Tuesday, 31 May 2011

Claims in Building Construction of Pakistan: Statistical and Pathogenic Analysis

The Causes of Project failures in terms of cost over runs, schedule over runs and depleted quality have been identified particularly for different countries conducting case studies and questionnaire survey based upon the opinions of Employers, Consultants and Contractors operating in that Country. Generic identification of causes of claims in one country may not be very helpful for the other country and would not address the particular problems prevailing in the relevant Construction market of that country. According to Acharya et al. (2006), the sources and reasons of conflicts are different according to the nature of the projects and conditions of a particular country. The differences in the types and levels of conflicts from country to country are due to the unique local environment of the country in which the project is going to be executed. Therefore a study is required to investigate the frequently occurring causes of claims and their types in Building construction market of Pakistan. The sector of Building construction is chosen because Building construction is the sector in which both Public and Private sector clients invest and develop the projects; Economic downturn in the Industry and double digit inflation have already created problems for Employers and contractors to procure and to deliver the projects respectively. Therefore, the projects under planning stage should be planned and designed in such a comprehensive manner so that they could survive the harsh and tough market conditions of Pakistan.

Causes and types of claims provide an insight into the list of factors responsible for the development of claims but lack in identifying the underlying causes of claims. Love et al. (2010) also state that many of the causes of claims and disputes identified in many studies are not dissimilar in nature and moreover do not identify the underlying causes of disputes which are essential if the reduction in claim and dispute potential is required. Therefore, it is required to find the pathogenic influences on the causes of claims and disputes so that proactive measures could be aligned in organization rather than aligning reactive measures.

Mr. Hassan Ashraf made a research in order to reduce the dispute potential in project beforehand and to view causal factors behind disputes through holistic approach. The objectives of his study were to : (1) identify the critical causes and types of claims against frequency of occurrence, degree of severity and level of importance in the Building Projects of Pakistan; (2) identify the Pathogenic Influence on the causes of claims in Building Projects of Pakistan; and (3) To propose recommendations for the minimization of claims and disputes.

Conclusions

1. Causes of Claims

Competitive market conditions, delayed payments by the Employer, ineffective planning and scheduling by contractor, poor financial management of the contractor, price hike of materials, improper technical study by the contractor during the bidding stage of the project, are the causes which have been identified as critical causes of claims against level of importance based on overall response. The causes are mainly related to economic conditions of Pakistan which lead to less number of construction projects resulting into tight competition for project award, these tight competition forces contractors to bid low and then proceeds for claims practice at the later stages of the project. Contractor’s incompetence and market inflation also lead to claim causation due to poor quality of work and escalated costs of work respectively. It was also seen from both case study of project “A” and the response of survey that inadequate early planning of the project also lead to claim causation due to limited understanding of Employer about the project and what is really required out of the project.

Scope changes and design changes and variations are most of the times caused by inadequate early planning of the project by the Employer. It has also been seen that regulatory and execution delays in terms of delays in obtaining permits also lead to claims and even disputes like in project “C” the conflict between Employer and Contractor was developed due to unavailability of permit `and consequently the contract was suspended and ultimately terminated by Employer which led to Claims by Contractor and counter claims by Employer.

It is seen that poor financial management of the contractor also leads to claims and this fact is endorsed by Contractors themselves by ranking this cause very high on scale of frequency and severity, this result leads to an interesting yet critical finding that delays in payments by the Employer would certainly push the contractor to adopt extreme measures in order to get its payment and to keep its company alive; most of the times this cause leads to conflicts and ultimately become the cause of suspension of works by Contractor. So, this is to be understood by Employers that Contractors should be assisted in terms of timely financial compensation as their financial management is already poor and delays could lead to conflicts and disputes. Studying the project details, evaluating costs and assessing the risks properly also leads to reduction of conflicts and claims in implementation phase of the project, Cause “Improper technical study during bidding stage of the project” was ranked high on the scale of frequency and degree of severity which shows that this is a cause of considerable importance.

2. Types of Claims

Extra Work Claims and Change Claims were found to be mostly occurring according to overall response. However, according to Employer’s response extra work claims and change claims were found to be critical types against level of importance and Delay claims, change claims, delayed payment claims, and extra work claims were found to be critical types against level of importance based on consultant’s response. Similarly, according to contractor delay claims, extra work claims, changes claims, delayed payment claims and design error & omission claims are critical types of claims against level of importance. These results signify that extra work claims and change claims are quite important types of claims in the Building construction of Pakistan and if the claims need to be minimized then it could be thought that reduction in these two types of claims would certainly help in mitigating the negative impact of claims on the project performance.

3. Pathogenic Influence on the Causation of Claims

Pathogenic influence was determined by identifying the causation of claims from case studies and then finding out the reasons for these causations. Mostly it was found out that task, Practice and Circumstance were the three pathogens which were mostly responsible for claim causations; Convention and Organization pathogens were also found out to be present but mostly practice, task and Circumstance pathogens gave rise to claim causations. Also, it is worth to be noted that Circumstance pathogen is the critical pathogen as it leads to the development of the other pathogens.

Recommendations for the minimization of claims are as follows:
• Adequate planning of the project needs to be done by the Employer in terms of major and minor deliverables of the project, financing issues, availability of technical resources with the Employer to get the project executed effectively.

• Engaging experienced Design consultants for the Design development in such a way that errors and omissions don’t take place in the Design Documents and the Design produced is workable and practical. Also, preparation of Tender Documents should be prepared with no ambiguities and errors. Pre-Bid meetings must be arranged to clarify the reservations/misunderstanding of contractors if any.

• Procuring project is the most crucial aspect in terms of preventing or minimizing claims. Claims generate from the poor analysis and allocation of risks among stakeholders of the project. Considering the project complexity and financial constraints, projects should be procured with such innovative contractual schemes where risks are rightly distributed among all stakeholders. Unjust allocation of risks will ultimately result in conflicts, claims and disputes which need to be avoided for smooth completion of the project.

• Standard form of contracts should be used on projects to increase the understanding of the contractual provisions and contractual provision for “price Adjustment” should be drafted in such a way that inflation and price hike of materials and equipment could be adjusted without creating any conflicts and disputes.

• Cooperative and problem solving approach should be employed on a project which is called as partnering so that negative attitudes which could lead to conflicts and misunderstanding are minimized.

• Engaging third party to review the contractual documents prepared for bidding purposes. This would help in decreasing the errors and ambiguities in documents which would later help in smooth execution of project.

• Escrow-of- bid documents clause need to be mentioned in the contract agreement so as to avoid the opportunistic behavior of the contractors during the course of execution.

His thesis abstract is copied and posted.

Abstract

Construction industry is getting competitive and complex due to increasing demands of the Employers and global economic downturn. This complex environment leads to claims and dispute causation which is totally counterproductive for the project Success. Therefore, this study was conducted to identify the types, causes of claims against the frequency of occurrence, degree of severity and level of importance so that preventive and corrective measures could be taken accordingly. Causes and types of claims provide the information on the elements which are responsible for claim and dispute causation in general terms with no pin pointing detail. For that matter, Pathogenic influence on the causation of claims was determined in order to know the practices, tasks, circumstances and other pathogens which lead to claim and dispute causation.

Data analysis was done on the responses of 59 respondents belonging to all three target populations i.e. Employer, Consultant and Contractor. Causes and types of claims were ranked against frequency, severity and level of importance. Most important causes which have been revealed from this study are delayed payments by the Employer, competitive market forcing contractors to bid low leading to tight profit margins, ineffective planning and scheduling by Contractor, poor financial management of the Contractor, price hike of materials and increased rentals of plant & equipment, and improper technical study by the Contractor during bidding stage of the project. For types of claims, extra work claims and change claims found out to be the most critical. Case studies were conducted to figure out the pathogenic influence on claims causation; Practice, task and circumstance pathogens were found to be the main pathogens responsible for claim and dispute causation. Recommendations were developed specifically for Employers, Consultants and Contractors with the theme of preventing and avoiding claim causation.

Key Words: Claims, Pathogens, Building Construction, Causes of Claims, Types of Claims, Pathogens and Types of Claims.

2 comments:

viji said...

congrats! keep up the good work/this is a great presentation.

Contractor Leads

Anonymous said...

Would this help teach about contractor leads?