Saturday, February 8, 2014

Procurement & Tendering - Lesson 02

11:14 PM

By: OQSC Journal On: 11:14 PM In: Procurement & Tendering T062 No comments

What are the factors to be considered in selection of a procurement route?

Now you are ready to decide which procurement route to be selected for your project. It is important to do an analysis before taking the decision. In this analysis following factors to be considered:

1. Risks involved

What are the risks you can take and how much? This is the question you should answer before the analysis. What are the resources available with you to handle this project? Do you have experience in handling these projects? Money is not enough to manage a project.

Construction is the most risky legal business in the world. There are various risks types involved in construction sector:

a. Legal & regulatory risks

b. Environmental risks

c. Economical risks

d. Contractual risks

e. Management risks

f. Health & Safety risks

g. Risks of inflations

h. Quality control risks

i. Design risks

j. Financial risks

So it is a big decision! When you select your procurement route you have to analyze how you manage all above risks. Can you take all risks? Or you wish to pass some of the risks? Deciding a suitable procurement route will depend on your decision on taking, passing or sharing of risks. If you are capable you can take the risk. If any other party could take the risk completely you can pass the risk. Some of the risks you can share with other parties. We will discuss each procurement path in the terms of sharing risks.

2. Project size and complexity

It is important to assess the size of your project before deciding the procurement route. Further, your project may be very complex, for example a mixed used development including a public leisure facility. How many packages involved? Infrastructure, enabling works, buildings, water parks, rides, landscaping, sub stations, sewerage treatment plants, chilled water plants and many more..! Can you manage this complexity? Do you have resources? Experience?

3. Quality

How much the level of quality impacts your decision? Is quality one of your prime requirements? What kind of a building you are going to procure? You may need to deliver a 5 star hotel. So you may want to have world best finishes in your hotel. You may want to change the design of finishes as the project goes on, because you want latest updated designs in your hotel. So it is good to have the control of the design with you. If you are going to build a workshop, it may not be the case!

4. Time

When you need to complete this project? Time is money! Sometimes, you may have committed to investors or operators to deliver this project on a particular date. The speed of the construction or an early start of the project may be very important. May be you can start the construction of some parts while the design of other parts are in progress to save overall time!

5. Cost

How much money you have to construct this project? Do you have unlimited budget or limited budget? How much certainty of cost you are expecting? Can you go for unlimited variations? End of the day, your ultimate goal is doing business and earn profits using the buildings or other structures of this project. So the income generates from this project and the expenditure of the project matters!

We will discuss how each procurement route help us in most appropriate way in the view of meeting the requirement of mitigating the risks and achieving objectives of the project, in the terms of quality, cost & time.

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Quantum meruit and its scope
The basic principle under English law for claims under quantum meruit is that the employer will have a duty to pay the fair value of or, reasonable remuneration for, the work performed. ADAM WEBSTER* compares the provision with the UAE Civil Code.
Quantum meruit entitlements arise most commonly in construction cases where there is no contract but work is undertaken in circumstances where it is clearly not being done for free.
In Latin, the phrase means “what the job is worth” and in essence, it allows a person to recover the value of work done or services performed in circumstances where he has conferred a benefit on someone else which justice requires should be repaid.
A typical quantum meruit claim might arise where work starts whilst the parties are negotiating contract terms but ultimately the parties have not agreed on the applicable rate that is to be paid to the contractor or fail to agree any contract at all.
Alternatively, where the work that has been carried out by a contractor with the employer’s consent or upon his instruction is so different from the scope of work envisaged in the original contract that a new contract has effectively been formed, the contractor may be entitled to claim a quantum meruit for the additional work done.
The law will not deny the contractor an entitlement to payment, and the basic principle in English law is that the employer will have a duty to pay the fair value of or, reasonable remuneration for, the work performed. Issues will inevitably arise, however, as to the appropriate basis for valuation.
It is often thought that quantum meruit valuations are highly advantageous to contractors and that invariably they will open the door to “cost plus” entitlement, that is the net cost of labour and materials used plus a sum for overheads and profit. In truth, there is a great deal of case law on quantum meruit with a range of different approaches having been taken. As HHJ Hicks held in Serck Controls v Drake & Scull Engineering Limited (2000) 73 ConLR 100:
“A quantum meruit claim may …arise… across a spectrum which ranges at one end from an express contract to do work at an unquantified price, which expressly or by implication must be a reasonable one, to work (at the other extreme) done by an uninvited intruder which nevertheless confers on the recipient a benefit which, for some reason, such as estoppel or acquiescence, it is unjust for him to retain without making some restitution to the provider … At the first end of the spectrum … the measure should clearly be the reasonable remuneration of the claimant; at the other, it should be the value to the defendant. In between there is a borderline, the position of which may be debateable.”
Clearly, this is an area of the law where judges in English courts have some discretion and results are by no means predictable. Indeed, the recent case of ERDC Group Limited v Brunel University (2006) 109 ConLR 114 usefully highlights the inherent uncertainties and risks which abound when contractors are entitled to be paid on a quantum meruit basis.
In short, ERDC successfully tendered for the design and construction of a new sports facility at Brunel University’s Uxbridge campus, but a delay in obtaining planning permission meant that Brunel had to instruct ERDC to commence work under a letter of intent.
This letter of intent was relatively lengthy and detailed and Brunel agreed to pay for any work that was done on the basis of certain valuation rules (which were to apply to the contract when signed). The letter authorised work to proceed for a stipulated period of time within which a formal contract was to be executed. Three more letters were to follow, each one extending further this deadline. During this period, ERDC had applied for payment on the basis of its tender rates and prices and applying JCT principles. After the expiry of the last letter of intent, no formal contract was in place, but ERDC continued to work.
In this case, the judge was satisfied that all the usual requirements for a contract were present until the expiry of the last letter (that is September 1, 2002) and so, as there had been a contract until then, ERDC was entitled to be paid in accordance with rates and prices determined under the valuation rules that had been incorporated into that contract.
From September 1, 2002 onwards, however, the contract was found not to apply, and so ERDC was entitled to be paid reasonable remuneration for the benefit that the university had received.
In assessing what would be a fair and reasonable sum, the judge agreed with a comment made by Brunel’s quantum expert that “a price or rate that was reasonable before September 1, in my opinion, does not become unreasonable after September 1 simply because the authority in the letter of appointment expires”.
The fact that ERDC’s tender was shown to have been commercial and close to others supported the conclusion that continuing to use ERDC’s rates and prices, in many instances, were fair. For certain other items, however, where works had been prolonged beyond the period contemplated by the rates and additional costs had been incurred by ERDC as a result, or if it were appropriate to do so under the valuation rules, the Judge held that “cost plus” should be the appropriate valuation method.
As this case illustrates, under English law the position is far from being clear cut and cost plus entitlement should certainly not be assumed as a given by the contractor. By comparison, therefore, the question presents itself whether the UAE law contains, within its codified civil system, any provisions that address the notion of quantum meruit in a more straightforward manner.
Article 888 of the UAE Civil Code (“the Code”) applies where the parties have not agreed remuneration and the issue of a contractor’s entitlement to a reasonable remuneration arises. In this regard, Article 888 provides that, if the consideration for the work is not specified in a contract, the contractor is entitled to ‘fair compensation’, together with the value of the labour and materials he has provided (that is a cost plus approach).
Article 887 of the Code provides that a contractor may not demand any increase over a contractually agreed lump sum. Although the contractor assumes the risk in such a case for any cost overrun in carrying out the agreed lump sum works, it should not necessarily preclude a contractor from claiming payment on a cost plus basis for authorised works which fall outside the original scope of lump sum works.
However, Article 887 then goes on to provide that if any variation or addition is made to the scope of works with the consent of the employer, the existing agreement with the contractor must continue to be observed.
Under UAE law, therefore, an entitlement to an increase price for lump sum contracts is generally denied, subject only to variations or additions, the pricing of which should be assessed in the context of the overall work carried out. In the event that the employer instructs work that is out of scope and there are no applicable rates and prices under the contract, the contractor would be entitled to claim compensation by way of Article 888 and claim ‘fair compensation’, presumably on a cost plus basis.

OQSC Journal

Saturday, February 8, 2014

Procurement & Tendering - Lesson 02

11:14 PM

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Saturday, February 8, 2014

Procurement & Tendering - Lesson 02

11:14 PM

Written by OQSC Journal

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11:14 PM