2 Contract Practice and Contract Administration

 

Contract Practice / Contract Administration Administration Contract Practice –Core Competency Level 3 Contract Contra ct Admini dministrati stration on - Optiona Optionall

Level 2

Date : 13 April 2012 Dharmendar Pardasani MSc, FRICS, MCIOB, M CIOB, ACIArb ACIArb Contrac Cont racts ts Manager Manager - Pa Parso rsons ns

 

BEGINNING OF CONTRACTS

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Administrator Duties Contract Administrator

Inception and Feasibility • •

Advise on im imp plica cattions on p prrop opo osed proje oject. Es Esta tabl blis ish h pr prio iori riti ties es for for q qua uali lity ty,, time time an and dc cos ost. t.

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Ad Adv vis ise e on Pr Pree-Q Qua ualilifi fica cati tion on of Co Cont ntra ract ctor ors s / Co Cons nsul ulta tant nts. s.

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Pr Prep epar are ed doc ocum umen ents ts for for in inv vitin iting g co cons nsul ulta tanc ncy y pr prop opos osal als. s.

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Prepare C Co onsultancy Agreements. Re Rev vie iew w of Pr Prof ofes essi sion onal al Inde Indemn mnit ity y / Insu Insura ranc nces es..

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Prepar ara ation of in initial bu bud dge gett re requir uireme men nts.

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Contract Administrator Duties

Design Stage • •

Ad Adv vise ise o on n co cost st pr prop opos osal als sb bei eing ng deve develo lope ped d by de desi sign gn team team.. Adv dviise on re requ quiire reme men nt o off c col olllat ater eral al warran rranti ties es..

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Advise on vario rious p pro roc cureme men nt options.

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Ad Adv vise ise on us use ea and nd/o /orr am amen endm dmen entt o off sta stand ndar ard d fo form rm of Co Cont ntra ract cts s iin n association with legal advisors. Par arti tici cip pat ate e in value Eng ngiinee eeri ring ng Wor Works ksho hop ps.

•

Participate iin nR Riisk Analysis sis of Pro roje ject ct..

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Contract Administrator Duties Tender Documentation • Sh Short ort llis isti ting ng of te tend ndere erers rs.. • Assist in allo allocation cation of cost plan in into to w work ork packages. • Rev Review iew of ttende enderr d docum ocument entatio ation. n. • Revi Review ew of compatibi compatibility lity of various C Contract ontract do documentat cumentation ion a and nd ensure remo removal val of ambiguities, errors, contradictions, etc. • To adv advise ise on p provis rovisions ions of liquida liquidated ted damages / penalt penalty. y. • To advi advise se the management on specific provis provisions ions in respe respect ct of Time Ex Extension tension,, variation, acceleration, claims provision, dispute resolution provisions.

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Administrator Duties Contract Administrator

Post Tender Stage •

To review tender proposals.

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Review Pricin cing s sttrate ategy a ad dopte pted b by yC Co ontr ntract cts s.

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To re rev view iew co comp mpli lian ance ce with ith C Con ontr trac actt requ requir irem emen ent. t.

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Advise on T Te en der Q Qu u a l i fi c a ti o n s .

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To a adv dvis ise eo on nm mer erit its s/d dem emer erit its s of ea each ch tend tender er / a aw war ard. d.

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Contract Administrator Administrator Duties Post Contract Stage • Re Revi view ew pe perio riodi dic c cost rrepo eport. rt. • Veri Verify fy int interim erim / final p pay ayments ments to Consu Consultan ltantt / Contract Contractor. or. • To at attend tend reg regula ularr commercia comm erciall mee meeting tings s on site to e ensure nsure th that at all commercial and contractual matters are being identified and addressed in good time. • To re revie view w the submit submitted ted cl claims aims / majo majorr va variat riations ions.. • To participate iin n di dispute spute resolution p process rocess conciliati conciliation, on, mediation, expert opinion,, adjudicatio opinion adjudication, n, arbitration, etc. Overall To ensure compl mpletion of the project in line with intended cost, quality, time and maintaining good relations between the parties as far as possible by being objective at all times mes. Page  7

 

Contract Administration /Contract Practice Contract A

Contract is a agreement formed between two or more parties that is intended to be legally enforceable, should have following essential elements.

• Offer • Acce cep ptan anc ce • In te n t • L e g a l i ty • Ca Capac pacit ity y of Pa Part rties ies • Pos Possib sibili ility ty of P Perfo erforman rmance ce • Ce Cert rtai aint nty yo off Te Term rms s • Con Consid siderat eration ion (In case o off Engl English ish La Law) w)

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Administration / Contract Practice Contract Administration Choice of Form of Contract

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Risk Allocation Involvement of of Engineer

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Value

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Complexity

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Design Responsibility

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Need for Variation

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W ork Type

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Contract Administration /Contract Practice Advantages of using a Standard Form of Contract against a Bespoke contract • Contractors aware of the risks, hence likely to be more competitive • There are many legal cases available for interpretation of the clauses. Hence post contra tract di dis sputes tes are likely ely to be les ess s. • Each party is well aware of their risks and obligations and hence more chance of the. • Changing the standard form of contract without good professional advice creates many am many ambi bigu guit itie ies s in the the co cont ntra ract ct.. e.g. If cost escalation clause is changed so as to disallow for any increase in prices but no clarification is incorporated for the variations, then it would result is many ma ny di dispu spute tes. s. • If provisions are altered in a Bespoke form of contract to align the contract completely in favor of the client, there is even a possibility that in case of any dispute, the court may even reframe the contract to make it more equitable or in worst case may even void the contract.

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Contract Administration /Contract Practice Choice of Form of Contract FIDI FI DIC C9 99 9 - Ty Type pe • •

Construction W orks Short Form of Contract -

Red Book 1999 Green Book 1999

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Plant & Design Build

Yellow Book 1999

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EPC Turn Key -

Silver Book 1999

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Employer – Consultant -

W hite Book 1999

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FIDIC 87 / 95 •

Civil Engineering W ork

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Electrical & Mechanical W orks -

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Design & Build Turn Key

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-

Red Book 1987 Yellow Book 1987 -

Orange Book 1995

 

Contract Administration /Contract Practice Key differences between FIDIC 87 and FIDIC 99 •

Th The eE Engi ngine neer er is spe speci cifi fied ed to ac actt ffor or the the E Empl mploy oyer er in FID FIDIC IC 99, not the imp impart artia iall role as envisaged in FIDIC 87.

•

In Inst stea ead do off En Engi gine neer er’s ’s De Deci cisi sion on as iin n FID FIDIC IC 8 87, 7, D Dis ispu pute te A Adj djud udic icat atio ion nB Boa oard rd iis s included in the FIDIC 99.

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Te Term rmin inat atio ion n fo forr c con onv ven enie ienc nce e cl clau ause se is ad adde ded d ffor or th the eE Emp mplo loy yer ers. s.

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Value Enginee eerring Clau lause add dde ed in FIDIC 99

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In Inte tere rest st on L Lat ate eP Pay ayme ment nt to b be e on ba bank nk disc discou ount nt ra rate te p plu lus s3 3% % sp spec ecif ifie ied d iin n FIDIC 99. In FIDIC 87, this is not specifically mentioned.

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Pr Prov ovis isio ion n ffor or rrev evis isin ing g tthe he rrat ate e if tthe he q qua uant ntit itie ies se ex xce ceed ed b by y mo more re ttha han n 10 10% % iin n FIDIC 99

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De Dela lay yb by ya aut utho hori riti ties es incl includ uded ed as the the g gro roun unds ds fo forr E EO OT in FI FIDI DIC C9 99. 9.

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Va Vari riati ation ons s pe permi rmiss ssibl ible e onl only yu unti ntill iiss ssuan uance ce of T Tak akin ing gO Ove verr Ce Cert rtif ific icate ate in F FID IDIC IC 99.

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Pr Prov ovis isio ion n fo forr En Engi gine neer er to s see eek kp pro ropo posa sall for for th the e var varia iati tion on in FI FIDI DIC C 99 99..

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Ba Basi sis so off co cost st fluc fluctu tuat atio ion n ca calc lcul ulat atio ion np pro rov vided ided iin n FI FIDI DIC C 99

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Contract Administration Administration Contract Practice Other Form of Contracts •

JCT

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NEC PPC 2000

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ICE

Insurances

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Co Cont ntra ract ctor or’s ’s All All R Riisk – va valu lue eo off C Con ontr trac actt + %a %age ge fo forr p pro rofe fess ssio iona nall fee fee / demolition, etc. Th Thiird Par arty ty – exa xamp mplle Dhs. 5.0 .00 0 Million / oc occu curr rre ence

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Con ontr trac acto tor’ r’s sE Eq quipme ment nt – value alue of equ quiipme ment nts sb bro roug ugh ht o on ns siite

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Wo Worrkm kme en Comp mpe ensation – total wages o off workfo kforc rce e

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PI Cover – fo forr de desi sign gn erro errors rs – exa xamp mplle 5 5% %o off C Co ont ntra ract ct val alu ue s su ubjec bjectt tto o maximum of Dhs. 10.00 Million Million

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Contract Administration Contract Practice Third Party Rights / Collateral Warranties • To g give ive cer certain tain rights to T Third hird Party Party Sta Stakeholder keholders s • Em Empl ploy oyer er – Su Subb-Co Cont ntra ract ctor or • In Inve vest stor or / L Land andlo lord rd – Co Cont ntrac racto torr • Collateral Wa Warrranty is a concurrent Contract which is related to or dependent upon another Contract. Wa Warrranty is to capture a promise from one party to another. • To re resolve solve the issu issues es of ‘doctri ‘doctrine ne of priv privity ity of C Contract’. ontract’.

Nominated Sub-Contractors • Nomi min nate ated • Named • Domestic • L i s te d – 2 o orr 3 Risks vary slightly in each case Page  14

 

Contract Administration /Contract Practice Key Features of a Partnering Contract • A partneri partnering ng chart charter er signed b by y all the parties inv involved olved hig highlighti hlighting ng th the e spirit of team work. • Pro Provi vision sion for KPI KPIs s to measu measure re pro project ject prog progress ress • Non Non-adv -adversa ersarial rial nat nature ure o off contr contract act • Prov Provision ision of early w warning arning sig signs ns and the mec mechanism hanism for revi review ew of problems and resolution of same • Pro Provi vision sion for V Value alue Eng Engine ineerin ering g • Prov Provision ision for incentiv incentives es for th the e proposals that helps in reducin reducing g the cos cost. t.

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Contract Administration /Contract Practice UAE Legal System System (Based on Civil Law) • Ba Base sed d on C Civ ivilil La Law w • Civi Civill Co Code de A Article rticle 870-898. (Civ (Civilil Law No.2) • Articl Article e 203-219 of Civ Civilil Proce Procedure dure Law N No.11 o.11 o off 1992 • UAE Commerci Commercial al Transa Transaction ction Law No.1 No.18 8 Artic Article le 11-95(1993) 95(1993) • Law no. 6 (1997 (1997)) appl applicable icable for Go Govt. vt. Con Contracts tracts in Dub Dubai ai • Abu Dhabi Emirate Emirates sC Construct onstruction ion Law No. No.4 4 of 1983 Some of main features of UAE Civil law are: are: • Pro Provi vision sion for 10 year years s Decen Decennial nial Liab Liabilit ility y • Court h has as the pow power er to review the comp compensatio ensation n stated iin n contract if it does not commensurate with with the damages damage s likely to be suffered. • If pric prices es not menti mentioned oned in the contract contract,, a fa fair ir price to be pa paid id • Con Contra tract ct tto o be per perform formed ed in Go Good od Fai Faith th • Termi Termination nation of contrac contractt by per performance formance / consent /court or order der UAE Courts Hierarchy • Co Court urt of Fi Firs rstt In Insta stanc nce e - Co Cour urtt of Ap Appea peall - Co Cour urtt of C Cas assat satio ion n Page  16

 

Administration /Contract Contract Administration / Contract Practice Provisional Sum & PC Sum •

FIDIC has the term Provisional Sum.

•

If work instructed against this sum to be done by Main Contractor, then eval ev alua uati tion on un unde derr Cl Clau ause se 52 52.1 .1.. If w wor ork k ag agai ains nstt itit to b be e do done ne b by y no nomi mina nate ted d Su Subb-Co Cont ntra ract ctor or,, tthe hen n ev eval alua uati tion on Clause 59.4.

• •

PC it item em tter erm mu use sed d iin nC CES ESM MM, etc etc.. a and nd so some me as Pr Prov ovis isio iona nall S Sum um fo forr w wor ork k to be done by nominated Sub-Contractor.

Material On / Off Site Materiall Off Materia O ff Site Requirements  • • •

Vesting C Ce ertificate Insurance Bank Guarantee

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Contract Administration /Contract Practice Claims Extension of Time  •

Extension of Time

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Time with Cost - Employer’s delays

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Ti Time me Wit Witho hout ut Co Cost st – Ne Neut utra rall D Del elay ays so orr C Con oncu curr rren entt Dela Delays ys by Em Empl ploy oyer er an and d Contractor

Impact Analysis Techniques  •

P l a n n e d Im p a c t

• •

As-Built Collapsed W indow Analysis

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Administration /Contract Contract Administration / Contract Practice Cost Claimable • •

Site Overheads HO Overheads

Hudson Formulae Eichley’s Eichley’ s Formulae Emden Formulae Hanklan’s Formulae Samaratunga Formulae

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Finance charges

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Disruption

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Cost Escalation

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Claim Preparation

Other Claims •

Acceleration Claim

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Instructed Acceleration Constructive Acceleration

 

Contract Administration Administration// Contract Practice Disruption Claim This is basically a delay claim but delay may or may not affect the project completion. Cost tha hatt ar are e ge gen ner era ally cla laiimed are: •

Reduced Productivity

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Idle resources

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Demobilization / Re-mobilization

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Unproductive Overtime

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Administration /Contract Contract Administration / Contract Practice Suspension / Determination / Termination Suspension (Under FIDIC)  • Clause 40 • Su Susp spen ensi sion on 84 D Day ays s • Aft After er th that at 28 da days ys fo forr omiss omission ion / termi terminati nation on

Termination (Under FIDIC)  • Clause 63 • Clause 69 • Clause 65 & 66 -

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Termination by Employer Termination by Contractor Force Majeure

 

Contract Administration /Contract Practice Ending the Contract • By Pe Perf rfor orma manc nce e • By Agreement

As per UAE Law

• By Op Oper erat atio ion no off La Law w Ter ermi mina nati tion on ter erm m gen ener eral ally ly applic plicab ablle for for rep epu udiat diator ory y br brea each ch (E (Ex xam ampl ple e Cl Clau ause se 63 or 69 of FIDIC 87) where parties commit a serious breach of their contractual obliga obli gati tion on,, whi hile le Deter etermi mina nattion ion term term ge gen neral erally ly us used ed whe here re co cont ntra ract ct pe perrfo form rman ance ce is frus frustr trat ated ed as ex expl plai aine ned d be belo low w:

Doctrine of Frustration Performance of Contract becomes  Illegal • Im Impos possi sible ble to p perf erfor orm m • Radica Radically lly differe different nt to what w was as initial initially ly envis envisaged aged

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Contract Practice /Contract Practice Liquidated Damages vs. Penalty • Liquidated Damages - Asc Ascert ertaine ained d and a agree greed d prior tto o enter entering ing iinto nto Co Contr ntract act –  Reflects actual losses to be suffered by Client due to delays. • Penalty - A sum ins inserted erted in the ttender ender and not nec necessarily essarily reflect reflective ive of actu actual al losses.

Sectional Completion / Practical Completion • Cl Clau ause se 48 48.1 .1 – Whol Whole e of the the Wor Work ks • Cl Clau ause se 48 48.2 .2 – Pa Part rt of the the Wor Works ks

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Contract Administration /Contract Practice Definition of Practical Completion

mb oe st fa titoennd isetdha compItlevtaerdiesso, b au stto it cfc oe r putsaeblfeordtehfeiniin ptuw rphoesne the works are substantially Discharge  Final statement pursuant to Clause 60.6 upon issuance of Defects Liability Certificate •

Discharge by the Contractor that he has no further claims on the project

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Contract Administration Administration /Contract / Contract Practice Defects Liability Period • Period s stated tated in the Cont Contract ract starts starts after Ta Taking-O king-Over ver of Works. (G (Generall enerally y 1 year) • For Partial Completion   – – Separate Defects Liability Period • How However, ever, Defect Defects s Liabilit Liability y Cert Certificate ificate is issu issued ed wh when en last of Defects Li Liability ability Period expires.

Letter of Intent • Doe Does s not cr create eate a con contrac tractua tuall re relati lations onship hip • Uni Unilat lateral eral ass assuran urance ce tto o enter int into o a Contra Contract ct • Rei Reimbur mburseme sement nt o off W Work ork – Leg Legal al doct doctrine rine o off res restitu titutio tion n wh which ich prev prevent ents s unjus unjustt enrichment • Qu Quan antum tum meri meritt reim reimbur bursem sement ent • Limi Limitt o off Li Liab abililit ity y Page  25

 

Contract Administration /Contract Practice Contra Proferentum Rule An ambiguity in the document is construed in the way that it is least favorable to the th e party who has drafted the document.

Concurrent Delays Dominant Cause Theory • Dev Devlin lin App Approac roach h – Par Parties ties to b bear ear the their ir ow own n loss • App Apport ortionm ionment ent – Impl Implica ication tion of each concu concurren rrentt dela delay y is all allocat ocated ed acc accordi ording ng to relative efficacy of the delay.

Society of Construction Law ‘Delay and Disruption Protocol’ favors grant of Extension of Time but no cost in case of concurrent delays unless the Contractor can separate out the cost related to his delays and the delays caused by the Client

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Contract Administration Administration /Contract / Contract Practice Causes of Delays •

Excusable / Co Compensable – Employer’s Delay

•

Ex Excu cusa sabl ble e / No Nonn-Co Comp mpen ensa sabl ble e – Ne Neut utra rall or ((Em Empl ploy oyer er + C Con ontr trac acto torr De Dela lays ys))

• No Nonn-ex excu cusa sabl ble e/N Non on-c -com ompe pens nsab ablle – Cu Culp lpab able le Delay elay of C Con ontr trac acto torr Alternate Dispute Resolution Facilitative

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Mediation 

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Conciliation   – – same as mediation, but a third party plays active role in putting forward terms of settlement

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Early Neutral Evaluation – Evaluation – A preliminary assessment of facts / legal merits

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Expert Determination   – – A third party provides a binding decision

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Evaluative

 

Contract Administration /Contract Practice •

Executive Tribunal / Mini Trial – Trial – Panel of senior persons from each party and a neutral person. Parties make submission of legal cases.

•

Private Trials / Judiciary Appraisals – Appraisals – A judge is appointed to assess the legal merits.

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Dispute Review Boards – Boards – Similar to Adjudication Board

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Med Arbitration – Arbitration – Initially appointed as a mediator, but later acts as Arbitration if dispute persists.

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Adjudication – Similar to Arbitration but non-binding and with Adjudication – with a shorter time frame, wherein the parties normally do not engage the legal counsels. FIDIC 99 allows for this.

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Condition of the Parties if the Contract was not Managed Efficiently or the Risk were not Managed Effectively!!

Project OverOver -budget, -budget, poor quality, quality, delays, safety safet y issues, unsatisfied client, disputes, litigation, loss of reputation, sore relations Page  29

 

Questions

(If your condition is not like as shown below!!) below!!)

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