MEPM512 Contract Documents and Risky Contractual Conditions, American University Of Ras Al Khaimah, UAE

Engineering Contracts and Procurement

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Condition 15: If readily available on SITE, TRANSCO may provide, free of charge, electricity and water at source for the execution of the WORKS. The point of source shall be at TRANSCO discretion and the supply shall be subject to any requirements of TRANSCO due to an emergency. Where this occurs, CONTRACTOR shall supply electricity and water at his cost.

Solution: The condition states that the client TRANSCO shall offer electricity and water at no cost towards execution of works if they are readily available. This is completely up to the choice of TRANSCO. If it is not available, contractor takes the responsibility to supply them at own costs.

Analysis: There are again a number of risks to the contractor.

Firstly, there is no clear understanding on when it will be available. The definition of the site is not mentioned. Hence, this lack of clarity only reminds of the additional costs that the contractor will have to bear unnecessarily.

Secondly, there is no idea if the costs borne by the contractor will be compensated later or added to the project costs. Bearing charges for water consumption can look fine but electricity charges can be too high. In the field of construction, most of the internal site works happen with the help of electricity. If it is used at the contractor's cost, then the profit level is too low and the project is of no use to the contractor.

Thirdly, the condition says that the choice of offering water and electricity at free of cost are based on the discretion of TRANSCO. The discretionary terms are not mentioned. While it says based on availability and the need at the hour the supply shall be ensured, there is still limited understanding on hidden discretionary terms.

Finally, the contractor's acceptance to this condition can unnecessarily increase overheads. Usage of drinking water and for construction purpose is at different levels. Focusing too much in the management of essential materials can seem to be stressful and impose financial as well as operational overheads. What if water is not available? What if TRANSCO has informed at the eleventh hour about the lack of availability? All these can only delay the completion of the project and affect the operational efficiency and productivity of the people.

Qualitative or quantitative: This is a quantitative risk as it influences the costs of the project.

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Condition 30: CONTRACTOR shall be deemed to have allowed for all effects on the execution and progress of works occasioned by climate and prevalent conditions and with specific reference to periods of high humidity and the incidence of wind/air borne dust occurring due to local climatic conditions.

Solution: The condition states that the contractor takes responsibility for any effects caused by the external wind and other climatic conditions. Further, the contractor is liable to execute the project irrespective of the conditions.

Analysis: There are 3 problems posed to the contractor in this case:

• When the magnitude of the climate condition is high (high winds, for example), then it can be a problem for the contractor as the damages are also high. In this case, the contractor has to spend again to rebuild the lost part and this can result in increased duration and additional labour to complete the work.

• Since this condition has already been agreed by both the parties, any delays in the work will be penalized on the contractor. This also implies that the delays due to climatic conditions do not fall within the scope and penalties apply.

• The contractor has agreed for all the impacts of climate on the progress of works. This also means that the contractor will replace any faulty items and pay for the same without charging the client. This poses a serious financial threat to the contractor.

Whenever two parties enter into a contract, it is important to mutually agree to the natural conditions that impact the building and the damages are handled together without forcefully imposing on one of them. This clause has a number of problems. In cases of high humidity and wind/air borne dust, the properties inside the building get eroded. It is quite natural. The unexpected delay and additional costs are burdens for the contractor and not the client and this should never be accepted in the first case.

Qualitative or quantitative: This is also quantitative as every change in the climate can influence the material and build up the cost of construction. It incurs additional human resource costs to complete the work given by the client.

Lessons learnt: • Always keep the terms clear and mention the specifications in detail

• Let every term be mutually beneficial

• Refer to the local contract laws before you sign the one between the contractor and the client.

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