Understanding Construction Contracts Akhtar Surahyo Understanding Construction Contracts Canadian and International Conventions Akhtar Surahyo IBI Group Mississauga, ON, Canada ISBN 978-3-319-66684-6 ISBN 978-3-319-66685-3 (eBook) DOI 10.1007/978-3-319-66685-3 Library of Congress Control Number: 2017951455 © Springer International Publishing AG 2018 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Dedicated to My Mother Mariam Surahyo (Deceased, 2005) Mom, we always remember you and miss you more than words can express. Foreword The construction industry is frequently more risky when compared to other business industries because of the complexity in coordinating various activities. Each project is unique, comprising different means and methods, techniques, and procedures. The core elements of project success are to meet the time, cost, and quality targets. In order to achieve these targets, risk may appear in many ways and could result in time overrun, budget overrun, financial losses, loss of life, environmental damage, and many more failures. This book provides comprehensive information and addresses various topics related to the construction of a contract/project. It also provides awareness regarding how to analyze and manage construction risks to achieve targeted goals. The book is a practical guide for all those professionals who are involved in the construction process in Canada and internationally and also for undergraduate and graduate engineering students who intend to join the construction industry. Construction professionals from various fields involved in project construction should use this book as an opportunity to understand various clauses quoted from industry standards such as the Canadian Construction Documents Committee (CCDC) and International Federation of Consulting Engineers (FIDIC). The book addresses project cost and time issues, change orders, construction claim issues, construction law, and how to deal with disputes conforming to the requirements of CCDC and FIDIC of construction contract documents. Contract procurement professionals can use this book to gain a better understand- ing about the competitive bidding process and information on “Contract A” and “Contract B,” qualified bids, and responsive and nonresponsive bids. To reinforce the concepts, examples have been incorporated into the discussions. The book also provides information on what to do about identical low and tied bids and how to apply “best value criteria” between tied bids. This book also provides valuable information on insurance and construction bonds and contract delivery methods and types which will also be useful to contract procurement professionals. Mr. Surahyo is a practicing professional engineer carrying 30 plus years of hands-on experience with construction contracts and has successfully addressed the topics from the construction perspective, providing thorough knowledge and vii viii Foreword understanding of every topic within Understanding Construction Contracts so as to complete the contract/project successfully meeting the main contract objectives. Mr. Surahyo should be congratulated for providing a practical handbook which will be of great assistance to the construction industry. I wish Mr. Surahyo good luck and hope this book will go into many future editions. Graeme King P. Eng., PMP Senior Project Engineer – Engineering Department City of Barrie, ON, Canada Preface Construction contracts are often very complex with uncertainties, and at any time anything can go wrong. Since every construction contract is unique, each offers a multitude of different issues and problems. Anyone dealing with a construction con- tract must therefore equip himself with knowledge and understanding of as many areas as practicable regarding construction contracts to complete the contract/ project successfully meeting the main contract objectives of scope, time, cost, and quality. This book encompasses the knowledge and understanding of the author accrued over 30 plus years providing a comprehensive overview of almost all the construc- tion contracting topics in a step-by-step fashion and in an easy and concise form. A distinct feature of this book is that most of the key topics are addressed with particular references to the Canadian standard form of contract document CCDC-2 (Canadian Construction Documents Committee) as well as the international stan- dard form of contract document FIDIC (International Federation of Consulting Engineers) conditions of contract utilizing the construction experience gained over many years by the author. The book starts by providing basic information on construction contracts and law, explaining contract binding elements with examples including tort law, the Construction Lien Act, and statutory holdback. Chapter 2 describes roles and responsibilities of parties to the contract and their rights and obligations under the standard form of contract CCDC-2 (Canadian Construction Documents Committee) and FIDIC (International Federation of Consulting Engineers) conditions of con- tract. Chapter 3 describes forms of construction organizations, and Chaps. 4, 5, and 6 provide information on contract delivery methods, types of contracts, and how to select an appropriate contract strategy explaining strengths, weaknesses, and risks of contract methods and types. Chapter 7 describes Construction Documents and provides information about many important standard forms of Construction Documents, such as documents published by CCDC (Canada), FIDIC (International), JCT (UK), NEC (UK), AIA (USA), and EJCDC (USA). This chapter further provides information on various types of specifications and standard documents “MasterFormat” and “UniFormat” ix x Preface for organizing specifications which are jointly developed by CSC (Construction Specifications Canada) and CSI (Construction Specifications Institute, USA). Chapter 8 highlights bidding procedures describing what is “Contract A” and “Contract B” as well as what is covered under bid documents and how bids are evaluated. This chapter also highlights types of bidding: open bidding, single- and two-stage selective bidding, and negotiated bidding with examples on qualified bids, nonresponsive bids, low or tied bids, unbalanced bids, and best value criteria for selection of a bidder. Chapter 9 describes construction risks and how they are analyzed and managed. Chapter 10 describes construction insurances and bonds such as performance bonds, labor and material payment bonds, and bid bonds. Chapter 11 addresses construction time, briefing commencement and completion dates, extension of time, defects liability period, and delay period and their require- ments under CCDC-2 and FIDIC conditions of contract. Chapter 11 further describes how to control the construction time while providing an overview of scheduling methods using MS Project and critical path method complete with examples. Chapter 12 covers construction costs describing requirements of progress payments, final payments, cash allowances and contingencies, and changes in work under CCDC-2 and FIDIC conditions of contract. Finally, this chapter also describes how to control construction cost. Chapters 13 and 14 describe construction quality and construction safety. Chapter 15 describes construction claims: types of con- struction claims and how to deal with them in the light of CCDC and FIDIC condi- tions of contract. This chapter explains in detail about various types of delays: excusable and non-excusable delays and compensable and non-compensable delays including acceleration. Various types of changes are defined for a deeper under- standing of the reader: directed changes, constructive changes, concurrent delays, cardinal changes, differing site conditions, and disruption. Chapters 16 and 17 cover suspension and termination of a construction contract and construction dispute issues with respect to requirements under CCDC-2 and FIDIC conditions of contract. Various modes of contract termination are explained: termination by performance, by breach of contract or default, by fundamental breach, by repudiation breach, by mutual agreement, by unforeseen