Balancing act

Poorly-drafted documents can leave contractor open to unnecessary risk

M Vasanth Kumar is chief executive officer of Al Mulki Group.
M Vasanth Kumar is chief executive officer of Al Mulki Group.

While Qatar offers an attractive marketplace for contractors across the world due to the sheer volume of construction work up for grabs, these very opportunities come with their own challenges and risks.

These are the direct results of various factors, including unfamiliar ground conditions and lack of homegrown resources. But the singlemost important risk factor is the rigid tender contract conditions, which can easily break even a seasoned contractor if contract terms and conditions are not carefully studied and mitigated.

Contract agreements are meant to be fair and equally beneficial to both parties. But due to the nature of the procurement model adopted – which is for lump-sum, fixed-price contracts – the majority of risks automatically transfers onto the side of the contractor.

Industry experts would agree that fixed–price contracts generally work in favour of clients. They can still be suitable for contractors, but only if the bid documents are complete in all aspects and there is no ambiguity in contract clauses.

However, there is an alarming rise in the number of incomplete tenders, possibly due to the rush to bid for work, which do not have all of the important elements that a contractor would be looking for. This includes thorough design drawings, detailed bills of quantities, updated vendor lists, the country of origin of products required and uniform specifications matching to all names on an approved vendor list. These ambiguities generate risks and can be possibly used against the contractor.

The usually acceptable standard forms of contract ,or locally-generated general conditions of contract, sometimes get substituted or modified through tender addendums or circulars, and can often go unnoticed. However, these points are sometimes not carefully picked up and qualified during the bidding stage.

In many cases, as a pre-set condition to move forward prior to award, these risky clauses are reinstated back into a contract by project owners by instructing contractors to withdraw all their qualifications – meaning the risks again fall on the contractor.

One other area of concern is who actually controls the project programme. While no project can be successfully completed on time unless all stakeholders work with the same level of trust and urgency, certain clauses do reserve more than adequate time for a client to to make decisions, which could potentially delay both a contractor's progress and a project's completion.

By engaging consultants, contractors and sub-contractors on similar conditions of contract, it would make each party understand their obligations and deliver within the given time frame.

In the long term, unbalanced contracts will bring undesirable results to project owners as contractors will factor in high safety allowances to insulate them from the risks, thereby pushing up construction costs. Also, project completions could be delayed as unbalanced contract terms can be used as a springboard for claims, counterclaims, arbitration and lengthy legal proceedings.

Sensible reforms can be introduced; for example, following standard forms of contract without any substitutions, taking an open-minded and collaborative approach, respecting other parties involved in the construction process, paying bonuses clauses for timely completion and granting fair extensions of any time and cost claims.

Alongside simplifying the approvals process and having trust in each other, they would go a long way to helping the successful delivery of projects.

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