Construction Claim & Dispute Resolution

CHAPTER 1: INTRODUCTION

There are usually a large number of parties involved in a construction or engineering project with differing responsibilities. These differing responsibilities will inevitably lead to different priorities. It is in the nature of contracting that the parties to the contract will have conflicting interests. Contractors would normally want to be paid as much as possible and for as little risk as possible. Conversely, owners will want to pay as little and as late as possible and possibly and/or forcibly, transfer all risk, expenses and cost to the contractor.

In most construction and engineering contracts, some things may be overlooked, are wrongly perceived or wrongly interpreted by one party or another. For whatever reason they are overlooked or misinterpreted, the result is that time is taken up and costs are incurred. In the event that the party incurring those costs believes that he is not suppose to bear the cost, he will certainly look for reimbursement from the other parties and dispute then often ensues.

In projects such as building construction or civil engineering works, the contract document consist of a trade-off between the contractor’s price for undertaking the work and his willingness to accept a certain degree of risk. Who bears what risk and at what price is simply a matter of commercial negotiation with the outcome often depending upon the skill, influence and power of negotiation of the parties concerned. The methods by which the risks are distributed between the distributing parties will depend not only upon the procurement method but also the form of agreement under which the works are procured and the duration of the contract under which the risk is assumed.

Construction contract disputes and claims are a reality and every management must be prepared for this eventuality. Project directors must from project initiation develop his project team to include someone who has reasonable competency in the knowledge area of contract law and configuration management.

Therefore, project documentations and project reports must be prepared with an eye to building cases and documentary evidence to support contention. Delays, damages and acceleration are complex issues from an entitlement determination and cost quantification viewpoint.

Contract documents are the basic foundation of construction claims analysis that focuses on establishing entitlement and proving damages. Timely completion of the construction works by the contractor is of great importance because of income and profitability consideration. Given the complexity of proving such damages, it is highly probable that parties will incur expense and be in dispute in proving their loss or defending it.

Construction contracts contain clauses to facilitate the execution of changes to the intended scope of work. These clauses define the responsibilities of the parties, allow for changes to the work, provide evidence to support the reason for extension of time when project is delayed beyond completion date, define the methods for pricing the changes and claims for damages, provide for rescission of contract if necessary, and stipulate the means of for a resolution in the event of dispute.

The contract documents may be the source of major disputes centering on the responsibility of the specifications. Construction changes during the execution of the work often result in claims. These claims may result from contradictory or ambiguous language and specifications, errors or omissions, or work that is impossible to perform according to the documents.

Other issues resulting in claims include disputed change orders, varied site conditions as opposed to the time of tender, apparent authority, and overzealous or improper inspections and instructions.

Construction claims often result from misinterpretation and improper administration of the contract documents during project implementation. Construction claims also occur because of misunderstandings concerning the rights, obligations and responsibilities of parties to the contract. This often leads to the waiving of one’s rights as provided for by the contract.

TO BE CONTINUED IN CHAPTER 2 ....

Heaven & Earth

Heaven & Earth


Who is number one?

Objectivism will lead oneself to the position aspired.

Project Management Information System

Information is a valuable resource. Every manager has to know that he is acquiring, producing and using information wisely and effectively in support of the organization’s goals and objectives.

Managing information requires the imposition of order, structure and discipline within a strategic direction. Information management is aided by the availability of technologies, methodologies, and development tools.

New forms of structure and technology dictate and make available new requirements for information systems. These new forms may need new types of staffs to develop and support them. This, in turn, will lead to new approaches to the training and development of information systems and information management staffs – staffs who will understand the technology, the information requirements of the business and its component parts and how information is best structured and stored to make it readily and effectively available as it is needed.

The availability of new and modern Technology has vastly increases our ability to access resources, both those we own and control and those outside of our own sphere of influence. As information management becomes more important every day, managers will need to ensure that people within the organization get the information they need to do their job effectively. Competitive advantage of organizations is very much governed by the effectiveness with which we manage these information resources.

Information systems now also extend over most areas of an organization. Once computers were restricted to the accounts department, but nowadays, we expect to see them on the shop-floor, controlling machines, warehouse – everywhere where work takes place. This means that more and more information is moving around the organization and needs to be managed. Once information was easily identified – it took the form of paper documents; today, it comes in a variety of forms. It is too valuable a resource to be allowed to move around unplanned and unchecked – and it is also a danger, in that too much of it clogs up our system.

The project management information system (PMIS) contains the intelligence essential to the effective planning, organizing, directing, and control of the project. All too often projects are characterized by too many data and not enough relevant information on where the project stands relative to its schedule, cost and technical performance objectives as well as the project’s strategic fit in the parent organization’s strategies.

Information is essential to the design and execution of decisions allocating resources in the management of a project. Decisions coming out of the planning and control of the project must be based on timely and relevant information. Project managers and his team members require information by which intelligent decisions can be made and executed effectively. Information flow is a critical consideration in the speed and eloquence with which the efficient and effective use of resources is carried out in meeting the purpose of the enterprise.

Information systems for organization include the formal information that is required to portray the organization’s posture, strategies, and performance, and the informal information which includes verbal communication which are informal and unofficial. This informal information can provide project managers with insight into how people really feel about the project.

The objectives of an information system are to provide the basis to plan, monitor, integrate project evaluation, and to show the interrelationships among cost, schedule, and technical performance for the entire project and for the strategic direction of the organization. In addition, information should provide a prospective view to identify project problems before they occur, so that they can be avoided or their impact minimized. Information is also required by the project team to continuously monitor, evaluate, and control the resources used on the project. There is also a need by senior management to be kept informed of the status of the project. The hardest part of any management job is not having all the necessary relevant information, yet having the responsibility of making the ‘right decision’.

In the construction industry, it is important that project information is shared between the project stakeholders so as to promote trust and to enhance a more mature relationships amongst them. Sharing of project information is one of the more important dimensions of keeping the team members working together cohesively and concurrently in the utilization of the project resources. Such sharing also facilitates the building of networks with the stakeholders through continuous interpersonal contact and dialogue.

It must be remembered that information has no real value and does not automatically lead to an effective management process. Information does not ensure success, but lack of information can contribute to project failures. Information and data is not equal. Data is merely raw material of information. Collected data are structured into meaningful elements and then transformed and refined to meet the needs of management.

Information provides the intelligence for managing the project. Information must be processed so that decisions can be made and executed. Information is essential to promote understanding, to establish project objectives and strategies, and to develop mechanisms for control, and forecast future performance, resources required, and to recognize changes. Information is needed to prepare the project plan, develop budgets, create and use schedules, and to lead the project team to a successful conclusion of the project. The project planning function establishes a structure and a methodology for managing the information resources which encompass defining, structuring, and organizing project information, anticipating its flow, reviewing information quality, controlling its use and source, and providing a focal point for the project’s information policies.

Project Management Softwares

Computers are the backbone of today’s information systems which form an integral part of project management. Computers are in essence data and information processors. If properly applied and managed they can greatly enhance productivity and improve quality, providing company with a competitive advantage.

In many construction companies, most management resides in the hands of those who graduated decades ago with little exposure, if any, to computer technology. Such individuals are faced with the difficulties of understanding the value and use of computers in the daily project life.

At another level, decentralization of information technology boosted productivity of those armed with proper knowledge in their fields and in the field of computing. Proper applications of remote computing make it possible to solve problems hundreds or even thousands of miles away from the project site without any loss of details or input from the project management personnel. Advance data collection techniques provide better control on cost, time, and quality as well as future estimates. Scheduling exercises of CPM or precedence take very little time to process once the schedule is set. Estimating becomes more reliable with proper use of software that facilitates reuse of unit costs and package or work assemblies.

A large number of procedures and methods have been developed to enhance the application of project management to a vast range of industrial and administrative functions. This rapid spreading of project management is largely due to the availability of computer software packages that make it possible to quickly implement project management techniques.

Computer programs for project planning and control have been available for a long time. A software package must be able to meet the needs of a project. There are numerous commercial software packages available. Although most project management software programs can run on the basic PC computer system, users of programs with graphical user interfaces often require a more powerful system.

Some of the project management softwares include: Microsoft Project, Artemis Project, Primavera, Suretrak Project Scheduler, Open Plan, Spreadsheets, Word processing softwares, & Etc, Etc.

Computer- processing applications in construction industry are becoming more and more common as many companies have realized the benefits inherent in such products. In the highly competitive construction field, the need to reduce costs and increase speed of delivery is paramount.

Computer applications, which have been used in the industries, may be broadly classified into four major categories [David Cleland, 1999]:

Administrative softwares
Engineering & design softwares
Project management & control, and
Plant and equipment control.

With the speedy growth and development in technologies and the continuous availability of development tools, this may allow for the creation of modules or building blocks for systems which allow rapid development of individual, functional systems around a common data structure.

The cost of integrated project control system software currently available is relatively high, which preclude most small businesses from acquiring these programmes. Alternatively, small corporations will need to develop their system using spreadsheet and word processors, but the reliability and accuracy may be improper and unrealistic.

Unfortunately, these applications are mainly isolated tools that lack comprehensive computer-aided project management system capable of being integrated with the project management functions within the various functional departments of an organization.

According to the research of Ken Gregson (2001), many organizations face the problem of island-development of information system. Their information system may be individually very good but they have been developed in isolation of one another and thus there is no added value arising from the interaction of the various systems. “People use different information to take different decisions – and then is surprised when the decisions do not relate to one another… individual systems should be components of a wider system. The overall planning activity needs to establish where these sub-systems interact, where they need to overlap, where and how they need to communicate and so on especially where they need to share data”, says Gregson.

The Internet is changing how project team members work together on a project, which usually comprises a complex process of collaboration, co-ordination and communication. The Internet is playing a crucial role in ensuring greater efficiency and productivity. As professor Thomas W. Malone of MIT Sloan School of Management wrote: “The revolution under way today will be driven not by changes in production, but by changes in co-ordination”. The Internet enables project teams to connect to an integrated environment that bridges geographical locations, time zones and project domains. Virtual teams can collaborate productively at any time, from anywhere [IcFox, 2001].

Using the Internet platform for project collaboration will represent a new paradigm for the construction industry in the coming years. According to IcFox (2001), by the year 2004, it is expected that construction companies will spend up to US$1 billion (RM3.8 billion) on hosted and project collaboration softwares. In is imperative for construction companies to enhance efficiency and profitability by improving their tools and methodology to enable quantum leap improvement with lower cost.

Computer should not be used to replace traditional decision-making processes. The computer should be used only as a tool to facilitate the implementation of validated techniques. The primary value of the computer is the speed at which it will perform the quantitative analysis needed in developing schedules and generating a variety of outputs and reports.

Project managers therefore need to be aware of available and emerging technologies. Together, these lead to a development of an information strategy, which itself give rise to the development of integrated and compatible systems.

Construction Project Reporting System

All companies are required to have an integrated information system which includes estimating, job costing, accounting, payroll, and scheduling. A management information system is integrated by means of a cost code of accounts.

The features of a progress reporting system are:

Work breakdown structure
Physical percentage complete
Planned and actual duration
Earned Value and project cost updates
Status report and forecast report
Estimate at completion and Estimate to completion
Manpower availability, utilization and productivity report
Material procurement and distribution
Plant and machinery availability, productivity and usage
Financial summary, Progress payment, and project cashflow
Project technical documents report
Request for further information matrix
Procurement status report
Report Summary

Project accounting system include:

Accounts payable & receivables
Balance sheet
Profit and Loss Statement
Financial Ratios
Purchase & expenditure register
Contract costs
General ledger
Purchase order
Project cost detail and summary
Project Cash flow Statement

Project reporting system must fully integrate the following: a Cost System, Material Tracking System, and the Scheduling System.

A project Cost System must interface with the organizational's Accounting Systems, which shall include, cost of material, labor, equipment and machineries (and project overhead cost). The objective of a Cost System is to track and forecast costs for comparison against budget. Apart from the Accounting System integration, it is necessary to also have a Material Management System which will track the materials from the requisition stage through to surplus disposal stage. The Scheduling System requires several levels of reporting to meet the need of the management hierarchy and therefore should be capable of the “roll-up” techniques. A scheduling system must be capable of scheduling all the activities, identify critical activities, estimate the resources required and include resource leveling, progress updating and tracking, and be produced graphically.

Reporting and feedback must be accurate and timely if it is to be effective for control purpose. Feedback must occur to the project team as well as management level. Management level reporting, that is for owners, contractors and project management teams, must provide statements of accomplishments versus planned cost and schedule objectives, forecast final costs and completion period. It should also review current and potential problems and indicates action taken to overcome the effects of the problems.

Weekly or monthly meetings are held to assess the progress of work. The review meetings are aimed at translating latest work status and critical problems into specific action plan. Weekly or bi-weekly (perhaps monthly) reports with information on the actual and ‘forecast at/to completion’, and the quantities of workdone serve as the agenda for the review meetings. By analyzing the actual manpower, material distribution, and equipment usage, the allocation and availability of resources can be adjusted.

PMBOK 3

PMBOK3 

PMBOK GUIDE EDITION 3

PMI had release their third edition guide book. It took them 2 1/2 years to finally complete it and got it published and delivered to PMI members.

For those who are going for their PMP certification after October 2005, they will have to master the new guidebook elements.

There are many changes made as compared to the 2000 Edition. Changes to the standard affect the structure, content and language of the PMBOK Guide. While the Knowledge Areas remained as nine, seven new processes were added and two previous processes were deleted. The new processes are:

Develop Project Charter (Section 4.1)
Develop Preliminary Scope Statement (Section 4.2)
Monitor and Control Project Work (Section 4.5)
Close project (Section 4.7)
Create WBS (Section 5.3)
Activity Resource Estimating (Section 6.3), &
Manage project team (Section 9.4).

In addition, PMI renamed 13 Processes, presumably for greater clarity. I am not sure if members felt the same.

Going through all the Chapters in the new PMBOK, I gather, many of those who are going for their certifications after October may feel the text structure tougher than previous version.

Although, the chapters and processes may be new, but actually, they are not. What had been added was basically an expansion of the write up and segregating them into new processes to provide clarity.

Personally, I suggest that those who wants to get their certification may consider to do it before October 2005 which will still be based on the PMBOK 2000 Edition, which to me, is much simpler, easier to understand and apply and readable to non-Americans.

From my own analysis, I would prefer the 2000 Edition although the new Edition provides more detailed information. To me, those information are necessary, but unfortunately are expressed in a language to cater for generic project management industries. In fact, the language is so "American" and it will take those who are weak in the American English and its Jingo to have insights to its intended meaning and expression.

The Project Integration Management Knowledge Area are much better than the previous. It has more detailed discourse and provides an extensive description of integration from the Project Management Process groups perspective. This is an area I felt was worth all the efforts taken by PMI.

IN Project Scope Management, Project Initiation was rewritten and moved to Project Integration Management. I would have thought that it was more appropriate to add a new chapter for Project Initiation Management as the subject matter and its various processes are extensive in real life and is thus not appropriate to be only a small sub-section of Project Integration Management. In fact, Initiation could not be considered as a whole process within Integration as only after the project award and project charter would integration to the 9-knowledge areas and the processes group be effectively propounded. This, I hope PMI would reconsider. For example, in the construction industry, the contractors would be sourcing for projects, tendering for projects, getting information such as feasibility study, market study, financial analysis and potential buyers' background information - all these activities are presumably within the Project Initiation Management. Then, when they were awarded the project, a project charter will then be forwarded to the project manager appointed, to authorize him to use organizational resources to organize and implement the project.

With the mandate, the project manager would then need to, first get the full contract documents (which he may not get them all), visit the project site (assuming he was not involved during the tender stage; such as the cases in Malaysia), and begin the Scope Planning exercise. Unfortunately, project charter in construction projects are mostly informal, unwritten, largely word of mouth from the project sponsor. The project manager will have to assume his authority (based on his past working experience with his organization, of which PMI now call it "Organization Process Assets and based on the "Enterprise Environmental Factors" to begin the planning process. Due to a lack of structured framework in scope planning, project managers will have little knowledge of the organizational resources that will be made available to him and what are the constraints he would be facing, such as - What would be the financial outlay & amount of financial working capital allocated for the project, how would be the appointment of sub-contractors (many of whom will be existing sub-contractors who are well entrenched into the system of cronyism and nepotism), what are the tolerance and thresholds levels in areas such as risk management planning, scheduling (what resources will be available if the sub-contractors have yet to be appointed and the Nominated Sub-contractors are unknown) and cost management (is it top-down budgeting: "Do it and complete the project at $xxx,xxx no matter what)?

Project Time Management would surely ranked as one of the best chapters in the PMBOK as they are clear, concise and pragmatic. The only weak area here is the lack of information as to critical path methodology and Monte Carlo Simulations which are worded in the tools and technique but with little information to readers. The reader at such, will need to read up more books to explore the usage of such tools, the interactions and integrations of these tools into the schedule, cost and risk management system. Tho' textbooks may provide the knowledge exploration, somehow, it is written in an academic language and contextual form that makes non-academic practitioners difficult to understand.

Project Quality Management chapters are almost identical to previous version. This is the Knowledge Area which I felt is too simplified and lack depth. The chapter maintain the 3-major processes, that is, Quality Planning, Perform Quality Assurance and Perform Quality Control. Personally, I would have it expanded into 5-Major Processes: Quality Management Planning, Quality Assurance Planning, Perform Quality Monitoring and Assurance, Perform Quality Control and Quality Audit.

The main problem in quality management is that the project quality plan is written in a language and documented in such manner that only a few of the project team members can understand. The performers of project activities are largely skilled and unskilled workers who may not be able to read those documents (worse, if they are not given one). At such, it is necessary to translate those quality plan into systematic action plan consisting basically flow charts and graphics, of which the workers will be able to understand and apply. This step, I called it "Quality Assurance Planning", which has not being practiced in the construction industry (probably, this step may not be necessary for IT Industry as the team players are trained in their own project language).

Project Risk Management and Project Procurement Management are similar to the previous edition, which I believe should have provide more indepth knowledge of the tools and techniques to be used. There were some graphics and metrics shown in the guidebook which are not user friendly. This is largely due to the fact that PMBOK Guide is generic, and at such, not specific industry friendly. For example, in Project Risk Management, the useful tool is Monte Carlo Simulation and there isn't any information and details as to how that tool can be used and applied during the risk quantification process.

Overall, with due respect to PMI, I would prefer the PMBOK 2000.