PM-05 - Advancing Project Management for the 21st Century “Concepts, Tools & Techniques for Managing Successful Projects” 29-31 May 2010, Heraklion, Crete, Greece. AA082 Construction 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., Dubai, 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 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. 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. - 313 - PM-05 - Advancing Project Management for the 21st Century “Concepts, Tools & Techniques for Managing Successful Projects” 29-31 May 2010, Heraklion, Crete, Greece. 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)). - 314 - PM-05 - Advancing Project Management for the 21st Century “Concepts, Tools & Techniques for Managing Successful Projects” 29-31 May 2010, Heraklion, Crete, Greece. 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.