Doq bOb cl/~€¦ · Note on the consultation draft ICE Short Contract MART Working Paper No 11 1. Background The purpose of this note is to comment on the suitability of the proposed

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MART WORKING PAPER No 11

A note on the draft ICE Short Contract and its

application to developing countries

compiled by David Stiedl, 8 Sc, C Eng, MICE.

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draftDecember 1997

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Note on the consultation draft ICE Short Contract MART Working Paper No 11

THE MART INITIA TIVE

The Management of Appropriate Road Technology (MART) initiative aims to reduce the costs ofconstructing, rehabilitating and maintaining road infrastructure, and vehicle operations ineconomically emerging and developing countries (EDCs). It is based on a research project fundedprincipally by the British Department For International Development (DFID) under its TechnologyDevelopment and Research (TDR) provision. The initiative is led by the Construction EnterpriseUnit of Loughborough University's Institute of Development Engineering, in association with twoUK-based specialist consultants Intech Associates and LT.Transport. The MART programme iscurrently implementing its initial 3 year programme.

The MART programme is concerned \\ith supporting sustainable improvements in road constructionand maintenance in developing countries. This implies the effective use of local resources,particularly human resources and readily available intern1ediate equipment (especially wheeledagricultural tractors and related ancillary equipment). To optimise the use of scarce financialresources, it also requires the effective mobilisation of the indigenous private sector (particularlysmall domestic construction enterprises), and the application of good management practices in bothcontracting and employing organisations.

The current phase of the MART programme will inter alia draw together existing expertise in labourand intern1ediate equipment-based technology and the development of private constructionenterprises to produce a series of guidelines on the four priority topics of:

. handtools;

. intern1ediateequipment;

. privatesectordevelopment;and

. institutionbuilding.

The MART initiative is strongly research-based, and both DFID and the MART partners see its mainimpact as providing analysis and codification to support practical project initiatives. Thus much ofthe output will be in the forn1of journal papers and other formal publications suitable as referencematerial and providing an independent and reliable record of the advancing state of the art.

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This Working Paper is intended to inforn1 and provoke discussion and dissemination. MARTwelcomes dialogue with engineers, managers, contractors, equipment designers, manufacturers andother sector stakeholders with the objective of the promotion of a sustainable road sector technologyand management approach for EDCs.

This document is an output from a project funded by the UK Department for InternationalDevelopment (DFID) for the benefit of developing countries. The views expressed are notnecessarilythose of the DFID.

" ACKNOWLEDGEMENTS

This document has been prepared by David Stiedl drawing on contributions from a number ofexperts working in developing countries. The docun1ent has been prepared as a contribution to thedevelopment of the ICE Short Contract document in support of its use in countries with developingor emerging economies. The initiative has been carried out in collaboration with the Institution ofCivil Engineers (ICE) Appropriate Development Panel.

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1. Background

The purposeof thisnote is to comment on the suitabilityof the proposed Short Contractfor use in developing countries, particularly with respect to local small or "emerging"contractors who may be relativelynew to civilengineeringworks.

To put this in perspective, the planning and implementation of civil engineering, andparticularly road works, have until very recently usually been the responsibility ofgovernment force account (direct labour) operations in many developing countries.Contracting has normally been restricted to large-scale operations, usually involvinginternational firms and overseas development aid.

As in the developedworld, forceaccount operations have proved increasinglydifficulttomaintain at efficient levels, and the trend now is to recommend commercial, contractorientatedimplementation.Unfortunately the private sector is often very undeveloped atall levels.Local consultants and contractors usually lack experienceoutside the buildingsector, and the client, usually a government agency, is often not familiarwith moderncontractingprocedures.The current need is therefore to train and develop the key actorsin government and the private sector, which includes introducing new procedures andpractices.

There is a growing need for small scale construction and rehabilitation projects, andmaintenance of the existing civil engineering infrastructure. The nature of this work isoften very straightforward and the risks are very low for the client. In contrast the risks/

are-high-for-the small ,contractor with a monopoly cliensiD--the--~~s;~.!:~~~~Jbis-----fcperspectivethe Short Contract is a very timelydocument.powever there are some veryi specIfic requ'ire'ment-sinthis develop.menfcontexl wnichlYHly,potbe adequately addressed, ,-"-..

l\ by the contract and these are discussed in this document. /'''-,'' ------ -'---" - ~.- "".--'.-' , , - ----- .- .-" ---! '. 'Y

To complete this introduction it should be noted that a particular concern of thedevelopmentprocess is to encourage a sustainableapproach that utilises local resourcesas much as possible. With the low wage level in most of the developingworld, the highcost of imported machinery and the poor availability of spares, this tends to meanencouraginga labour-intensiveapproach.The local labour is often supported with simpleor intermediate equipment with relatively low capital costs compared to conventionalheavycivilengineeringplant.This is of course not an issue in the building sector, but hasbeen quite a novelty in the roads and water sector, particularly in Africa. Contracts andcontractdocumentationthus haveto reflectthat approach, and often are required to haveinbuilt measures to give active encouragement to alternative technology methods.

Numerousformsof contract havebeendeveJopedfor differentagencies and governments.Butwhat has tended to happen is that either more clauses are added to already complexdocumentation;or more worryingly,one-off"simplified"documentsare tailor made whichmayhavedoubtfullegalstandingor omit important key contractual clauses in their effortto be simple. This is definitelyhindering the effective development of the local private

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sector for smaller civilengineeringworks.

There is certainlya needfor a new "common" set of documents, and especiallya set thathas internationalstanding and credibility.The consultation draft Short Contract has-thus

,been circulated to a number of people involved in this field of small contractordevelopmentin Afiicaand Asia, and the followingnotes reflect their initialobservations.

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2. First Impressions of The Short Contract

This Short Contract is presumablydesignedto provide the same function within the NEC(New EngineeringContract)familyof contracts as the Minor Works Contract did for theICE Conditionsof Contract.As such, the combinationof simple non-legal language withmuch simplifiedprocedures is an admirablepiece of work.

Unfortunately most people actively involved in the developing world are more familiarwith the FIDIC (Federation Internationale des Ingenieurs-Conseils) contract document,which is essentially the 5thEdition of the ICE Conditions of Contract in content and style.Most existing contract documentation, especially in anglophone countries, also reflectsthe 51hEdition. Thus many of the terms already accepted as part of the NEC family ofcontracts will be unfamiliar outside UK. This is not to say that they are inappropriate, butjust to recognise the need for extensive supporting guideline documentation and trainingto accompany and encourage their introduction.

There are two main areas where the Short Contract may immediatelygive difficultieswhen applied in a developingcountry context, although these are more to do with theNEC approach in general rather than the Short Contract in particular:

2.1 Claims and Di!:>putes

/'\ TheNEC, followingthe Lathamrecommendationshasmoved into a more partnership and

lessconfTontationalapproach, with an emphasison CompensationEvents, which can bereferred to an adjudicator. These events seem to cover all the usual areas for claimsresulting from variation orders, delays, ground conditions etc. and presumably haveproved sufficientin practice once all parties are familiarwith the format.

However the most important aspect for those involved in smallcontractor developmentis probably the provisions under section 9 for disputes and termination. In much of thedevelopingworld the Employer is still usuallythe government in one form or other, andthe contractor is in a very weak position regarding any form of negotiation. TheEmployer's representative will tend to also be a government employee rather than anindependent consultant and thus have vested interests. To compound the situation thegovernment employee is probablyvery poorly paid and seeks means to supplement hissalary. Thus he may view even a small contractor as relatively affluent and a suitablesource of "revenue". The contractor can of course resort to the courts, but with the

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government having a monopoly on contracts (and probably undue influence in the courts)this would not always be a wise move.

The role of independent adjudicator, to be nominated in the contract document, could be

one way out of this impasse. It should be much easier for a contractor to seek helpwithout resorting to law, and it might help to encourage contractors that some form oftwo-sided dialogue (other than bribes)! is possible with the employer. However it will notbe easyto introduce without considerable changes to existing practice. The key will be toget this process accepted by government agencies, and to come up with a procedure foridentifYing and remunerating the adjudicator. In many countries the consulting sector isonly starting to develop, but small firms are beginning to emerge, often staffed by 'retiredgovernment officials who while not equipped to undertake large scale supervision workswould be ideal to provide adjudicator inputs.

2.2 Method of Working

As noted above, much of our work with small contractors involves what is commonlydescribed as labour-based work. This i~ a specific technology that minimises the use of(imported) heavy machinery and encourages the maximum local employment that fits withgood engineering practice and cost effectiveness for the type of infrastructure beingundertaken. Typically the work involves the construction and maintenance of earth andgravel roads, the provision of low cost drainage and sanitation in urban and semiurbanareas, and community projects involved in water supply, conservation works and

irrigation. This work has traditionally been carried out in public works style, throughgovernment supervised projects; but the widespread intention is now to develop local,small scale, private sector skills to replace this.

In order to ensurethat thecontractsmeetthe client'sintentionsfor skills development andemployment,as well as a cost effectivepiece of infrastructure, it has become common toincludespecialclauses in contract documents. These specifymethods of working, definethe necessary contractor skills, ensure those skills are available on site, and mostimportantly, protect the contractor's workforce from exploitation.

FIDIC and the ICE Conditions of Contract provide clauses where the contractor isobliged to provide details of the programme of works and methods of construction, whichcould then be amplifiedby specific reference to the employer's needs. Clause 31 of theShort Contract does make reference to programmes, but does not seem as binding assection 14 ofFIDIC (and ICE 61hedition). On the skills side, the full NEC document hasa c1aus_e_24--wher~contractormust identifykey persons who can be accepted orrejected by the employer, this is omittedfrom the Short Contract. It would be useful todiscu~swith the drafters of the Short Contract if these areas could be tightened up without

negfting the intent of the contract.

If this seems a little extreme it should be noted that FIDIC includes a specific optional clause covering bribes

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The protectionoflabour is covered by FIDIC under clause 34 (and was in the 51hEditionof ICE but omitted in the 6th). However even this clause is open to abuse and manyprojects have included additional requirements based on guidance given by the ILO(International Labour Organisation). Workers in Britain are well covered by existinglegislation so presumably it was no longer felt necessary to include that provision in thecontract. This is not the case in the developing world, where laws are arcane and oftenpoorly applied. Child labour for instance is commonplace, and health and safety inspectorswould never visit a rural road contract. Workers often suffer trom poor or even dangerousworking conditions. A clause must be included for wage rates and conditions of labourfor use in developing countries.

3. Comments on specific clauses

Contract Data

Althoughthishas obviouslybeen shortenedtrom the fullNEC contract for simplicity,thefollowing items would stillbe useful:

. Under the section on Payment, reference to currency of this contract and the interestrate. In particular the statement given in 52.4 that the interest for payment delay willbe 2% above the interest rate charged on loans by the Employer's bank is notsufficientfor the typicalrather fluid situation in developing countries today. The data,stated in the full NEC contract is better, but still tied to one bank and an annual jperiod. An alternative is to include a note saying that the base rate should be linked I

to the centralbank rate for the period of the overdue period, and the current I

commercial overhead in that territory. lA,<) .L-.. &ziC- n"- !- tJ- I

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sectIon lor statIng t e ey representatIve0 t e contractor on sIte. v /A statementon the methodof measurement to be applied. Most works will be Bill ofQuantity related and it is noted that the specific sections on measurement,variation

lin price and quantity (Clauses 55, 56 and 57 onCE and FIDIC) are now subsumedincompensationeventsunderNEC.Hasthisprovedto work wellin practice?It mightbe too sophisticated for the small contract situation. ~ rl---

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. Details of intended equipment and labour components of the works to ensurecompliancewitha labour-basedapproach where this is government or road authoritypolicy. L ~

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Clause 13.1, does this includefax~ E-mail? Can there be any provision for actingon oral instruction if later confirmedby writing within a certainlperiod of time? -

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Section 1 General:

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. Clause 16, the concept of early warning is a key element of the NEC contracts. Some

more definition of what exactly constitutes an early enough warning would be useful

for those unfamiliar with UK practice \--£Y r<"-'- ;;.J/'\

A Clause similar to 18.1 of the NEC on health and safety would help considerably toprotect worker's rights. Some countries do not even have satisfactory guidelines inthis area and it might be necessary to specify. As noted in the overview above, itwould also be necessary to include a clause similar to the FIDIC clause 34 to cover <

generalconditions of labour. - ,-,J. vl;t~~' P-f~

're 0jG1.-~JSection 2, Contractor's Responsibilities

. As notedpreviously,clausesrelatingto the contractor's method of working, and

qualifications of key people would be useful ~ere. CA:' /../!. {t.o ('C:le!- ~ ,r

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Section 3, Time . ;/\/...<..'';' . ~- jJ'--y.-~. ':i"- ~.

~Iause 31.1Programme,more delail is required on the needfor and reqUirem:of a programme,probablyin linewith the full NEC contract. As stated at the moment

there are no time limits or conditions on initial submission and changes. Ideally wesuggest something as comprehensive as FIDIC clause 14 which allows propermonitoring of the proposed method of working. This is one of the primary instrumentsfor ensuring the labour-intensive aspects are being adhered to by the contractor.

Section 4, Testing and Defects

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In the full NEC contract there is a section 40 for tests and inspections. In omittingITomthe Short Contractthis implies that no routine testing will be carried out, is that

/the case? We would certainlyexpect for routine testing of roadworks to be allowedfor in the WorksInformationandfor the contractorto includethis inhispricing.

LVcL- Lic~Section 5, Payment

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. There is need for inclusionof a provision for an advanced payment as with option Jof the NEe. This is not so much to provide for mobilisation,but to ensure sufficientcash flow so that small scale contractors can pay their labour wages, which aretypically 40 to 60% of their expenditure. These contractors will have very limitedliquidityandusuallybe facedwithprohibitivebank charges2.Also as noted above, theinterest rate needs to be better defined.

/ There is also needfor a provisionsimilarto option N of the NEC for price adjustmentfor inflation.Even though typical contracts will not exceed a year, inflationevents of

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MAR T Working Paper No 2 found that bank interest rates were between 15 and 48 % per annum in sevenAfrican and Asian countries surveyed with labour based roadworks projects.

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Note on the consultation draft ICE Short Contract

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100% mid contract are not uncommon. For example a government may imposeincreases in official minimum wage rates by more than this amount with noconsultation or notice.

. Lastly, some of our correspondents have noted that the specified payment period(certification within one week, and payment within three weeks of assessment day),

is too optimistic given the bureaucratic conditions in many developing countries.However it is important to recognise that late payment of contractors is the mosttroublesome aspect in all our contractor development schemes. To have such a time

period enshrined in the contract document, with consequent interest payments fordelay, may encourage the system to improve.

Section 6, Compensation Events /~ number of correspondents have expressed concern that variation orders are no

longerexplicitlymentionedas inthe FIDICand ICE conditionsof contract. Variationsare of course covered under Compensation Events but it may not be immediatelyobvious to an organisation unfamiliarwith the principles of the NEe. We would beinterested to know what sort of problems, if any, have been experienced in practice.

Section 8, Limitation of Liability

. The insurance conditions seem comprehensive, but they would need to be testedagainst specific practices in our target countries. While it is usually possible for

contracto:s to get the required cover on the internationalmar~etbth~ns~~nB~aJoperate differentlyat the local level. tF] - ~.

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Section 9, Disputes and Termination

. ~The processof resolvingdisputesis closelylinkedto the Institution of CivilEngineersArbitrationand Conciliationprocedures. These procedures are presumablydesignedto work within the law of the land. What experience has there been with using theseprocedures in other countries? FIDIC refers to the Rules of Conciliation andArbitration of the International Chamber of Commerce or as an alternative theUNCITRAL Arbitration Rules, would this be possiblewith the NEC contract? ~

. Further it is notedthat whereasthe full NEC contractcitesa two stageprocessofneutral adjudicator followed by an arbitration tribunal if matters cannot be resolved,the Short Contract process goes directlyfrom adjudicator to the courts. It does notallowfor other formsof resolution(ie arbitration,or expert determination). Given thata small cOI)tractor is unlikely to take his case to the International Chamber ofCommercefor arbitrationin France, the Short Contract approach seems appropriate.However this increases the importance of the adjudication process, which aspreviouslynoted is not currentlyan acceptedprocedureinthe developingworld. Whatis the experience of this approach when applied overseas?

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~OUld also be useful to include revolt and war as another reason for contracttermination underclause93. .

The Price List

. The secondpage of the explanatorynotes which details the payment methods optionswas missing from notes circulated to us, so these comments may not be fullyappropriate.However the approach appears to be a neat and simpleway to combineschedule of works and measurement activities. This is of particular interest forcontracts with a substantialmaintenancecomponent, which will form a large part ofthe work of emerging contractors in the road sector. It will thus be possible to havea common form of contract for both maintenance and construction.

. The correspondentshavesaidthat it is not clearif contractorswillbe paidfor partcompletedwork, ie whether a monthlymeasurement applies. This is presumablythecase, but your clarificationwould be appreciated.

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2.2 Plant & Materials

. Columns should be added to indicate whether the employer will also supply "fuel &lubricants", "service & repair" and "operators" for plant. It should also be clearwhether the plant and materials will be available at the employer's yard or deliveredfree to site.

. Governmentagencyequipmentis often in poor condition and any tenderer should beallowed to inspectthe equipmentbeforehandto makehis own assessmentof itscondition and likelyavailabilityrate, which will affect the work programme. A boxshouldbe providedto advisewhenandwherethis inspectionmaybe arranged.

4. Conclusion

In conclusion, we can see some considerable advantage in adopting and adapting thisShortContractforuseindevelopingcountries,particularlyto helpsupportand encouragesmall contractorsto becomeinvolvedwith the constructionand maintenanceof civilworks, and to promote "best practice".

Twotypesofinitiativewouldberequired to take this forward. Firstlya technical input toensure that the particularcircumstancesof labour-based activities are accommodated forthe various infrastructure sectors; and secondly an investigation of the legal andprocedural side to ensure that the proposed procedures are acceptable to the employers(ie government agencies) as well as the contractor's associations in the target countries.

It would be possibleto carryout a desk-basedfeasibilitystudy through several active road

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sector projects that MART has contact with in Cambodia, Ghana, Kenya, Lesotho,Mozambique, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. In addition,through The Institute of Development Engineering at Loughborough University, moreAsian specific advice can be obtained from the Sri-Lankan Institute of ConstructionTraining and Development and the Pakistan Engineering Council.

It is known that both the DFID financed MART project and the ILO ASIST projectwould be prepared to support a study. The next step should be to determine whether theNEC panel would be interested in participating in such an initiative.

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Documents

Doq bOb cl/~€¦ · Note on the consultation draft ICE Short Contract MART Working Paper No 11 1. Background The purpose of this note is to comment on the suitability of the proposed