Construction Of The Commercial Contracts -

Risk of Erroneous Designs

Construction projects are undertaken based on tenders which are granted to construct the required structures based on plans and designs formulated by architects. The architects are thus the ones responsible for calculating stable dimensions for the project and are responsible for designing the structure to be built. The chance for human error exists in all such projects and the architect may omit to account for a particular piece of the structure or may miscalculate the dimensions or the materials required in a particular project (Dorter, John and Sharkey 2015). In such a case the plans would have to be redesigned with the adequate error corrections required and this would be an immense waste of time during the pre-construction project.

Control measure

The architects hired for making such a project must be hired on the basis of credibility. A credible firm that has a decent amount of goodwill in the market can be inferred to employ competent individuals and thus would ideally not produce work with such errors (Ter Haar, Laney and Levine 2016). Although the chance of human error cannot be completely eliminated this measure would minimize such a risk to the extent possible.

Inherent risks in the construction Phase:

Interrupted construction

A construction project is subject to numerous legal compliances and must also consider the risk of interruption caused by adjacent dwellings or surrounding construction sites. In case of a construction site that has commenced work without complying with any statutory provision it would be delayed as the work would ideally be stopped till such compliance has been made. Further, surrounding buildings could also make complaints against such construction due to the levels of noise and other disturbances (Marsh 2017). Thus the organization undertaking the tender must ensure that the workforce maintains the noise levels to legal standards and must not cause other hindrances to any construction areas around the construction site.

Control measure

In case of the compliances the project must employ a competent legal team or a competent compliance agency which ensures that all the provisions of law related to the project are duly complied with. The legal team would also be instrumental in training the supervisors of the project regarding the legal noise levels and pollution emission levels which the project must adhere to (Masterman and Masterman 2013). The legal team would also be instrumental in ensuring timely commencement and completion of the project by eradicating the delay risks discussed above.

Force Majeure

Natural disasters and unforeseeable events of the same nature cannot be predicted and can often lead to major loss of life and property. In case of loss of life there are release and compensation compliances that the company must mandatorily make and in case of los of property the company would be liable to replace/rehire all machinery and undertake any completed construction that has been destroyed. Thus the project would be delayed and the final costs of the project would largely exceed the proposed budget. This would thus be a loss for the organization undertaking the construction. Force Majeure refers to a party not being able to meet its contractual obligations due to unforeseeable circumstances (Le et al. 2014).

Control measure

The control measure of the company would be to include a force majeure clause into the construction contract. This would thus absolve the undertaking organization from any responsibility arising from such situations which can only be classified as unforeseeable natural calamities or an act of god (Votano and Sunindijo 2014). There could also be an indemnity clause from the side giving the tender to ensure that the undertaking organization is insured from losses arising from such an event.

Inherent Risks in the operational phase:

On-site accidents

Once the construction phase is over the Victoria Desalination Plant (VPD) would be operational and thus would be subject to risks in the operational phase. A plant of such size employs a large workforce and they are tasked with operating complicated machines and undertake procedures that could be construed as dangerous. Due to the nature of the work being entirely physical the chance of accidents or damages in such a plant cannot be eliminated. Malfunction of machines or any other accidental safety hazard can also not be ignored (Loosemore 2016). In case such an accident occurs the company would have to compensate the damaged parties and the same would be an encumbrance on the proposed budget of the same.

Control measure

The recruitment of an adequately equipped safety team would be the most effective way in which such risks can be dealt with. The safety team should also have sufficient members to ensure they can cover all required parts of the project at all times (Blanc-Brude, F. and Makovsek 2013). The safety team would also be tasked with ensuring that the workforce is sufficiently trained in the use of the machinery and other equipments on-site so that the risk of such accidents can be eliminated to the extent possible.

Risk of overburdening compliance post construction phase

The commencement of operations of a Plant of the size of VPD requires various legal approvals specially relating to environmental implications of the same. The operations of the plant would also affect the flora and fauna of the area and would have to be considered when undertaking its activities (Carter 2013). Not obtaining a particular approval or contravening a particular provision would result in legal issues with law enforcement and may even lead to court battles. Thus the risk of contravening legal provisions must be dealt with before the plant is operational.

Control measure

As stated before compliance complications can only be dealt with by a competent legal team or a competent compliance agent. For this project employing a compliance agent would be the more appropriate option as they would be tasked with responsibilities related to legal compliance unlike a legal team which would still be working as a delegate of the company and not as an agent.

Dispute Resolution Options

Disputes arising from construction contracts can be taken to court however a court decision could take an uncertain amount of time to determine the case and the process would be expensive. Thus, contractual disputes in the world today usually employ alternative methods of adjudication which provide for more flexible, inexpensive and faster modes of determination. These are known as Alternative Dispute Resolution (ADR) mechanisms (Keegan et al. 2014). The two most effective dispute resolution processes for such a contract are discussed below:

Mediation: This method of dispute resolution is far simpler as compared to court procedures. In this mechanism the determination of the dispute is made by the appointment of a mediator who, based on the facts and circumstances of the case, discusses various compromises on behalf of both parties which would lead to an amicable solution which is agreeable for both parties (Dye 2017). The determination of the mediator is not binding on the parties and is thus a challenge in court is still available unless specifically agreed upon by the parties. Mediation is a faster and comparatively less expensive dispute resolution method as compared to a court determination.

Arbitration: This method of dispute resolution is now most commonly used for contractual disputes and is incorporated in all standard contracts through an arbitration clause. The arbitration clause would allow either party to invoke arbitration proceedings in case of a dispute arising from the contract by appointing an arbitrator or applying to court for the appointment of an arbitrator. In case of arbitrations the parties give up their right to pursue the dispute in court and mutually agree to bind themselves to the decision of the arbitrator. This decision is known as an arbitral award. The arbitral award can only be challenged if it is against public policy or if it specifically contravenes some provision of law (Pryor 2014). Thus this is a concrete method of determination of a contractual dispute as a party contravening such an award can be legally pursued for the same. This also determines the rights and obligations of all parties to the dispute at a much faster pace even though it is similar to a court procedure in the sense that both parties have legal representation and there is an adjudicator making a final judgment on the dispute (Fiadjoe 2013). This is also less expensive as compared to court procedures as additional expenses such as payment of court fees is not required by this dispute resolution mechanism.

Effective management of the contract

A contract has explicit and implied terms which form the crux of the rights and obligations of the party to the contract. However, a contract has elements which need to be considered during the performance of the contract to ensure a smooth functioning of things. A construction contract would need the following elements to be considered to ensure effective management of the same (Gad and Shane 2014):

Compromise

In a construction contract the smooth functioning of things would ideally require a consideration of the conveniences of both parties. The parties to the contract must thus ensure that they make compromises based on the convenience of the other party to assure scheduled commencement and completion of the project. The project would thus be based on bona fide transactions that safeguard the rights of all parties.

Continuous Communication

Both parties to the contract must accurately and precisely make communications to the other regarding any transaction related to the contract. Any non-transactional concern must also be communicated to the other party. Effective communication ensures that there is transparency in the dealings between the parties which minimizes the risk of disputes arising from miscommunication between the two.

Diligence

Contracts are drafted by lawyers and the same endeavors to cover all aspects and circumstances that may arise from such a contract. Thus a competent legal team needs to be hired to fully assess the implications and liabilities prescribed by the act. This would give a better understanding to both parties of the duties they must observe and the ways in which they must perform the contract. This would thus lead to a less ambiguous interpretation of the terms of the contract between the parties.

Conclusion

To conclude the Victoria Desalination Plant is an immensely large scale construction project and its effective execution is the top priority of the tendered organization. To ensure the same the organization must manage its contractual obligations effectively and must take into account all inherent risk of such a project.

Reference List

Blanc-Brude, F. and Makovsek, D., 2013. Construction risk in infrastructure project finance. Research, EDHEC Risk Institute, February.

Burr, A. ed., 2016. Delay and disruption in construction contracts. CRC Press.

Carter, J.W., 2013. The construction of commercial contracts. Bloomsbury Publishing.

Dorter, J.B., John, J. and Sharkey, A., 2015. Building and Construction Contracts in Australia: Law and Practice. Thomson Reuters (Professional) Australia Limited.

Dye, J.C., 2017. Alternative Dispute Resolution. The Catholic Lawyer, 33(1), p.12.

Fiadjoe, A., 2013. Alternative dispute resolution: a developing world perspective. Routledge.

Gad, G.M. and Shane, J.S., 2014. Trust in the construction industry: A literature review. In Construction Research Congress 2014: Construction in a Global Network (pp. 2136-2145).

Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and management. Routledge.

Keegan, J.M., Atha, M.M., Hornsby, A.S., Thornhill, R.B. and Parks, A., 2014. ALTERNATIVE DISPUTE RESOLUTION.

Le, Y., Shan, M., Chan, A.P. and Hu, Y., 2014. Overview of corruption research in construction. Journal of management in engineering, 30(4), p.02514001.

Loosemore, M., 2016. Social procurement in UK construction projects. International journal of project management, 34(2), pp.133-144.

Marsh, P., 2017. Contracting for engineering and construction projects. Routledge.

Masterman, J. and Masterman, J.W., 2013. An introduction to building procurement systems. Routledge.

Pryor, W., 2014. Alternative Dispute Resolution. SMU Annual Texas Survey, 1(1), p.1.

Ter Haar, R., Laney, A. and Levine, M., 2016. Construction insurance and UK construction contracts. CRC Press.

Votano, S. and Sunindijo, R.Y., 2014. Client safety roles in small and medium construction projects in Australia. Journal of Construction Engineering and management, 140(9), p.04014045.