FIDIC Contract Application In An International Infrastructure Project: A Case Study Of Ho Chi Minh City Water Environment Improvement Project

In Vietnam, international projects are required to follow the international standard/ rules or the Standard FIDIC Form of Contracts through a lager infrastructure projects. The problem that the Employers usually face is that, Vietnam has its own rules which are different from the international standard. Differences in practices and thinking could not be avoided. Sponsors always reminded that when there is a difference between the rules of Vietnam and regulated by Sponsors, they must follow the Sponsor’s.

Therefore, in the process of implementing projects and preparing tender documents, the Employer works with the Consultant about General Conditions and Conditions of Particular Application of FIDIC Conditions of Contract. Ensure that all the conditions for construction contract have formed to fit as specified by the Sponsor, the FIDIC Conditions of Contract, and the rules of Vietnam law construction. General Conditions and Conditions of Particular Application of Contract as well meaning as easy to apply the project smoothly success and minimize the risk or controversy in the process of implementing projects. All General Conditions and Particular Conditions of Contract have shown in full tender dossier, during the period of negotiations and signing of the contract and attachments as part of construction contract.

Mr. Dang Ngoc Hoi made a case study which three main objectives were to: (1) study FIDIC Forms of Contract application in a project; (2) study problems occurred and implement process for application General Conditions and Particular Conditions of FIDIC Forms of Contract in this project; and (3) Analyse the strengths, weakness, and proposal a procedure for solution

Conclusion

Using the FIDIC Forms of Contract with ODA loans, it needs to meet the regulatory requirements of sponsors such as the World Bank, JICA, ADB, etc. through international competitive bidding and is usually carried out by international Contractors. To implement the project according to the terms stipulated in the loan agreement between the Government of Vietnam with Sponsors, these guidelines apply to the FIDIC Conditions of Contract or the Sponsor's policies and regulations on project management of Viet Nam Government. Owner Units (Employers) in Vietnam face big opportunities and challenges. Minimising the risks, controversial claims in the process of implementing a construction Contract. the Employers often require design Consultant (or Employer) to draft Contractual terms according to the forms regulated by the Sponsors or FIDIC Conditions of Contract, technical specifications, and other agreements in accordance with regulations on management of ODA capital projects of the Government of Viet Nam, and be reflected in the Particular Conditions of the Contract, and ensures that the Particular Conditions and General Conditions of FIDIC Contract including the binding of the Employer, Engineer, and the Contractor with full rights and responsibilities of all Parties in the process of implementing the project. In the event that the Parties understand and perform the full duties and responsibilities in the Contract, they will mitigate or can avoid controversial action.

Based on the author’s observation, applying the Forms of FIDIC Contract in international projects on infrastructure construction in Vietnam is very useful. It binds the specific rights and responsibilities, represents the equity and risk sharing for the Parties (Employer, Engineer, and Contractor). However, users also anticipate difficulties and always active to improve the understanding when applying this Form of FIDIC Contract such as:

+ Language differences also affect the Countries which are not using English communication. This is also a limitation for Users who cannot fully understand the terms or legal in the FIDIC Contract.

+ Improving the General Conditions of FIDIC Form of Contract and the additional terms through Particular Conditions or Special Conditions and over time of usage between the Employer, the Engineer and the Contractor, it will increase the compliance made between the Parties under the Contract.

+ Because the FIDIC General Conditions of Contract clauses varied from time to time or improved, the Users need to be trained to improve the User’s knowledge and capability to apply FIDIC Form of Contract performance, it is very important in the process of implementing a international infrastructure investment and construction projects.

+ Success of using FIDIC Form of Contract often depends on the experience of People who have used similar FIDIC Conditions of Contract in infrastructure construction projects.

+ Several Conditions of Particular Application of the FIDIC Conditions of Contract for Works of Civil Engineering Construction, the Fourth Edition in 1987 have been adopted in the project is also attached to this report (Appendix No.1).

This report also focused to describe the advantages and disadvantages in the process of applying the General Conditions and Conditions of Particular Application (COPA) in FIDIC Conditions of Contract of large scale infrastructure construction projects in Vietnam, in particularly, the Ho Chi Minh City Water Environment Improvement Project, to resolve the major problems occurred in the process of implementation the project.

His thesis abstract is copied and pasted below.

ABSTRACT

In recently, Viet Nam has mobilized more resources to develop the infrastructure construction system, the budget are including the domestic resources, Foreign Direct Investment (FDI) capital, and official development assistance (ODA) loans from Organizations and Countries in the World. More international projects will be built in Vietnam based on international competence it necessity will have to use the international standard/ rules or the Standard FIDIC Form of Contracts through a lager infrastructure projects.

To perform the role and mission of the Employer, the Employer have to implement project management and make it meet all requirements of FIDIC Forms of Contract and Vietnam’s rules these jobs are not easy, because there are still differences between the rules of the international Sponsors with the rules of Vietnam. Differences in practices and thinking could not avoid. Therefore, in the process of implementing projects and preparing tender documents, the Executing Agencies or the Employer has requested to amend and apply widely adding special conditions to General Conditions to disputes arising among the parties in Contract, the amendments and additions shall be set out on pages headed Particular Conditions. Ensure that all the conditions for construction contract have formed to fit the specified by the Sponsor (or Sponsor’s policies). The FIDIC Conditions of Contract, and the rules of Vietnam law construction which are combined as well meaning as easy to apply the project smoothly success and minimize the risk or controversy in the process of implementing projects. They also have shown in full tender dossier, during the period of negotiations and signing of the contract and attachments as part of construction contract.

This report focuses to describe the advantages in the process of applying the General Conditions and Conditions of Particular Application in FIDIC Forms of Contract (special on Part II – Conditions of Particular Application) to resolve the major problems occurred in the process of implementation the project. Analysis on strengths, weakness, proposal a procedure for solution, and recommendations of construction contract for improvement in future that are applied FIDIC Form of Contracts.

Contract Management Strategy for Design-Bid-Build Project: A Case Study of Exhibition and Convention Center Project

Since 1986, when the economic and social reform program in Vietnam had begun, the country becomes one of the fastest growing economies in South East Asia, being the fourth in the list in terms of growth after China, Singapore and Hong Kong. The foreign investment increased by nearly 75% in 2008 reaching USD25Billion.

The construction industry contributes around 9% to the country’s GDP.  Since 2008, there are 1,406 projects amounting to USD18Billion that have given the licensed. This proved that construction industry in Vietnam has boomed. How to manage the construction effectively and efficiently is not only the owner’s essential requirement but also the responsibility of the contractor. This demands special knowledge and experience of project managers.

However, according to recent survey, many commercial buildings had encountered problems such as delay, quality and, dispute about payment, which are very significant. Some of the projects have terminated or the owner sued the contractor because of the dispute in construction contract. Therefore, the contract management is very important to avoid the risk.

The construction contract should be clear from the very beginning until the completion of the project. The causes of delay that usually occur during the project completion include:

•    Error in hand-over of full power of the construction site within time requirement from the date of agreement

•    Error in sending late full designs and construction drawings when needed or even during the start of the construction works. In some projects, the delays happened because of the engineer’s or architect’s late approval on sample or construction drawings.

•    Error in supplying equipment and materials that was supposed-to-be supplied by the owner to the contractor.

•    Error in coordination and getting the work done by other parties so as not to hinder the general contractor’s works.

Thus, skill weakness from employer side in managing the contract is the cause of project cost overrun compared with estimated cost. It may rise from the mistake of project inception preparation such as:

•   Error in defining the scope of work.

•   The change in drawings and specifications from owner.

•   Error in preparing the BOB (quantity, unit price)

•   Variations in construction contract document.

In order to find-out all the problems related to construction project which might affect the contract administration, Mr. Bui Duy Khanh made a case study on Contract Management Strategy for Design-Bid-Build Project of the  Exhibition and Convention Center Project. The objectives of his study were to: (i) investigate the exiting practices of project client in Vietnam in managing contract; and (ii) propose recommendations and develop a process of contract administration by using SECC case study.

In order to accomplish these objectives, he also studied the general literature in the multi-disciplinary fields of Construction Contract Management such as Procurement Contract; Construction contract; and Contract administration.

Conclusions

This research tried to find out the major aspects that has effect to contract management. Moreover, this also focused on responsibility of parties, and solutions that can be applied to manage the contract. This case study also tried to find out the strengths and weaknesses of contract managing procurement by analyzing the main aspects of contract management from tender phase and construction phase.

-  Tender preparation - For SPCC this procedure involves coordination of work of several staff from Project, Contract, Piling, Survey, M&E team. PDD and CDD need to train and support their staff to work together until the parts of this procedure are fully integrated.    

-  Tender invitation - This process involves a number of coordinated steps between different groups that need to complete within a time limit determined by the Tender Schedule. Co-operation and support by all groups is essential to achieve all the targets required in this procedure Tender evaluation

-  Procurement of contract: Management contract in construction industry: Separate contract method

The main aspects of managing contractor would base on fee that related to a percentage of the total cost of the project under his control or alternatively a fixed lump-sum contract. The managing contractor will not usually carry out any of the construction work himself but coordinate and be responsible for the letting of a series of work packages.

-  Type of contract: Lump-sum contract - The Contract for all Tender Packages will be lump sum contract form in accordance with the stipulations of Article-49 of the Vietnam Law on Tendering (No.61-2005-QH11)

-  Contract conditions - The general conditions of contract will be the FIDIC (International Federation of Consulting Engineers) which describe the performance of execution of the contract, the rights and duties of the parties to the contract and the role of Project Manager in the contract

-  Payment process - The process of checking and certifying involves a number of coordinated steps between different groups, which need to complete within the time specified in the Contract

-  Extension of times for completion

-  Contract report

  - Change order - Contract Variations may legally apply to all Lump Sum Construction contracts which use the FIDIC General Conditions of Contract and  where the original scope or quality of the works are proposed to be changed, therefore changing the original Contract Value. This procedure refers specifically to the FIDIC-1999 edition.

Each variation to the contract will cause either an increase or decrease on the Contract Sum, and may or may not lead to a claim for Extension of Time.

SPCC must coordinate all parties to act quickly in the processing of a variation claim and approval so that delays on schedule and payments have minimized.

       -      Price escalation

  -           Claim

   -          Distribution, and

    -         specific point of project:

o   The management company is the general management: design, biding, contract management, supervision, and project management.

o    Many extra works because designer project.

o   Separate contract method: Strengths and weakness

o   Lump sum  contract, DBB procurement method: Strengths and weakness

Recommendations

In order to manage the contract of the project successfully by using separate contract method, the owner has to view these points:

·          The owner has to have in-house expert or the project is managed by a professional management company

·         The owner (or project manager) has to choose quality sub contractor to do specific works.

·         The owner has to clarify scope of works and responsibilities of every contractor  in the contract

In DBB project, the owner has to pay attention to these problems

·         The owner has to choose experience design company to avoid construction extra works from the lack of details in drawing.

·          The contract manager has to set up “provisional sum” in contract to deal the price for extra works in construction period.

Within a limited time, the study did not cover all aspects of Contract Administration including contract clause managing or the legal relevant administration that are very important for contract manager. The study focused only on assisting the owner by applying activities in tender phase and construction phase.

The case study was conducted to find out some critical factors of contract administration in the SECC project. It had not pointed out the typical key factors of the construction industry in Vietnam. A broader survey, and a detailed investigation was not implemented to get information accurately and reliable result.  

Moreover, it is necessary for the owner to manage their project with full guidance of contract administration including details process in each phase of the project. Thus, the author wishes to develop a processing of Contract Management not only for DBB, but also for other kinds of construction delivery.      

ABSTRACT

In construction project, the contract management is the most important to every project

such as owners, contractors, vendors.  Thus, the appropriate contract administration for contract management is very important to determine the practical of any construction project.

In period of construction industry, the traditional delivery known as DBB delivery is popularly using in commercial and industrial projects. According to construction industry development, nature of construction project are increasing in size and becoming more complex that led to professional in management system. There for, this study conducts to assist the project owner understanding and implementing contract administration in Vietnam.

The Case study conducts to analysis cases on management the DBB of commercial building projects which are increasing on demand of trading services market, domestic and foreign investments in Vietnam by using SECC cases study (a project of PMH and SPCC). The objectives are emphasized on how the owner manage the contract of project

The study show the advantage of SPCC model project management also contract management . that a detailed process of contract administration should be developed that investigate the contract management for company. 

MPM Seminar

invitation

AIT SEMINAR

EFFECTIVE PROJECT CULTURE FOR INTERNATIONAL LARGE CONSTRUCTION PROJECTS

Large Construction Projects have been perceived as high risks and complex processes. The risks involved technical, commercial and political risks.  And, the processes included Conceptual, Design, and Construction to Commissioning processes. The situation will get more complicated when people with different cultures work together in a project. Thus, the understanding and management of cultural dimensions are of paramount important to put people to work together in harmony the complex construction processes.

To provide more information about cultural dimensions and the management of project culture, Project Management in Construction program (MPM), SET, AIT is organizing a seminar in “Effective Project Culture for International Large Construction Projects”

Date & time:      9:00-12:00; Sun 20 January 2013

Location:             45 Dinh Tien Hoang Str., Ben Nghe ward, District 1, HCMC (Opposite to HTV broadcast station)

Language:           English

Entrance fee:    Free of charge

We are pleased to invite you or representatives from your organization and company to this seminar. You are kindly requested to confirm your attendance not later than 16 January 2013 to Ms. Nguyen Le Tuong at (08) 39107423 (ext:117); email: ngletuong@aitcv.ac.vn. Fax: (08) 39107422.

We look forward to meeting you all at the seminar and thank you for your cooperation.

Best regards,

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AGENDA

08:45 - 09:00	Registration
09:00 - 09:15	Welcome speech AIT/MPM Introduction
09:15 - 11:15	Presentation: Effective Project Culture For International Large Construction Projects Dr. Hadikusumo – MPM/CEIM Coordinator Construction, Engineering and Infrastructure Management Asian Institute of Technology
11:15 - 11:45	Discussion

Meeting with Vinh Long People Committee and Dong Thap Department of Education and Training

Last Friday, 04/01/2013, AIT delegation had a meeting with Vinh Long People Committee and Dong Thap Department of Education and Training to explore the demands in development of high level human resource in Project Management specialized in Construction education and industry at those provinces and surrounding areas. It is creating a promising future for collaboration between AIT, esp. MPM program with many supports from them.

Meeting with Dong Thap Department of Education and Training, and Representative of Dong Thap Home Affairs

 With Mr. Nguyen Van Thanh, Vice Chairman, Vinh Long People's Committee

Happy New Year 2013

CONGRATULATION!!!
Graduates from MPM5 Ho Chi Minh city and MPM4 Ha Noi, intake 2011.

Last 18 Dec 2012, MPM graduates received their degrees at 118th Graduation Ceremony, organized by AIT at mother campus in Bangkok, Thailand. This ceremony is a celebration of their achievement and marks the new step for their future career.

From Left to right: Hoang Quynh Anh, Tran Xuan Le, Le Hoang Nguyen, Ngo Thanh Hoang, Nguyen Truong Hung, Pham Hai Chien, Dr. Roland, Dr. Hadikusumo, Nguyen Huu Ky, Nguyen Tien Dung, Le Viet Hoai, Dang Ngoc Hoi, Pham Van Long, Nguyen An Vi Nghia.