Monday, October 26, 2009

Polish A2 highway, Chinese Consortium

Two large sections of the A2 motorway project in Poland were recently awarded to COVEC Ltd.

Other European Contractors have raised concerns at the award of these projects as COVEC is essentially state owned and thus can rely on funds from their home state. European Contractors deem that this point leads to unfair competition. It is illegal for EU contractors to rely on state aid but the EU / EU commission cannot do anything about, and, appear powerless to do anything about companies outside the EU relying on state aid. Another gripe EU Contractors have is the issue of EU Contractors been unable to gain access to the Chinese Construction market.

COVEC is a wholly-owned subsidiary of China Railway Group Limited (CREC), a state-owned construction contractor.

Tuesday, October 20, 2009

The Sound of Tumbleweed..........

"October and the leaves are stripped bear of all they wear what do I care, October and Kingdoms rise and Kingdoms Fall but you go on" ........................U2 October.

By the way that's the whole song up there, probably Bono's shortest. This October for anyone involved in the Irish Civil Engineering Industry hasn't been a short one. In fact it's a month that combined with this coming November will be dragging and dragging. The reason for this apparent prolonged Autumn is due to the customary (or recent customary) slow down on release of tenders coming up to budget time. I say recent because now it is quiet the opposite to those boom years of the mid noughties. During those good ole days and at this time of year the civil construction industry via the public sector would have large enough capacity of tender releases. The reason for this was that during the month's coming up to budget time many Local Authorities would've actually had a surplus of cash and they would be getting rid of this annual surplus in order to get the same matching funding the following year. Oh how times have changed.

It is now completely the opposite and the figures speak from themselves; For the whole month of October 2009 in the Republic of Ireland so far only 5 fairly straightforward Civil Engineering Public sector projects were advertised for tender in the open market. Take this combined with the approximate total of 8 in the whole of September; then you know where this topic is heading.

Lets consider then for arguments sake and with a knowledgable quantity surveyors hat on, that the value of these projects was / will be approximately, on average, somewhere in the region of €1mil per project - that's €13m worth of supply coming into the civil engineering sector market for a capacity / demand that was of the order of €5 to €6 billion per-annum. Getting back to Bono, "Kingdoms rise and Kingdoms fall"; surely we mustn't let the Kingdom collapse and disappear altogether?

One also has to note the many 'dud' or 'shelved' projects advertised during the year via the 'two stage' tendering process. This two stage process (adopted from EU public procurement legislation) involves the first batch of tendering candidates to be whittled down to a select bunch of say 8 to 12 contractors (in this climate the first bunch has known to be up to and over 40 candidates). This 1st stage is "assessed" on a marking / technical capability system and a pass/fail system which is supposed to be objective but for anyone who has read one of these actual pre-qualification criteria documents and questionnaire documents then they will see how subjective they actually are.

On some of these pre-qualification type tender projects even when the stage reaches past the whittled down process to the actual pricing of the contracts one has noted that many of these projects have disappeared into oblivion and documents have never left the design offices for this 2nd stage, the actual pricing stage. One presumes these were shelved for reasons on unavailability of funding. Has anyone in the Government Departments considered the wasted funding and resources spent by each contractor in preparing these questionnaires and going through the first stage?

Back in July I noted that their wasn't a sod to be turned in the Country and that we need a stimulus package in the next budget to get some form of Industry and work in the Country. Since then my research has led me to the CIC (Construction Industry Council) who have already lobbied the Government last march on this subject in an excellent report ---

However, if the well is already dry and no funds are available then we need to look outside the Government for a boost. Maybe these guys will help?

More about Spirit of Ireland in a later blog; as a young Bono has said "kingdoms fall, but you go on" - hopefully the people in the Spirit of Ireland will go on and the 'no brainer' obvious potential projects they have their sights set upon will be up and running soon which will help to stimulate the civil infrastructure sector and in turn create thousands of badly needed jobs rather than waiting on Government and Government Departments to get off their holes and come up with a viable plan to do something about the state we are now in.

Wednesday, September 16, 2009

Final Quarter 2009 - What is the Outlook for 2010?

We are well into the Final Quarter 2009 and to reflect on the year so far one can say it has been a bloodbath in the Construction Sector in Ireland.
Almost on a weekly basis we hear of colleagues and friends on a 3 day week or laid off altogether.
Unfortunately the outlook will be worse for 2010, particularly in the Civil Sector.
With the pending budget one suspects that cycle lanes and water supply / metering projects will be the only game in town. Add this to the fact that most large scale projects are coming to completion, such as the N3, Limerick Tunnel, remainder of the N7 works, M50 completion and so on; this leaves us with a Civil Engineering Contracting sector desperately in need of an injection of funds.
Sammy Wilson in the North has added almost a £1mil per day expenditure in this sector which is benefiting contractors across the border.
Commercial projects in the ROI fell on the latest Construction PMI index and Civil Engineering fell even further and this trend in the Civils Sector will only continue if the Government doesn't stem the tide and release some medium to large scale tenders.
Many of us in the industry can't wait to see the back of 2009; hopefully 2010 will fast forward quickly enough and we may see some uplift in each sector of the overall economy.
If the current positive forecasts from the UK, Europe and the US come to fruition then perhaps some increase in Direct Foreign Investment may lead to improvement elsewhere in our economy which will in turn help the Construction Industry. Some positive feedback from possible growth area's appear to be in the global insurance sector and the 'green' energy market and the signs are improving that Ireland is a good base for such industries. This, at least, is some good news on the horizon.
Hopefully the Government will target their own cutbacks in-house (like every other business in the country were, and still are, forced to do) by way of cutting out the waste in the civil service and the over staffed agencies and quango's that were formed during the boom rather than taking the easy option by way of targeting and taxing the working men and women of the country and those unfortunate to be job seeking.
Time will tell on all these issues.
NAMA prediction tomorrow - discounted value at 35 to 40% on the property loans (or so they will tell us).

Wednesday, September 2, 2009

Alive Alive O........Oh?

So Dublin ranks as number 3 in the list of Europe's best paid cities. Zurich and Geneva are number 1 and 2 respectively. This is cold comfort for all the construction workers on the dole queue's.
Dublin is also one of the least taxed cities according to the same Forbes report. They state that taxes only eat into 15% of workers take home pay. This would appear inaccurate as far as this blogger is concerned and one would question who they carried their survey out on?
At least Dublin / Ireland doesn't rank as one of the dearest places to hire people, this falls to Denmark and Liechtenstein.
The Top Ten best paid cities in Europe are;
1.Zurich 2.Geneva 3.Dublin 4.Luxembourg 5.Copenhagen 6.Oslo 7.Helsinki 8.Munich 9.Frankfurt 10.Brussels.
London has fallen from no.2 to no.21.

Friday, August 28, 2009

They think its all is now!

Just when Germany thinks they are coming out or have come out of recession this is what they do. Well to be more accurate they did it in June:

"At the past weekend collective bargaining between employers (ZDB) and unions (IG Bau) in the German construction industry came to an end which was reached through conciliation. According to the agreement reached, wages and salaries of the about 700,000 employees in the German construction industry are to be raised by 2.3% as of June 1st 2009 and by another 2.3% from April 1st in 2010. For May 2009 employees will receive a single additional payment of 60 Euros. The new collective wage agreement will be valid for 24 months. "

This is summed up as follows (I'm led to believe?):
Minimum wage goes up (this must be the construction industry minimum wage) in 10c increments in the period 9/2009 to 9/2010 getting to €11 / hr. Note that this is for the West of the country only, they are still on lower incomes in the east and even have lower wage agreements, same worker in the eastern part gets increased from €9 to €9.25 in 9/2009 rising to a max level of €9.75 in 9/2010.

Now in 2008 Reuters reported that a deal was struck where the 700,000 workers had agreed on €10.70 / hr as the minimum from €10.40. The workers / unions must have got this deal last year and went dipping into the pot for more? Well it appears if they have this has worked.

Now lets compare this to our situation. Tom Parlon was heckled and abused by workers last February when he tried to talk to the unions about a a pay freeze, thus quelling the pending 3.5% increase in the national wage agreement.
His argument that this pay freeze or even a pay cut would create 55,000 more jobs in our industry. The figure of 55,000 may be slightly exaggerated, but he is certainly right about some increase in employment.

The current minimum wage for non-skilled workers in Ireland is a staggering €14.88 per hour and goes up to €18.04, so a construction operative Grade 'A' is at €18.04 / hour, basic, excludes overtime. Add in country money to this and work out employer on-costs and the cost for a labourer per hour would be over €30 or circa €1650 / week.

Is it any wonder the German lads sought an increase.

Multiplex v Mott MacDonald - Wembley Case - The Legal Eagles look like they will be the Biggest Winners!

The latest reports on this case are that Multiplex have already spent over £20 million on legal fee's and this figure is expected to more than double and possibly treble (depending on the timescale of the trial) before the case is finished.

The initial time frame for the trial was two months but could drag out for up to eight.

Motts are reported to have forked out over £6 million and they expect this to more than treble, again depending on the timescale of the trial.

It was stated by many observers that this case would never reach the court room. As the applicable rule of court in common law cases under normal circumstances is 'costs following the event' and the current legal expendidture and expected further spiralling costs it appears that this case may reach the courtroom after all?

Monday, August 24, 2009

And the Bridge comes tumbling down...

So Iarnrod Eireann / Irish Rail witness a bridge getting washed up over the weekend and luckily there was no fatal accident as a result.

The prolongated tender procurement process for public sector construction contracts currently involves contractors having to go through the riggers of answering health and safety questions, quality control procedures, method statements and other such trivial red tape considerations in order to qualify to get on tender lists. Even after successfully getting on the tender list and when a contract commences more red tape is required.
One such client is Irish Rail.

It's a pity clients such as Irish Rail cannot get their own house in order in the first place and practice what they preach by way of having some Q/A and safety system in place. After this near disaster it is evident that something somewhere in their process and inspection procedures is flawed.
It is said that this Malahide Estuary bridge dates back to 1844. This in fact pre-dates the brilliant and beautiful Forth Rail bridge in Scotland. One cannot presume to draw a comparison between our Malahide Estuary bridge and the Forth Bridge however the date and timeline is an interesting point to remark on as the Forth Rail bridge underwent a safety inspection in 1996 and the result was a full refurbishment contract.
Why didn't our people in Irish Rail derive some similar inspection for a bridge so old? There are also extensive ground movement and monitoring devices in the market these days to enable old structures such as this bridge to be flagged and watched more carefully and any ground movement can be predicted. Its incredible that in 2009 that something like this would happen in a country that now regards itself as modernized.

Anyhow it will be a typical Irish reaction where no uproar will ensue and reports and the like that were supposed to be carried out will all get forgotten about and nobody will get the blame or lose there jobs over this. One would imagine one hell of a different reaction from the public had a train crash ensued as a result.

If a contractor designed and constructed a failed bridge they would certainly have to pay the price and the incident certainly wouldn't be forgotten, or would it?

Tuesday, August 18, 2009


The latest news in the ZOE saga or 'ZOE-GATE' is that Lawyers for Mr Carroll on the 14th August 2009 secured the last-minute reprieve for seven companies in his Zoe group which owes €1.2 billion to its bankers.

Mr Justice Eamon de Valera permitted the presentation of a petition to appoint an examiner next Thursday (20th August is D-DAY or Z-DAY) which hopefully will give the companies breathing space to organise their long-term survival.

This is an unusual circumstance to occur after the courts already made their decisions?

Perhaps there is political clout going on behind the scenes in order to 'save' this group? Personally as bad as things are and for the sake of the industry one would hope that the group gets their shot at examinership.

I also have a feeling that the other banks will step in and 'front-up' for ACC.
For an insiders viewpoint on this saga go to this discussion borad (if you have time to read all the lenghty posts!)

Thursday, August 6, 2009

Quotes from the Irish Property Bubble

A fellow blogger has an excellent blog on the web, which perhaps backs up my last blog on Mr. Parlon's lack of Factual Figures etc (or maybe Tom was to *'homed-in' during the boom years on the builders (domestic builders / developers) that he is now only learning about the infrastructure sector of the construction industry;

link as follows:

*apoligies for the pun

Tom Parlon says that State Projects 'the only game in town'

This blogger notes in the current issue of the highly informative Construction and Property News that Tom Parlon of the Construction Industry Federation (CIF) is in agreement with my last blog.

He states that the National Roads Authority (NRA) began constructing 216km of roadway in 2007 and 169km in 2008. The scary fact is that for 2009 this figure will have plummeted to 5.5km or 5,500 meters that's a massive 97% aggregate drop.

Its interesting that Mr.Parlon cannot or doesn't issue some concise factual figures and do a comparison vis a vis the money pushed into banks similar to my calculations. The reason behind this is perhaps that the money to shore up the banks is due to the outstanding debts owed to them by the very developers that Mr.Parlon and the CIF have been backing.

Having attended a recent excellent lecture given by Hank Fogarty (former president of the CIF) where Mr.Fogarty stated and suggested that the Country needs a Minister for Construction and where I would be in agreement with this to a certain degree. One would, however, be inclined to perhaps have a Minister for Infrastructure rather that Minister for Construction.

Some TD appointed and a whole department in charge of Public Procurement and the needs and requirements of the Public Sector Engineering and Building Contractors to ensure that there is enough supply of work to at the very least keep established companies afloat.

Tuesday, July 14, 2009

Irish Government Needs to Stimulate Economy Urgently

A stimulus package is urgently required for the survival of the Civil Engineering sector in Ireland. Many of the last large scale projects around the country are soon about to reach completion with some of Ireland's best and brightest Engineers and workers with no future work to look forward to.

The Government are now on their seasonal break and with the annual CIF (construction industry federation) holidays pending there doesn't appear to be a hole to be dug or a sod to be turned anymore in this Country.

It is clear that this current Governments 'ambition' all along was to be the party to construct the motorways in Ireland, once that is achieved that will be the end of the infrastructure / road building program for the foreseeable future and perhaps the end of many small and medium sized civil contracting operators. The Government partners are no great help to any further road building and some of them are difficult to understand, they would have us driving around on hair dryers given half a chance!

Are the current Ministers for Environment, Finance, Enterprise, and the Taoiseach not aware of the boost a local bypass construction project can give to the local economy? The machine drivers, drainage crews, chippies, steel fixers, engineers, gangers, foremen etc rent local houses from local landlords, they drink and eat in local pubs and one would guess that statistically out of any workforce they are willing to part with a few bob during the week.

The following NRA projects are probably ready to go to tender but are sitting in some office gathering dust:

N3 Belturbet Bypass
N4 Colloney / Castlebaldwin (Sligo has the largest increase in unemployment since the recession kicked in)
N4 Mullingar - Longford
N5 Ballaghaderreen Bypass
N5 Longford Bypass (bring back Albert Reynolds all is forgiven!)
N5 Westport - Bohola
N6 Galway City Outer Bypass
M11 Gorey - Enniscorthy
N11 Arklow - Rathnew
N11 Enniscorthy Bypass
N11/N25 Oilgate - Rosslare Harbour
N21 Adare Bypass
N22 Tralee Bypass
N24 Carrick-on-Suir Bypass
N24 Mooncoin Bypass

The total calculation for these roads is approx 300km. Based on this Q.S's experience its give or take a € billion in construction costs. I say give or take as this government has already propped up one of our banks recently to the tune of €4billion or 1,200 kilometers worth in road construction costs parlance -

The CIF states that every €100 million spent in construction creates 1,000 jobs, so based on the above calculation that's 40,000 jobs saved plus the resultant job creation knock-on effects in towns like Sligo, Carrick-on-Suir, Ballaghaderreen, Adare etc etc... when you weigh up the banks value bailout in job creation terms it equates to a scary figure of 120,000. One could connive to state that the banks bailout has in a sort of a way lobbed 120,00 persons on the dole(?).

The most disappointing aspect in all of this for me as a young professional in the industry is that we have created a highly skilled and highly educated and innovative workforce over the last decade and this workforce will now in the main have to be sent out of the country to pastures new; this to me is the biggest waste.

Why are we letting this happen to our Nation?

Multiplex v Mott MacDonald recent news

The excellent New Civil Engineer website has updates on this interesting case for all us lay lawyers out there.

Australian firm Multiplex lodged a £235m claim against the designers in 2008. They allege that some 11,000 changes to the original design drawings.

The designers Mott MacDonalds have recently lodged their defence with a court date set for the end of July.

This certainly sounds like one that will drag on.

Sunday, July 12, 2009

Some Arbitration Issues in relation to the New GCCC Forms of Construction Contracts

"…..Of course, some of the risks under this category are un-insurable and this remains the ultimate liability of the Employer. In the case of the flawed concepts in a contract……, to say a good example of this is the GCCC form of Contract".
Dr.Nael Bunni, 25th June 2008 (quotation from lecture on risk management in construction contracts in Trinity College, Dublin).

“The process of adjusting or settling disputes in a friendly manner through extra judicial means. Conciliation means bringing two opposing sides together to reach a compromise in an attempt to avoid taking a case to trial. Arbitration, in contrast, is a contractual remedy used to settle disputes out of court. In arbitration the two parties in controversy agree in advance to abide by the decision made by a third party called in as a mediator, whereas conciliation is less structured”.

It is clear from the two quotations above that this topic will again focus in on the New Public Works forms of Contracts or the GCCC suites of Contract. Many discussion points could be dealt with in relation to this New Form of Contract, however for this article I have chosen three particular issues relating to this Form of Contract, the knowledge of which is relevant to arbitrators.

· The Disputes Clause
· Possible Statutory Implication arising out of the Competition Act
· The “calculable” nature of risk

The ‘Disputes’ Clause:

The relevant clause is the ‘Disputes’ clause, clause 13 and its sub-clauses 13.1 & 13.2. Copy as follows:


13.1. Conciliation
13.1.1. If a dispute arises under the Contract, either party may, by notice to the other, refer the dispute for conciliation under this sub-clause 13.1. The notice shall state that it is given under subclause 13.1 of the Contract.
13.1.2. Within 10 working days of the referral of a dispute to conciliation, the parties shall jointly appoint a conciliator who is competent to adjudicate upon the dispute and independent of the parties. If the parties fail to appoint a conciliator within 10 working days of the referral, or if a person appointed refuses to act or becomes unable to act, the conciliator shall be appointed by the appointing body or person named in the Schedule, part 1N, on the application of either party. If there is a fee for making the appointment, the parties shall share it equally. If one party pays the entire fee, it shall be entitled to reimbursement of the other party’s share from the other party on demand.
13.1.3. Each party shall, within the period set by the conciliator, send to the conciliator and the other party brief details of the dispute stating its contentions as to the facts and the parties’ rights and obligations concerning the dispute. The conciliator may, for this purpose, suggest further actions or investigations that may be of assistance.
13.1.4. The parties shall promptly make available to the conciliator all information, documents, access to the Site and appropriate facilities that the conciliator requires to resolve the dispute.
13.1.5. The conciliator shall consult with the parties in an attempt to resolve the dispute by agreement. The conciliator may do any of the following, or any combination of them:
(1) meet the parties separately from each other or together and consider documents from one party not sent or shown to the other
(2) conduct investigations in the absence of the parties
(3) make use of specialist knowledge
(4) obtain technical or legal advice
(5) establish the procedures to be followed in the conciliation.
13.1.6. The conciliator shall not be an arbitrator and the Arbitration Acts 1954 to1998 and the law relating to arbitration shall not apply to the conciliation.
13.1.7. The conciliator’s terms of appointment shall be those in the Works Requirements or, if there are none, those agreed by the Employer and the Contractor with the conciliator.
13.1.8. If the dispute is not resolved by agreement within 42 days after the conciliator was appointed, or a longer period proposed by the conciliator and agreed by the parties, the conciliator shall give both parties a written recommendation. The conciliator shall base the recommendation on the parties’ rights and obligations under the Contract.
13.1.9. If either party is dissatisfied with the conciliator’s recommendation, it may, within 45 days after receiving the conciliator’s recommendation, so notify the other party. The notice shall state that it is given under sub-clause 13.1 of the Contract, and shall state the matters in dispute and the reasons for dissatisfaction. If the conciliator has failed to give a recommendation within 45 days after appointment, either party may give a notice of dissatisfaction. If notice of dissatisfaction has been given in accordance with this clause, either party may refer the dispute to arbitration under sub-clause 13.2.
13.1.10. If neither party gives notice of dissatisfaction within 45 days after receiving the conciliator’s recommendation, the recommendation shall be conclusive and binding on the parties, and the parties agree to comply with it. If, in such circumstances, a party fails to comply with the conciliator’s recommendation, the other party may [without limiting its other rights] refer the failure itself to arbitration under sub-clause 13.2, and need not invoke this sub-clause 13.1 for this reference.
13.1.11. If the conciliator has recommended the payment of money, even if a notice of dissatisfaction is given, the following shall apply:
(1) The party concerned shall make the payment recommended by the conciliator, provided that the other party first
(a) gave a notice, complying with the arbitration rules referred to in sub-clause 13.2, referring the same dispute to arbitration and
(b) gave the paying party a bond executed by a surety approved by the paying party, acting reasonably, in the form included in the Works Requirements, or if there is none, a form approved by the paying party, acting reasonably, for the amount of the payment.
(2) If, when the dispute is finally resolved, it is found that the party receiving payment on the conciliator’s recommendation was not entitled to some or all of the amount paid, then that party shall repay the amount it was paid and found not to be entitled to, together with interest.
(3) When the dispute is finally resolved, interest will be deducted from final payment under the award or judgment.
(4) Interest under this sub-clause is calculated at the reference rate referred to in the European Communities (Late Payment in Commercial Transactions) Regulations 2002 plus 2% per year and runs from the date of the original payment to the date of the repayment or final payment.
(5) [This provision for interest is confidential under sub-clause 13.1.12, and in particular shall not be taken into account or referred to in arbitration until all other matters are resolved.]
13.1.12. The conciliation shall be confidential, and the parties shall respect its confidentiality, except when any of the exceptions in sub-clause 4.16 apply, or to the extent necessary to enforce a recommendation that has become conclusive and binding. All documents provided by a party in connection with a conciliation shall be returned when the conciliation is concluded.
13.2. Arbitration
Any dispute that, under sub-clause 13.1, may be referred to conciliation shall, subject to sub-clause 13.1 be finally settled by arbitration in accordance with the arbitration rules identified in the Schedule, part 1N. For purposes of those rules, the person or body to appoint the arbitrator, if not agreed by the parties, is named in the Schedule, part 1N.

One of the positive aspects of this new form of contract in comparison with the old IEI, RIAI & GDLA forms is that it is written in plain English and therefore easily understood.

A feature in the drafting of this contract (and similar in context to other standard forms of contract) is that the first clause contains a schedule of definitions. In addition to this is a further clause, clause 1.2, which contains a schedule of Interpretations. The drafters however decided not to define Conciliation.

The reason why the Conciliation definition is omitted is perhaps evident from the Conciliation part of the ‘Disputes’ clause which states as follows:

Ø “the conciliator shall not be an Arbitrator and the Arbitration Acts 1954 to 1998 and the law relating to Arbitration shall not apply”
Ø “if the dispute is not resolved by agreement within 42 days after the conciliator was appointed, or a longer period proposed by the conciliator and agreed by the parties, the conciliator shall give both parties a written recommendation. The conciliator shall base the recommendation on the parties’ rights and obligations under the Contract

Taking these points in order, the first one appears somewhat confusing and the interpretation probably relates to the Conciliator’s role and function in the process rather than excluding any Conciliators who have carried out Arbitration's previously in their professional careers.

The second point and the highlighted font section is one which will cause real confusion in the future, and in particular the last line, “the conciliator shall base the recommendation on the parties’ rights and obligations under the Contract”. This arguably goes against the very spirit of Conciliation and also goes against the tried and tested role of a Conciliator, i.e. “bringing two opposing sides together to reach a compromise in an attempt to avoid taking a case to trial”. It also goes against the provisions of the IEI Conciliation procedure which provides that a conciliators opinion need not be based on any principles of common law or equity. (I believe that a new set of conciliation procedures to tally with the new contracts are possibly in place and these will be studied and explored on another day.)

Howver, this effectively this will turn Conciliation's into mini-arbitration's. Where, on the one hand, a sub-clause states that “the conciliator shall not be an arbitrator”, on the other hand, the following sub-clause states “the conciliator shall base the recommendation on the parties’ rights and obligations under the Contract”. This is an anomaly and placing such an obligation on a conciliator may distract him from his role as a facilitator to a settlement.

How would a contractor therefore address this clause? Would he issue queries at tender stage requesting the definition of ‘conciliator’ and get this definition included as part of the Contract when signing the Contract? It is likely if a tender query to that effect was issued it is likely that the response would be a muted one.

Sub-clause 13.1.9 of the Contract Conditions allows either party to express their dissatisfaction with the conciliator’s recommendation within 45 days of its receipt. This is similar to the old traditional forms of Contract but in a further step the clause states that the dissatisfied party shall state the reasons for dissatisfaction. This is a very unusual provision as the conciliation process is supposed to be on a ‘without prejudice basis’ and ‘confidential’. The reasoning behind this is perhaps to have a mechanism to enable a settlement at a future stage prior to arbitration, however it could also serve to weaken the Claimants position vis a vis a Calderbank Offer.

The new contracts also make a conciliators recommendation conclusive and binding if no party expresses dissatisfaction within the time frame.

Another new provision relates to a recommendation based on the payment of money, even if a notice of dissatisfaction is given (referring to Arbitration). The losing party must pay the money recommended provided that the Claimant party firstly provides a bond executed by a surety approved by the paying party for the amount of the payment.

This on-demand bond is only required to be maintained for 500 days and a demand can be made more than 500 days after the date of the bond. When one considers the time frames for Arbitration this time frame appears short putting the receiving party to the expense of the on-demand bond.

Where do these implications leave Contractors?
Contractors are supposed to be concentrating on building things and not getting involved in the legal wrangling and the Bunni version of “flawed concepts in a contract”. Many Contractors in Ireland rely on over half of their turnover on public sector works, such as schools, social housing, hospitals, roads, rail, bridges etc. These new forms of Contract were forced through by the Government on a non-consensual basis. It is possible that in this current climate where competition is even more stringent that the larger Contractors in Ireland, who can afford the legal expense, will put these Conditions to the test.

The drafters of this Contract perhaps where conciliation fails or instead of the conciliation clause may have been best served to opt for perhaps some kind of expert determination as is favoured by learned people in the dispute resolution sector and none more so than Hew R.Dundas who stated;
“Expert Determination offers a far faster, lower cost alternative to arbitration, offering a legally binding decision almost impervious to challenge; while lawyers may relish the availability of a right of challenge, users/clients do not”.

Possible Statutory Implication arising out of the Competition Act:

Section 5 of the Competition Act 2002 is worded as follows:
Competition Act, 2002

Abuse of dominant position.
5.—(1) Any abuse by one or more undertakings of a dominant position in trade for any goods or services in the State or in any part of the State is prohibited.

(2) Without prejudice to the generality of subsection (1), such abuse may, in particular, consist in—

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions,

(b) limiting production, markets or technical development to the prejudice of consumers,

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage,

(d) making the conclusion of contracts subject to the acceptance by other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts.

(3) The putting into effect of a merger or acquisition in accordance with the provisions of Part 3 of this Act, together with any arrangements constituting restrictions which are directly related and necessary to the implementation of the merger or acquisition and are referred to in the notification of the merger or acquisition under subsection (1) or (3) of section 18 , shall not be prohibited under subsection (1).

I have put in bold font the section which is worthwhile discussing. Although the Act does not prohibit a dominant position, only its abuse, it could be presumed that where terms and conditions in a contract are so much in favour of the dominant party that this could be viewed as abuse of a dominant position? Of course it is only a judge that can decide on this, but it may be an argument that could be pleaded by an aggrieved contractor in the future and may trigger the case stated mechanism in some future Arbitration.

Arbitration's under the new forms are governed by a new set of Arbitration rules, January 2008. One of the welcome rules is a requirement to use a ‘short procedure’ but obviously this is governed by the consent of the parties. These rules also allow for Interim Awards and the Awards must give reasons unless all parties agree that no reasons are to be given.

In conclusion, it will take 4 to 5 years before these new contracts and the dispute resolution mechanisms and procedures are put to the test. It is my belief that somewhere in the future on a large scale complex infrastructure project that this form of contract will be very much put to the test.

Risk must be Calculable?

Perhaps the Government rushed into placing some draconian provisions and unfair risk apportionment over to Contractors without realising that all risk must be calculable.

The common formula for risk calculation is R = P x C, Risk = Probability (of occurrence) x Consequences (of occurrence). The various risks involved in Construction Contracts therefore can be calculable based on statistics available. A perfect example of this is the risk Contractors take for inclement weather (which is common in the old traditional IEI, GDLA & RIAI forms of Contract), whereby a contractor has the benefit of historic weather data for a particular area in the Country.

One example of an incalculable risk is the clause in relation to trespassers, “the Contractor shall be responsible for activities of trespassers, protesters and others, that are not Employer’s personnel, on the Site, and the Employer shall have no responsibility to the Contractor for their activities and presence” - this is an impossible risk to foresee and therefore impossible to price at tender stage and is incalculable as no statistical evidence is available to formulate the probability of protesters occupying the site and to calculate the consequences of this occurrence would be just a ‘shot in the dark’ so to speak.

Interim Conclusion:
This new form of Contract with the new risk provisions and new Arbitration agreement serves up a new challenge for future Domestic Arbitration's and greater challenges for Domestic Arbitrators.

Many disputes will differ depending on the circumstances. From my perspective and experience as a Civil Engineering Quantity Surveyor the following possible disputes will rear their heads over the next 4 to 5 years and will pose challenges to both Arbitrators and Conciliators alike:
Ø Disputes over design and its completion
Ø The Employer directs a Contractor to do something (which is part of the Contract) and the Contractor deems it an instruction (which may have additional cost implications)
Ø Unforeseeable risks and incalculable risks (per example above)
Ø Time-bars and notice provisions
Ø Conflicting data on geotechnical information, (most contracts in the Public realm are now passing the ground conditions risk onto Contractors
Ø Claims under Statute

It will therefore be necessary for an Arbitrator dealing with disputes under this Contract to have the following knowledge base in order to decide on cases of the form of contract itself, he/she will require at a minimum the following:
Ø A knowledge and understanding of the contract itself
Ø A knowledge of estimating and procurement
Ø Risk analysis
Ø Time bar provisions
Ø Condition precedents
Ø Programming
Ø Methods of Construction, some design knowledge and technical knowledge of construction
Ø The Law of Contract
Ø Arbitration Law
Ø The IEI Arbitration Procedures
Ø Implied Terms in a Contract (this item is perhaps one of the most important issues)

In relation to the technical disputes (where a sizable amount of claims will stem) it will be a prudent Arbitrator who utilizes expert witnesses to his/her advantage.

Perhaps it may also be a good idea to get the parties to the Arbitration to agree at the Preliminary meeting on the use of an independent expert witness and to try and get the parties to agree that his expert determination on a particular issue will be binding.

Finally the advent of this new form leaves us all facing a learning curve of 4 to 5 years. We will only get a real grasp of what some of the conditions truly mean when we receive the benefit of judicial interpretation, this judicial interpretation may not arrive for a long time as Government powers may settle cases rather than let this form of contract inside the walls of the courts.

Friday, July 10, 2009

Arbitration – Building on the Past, Planning for the Future

‘Arbitration: A process whereby the parties voluntarily refer their disputes to an impartial third person selected by them for a decision based on evidence and arguments presented before the arbitration tribunal. The parties agree in advance that the arbitrator’s decision will be final and binding” – Prof. Martin (father of American Arbitration).

My current occupation is a Quantity Surveyor for a Civil Engineering Building Contractor. Many contracts are formed between our Company and Government Agencies, Local Authorities and Private Clients. We also deal with a large amount of supplier contracts and sub-contracts with specialist contractors. It is therefore a vital part of my role and responsibility to maintain a high level of knowledge of Contract Law and knowledge of the various forms of contract within the Construction Industry. An integral part of Contract Law and indeed the forms of contract are the arbitration agreements that are in place.

The procurement and contracting arrangements in Ireland for Public Sector contracts (and to a certain extent for Private Contracts) has evolved over the last three decades at an accelerated pace. The pace of these contractual changes and arrangements perhaps could be tracked with the large scale infrastructure construction over the last three decades. A roadmap of Ireland back in 1980 in comparison to a present one would look very different. The same could be said for procurement changes, although the establishment of EU procurement procedures must be acknowledged as a strong influence on the Irish procurement changes.

One historic example of an older, simpler arrangement between client and contractor was the first by-pass road of Athlone, where work commenced in 1984. This work was directly carried out by the local authority and the large excavators and plant were contracted by means of a ‘plant hire’ arrangement. This type of contract for such a complex and large scale infrastructure project would be unheard of today. The more the larger scale contracts came on stream, the more local authorities and government agencies had to establish the best practice in putting in place and establishing the best Form of Construction Contract to suit the particular project.

This was a challenge that obviously was dealt with outside Ireland. In the late 1990’s studies and reports were carried out in the UK. These reports were undertaken in order to establish value for money in Public Sector Construction Contracts. It is more than probable that these reports and studies carried out in the UK, such as the Latham Report in 1994 and the Egan Report in 1998, were utilized and read by our Government Departments at the time to establish the best practice in both procurement arrangements and the appropriate form(s) of contract and procurement models to be used.

There are key questions that should now be considered, with the benefit of hindsight, from this frantic time of expansion and evolution: did the Government changes to the Public Sector Contracts and alternative procurement models happen quickly enough to keep up with the pace to which the works were required and getting done? Did Ireland learn quickly enough from our UK neighbours and the financial mistakes that happened in large scale UK infrastructure projects? And moving to today, is the implementation of the new Public Sector Forms of Contract now too much too late? It is perhaps appropriate to quote one of our neighbour’s greatest leaders, Winston Churchill, who said “there is nothing wrong with change, if it’s in the right direction”.

There is perhaps enough evidence to show that huge mistakes were made at the expense of the taxpayer. These mistakes include the Carrickmines Protest, Glen of the Downs Protest, the Dublin Port Tunnel dispute, the Limerick Drainage dispute, and the difficulties with Eyre Square in Galway and the list goes on. All of the contractual disputes on these Public Sector Contracts could have been eradicated or the consequences of these mistakes lessoned if we had implemented change to our forms of contract or procurement model at an earlier stage, based on what we learnt from each contractual experience. So it is perhaps fair to say that, following from recent past mistakes, that we in the Construction Industry only changed our Contracting models in a reactive manner, after mistakes were made.

Evidence of this is borne out, for example, in that only after several disputes on large motorway projects that involved additional cost and expense and delays to the progress of the works, where measure and value type contracts were utilized, did we in Ireland introduce the design and build model which previous studies and actual results had shown enable greater cost certainty.

Even over the last few months in the news have we heard that the procurement of the proposed super prison at Throntan Hall could be in jeopardy? This is possibly a result of the failure of the PPP model (Public Private Partnership procurement model) where the private funding costs have escalated due to the economic downturn. It is now evident that this PPP model will only be functional at a time of economic stability and is perhaps a defunct procurement model in a difficult economic climate.

It is too early to tell whether the New Public Sector Forms of Contract will be a success, but the general consensus amongst the Contractors who carry out Public Sector Projects is that the burden of risk transferred from the Employer (the Government) to the Contractors is far too great. Clauses contained in these Contracts are already titled and attributed back to the arguably ill-managed Contracts that influenced them, such as the Employee Pay and Conditions Clause (known as the Gamma Clause) and the risk the Contractors must take on board if civil disturbances arise during a contract (the Carrickmines Clause) and the termination clause (an attempt to write out the Limerick County Council v Uniform Construction Ltd decision, High Court, Commercial, Nov 05, Clarke J, (€70m spent on a €10m tendered project)). I would argue that the learning from earlier, less successful contracts resulted in an overly aggressive determination on the government’s part to refuse the contractor recourse to reasonable compensation for unforeseen occurrences that will continue to form part of the daily life of a civil engineering job. In short, the Government has taken the maxim ‘once bitten, twice shy’, to extremes.

So as the nature of Contracting is changing in the Irish Construction Sector one must be prepared to understand it from a professional viewpoint, through the daily encounters with jobs and from a reflective standpoint, through further education and lifelong learning.

It is evident that in ones day to day role of dealing with Contracts where several elements may be sub-contracted to separate parties that it is key for contracting companies to ensure that there is an Arbitration Agreement in place for all of these Contracts and moreover it is best practice to include a Joinder Arbitration Clause that binds all the parties under one Arbitration Agreement on typical contracts where numerous parties will be involved.

It is also vital to ensure that even with the most minor value sub-contracts that a reference is on the sub-contract order to the Form of Contract the sub-contractor would be working to; thus informing them that their contract contains an arbitration clause in the Contract Conditions. A further recommendation would be to include some alternative form of dispute resolution to contracting parties such as conciliation or mediation. This could be implemented as a contract condition and the ADR could be a first step at trying to resolve disputes prior to bringing the dispute to arbitration. This is beneficial from a commercial viewpoint where the costs of an arbitration process could be avoided.

An important aspect to note for day to day dealings in the construction industry is that if a case ends up in arbitration, that clear records are absolutely vital. Max Abrahamson has a popular quotation in relation to construction industry claims as follows: “A party to a dispute, particularly if there is arbitration will learn three lessons (often too late): the importance of records, the importance of records and the importance of records”.

It is also clear that a strong case with a good degree of records and evidence presented to the respondents may lead to the claim getting settled at an early stage and may allow the avoidance of arbitration. It is therefore crucial for me in my current organization that we implement top quality record keeping on all our sites and we also ensure that these records are copied to our clients for signing. In order to encourage good record keeping, the personnel charged with keeping these records, normally carried out by a trainee Engineer or Site Clerk, are told of their possible future importance and value. The implementation of email and more recently the use of broadband enable more active monitoring and auditing of these site records.

History in the industry and the flaws of the traditional forms of Contract and thier associated unsatisfactory risk apportionment have resulted in the New GCCC Forms of Contract, with all its future challenges ahead of us. .

History is a fine teacher- I believe that an adversarial relationship between client and contractor will inevitably lead to more arbitrations and more cost. My earnest aspiration, for the Industry, is that we, clients and contractors will learn and develop through understanding and finding points of agreement, rather than perpetuating a combative history, which benefits no one, and costs many.

Perhaps the New Form of Contract is the starting line for us both.

Thursday, July 9, 2009

Electricians Strike and the New GCCC Forms the First Major Test

The current Electricians Strike affecting the industry is going to cause havoc for both Employers and Contractors alike in dissecting the provisions of the New GCCC forms.

Present Contracts signed up to these forms and this occurrence will certainly be the cause of disputes between contracting parties.

Schedule K (item 14) in the standard forms reads as follows:

K Delay Events, Compensation Events, Programme Contingency, Delay Costs, Adjustments

A strike or lockout affecting the construction industry generally or a significant part of it, and not confined to employees of the Contractor or any Contractor’s Personnel.
Delay Event - YES
Compensation Event - NO

So lets pose the following scenario's. We will deal with the Delay Cost first.

1 - A contractor rates out his delay event weekly cost schedule at a certain cost per week. To remain competitive any Tendering / Competing Contractor will only allow his overhead cost per week in this rate. It should be noted that this is just a lump sum per week and one cannot break this figure down further.
2 - Experience tells us that a Contracting firm can endure differing levels of overheads at different stages of a contract, i.e. site set up costs are high at the start, even out through phases of a project and management has the same curve with perhaps a decreasing level of management costs as a contract nears completion.
3 - What level and time frame does the 'lump' sum cover for? If this strike is at the peak level on some contracts then has a contracting party a right to additional cost for this strike?

Where does a Contractor now stand in relation to Compensation?

1 - As with all clauses in a form of Contract / Agreement no cluase can be breached, this applies to the pay and conditions clause 5.3 of the GCCC's.
2 - Now we have a scenario were a strike has occurred due in part to perhaps a breach of an agreement outside the Contract, so does the breach outside the Contract in turn cause a breach within the Contract? Lawyers are requested to intervene by this blogger here!
3 - If this is not a Compensation Event then Contractors will probably avoid paying the other site workers even an 8 hour shift per day, which is their loss of wages due to the strike. In other words they will just pass the condition thrown upon them by the GCCC down the line to the workers and refuse to pay employee's and/or sub-contractors.
4 - If they do this are they then in breach of the pay and conditions clause?

Interesting times await Conciliators trying to resolve any disputes over additional claims for payment in the form of Contractors Compensation due to this Electricians strike.....

Wednesday, July 8, 2009

New Blog for Quantity Surveyors and Construction Professionals

Friends and colleagues.

Welcome to my new blog which I hope will be a helpful guide for Construction Industry Professionals and Students alike.

My location is Ireland and my work is primarily in the Construction Industry Sector both Civil Engineering & Building.

It is this bloggers intention to post updates on various matters of concern for Contractors and the industry in general.

Fellow professionals and colleagues input will be helpful in order that problems in our Industry can be solved and/or averted. Other inputs will strive to offer solutions and innovative practices that would be possibly implemented in Ireland towards helping and improving our current employment problems.

More anon..