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.