SRI LANKAN QUANTITY SURVEYORS

Volume 4 - February 2010

SLQS Journal

The Forum of Sri Lankan Quantity Surveyors Across the Globe

Volume 4 February 2010

Editorial Committee
Ajantha Premarathna FRICS, FIQS(SL), ACIArb.
Dhammika T. Gamage

NDT(Civil Eng.), ICIOB, ACIArb, AAIQS, MIIE(SL), IEng, FACostE, FCInstCES

Lakshman Gunatilake MCInstCES, MACostE, ACIArb, MIIE(SL), IEng,

Editorial Policy
We, the editorial committee reserve the right to select, reject, edit, and excerpt articles at our sole discretion. We will
publish no article which, in the opinion of the editorial committee, can be reasonably interpreted as insulting or offensive
to any individual or group. We will not return unsolicited manuscripts. The opinions expressed in articles contained in the
SLQS Journal are the opinions of individual authors and not necessarily those of the SLQS Journal editorial committee.
Articles are provided for the general interest of the quantity surveying and contract administration community, but the
information contained therein does not constitute legal advice and should not be relied on as such. Neither the SLQS nor
the individual authors assume any responsibility for the accuracy of information reported.
The editorial committee assumes no responsibility for failure to report any matter inadvertently omitted or withheld from
it. The mode of citation utilised within the articles and for the bibliography would be the Chicago method.
Email your own creations to journal@slqs-uae.org with your passport size photograph and brief profile of yourself which
should not be more than 35 words.

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CONTENTS

Page

Editorial
Differences in Concepts between 1987 Red Book & 1999 Red Book
Editions of the FIDIC Forms
Hasaranga Fonseka BSc., MSc ACIArb, CCE

Extension of Time and Cost Reimbursement Claims

13

Lalani. C. Dodangoda Assoc.R.I.C.S, MACostE, LIMIS(U.K), ACIQS(Canada), AACE(U.S.A),

MPMI(U.S.A), MAPQSE (Sri Lanka)

How to Deal with a Delay or Default by Nominated Sub Contractor, in a

Contract under JCT 98 under JCT 98

15

Saman Jayasiri Welagedar, NCES (Civil)

Is Rent Leading Construction?

Wsantha Edirisinghe BSc (Hons)

Can Time Bar Clause (20.1 FIDIC 1999) Lead to Lose Contractors Rights?
Mahinda Ranatunga, BSc QS(Hons), MCIArb, CCE, Pg. Dip.(Arb & Const. Law)

Valuation of Variation under Lump-Sum Contracts

19

23

27

R.M Duminda Nishantha Kumara

The Relationship between Management and Personal Management Competencies

30

Punyamalie De Silva

How to Deal with an Extension of Time /Cost Claims

35

P.M. Dimuthu Niroshan Tissera B.Sc. (QS)Hons

Steps an Arbitrator should take before and during the Hearing.

38

Performance of Critical Attributes in Alternative Dispute Resolution (ADR):

A Study in Sri Lankan Construction Industry

42

Ananda P. Wickramasinghe. MSc(QS), ICIOB, ACIArb.

K.B. Dinesh Gunasena BSc (QS)Hons

SLQS JOURNAL

February 2010

Editorial
Dear Sri Lankan Quantity Surveyors
Prior to writing this editorial, I was looking back on our greatly successful commemorations of the
Silver Jubilee of the SLQS get-together, one of the most notable of which was Prof. Samaratungas
Continuing Professional Development Programme, Variations and Valuation of Variations under
the ICTAD and FIDIC Forms of Contract conducted in Colombo, followed by our recent Silver
Jubilee get-together held on December 2009. Likewise, this edition of SLQS Journal was dedicated
to commemorate the Silver Jubilee celebration of the SLQS-UAE get-togethers in the year of
2009.
We, the SLQS, are exceptionally pleased to announce our success with the publication of the SLQS
Journal as planned, an event long overdue and of significance to the Sri Lankan quantity surveying
community in the United Arab Emirates and the world at large.
We wish to thank all those of you responsible for the overwhelming response to our request; all
of those articles were a tremendous pleasure to read. Also, it was with great satisfaction that we
observed the outpouring of interest generated by the participants of the earlier workshop Sound
Contract Administration, by providing many articles which will be published in future issues. We
would like to mention that we have many more submissions of high quality than we are able to
accommodate within one volume, and the selection of the articles printed within is in no way a
rejection of other articles of equal quality.
In this edition, we found that two authors have taken a look through a different perspective at their
journey through the construction industry. The Relationship between Management and Personal
Management Competencies by Punyamalie De Silva and Is the Rent is Leading the Construction?
by Wasantha Edirisinghe are unique and noteworthy articles concerning the direct and indirect
influences on the construction industry.
Also, we consider it necessary to again discuss the appropriate length of articles. We should say
that, as we have more submissions of high quality than we may be able to accommodate within one
volume, the ideal length is around 3,000 words but should not exceed 5,000 words.
We trust that it is essential to remind you that this journal is designed to encourage interest in
all matters relating to contract administration, with an emphasis on matters of theory and onboard issues arising from the relationship of contract administration to other disciplines in the
construction industry. The subject matter of the articles will consist mainly of, but not be limited
to contractual matters. However, it is not the purpose of this journal to concentrate solely on drily
academia-oriented matters.
We eagerly anticipate future articles from you, our readers, for our forthcoming journals.
On behalf of the editorial committee,
Dhammika T. Gamage

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Differences in Concepts between 1987 Red

Book & 1999 Red Book Editions of the FIDIC
Forms
Hasaranga Fonseka BSc., MSc ACIArb, CCE
Quantity Surveyor
Mina al Arab Infrastructure Works
Halcrow International Partnership

3.1 and 3.5 of the 1999 Red Book . In the former

the Engineer is required to exercise the discretion
granted to him under the contract impartially with
the terms of the contract; in the latter, the Engineer
is deemed to act for the employer unless expressly
stated to the contrary but, if required to agree or
determine any matter, is obliged to consult with
the parties in any attempt to reach agreement and
failing agreement, to make a fair determination.

The FIDIC form: a brief history

The Fdration Internationale des Ingnieurs-Conseils

(FIDIC) organisation was founded in 1913 as a
collaboration of France, Belgium and Switzerland. The
first edition of the Conditions of Contract (International)
for Works of Civil Engineering Construction was
published in August 1957 having been prepared on behalf
of FIDIC and the Fdration Internationale des Btiment
et des Travaux Publics (FIBTP).
Both the Red and Yellow Books were revised by FIDIC
and new editions were published in 1987. A key feature
of the 4th edition of the Red Book was the introduction
of an express term which required the Engineer to act
impartially when giving a decision or taking any action
which might affect the rights and obligations of the
parties, whereas the previous editions had assumed this
implicitly. Although this paper concentrates on the new
FIDIC forms, it should be remembered that the FIDIC
4th edition (The Old Red Book) remains the contract of
choice throughout much of the Middle East, particularly
the UAE.
In 1994 FIDIC established a task force to update both
the Red and the Yellow Books in the light of developments
in the international construction industry, including
the development of the Orange Book. The differences
in concept between the 1987 Red book and the
1999 Red book are more important when dealing with
Contract Administration, so the list of items below are
the major differences of this 2 forms.

A basic change has been made to the role of

the Engineer in the 1999 Red Book . This change
can be seen by comparing sub-clause 2.6 of the
fourth edition of the Red Book with sub clauses

Whilst all the forms of contract recognize the

matrix of pure financial risk and make provision
for the employer to require the contractor to
provide a performance guarantee, the wording of
the provision in the fourth edition of the Red
Book differs greatly from that in the 1999 forms
of contract. Under the 1999 book the employer is
required to return the performance security within
21 days of receiving a copy of the performance
certificate (under sub clause 11.90), whereas by
virtue of clause 10.2 of the fourth edition of the
Red Book the performance security is to be returned
within 14 days of issuance of the defect liability
certificate (under sub-clauses 62.1).

Under the sub clauses 2.4 of the 1999 Red Book the
risk of inadequate employers financial arrangements
has been recognized and upon the contractors
request, if the employer fails to comply with this
requirement then the contractor is entitled to
suspend or reduce the rate of work and ultimately
to terminate the contract. There is no corresponding
provision in respect of the employers financial
arrangements under the fourth edition of the Red
Book.

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There is a new provision in the 1999 Red and

Yellow books expressly entitling the contractor, that
in the event of late payment by the employer, for
that amount to be reimbursed as financing changes
calculated at any annual rate which is 3% above
the discount rate of central bank (in the country
of the currency of payment) and be compounded
monthly.

One of the contractors obligations in the 1999

forms of contract is to ensure that the works are
fit for the purpose for which they were intended as
stated in the contract conditions. There is no such
requirement in the fourth edition of the Red Book.

Whilst the concept of clause 12 of the fourth edition

of the Red Book, in respect of the risks of
unforeseeable physical obstruction or conditions, has
been maintained in the 1999 Red Book, both the
negative and positive aspects of such risks are taken
into consideration in the latter forms. Therefore
under the 1999 books, in making a determination in
respect of a contractors clams for adverse unforeseen
physical obstructions/conditions, the Engineer
is entitled
to review whether other physical
conditions encountered were more favourable than
could reasonably have been expected at tender stage.
In fourth edition of the Red Book there is no such
provision.

As an example the ground conditions claims are

recognized in clause 4.12 in the Red Book with the
provision that a claim may be reduced where other
physical conditions in similar parts of the works (if
any) were more favorable than could reasonably have
been foreseen when the Contractor submitted the
Tender. Employers faced with ground conditions
claims will no doubt be looking for reductions and
the meaning of similar parts and more favorable
will come under close scrutiny.
The term unforeseeable is expressly defined in the
1999 forms of contract. This definition is a useful
attempt at bringing some certainty to the concept
of unforeseeability. This concept relates to the
allocation of risks between the parties under the
FIDIC form of contract, namely those risks which
are foreseeable and are borne by the contractor and
those which are unforeseeable and are borne by the

employer. It would appear to derive from a similar

concept which has been developed by the courts of
the law of negligence.

The start of time limits in relation to interim

payments to the contractor has been altered. Under
sub clause 14.7(b) of the 1999 Red Book, the
interim payment must be made within 56 days after
the Engineer receives the contractors statement
(and supporting document) ,whereas in sub clause
60.10 under the fourth edition of the Red Book
such payment is required to be made within 28
days from the date of the employers receipt of the
interim payment certificate from the Engineer.

The employer under sub clause 15.5 of the Red

Book is entitled to terminate the contract at any time
and for his/her convenience, by simply giving notice
to the contractor of such termination. The only
condition that applied to this provision is that the
employer must not choose to terminate the contract
in order to execute the work him/herself or to arrange
for the work to be executed by another contractor.
Termination for convenience is provided for at
clause 15.5 upon 28 days notice. The Contractor is
paid for work done and demobilization but receives
no compensation.

Some changers have been made in relation to the

allocation of the risk between the employer and the
contractor. In particular, reference is made in the
1999 forms to sub clause 17.3, which now includes
terrorism as one of the employer risk; and Clause
19, which now expressly defines force majeure and
the relief available to the parties in such an event.

There is a new provision in the 1999 forms entitled

limitation of liability- sub-clause 17.6 , which states
that neither party shall be liable to the other party
for loss of use of any works, loss of profit, loss of
any contract or for any indirect or consequential
loss or damage which may be suffered by the other
party in connection with the Contract, other than
under Sub Clause 16.4 ( Payment on Termination
) and Sub Clause 17.1 (Indemnities). Also it limits
the contractors liability to the accepted contract
amount, or to sum stated in the particular conditions
(if any).

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The insurance provision of the 1999 form of

contract, clause 18, differs greatly from the provision
under the fourth edition of the Red Book, leaving
the matter to be discussed and agreed at the meeting
that is required to be held before the date of the
letter of acceptance. This agreement of terms shall
take precedence over the provisions of this clause.
(Second paragraph of sub clause 18.1)

Under the clause 16.1 of the 1999 Red Book, if the

Contractor suffers delay and/or incurs Cost as a result
of suspending work (or reducing the rate of work)
in accordance with this Sub-Clause, the Contractor
shall give notice to the Engineer and shall be subject
to Sub-Clause 20.1 [Contractors Claims] to a
payment of any such Cost plus reasonable profit,
which shall be included in the Contract Price. But
according to 1987 Edition the entitlement will be
only for the cost.

Clause 19 of the 1999 forms entitled force majeure

replaces special risk concept of fourth edition
of the Red Book. Since force majeure is a legal

concept which has slight but potentially significant

application in different jurisdictions, intending
employer should follow the recommendation given
in the Guidance for the preparation of particular
Condition to the 1999 forms of contract, namely
that before inviting tenders they should verify that
the wording of this clause is compatible with the
law governing the contract. Equally important
are the consequences set out in clause 19.4, which
indicate that the Contractor receives both time and
reimbursement of costs that result from the event.

There is a new provision in the 1999 forms of

contract requiring the employer to comply with
claims procedure for employers claims. According
to sub-clause 2.5 this procedure is different from that
which is stipulated for the contractor, particularly
in respect of the time limits that apply. The notice
shall be given as soon as practically possible
after the employer become aware of the event or
circumstances giving rise to the claim. This amount
may be included as a deduction in the Contract
price and payment certificate.

Employers Claims and Other Deductions

Contd.

SLQS JOURNAL

The Defects Notification Period, as it is now called,

may be extended for up to 2 years if and to the
extent that the Works, Section or a major item of
Plant cannot be used for the purposes for which
they are intended by reason of a defect or damage.clause 11.3.

Under the 1999 forms of contract, until the

Performance Certificate has been issued, the
Contractor shall have such right of access to the
Works as is reasonably required in order to comply
with this clause, except as may be inconsistent with
the Employers reasonable security restrictions. In
the fourth edition of the Red Book there is no such
provision.

Strict time limits are imposed under the 1999

February 2010

forms of contract that if a claim is to be made by

the Contractor under sub-clause 20.1, a notice of
such a claim must be made within 28 days after the
contractor become aware, or should have become
aware, of the event giving rise to the claim. Details
of the claim with supporting particulars should be
given within 42 days. If a Contactor fails to give
notice of a claim, the employer is discharged from
all liabilities in connection with the claim.
Failure to provide claim notices within the 28 days as
provided by clause 20.1 means,
the Time for Completion shall not be extended, the
Contractor shall not be entitled to additional payment,
and the Employer shall be discharged from all liability in
connection with the claim.

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February 2010

Contactors claims

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Strict time limits are imposed for other notices,

for example, the contractor must give 28 days
notice of the intended commencement of each sub
contractors work; and employer is required not less
than 7 days notice of the commencement date.

ii. The Guidance for the preparation of particular

conditions to the 1999 Red Book includes an option
of reverting to the traditional role of the Engineer
(and gives example sub-clauses to replace /amend
sub-clauses 20.2 to 20.4).

The 1999 of contract has expressly introduced the

concept of value Engineering which will if adopted,
accelerate the completion of the works; reduce the
cost to the employer of executing, maintaining or
operating the works; improve the efficiency or value
to the employer of the completed work or otherwise
be of benefit to the employer. The contractor may
make a proposal incorporating value engineering at
any time to the Engineer; if approved it is valued
under the variation under the sub clause 13.3.

As per 1987 edition, on the issue of the Taking-Over

Certificate for the whole of the Works, it is found
that as a result of;

(a)

all varied work valued under Sub-Clauses 52.1 and

52.2, and

(b)

all adjustments upon measurement of the estimated

quantities set out in the Bill of Quantities, excluding
Provisional Sums, day works and adjustments of price
made under Clause 70, but not from any other cause,
there have been additions to or deductions from the
Contract Price which taken together are in excess of 15
per cent of the Effective Contract Price then and in
such an event, they shall be added to or deducted from
the Contract Price as such further sum may have been
in regard to the Contractors Site and general overhead
costs of the Contract. Such sum shall be based only on
the amount by which such additions or deductions
shall be in excess of 15 per cent of the Effective Contract
Price.

If this change results in a reduction in the contract value

of this part, the Engineer shall proceed in accordance with
Sub-Clause 3.5 [Determinations] to agree or determine a
fee, which shall be included in the Contract Price. This
fee shall be half (50%) of the difference between the
following amounts:
(i) such reduction in contract value, resulting from
the change, excluding adjustments under SubClause 13.7 [Adjustments for Changes in Legislation]
and Sub-Clause 13.8 [Adjustments for Changes in
Cost],and
(ii) the reduction (if any) in the value to the Employer of
the varied works, taking account of any reductions in
quality, anticipated life or operational efficiencies.

Under the 1999 forms of contract the above clause has

been deleted but however, a new rate or price shall be
appropriate for an item of work if:
-

the measured quantity of the item is changed by

more than 10% from the quantity of this item in
the Bill of Quantities or other Schedule,

A new step in the dispute settlement procedure

referral of the dispute to a Dispute Adjudication
Board (DAB) similar to that introduced in the 1996
Supplement to the fourth edition of the Red Book,
has been introduced under sub-clauses 20.2 to 20.4
of the 1999 form of contract. There are however a
few important aspects that differentiate the DBA
concept introduced in the 1996 supplement and the
1999 forms. These as follows:

this change in quantity multiplied by such specified

rate for this item exceeds 0.01% of the Accepted
Contract Amount,

this change in quantity directly changes the Cost per

unit quantity of this item by more than 1%

this item is not specified in the Contract as a fixed

rate item

The DAB in the 1999 Red Book is appointed by

the date stated in the Appendix to tender , which
proposes 28 days after the commencement date.

Under the 1999 forms of contract in Application for

Interim Payment Certificates, retention will not be
deducted from

However, if amount (i) is less than amount (ii), there shall

not be a fee.

i.

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-

any amounts to be added and deducted for Plant

and Materials in accordance with Sub-Clause 14.5
[Plant and Materials intended for the Works];

any other additions or deductions which may have

become due under the Contract or otherwise,
including those under Clause 20 [Claims, Disputes
and Arbitration];

References

But as per 1987 edition retention will be deducted from

the above two items also.

Number of words in Part I of the FIDIC forms

Red Book 1987 Edition - 23,544 words
Red Book 1999 Edition - 29,800 words

1. FIDIC Conditions of Contract 1987 Edition, by

International Federation of Consulting Engineers
2. FIDIC Conditions of Contract 1999 Edition, by
International Federation of Consulting Engineers
3. The FIDIC Forms of Contract 3rd Edition, by
Nael G Bunni

Anns and Others -v- Merton London Borough Council [1978]

The plaintiff bought her apartment, but discovered later that the foundations were defective. The
local authority had supervised the compliance with Building Regulations whilst it was being built,
but had failed to spot the fault. The authority appealed a finding that it was liable, arguing that the
claims were time barred and that it had owed no duty beyond its statutory duty.
Held: As a public body, the defendants powers and duties were defined in public not private law.
Any distinction between the powers and duties of a local authority fell to be considered in that
context. The authority should at least have considered whether to inspect the foundations, and if
it did inspect, to do so with care. The authority could not protect itself entirely, simply by failing
to carry out any inspection at all. A duty of care might exist at common law, and whether it did so
did not depend upon whether the statute imposed a duty or a power to inspect. The cause of action
arose at the time when the condition of the building suggested some fault, and time did not begin
to run until this happened. The action was not statute barred.

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Extension of Time and Cost Reimbursement

Claims
Lalani. C. Dodangoda
Assoc.R.I.C.S, MACostE, LIMIS(U.K), ACIQS(Canada), AACE(U.S.A), MPMI(U.S.A), MAPQSE (Sri Lanka) has successfully completed her National Certificate of Technology in Quantity Surveying course in the University of Moratuwa in 1986 & served as a senior quantity surveyor in Consultancy organization in Sri Lanka,
extended here expertise in the field of Project Management by joining to Perigon Lanka ( PVT ) Ltd and worked
as Chief Quantity Surveyor / Projects co-coordinator . She joined to Faith Ful & Gould (Middle East) in 2006,
continuing her studies in Diploma in Project Management in College of Estate Management (U.K).

Identify The Event

A delay claim of a construction project corresponds to a

period of time which the project has been extended or
work has not been performed due to conditions which
were unforeseeable at the time the parties entered into the
contract. The most common cause of delay on a project
include ;
a) differing site conditions
b) changes in design requirement
c) Inclement weather
d) unavailability of labour
e) market interruptions
f ) defective plans & specifications
g) interruption by the employer
Such delays often force a contractor to extend the time
to complete the work required under the contract, as
well as to invite additional costs to the project. Generally,
these costs may include: the cost of sustaining an idle
workforce and equipment, unabsorbed on site and off
site expense and general conditions. However, in order
to receive an addition of time for the project completion
and/or to recover additional costs, the contractor must
meet a number of fundamental requirements, specified in
the conditions of contract.

Liability For The Event

Once an event has been identified the next step is to

determine the liabilities of the event. If responsibility
rests with the employer or its a neutral, such as force
majeure or exceptionally adverse climatic conditions,
the contractor may be entitled to an extension of time.
However, this is dependent upon the terms and conditions
of the particular contract. In circumstances where the
contractor is responsible for the delayed event, then the
consequences remain with the contractor. Therefore the

contractor should be required to identify the contract

provisions under which claims are being made.
Eg; Contract provides for time for completion to be adjusted
under FIDIC 1987 Clause 41.1 (Commencement delays &
site conditions), 52 (Variations), 44.1 (Extension of Time).

Consideration

of Contractual Entitlement;
Typically construction contracts contain provisions
entitling the contractor to an extension of time on the
occurrence of a particular event provided the progress of the
works of time for completion is delayed as a consequence.
For example FIDIC 1987 provides for an entitlement
for extension of time in the event of : late drawings(
clause 6.4) ,adverse physical conditions (Clause 12.2),
discovery of fossils or antiques( Clause 27.1), suspension
of work ( Clause 40.2) ,failure to give possession of site (
Clause 42.2), additional or extra work ( Clause 44.1 (a))
, delay referred to in these conditions ( Clause 44.1 ( b)
), exceptional adverse climatic conditions ( Clause 44.1
( c) ), any special circumstances, other than through
the default of the contractor ( Clause 44.1 (d)), and ,
contractors suspension of the works(Clause 69.4).
Considerations of Contractual Compliances

Generally with an extension of a time claim, the contractor

will be obliged to submit notice(s) and detailed particulars
within a specified time frame. For example, Clause 44.2
of FIDIC 87 provides: Provided that the engineer is not
bound to make any determination unless the contactor
has a) Within 28 days after such an event has first arisen,
notified the engineer with a copy to the employer b)
Noticed within 28 days, or such other reasonable time
as may be agreed by the engineer, after such notification
submitted to the engineer detailed particulars of any
extension of time to which may consider himself entitled
in order that such submissions may be investigated at

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the time. Occasionally, the submission of notice and/
or detailed particulars will be expressed to be a condition
precedent. The contractors failure to comply waives his
entitlement to claim an extension of time and owners
liability ceases. For this reason therefore, it is critical to
comply with the contract from the start of the project at
all levels. In addition, further submissions may be required
for particular events. For instance: Clause 6.3 of FIDIC
1987 (Disruption of Progress) requires the contractor to
give notice to the engineer, with a copy to the employer,
whenever planning or execution of the works is likely to
be delayed or disrupted unless any further drawing or
instructions is issued by the engineer within a reasonable
time. The notice shall include details of the drawings
or instructions required and of why and by when it is
required and of any delay or disruption it may suffer.

Cause & Effect A common mistake made by

contractors when attempting to demonstrate the cause

and effect on the event is that they merely order the
pertinent exchanges of correspondence between the
parties. From my experience this is usually insufficient
to satisfy the burden of proof. To demonstrate cause and
effect, an account should be prepared based on the facts
describing the effects of the event upon the works. This
should include detail of activities affected, referring to its
planned sequence, durations and methodology; the status
of the works in relation to the planned at the time of the
event; and description of the changes to that plan as a
consequence of the event.

Delay Analysis There are a number of delay analysis.

Ultimately, the choice of delay analysis methodology
will be dependent upon such matters as level of records
available; the robustness of the base line programme and
any updates; time available; degree of accuracy; and
level of proof that is required. The 1st step would be
classifications of the delays, as follows.

A) Excusable & compensable (Responsibility of

the Employer) Extension of time shall be granted. The
contractor is relieved from the liability of penalties and
the contractor is entitle to claim prolongation cost.

B) Excusable but Non compensable (Concurrent)

Delays are regarded as neutral. For example, extension

of time shall be granted. Contractors are relieved from
the labiality of penalties. The contractor is not entitled
to claim reimbursement of prolongation cost (exceptional
climatic conditions etc. ).

14

C) Inexcusable (Contractor culpable) Eg; Extension

of time shall not be granted, and the contractor shall

not be relieved from the penalties. The contractor is not
entitled to claim reimbursement of prolongation cost.
Methods of delay analysis can be identified concisely as
follows:
As Built Vs As Planned: This method basically is a
comparison between the planned base line and up dated
programme.
As Planned Vs Impacted: The impacted as planned
technique is based on introducing the events of the
delay in the base line. After introducing these delays
the programme will show a new completion date which
has resulted from these events. However in theory, the
contract should be entitled to a time extension of time
equivalent to the variance between the original & the
impacted dates.
Time Impacted Analysis: In this technique the impact
of delayed events are reflected on the plan updated as
a planned programme. After completion of impacted
programme for each event, the analysis has to be done to
establish which delays are from the contractors and which
may have resulted from the delayed event.

Statement of Claim:

Every extension of time claim must contain a concise

statement of what the contractor is claiming. The
claim particulars should include as a minimum a) the
description of the event including the timing and nature
of the event b) proof of entitlement c) the impact of the
contractors work programme, resources, deployment
of materials d) equipment & personnel e) analysis of
measures undertaken to ease the problem f ) approved
programme g) detailed justification of the time delay
suffered h) all other supporting documents and evidence
j) prolongation cost.

Substantiation of Claim:

Extract and provide documentary evidence (letters,

method statements, progress reports and photos, minutes
of meeting, programme, and schedules), statements of fact
and expert witness statements (if required). In supporting
the assertion made within the claim submission,
examining this check list will give a good starting point
for evaluation of any time extension claim.

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How to Deal with a Delay or Default by

Nominated Sub Contractor, in a Contract
under JCT 98 under JCT 98
Saman Jayasiri Welagedar, NCES (Civil)
Is a Project Quantity Surveyor attached to Cambell Reith Hill International.

A Case Study
Preamble
A contract for the construction of a new leisure centre included a PC sum for the design, fabrication and installation of
a very large sectional climbing wall, and the architect subsequently invited specialist tenders for the work. The tender
prices were closely grouped, and the architect subsequently issued an instruction to the contractor to place an order for
the work with the lowest tenderer. A nominated sub contract was subsequently signed between the main contractor
and the specialist, and a collateral warranty was put into place between the specialist and the employer under which
the specialist undertook:

to use all due skill and care in the design of the wall
to carry out the works in such a way that the main contractor would not become entitled to an extension of
time.

Installation of the wall is shown on the contractors program as lying on the critical path and the main contractor is
entitled to an extension of time for any delays by the nominated sub contractors.
The specialist company fails to commence installation on the agreed date despite a number of telephone calls from
the contractor and despite the fact that the architect has reason to believe that at least some of the wall sections have
already been fabricated. The specialist subsequently contacts the architect to say that they have discovered a serious
error in their price. They state that they are not prepared to fulfill the contract unless the contract price is increased by
some 75%.
The case study is to analyze the legal position from the point of view of all of the parties involved, citing relevant case
law as appropriate and advise the architect how he should proceed.

Introduction
In nominating a sub contractor for the project, the
contract administrator has followed the formal steps in
accordance with the main contract which has been signed
between the employer and the main contractor.
Main contractor has been instructed by the contract

administrator to enter in to an agreement with the

nominated sub contractor after selecting the sub
contractor. By entering to this sub contract agreement,
the parties; the main Contractor and the nominated sub
Contractor have agreed to the terms and conditions fully,
as related in the contract. Conditions of the main contract
will be included in the sub contract.

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SLQS JOURNAL
Under JCT 98 form, this nomination has been considered
as a nominated sub contract because in various ways it
fulfills the requirements of nominated sub contract, such
as bill of quantities showing the relevant scope as PC
sum , contract administrator issuing an instruction on
the expenditure of such PC sum, etc.
After the completion of forming of sub contract agreement,
the employer has entered into a collateral warranty with
the nominated sub contractor, in which the main terms
to read as, the nominated sub contractor should use all
due skill and care in the design of the scope specified
and carry out the works in such a way that the main
contractor would not become entitled to an extension of
time due to any delay of nominated sub contractor.
Accordingly, as per clause 35 of JCT 98 form this
nominated sub contract has been formed and the terms
and conditions are accepted in the following order:
1. Sub contractor has tendered on form NSC/T
2. Colatteral warranty has been formed as NSC/W and
is incorporated to the sub contract agreement
3. Contract administrator has formally nominated the
sub contractor on NSC / N
4. Completing the above (1) , (2) & (3), the main
contractor and the nominated sub contractor are
bound by the terms of sub contract NSC / C
The Contract administrator, in this case, the architect
is responsible for administration of various financial and
commercial provisions such as payments, variations and
completion of the relevant sub contract.
With all above it is clear that the steps which have been
taken by the contract administrator and the employer
are according to the form of contract adopted for the
project.
The estimated cost of the relevant sectional climbing wall
has been included in the bills of quantity as a PC sum. The
main contractor is entitled for the percentage or any fixed
amount set out in the bills of quantity against the value
of actual work done by the nominated sub contractor
for attendance, coordination and supervision. The
existing general facilities such as site facilities, scaffolding,
temporary roads, power supply etc., will be covered by
the said percentage of fixed fee.

16

Dispute
The specialist nominated sub contractor was not able to
meet the contractual obligations due to the following:
1. Failing to commence the works on an agreed date
2. The contractors notification of his inability to
perform the contract due to erroneous contract
price.
Failing to commence on an agreed date, nominated
sub contractor has created a back ground of a claim
for extension of time from the main contractor, as the
particular works are on the critical path of the main
contractors program.

Contractual and Legal Background

According to JCT 98 form of contract, the main
contractor has no liability for any delays or any other
damages by the nominated sub contractor. This allows
the main contractor to claim an extension of time for
the delays occurred by the nominated sub contractor.
On the other hand, the main contractor is not liable
to pay liquidated damages to the employer during the
relevant period which was delayed by the nominated sub
contractor. Similarly any damages due to the breach of
contract terms by the nominated sub contractor can not
be claimed from the main contractor.
As the nominated sub contractor has entered into a
sub contract agreement with the main contractor, the
nominated sub contractor is liable to complete the works
at the agreed price. The price which has been offered by
the nominated sub contractor is valid if that it is not
subject to a variation or omission. The main contractor
is entitled to recoup any losses due to the delay of any
nominated sub contractor under the clause 4.40 of NSC/
C. The employer is not authorized to involve such claims
as this aspect does not fall under the category of relevant
matters described.
Also, if the sub contract works lies on the project critical
path, the nominated sub contractor gets an extension
of time for works, and such extension of time will not
be applicable to the main contractors time for the
completion of the whole project. The main contractor is
unprotected in cases where the cause of delay is due to
his/her own fault.

SLQS JOURNAL
By demanding an increased price for the works under the
sub contract, the nominated sub contractor has expressed
repudiation from the project. The justification which he
has provided is not accepted as per the law of contract. As
he entered into a legally binding contract, it is not possible
to withdraw the offer stating that there was a mistake in
pricing. The sub contractor is bound to complete the
scope set out in the contract at the agreed contract price
within the contract period.
Responsibility of the losses and damages due to repudiation
of a nominated sub contractor, additional costs due to
inflation, and disruption to the main contractors program
etc. shall be borne by the employer, mainly according to
the court decisions made as follows:
House of Lords in North West Regional Hospital Board v TA
Bickerton & Sons Ltd (1970) held that any increased cost
arisen due to the repudiation of nominated sub contractor
should be borne by the employer as the nomination is a
responsibility of employer, at the event of a withdrawal of
a nominated sub contractor from the project.
A nominated sub contractor has liabilities in contract and
in tort. This is covered by the nomination procedure of
sub contractor, by adding a direct agreement between the
employer and the nominated sub contractor. The collateral
warranty plays the role of such agreement between them,
to enable the employer to cover any damages of delays or
any other due to breach of contract. With the collateral
agreement, a collateral contract forms and it will cover
the employers rights with some established assurances
made by the nominated sub contractor. Such assurances
are legally binding and can be presented at courts. The
case of Shanklin Pier Co Ltd v Detel Products Ltd (1951)
which held that the sub contractor was liable for damages
due to the breach of collateral contract is an example.
Even if any direct contractual link is not available
between the nominated sub contractor and the employer,
a potential claim will be possible to exist in the tort of the
negligence. Such claim shall be based on physical damages.
However, in the event of an employer appointing the
nominated sub contractor, it will provide an additional
value of a relationship of proximity that the nominated
sub contractor has a duty of care in tort not to create pure
economic losses through negligence performance of the
sub contract. Junior Books Ltd. v Veitchi Co. Ltd (1983).

February 2010

The main contractor also has responsibilities in a

nominated sub Contract, mainly on the quality and the
standards of workmanship and the fitness for purpose of
Work. Also the quality and the fitness for the purpose of
materials supplied also should be taken into consideration
under the responsibilities of the main contractor.
As a practice the following facts are to be considered
before commenting on the responsibilities of the main
contractor.
1. Terms of the main contract and the sub contract
governs the project
2. Type of the dispute or default
3. Who is to suffer
4. Following up actions by the parties involved.
When considering the provisions for the recovery
of damages due to the delays of the nominated sub
contractors, it is worthy to study the case Westminster
CC v Jarvis & Sons (1970). The house of Lords held
that the sub contractors delays (piling contractor who
has completed the job on time, but found defects at the
later stages which remedies have taken time causing an
extension of time to the main contractor) shall not be
considered for extension of time to main contractor,
because the delays are considered only on the completion
of the works. In other words, House of Lords expressed
their vision about the claim, i.e. if it is on the subject
of completion of the works, the main contractor shall
be granted the extension of time, for the delays by the
nominated sub contractor.
Also, the above has provided that the main contractor
shall be liable for the quality of the works and the required
standards.
The current position which is in force is where a nominated
sub contractor is in delay of practical completion, and if
it is applying to a delay in the main contract, the main
contractor is entitled for an extension of time. Then the
employer can recover the liquidated damages that have
been caused due to the delay, directly from the nominated
sub contractor, under the NSC / W clause of collateral
warranty.

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SLQS JOURNAL
Main Contractors responsibility towards
mitigation of delays and subsequent losses
Main contractor shall take the necessary actions for
mitigation of delays in the contract. In this particular
case, the main contractor has placed telephone calls
to nominated sub contractor to remind him about his
delays of the commencement of works. It is necessary to
check what contractual terms are available to measure the
validity of such action in order to mitigate the additional
cost from any delays. As telephone calls are not accepted
as recorded evidence in contracts, such action towards
mitigation will be challenged against a possible claim from
the main contractor. If the methods of notices are limited
to letters, fax or other in writing systems in the contract,
the main contractor will be liable for the damages for not
taking reasonable steps for mitigation of losses. These
measures of mitigation action by the main contractor are
to be valued by the contract administrator.
Following losses and damages to the employer could
occur due to the above dispute:
1. Re-nomination and re-tendering cost , in the event
of termination of sub contract
2. Cost of extension of time , if , to be granted to the
main contractor due to the delay by the nominated
sub contractor
3. Liquidated damages due to the overall delay of the
project due to the delays by the nominated sub
contractor.
In the event of the main contractor being liable for the
delays (under lack of necessary actions for mitigation),
the following additional costs will be generated , which
are to be recovered from the nominated sub contractor.
1. Extra costs for the required acceleration to the
progress of the work to cover the delays in order to
avoid possible liquidated damages
2. Any other costs related to the breach of sub
contract.

Conclusion
The Contract administrator, in this case the architect shall
proceed as follows towards the mitigation of any losses
to the employer due to delays by the nominated sub
contractor;

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February 2010

1. Advise the employer regarding the procedures of

claims against the nominated sub contractor for his
repudiation and the subsequent delays, under the
terms and conditions of the collateral warranty. The
employer may send notice to the nominated sub
contractor regarding the breach of agreement of the
package construction by demanding an increased
contract price under the collateral warranty. Also,
the failure of the nominated sub contractor to
avoid extension of time claims from the main
contractor as agreed under the collateral warranty
shall be highlighted in the notice. It is to be advised,
under the sub clause 3.3 of NSC/W, the employer
is entitled to recover the losses including liquidated
damages that happened due to the delay of the
nominated sub contractor.
2. Send a notice to the main contractor to submit
evidence of proof of the actions he has taken to
mitigate the delays by the nominated sub contractor
under the conditions of the sub contract and as
well as the main contract with the employer. Such
proof is analyzed by the contract administrator
to determine the level of effort taken by the main
contractor towards the mitigation of losses and
the same determination shall be submitted to the
employer in the view of possibilities to avoid claims
of extension of time from the main contractor.
3. Take necessary steps towards re-nomination of
a new sub contractor for the package, according
to the conditions set out in the contract, within
the specified period if the current nominated sub
contractor does not agree with the employer and the
main contractor to continue.
4. The contract administrator has to organize
negotiations between the nominated sub contractor,
the main contractor, and the employer and instruct
the nominated sub contractor to resume the works
as per the collateral warranty agreement and the sub
contract agreement to establish the original contract
conditions, (price and the time for completion).

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SLQS JOURNAL
Is Rent Leading Construction?
Wsantha Edirisinghe BSc (Hons)
Currently working as Senior Quantity Surveyor
ASSOCIATE MEMBER of Association of Practicing
Quantity Surveyors & Estimators Sri Lanka

Considering the current circumstance in the economy, as

toggle of construction work force; we are continuously
thinking, is there is an end of the construction industry?
As a result of the higher demand for buildings, the rent
will increase. The reason is that the construction of a
building is a time consuming process and hence arrival
of new building to the market is hang fire However, the
higher the rent is the more interest the developers have to
construct the new building as it gives the impression of a
better investment. With time more buildings will be added
to the market and eventually the rent will be reduced in
the market due to increase of supply. A lower rent tends
to increase the demand and a higher demand again tends
to increase the rent. Thus the property development is a
cyclical process which changes according to the market
circumstances.
Is rent leading construction? In some instances, the
market rent is leading the re-development process of the
buildings but in certain others that may be no the case. Let
us see how the market rent is leading the redevelopment
process in the private and public sector.
The changes in the conditions of demand and supply
will create an impact on making some structural
changes in the nature of buildings to compile with the
modern activities. That will take different forms such as,
modification of existing building through conversation or
refurbishment, redevelopment and new development on
undeveloped land etc. Those are often seen as alternative
solutions to adapting buildings and sites to new demands
and economics use.

Above, redevelopment is the total replacement of existing

buildings or any other structure. This gives a broad
possible advantage in modifying land use, site coverage and
density, introducing new building techniques, standards
of construction, and specification design layout etc. As
such, the redevelopment is forecast to be profitable.
With the elapse of time, buildings tend to become
increasingly unsuited for the demands placed upon them
by the market. This influences achievable rents. When the
building becomes older, more expensive repairs become
necessary. As well as periodic updating such as, compiling
with new fire regulations, installation of new heating or
ventilation systems and modifying to suit with modern
trends etc, become more difficult and costly.
Thus, when the Present Capital Value1 of the expected
flow of future net returns from the existing use of the land
resources becomes less than the present capital value of
the Cleared Site2 the redevelopment takes place.
(The present capital value depends on the Net Returns3

expected in future years. Then the net return should

be estimated and discounted to the present and then
aggregated in order to arrive at the present capital value.
To arrive at the present capital value of the cleared site at
any one time, the cost of demolish and clearing the site
and the cost of rebuilding for new use has to be deducted
from the present capital value of the best alternative
use.)
The present capital value of the current use falling to
zero, is called Physical Obsolescence. Also, when the
capitalised value of the present use falls to the level of

References:

(1) The total present value (PV) of a time series of cash flows.
(2) Cost of clearing the site and rebuilding to the new highest and best use.

(3) Ggross annual return less operating costs of

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SLQS JOURNAL
Diagram 1: The timing of Redevelopment

AY = Economics Obsolescent of the building (redevelopment should take place)

AZ = Physical Obsolescent of the building
the capitalised value of the redevelopment (cleared site)
is called Economics Obsolescence. These details are
illustrated on above diagram 1.
building

In the private sector

The private development is essentially profit motivated.

The unity of the environment and quality, externalities
and the interplay of social, political and economics
factors thus may not be considered. Therefore, the timing
of redevelopment in the private sector involves the
Opportunity Costs4 of continued use. Thus, the year
Y in the diagram 1 takes the more important place in
relate to the timing of redevelopment. That is when the
distance increases between year A and Y the timing
for redevelopment tends to delay. However, being profit
maximise motivated, the redevelopment can be started
after year X. Because in the year X, the value of cleared
site is given a positive consideration.

In this condition, it is notable that the following influences
determining the timing of redevelopment, especially in
the private sector.
References:

The capital value of property in current use.

This depends on the net returns expected to be earned in

the future years. This return is estimated and discounted
to the present and is aggregated in order to get the present
capital value. Thus, the period of years over which gross
returns can be earned in its current use is very important.
As well as, the appropriate rate of discount (basically
the interest rate) will give significant effect to the capital
value of property in current use in order to time or begin
redevelopment.
The net annual return in a building depends on the gross
annual return (such as rent received) and the maintenance
or repair (operating) cost. However, with time, the gross
annual return will decrease, as a result of supernormal
profit accrued by initial development which will tend
to encourage similar developments. Parallel to the time
elapsed, the Opportunity Costs rise as a result. For
example, the older the buildings are the less adaptable they
are to new technical requirements (such as lifts, modern
air conditions systems, fire and safety, and modern office
machinery etc,), and the structural, physical deterioration
of the building.

(4) the value of the next best alternative forgone as the result of making a decision.

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SLQS JOURNAL
Thus, considering the present capital value of current use,
the timing for redevelopment would tend to delay. The
income of the building being greater than the operating
cost, indicates that the net income of the buildings is
positive. Also, the higher interest rate which influences
to discount rate to calculate the present capital value of
existing use.

The capital value of cleared site

The value of a cleared site is determined by deducting the

cost of clearing the site, any land preparation costs and
the cost of rebuilding a new building from the present
value of the most profitable alternative use. To calculate
the present capital value of a cleared site, the gross annual
return in the best alternative use and in order to operating
and maintenance cost for the same are considered.
However, a higher value of demolishing and clearance
cost will cause to lower the value of a cleared site. The
lower value of a cleared site will tend to delay the timing
of redevelopment. When the net annual return in the
best alternative use is lower, the timing of redevelopment
tends to delay.
Due to the calculation of the present capital value the
interest rate takes a very important place, and it affects the
cost of borrowing. The following diagram 2 will illustrate
how the interest rate affects to delay of redevelopment.

February 2010

As per diagram- 2 above the redevelopment may occur

in year X. However, the rise in the interest rate affects
to lower the capital value of existing building (BB)
and therefore, the future net earnings are capitalised at
a higher rate. Hence, a higher interest rate is applied
to fewer net annual returns from the existing building.
The redevelopment of the best alternative use will incur
higher development costs, because the higher cost of
borrowing (as higher interest rate) will increase the capital
value of cleared site (SS) according to the timing of
redevelopment delay from X to X years.

The cost of rebuilding of best alternative use.

The higher cost of construction materials, labour and

plant, higher tax charges for the new construction, the
work site in congested area (such as city centre) etc, will
cause to increased the construction cost. Also, that will
affect to decrease the capital value of a cleared site. In this
condition the timing of redevelopment will tend to delay.
This can be illustrated in the following diagram 3

Diagram 3: The effect of higher construction

cost

Diagram 2: Redevelopment delayed by rise in

rate of interests (in order to cost of borrowing)

If there is no any competition, they can exercise

their monopoly power.
In this condition, the private sector can increase their net
annual income by getting a higher rent in order to delay
the timing of redevelopment
Therefore, as a result of profit maximise motivation in
the private sector, the above conditions the timing of
redevelopment will tend to delay.

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SLQS JOURNAL
The public sector
The public sector development is non profit making
or is only semi commercial. They take a longer, wider
view than the private developers. In the most economic
developments, the given constraints will be those
showing the greatest returns in aesthetics or function to
the community for the minimum capital invested. Also,
only public developers have received special privileges,
including extensive powers of compulsory purchase
(under legislation, such as the Community Land Act 1975
which abolished in 1980 in UK).
However, the development in public sector depends on
the historical, social or architectural or prestige views.
Thus, the public sector does not start the redevelopment
as soon as it reaches the economics obsolescence condition
in the building as private sector.

In the Economic Obsolescence situation, the value
of a cleared site crosses over the current use of value (in
year Y in the diagram - 1). But it can be noticed that
the Physical Obsolescence will occur at in the year
Z. Hence, up to year Z the operating costs are not
exceeding the gross annual return (A in the diagram - 1)
in the current building. If the operation cost exceeds the
gross annual return, it can happen in a situation such as
the physical fabric of the building being deteriorated or it
becoming technologically out dated. Hence in the public
sector the redevelopment can be delayed by changing
conditions.

Thus, in the public sector, the redevelopment may tend to
delay in several conditions such as,

The historical building.

The historical buildings are economically viable but

are under menace of redevelopment. For instance, the
present capital value of historical buildings may be lower
than the value of cleared site of highest best alternative
use (year Y in diagram-1). However in this year, the
redevelopment would be economically feasible. But if
redevelopment is not contemplated in this situation, the
building will be abandoned and left to decay after year
Z. Since the gross annual return of the historic building
may continue to rise as a result of scarcity value over time,
it is likely that the operating costs will tend to rise with
structural deterioration. But once after periodic major
expenditure the operating costs may increase and then

22

it may fall later. Hence in this condition the timing of

redevelopment tends to delay.

Monument, prestige or architectural building.

Even the gross annual return is negligible in the this

kind of building or structure, as the government giving
permission to hold these kind of buildings considering
the other external benefits, such as tourism shopping etc,
and to redevelopment may tend to delay.
An example would be the Indian government not allowing
clearing and redeveloping the building of Taj Mahal as
it is one of the most important places of tourism. Another
would be the worlds tallest building constructed in Dubai
for its prestige and improve Dubai business activities.
However, in future even the gross annual return from this
building becomes zero, considering the other benefits the
redevelopment may tend to delay.

Social Benefits.

When calculating the present capital value of the

existing buildings, the public sector is concerned about
the external and social benefits. Hence, although the
economics obsolescence in the building becomes zero,
the public sector considers the social and welfare benefits
rather than the economics benefits.
As an example, if there is a school in the city centre and
that land can be utilised for any other financially profitable
construction, the government may consider the social benefits
and welfare rather than economics benefits.

Imperfect knowledge, immobility of factors,

imperfections of capital market, legal restrictions
and planning and regulations may cause to delay
the timing of redevelopment.
Thus if the Economics Obsolescence arises the government
tends to consider the other factors prior to starting
the redevelopment and in the aforesaid situations, the
redevelopment may tend to delay in the public sector.
Therefore the current rent is not the only contributing
factor that convinces the developers to invest in the
construction industry.

February 2010

SLQS JOURNAL
Can Time Bar Clause (20.1 FIDIC 1999)
Lead to Lose Contractors Rights?

Mahinda Ranatunga. BSc QS(Hons), MCIArb, CCE, Pg. Dip.(Arb & Const. Law)
Mahinda Ranatunga is a Member of Chartered Institute of Arbitrators, Certified Cost Engineer and a
Quantity Surveyor for the Golden Arrow Interiors, UAE. He has completed his BSc in Quantity Surveying
at the University of Moratuwa in December 2000. Further he has earned a post graduate diploma in arbitration and construction law. His Masters degree in Construction Law and Arbitration is presently underway
(final year) at Robert Gordon University, Scotland. His experience in the construction industry counts
nearly 10 years in Sri Lanka, Qatar and the United Arab Emirates.

Invariably an entitlement of extension of time (EOT) will

be based on the nature of the delay event and operation
of EOT mechanism. Absence of claim notification is one
of the most common mistakes made by the Contractor
which can lead to lose his right to have the completion date
extended. Prior to FIDIC 1999, Standard Construction
Contract Forms have not traditionally included time-bar
provision. Clause 20.1 of the FIDIC 1999 standard form
of contracts states: If the Contractor fails to give notice
of a claim within such period of 28 days, the Time for
Completion shall not be extended, the Contractor shall not
be entitled to additional payment, and the Employer shall be
discharged from all liability in connection with the claim
which is unambiguously states that once the time period
has expired, all rights will be lost.
The aims of the stringent requirements on notices of
delays are;
(a) to give the employer the opportunity to take all
reasonable steps available to minimize the effect of
the delay;
(b) alert the Employer to watch out for the reasonableness
of the Contractors endeavours to prevent or
minimise delays in completing the works;
(c) to alert the Employer to the effects of the delay as
they occur;
(d) to allow the Employer to advise the Lender of likely
delays so that the latter can re-arrange his affairs
accordingly or his own funds re-arranged. But even
though, the Employer was aware of the delay event
and recorded site minutes of meetings, it would not
constitute a good delay notice.

Clause 1.3 of FIDIC 1999 has unambiguously stated that

notices shall be in writing. Whether site meeting minutes
constitute a good delay notice will depend upon the precise
wording of the Contract. In the Scottish decision of John
L. Haley Ltd v. Dumfries & Galoway Regional Council
(1998), the court held that the minutes of meetings will
not constitute a good notice unless the parties specially
amend the contract in this respect. In Steria v. Sibma,
the Judge decided that the notice must emanate from the
Contractor, therefore minutes of meeting recorded by a
third party will not suffice. And also he decided that the
requirement of notice, in respect of delay, did not require
that the notice refer to clause number and assessment of
delay, but to achieve its purpose it did not have to give
notice that relevant circumstances had occurred and
secondly that those circumstances had caused delay.
Notice as a condition precedent is a condition which
makes the rights or duties of the parties depend upon the
happening of an event the right or duty does not arise until
the condition is fulfilled 1
Situation of lack of notice was examined in case of Bremer
Handelsellscaft v. Vanden Avenne-Izagem, House of Lord
(1978), the Judge said; I should have expected the clause to
state the precise time within which the notice was to be served
and to have made plain by express language that unless the
notice was served within the time the seller would lose their
right under the clause.
If the clause is treated as a condition precedent and the
contractor failed to take the steps specified under relevant

References

David Chappel, Derek Marshal, Vencent Powel-Smith & Simon cavender, Building Contract Dictionary, 3rd edition,
Blackwell Science.

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SLQS JOURNAL
clause, then unless the employer waived the requirements
of the clause, the contractor would not be entitled to an
extension of time. Scottish case of City Inn Ltd v. Shepherd
Construction Ltd, Outer House (2001), was held by Lord
MacFadyen and he stated;
The fact that the contractor is laid under an obligation
to comply with clause 13.8.1, rather that merely given an
option to do so, does not in my opinion deprive compliance
with clause 13.8.1 of the character of a condition precedent
to entitlement to an extension of time. None-compliance
with the condition precedent may in many situation results
in a party to a contract losing a benefit, which he would
otherwise have gained, or incurring a liability, which he
would otherwise have gained, or incurring a liability, which
he would otherwise have avoided. The benefit lost or the
liability incurred may not be in any way commensurate with
any loss inflicted on the other party by the failure to comply
with the condition. The law does not, on that account, regard
the loss or liability as a penalty for the failure to comply with
the condition. In my opinion, it would be wrong to regard
the liquidated damages to which the defendants remained
liable because they failed to comply with clause 13.8.1, and
thus lost their entitlement to an extension of time, as being a
penalty for that failure.
In the Australian case Turner Corporation Ltd (Receiver
and Manager Appointed) v. Austotal Pty Ltd (1998), the
delay caused by the employer and the contractor failed to
serve notice which is a condition precedent. They stated;
if the builder, having a right to claim an extension of time
fails to do so, it cannot claim that the act of prevention which
would have entitled it to an extension of time for practical
completion resulted in its inability to complete by that time.
A party to a contract cannot rely on preventing conducting of
the other party where it failed to exercise contractual rights
which have negated the effect of that preventing conduct.
The prevention principle infers that a party can not take
advantage of its own wrong in enforcing a contract. Gillian
Birky and Albert Point have described this principle in
their book of Good Practice Guide : Extension of Time,
as; The prevention principle provides that where one
party to a contract has, by any act or omission, prevented
the other party from performing a particular obligation
under the contract, they cannot insist upon the performance
of that obligation by the other party. Therefore, where an
employer is responsible for any delay to the project (referred
to as an act of prevention) they cannot hold the contract to

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February 2010

the previously agreed date for completion unless the contract

states otherwise.
Australian case, Gaymark Investment Pty Ltd v. Walter
Construction Group Ltd (1999) NTSC 143, (1999) 16 BCL
449; considered that the prevention principle presented
a formidable barrier to Gaymarks claim for liquidated
damages based on delays of its own making. The arbitrator
expressly indicated that the employer would have been
entitled to liquidated damages but for the fact that in his
view the prevention principle defeated the employers right.
The employer sought leave to appeal that the concept of
prevention had no application to this delay for which the
employer was responsible because the contract provides
mechanism for the extension of time. The Judge stated
that the contract provides extension of time for delay for
which the employer directly or indirectly is responsible but
the right to such strict compliance is with notice. In absence
of such strict compliance there is no provision for extension
of time . The prevention principle has prevailed which
defeats the notice requirement as a condition precedent.
No dates for an extended completion date could be set
and Walter Construction was only obliged to complete
the works within a reasonable time i.e. time is at large.
Peak Construction (Liverpool) Ltd v. McKinney Foundation
Ltd (1970) 1 BLR 111, CA; Lord Salmon LJ said in the
Court of Appeal that the contract had contained a power
to extend time for the cause of delay, the failure to award
an appropriate extension of time under the circumstances
would also have left the employer without an enforceable
completion date, which would have defeated the
liquidated damages provisions.
In Maindenhead Electrical Services v. Johnsn Controls
(1996), pursuant to claim clause, any claim for an
extension of time had to be made within ten days of the
event has first arisen. It was held that a failure to comply
with the notice provisions did not render a claim invalid.
By considering the above, the prevention principle applies
in the situation where the contract does not provide a
remedy of extension of time and contractual mechanism
is not adequate for act of prevention by the employer
causing delay. In order to protect the employers right
to liquidated damages, extension of time clauses need
to provide a remedy for the expected range of act of
prevention by the employer.

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SLQS JOURNAL
Sub-clause 1.3 of FIDIC 1999 has unambiguously
stated that notices shall be in writing. This sub-clause
is not amended by any other clause in the contract in
respect of notice to intend to claim extension of time. By
considering court decision and phrase of this sub-clause,
a minute of meeting would not constitute a delay notice.
In the case of Gaymark, the notice requirement was
unusual and it required the contractor to overcome
a threshold of burden of proof . In the case of City
Inn, it appears to have been significant that this clause
did not impose an excessive burden on the contractor.
There are three types of delay event (1) risk events, (2)
instruction for extra works and (3) employers defaults
including breaches of contract. Risk events; in the case
of Humber Oils Terminal Ltd v. Hersent Offshore Ltd,
20BLR 22 (1981), a notice was necessary to allow the
employer to make decisions which could be of crucial
importance for the future implementation of the contract.
Instruction for extra works; in the case of City Inn, the
notice clause required the contractor not to carry out the
instruction if he gave notice. The employers breaches;
it is suggested that the prevention principle will prevail.
There has been some discussion regarding whether the
prevention principle is to be considered a rule of law or
rule of contractual construction. In case of Alghussein
Establishment v. Eton College, (1998) 1 WLR 587, rule
of contractual construction would take very clear words
indeed for one party to be entitled to obtain a contractual
benefit as a result of their own contractual default. In
the case of SMK Cabinets v. Hili Modern Electrics Pty
Ltd (1984) VR 391, even if prevention is considered a
rule of law, it is one which can be modified by express
contractual consent. In the case of Koch Hightex GmbH v.
New Millennium Experience Company Ltd, 1999, CA, the
court may refuse to hold the condition precedent clause
if it would be contrary to commercial sense in a special
situation, but held that the clause was not a condition
precedent, even though it read. In my view, condition
precedent notice requirements would be commercially
sensible, reasonable and fair for risk events and instruction
for extra works, but it would not be a commercially viable
clause for employers breaches.
However, the position under UAE remains to be tested.
Until the law is settle in this area, both the employer and
the contractor need to think very carefully to entering
enter into contract with clause 20.1 FIDIC 1999.

Bibliography
Case Laws

Gaymark Investment Pty Ltd v Walter Construction

Group Ltd (1999) NTSC 143, (1999) 16 BCL 449
Peak Construction (Liverpool) Ltd v McKinney
Foundation Ltd (1970) 1 BLR 111, CA
Maidenhead Electrical Services v Johnson Controls
(1996)
Bremer Handelsgesellscaft v Vanden Avenne-Izagem,
House of Lords (1978)
Turner Corporation Ltd (Receiver and Manager
Appointed) v Austotal Pty Ltd (1998)
City Inn Ltd v Shepherd Construction Ltd, Outer House
(2001)
John L. Haley Ltd v Dumfries & Gallaway, Regional
Council (1998)
Steria v Sibma
Humber Oils Terminal Ltd v. Hersent Offshore Ltd,
20BLR 22 (1981)
Alghussein Establishment v. Eton College, (1998) 1
WLR 587
SMK Cabinets v. Hili Modern Electrics Pty Ltd (1984)
VR 391

Books and Articles

Roger Knowles, 150 Contractual Problems and Their

Solution, 2nd edition, Blackwell Publishing
David Chappel, Derek Marshall, Vincent Powel-Smith
and Simon Cavender, Building Contract Dictionary, 3rd
edition, Blackwell Science
Gillian Birkby & Albert Ponti, Oct 2008, Good Practice:
Extension of Time, RIBA publication
John Uff, 9th edition, Construction Law, Sweet &
Maxwell
Michael Firmstone, Building Contract Casebook,
Blackwell
Richard Langham, 1996, Condition and Planning
Obligation, CLT Professional Publication
Anthony Speaight & Gregory Stone, 8th edition,
Architects Legal Handbook: Law for Architects,
Architectural Press
John B Molloy, Notice Provisions A Change in
Attitude?
Daniel Atkinson, April 2007, Delay and Disruption
Employer Delay and the Right to Liquidated Damages
Keith Pickavance and Wendy Maclaughlin, October
2006, A Little of Time At Large: Proof of a Reasonable
Time to Complete in the Absence of Completion Date,

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SLQS JOURNAL
Society of Construction Law
Hamish Lal, April 2002, Extension of Time: The
Conflict Between The Prevention Principle and
Notice Requirement as Condition Precedent, Society of
Construction Law
Nicholas Gould, Making A Claim Under The FIDIC
Form Of Contract. What is Clause 20 All About?, Fenwick
Elliot Solicitors, United Kingdom, 04 December 2007.
Brodie McAdam, Apportionment and City Inn: Save it
for the Scots, COBRA2008, RICS Construction and
Building Research Conference, September 2008.

Internet Resources

http://www.westlaw.com
http://www.info4education.com
http://www.scl.org.uk
http://sixthformlaw.inf/
http://www.wikipedia.org
http://www.contractjournal.com
http://www.brewerconsulting.co.uk
http://www.alway-associates.co.uk
http://www.mondaq.com
http://rics.org/cobra

Caparo Industries Plc -v- Dickman and others [1990]

The plaintiffs sought damages from accountants for negligence. They had acquired shares in
a target company and, relying upon the published and audited accounts which overstated the
companys earnings, they purchased further shares.
Held: The purpose of preparing audited accounts was to assist company members to conduct
business, and not to assist those making investment decisions, whether existing or new investors
in the company. The auditors did not owe a duty of care to the plaintiffs. Liability for economic
loss for negligent mis-statement should be limited to situations where the statement was made
to a known recipient for a specific purpose of which the maker was aware, and upon which the
recipient had relied and acted upon to his detriment. The law has moved towards attaching greater
significance to the more traditional categorisation of distinct and recognisable situations as
guides to the existence, the scope and the limits of the varied duties of care which the law imposes.
The House laid down a threefold test of foreseeability, proximity and fairness and emphasised
the desirability of incremental development of the law. The test was if the court considers it
fair, just and reasonable that the law should impose a duty of a given scope upon the one party
for the benefit of the other. Lord Bridge of Harwich: What emerges is that, in addition to the
foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care
are that there should exist between the party owing the duty and the party to whom it is owed
a relationship characterised by the law as one of proximity or neighbourhood and that the
situation should be one in which the court considers it fair, just and reasonable that the law should
impose a duty of a given scope upon the one party for the benefit of the other.

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Valuation of Variation under Lump-Sum
Contracts
R.M Duminda Nishantha Kumara

Duninda is a holder of High National Diploma in Quantity Surveying & Building Economics, ICBT
Campus and also City & Guilds Higher Diploma. He is currently working as a Quantity Surveyor for Al
Jaber (ALEC) L.E.G.T Engineering & Contracting LLC.

Introduction

It is a common perception that variations frequently occur

and in many cases inappropriately administrated in the
Industry. This paper attempts to discuss about valuation
of variations under lump-sum contract according to the
FIDIC conditions of contract fourth edition 1987.

Variation and Valuation of Variation

The complexity of construction works means that it is

hardly possible to complete a project without changes to
the design or the construction process itself. Construction
scope of work exists in the form of drawings, and
specifications earmarked for a specific construction
site. Changes to the scope of work are generally called
as variations initiated by the engineer on behalf of the
employer.
In FIDIC conditions of contract, these types of
alterations, additions, and omissions are dealt by clause
51(Variations). The engineer shall make any variation
according to his opinion, be necessary or appropriate as
per Sub-Clause 51.1. As per this sub-clause engineer shall
have the authority to instruct the contractor to do any of
the following as variations;
1. Omit any such work
2. Change the character or quality or kind of any such
work
3. Execute additional work of any kind necessary for
the completion of the works
4. Increase or decrease the quantity of any work
included in the contract
5. Change the levels, lines, position and dimension of
any part of the works
6. Change any specified sequence or timing of
construction of any part of the works

Although the above-mentioned (1) says that the engineer

shall omit any such work, these omitted works shall not
be carried out by the employer or by any other contractor.
A variation shall not in any way vitiate or invalidate the
contract.
The engineer can only instruct variations. As per the subclause 51.2(Instructions for variations), the contractor
shall not make any such variation without instructions
from the engineer. Further, it says that no instruction
shall be required to increase or decrease the quantity of
any work where such increase or decrease is not the result
of an instruction given under this clause.
These variations are valued in accordance with clause
52, unless the issue of an instruction to vary the work is
necessitated by some default of or breach of contract by
the contractor. If the default is with contractor, such cost
shall be borne by the contractor.
Provisions for valuing variations are stated in Sub-Clause
52.1. (Valuation of Variations). It is simple to understand
when explained in four points as follows:
a)

As per this sub-clause, all the varied work shall be

valued at the rates and prices set out in the contract if
they are applicable according to engineers opinion.
In the contract, bill of quantities/ Schedules of rates
are the documents, which all rates and prices are
fixed. Hence, varied work shall be valued according
to the rates and prices in the bill of quantities. It
is proven in the law suit, Henry Boot Constriction
vs Alstom Combined Cycles (1999). It states that
the rate in the contract for piles was twice than
what it should have been. When a variation was
instructed for more piles under similar conditions

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SLQS JOURNAL
to the original work, the contractor argued that the
contract rate should apply. Employer argued that a
fair valuation should be made for additional piling.
Court held, that the work is of similar character
and executed under similar conditions to the work
priced in BOQ and therefore the BOQ rates will
apply. The fact is that BOQ rates being too high
or too low is irrelevant. From this sub-clause parties
to the contract have agreed that they will use value
variations.
b) If the contract does not contain such applicable
rates, the rates and prices in the contract shall be
used as the basis for valuation, the process known
as Pro-rata basis. Using appropriate mathematics or
logic, new appropriate rates and prices should be
adopted from the rates and prices contained within
the contract so far as may be reasonable.
c) In case both these options fail, suitable rates or prices
shall be agreed upon between the engineer and the
contractor.
d) In case of all these options failing the engineer
shall fix rates or prices according to his opinion
as appropriate and shall notify the contractor
accordingly, with a copy to the employer as per the
this clause.
Variations shall be measured in accordance with the
method of measurement used in the original contract,
which may be SMM7, CESMM3, or POMI etc.
It is apparent that agreeing or fixing rates or prices
would take some time. To alleviate the negative effect
on contractors cash flow, the engineer shall determine
provisional rates or prices to enable on-account payments
to be included in monthly payment applications.

Lump Sum (Non Re-measurable) Contracts

Re-measurement & lump sum (Non Re-measurable)
types are the main two types of contract pricing methods.
In a re-measurement type contract, completed Works
would be re-measured for payment purposes. BOQ
items, quantities, descriptions are at the employers risk.
Final value of the works could either be more or less than
the contract price.
In a lump sum (Non Re-measurable) contract, the
works shall not be re-measured for payment purposes.
Bill of quantity items, quantities and descriptions are at

28

contractors risk. On completion of the works, the lump

sum contract price would be paid in full to the contractor
subject to the approved variations. In this kind of an
instance, employer has essentially assigned all the risk
to the contractor, who in turn can be expected to ask
for a higher markup in order to take care of unforeseen
contingencies. If the actual cost of the project is
underestimated, the underestimated cost will reduce the
contractors profit by that amount. An overestimate has
an opposite effect, but may reduce the chance of being a
low bidder for the project.
It is important to remind that, in both types of contracts,
contractors obligation is to execute the Works shown
in the drawings and specifications but not the BOQ or
schedule of rates.
Variations of lump sum type contracts can be contractually
agreed as follows in the construction stage, considering
the unique advantages and disadvantages in each type by
the engineer.
1. Schedule of Rates: Quantities not present in this
type of contract. Contractors obligation is to execute
the works shown in the drawings and specifications.
Rates set out in the contact shall be applied to any
possible addition or omission in a variation at the
later stage according to the engineers opinion.(Refer
Figure - 1)

Item A

Boundary Wall
m
Figure -1

100.00

2. Bill of Quantities with provision for adjustments

for tenderer to price as necessary in respect of
any missing items, errors in item descriptions,
and differences in quantities (between drawings/
specifications and BOQ): Existing rates shall be
applied to any possible addition or omission in a
variation. Refer Figure 2, illustrates a segment of
example bill page for this type.
Item A Boundary Wall

Item
A-1

150.00 M

Insert here any

adjustment
required due to
errors

Figure -02

100.00 5,000.00
+5,000.00

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SLQS JOURNAL
3. Figure-3 illustrates bill of quantities without
provision for tenderer to price an adjustment as
above. The contractor does not have a place to
include his/her price adjustments. Thus, contractor
has to adjust rates against the given quantity until
the amount reaches the required amount. Therefore,
the contractor has provision to ask for new rates for
additions and omissions in the contract.
Item A Boundary Wall 150.00

66.67

10,000.00

Figure - 3

Conclusion

Considering an early start, with less pre contract works to

employer and less risks to the employer, employers may
tend to select lump sum type contracts for their projects
from time to time.

even though rates are inappropriate. However, if there

is no provision in the BOQ to price adjustments to the
contractor, at such instances parties can agree for new
rates for value variations.
This demonstrates complexity of valuation of variation
under lump sum contract. Thus, the contactor should
be more vigilant and knowledgeable to value a variation
including what he believes as entitled. The Engineer
should be knowledgeable enough to assess and value a
variation according to conditions of contract.

Reference

1. Conditions of Contract for works of Civil Engineering

Construction Part 1 General Conditions 1987,
FIDIC, Switzerland.
2. Procurement Guidelines 2007, Asian Development
Bank, Manila.

When valuing a variation under lump sum contract, any

addition or omission should be valued using set out rates,

Leicester Board of Guardians v Trollope (1911)

The clerk of works altered the design of a floor and as a result dry rot broke out in the floors some
four years after completion. It was alleged that the defect arose owing to the negligence of the
architect in not seeing that the concrete was properly laid in accordance with the contract. The
architect denied that it was his duty to supervise the laying of the concrete and that this was the
duty of the clerk of works who had been appointed by the Guardians.
It was held that while it was the duty of the clerk of works to supervise the details of the work, the
laying of a floor such as this could not be regarded as a detail and that, therefore, the architect
was liable in negligence.

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The Relationship between Management and

Personal Management Competencies
Punyamalie De Silva
Quantity Surveyor currently working with Halcrow International partnership Dubai, UAE.

People are the heart of any organization and people need

to interact between each other with a good understanding.
(Naoum, Shamil, 2001) If the heart is not functioning
very well, the organization will malfunction. This idea is
confirmed by the following quotation.
Managers know that people make the critical difference
between success and failure. The effectiveness with which
organizations manage, develop ,motivate, involve and
engage the willing(please check this quotation again.) to
the contribution of the people who work in them is a key
determinant of how well those organizations perform
(Patterson et al.1997).
Every business or company cannot run without human
resources because the latest technologies also rely on
it. This subject is dynamic and it always develops by
research and discoveries. Management science is changing
according to time and also according to the environment.
Therefore, understanding of people and information
management theories are important to construction field
due to the majority of usage of human resources and
rapid construction.
This essay is divided into to three parts as:
why understanding of people and organizational
management is important to the construction
industry ,
how it helps to meet key challenges in the twenty
first century and
reflection my own experience.
Principles of management are concepts of both sciences
and art. (Marino,2008). Five thousand years ago people
started major managerial contributions to the modern
management theory. But they did not use the term
Management till the industrial revolution. During the

30

nineteenth century and in the early twentieth century

factory owners had to face problems in organizations and
in the efficiency of operating machine. Because it was very
difficult to schedule complex manufacturing operations
and deal with the increasing labour dissatisfaction and the
resulting strikes in the factory system. To response to this
condition, the evolution of modern management called
classical perspective began. (Samson, Daft, 2003).
Classical perspective can be subdivided into scientific
management,
bureaucratic
organization
and
administrative principles. Taylor, Frank & Lilian Gilberth
and Henry Gantt are the main contributors to scientific
management. Max Weber identified the key features of
Bureaucratic organization and also Henry Fayol, Mary
Parker Follet worked on administrative principles.
After the Second World War, management dressed with
applied mathematics, statistics, and other quantitative
techniques became a modern science. Then it was called
Management Science Perspective.
The idea of rational man in scientific management
changed to idea of the social man in the Humanistic
perspective. It can also be sub divided into human relation
movement, Human resources perspective and behavioral
sciences approach.
Famous Hawthorne studies lead to human relation
movement and theory X, Y, Z and hierarchy of needs,
etc. developed in the human resources perspective.
System Theory and Contingency Theory are extensions of
the Humanistic perspective. Total Quality Management
too was added to the management journey in the modern
world.

SLQS JOURNAL
The latest focus on management is people and organization
management. It developed since each work tends to be
different and the organizations need different strategies
to achieve each objective.
C. Handy suggested the relationship between management
and organization theory by identifying the key variables
which manager needs to struggle; i.e.

People
Work and structure
System and procedures

And these variables cannot be dealt alone but within the

limits of environment which Handy sees three crucial
components.

The goals of the organization

The technology available
The culture of the organization
(its values, benefits etc.)

To manage successfully there should be a balance

between the above mentioned six factors within the
particular period to reach the organization goals. Then
contingency approach to the management is essential.
(Cole,2004,p9)
Lets look at the important theories in people and
organization management which will help to improve
basic functions of the managers in quantity surveying
profession. The quantity surveyor has two different
stages in construction industry, i.e. Pre contract and Post
contract work. To get the job and to run the job there are
some procedures to follows. Those procedures are almost
the same as an ordinary management function. The main
functions are planning, organising, motivation, leadership,
management style, co-ordination, communication and
controlling.
Time is the main resource of management. Therefore
time can be viewed as Management of time and time
as a competitive weapon. Hence planning becomes the
first function of management to discuss. Planning can be
either the project, the finances or both. In QS practice,
planning can be divided into pre and post contract stages.
In pre contract stage it appears as Strategic planning and
in post contract stage (i.e. construction) as operational
planning. Most managers are in the operational level and

February 2010

only commercial directors/managers are in the strategic

level. But still commercial director/manager needs to
coordinate with the operational level. The prime focus
in strategy is effectiveness in the long term and the prime
focus in the operational level is the efficiency in the short
term. Therefore the terms effectiveness and efficiency
describe the difference of those two levels. According
to Mintzbergs criticisms mechanistic view of planning
does not tell everything but it identifies the most
important issues involved in the planning process. In our
profession, the project is planned by using Gantt chart
or modern software like MS Project or Primavera but
all are mechanistic when it comes to the reality because
the planning depends on other factors like recruitments,
environmental, etc.
Now we have a plan and we need to organize the people
according to it. Therefore organising is an important
function for managers. Construction projects are varied
as the nations and societies of the world. Especially in the
middle east most of the people are from different nations.
The cultures are affected by the events of the past and by
the climate of the present, by the technology of the type
of work, by their aims and the kind of people that work in
them (Handy, 1993, p.180). Construction industry is a
very competitive market. So that people who are working
in that environment should also be competitive in
knowledge and be effective in the implementation of people
and organizational management. In this part of the world
the span of control in structures is beyond the maximum
range of normal circumstances due to the squeezing of
employees. But according to theory the definite limit
to the span of responsibility is that the average manager
can competently control. According to Mintzberg
model normally one falls to professional bureaucracy.
Construction organizations are decentralized. When
it comes to organization culture, Task culture (Handy,
1993) is mostly the adapted one here. Organizations
gradually change their dominant cultures. The first signs
of organizational maturity are when time and success lead
to growth and to the specialization and formalization of
activities. An individual success in one culture may not
always be a success in another (Handy,1993,p.204).This
kind of matters always appear in most of the organization
charts due to the lack of understanding of management
principles. When two cultures work together there must
be an integration e.g. Mercedes M-Class sport utility
vehicle case otherwise AOL and Time Warner in 2000.
It is the largest annual loss in US corporate history. Here

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February 2010

most of the employees are expatriates and therefore to

keep them together, the government implemented tough
policy in their contracts.

communication is important in the construction industry

between QS and project manager to avoid significant cost
effective incidents like claims, variations, etc.

Motivation is an essential part in the organization. If

people are not motivated then the output will not be a
good one. Maslow identified the hierarchy of needs to
motivate and Herzbergs split the needs as hygiene factors
and motivating factors. According to Herzberg, hygiene
factors do not positively promote good health but only act
to prevent ill health (Cole, 2006). The lack of motivation
leads to unprofessionalism and irresponsibility of the
work which affects the companys future.

Appropriate controlling requires ensuring the system to

achieve its objectives and to implement new objectives.
Likewise the manager, who is a QS professional, needs
to control his/her teams to produce good quality and
customer satisfaction in reasonable time and value. So far
we understand the people and organization management
theory and practice in general. We may want to know
how that understanding helps to overcome the twenty
first century key challenges because we live in the early
stage of that century.

Leadership is a dynamic process which will lead to

achieve the goal/target. It can be divided into democratic
and authoritarian processes. Nowadays most leaders are
democratic. Trait theories are now out of way because
Handy (1993) has proved that it is an impossible task
to identify strong characters. In the Middle East multi
national cultures are in one organization and therefore
the leader needs to use System theory and apply the
contingency approach. Within each organization the
activities can be divided roughly into four sets: Steady
state, Innovation, Breakdown & Policy. Each of these has
its appropriate culture, structure and systems (Handy,
1993, p.209). So first leadership needs to understand
what it needs apply.
Management style is the influences of all functions into
one unit. According to Likerts analysis, participative
group style is used in most of the times in our profession.
Now in staff appraisal forms are setting targets for the
employee to exercise discretion within his/her job. That
is called in management theory as management by
objectives.
Flloet believed that managers would achieve goals
partly through co-ordination and directing rather than
controlling.
Communication among the group is the most powerful
tool in management. In Q.S. profession there are lateral,
upward and downward communications. And also it is
open or free for all communication patterns. Because QS
needs to look into technical information as well as contract
administration. Mintzbergs five categories of information
are used in our profession. QS needs to communicate
with both internal and external personnel. Proper

32

In this century the construction field is facing five levels

of uncertainties. First one is Industrial uncertainty. This
occurs due to scarcity of resources, finance and disrupts
the availability of stability of the flow and price resources.
Six months ago in Dubai there was a scarcity of cement
and steel. Due to that the construction costs increased
and most of the construction firms claimed extra money
from the client. But nowadays construction material as
well as oil price is decreasing in the global market. At the
same time most of the reputed companies are terminating
their staff to response to global economic crisis. If I write
this essay before this month my essay should address the
scarcity of quantity surveyors and due to that their high
salaries. Today it is in reverse because of the recession.
There is scarcity of jobs in the market. It is the time to
implement new theories to modern management.
Second one is the market uncertainty. A good example
is the construction boom in the Middle East. Nowadays
the developers are not funding the projects that they have
already planned due to the uncertainty of the market.
Before the recession they invested money and they created
the boom. Because of this condition the construction
industry is not stable.
Third is project uncertainty. Projects can be effected by
the climatic, political and the site conditions. The people
working in one project have different experience from
the people in another project, and then they will solve
problems in different ways.
Fourth one is workplace uncertainty. The construction
industry is more complex and it contains macro and
micro planning and also works in sequence. Due to the

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complexity and differences in cultures it is very difficult
to control the work force, therefore it should lead to
uncertainty. To work out those things we need to have all
direction communication. People are moving and there
are thousands of memos, ad-hoc to track in document
controlling; therefore there should be a proper way to
manage documents. Thats why most of the reputed
companies are adopting Management Information
System. It is a subfield of the Management Science
Perspective. Joan Woodward and his team concluded
establishing technology as a key role to be a major variable
affecting the organization structure (Cole, 2006, p.85).
Last one is organizational uncertainty. People are the
greatest asset in the construction companies (Carrillo et.
Al., 2000).Therefore, the uncertainty depends on people.
By using theories of Humanistic perspective, skilled
people can be retained for a long time in one organization.
In the Middle East lots of professionals change their jobs
frequently due various reasons like salaries, working
hours, etc. The majority of them are expatriate and their
retention depends on the social reasons, political reasons
and the exchange rate. Also nobody has an initial plan to
stay a long duration here because they work on contract
by contract basis. McGregors theory of X and Y can apply
to this situation but still it needs to be modified according
to the uncertainty of the job.
The above described five situations can be identified as
Turbulent Environment in modern Management. To
response to this turbulent environment, Groak (1992)
identifies the following solutions to be used in the
organization environment.

Restricting conditions like type of job, type of

contract and client requirements
Ignore potential problems that are uncertain like
adverse climatic conditions
Restricting solutions
Acquire a multi-disciplinary range of sources

In general every business group has to overcome the

following critical challenges in the environment.
Those are globalization, profitability through growth,
technology and sudden changes. If I give an example
in Quantity Surveying, the QS in Dubai is handling
projects which are in Oman or Qatar. This market is a
global market and the policies in every country affects
the economy. In this environment the important

contingencies that a manager can understand include

industry, technology, the environment and international
cultures. Management practice in QS is no longer stable
because the construction industry is rapidly changing.
The total quality management(TQM) is most suitable for
QS because the QS needs to focus on the same significant
elements which TQM is focusing. Those are employee
involvement, focus on the customer, benchmarking and
continuous improvement (daft et al. 2003).
Employers should provide decent, safe and improved
working environment and replace competition by clear
measurement of performance and sustained improvements
in quality and efficiency. Then employee will trust the
organization and will try to protect it as on their own.
I live in the early twenty first century and many more
things would die and many more things would be born
as a result of usage of modern technology and modern
thinking .Handy forecasts in his writings the idea of
federalism, spliced careers, new pattern of planning as
new challenges in future. And also he has given clues like
communication revolution, fees in replace of wages, tools
in replace of machineries and the economic quality.
Having discussed the understanding and application
of theory one more thing to tell at last is that in this
changing world everything will change every second but
we can feel it after some years in retrospect only. So as
professionals we must implement new ideas and reflect
on our practice.
References
Belbin, R. Merdith, (1993), Teams Roles at Work

Belbin, R. Merdith, (1981), Management Teams:

Why They Succeed or Fail

Carrillo,P.M.,Anumba,C.J.
and
kamara,J.
M.(2000),Knowledge
management
for
construction: key IT and contextual issues, in
Gudnason , G(Ed.),proceedings of the Inter.Conf.
on Construction IT, Icelandic Building Research
Institute, Reykjavik, Iceland, 28-30 June,pp.15565

Cahill, D & Higgins, M (2002), People and

Organizational Management in the Built
Environment

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SLQS JOURNAL

Chimay J. Anumba, Catherine Baugh, Malik M.A.

Khalfan, Organizational structures to support
concurrent engineering in construction, Vol. 102,
No. 5, 2002,pp 260-270

Handy, C (1993), Understanding of organizations

http://ivythesis.typepad.com/term_paper_
topics/2008/05/why-is-an-under.html

Cole G A, (2004), Management Theory and

Practice

Naoum, Shamil,(2001), People and organisatonal

management in construction

Colin Gray, Will Hughes (2001), Building Design

Management
Daft, L. Richard, Samson, Danny, (2003),
Management

Report by the comptroller and auditor general, HC

87 Session 2000-2001;11 January 2001

Construction task force in UK, (16, July 1998),

Rethinking of construction

White, Frost and others -v- Chief Constable of South Yorkshire and
others [1999]
The House considered claims by police officers who had suffered psychiatric injury after tending
the victims of the Hillsborough tragedy.
Held: An employer has a duty to protect his employees from physical but not psychiatric harm
unless there was also a physical injury. A rescuer, not himself exposed to physical risk by being
involved in a rescue was a secondary victim, and as such not entitled to claim. Primary victims are
victims who are imperilled or reasonably believe themselves to be imperilled by the defendants
negligence. Lord Steyn: (T)he law on the recovery of compensation for pure psychiatric harm
is a patchwork quilt of distinctions which are difficult to justify In my view the only sensible
general strategy for the courts is to say thus far and no further. The only prudent course is to treat
the pragmatic categories as reflected in [case law] as settled for the time being, but by and large
to leave any expansion or development in this corner of the law to Parliament. In reality there
are no refined analytical tools which will enable the courts to draw lines by way of compromise
solution in a way that is coherent and morally defensible. It must be left to Parliament to
undertake the task of radical law reform.

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How to Deal with an Extension of Time /

Cost Claims
P. M. Dimuthu Niroshan Tissera
B.Sc. (QS)Hons
Is a Quantity Surveyor graduated from University of Moratuwa Sri Lanaka. He is currently working as
a Quantity Surveyor for Al Jaber (ALEC) L.E.G.T Engineering & Contracting LLC.

Definition
Under Clause 1.1 sub clause (c) (1) FIDIC standard form
of contracts explains, Commencement Date and Clause
1.1 sub clause (c) (2) explains Time for Completion,
which means the time for completion, the execution
of and passing the tests on Completion of the Works
or any section or part thereof as stated in the Contract
(or as extended under Clause 44) calculated from the
commencement date.

The Engineer shall, after due consultation with the

Employer and the Contractor, determine the amount of
such extension and shall notify the Contractor accordingly
with a copy to the Employer.

Claim

Claim can be defined as a legitimate request for additional

compensation (cost and/or time) on account of a change
in the terms of the Contract (Wideman, 1990).
FIDIC fourth edition 1987, explains the procedure for
claims under Sub Clause no 53.1. It describes that, if
the contractor intends to claim any additional payment
pursuant to any clause of the these conditions or otherwise,
the contractor shall give notice of his intention to the
engineer, with a copy to the employer, within 28 days
after the event giving rise to the claim has first arisen.

If project duration extends beyond the original date of

completion, it is called a delay. This can happen due to
Employers failure, Contractors failure or for reasons
beyond the control of both parties. If it is not the
Contractors failure, he is entitled to request an extension
of time to complete the project. Under FIDIC standard
form of contracts 4th edition in 1987, Contractors rights
to reimburse his additional cost due to the delays of
projects caused by Employers failure is secured.

There are four key steps in securing the right as follows.

Extension of Time

1. Identify the right

The Contractor shall be entitled subject to Clause 44.1

to an extension of the Time for Completion of the Work
in the event of,
a)

the amount and the nature of extra or additional

works
b) any cause of delay referred to in these conditions
c) exceptionally adverse climatic conditions
d) any delay, impediment or prevention by the
Employer
e) other special circumstances which may occur, other
than through a default of or breach of Contract by
the Contractor or for which he is responsible.

Securing a Right

Studying the contract documents for a proper

understanding of the agreement is essential to deal with
claims. Acquired knowledge of the study should be
investigated to find out the opportunities to claim for a
right.

2. Reserve the right

FIDIC standard form of contracts Clause 53.1 clearly

state that, if the Contractor intends to claim any
additional payment, he shall give notice of his intention
to the engineer within 28 days after the event giving rise
to the claim has first arisen. This is reserving the right of
the contractor to compensate his additional cost, incurred
beyond his control.

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Even Clause 44.2 expresses that the engineer is not bound
to make any determination unless the contractor has,
a) Within 28 days after such event has first arisen
notified the Engineer with a copy to the Employer,
and
b) Within 28 days, or such other reasonable time as may
be agreed by the Engineer, after such notification,
submitted to the Engineer detailed particulars of any
extension of time which he may consider himself
entitled.

3. Claim the right

Sub Clause 53.3 expresses that, within 28 days or such
other reasonable time as may be agreed by the Engineer,
after giving notice under Sub Clause 53.1, the Contractor
shall send to the Engineer an account giving detailed
particulars of the amount claimed and the grounds upon
which the claim is based.
Here detailed particulars mean properly sorted
contemporary records, which are the continuously
generated details for day to day activities.

4. Prove the claim

Under FIDIC Sub Clause 53.2, upon the happening of
the event referred to in Sub Clause 53.1, the contractor
shall keep such contemporary records as may reasonably
be necessary to support any claim he may subsequently
wish to make.
To prove the claim, the contractor must compile all
contemporary records in such a manner as detailed
particulars and demonstrate the claim step by step.
For this the contractor must comply with contemporary
records specific with the relevant event such as,
a) Idle time of resources
b) Abortive work/protective measures
c) Demobilisation/re-mobilisation
d) Correspondence/photographs, etc.
e) Resource utilization patterns/output.
And he has to attach general contemporary records such
as,
a) Daily site diaries
b) Minutes of meetings
c) Site overheads during a prolongation such as;
Site staff (Engineers/QSs/Admin staff etc.)

36

Site equipment (scaffolding/cranes, etc.)

Site facilities (cabins/furniture/yard, etc.)
Site utilities (power/water/phone, etc.)

These detailed particulars can be categorized to substantiate

a delay claim and a cost reimbursement claim. In delay
claims, the contractor has to attach contemporary records
relevant to the event, such as;
- Delay schedules
- Mitigating measures taken
- Correspondence/photographs, etc.
As general records, he has to attach,
- Project progress reports including weekly/monthly
programme updates
- Daily site diaries
- Minutes of meetings
In cost reimbursement claim, the contractor has to
attach,
Facts:- Contemporary records

Witness statements,
Other appropriates evidence (news releases/weather
reports etc.)
Law:- Contractual/legal provisions
Liability:- Clients liability to provide relief
Quantum:- Duration of EOT/amount of additional
payment, etc.

Amount of the Additional Payment

Cost of delay has to be priced demonstrating all relevant

contemporary records such as idle time of resources,
abortive work/protective measures, demobilisation/
re-mobilisation,
correspondence/photographs,
etc.
Furthermore, contractor can be compensated for his
financing charges due to reduced revenue, loss of
productivity and subcontractors claims.
Prolongation cost can be apportioned as prolonged
site overheads, and head office overhead, financing the
additional cost and financing charges due to late release
of retention.
Here the contractor must show each event separately and
price the additional amounts for those events individually
with all relevant contemporary records in proper manner
to claim the additional payment for the claim.
The cost which is not specific to work items and any
additional costs the Contractor incurred due to extension

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SLQS JOURNAL
of time has to be priced under site overheads. Mainly
these are preliminary items of the project. Head office
overhead costs which are not specific to one site have
to be priced separately and several methods have been
introduced by various experts to calculate the head office
overheads component.
Hudson formula is the one of such famous formulas
which illustrated below:
Head
Office =
Overheads

H.O. Profit%
100

Contract Sum
Contract Period
(weeks)

Period
X of delay
(weeks)

This overhead claimable provision has been provided in

the Sub-Clause 1.1 (g) (i) which states that cost means
all expenditure properly incurred or to be incurred,
whether on or off the Site, including overhead and other
charges properly allocable thereto but does not include
any allowance for profit.

Sub Clause 53.5 describes how to get payment of claims

by the contractor from the employer. The contractor is
entitled to include any interim payment certified by the
engineer pursuant to clause 60 as expressed by the SubClause 53.5. Then the engineer after due consultation
with the employer and the contractor, may consider
the amount due to the contractor provided that the
contractor has supplied sufficient particulars to enable the
engineer to determine the due amount. If such particulars
are insufficient to substantiate the whole claim, the
contractor shall be entitled to a payment in respect of
such part of the claim as such particulars may substantiate
to the satisfaction of the engineer.
If the event has a continuing effect and is not practical
to submit the detailed particulars within a period of 28
days referred to in Sub-Clause 44.2(b), as per Sub-Clause
44.3, he shall nevertheless be entitled to an extension
of time provided that he has submitted to the engineer
interim particulars at intervals of not more that 28 days
and final particulars within 28 days at the end of the
effects resulting from the event.

Mark Alan Chapman -v- London Borough of Barking and Dagenham

[1998]
The plaintiff was severely injured when a branch was broken from a tree in a high wind, and fell
onto the van he was driving. The land-owner appealed a finding of liability in nuisance.
Held: The local authority were also the highway authority, and it was the defendants duty
regularly to inspect the tree for signs of danger, and to do what was necessary to maintain the tree
in a safe condition. The evidence was that the danger arose from earlier prunings. The appeal was
in effect an appeal on the facts, and therefore failed.

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Steps an Arbitrator should take before and

during the Hearing.
Ananda P. Wickramasinghe. MSc(QS), ICIOB, ACIArb.
A Senior Quantity Surveyor with 30 years experience in quantity surveying in buildings, roads & infrastructure, and oil & gas projects in Sri Lanka, Qatar, Oman and UAE. Currently working with Wilbur Smith
Associates, Dubai, U.A.E.

Introduction;

The purpose of this paper is to explain the steps that an

arbitrator should take before and during a full oral hearing.
This paper is based on United Nations Commission on
International Trade Law (UNCITRAL), Modal Law on
International Commercial Arbitration.

1.0 Steps an arbitrator should take before

the hearing;
1.1 Preliminary Meeting and Engagement Agreement
The preliminary meeting provides an opportunity for the
parties to arrive at vital decisions and an understanding
on various matters before meeting at the arbitral tribunal.
Parties can agree on including the question of the amount
of arbitrators fees and expenses, agreed timetable for
some interlocutory steps such as exchange of pleadings
and submissions.
Each party shall introduce their authorized representatives
to act with authority and knowledge in taking decisions
on behalf of the relevant parties.
Then the parties shall meet with the arbitrator before the
formal hearing for the purposes listed below. The meeting
may take place by telephone conference call.

38

To determine the issues in disputes

To determine the matters, if any, on which they may
be in agreement
To determine what documents, correspondence,
books or records shall be produced, when, by whom,
and whether experts are to be called
To determine the law which will govern the
procedures and the substance of the arbitration,

unless such law has already been specified in the

arbitration agreement?
To determine the language or languages to be used
in the arbitral proceedings
To consider whether on site inspections shall be
part of the proceedings
To decide upon the powers of the arbitrator with
respect to the remedies, including interim relief and
conservatory measures
To indicate the number of witnesses likely to be
produced
To estimate the length of time period the hearing
might take
To determine the stenographic record or other type
of recording of the proceedings that should be kept
or if any particular services, such as interpreters,
translations, or security measures should be
provided
To determine the manner in which the arbitrators
fee and the expenses of the arbitration will be
calculated, secured and paid, including any deposits
to be in advance
To fix the date, time, and the place of the hearing
To make any other determinations as may be
necessary before the hearing
To decide which of the items referred above are
to be covered by an engagement agreement and
to complete and sign such agreement either at the
meeting or prior to the formal hearing

At the preliminary meeting the arbitrator shall disclose

any personal interest in the matters in disputes and any
previous relationship with any of the parties to determine
if there is any objection to his/her continuing to act as an
arbitrator.

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1.1.1 Determination of rules of procedure
(Article 19)
According to the Article 19 of the law, the parties are free
to agree on the procedure to be followed by the arbitral
tribunal in conducting the proceedings. If the parties fail
to agree on such procedure, the arbitral tribunal may
conduct the arbitration in such a manner as considered
appropriate according to the law.
1.1.2 Determination of the place of arbitration
(Article 20)
In accordance with Article 20 of the law the parties are
fee to agree on the place of arbitration (If the place of
arbitration is not stated in the Contract). Failing to do so,
the place of arbitration shall be determined by the arbitral
tribunal after considering the circumstances of the case
and the convenience of the parties.
Notwithstanding the provision of the above paragraph,
the arbitral tribunal may unless otherwise agreed by the
parties, meet at any place it considers appropriate for
consultation among its members, for hearing witnesses,
experts or the parties, or for inspection of goods, and
other property of documents.
1.1.3 Determination of language or languages to be
used in the arbitration. (Article 22)
If the contract does not state the language or languages to
be used in the arbitration, in accordance with Article 22
of the law, the parties are free to agree on the language or
languages to be used in the arbitral proceedings. Failing
such agreement, the arbitral tribunal shall determine the
language or language to be used in the proceedings.
1.1.4 Determination of submission of Statements
of Claim and Defence Statements (Article 23)
In accordance with Article 23 of the law, within the
period agreed by the parties or determined by the arbitral
tribunal, opportunity to each party to submit statements
of supporting documents or references to the evidence
of his/her claim is provided. (In an exceptional case,
arbitration may proceed without any such documents.)
Unless otherwise not objected by the other party, any
party can amend or supplement its claim or defend
during the course of the arbitral proceedings.

February 2010

1.2 Pre-hearing review meeting / conference

In consultation with the parties and their advisers and
the availability of the counsel, arbitrator should fix the
date for the hearing. Four to six weeks before the hearing
starts, arbitrator will call a pre- hearing review meeting /
conference, but it should be after witness statements and
experts reports being exchanged. Pre-hearing meeting /
conference can save the time and costs at the hearing itself.
It is important that the parties should have comprehensive
advance knowledge of the matters to be discussed at the
pre-hearing meeting/conference. The arbitral tribunal
may make an order directing the parties to appear for a
pre-hearing meeting/ conference. The order should state
the matters to be discussed at the pre-hearing meeting/
conference and the timing of the pre-hearing meeting/
conference.
The purpose of this meeting is;
To enable the arbitrator to satisfy him/herself that all
previous directions have been compiled.
To consider if any further directions or discovery is
required.
To ensure that the parties have identified the issues
and each party will come to the hearing with his/her
attention and concentration on the issues that really
matter.
To consider whether any issue can be tried as a
preliminary issue and whether any interim award
can be given before the hearing.
To consider any issue as a preliminary issue.
To understand the status of any settlement
discussions.
Whether the arbitrating parties require any further
written statements or any further statements are
required by the arbitral tribunal.
To fix a schedule for submission by each party of a
summary of the documents or lists of witnesses or
other evidence it intends to present.
To fix a schedule for submission of any documents,
exhibits or other evidence, that the arbitral tribunal
may then require.
To determine whether voluminous and complicated
data should be presented through summaries,
tabulations, charts, graphs or extracts in order to
save the time and costs.
To determine what documents are required to be
translated and whether any party wishes to have
interpreters. Any party wishing an interpreter, shall

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make all arrangements directly with the interpreter

and shall notify the other parties to bear the cost of
the services .
To consider the programme of the hearing to ensure
that the witnesses attend on time and not attend
those parts of the hearing with which they are not
concerned.
To arrange appropriate bundles of documents,
including the list of issues to be delivered to the
arbitrator during the hearing giving him/her
sufficient time enabling him/her to read them
thoroughly before the hearing begins.
To shorten the time of hearing by admitting to all
or part of the witness statements or by directing a
further meeting between the experts.
To check whether a suitable venue has been arranged
and whether all the other preparations for the
hearing are in place.
To determine the record keeping method. Any
party desiring a stenographic record shall make
arrangements directly with a stenographer and shall
notify the other parties of these arrangements at least
three days in advance of the hearing. The requesting
party or parties shall pay the costs of the records.
To ensure that the hearing will start in an efficient
manner on the scheduled date.

The above items are to be covered by an engagement

agreement and to complete and sign by the parties at the
meeting or prior to the formal hearing.

1.3 Preparation before the hearing.

Following are the important items an arbitrator must
consider when preparing for the hearing;
Venue arrangements The usual practice is for the
venue arrangements to be made by the claimant. If
the claimant finds any difficulty in locating a venue,
the arbitrator may be of help in finding the same
for arbitration. The important point is the layout of
the room in which the hearing is to be held and the
ancillary accommodation.

If a full formal hearing is required, there should
be a separate retiring room for the arbitrators and
accommodation for the parties and their advisors
enabling them to hold private conferences.
A common way of setting the tables and chairs is in
a U shape or alternatively using the courtroom style
layout.
The arbitrator, parties and their witnesses must have

40

sufficient rooms for themselves and for books and

documents. In a building arbitration there are many
drawings to be consulted and these drawings are to
set on a separate table. (These questions will have to
be decided at the preliminary meeting or at an early
stage in the proceedings.)
Fixing the dates and time for hearing
Making arrangements for the transportation of the
arbitrators, experts and the witnesses
Witnesses Lists of witness who are to be presented
for the hearing and a time table for the witnesses and
the oaths of the witnesses
Cross examination Prepare the lists of witnesses,
who are to be cross- examined
If a site visit is required, a date and time should be
fixed.
Photocopy machine, telephone and fax facilities
should be available in the hearing room and in the
retiring rooms / accommodations.
Record keeping arrangements should be discussed
and agreed upon. A party requiring a stenographic
record of the proceedings or the service of a translator/
interpreter the requiring party shall make necessary
arrangements for and shall be responsible for the
cost. If the arbitrator calls for any such services of
a stenographer or an interpreter or parties agree to
the need of such services, the costs of thereof may
be shared as agreed or may be handled as costs of
arbitration. If the transcript agreed by the parties
or determined by the arbitrator is to be the official
record of the proceeding, it must be provided to the
arbitrator and made available to the other parties for
inspection, at a date and place determined by the
arbitrator.
At least five business days prior to the hearing, the
parties shall exchange copies of all exhibits they
intend to submit at the hearing.
The arbitrator is authorized to resolve any disputes
concerning the exchange of information.
The notices should be sent to the parties at least 10
day in advance of the hearing date unless otherwise
agreed by the parties.

2.0 Steps an arbitrator should take during

the Hearing:
2.1 The Hearing
Hearing is purely private and only persons entitled
to attend are the parties themselves and those whose

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attendance is required in order to assist the parties in
assisting/presenting their cases. They are advocates or
witnesses. If anyone else wishes to attend the hearing, the
agreement of all other parties should be obtained first.
If any party fails to attend or be represented at the hearing
of which due notice has been given, the arbitral tribunal
may continue to proceed in the absence of such party
(Article 25).
Smoking, drinking coffee, tea, soda etc. or eating at the
hearing are not allowed. Do not address the parties on
first name basis. Dress as you would in Court.

2.2 Procedure an arbitrator should follow at

the hearing;
a)
b)

c)
d)
e)
f )
g)
h)

The arbitral tribunal opens the proceedings and

announces the arrangements for the hearing.
Before proceeding with the first hearing the
arbitrator may require witnesses to testify under
oath. The administration of the oath depends upon
the religious beliefs of the witnesses.
The claimant or their representative opens and
presents their case.
The claimant calls their first witness and examines
them upon the evidence, which they give.
The responding party cross-examines the witness.
The arbitral tribunal may ask questions if necessary.
The arbitral tribunal gives each party the opportunity
to ask questions arising out of the witnesss answers
to the arbitrators questions.
The respondent outlines their case if they wish.

i) The respondent makes their final submissions.

j) The claimant makes their final submissions.
k) Prior to closing the hearing the arbitral tribunal
shall inquire of all parties whether they have any
further evidence to offer or witnesses to be heard.
Upon receiving negative replies or the parties being
satisfied that the records are completed, the arbitral
tribunal shall declare that the hearing is closed. If the
briefs are to be filed, the hearing shall be declared
closed as of the final date set by the tribunal for the
receipt of briefs. If documents are to be filed and the
date set for their receipt is later than that set for the
receipt of briefs, the later date shall be the closing
date of the hearing. The time limit within which the
arbitral tribunal is required to make the award shall
commence, in the absence of other agreements by
the parties upon the closing of the hearing.
l) After the closing of the hearing the arbitral tribunal
will proceed to make its award.
It is important for arbitral tribunal to keep in mind that,
the two parties that are likely to give rise to problems
when the enforcement of the award is sought. Therefore
each party should have a proper opportunity to present
their case and that the parties must be treated equally.
References:
1) Bernstein R., Derek Wood (1993 2nd edition)
Handbook of Arbitration Practice.
2) Powel V., Sims J., Dancaster C. (1998 2nd edition)
Construction Arbitration.
3) Redfern A., Hunter M. (1999 3rd edition) Law and
Practice of International Commercial Arbitration

Sauter Automation Ltd v Goodman (Mechanical Services) Ltd (1840)

A sub-contractors quotation was expressed as subject to our standard terms and conditions
which included a retention of title clause. The main Contractor sent an order stating terms
and conditions in accordance with the main contract. The Sub-contractor, without further
communication, delivered the goods.
Held that this amounted to an acceptance by them of the main Contractors counter offer.

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Performance of Critical Attributes in

Alternative Dispute Resolution (ADR):
A Study in Sri Lankan Construction Industry
K.B. Dinesh Gunasena BSc (QS)Hons
Is a Quantity Surveyor graduated from University of Moratuwa Sri Lanaka.

Abstract

Disputes are a common feature of the construction industry. As resolution methods for such disputes the usages
of Alternative Dispute Resolution (ADR) methods such as arbitration, adjudication, mediation and negotiation in
construction industry have gained great momentum during the recent years in Sri Lanka. This research is the result of a
survey that was conducted to understand the performance of critical attributes in current ADR practices in Sri Lankan
construction industry.
The findings of this research provide both practitioners and academics within the construction industry an insight
into the perception of ADR methods currently available in Sri Lanka. Further it provides information, which ensures
a better understanding of the impact of dispute resolution process upon the construction industry and this helps the
participants connected with the construction industry to identify potential problem areas in dispute resolution.
Key words: Alternative Dispute Resolution (ADR), Construction Industry, Negotiation, Mediation, Adjudication,
Arbitration.

Introduction
Disputes are a common feature of the construction
industry (Ashworth, 2002). Construction work is a
complex process that can confound the most intricate
management systems requiring the coordinated effort
of a temporarily assembled task force. Inevitably this
complexity creates disputes (Cheung et al, 2000). Not
like the other manufacturing industries the output of the
construction industry - building and civil construction
works that have been constructed on different sites, create
their own special difficulties. Therefore, disputes can arise
not only because of the human nature, but also due to
the aforesaid special circumstances (Turner and Turner,
1999). Cheung (1999) states that in present days complex
construction projects, resolving disputes have become an
inevitable part of project management.
Earlier most disputes were settled on the job site at an
informal meeting between the relevant parties. It is to
the contractors advantage to resolve the disputes directly
with the employer in an amicable nature. Other methods
of dispute resolution tend to have unpleasant side effects

42

for both parties (De Zylva, 2006). However, an amicable

solution by informal discussion is not practical when the
complexity of dispute increases. As a result, parties who
are involved in a dispute have to select the best suitable
dispute resolution method.
Litigation is the standard and conventional dispute
resolution mechanism used all over the world. However,
it is a too expensive and a time consuming method. Also,
there are several disadvantages in litigation like stress,
inflexibility and formality of court processes, restricted
scope of claims and remedies as well (Astor and Chinkin,
1992; Ranjithkumar, 2005).
The business community as well as the construction
industry faced the aforesaid difficulties and began to find
alternative dispute resolution (ADR) methods. In State
of Kerala vs. Joseph Auchilose (1990) case, the court held
that the interminable, time consuming, complex and
expensive court procedures impelled to jurists to search
for an alternative forum less formal, more effective and
speedy for resolution of disputes avoiding procedural
claptrap.

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Wimalachandra (2007) defined ADR as any form
or procedure, whether formal or informal, whereby
parties can resolve their disputes instead of litigation
before courts of law. Justice Wimalachandra further
mentioned numerous advantages of ADR like flexibility,
confidentiality, cost savings, informality, low antagonism
between the parties and time saving.
ADR methods were not new to the Sri Lankan
community since the days of ancient kings, though it was
not applied exactly in the present context. The ancient
methods of disputes resolution change their mechanisms
according to the modern business requirement as well
as international usages (Abeyaratne, 2006). Currently
there are several ADR methods used and adopted by
stakeholders in the construction industry in Sri Lanka.
Negotiation, Mediation, Adjudication and Arbitration
can be identified as widely used and recognized ADR
methods (De Zylva, 2006).
The practicing of ADR methods can be indicated as a
stair step way (Oreilly and Mawdesley, 1994; Cheung,
1999). According to Chung (1999) this rising steps in the
chart intimate the escalating levels in hostility and cost
associated with the various forms of dispute resolution.
Many authors (Omar, 2007; Uff, 2005) support this stair
step model, (figure 1), in construction related dispute
resolution.

Increase cost and

hostility

Arbitration
Adjudication/
Administrative
Decisions

Mediation

Negotiation

Figure 1: Stair step model for Dispute Resolution

Process in Construction
Source: Ranjithkumar (2005 cited Cheung, 1999)

Most of ADR methods are statutory controlled which

can be identified as a private and confidential method
with minimal outside intervention. The Parliament of
Sri Lanka enacted several statutes to implement and
control the ADR practices (Ekanayake, 1992), such as
the arbitration proceeding controlled by Arbitration Act
No.11 of 1995, Mediation Board Act No. 72 of 1988
for mediation practices, Commercial Mediation Center
of Sri Lanka Act No. 44 of 2000 as well as Mediation
Boards (special kind of disputes) Act No. 21 of 2003. The
Institute for Construction Training and Development
(ICTAD) introduced the Adjudication process to the
Sri Lankan construction industry as an immediate step
towards construction dispute resolution in their first
revised edition of standard bidding document in year
2006.

Critical Attributes Affecting ADR

ADR has been recognized as one of the key areas that
requires improvement in the construction industry.
Previous studies have identified several attributes which
critically affect the ADR practices (Cheung, 1999; Cheung
and Suen, 2002). Among those attributes Cheung (1999)
identifies twelve critical attributes which are affecting
ADR. This paper seeks to evaluate the performance of
those critical attributes along with each ADR method.
Those critical attributes can be identified as follows:

The duration of the proceedings

The cost involved
Preservation of relationship
Flexibility of the proceeding
Confidentiality of the process
Enforceability of the decision/ settlement
Privacy of the proceeding
Obtaining fairness
Bindingness of the decision/ settlement
The parties ability to control over the proceeding
The width of remedy
Obtaining creative remedies

By evaluating the performance of those attributes within

the Sri Lankan context, this paper try to synthesize the
ADR practices of the Sri Lankan construction industry.
Since this paper has been compiled based upon a research
which aimed to quantify the performance of critical

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attributes in ADR, the outcome of the research technique
should be easy to analyze, quantify, compare and contrast.
Therefore, questionnaire survey was selected as appropriate
technique to carryout the research study. In this research,
the questionnaire was framed in to three basic sections.
The objective of each section can be identified as follows;
Section 01: Intended to elicit the background
information of the respondent;
In this section, it was asked to fill the respondents
names (optional), name and the type of the organization,
their profession and their working experience in the
construction industry as well as in dispute resolution.
Section 02: Intended to evaluate the importance of the
critical attributes affecting the ADR;
In this section the respondent were to rate each critical
factor which was mentioned in the research problem on a
7-point scale (Not importance to very high importance).
Section 03: Intended to scale the agreement level with
the positive aspects of the critical attributes of ADR
methods;
In this section the level of agreement was compared
and contrasted with the positive aspects of the above
mentioned critical attributes of each ADR method by
using a 5-point scale (Very low degree of agreement to
very high degree of agreement).
The Purposeful selective sampling was the method of
sampling for this research as the information asked
from the survey requires in depth knowledge and sound
experiences about ADR methods. The questionnaire was
distributed to the respondents at their work places. The
completed questionnaires were collected by the researcher
later.

Methodology Used to Analyze the Survey Results

Following formulas were used to analyze the data obtained

from the questionnaire survey.

Mean Weighted Rating

A mean weighted rating for each factor is computed to

deliver an indication of the importance of the factor,

44

Wi
Where,
Wi
Vij

Fi
n

= ( Vij *Fi) / n
- Mean Weighted Rating on i th attribute
- Rating for i th attribute from the j th
respondent (According to Seven scale rating)
- Frequency of Responses in i th attribute
- Total number of respondents

Severity Index
The severity index computation is used to compare and
contrast the agreement level of the positive factors of
critical attributes affecting each ADR method.
S.I. i = ( Wi * Lij) / n
Where,
S.I. i - Severity index value on i th attribute.
Wi - Mean Weighted Rating on i th attribute
Lij
- Level of Agreement for the positive aspect of i th
attribute from the j th respondent in each ADR
method (According to Five scale rating)n
- Total number of responses

Sample Distribution
The questionnaires were distributed equally among
clients, consultants and contracting organizations after
communicating to them the aim and the objectives of
the study by the researcher. An acceptable number of
responses (47) were given by the respondents (Shown in
Table 1).
Table 1: Responses in questionnaire survey
Type of
Organization

Questionnaire
Percentage %

Distributed

Responded

Consultant

30

17

56.7

Client
Contractor

30
30

16
14

53.3
46.7

Total

90

47

Table 2: Composition of respondents

Organisation type
Consultant
Client
Contractor
Total

Number

Percentage %

17
16
14
47

36.2
34.0
29.8
100.0

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SLQS JOURNAL
It is evident that each organization type approximately
represents one third (1/3) of respective types of
respondents in the survey (Refer table 2). Therefore, the
survey results are not biased towards one organization
type and are representative of the industry as a whole.

Demographic factors of the respondents

Table 3: Composition of respondents according to their
profession
Number of
Respondents

Percentage %

Engineer

22

46.8

QS

18

38.3

Architect

8.5

Lawyer

6.4

Total

47

100.0

Profession

Table 3 shows the composition of respondents according

to their profession. According to the tables the majority
(85.1%) of the sample represents QSs (Quantity
Surveyors) and Engineers. The other professions
(Architects and Lawyers) represent 8.5% and 6.4%
respectively. This information highlighted that QSs and
Engineers are the major professionals who are involved
in ADR in the construction industry. However, the
reason for the lower participation of the lawyers might
be the unavailability of the in-house lawyers in day-today
operations of construction organizations
Table 4: Respondents working experience in the
industry
Working
Experience

Number

Percentage
%

Cumulative
percentage %

Not Provided

2.2

2.1

0 5 Years

6.5

8.5

6 10 Years

10.9

19.1

11 15 Years

15.2

34.0

16 20 Years

19.6

53.2

Over 20 Years

22

47.8

100.0

Total

47

100.0

This survey asked the respondents about the perception

and overall experiences rather than individual
experiences. It can be assumed that respondents based
their perception on only one or several isolated incidents
which result in a strong belief that the ADR process is
always ineffective or, more likely effective. This would
seem predictable, if there was only limited experience
of a method leading to a generalization of perception.
Therefore, purposefully selected experienced personnel
in the construction industry and in ADR were used as
respondents. The table 4 explores the experiences of the
sample.

Findings and Discussions

Importance of Critical Factors in ADR
In section 2 of the questionnaire, scale ratings were
employed to obtain the importance of the twelve
critical attributes to the ADR process. In this section,
the respondents rated each attribute on a 7 point scale
(no importance to very high importance). The mean
weighted ratings were calculated and were used as the
basis of priority ranking. Table 5 gives the results of the
importance ranking based on the mean weighted scores.
Table 5: Importance of critical attributes- The ranking
order
Mean
Weighted
Rating

Rank

The duration of the proceeding

6.34

Obtaining fairness
Bindingness of the decision/
Settlement
Enforceability of the decision/
Settlement
Confidentiality of the process

6.32

6.11

6.04

6.00

Privacy of the proceeding

5.96

The cost involved

5.51

Flexibility of the proceeding

5.47

Preservation of relationship

5.38

Obtaining creative remedies

5.26

10

The parties ability to control the

proceeding

5.23

11

The width of the remedy

5.02

12

Attribute

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SLQS JOURNAL

Weighting
1

Low degree of agreement

Average degree in agreement
High degree of agreement

2
3
4

Very high degree of agreement

Required time
duration is low
Low cost
involvement
Relationship
between parties
are preserved
Apply flexible
procedure
Confidential
process
Enforceable
decision/
settlement

5.51
5.38
5.47
6
6.04

In
Arbitration

6.34

In
Adjudication

Table 7: Severity index Table: Agreement with positive

factors of the critical attributes

In
Mediation

For the comparison of each ADR method it was required

to measure the agreement level of the attributes along with
the ADR methods. Therefore, in this section respondents
were asked to state their agreement level with a positive
factor of each attribute. The weightings are calculated by
severity index formula. The following argument was used
to formulate the severity index formula.

Level of Agreement
Very low degree of agreement

In
Negotiation

Before deciding to use ADR methods, the practitioners

should weigh the benefit of each alternative to consider
which method is most appropriate. Section 3 of the
questionnaire was further designed to compare the
weightings of such benefits.

Table 6: Weighting given to each level of agreement.

Positive factor
of the Critical
Attributes

Severity Analysis of Critical Attributes

scales. This was done to validate and generalize the result

and to avoid the personal interpretation of the factors.
By using those figures the severity index value of the
attributes was calculated and it is shown in table 7.

Importance
(Mean Weighted
Ratings)

By looking at the above ranking order, the following

features can be specifically understood.
In ADR, time duration and fairness of the decision
obtain highest ranks. However the cost involved
obtains 7th rank. That indicates an interesting
finding. The industry does not expect less cost
solutions. They are willing to spend on quick, fair and
binding solutions rather than low cost solutions.
Parties do not highly require controlling of the
proceedings and their expectation in creative remedy
is also of low importance.
The importance of preservation of relationship
obtains 9th rank. The industry does not consider
the preservation of relationship as a high important
factor in dispute resolution.
Binding and enforceability obtained high importance
rankings. When evaluating the outcome of the ADR
methods, the industry considers those attributes as
important.

23.01

21.87

20.29

13.95

22.92

19.40

15.21

11.35

23.78

20.39

17.32

14.15

24.45

21.11

17.01

13.46

24.42

22.14

22.56

22.32

13.77

14.50

17.46

27.90

5.96

Secure the
privacy of the
proceedings

22.17

21.87

21.63

21.16

6.32

Fairness
decision/
settlement can
obtain

23.64

23.38

23.64

23.26

Figure 2: Argument behind Severity Index Calculations

6.11

Parties are
bound by the
decision

14.36

15.34

20.47

28.23

From section 2 of the questionnaire a mean scale rating

of the importance of each critical attribute was obtained.
(Table 5 indicates the mean importance weightings for
each attribute and their ranks.) Weightings for levels of
agreement are given in table 6. For the calculation of
severity index, the mean weighting importance of each
factor was used other than using respondents individual

5.23

22.96

19.19

15.95

15.11

18.88

17.82

15.51

13.86

21.51

18.88

15.10

11.99

21.32

19.66

18.51

18.06

Mean
importance
Weighting

46

Level of
Agreement

Severity of
the attributes

5.02
5.26

Parties can
control the
procedure
High width of
remedy
Can obtain
creative
remedies

Average

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SLQS JOURNAL
The computed figures of the severity index have shown
the severity of the attributes in dispute resolution along
with the positive aspect of critical attributes. The above
results further highlighted its following features.
1. Highest severity index value was obtained by
Arbitration in the attribute of Binding of the
decision. (The industry strongly believes the outcome
of Arbitration as binding.)
2. Lowest severity index was obtained by Low cost
involvement in Arbitration. (The industry does not
believe the statement of low cost involvement in
Arbitration.)
3. Other than the sixth and ninth attributes
(Enforceability of the decision and Binding of the
decision) other attributes follow the stair step model
described above.

Conclusions

Due to the fragmented and complex nature of construction

projects, there is no one best way of dealing with disputes
as they are often different in scale, complexity and nature.
In deciding which dispute resolution method to apply,
there is a need to take into consideration various external
factors, such as technical, political, financial, social,
economic and legal. However, lack of experiences in these
methods has hindered the acceptance of potential users.
Therefore, this kind of research is useful for the industry
as often practitioners are forced to resolve disputes by
the quickest, fairest, cheapest means without being fully
aware of the dispute resolution options available.
This research discovers the ranking order of the important
factors in dispute resolution. According to the rank
obtained from mean weighted scale ratings, the duration of
the proceedings, obtaining fairness and the binding of the
decision get highest ranks. Obtaining creative remedies,
parties ability to control the proceedings and the width
of the remedy obtain lowest mean scale ratings. It was
understood that there is a perception in the industry that
the cost of the process may not be the highest important
factor in ADR. Speed and fairness achieve the highest
ranks than the cost of the process. By using those results,
the ADR system designers and practitioners can develop
and continue to enhance the proper dispute resolution
mechanism to provide better solutions for construction
disputes.

Further this research presents evidence supporting the

view of the stair-step model of ADR methods which was
discussed in the literature review. This study confirms
the practitioners acceptance of the stair-step model of
dispute resolution and it is understood that negotiation is
the best method and arbitration is the least suitable ADR
method. However, even though negotiation achieves
the highest index values in the severity index, the survey
results identified the unavailability of enforceability
and binding of the outcome in negotiation as well as in
mediation. As ADR is not part of the mainstream legal
system, proposed negotiated settlement arrangement
can be ignored if no formal agreement is concluded to
accord the binding effect. Therefore, it cannot apply to
every dispute in the industry and the industry should take
necessary steps to develop the methods according to the
practitioners desire.
The wisdom gained from the research is, that the industry
believes stair step model to be a suitable model in
construction dispute resolution. This model starts with
the dispute prevention techniques such as negotiation.
According to the stair step model, the disputes not
resolved amicably, reach the higher steps with a third
party involvement. The results shown by the severity
index, comply with the stair step model. By analyzing
the above results further modifications to the stair step
model were introduced as follows.

Decrease

Speedy solution
Relationship
Flexibility
Control
Width of Remedy
Creativeness of the remedy

Arbitration

Increase

Bindingness
Enforceability
Cost and Hostility

Adjudication

Constant

Confidentiality
Privacy
Fairness

Mediation

Negotiation
Figure 3: Modified Stair-step model

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References

1. Abeyaratne, S.D.B., 2006. Establishment and

organising of Commercial/ Construction Arbitration
Tribunal. The Bar Association Law Journal, 12, 8490.
2. Ashworth, A., and Hogg, E., 2002. Williss practice
and procedure for the quantity surveyor. 11th ed.
London: Blackwell Science.
3. Astor, H., and Chinkin, C.M., 1992. Dispute
Resolution in Australia. Butterworth.
4. Cheung, S.O., 1999. Critical Factors affecting
the use of alternative dispute resolution processes
in construction. International Journal of Project
Management, 17, 189-194.
5. Cheung, S.O., Tam, C.M., Ndekugri, I., and Harris,
F.C., 2000. Factors affecting clients project dispute
resolution satisfaction in Hong Kong. Construction
Management and Economics, 18, 281-294.
6. Cheung, S.O., and Suen, H.C.H., 2002. A multiattribute utility model for dispute resolution
strategy selection. Construction Management and
Economics. 20, 557-568
7. De Zylva, E., 2006. Alternative Dispute Resolution
systems for construction contracts. In: K.
Kanagisvaran, S.S. Wijeratne; eds. Arbitration law
in Sri Lanka. Colombo: ICLP, 117-138.

8. Ekanayake, E.M.M.B., 1992. Methods of settling

disputes in the construction industry of Sri Lanka
other than litigation. Unpublished Dissertation
(B.Sc in Quantity Surveying). University of
Moratuwa. Sri Lanka.
9. Omar, A.M., 2007. Delay Claims Management in
Constructions. Gulf Project Management Magazine.
September, 20-23.
10. Oreilly, M.P., and Mawdesley, M.J., 1994. The
evaluation of construction disputes: a risk approach.
Blackwell publishing.
11. Ranjithkumar, S., 2005. Assessment of Alternative
Dispute Resolution Methods practices in Sri Lankan
construction industry. Unpublished Dissertation
(B.Sc in Quantity Surveying). University of
Moratuwa. Sri Lanka.
12. Turner, D.F., and Turner, A., 1999. Building contract
claims and disputes. 2nd ed. England: Longman.
13. Uff, J., 2005. Construction Law. 9th ed. Sweet &
Maxwell.
14. Wimalachndra, L.K., 2007. Alternative methods of
dispute resolution. Junior Bar Law journal, vol. 2 &
3, 55 - 70.

Legal Authorities and cases

1. State of Kerala vs. Joseph Auchilose (1990) 101 AIR

ker 106

Gillies Ramsay Diamond v PJW Enterprices Ltd (2003)

A claim for professional negligence against Diamond, who had provided general consultancy
services in relation to a building project, was referred to adjudication.
It was found that these services included arranging construction operations for others and/or
contract administration and therefore the matter could referred to adjudication, despite the
absence of an adjudication clause in the contract.

48