PM-05 - Advancing Project Management for the 21st Century “Concepts, Tools & Techniques for Managing Successful Projects” 29-31 May 2010, Heraklion, Crete, .

AA082 contracts, project delivery methods and roles of the project stakeholders. The case of Khalifa port project in Abu Dhabi

Nikolaos Kalyviotis (Student, Dept. of Civil Engineering, Aristotle University, Thessaloniki, Greece)

Dimitris Kitsios (Project Controls Manager – Gulf Region, Archirodon Construction (Overseas) CO.S.A., , United Arabian Emirates)

Aristotelis Naniopoulos (Professor, Dept. of Civil Engineering, Aristotle University, Thessaloniki, Greece)

Abstract The main subject of this paper is to investigate and review the main construction contracts used in international environment, the project delivery methods and the roles of the project stakeholders. The greatest part of information and data were collected with the assistance of the “Archirodon Construction (Overseas) CO. S.A.”, more specifically with the assistance of the department based in (U.A.E.). The first author stayed with the aforementioned company in U.A.E. for three months in the frame of his diploma Thesis. In the case of Khalifa Port in Abu Dhabi a brief presentation of the involved “actors” is made and the role of each one is described. Responsibilities are recorded and presented, as a result of a “structured questionnaire” survey with key personnel and the contract documents analysis. It appears that in certain positions the civil engineer is spending more time on issues not purely related to the main civil engineering discipline. Particularly, working in management positions in international construction the civil engineer requires a good knowledge of financial and legal issues.

Keywords International Construction Contracts, Project Delivery methods, Project Involved “Actors”, The Khalifa Port Project U.A.E.

1.Introduction

The construction contracts and the project delivery methods are some of the most important issues for an Engineer. This paper introduces and investigates the main contract types and the main delivery methods, which an engineer can meet during his career. Additionally, there is a description of project stakeholders and the case Khalifa Port project is examined as a case study to show how the previous issues are applied in practice.

The greatest part of information and data were collected with the assistance of the “Archirodon Construction (Overseas) CO. S.A.”, more specifically with the assistance of the department based in United Arab Emirates (U.A.E.). The first author stayed with the aforementioned company in U.A.E. for three months in the frame of his diploma Thesis (Kalyviotis, N (2008)). The work was realized by the

- 312 - PM-05 - Advancing Project Management for the 21st Century “Concepts, Tools & Techniques for Managing Successful Projects” 29-31 May 2010, Heraklion, Crete, Greece. analysis of information, contracts and manuals submitted, also by “structured interviews” conducted with key personnel of the company is sites.

In the case of Khalifa Port in Abu Dhabi a brief presentation of the involved “actors” is made and the role of each one is described. Responsibilities are recorded and presented, as a result of a “structured questionnaire” survey with key personnel and also the contract documents analysis.

2. Main Construction Contracts

Main types of Construction Contracts are: Lump Sum, Unit Price, Cost Plus and incentive. These contracts with their subcategories and the Standard Form Contracts are covering most of the projects.

Lump Sum (also called Fixed fee Contract) is the kind of contract that the Contractor agrees to construct a certain and described project for a fixed price. A lump sum contract is appropriate when the scope of the project and the project planning are defined, so the consultant can easily estimate project’s cost. The entire risk in lump sum contacts lies on the Contractor and that’s why usually the risk premium allowed for in these projects is higher.

Unit Price Contract or Re-measurable Contract is based on rated quantities of the project and the price of each unit of these quantities. The final price of the project depends on the required quantities for finishing the total project. As it is understood this kind of contract can be used in cases that the scope of works is defined, but not the exact size/quantities. Contrary, to the lump sum contracts, the risk here lays exclusive with the client

Cost Plus Contracts allow clients to agree the total cost of the project works plus an extra amount as the contactor’s profit. This kind of contract is used when the type of work is not specified or the risk is too high. That’s why there are many subcategories of cost plus contracts too. The main subcategories are: Cost & Fixed Percentage Contract: the compensation is standard based on the total cost of the project, but the contractor takes extra an agreed percentage for each activity. Cost & Fixed Fee Contract: the contactor’s compensation is standard regardless of the total cost of the project. Client agrees to cover the real cost of the project and further on to give an agreed fee to the contractor. Cost & Fixed Fee with Guaranteed Maximum Price Contract: it is the same case as before the only difference is that the total cost of the project will not exceed an agreed maximum price. Cost & Fixed Fee with Bonus Contract: as in the previous cases contactor’s compensation is standard, but there is a bonus, if the project meets certain goals (i.e. budget is reduced or if the project’s time is reduced etc.) Cost & Fixed Fee with Guaranteed Maximum Price Contract and Bonus Contract: is a combination of the two previous contracts. Cost & Fixed Fee with Agreement for Sharing Any cost Savings Contract: is the last case, where the client and the contractor share the excess of money.

Contract incentives refers to monetary or non-monetary motivators embodied in or arising from the terms and conditions of the contract that influence the behavior of the buyer and seller towards accomplishing desired contractual outcomes.

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Incentives should be positive but balanced, when necessary, with remedies for missing specific program targets or objectives. A fixed-price incentives contract contains a target cost, a target profit, a price ceiling, and a formula by which stockholders will share any differences between target costs and actual final costs, as negotiated. Cost Reimbursement Incentives contract provides for payment to the contractor of allowable costs incurred during performance; that is, the final amount payable by the client and is determined by the contractor's actual cost experience.

Standard Form Contract is the kind of contract that does not allow for negotiation between the stakeholders. These contracts were drafted either from organizations or companies or federations. There are three well-known types of standard form contracts FIDIC (International Federation of Consulting Engineering), ICE (Institution of Civil Engineering) and NEC (New Engineering Contract).

The FIDIC contract documents (www.fidic.org (2010)) are the most used contracts worldwide. The main advantages of the FIDIC contracts are the followings:  It is an international Contract, as it used in many countries and it is translated in twelve languages.  The documents are accompanied from a rich literature and case-law.  The risks are balanced between the stakeholders.  It is adopted from European Union and other international organizations (The World Bank, etc) for funding projects. The main disadvantages of the FIDIC contracts are:  There is unevenness between the contract terms of private and public filed  The dependency between the terms makes the changes difficult and time- consuming.  The provisions about the subcontracting is very limited  Finally in the term 5.2 the phrase “…indemnity of the contractor against and from any negligence or misuse of goods…” has many traps, as the term “goods” is not specified and the radius of the possible losses is huge, also the term “any negligence” covers almost everything.

The ICE contract documents are the base for FIDIC contracts. They were developed by the British Institution of Civil Engineering in United Kingdom before FIDIC. The ICE is not as developed as FIDIC and it is very rare to meet them (www.ice.org.uk (2010)).

New Engineering Contracts have a heavy legal character, although the simplicity of their writing makes them very simple to use. The leadership of these contracts is that they are not just a simple form of contract, but a family of contracts that includes many project cases. So someone can use the included contracts to mold the final form of the contract. They are better than FIDIC in small projects and in projects that have many phases (www.neccontract.com (2010)).

3. Main Project Delivery Methods

There are many project delivery methods, which were developed during the last twenty years. The distinction between them is a result of the separation of different risks and subjects, but also from who owns the fixed amounts. The three main project delivery methods are Design – Bid – Build, Fast Track and Turnkey and some other, not so popular are presented here (Kalyviotis, N (2008)).

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The most popular method is Design – Bid – Build (D.B.B.) being an agreement between the client and the contractor. This way a lot of time is saved as the consultant is not involved. Traditionally, the construction of the project does not begin before the architect completes and finalizes the study. This sequence dominates in the construction industry and it is known as D.B.B. During this procedure when the first step is completed then the next starts. This can be accepted by some clients, but it is not suitable to others, because of the time and cost implications.

Fast Track refers to the overlap of the project study and the construction phases. The contracts of these projects are called phased construction, because as the design of the progressive phase is completed, the succeeding can start. The early stages of the project are under construction, as the next stages are under design. For obvious reasons Fast Track and D.B.B. sometimes offer tempting advantages to the client-owner, but at the same time they can be the source of many problems.

When a contract is Turnkey, the client has to provide all the necessary information and the design requirements to the contractor, who has to design and construct the project under a single convention. The single convention eliminates the need for client’s coordination and reduces the duration of the project. After the completion of the project, it is delivered straight to the client.

4. Main Project Stakeholders

Every project has many stakeholders, whose number depends on its size. The most common stakeholders are the Owner (Client), The Architect-Engineer, The Prime Contractor and the Subcontractors. Apart of these there is a big number of other indirect stakeholders as the law consultant, the insurance company etc (Clough, R., Sears G. and Sears K. (2000)).

4.1 The owner

The owner, whether public or private, is the instigating party that gets the project financed, designed, and built. Public owners are public bodies of some kind, and range from the federal government down through state, country, and municipality entities to a multiplicity of local boards, commissions, and authorities. Appropriations, bonds, or other forms of financing set the payment for the public projects, are built to perform a defined public function. Private owners may be individuals, partnerships, corporations, or various combinations thereof. Most private owners have the structure built for their own use: business, habitation, or otherwise. However, some private owners do not intend to be the end users of the constructed facility; rather, they plan to sell, lease, or rent the completed structure to others. These end users may or may not be known to the owners at the time of construction.

4.2 The Architect – Engineer

The architect-engineer, also known as the design professional, is the person or firm that designs the project. Because the planning is architectural or engineering by its nature, or often combines these two, the term ‘‘architect-engineer’’ is used to refer to the design professional regardless of the applicable specialty or the relationship between the architect-engineer and the owner. Traditionally, the architect-engineer

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4.3 The Prime Contractor

A prime contractor, also known as a general contractor, is the firm that is in prime contract with the owner for the construction of a project, either in its entirety or for some designated portion thereof. In this regard, the owner may choose to use a single prime contractor instead of several separate prime contractors. When the owner awards construction of the entire project to one prime contractor, then the system is single-contract. In this system, the contractor brings together all the diverse elements and inputs of the construction process into a single, coordinated effort and assumes full, centralized responsibility for the delivery of the finished job, constructed in accordance with the contract documents. The prime contractor is fully responsible to the owner for the performance of the subcontractors and other third parties to the construction contract.

4.4 The Subcontractor

The extent to which a general contractor will subcontract work depends greatly on the nature of the project and the contractor’s own organization. There are instances where the job is entirely subcontracted, so the general contractor provides only supervision, job coordination, project billing, and perhaps general site services. Customarily, the prime contractor will perform the basic project operations and will subcontract the remainder to various specialty contractors. Types of work with which the prime contractor is inexperienced or for which it is not properly equipped are usually subcontracted, since qualified subcontractors generally are able to perform their specialty faster and less expensively than the general contractor. When the prime contractor engages a specialty firm to accomplish a particular portion of the project, the two parties enter into a contract called a subcontract. No contractual relationship is thereby established between the owner and the subcontractor. When a general contractor sublets a portion of its work to a subcontractor, the prime contractor remains responsible under its contract with the owner, for any negligent or faulty performance by the subcontractor. The prime contractor assumes complete responsibility to the owner for the direction and accomplishment of the total work. An important part of this responsibility is the coordination and supervision of the subcontractors.

5. Case Study: The Khalifa Port project in Abu Dhabi

The emirate of Abu Dhabi constructs a new port and an industrial zone, which costs almost 1.4 billion euro, in the coastline between Dubai and Abu Dhabi. The port and the industrial zone will be developed separately. The Khalifa port will be developed in five phases and will include a container handling terminal and piers for handling raw and bulk cargos. The portal will replace Abu Dhabi’s largest existing port, Mina Zayed by 2012.

5.1 Scope of Work & Major Quantities

Work in Khalifa port is divided to five phases and includes:  Creation of 2.6 million sq. m. marine platform.  Dredging and Reclamation works.

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 Constructing of a 32 km quay way and 7.3 km breakwaters.  Constructing a 4.6 km causeway. Khalifa port will be build offshore and connected to the onshore industrial zone by a four-km bridge or causeway. The quantities in this project are big and difficult to be specified. Here are presented the major quantities  Revetments 17 km  Breakwaters 7.4 km  Main Bridge 1 km  Utility Bridge 1 km  EMAL Trestle 1.6 km  Main Quay wall 3.2 km – at 18m  EMAL Quay wall 0.8 km – at 18m  Other Quay walls 0.5km  Dredging/Reclamation 47 mill cubic meters

5.2 Project Stakeholders

Abu Dhabi port Company awarded the contract of Khalifa port to a Consortium comprising of Archirodon Construction (Overseas) Company, Boskalis Westminster and Hyundai Engineering and Construction Company. The consortium named “Khalifa Port Marine Consortium (KPMC)”. The prime contractor (who has the management of consortium) is Archirodon. International Bechtel Co. Ltd. is the Project Management Consultant, who controls the contractors. The project will take four and a half years to complete. Unusually, at the time of the contract award, much of the final design work surrounding the port’s construction was yet to be done. The client, Abu Dhabi Ports Company, was looking for contractors with the skills and multidisciplinary services needed to deliver this design expertise as the work progressed. As a result, the three companies are co-coordinating the design activities, not only in the dredging and reclamation work, but also in the construction of the quay walls, bridges and breakwaters. This deep-level involvement means that the Consortium can act as both advisor and partner of the client and so arrive at the optimum solution.

5.3 Contract Form and Delivery Method

The contract of Khalifa Port is based on FIDIC Form contract. The main reason for this format is that the project is too big and by this format the risks are balanced with a tested contract in international environments. The different works of the project can be either Lump Sum or Re-measurable contracts. This has to do with the type of the work. Dredging & Reclamation, for example, are Re-measurable, because these works depend on the quantities. Personnel payments and bridge construction are Lump Sum as these works are defined and can be easily deigned and constructed.

5.4 Challenges

Tight project schedule is a classic challenge for this type of project. The offshore construction (without initially access by land) is another challenge. All the personnel and material was transported by sea. The exposure to extreme weather is the next challenge. The winter storms bring NW winds with speed > 20m/sec and the waves study height measures 5m. Logistics can be a problem in this project. Adjustment

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Early-stage design and planning were particularly crucial in this project because of the unique combination of environmental, commercial and political pressures. On the one hand, Khalifa Port is close to the most extensive coral reef in the Arabian Gulf. This meant the project had to be planned using the latest methods to protect the marine environment. On the other, the project area is close to the TSFCO facilities which consist of seawater intakes for the desalination plant of the Abu Dhabi Water & Electricity Authority and the power plant of the Taweelah Asia Power Company. These are the main producers of drinking water and power for the Abu Dhabi region. Protecting both these areas from excessive turbidity levels is vitally important in the execution of the dredging and reclamation works. Thirdly, the integration of the port development with the construction of the Emirates Aluminum (EMAL) smelter heightens the commercial and political sensitivity of the project. EMAL, a joint venture between the emirates Abu Dhabi and Dubai, carries significant economic consequences for the region.

Coordination and communication between the three contractors and the client is, probably, one of the biggest challenges. The main problem in such consortium is the different working cultures and the different ways of approaching various issues and problems. Each company has its own specific methods for project design and management. This means that even details and minor issues may evolve into major disagreements. Communication is a common problem in international sites (or The Tower of Babel Problem is present (as it is usually called). The management team of Khalifa port project comes from different backgrounds and in total speak four different native languages, namely Greek, Dutch, English and Korean. If we look deeper in site personnel and labours, we realise that there are nationalities such as Chinese, Arabic, Filipino, Indians, Nepalese etc., where effective communication is definitely not an easy task.

6. Solutions

The early involvement of the Consortium in the project has paid dividends, with members of their environment, design and engineering teams remaining on-site from the tender into the execution phase. This has ensured the plan was put into action with maximum efficiency. Consortium is bringing leading-edge expertise to all aspects of the work:  The differences, between the stakeholders, are being solved from a trustful person, who is accepted from all the three companies of the Consortium and the Client.  The decisions are irreversible, so there will be no delays from appeals or disagreements.  16 fixed monitoring stations have been installed around the site, transmitting real-time data on turbidity, waves, currents, water levels and weather conditions. This online reporting technique has rarely been used on this scale before.  Consortium have designed special heavy-duty silt screens which have been placed over a distance of several kilometers, separating the marine operations from the corals and the seawater inlets of the desalination and power plant. These screens were designed by Boskalis in cooperation with

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the supplier for use in rough open water - tailored to the local conditions. The screens are repositioned as the work progresses.  A 6 km-long ‘environmental breakwater’ has been build, specifically designed to protect the coral reef and desalination and power plant.  The construction companies are using a specially developed ‘spreader pontoon’ in the reclamation area that evenly disperses coarse and fine material to ensure the best distribution and end product.  Continuous hydrographic surveying is performed to monitor changes in the level of the seabed.

7. Conclusions and recommendations

If you read the Contract you get Education, if not you get Experience… from your mistakes. It should be noted that the executives who rise to the upper levels of the companies are those, who involve themselves early with the contracts and the delivery methods. The engineer nowadays must possess a set of economic and legal knowledge beyond the technical knowledge. It is a fact that an engineer spends more time on matters not related purely with civil engineering subject.

Project delivery methods are driven by specific cost and schedule requirements of a project. Another important issue in projects is the relationship developed with the consultants/clients, who supervise the contractors. This why contractors and clients/consultants should work together as a team and foster a win-win attitude for the benefit of the project.

8. References

Clough, R., Sears, G. and Sears, K. (2000), “Construction Project Management”, Wiley, 1-78. Kalyviotis, N. (2008), “Construction Contracts, Project Delivery Methods and Roles of Project Stakeholders”, Diploma Thesis 32-41, 65-74, 85-102, 131-140, Department of Civil Engineering, Aristotle University of Thessaloniki. Royal Boskalis Westminster “Case: Khalifa – a major new port in the Arabian Gulf”, Annual report (2008), 40-41 Web page of “FIDIC: International Federation of Consulting Engineering” (2010), www.fidic.org Web page of “Institution of Civil Engineering” (2010), www.ice.org.uk Web page of “New Engineering Contract (NEC) Contracts” (2010), www.neccontract.com

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