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International Construction Contract Law by Lukas Klee pdf


International Construction Contract Law by Lukas Klee.

Foreword: we often hear the word ‘project’ when work needs to be done. ‘I have a project at home’ is a regular phrase in daily conversation. In general, we see more and more of our life as a series of projects. Going on holiday is a project; preparing a dinner with friends can be a project and training for a marathon can be a project. This mindset is likely to be something we have adopted from the construction industry. One of the first things you notice when starting work in the construction industry is that the unknown has a major impact on any project. 

You can even divide the unknown into the ‘known unknown’ and the ‘unknown unknown’. The way to handle the unknowns is to use tools developed in the risk management field. These tools have been developed over many years and, when used correctly and continuously, can lead to more successful projects. We do not know all the risk aspects when starting a project. For example, can we know and predict all the risks and problems associated with an industrial process for mass manufacturing? Designing a new car is a project. Once the design is agreed upon and all the details for manufacture are in place, the task is complete. The next step is industrial production with certainty of performance and quality of the car known – at least in principle. 

Projects in the building and construction industry are unique and often only have a limited aspect of industrial process. For example, construction might use some well-defined processes such as the laying of sleepers and rail on a railway using a track-laying machine. However, uncertainty of the sub-soil conditions and other specific local conditions for the completed works will always sow the seed for risks and surprises. During execution of the works, the weather, the market situation, labour availability and so on influence the progress and certainty of achieving the agreed quality, budgeted price and finishing date. 

An essential element of any project is the need for good agreements between the parties to a project. Since the 1950s, FIDIC has produced standard contracts for the construction industry.The principles of these contracts focus on fair risk sharing and the most effective mechanisms for administering the project. FIDIC contracts for construction and design-build make the Engineer the responsible party for administering the contract and managing the project. Thus, FIDIC contracts are two-party agreements for a three-party process. The role of the Engineer is an issue that is often discussed. As an example, how can the Engineer avoid actual or apparent bias towards/against the contractor when being paid by the employer? The Engineer is an agent of the employer but their job is also to act fairly when making determinations under the contract. Contract conditions do state this obligation and it is paramount for the correct administration of contracts that the assigned Engineer acts in accordance with this requirement. One of the advantages of having an Engineer and not a project manager is that the Engineer has the technical understanding of the project complexity and can manage the project so that questions and unforeseen events are handled properly. Therefore, it is very difficult to succeed with a complex project without the right understanding of the contractual arrangements and the nature of the project. 

In the construction business, various kinds of standard contracts are available and set different priorities depending on where they are from. Some have a very strong focus on administrative procedures and are very prescriptive. Others set up a standard framework for the contract and are very dependent on a set of special or particular conditions. Thus, choosing the right form of contract from the outset is critical. The employer should think about how they want to monitor the project and handle risks. On one side of the spectrum are the works designed by the employer and, on the other, turnkey agreements. Some extreme versions of the latter place all risk on the contractor. Risk and influence, therefore, go hand in hand. 

Transfer of all risks to the contractor under a turnkey form of contract gives the contractor full control of the processes to mitigate consequences of risks. The employer has to accept that by transferring risk, they also transfer control. Why is this form of contract so popular then? Answer: the industry has seen a growing need for certainty of price and time. Financial institutions focus on budgets and time more than ever. Under these circumstances, it is extremely important that the technical requirements for the project are well defined because changes at a later stage are, in principle, not possible. 

The reader of this book will see that there are a lot of people in the industry striving to make projects successful and they put in a lot of effort into improving contracts, procedures and tools to become even better at managing complex projects. Our industry has produced spectacular achievements throughout modern history. In particular, the world’s need for efficient transport has been a huge driver for the engineering industry. When new and more efficient transport is introduced, society prospers. Today the focus on sustainability also influences the way we design and construct. New ways of working, new ways of co-operating and new types of projects call for new types of agreements. Whether you read this book from cover to cover or as reference guide, you should realize that because of this book your contribution to more successful projects will have a higher value. The book gives you access to a treasure chest of knowledge collected by experienced engineers and contract managers – experience you can use when faced with the challenges that projects bring – challenges that arise from the basic fundamental nature of projects themselves. 

We who work with projects know that successful projects give out positive energy and a good feeling of developing our society. With this book in hand, it is now your turn to feel the power of this positive energy.

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