Method of engaging the head contractor
This is an analysis of a commercial building project commonly known as CCC Civic offices. This building was initially the former Christchurch city council civic building which was constructed in 1900 and used as a hall for exhibition, cinema and theater though burnt down in 1917 (Chan et al, 2011). The northern part of the building was later purchased by CCC where offices were constructed operating till 1980 after which it constituted many usage comprising of a bar and restaurant. In 2011, the earthquake of 2011 Christchurch seriously destroyed the building leading to its demolition. The building was constructed by Rennie and Pearce as the head contractor.
The head contractor, Rennie and Pearce, was required by the industrial standards of ethics together with the New Zealand government through the building project owner to observe and maintain the construction codes of ethics and standards (Fellows et al, 2011). The construction codes are purposefully to protect the health and safety of the neighboring public together with the employees working for the head contractor in achieving the contract objectives.
To begin, the main contractor was required to adequately train his or her personnel in relation to personal duties towards meeting the outlined contract objectives. Besides this, all workers were expected to be equipped with knowledge of conducting first aid assistance which is necessary during any occurrence of an accident within the construction site (Shen et al, 2015). Nevertheless, with an aim of minimizing accidents, all site workers were required to be always in protective gears such as helmet to protect them from falling materials within the construction site. In addition, the construction site was to be fenced off from the public and warning sign boards to be erected near the site informing and warning the public of construction progress and possible falling objects as stipulated by the construction industry standards (Oberlande & Oberlande, 2012).
Secondly, the head contractor was required to obtain the necessary documents relating to legal permission to engage in construction activity, more so being a building being very active and located within the city after consideration of the impacts the building could possess to the environment together with the future users of the building and their safety as required by the occupational health and safety standard and code.
In addition, construction ethical demands stipulate that the head contractor should not engage in activities that encourage over quotation of the construction project (Gray & Hughes, 2011). It was assumed that a slight overpricing was made during the construction of CCC civic offices building. Though the over quoting was intended to maintain financial safety on the side of the head contractor through protecting the firm from price fluctuation that was anticipated due to inflation. This was a possibility and possessed higher chances of occurrence hence forming a significant motivation factors since prices of construction materials could either increase or decrease (Hinze, 2017). Based on this, the head contractor slightly overpriced prices of equipment and products away from their prevailing prices then. On completion of the project, it was realized that the head contractor made a cumulatively bigger margin of profit in the long run in that the economy was stable and limited inflation was witnessed. To some extent, this formed non-compliance to the ethical expectations in construction industry as economy trends should be carefully studied during quotation of projects as outlined in the building contracts code and ethic.
Terms of contract, potential conflicts and Provisions for payment
Nevertheless, workers welfare at the construction site was not adequately covered for by the head contractor (Bresnen & Marshall, 2010). This was observed from inadequate insurance facilities offered to workers in the site. Site workers experienced a signifant number of accidents within the site forming a sign of poor plant hazard checklist before the commencement of the contract by the contractor.
In relation to the building and construction acts of 2004, there exist some standards of ethical implications meant for the head contractor. Under this act, head contractors should:
- Not include certain unfavorable terms of contracts to the subcontractors such as pay if paid and pay when paid clauses or generally terms which validate payment after 50days of head contractor payment (Love et al, 2011). This act terminates such kind of provisions.
- Application of specific clauses in the contract in situations where clear written contracts with the subcontractors are missing.
- Conform to the head contractor payment liable adjudication determination and similarly respond to any served adjudication determination.
- Should not request or demand an agreement by the subcontractors to acts that are not applicable to them.
It was worth noting that during the CCC civic offices construction project; a good number of the above head contractor ethical implications were adhered to except a minor discomfort in adjudication process which was later solved (Reve, 2016).
Sub-contractors normally form companies or individuals hired by the head contractor tasked with performing partial obligations assigned to the head contractor. They are occasionally included in the head contract through the head contractor since they form specialized personnel in conducting specific construction duties (Varnas, Balfors & Faith, 2013). This helps the head contractor achieve obligations that they lack expertise in. In the long run, sub-contractors limit the exposure of head contractor, Rennie and Pearce, to certain risks during construction of the CCC offices building. In addition, it allows for workforce expansion under a different insurance holders or provider.
During the construction project of CCC offices, a good number of sub-contractors were involved by the head contract through the head contractor. These sub-contracting groups entailed a diverse specialized group such as electrical contractors, steel erectors, roofing and dry wall experts just to mention a limited number. Subcontracting of duties by the head contractor achieved significant advantages with it. It facilitated efficiency in construction and flexibility during the construction work (Faridi & El, 2010). Nevertheless, allocation of duties by the head contractor through subcontracting enabled reduction in workload and encouraged limitation of exposure to risks. Despite the advantages along with the subcontractors, there existed potential conflict between the head contractor and subcontractors since this mode contracting created space for pay if paid and pay when paid contract clauses. Together with the above mentioned subcontractors, there existed too suppliers who were mandated to supply the construction site with materials and products that were relevant to the project. According to the supplier contract, the supplier was only accessible to payment after delivery of the materials to the site which held a significant source of conflict since this could allocate all the risks during transportation to the supplier.
Head contract, head contractor and suppliers
Generally, subcontracting of duties during the CCC offices project aided in a quick completion of the project, improvement in the quality of design. Nevertheless, it increased innovation efficiencies and eventually improved consideration and protection of the environment and workers health and safety in general.
The head contractor, Rennie and Pearce engaged most of the subcontractors in a business-to business relationship nature of contract. This entailed the subcontractors providing services which included Labour provision for certain specific job such as electrification, provision of working tools and materials during the construction project and expertise in general (Lam et al, 2011). This nature excluded employment in that no subcontractor as under control of an employer during work execution. They rather concentrated on producing a given product or service and others even dedicated their obligations to others. In addition, the subcontractors had control of his or her working period, when and the means of achieving the intended or assigned objectives by the head contractor. They also possessed agreement of working or engaging in other construction projects the same time they are engaged with the head contractor. All subcontractors had a duty of providing price rates of each job performed and had to issue an Australian Business Number for any completed work.
The working arrangement between Rennie and Pearce the head contractor, subcontractors and suppliers were made through both simple standard works contract, oral agreement and contracts in particular to a scope of work (Pryke, 2015). In addition, other sub-contractors again subcontracted other components of their duties to other contractors making it a large work force pyramid. The tertiary contractors possessed no contractual agreement with the head contractor hence carrying majority of the risks encountered.
All construction work was to be made in consideration and regulation of the construction acts of 2002 and its later amendments. These amendments provided a description of construction work of possessing obligations including carrying out construction works, making supplies to the site of construction works in terms of providing related goods and materials together with provision of important and desired services to the construction work site which are relevant to the work in progress (Holt, 2018).
Payments during contracts and supplies had formed a major source of conflict among construction stakeholders. Most subcontractors showed limited understanding of the existing guidelines relating to facts behind contracts. During sub-contractor engagements, the head contractor enters a business to business relationship making it lack minimum rates of pay or rather conditions underpinning or confining the relationship (McGeorge & Zou, 2012). It is solely the responsibility of the subcontractor to negotiate with the head contractor of the intended payments and conditions. This negotiation should also include the payment trade intended for the work performed plus the materials supplied or provided (Pryke, 2015).
Most of the observed and stipulated occurrence of disputes and conflicts between the head contractor and the sub-contractor resulted from breaching of the contract from the head contractor which included unpaid funds together with defective or unsatisfactory delivery of construction work by the subcontractor.
Insolvency of the head contractor has always also formed a possible source of conflict among sub-contractors. It is a common knowledge that sub-contractors should always rank as unsecured creditors only in situations that they are in possession of an existing security interest (Masterman & Masterman, 2013). This thereby demands for the sub-contractors to lodging a bankruptcy claim together with other creditors. In order to be on the safe end, sub-contractors are thereby advised to engage with head contractors of sound credit worthiness and financial background strength before entering into a construction contract.
Since there was no privity of contract between the principal and the sub-contractor, a subcontractor generally bypassing the head contractor and obtaining recourse against the principal is a sure impossibility (Chan & Tse, 2014). Nevertheless, it is provided by the doctrine privity of contract that the only parties that are in apposition of suing or being sued are strictly the parties to the contract.
In general life, risks are perceived to be unavoidable. This seems to be true and makes a lot of sense though it is believed in the opposite way in a construction contract. In a contract, risks are believed to have a possibility of avoidance. Allocation of risks in the CCC offices construction project was enacted through a construction contract (Vidogah & Ndekugri, 2010). During drafting of agreement, the head contractor, Rennie and Pearce, included several contract provisions that are aimed at shifting to the subcontractors a good number of liabilities. The head contractor implemented the concept of mind that risks should be assigned to the relevant party that is in a position of managing or containing the risk. In practical aspect, it was open to the party possessing the strongest power of bargain to get allocated the contract risks (Zhi, 2017). These are the most common scenarios or mechanisms that the head contractor employed in the process of allocating risks during the construction project.
- Clauses of indemnification
- Additional insured requirements
- No damage for delay clauses
- Pay if when paid clauses
This is a common allocation of risk mechanism applied by the upstream party levels during a construction contract. It is also known as hold harmless agreement. It is normally seen as or defined as the duty of one party which is the indemnitor to reimburse a proceeding party, the indemnitee for the losses it accrues or rather the possible damages it is held liable. In relation to construction concept, these clauses aided in indemnification of the construction designers and engineers, head contractor and the building construction owner by the subcontractor (Kometa et al, 2017). This clause was used in transferring liabilities resulting from damages or judgments in particular, transfer of the defending duty and the duty or role of insurance transfer. In the construction contract, this clause always possesses its specific section.
- Broad form indemnification clauses
It is also known as the no fault clause of indemnification. It demands that the subcontractors should assume any or all liabilities relating to the construction project without consideration to the nature of fault, whether it arose from another’s negligence (Broome & Hayes, 2012). The subcontractor therefore suffers the entire content of liabilities relating to the project as a result of the clause shifting the entire losses resulting from risks. Most states are not in preference to this clause hence the witnessed limited application as it is not widely enforced by the judicial agreements.
- Intermediate form indemnification clauses
In relation to this clause, the subcontractor is expected to take the responsibility of all liabilities from risks apart from that which occurs because of the negligence on the side of head contractor. All forms of liabilities are taken care of by the sub-contractor as long as it satisfies the threshold that it did not originate from the faults of the project owner, any other person that the subcontractor had settled to indemnify including the head contractor (Akintoye & Maclrod, 2013). It therefore focuses on the sole negligence of the subcontractor together with negligence arising from the joint agreement between the subcontractor and the joint group of indemnitee which include the owner and the head contractor. Due to this, the contractor may still find himself in a situation whereby he or she carrying the liability caused by an accident on the side of head contractor. This makes this type of indemnification possessing similar dangers just as the broad form of making a sub-contractor who possess a limited financial strength to shoulder risks associated with the head contractor together with the project owner (Hart, 2016). This clause was witnessed to be avoided by a majority of subcontractors.
- Limited form indemnification clause
This forms the most suitable clause which focuses strictly on the liabilities which are witnessed solely on the negligence originating from the side of the subcontractor. It possesses an image to the principle of common law which stipulates that a party should only be liable to strictly those situations in which it possesses control towards. It was thus a significant factor to be considered by the subcontractors before they entered the construction agreement.
This clause is usually reinforcement to the agreements of indemnification and at times supersedes the clause or agreement. Both head contractors and subcontractors are always in a need of acquiring an insurance cover aimed at paying costs of defense, settlement together with construction work claim related judgments of the contractors (Cherns & Brayant, 2011). The party which is obliged of paying insurance tariffs is normally the person who is named as the insured hence policy cover is issued to the individual or the company. The party is obliged to paying premiums and stands the opportunity of terminating the policy agreement. With the presence of an anti-indemnity clause, CCC offices building construction head contractor required sub-contractors to allocate to the project owner and himself insurance policy cover against the subcontractor’s commercial general liability.
This clause facilitated protection of the project owner and the head contractor from damages resulting from delays together with extension of time inclusive of the delays without any required additional compensation to the subcontractor. The use of this clause is on the increase with both project owners and head contractors exercising it. In addition, this clause aims at protecting both project owners and head contractors from increase in market price resulting from delay, disruption or interference to the work being performed by the subcontractors. This is formulated as a result of many omissions originating from the side of project owners and head contractors to perform their duties (Zahloul & Haerman, 2017). The anticipated delay usually brings about increase in overhead costs and the general cost of construction causing a financial burden to the involved subcontractors.
During the CCC building project, the construction contract was constantly reviewed with an aim of making sure that the construction contract that they did not waive their existing rights to remedies to carter for costs relating to construction delays which are caused by the head contractor or project owner.
Pay if paid or pay when paid is a usual considerations to clauses relating to time of payment. In most cases, for example the CCC offices building project, pay when a paid clause was widely utilized serving the determination of the payment time. As a point of concern, pay if paid clause is always a key preference to the head contractors since within this clause, all subcontractors will have to wait for the head contractor to be paid is when their payment are also processed (Halpin, 2010). This will eventually transfer the risks of the project owner insolvency possibilities to the subcontractor instead of the head contractor who directly deals with the project owner.
This clause thereby exposed subcontractors to possibilities of non-payment as a result of reasons created by the head contractor or other subcontractors. This demands for the deep keenness in every wording of the construction contract wordings so as not to fall in a legal trap.
Within the contract, contracting parties were allowed to use the mediation mode of solving any arising disputes. In addition to this, the adjudication method of solving disputes was also a contract component of resolution to disputes. Adjudication method helped in faster and reliable way of solving disputes specifically those that related to payment of contractual services as stipulated in the construction contracts acts of 2004. It entailed delayed, disputed or ignored payment to either the subcontractors, suppliers or the head contractor by either the head contractor or the project owner. The 2004 construction contract act allows an independent adjudicator to be appointed to facilitate the payment dispute resolution within the already set strict time guidelines which are aimed at faster decision making and release of funds if deserved. The adjudicators are normally trained and registered personnel who should be always present at the construction site to help interpret certain payment clauses within a construction contract. Eventually, all payment should be released within 28days of the arising of the dispute as demanded by the construction act of 2002.
There normally exist problems relating to relationship between the head contractor, subcontractors and to some the project owner. These disputes are witnessed to be originating through the line and mode of communication, problems relating to payments and adherence to contract requirements, neglect of construction project schedule and expectations, revisions and change in specifications, complex and multilayer in subcontracting, insufficient and poor work quality, termination of contracts and many other more (Bresnen & Marshall, 2012). In order to ensure success in in a construction project, the following resolution methods should be adopted as witnessed or ought to have been applied in the CCC offices building construction project:
Contractors and subcontractors generated a smooth mode and line of communication and good understanding of the nature and type of their contracts. Sufficient communication ensured satisfactory mode of correction and awareness of contract standards and ethics demands as stipulated in the construction industry standards (O’brien, 2013). Nevertheless, before engagement in the construction contract, both parties seemed to have clear knowledge of the contract requirements and obligations at their disposal.
In addition, utilization of the last planner system approach as technique of handling challenges within the construction site had been adopted. This approach acts as a tool of production which focuses on adequate planning in the construction work site with an aim of avoiding and minimizing confusion and related conflicts (Mansfield, Ugwu & Doran, 2015). It also majors on creating trust among construction stakeholders through application of factors such as collective planning involvement, continuous learning and working relations improvement.
With an aim of encouraging trust among stakeholders of a construction project, fairness is very vital. Fairness as an ethical behavior and standard in construction activities, stipulates that construction project risks should be elaborately distributed across all parties involved or mandated to specific tasks rather than burdening of single individuals such as subcontractors (Hurris & McCaffer, 2013). The fair and equitable distribution of risks eventually generated a collective responsibility during the project among the project owner, head contractor and subcontractors thereby encouraging eventual success of the project.
Adequate information sharing between the head contractor and subcontractors together with the project owner was also being encouraged. The content about information majorly focused on the weaknesses and strengths of the contract features to the entire project as a whole and to each stakeholder. On identification of a component that did not favor any party, the content was immediately modified and got rid of completely so as to facilitate comfort in performing allocated roles and duties within the project scope.
Another significant point of concern in dispute resolution was the existent of power imbalance between the head contractor and the subcontractor relating to the contract. It was later accepted by the head contractor that the subcontractors play a major role in ensuring success of his efforts hence their presence should not always be taken for granted and exploited through contracts aimed at carrying many if not all construction project risks.
It was also evident that with the presence of mutual agreement and cooperation between the contractor, suppliers and the head contractor, success of the project was easily achieved despite a show of little discomfort with a portion of subcontractors (Odeh & Batttainch, 2011). They felt being excluded by the head contractor from the process of making decisions hence they did not feel as part and parcel of the team. Since the project took a good duration of time to be completed, the head contractor adjusted and incorporated all the subcontractors during the decision making process and this eventually lead to improvement in work delivery and innovation by the subcontractors.
In the initial stages of the project, the head contract possessed a behavior of late issuance of financial details to the subcontractors which did not allow the subcontractors to cover expense in the due time. In addition it prevented acquisition of materials and products together with payment of Labour at the desired time thus encouraging time waste which eventual delays the completion of the project. It was with great positivity that the good dispute resolution method outlined within the contract enabled a quick corrective approach by the head contractor who responded by ensuring punctual supply of products to the site and at some point materials were brought early enough before the time of need hence promoting continuity of the construction project.
Proper documentation of the project design was also facilitated by the head contractor which prevented confusion and conflicts resulting from the change in taste by the project owner. The contract rule was also very clear that in any case the head contractor would at some point not be satisfied by the nature of work provided by a certain subcontractor; he or she was expected by the agreement to initially inform the subcontractor of poor quality work before assigning the task to another subcontractor and dismissing the non-delivering contractor. This was to be performed well in advance to create room for possible improvement or change of the work force by the subcontractor. In case of any dismissal, the subtracted was to be cleared of any existing payments subjected to his subcontracting firm so as to minimize or avoid disputes that could arise from suspended payments (Hughes, Champion & Murdoch, 2015). On the side of the subcontractors, it was expected of them to offer best quality services at the speculated time of completion. In addition, they were expected to conform to all the standards within the contract. A contract breach without valid reasons which was inclusive in the contract was to possibly invite for penalty clauses which was too available against each mode of breach.
Additionally, other low cost alternative methods of dispute resolution would also be employed. They include dispute resolution services aimed at solving business disputes relating to suppliers and construction debts recovery. This helps maintain the relationships in business and avoids wastage of time while going to courts.
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