcontractors, specialty contractors, suppliers, delivery times for major equipment, and historical data from past experience.
If the duration inserted in the tender documents is determined to be unachievable by the Contractor, then a provision for liquidated damages – incorporated by the Employer to coerce timely completion – is embedded into the tender price. Unless such provision is provided for by all tenderers then those who do include such a provision will be seriously disadvantaged, usually to the tune of 10%.
In instances, Employers may be inclined to instruct unreasonable project durations in the hope of recovering liquidated damages. The customary premature recovery of liquidated damages by Employers is testimony to this fact, the fact that such conduct is prejudicial to the interest of the Employer notwithstanding.
Daily liquidated damages (in J.F. Finnegan Ltd. v. Community Housing Association calculated at (85% x Estimated Total Project Cost x Lending Rate)/365 days) are intended to incentivize contractors to complete on time, provided there are no Employer-caused delays. If an extension of time is not granted due to Employer-caused delays then the Contractor has the option to accelerate and seek recovery in arbitration. Employers’ unrealistic construction duration is – it is submitted – the first root cause of construction delays.
Under FIDIC’s Client/Consultant Model Services Agreement, Consultants i.e. Engineers, are required to provide services to Clients i.e. Employers, using the requisite skill and care. Professional Indemnity insurance specifically excludes coverage for liquidated damages during supervision. Therefore, Engineers have no incentive to complete a project on time. On the contrary, Engineers are frequently compensated during the delay period, irrespective of whether the delay is caused by the Employer or Contractor. The lack of incentives for an Engineer to complete the project on time is the second root cause of construction delays.
Provided that a delay is not caused by the Employer and provided that the Engineer had participated in the selection process of the Contractor, the Engineer should also be held liable for liquidated damages for all delays not caused by the Employer. Contractors would probably find this an intoxicating dream.
A tripartite contract for construction and supervision i.e. Employer, Contractor and Engineer should be considered after careful consideration with all parties subject to liquidated damages and bonus for early completion. We recognize that this is a radical proposition but is nevertheless worthy of consideration.